The Impact of Strengthening Environmental Regulatory Policy on China’s Economy

Li Gang 1, Dong Minjie 2and Shen Keting 3
1 Chinese Academy of Social Sciences, Institute of Industrial Economics, Beijing
2 China Credit Rating Company, Beijing
3 School of Economics, Zhejiang Gongshang University, Hangzhou

Abstract:  This paper has established a computable general equilibrium (CGE) model taking into account the costs of environmental regulation to evaluate the overall impact of enhanced environmental regulation on China’s economy. The results demonstrate that if environmental regulation is strengthened to the point at which industrial waste discharge meets the current legal standard, economic growth rate will decrease by approximately 1%, employment in the manufacturing sector will decrease by approximately 1.8%, and the total value of exports will decrease by approximately 1.7%. The report also shows that enhanced environmental regulation has impacted each region of China differently. This paper argues that during the implementation of environmental regulation, policymakers will need to have a complete understanding of potential regional and structural impacts. China’s environmental regulation policy should be implemented gradually, beginning with key polluting industries and those with low correlation to economic growth. Additionally, this paper proposes that environmental regulation should be carried out during periods of economic growth.
Keywords: environmental regulation, CGE model, environmental tax

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