Abatement costs of combatting industrial water pollution: convergence across Chinese provinces

Industrial water pollution has become one of the largest threats to China's sustainable development and human welfare. Although China has implemented numerous policies in the past decades that have achieved remarkable success, there has been little analysis of the costs of mitigating industrial water pollutants. Understanding the heterogeneity and convergence patterns of abatement costs among Chinese provinces is crucial for cost-effective policies, such as a national trading system. We use a directional distance function model to estimate the abatement cost of chemical oxygen demand (COD) and NH4, and then conduct a convergence analysis of abatement cost to check the patterns of mitigation and convergence. We show that the mean industrial abatement cost across Chinese provinces is 610 Yuan/kg for COD and 4614 Yuan/kg for NH4. At the steady state, the abatement cost is about 786 Yuan/kg for COD and 2235 Yuan/kg for NH4. As theory suggests, a β-convergence pattern is observed for the abatement cost across Chinese provinces. In other words, it is theoretically feasible for China to build up an integrated national trading system for water pollution. We conclude that a pollutant-based trading system is needed and should be updated year by year.