Development of the Model

Dale W. Jorgenson (Department of Economics and Institute for Quantitative Social Science, IQSS) and Mun S. Ho (IQSS) have led the longest-running initiative of the China Project, incrementally building up frameworks to integrate the study of economic growth, energy utilization, and environmental quality in China.

The initial effort, with Dwight H. Perkins (Department of Economics), was confined to a projection of Chinese economic growth and carbon emissions, using an aggregate growth model without industry detail (Ho, Jorgenson, and Perkins 1998). Jorgenson and Ho then developed a multi-sector model of Chinese economic growth in collaboration with Richard Garbaccio [then-Kennedy School of Government (KSG), now U.S. EPA], paying special attention to the dual plan-and-market features of the Chinese economy in the 1990s (Garbaccio, Ho, and Jorgenson 1999a, 1999b). With Karen Fisher-Vanden (then-KSG, now Dartmouth), this was followed by a version of the model with perfect foresight dynamics (Fisher-Vanden 2003a, 2003b). Much of this work was done in cooperation with the Development Research Center of China’s State Council.

The next version incorporated population projections including the changing demographic structure, projections of productivity growth, enhancements of labor quality, and changes in household spending and savings behavior. In parallel the team analyzed Chinese energy use at the industry level, using data from the 1987 and 1992 input-output tables, informing projections of industry energy use. At this stage the model incorporated a sub-model of local health impacts of SO₂ and total suspended particulate (TSP) emissions, using information provided by Gordon Hughes and Kseniya Lvovsky of the World Bank. This version was first used to examine the reduction in local health damages due to a policy to reduce carbon emissions. The subsequent analysis focused on the effects of “green tax” policies, designed to reduce local air pollution damages, on economic growth, on reductions in mortality and morbidity, and on carbon emissions (Ho, Jorgenson, and Di 2002; see publications).

Clearing the Air: The Health and Economic Damages of Air Pollution in China

The above modeling development set the stage for the Clearing the Air study described in a separate link here.  It built new collaborations of the economists with environmental health scientists from the Harvard School of Public Health and environmental engineers from Tsinghua University and the Harvard School of Engineering and Applied Sciences.

U.S.-China Strategic Economic Dialogue

The integrated model developed in Clearing the Air has been applied as the macroeconomic component of the environmental research initiative of the U.S.-China Strategic Economic Dialogue (SED) of U.S. Treasury Secretary Henry Paulson and China's Vice Premier WANG Qishan, successor to Vice Premier WU Yi in this role.

Coordinated by China's State Environmental Protection Administration (Policy Research Center for Economy and Environment) and the U.S. Environmental Protection Agency (Office of Air and Radiation), the first objective of the "Joint Economic Study (JES)" of the SED has been to assess the costs and benefits of the Chinese central government's measures to achieve a 10% SO2 reduction and 20% energy efficiency target under the 11th Five Year Plan of 2006-2010. These measures include, among others, phasing out small power plants and new mandates in flue gas desulfurization.

The macroeconomic research team includes China Project economists Dale W. Jorgenson and Mun S. HO of Harvard and CAO Jing of Tsinghua's School of Economics and Management, along with Richard Garbaccio of U.S. EPA's National Center for Environmental Economics, and YANG Hongwei and colleagues at the Energy Research Institute of the National Development and Reform Commission. Additional participants in the JES include SEPA's Chinese Academy of Environmental Planning, U.S. EPA's Office of Air Quality Planning and Standards, and Tsinghua University's Department of Environmental Science and Engineering.

Click here for the Executive Summary of the JES reported at the Third SED in Beijing in December of 2007.

Integration with the China Project's Atmospheric Model

The economics team has begun working with the China Project's atmospheric and health scientists and environmental engineers at Tsinghua University on an initiative that would accomplish a major interdisciplinary breakthrough: linking the economics-based framework employed in Clearing the Air with the unique scientific capabilities of the Project's GEOS-CHEM atmospheric model described here. This long-awaited Project objective may now finally be possible as a result of improvements in the resolution of national emission inventories developed by Tsinghua University. That the inventory refinements cover both spatial and sector dimensions makes the linking of a sector-based economic model with a spatially-resolved atmospheric model potentially feasible. This expansive collaboration bringing major streams of research of the China Project and its Tsinghua partners into one integrated research framework is seed-funded by the Harvard China Fund.

The result would be a major improvement in estimation of concentrations of secondary particles, believed to be the biggest source of health damage from ambient air pollution in China, including observational validation by satellite and scientific ground station. This model integration should also prepare the team to start considering the effects of the complex secondary pollutant ozone, believed to be impacting China's agricultural productivity in addition to public health.

The research team plans to apply this framework increasingly to evaluation of national economic effects of potential Chinese strategies to control emissions of carbon dioxide, the global greenhouse gas, and include in the analysis domestic "co-benefits" in terms of health and and agricultural damages avoided due to concomitant control of local and regional air pollutants.

Other Recent Developments

The economic modeling framework has been adapted for other applications by CAO Jing (then-KSG, now School of Economics and Management, Tsinghua University), advised by Jorgenson and Ho (Cao 2007; see publications). One of her applications integrates the 34-sector “top-down” economic model with an updated, “bottom-up” regional power sector model for China developed in the initial stage of the China Project by Fiona E. S. Murray and Peter P. Rogers of the Harvard School of Engineering and Applied Sciences (Murray 1996, see publications; Murray and Rogers 1998).

Research is now underway to update and refine the economic model in other respects. These efforts include:

• calibrating the model to the recently released 2002 input-output table;
• a partnership with REN Rouen (Beihang University) to develop a time-series input-output table to estimate translog production functions.