Coal combustion is the leading source of industrial air pollution in China today, contributing up to 87% of total sulfur dioxide (SO₂) emissions and 75% of carbon dioxide (CO₂) emissions.¹ In 2001, 46% of total SO₂ emissions stemmed from power plants alone.² These emissions in turn contribute heavily to acid rain, smog, and climate change both within China and around the world, causing severe damage to human health and natural ecosystems.³ China is now the world's largest emitter of SO₂⁴ and the second largest emitter of greenhouse gases (GHGs).⁵ Acid rain falls in 82% of Chinese cities and affects 29% of China's total landmass.⁶ The Asian Development Bank estimates that acid rain is responsible for U.S. $ 14 billion in economic losses—nearly 2% of gross domestic product (GDP).⁷ Total urban air pollution costs China U.S. $ 32.3 billion annually in human health impacts.⁸ The World Bank estimates that outdoor air pollution in excess of average national standards is responsible for 178,000 premature deaths a year in China.⁹ Researchers at the Chinese Academy of Sciences estimate that economic losses could amount to U.S. $ 240 billion over the next 10 years if SO₂ emissions are not controlled,¹⁰ and the State Environmental Protection Administration (SEPA) estimates that overall environmental pollution could force a 10% loss in GDP.¹¹ Furthermore, without significant reductions, SO₂ emissions are expected to increase to 30 million tons from a current 20 million tons by 2010.¹² Since almost three-quarters of China's electric [32 ELR 11440] power is derived from coal combustion, using about 60% of the country's coal, the power sector provides a model for examining China's overall industrial air pollution control.¹³ Given the prominent role of electric power in China's rapidly growing economy¹⁴ and its status as a sector targeted for reform and increased foreign investment by the central government,¹⁵ studying ways to mitigate the sector's environmental impact is an essential undertaking in its own right.

China's electric power industry has played a fundamental role in its national economic development. Local governments have traditionally viewed power plants as "dragon heads" that, if properly fed and protected from reforms, would continue to yield substantial tax revenues and other benefits.¹⁶ For many years, the central government focused on policies to facilitate the rapid development of the power sector, in some cases perhaps looking the other way when it came to enforcing environmental regulations on these plants. China's oldest power plants, as well as small ones built during the economic boom of the 1980s, typically highly polluting and inefficient, were kept in service as long as possible to help meet China's burgeoning demand for electricity.