Optimal Policy Mechanism Design for Cross-Sector and Multi-Stage Pollution Control with a Bilevel Model: Application to SO2 Emission in China

In this paper, we construct a multi-stage coordinated programming model under tax system to control SO₂ emission. The model is based on an explicitly formulated SO₂ abatement cost function created under Chinese condition. Analysis of the effectiveness and impact on the economy of the model is carried out with consideration of game theory. By solving the model, theoretical results show that the volume-based multi-stage SO₂ tax system has two properties: effectiveness and equal-rate. Based on these theoretical results, empirical study is also performed using Chinese historical data. Compared with yearly single-stage programming model, the tax rate generated by the coordinated multi-stage programming model is time-invariant and rather moderate in scale. The total abatement cost among planning years in our model is 21.03 % less than the actual number and 6.68 % less than that in the single-stage situation. The tax payment suggested by our model is 10.62 % less than by the single-stage model. In general, a coordinated multi-stage programming model helps reduce the overall costs of environmental protection while achieving the same emission control target with less burden added to the economy.