The cost of environmental degradation has already had a dramatic impact on the Chinese economy. In order to curb these trends, the government of China has introduced stricter regulations. With this in mind, it is important to quantify the potential co-benefits of introducing air pollution and climate change mitigation policies. This study proposes relevant scenarios ranging from the current trends (baseline) to the introduction of different policies in the thermal power sector, including different carbon tax rates, technology innovation promotion, and technology cost reduction methods. We aim to comparatively evaluate the impact of the proposed policies within the thermal sector and within the entire socio-economic system. To this end, we used a dynamic input–output (I-O) model, into which high-efficiency technologies were incorporated as new thermal power industries in order to estimate policy impact during the time period 2010–2025. The results of this study demonstrated that the introduction of one or more of the following policies: carbon taxes, subsidies, technology innovation, and technology cost reduction, has no notable impact on the environment or the economy without the implementation of environment regulations. In contrast, the strong support of a government subsidy coupled with strict environmental regulations will promote technological innovation, for example through the natural gas combined cycle (NGCC) and the integrated coal gasification combined cycle (IGCC). Our study also showed that the reduction of air pollution and greenhouse gas emissions as well as energy consumption would curb economic development to a certain extent. Taking this into consideration, innovation must also be promoted in other economic sectors. This research provides a strong reference for policy-makers to identify effective polices under different types of environmental regulations.
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