| Various policies have been applied to China’s watershed environmental pollution since the 1980s, but the water quality in most rivers and lakes is still below the standards. The abatement of industrial and municipal emissions has won significant outcomes, but problems of agricultural emissions still remain unexplored. This thesis tens to provide a first attempt to study the implications of a hybrid approach using two market based instruments:emissions subsidies and permits trading, to cope with water pollution from industrial, municipal and agricultural sources, under the assumption of a competitive market environment (though it may not be true in China). Models are built to describe trading systems with two different initial allocation mechanisms. A case study on Taihu Lake is introduced to present the solution to the problem, and both initial allocation approaches, price stipulation and auction, are discussed in the caseThis study is developed in the following way. Firstly, it discusses the Chinese real situation of water pollution, and summarizes existing knowledge on market based instruments to deal with environmental externalities, in particular focusing on emissions trading and subsidies. Then the problem at stake is analyzed more in detail and models with hybrid systems are presented:an emissions trading system for industrial and municipal pollutions, and a subsidy system for agricultural polluting sources. Each model is solved for different assumptions on permits initial allocation approaches under full information. The simple comparison of the models suggests that the initial allocation approach have an effect on the information requirements, and some characters of the two systems. Further discrimination on the optimal approach to be applied to real cases would require case specific data. Besides, Taihu Lake case study is used to merely demonstrate how the model can be applied with limited information. This case suggests similar results to the theoretical model. |
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