MIT LIBRARIES DEWEVJI 3 9080 03317 5933 ^0 • o<^ -. 02- Massachusetts Institute of Technology Departnnent of Economics Working Paper Series WINTER HEATING OR CLEAN AIR? UNINTENDED IMPACTS OF CHINA'S HUAI RIVER POLICY. Douglas Almond Yuyu Chen Michael Greenstone Hongbin Li Working Paper 09-02 January 9, 2009 Room E52-251 50 Memorial Drive Cambridge, MA 021 42 This paper can be downloaded without charge from the Social Science Research Network Paper Collection 327498 http://ssrn.com/abstract=1 at Digitized by the Internet Archive in 2011 with funding from Boston Library Consortium IVIember Libraries http://www.archive.org/details/winterheatingorcOOalmo Winter Heating or Clean Air? Unintended Impacts of China's Huai River Policy* Douglas Almond Columbia University and NBER Yuyu Chen Guanghua School of Management Michael Greenstone MIT, NBER, and Brookings Institution Hongbin Li Tsinghua University January 2009 * We thank Matthew Neidell for his insightful discussion at the 2009 AEA Meetings, Faibushevich, Haitao Ruan, and Henry Swift provided outstanding research assistance. thanks the US-China Fulbright Program for financial support. llya Almond Winter Heating or Clean Air? Unintended Impacts of China's Huai River Policy ABSTRACT This paper assesses the role of heating entitlements in generating stark air quality differences across China. During the 1950-1980 central planning period, the Chinese government established free winter heating of homes and offices as a basic right via the provision of free coal fuel for boilers. The combustion of coal in boilers especially total suspended particulates (TSP). entitlement was only extended Qinling Mountains TSP in central in a in a to to areas to the north We China. levels in the north; the difference This result holds both associated with the release of air pollutants, is Due is budgetary limitations, however, this heating of the line formed by the Huai River and find this procrustean policy led to dramatically higher roughly 5-8 times current TSP concentrations panel data setting that compares the marginal effect of winter temperature on and southern China. in the In contrast, we fail to TSP find evidence that the heating policy has a in Douglas Almond Department of Economics and SIPA Columbia University 420 West 18th Street, MC 3308 New York, NY 10027 1 Yuyu Chen Applied Economics Department Guanghua School oof Management Peking University Beijing. 100871 andNBER CHINA Phone:212-854-7248 Fax:212-854-8059 Email: chenyuyu@gsm.pku.edu.cn Phone:0086-10-62757902 Email: da2152(a)columbia.edu Michael Greenstone MIT, Department of Economics 50 Memorial Drive, E52-359 Cambridge, MA 02142 and Brookings Institution and NBER northern meaningful impact on sulfur dioxide (SO2) and nitrogen oxide (NOx) concentrations. Phone:617-452-4127 Fax:617-253-1330 Email: mgreenst@mit.edu US. cross-sectional regression discontinuity-style estimation approach and Hongbin Li Department of Economics School of Economics and Management Tsinghua University Beijing 10084 CHINA Phone: 86-10-62792924 Fax: 86-10-62785562 Email: lihong,bin(a)sem. tsinghua. edu.cn Air quality Particulates China in is Ambient concentrations of Total Suspended notoriously poor. (TSP) 1981-1993 were more than double China's National Annual Mean Ambient Air Quality Standard of 200 mg/m"^ (Xiaohui Bi et al., 2007) and five times the level that prevailed the U.S. before passage of the Clean Air Act in 1970. quality is especially poor in northern Chinese cites. southern city of Shanghai, Prime Minister [in Further, northern China], I would shorten my it air quality within Zhu Rongi quipped life at least five in 1999: "If government established free winter heating TSP. Due to areas located in northern China. your Beijing years" {The Economist, 2004, pp. 55-57). in boilers is in generating stark differences associated with the release of air budgetary limitations, however, The in the of homes and offices as a basic right via the provision of free coal fuel for boilers. The combustion of coal pollutants, especially work I in 1950-1980 central planning period, the Chinese During the China. frequently claimed that air For example, following a career This paper assesses the role of a procrustean Chinese policy in is in line this right was only extended to formed by the Huai River and Qinling Mountains denotes the border between northern and southern China. Matching air pollution led to dramatically higher and weather data for 58 Chinese TSP levels in the north. all permanent Chinese city-level determinants cities. In contrast, we of fail to sulfur dioxide (SO2) and nitrogen oxide I. TSP TSP in we find the heating policy This result holds both regression discontinuity-style estimation approach and marginal effect of winter temperature on cities, in a in a cross-sectional panel data setting that compares the northern and southern China, after controlling for concentrations and transitory ones common to all find evidence that the heating policy leads to increases in (NOx) concentrations. Brief Background on China's Heating System and Huai River Policy China's heating system was established during the three decades of the planned regime, 1950-1980. heating for In this period, homes and heating was considered a offices, either directly or through state-owned enterprises. heating did not arrive in China until the mid-1990s, system remains today as Due to many homes and The legacy of this offices continue to receive free heat. The average January temperature is is defined by roughly 0° Celsius line. Northern Chinese In after the analysis period. The border between northern and southern China the Huai River and Qinling Mountains. 15. i.e. Commercial budgetary limitations, the Chinese government limited the heating entitlement to areas located in northern China. along this basic right and the government provided free cities was (and heating contrast, government did not supply November just south of the Huai River, like 15 and March remains) non-existent lo the south because the was there a private sector to supply widely recognized that winters are cold and uncomfortable Indeed, is largely a heating infrastructure, nor recently. it received free unlimited heating between it until in cities that are Nanjing, Shanghai, and Chengdu. The Chinese heating system is coal-based and technically inefficient. Most heat was and is provided by coal-fired heat-only boilers or combined heat and power generators, which are inefficient in (T.J. Wang energy usage compared to et al., electric, gas and oil heating systems in industrial countries for a residential building, heat typically comes from a 2000; Yi Jiang, 2007). boiler in the building or a separate heating factory; in either case, boilers burn coal to heat water which is sent through iron pipes to each household. In the latter case, travels long distances before reaching a household, during The incomplete combustion of measured types of air pollution. There which there is heated water frequently substantial energy loss. coal in these boilers leads to the release of at least three is little doubt that this causes substantial TSP emissions. SO2 and NOx. The amounts of these All coal combustion also produces with the kind of coal used, which data on this). is responsible for 87% we were geographically (although in turn varies Estimates from the mid-1990s suggest that coal combustion pollutants produced vary 76% and industrial all (i.e., NO^ of SO2 and unable to obtain and non-industrial) emissions, respectively (National Research Council. 2004). This paper's central task to is provide the NO^ China's Huai River Policy on TSP. SO2 and First, we test whether concentrations are higher adjustment for a polynomial that has become This in latitude. increasingly popular first in concentrations.' northern whether concentrations are higher in is done in two ways. southern ones, after cities, relative to (Thomas D. Cook and Donald 1979; Michael Greenstone and Justin Gallagher. 2008; Douglas test This approach test is similar to a regression discontinuity recent years in systematic documentation of the impacts of northern Almond et al., cities, relative to their T. Campbell, 2008). Second, we long run average, after This approach takes advantage of the substantial adjustment for the realized temperature in year. inter-annual variation in temperature to compare the impact of changes in temperature on ambient pollution concentrations in north and south China. II. Data Sources and Descriptive This paper utilizes two primary data sets. The annual daily average concentrations of TSP. SO2. and file is unbalanced and a total of 76 cities Statistics first is a NOx ' There is some evidence that this heating Shuxian Fan et al. have a recorded concentration for pohcy leads (2004) show that winter than during the rest of the year. in site Yinchuan, In the capital city much lower reports at least and are part of one pollutant its in "Economics to substantial increases in pollution concentrations during the TSP concentrations are significantly higher in the of Xinjiang, Wulumuqi, are emitted from the heating system (Tianshan, 2006). Jinliuan Qiu and Liquan northern cities in winter was file that during the period 1981-1993. The data one year. The data were downloaded from a World Bank web winter months. city-by-year data 90% of the pollutants Yang (2000) in the winter find that visibility in five than during the rest of the year between 1980 and 1994. of Pollution Control Research" project. The World Bank compiled the 1981-1990 data from the China Environmental Quality Report, produced by the China National Environmental Monitoring Station, dated July, 1991;.the 1991-1995 data come from the China Environment Yearbooks from China's State Environmental Protection Administration. The second data triplet. was It file is the average daily temperature reported for each year-month-city collected from the China Meteorological Administration and covers the years 1981- 1993, so our analysis will be limited to these years. We calculate a city's winter temperature given year as the simple average of the December through February mean temperatures. cities we can match pollution and weather data for Figure Mountains at least line is the dark line the dividing line ranges in the figure that divides China into between 33.03° and 34.25° In 58 one year. The Huai River/Qinling displays the location of each city in our analysis. 1 in a latitude, no its north and south. cities in Although our analysis sample are located in this interval. Table air 1 1998. summary cities some key variables. Further, the standard deviation of the annual city-specific China's mean five limes US ( TSP TSP of among concentration means ranged between concentrations over the 1981-1993 period were 538 levels prior to the successful Clean Air Act! mg/m^ The mean SO2 13 (1992 mg/m , more than Further, the standard deviation of the concentration in the China data is 109 TSP data that the authors obtained by filing a Freedom of Kenneth Chay and Michael Greenstone, 2003a, b, and 2005 for further These papers also provide evidence on the success of the US Clean Air act on reducing TSP calculations are derived from monitor-level Information Act request with the data details). striking are the levels 1970).^ annual city-level means was 330 The U.S. TSP Most ranged between 100 mg/m^ (1964) and 42 mg/m^ (1993) during the years 1964- and 1993) and 61 mg/m' ^ statistics for For comparison, the average U.S. concentrations. pollution monitored reports concentrations. EPA (see mg/m which , is substantially greater than the 1990 U.S. average of 23 concentrations are more similar: 40.5 reflect the relatively It is mg/m^ U.S. versus 56.5 in the low levels of motor vehicle usage in mg/m^ China during in China, which may this period. evident that China provides an unique opportunity to study the impacts of air pollution concentrations on willingness to pay for clean air and exceeding those ever recorded a key ingredient is mg/m^ The NOx in exogenous variation in the human U.S. or other any other country. The availability of this data any such study, but equally important The remainder of in air pollution. River policy provides variation health at pollution levels far in air pollution at III. is the identification of plausibly the paper explores whether China's Huai these extraordinary concentrations. Econometric Strategy This section describes the two econometric models used to examine the impact of the Huai River policy on ( 1 ) TSPa = a + pi (North) ^ + n where c references a concentration outcome between is by year. etc.). and + indexes a year. (We |at is: + £ci, The dependent also estimate models for variable is the average daily SO2 and NOx the city lies above or northern air pollution concentrations (e.g., due to concentrations.) TSP The temperature, topography, hours Additionally, the model includes year fixed effects, in the The parameter of in / f{Latilnde)^ 1 adjusted for a polynomial of degrees latitude, which adjusts for any association of the business cycle higher and city in a city this variable of daylight, Model air pollution concentrations. //,, to capture the influence unbalanced panel. interest is /?, the coefficient on the indicator variable UNorthJc'. whether below the Huai River cities, after flexibly line. It assesses whether pollution concentrations are adjusting for their latitude and the year fixed effects. To the extent unobserved determinants of that (permanent or transitory) change discretely impact obtained from Model Therefore, TSPa = (2) we 1 at the concentrations pollution air Huai River northern in cities estimates of the heating policy's line, will be biased. also estimate the following equation, which we a+ p Winter Temperature ^ + ^- [Winter Temperature + 6, + ^, + Cct .,.^ refer to as ^i Model 2: x IfNorthJcJ ^ This equation adjusts for the realized winter temperature and city fixed effects, pollution concentrations across cities, and thereby addresses a limitation of The parameter of interest is A. It adjustment for the city and year fixed effects). policy, northern households can between temperature and Due to the respond measured by 1. Consequently, A provides a second test TSP in TSP the south (after Huai River/Qinling Mountains based cold to temperatures by altering Southern households do not have consumption of heat derived from coal-based sources. opportunity. Model in air captures the marginal effect of winter temperature on the north, as distinct from the relationship heating as well as importantly, the city fixed effects removes permanent differences unrestricted year effects, in 6c, their this for this policy's negative externalities, air quality. IV. Results Figure 2 previews the Model between a latitude. city's The average fitted TSP values TSP 1 results visually. concentration calculated for come from non-parametric all It plots the bivariate relationship available years from 1981-1993 and regressions using Cleveland's (1979) tricube weighting function and a bandwidth of 0.5, estimated separately for cities Huai Thus, River/Qinling Mountains concentration across latitude. line. The data they represent a points represent each city's on either side of the moving average of mean TSP the concentration. TSP The An figure presents dramatic evidence that northern cities have higher especially convincing feature of the graph concentrations at latitudes just seems improbable is of concentrations. the evidence of a discontinuous increase in above the Huai River that other determinants TSP line. jump This is meaningful, because change as discretely air pollution TSP to the north it of the heating policy. line as the We begin by focusing on the Model The column the top panel of Table 2. 1 TSP results, which are in the first (1) specification controls for latitude. columns of three Column (2) adds the square of latitude as a covariate and column (3) adds a cubic term to the column (2) specification. The striking finding from columns roughly 300 mg/nv' higher significant difference is in (1) and (2) northern more than cities. is that annual To put this average in in TSP to be statistically different from zero The Model cities. 1 However, they SO2 and NOx at statistically that prevailed in the 1970.^ In the richer, but possibly over- parameterized column (3) specification, the difference declines to about 200 be judged concentrations are perspective, this three times the concentration of United States before the passage of the Clean Air Act TSP mg/m but would still conventional levels. results generally indicate higher concentrations in northern are poorly determined and none of them would be judged to be statistically significant at conventional levels. We also conducted a falsification exercise based on the location of the Yangtze River. we particular, designated others as southern cities. hypothesis fitting a is Since there the north of this river as northern cities and classified the is not a heating policy based on the Yangtze River, the null that pollution concentrations are equal to the north version of of higher all cities to TSP Model 1 that utilizes theses upon request, adjustment and south of the Yangtze-based designations concentrations to the north of the Yangtze River. In results available In for longitude 7 Similarly, river. fails to tlnd we Indeed, evidence cannot reject the does not substantially affect the estimates of p. null that SO2 and NO^ concentrations available upon are equal in the north and south of the results. The point estimate indicates that across the entire sample there The column (1) specification TSP concentration current U.S. northern in TSP months but the TSP concentration a 1° F decrease in the Model 2 again fails calculated over 12 months. is mg/m^ (again find to in the annual southern ones. This effect winter temperature concentrations of roughly 100 indicates that a 1° F decrease in is because the temperature variable levels, especially focus on the between winter temperature and an mg/m' increase associated with a 24 cities, relative to first is evidence of a relationship is little The estimate indicator for the city being north of the heating line. is We concentrations. specification adds the interaction (2) 2. simply includes the main effect for winter temperature. between winter temperature deviations and annual the winter temperature Model presents the results from two versions of TSP The column associated also is mean enormous daily concentrations is unexpected inventories of emissions sources, the TSP it in calculated during three Indeed, the estimate implies that with an in the north, relative to increase in winter is findings. Thus, at this point, of the TSP TSP the effect in the south). evidence that the heating policy affects SO2 and light TSP relative to concentrations. This finding that the heating policy does not have a detectable impact on NO^ (results ^ request). The lower panel Yangtze results. In NOx SO: and the absence of city-level unclear whether this finding casts doubt on the validity of we simply note the absence of an association between the policy and concentrafions of these pollutants. V. Discussion and Future Directions Using a unique data file on air pollution concentration in 76 Chinese cities, this paper has demonstrated that the Huai River/Qinling Mountains heating policy leads TSP levels in northern China. approach and estimation temperature on ambient little in TSP This result holds a panel data concentrations in a cross-sectional regression discontinuity-style setting in compares the impact of changes that northern and southern evidence that the heating policy leads to increases More to dramatically higher in SO2 and NOx broadly, this paper has uncovered a source of variation cities. In contrast, there concentrations far above those ever recorded in the is concentrations. in air pollution that can be used to study the impacts of air quality on human health and individuals' valuations of clean pollution in U.S. or air at any other country. Extrapolation from U.S. -based studies suggests that the costs of these levels of TSP are substantial in terms of 2003a, b, relatively human health and welfare more generally (Kenneth Chay and Michael Greenstone, and 2005; Kenneth Chay, Carlos Dobkin and Michael Greenstone, 2003). However, the low levels unlikely to be valid. of An air pollution and high incomes in the important direction for future research is U.S. mean that extrapolation to assess these costs in China. is REFERENCES Almond, Douglas, Joseph Doyle, J. Amanda Jr., Kowalski, and Heidi Williams. 2008. E. "Estimating Marginal Returns to Medical Care: Evidence from At-Risk Newborns."' NBER Working Paper 14522. Yinchang Xiaohui. Bi. Apportionment of PMiu Feng. in Wu, Yuqiu Wang, and Tan Zhu. "Source Six Cities of Northern China." Atmospheric Environment, 41(5): 903Jianliui 2007. 912. Chay, Kenneth, Carlos Dobkin, and Michael Greenstone. 2003. "The Clean Air Act of 1970 and Adult Mortality." 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(mg/m 399 449 538 401 Winter Temperature (°F) 455 Year 455 455 455 Total Suspended Particulates ) Sulfur Dioxide (mg/m^) Nitrogen Oxides (mg/m Latitude 1 (° ) North) (North ot'Huai River) Notes: The entries are calculated across The data all 330 80 2770 109 82.2 2 520 56.5 24.6 7 164 32.6 14.0 -1.6 66.6 1987 3.90 1981 1993 35.0 6.35 20.1 47.3 .613 .488 1 non-missing city observations during the 1980-1993 have a recorded concentration for at Fifty-eight cities have at least one year of non-missing total least one pollutant in one year. suspended particulates data. The same 58 cities have at least one year of non-missing sulfur period. dioxide data. 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