Integrated assessment of environmental performance-based contracting for sulfur dioxide emission control in Chinese coal power plants

Performance-based contracting (PBC) is applied to Chinese industry for cleaner production, which is characterized by the payment made on measurable environmental outcome. Policy, technology, market, and capital are four elements that co-shape PBC where the synthesized effects are hard for intuition to tell. This study introduced an original interdisciplinary assessment model of PBC for SO2 emission control in Chinese coal power plants that involves key environmental policies including command-and-control regulations, market-based approaches, and administrative measures, as well as technology, market, and capital variables. The evaluation showed that in key regions, both pollution levy programs 8 and 10 CNY/kg SO2 (with the only penalty of concentration) could drive total emission amount close to regulatory targets. Interest expenses seem less relevant to SO2 abatement cost in terms of the whole contract period; however, it can raise the SO2 abatement cost similar to the service premium in the first few years. Fluctuation of power market is a business risk to PBC. As unitization hours of generator sets decrease from 4760 to 4115 h/y, the proportion of profits in the income decreased from 12.12 to 4.16%. Since payment is made on the basis of emission verification, economic benefits can represent both environmental and economic benefits. Profits and financial chain of the contractor depending on the synthesized effects of technology, capital, market, and tax policy. Sensitivity analysis quantitatively indicates technical factor as crucial; however, the buyer's business fluctuation is the real key to operational sustainability. The method was proved useful to integrated policy assessment at project level and PBC managerial decision-making.