Coal has fueled China's rapid growth in recent decades, but it also severely pollutes the air and causes many health issues. The magnitude of the health damage caused by air pollution depends on the location of emission sources. In this paper, we look into the spatial distribution of coal-fired power plants, which are the major emission sources in China, and investigate the determining factors behind the distribution.

We introduce a model of strategic environmental policy where two firms compete á la Cournot in a third market under the presence of multiple pollutants. Two types of pollutants are introduced, a local and a transboundary one. The regulator can only control local pollution as transboundary pollution is regulated internationally. The strategic effect present in the original literature is also replicated in this setup.