In this paper, the authors calculate the contribution of competing components (production, pollution controls) to overall industrial emissions, i.e.,
The Central and Eastern European countries significantly reduced their carbon dioxide (CO2) emissions between 1995 and 2003. Was this emission reduction just the fortuitous result of the major economic transformation undergone by countries in the transition? Or is it rather a result of more stringent environmental policy? The objective of the article is to answer this question through a simultaneous equation model of the demand (emissions) and supply (environmental stringency) of pollution. The supply equation takes into account the institutional quality of the country as well as consumer preferences for environmental quality. The results indicate that, all else equal, output growth would have increased industrial CO2 emissions in the Central and Eastern European countries in our sample by 31% between 1995 and 2003, and the composition effect corresponded to an increase of 8.4% of emissions. Nevertheless, the technique effect, induced by more stringent environmental policy, reduced industrial CO2 emissions by 58%, and allowed for a final beneficial result for the environment, i.e., -18% of industrial CO2 emissions in 2003 compared to 1995.
Note the time period. I'd guess that (inefficient and dirty) industrial production was plunging between 1990 and 1995, with pollution falling at the same time. From 1995 to 2003, production rose -- with cleaner technology -- while pollution continued to fall.
I wonder if China went through such a "virtuous" phase or if the dominance of state-run industry has slowed the introduction of clean technology (and competing companies) as well as more stringent (any?) environmental standards.
Bottom Line: It's possible to have growth in industrial output AND cleaner air, but you need to have real regulation and real competition. This is not the case with China.