Many cities in China currently experience high ambient concentrations of particulates and SO2 - pollutants that have been significantly implicated in premature death and serious morbidity. Taiyuan, a city located in the northern Shanxi province of China ranks near the top of the list of the 47 most polluted cities in China in terms of ambient concentrations of these pollutants. As part of an ongoing project commissioned by the Asian Development Bank (ADB), Resources for the Future (RFF) is, in collaboration with local partners, designing and implementing a system of tradable emissions permits to reduce SOz emissions from 26 large polluters in Taiyuan. Similar systems have been used in the developed world to achieve the objective of reducing emissions at lower cost than conventional command-and control approaches. The implementation of the system is expected to commence in Spring 2004 and is expected to take 12 months. Overall SO2 emissions are expected to fall by roughly 30%. We propose to utilize the unique opportunity to track the policy process surrounding the intervention. An important question regarding large interventions to improve air quality is whether the improvements in health and economic outcomes are worth the cost. We propose to address this question by comparing the health and other benefits of the project to the costs of achieving the improvements in ambient air quality. Data on ambient air quality, and morbidity and mortality associated with respiratory and cardiovascular conditions in Taiyuan will be collected in Phase I. These data will also be collected for a control city, Datong, also in Shanxi province, where no comparable intervention is proposed, and will provide a stable baseline for subsequent health evaluations conducted in Phase II after the intervention has taken effect. The long-term goal over Phase I and II is to compare improvements in health and economic outcomes between our intervention and control city, and thereby assess the benefits and costs of the intervention. The project aims to facilitate a dialogue between local governments, environmental protection bureaus, citizen groups and the media, while developing local capacity for epidemiological, environmental health and economic policy analysis in Taiyuan and Datong through a series of three training workshops held in Shanxi province. The context of the capacity building process will be used to develop the Phase II proposal to evaluate the health effects and economic costs and benefits associated with the intervention. The project's team comprising researchers from RFF, Johns Hopkins School of Public Health, Peking University Health Science Center, and the Chinese Research Academy for Environmental Sciences, and the Norwegian Institute for Air Research reflects expertise in environmental health, epidemiology, economics and air pollution modeling.