This policy, along with the previous 0.015 yuan per kWh subsidy for power plants that installed equipment to curb sulfur dioxide emissions, will require an annual State investment of more than 80 billion yuan.

"In general we aim to provide both incentives for power plants to reduce emissions of air pollutants, and severe punishment for those who fail to do so," said Li.

Plants that have the equipments to curb pollution but fail to operate them will be punished.

Past incentives by the NDRC have been effective, according to analysts.

The government implemented subsidies for plants with equipment to curb sulfur dioxide emissions, and gradually raised the subsidy standard to 0.015 yuan per kWh. Now, 92 percent of Chinese power producers have installed the equipment, up from around 10 percent before the policy was implemented.

"People in the environment-protection sector have long awaited these policies. The measures will leverage behavior to curb air pollutants and boost the related-equipment industry," said Liu Bingjiang, an official at the Ministry of Environmental Protection.

Chinese authorities previously pledged to reduce emissions of sulfur dioxide and nitrogen oxide by 16 percent and 29 percent respectively from their 2010 basis through 2015.

The NDRC also decided to beef up government-managed funds for the renewable energy subsidies by collecting more money from power producers.

Starting from Sept 25, China's power plants will have to pay 0.015 yuan per kWh for the electricity they produce for industrial clients, up from 0.008 yuan per kWh.

The prices of electricity for residential and agricultural use will remain the same.

The NDRC emphasized that the increase will not lead to an increase in electricity retail prices. Power producers' costs will not increase significantly because coal prices are at historic low levels, the commission said.

The NDRC also decided to raise gasoline and diesel prices by 0.17 yuan and 0.19 yuan per liter respectively. The price hikes will be implemented on Saturday.