By developing a GDMOD model to estimate the environmental extalities associated with electricity generation, this project provides a detailed analysis of the damages and costs caused by different pollutants at varying distances from the Mawan Electricity Plant in Shenzhen, China. The major findings of this study can be summarized that (1) environmental damages caused by electricity production are large and are mainly imposed on regions far away from the electricity plant; (2) air pollution is the most significant contributor to the total damages, and SO2, NOx, and particulate matter are the three major pollutants with highest damages; (3) the damages caused per unit of particulate, NOx, and SO2 emissions are much higher than pollution treatment and prevention costs. The research results of this project showed that China needs to have a more effective levy system on SO2, and a more manageable electricity tariff mechanism to intalize the environmental extalities. The results have also implications for pollution control strategies, compensation schemes as well as emission trading arrangements.