Abstract: Environmental challenges faced by thermal power plants are analyzed from the following perspectives: national investment system reform, core industry policies, site location requirements, pollution control laws and regulations, and emission standards. The electric power industry development prospects are forecasted based on national GDP growth. This paper points out that out of compliance with various policies and regulations encourages the planning and construction of power plants without proper approval and results in overheated development. It is recommended that central government must strengthen macroscopic management and apply new scientific development theory. Finally, environmental challenges faced by thermal power plants and the potential economic benefit from emissions trading are analyzed.