This paper studies the impact of SO2 on Gross Domestic Product (GDP) and calculates the pollution and health costs, and meanwhile, analyzes the regional heterogeneity. This study uses a structural panel vector autoregressive model (VAR) via panel datasets consisting of 108 cities from 2000 to 2015 to gauge the effect of SO2 pollution. Results show that, in national wide, SO2 emissions promote GDP growth, and this promotion is more pronounced in central and western China. The pollution costs of eastern, central and western China have large heterogeneities. It is highest in central China, reaching more than 20%, which implies that more than one-fifth of the GDP is contributed by environmental pollution. In western China, pollution cost is around 5%, but in east, pollution starts to hinder growth. We also find that the health costs are about 2%, 3% and 1% of GDP per capita for eastern, central and western China respectively, showing that fast growth is at the expense of health in a way.