Using economic instruments – Harnessing the market
In its transition from a command to a market economy, China is trying to harness the market to work for the environment rather than against it. Continued and accelerated economic reform is a prerequisite to reorient state enterprises so that they respond to environmental penalties. Liberating international trade will give Chinese industry access to the latest environmental technology. The development of capital markets is necessary to provide financing to firms and municipalities supplying environmental infrastructure. Adjustments of the pricing system are needed to ensure that it reflects true environmental costs.
Despite the fact that China is resource-poor, it prices its energy and water far lower than the actual costs. However, great strides are being made to rectify this situation. Over the past 3 years, the government has raised and partly deregulated coal prices; in most areas, coal prices now cover the costs of production and delivery. In addition, many cities and provinces are currently preparing to increase sewage and water charges to consumers and industries. In Taiyuan of Shanxi Province, for instance, the price bureau has announced that water prices will quadruple over the next 5 years in order to recover supply costs [88]. Shanghai recently increased tap water prices by between 25 and 40 percent to fund water quality improvement programs and to make sewage self-financing. Guangzhou and Chongqing are eager to do the same [89].
The increasing market orientation of the industrial sector offers an opportunity to use market-based pollution controls more effectively. Achieving pollution control objectives will require increasing pollution charges. NEPA has proposed a 10-fold increase in the air pollution levy; this increase would go a long way toward reducing air pollutant emissions. Higher levies are needed both to lower current emissions and to finance the large investment required to achieve desired ambient air quality in Chinese cities. Currently, the pollution levies are assessed only on discharges that exceed the standard; in other words, emissions cost the polluter nothing until the standards are breached. Moreover, effluent charges are based on the pollutant that exceeds the standard by the greatest amount and do not reflect the risks posed by other pollutants. The World Bank has been working with NEPA to overcome these shortcomings. These two organizations are developing a system that incorporates both maximum discharge rates for all pollutants as well as incentives to encourage emissions at levels below the maximum allowed [90].
Increasing environmental investment
Environmental protection demands more spending. The Chinese Government has attributed the continued deterioration of the environment largely to lack of funding. Despite extremely ambitious 5-year plans to control environmental pollution in the past, insufficient investment has prevented realization of these goals. Now in its Ninth 5-Year Plan period, the government has adopted the Trans-Century Green Plan, which sets targets for environmental protection for the year 2010. In conjunction with other environmental protection plans, NEPA is striving to stabilize the emissions of several pollutants at 1995 levels by the year 2000. The percentage of SO2, particulates, untreated sewage, and heavy metals sewage treated would be increased from its current 19 percent to 25 percent, and treatment of industrial wastewater would be expanded by about 70 million metric tons. This ambitious plan, which NEPA estimates will cost 450 billion yuan (1.3 percent of China’s GNP) to achieve, accords top priority to certain areas, especially along the east coast and in some parts of its inner land: the Hai, Huai, and Liao rivers; the Chao, Dianchi, and Tai lakes; and two areas in southwest China with pronounced problems with SO2 levels and acid rain [91].
Industries and local governments are increasingly looking for new sources of funding, through the “polluter pays” principle, urban environmental infrastructure funds, and even bank loans. The central government is playing a more supportive role in seeking loans and foreign investment and implementing economic policies. The government intends to increase the proportion of GNP spent on controlling pollution from the current 0.8 percent to more than 1 percent at the turn of the century, or approximately 188 billion yuan (US$17.5 billion) [92]. Some cities are investing in an even higher proportion. For instance, Beijing, Shanghai, and Xiamen have decided to allocate up to 3 percent of their GDP to pollution control. Tianjin will set aside up to 2 percent [93]. In the meantime, China also hopes that foreign investment will continue to provide funds supporting its ambitious plans to address pollution. A recent World Bank report noted that investing about 1 percent of GDP each year gradually rising to 2.5 percent over the next 25 years – divided roughly equally between air and water investment – would greatly reduce pollution in China by 2020 [94]. The report also noted that the operating and the average investment costs each year of such a program would gradually rise to about 2.5 percent of GDP by the end of the period. According to the World Bank, the benefits of these measures exceed the costs by large margins, and these measures are essential if China is to redirect its development toward a more sustainable path.
References and notes
88. Op. cit. 12, pp. 95<196>96.
89. Shuping Lu, Director, Shanghai Environmental Protection Agency, 1998 (personal communication).
90. Dr. Hua Wang, Consultant and Principal Economist in the Environment, Infrastructure, and Agriculture Division, Policy Research Department, The World Bank, Washington, D.C., 1997 (personal communication).
91. National Environment Protection Agency (NEPA), The National Ninth Five-Year Plan for Environmental Protection and the Long-Term Targets for the Year 2010, (NEPA, Beijing, 1996), p. 12.
92. Ibid., p. 4.
93. Wang Yi, Professor/Senior Scientist, Eco-Environment Research Center of the Chinese Academy of Sciences, 1997 (personal communication).
94. The World Bank, Can the Environment Wait? Priorities for East Asia (The World Bank, Washington, D.C., 1997), p. 1.
