China - Environmental strategy paper (Vol. 1 of 2) : Main report

Report No. 9669-CHA China Environmental Strategy Paper (In Two Volumes) Volume l: Main Report April 1992 Environment, Human Resources and Urban Development Operations .)ivision China and Mongolia Department East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY L . MICROFICHE COPY Report No. 9669-CHA Type: (SEC) ANDERSON, / X84077 J A-7007/ AS3EH Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY E0UIVALENTS (As of June 1, 1991) Currency Unit - Yuan (Y) $1.00 - Y 5.33 Y 1.00 - $0.19 FISCAL YEAR January 1 - December 31 WEIGHTS '.ND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ABC - Agricultural Bank of China ADB - Asian Development Bank BOD - Biochemical oxygen demand CAS - Chinese Academy of Sciences CFCs - Chlorofluorocarbons CH4 - Methane CIB - China Investment Bank CO - Carbon monoxide CO2 - Carbon dioxide COD - Chemical oxygen demand COPD - Chronic obstructive pulmonary disease CRAES China Research Academy of Environmental Sciences DO - Dissolved oxygen DRC - Development Research Center EIA - Environmental impact assessment EPB - Environmental Protection Bureau EPL - Environmental Protection Law ESMAP - Energy Sector Management Assistance Program (World Bank/UNDP/ Bilateral) ESP - Environmental Strategy Paper ESW - Economic and Sector Work Program of the World Bank FAO - Food and Agricultural Organization FY - Fiscal year GDP - Gross domestic product GEF - Global Environment Fund GEMS - Global Environmental Monitoring System GHG - Greenhouse gases GNP - Gross national product HC - Hydroca-bon IDA - International Development Association IPAS - Integrated Protected Areas System IPM - Integrated pest management LRMC - Long-run marginal cost MFO - Ministry of Forestry MOA - Ministry of Agriculture MOPH - Ministry of Public Health MPIF - Montreal Protocol Interim Fund MWR - Ministry of Water Resources NEPA - National Environmental Protection Agency NH4+ - Ammonium N20 - Nitrous oxide NO2 - Nitrogen dioxide NO. - Nitrogen oxides NPDES - National Pollutant Discharge Elimination System (US) 03 - Ambient ozone OECD - Organization of Economic Cooperation and Development Pb - Lead SEPC - State Environmental Frotection Commission SO2 - Sulfur dioxide SO4-- - Sulfate SOA - State Oceanographic Administration SPC - State Planning Commission SSTC - State Science and Technology Commission TSP - Total suspended particulates TVIEs - Township and village industrial enterprises UNDP - United Nations Development Program UNEP - United Nations Environmental Program  FOR OFFICIL USE ONLY ENVIRONMENTAL STRATEGY PAPER Table of Contents | t~~~~~~~~~~~~~~~~~~~~~Pge No. EXECUTIVE SUIMARY .....*..... .......... vii j ~~~~1. INTRODUCTION ........................ 1 A. Objectiv,. of the Environmental Strategy Paper (ESP) 1 Objective. . . . . . . . . . .. . . $ * 1 Scope . . . . . . . . . * * * . 1 B. Environmental Management and Economic Development . . . 2 Complementarities and Tradeoffs . . . . . . . . . . . 2 Economic Aspect. of China'. Environmental Management 3 C. China's Environmental Institutional Framework . . . . 5 State Environmental Protoction C mission . . . . . . 5 National Environmental Protection Agency . . . . . . . 5 Responsibilities and Authority . . . . . . . . . . 5 Internal Organization .99999.....9999 6 Subnational Environmental Management . 6. . . . . . 6 Subnational Environmental Protection Bureaus . . . 6 Transboundary Problems... . .99999 6 D. Role of the Public in China's Environental Isu 6 Public Educstion .i............... 6 Expanding the Role of the Public ........... 7 Resettlement Principles and Guidelines . . . . . . . . 7 II. POLLUTION CONTROL STRATEGY . . . . . . . . . . . . . . . . . 8 A Introduction . . . . . . . . . . . . . 8 B. Pollution Issues 9. 9 99 Major Pollution Problems . . . . ... 9 Urban Water Pollution ...... . 9 Damage to Aquatic Resource. ..... . 9 Contamination of Urban Drinking Water . . . . . . 12 Rural Drinklng Wateri t............ 13 UrbanAirQuality ..... . ...... ..... 14 Impacts . . . . . . . . . . . * * . . . . . . 16 Status .. 16 Rural Industrial Pollution 20 Township and Village Industrial Enterprises (TVIEs) 20 TVIE Pollution Concerns ............. 20 Emerging PollutionIssues . . . . . . . . . . . . . 21 Acid Rain . . . . . . . . . . . . . . . . . . . . 21 Greenhouse Gasee and Ozone-Depleting Emissions . 23 Solid Waste Disposolsal...... . .a 26 Hazardous and Toxic Wastes . 27 This document has a restricted distribution and n' v be omed by recipieniq onlv in the perform nce  ENVIRONMENTAL STRATEGY PAPER Foreword This report is based on the Cindings of a mission that visited China in June/July 1990 and in September/October 1991, and'on the findings of a teem staffed by: R.N. Anderson (Task Manager), R. Batstone, V. Elliott, S. Shen, K. Takemoto (Bank), A. Krupnik, L. Ross, Wang Yuanxiang, and Zhang Renwu (Con- sultants). Very helpful comments were received from D. Gunaratnam, R.T. Taylor, T. Wiens (3ank) and W.R. Spofford and D. Sheehy (Consultants). The members of the Bank team would like to acknowledge the invalua- ble support given by their Chinese colleagues in conducting this study, including organizing the discussions with experts from various cities and provinces in China, and the subsequent review and comments given on the ini- tial draft of this report by various government ministries and agencies. Without them, this report would not have been possible. Special thanks go to the National Environmental Protection Agency, which was the principal collabo- rative institution in China, as well as to the Ministry of Agriculture (Department of Rural Energy and Environment), Ministry of Water Resources, Ministry of Forestry. Ministry of Energy, Ministry of Metallurgy, Ministry of Chemical Industry, and the Chinese Academy of Sciences. In addition, discus- sions were held with the Ministry of Construction, Ministry of Communication, Ministry of Light Industry, State Oceanographic Administration, Ministry of- Textiles, Ministry of Public Health, State Meteorological Administration, State Science and Technology Commission, and the State Planning Commission.  - ii - Page No. Groundwater Contamination . . . . . . . . . . . . 27 Noise . . . . . . . . . . . . . . . . . . . . . . 27 Vehicular Emissions . . . . . . . . . . . . . . . 27 Nonpoint-Source Pollution . . . . . . . . . . . . 28 C. Current Government Policies Influencing Pollution Control . . . ., . . . . . . . . . . . . . . . . . . 28 Legal Framework . . . . . . . . . . . . . . . . . . 28 Prevention . . . . . . . . . . . . . . . . . . . . 28 Polluter Pays . . . . . . . . . . . . . ... . 28 Environmental Quality Standards and Permits . . . . 29 Strong Environmental Management . . . . . . . . . . 29 Economic Incentive Approaches . . . . . . . . . . . . 29 The Pollution Levy System . . . . . .. .. 30 The Responsibility System . . . . . . . . . . . 33 Pricing Polices- . . . . . . . . . . . . I . . . 35 Policies for Reforming Enterprise Management . . . . . 37 Industrial Structure and Energy Efficiency . . . . . . 38 Allocation Policies for Investment . . . . . . . . . . 41 Credit Markets . . . . . . . . . . . . . . . . . . . 41 Urban Management and Finance Reform Policies . . . . . 41 Tax System . . . . . . . . . . . . . . . . . . . . . 42 Borrowings . . . . . . . . . . . . . . . . . . . . 43 Budgetary and Accounting P:ocedures . . . . . . . 43 Future Plans . . . . . . . . . . . . . ... . . . . . 43 D. Suggested Strategies for Improved Pollution Control . . 45 Economic Structure and Environmental Impact . . . . . 47 Energy Efficiency and Conservation . . . . . . . . 49 Improving the Design of Incentives for Pollution Control 50 Adjustments to the Pollution Levy System . . . . . . 50 Indirect Policy Instruments . . . . . . . . . . . . 52 Greater Enterprise Autonomy and Taxation . . . . . . 53 Increasing the Availability of Investment Funds for Polliation Control .... . . . . .......... . 54 Pollution Levy Fund . . . . . . . . . . . . . . . . 54 Funds for Urban Public Services . . . . . . . . . . 54 Improving Regulatory and Administrative Instruments for Pollution Control . . . . . . . . . . . . . . . . 56 Improving Institutional Arrangements for Pollution Control . . . . . . . . . . . . . . . . . . . . . 57 Develop Cost-Effective Environmental Naster Plans . 57 Improve the Performance of EPBs . . . . . . . . . . 58 Coordinate Pollution Control Strategies at the ' National Level .... . . . . . .......... . 59  - iii - Page No. Role of NEPA and EPBe . . . . . 59 Development of the Environmental Products and Services Iuidustry . . . 59 Suggested Policy and Technical Option. for Air, Water, and TVIEs * * * * * . . . . . . . . . . . . . ..... 60 Air Pollution and Coal o . . 60 Water . . . . 61 TVIEu . . . * * . . 63 III. AGRICULTU R9.99oo*ot00 65 A. Introduction . . * . . . . . . . . * . . . . . . . . . . 65 B. Environmental Issues t a ll. a.,. .. . 66 Farming Practices on Prime Agricultural Land . . . . . 67 Fertilization . . . . . .......... . . . . . 67 Chemical Fertillzers ..... 67 Organic Fertilizers .. . 68 Crop Rotation ....... ........... . 69 Effects of Fertilization . . .. 70 Pest Management ........ . ... 70 Effects of Pesticides . . . . 71 Water Use and Conservation. . .. .. 72 Salinizatoon ........... 72 Groundwater Exploitation. 99. .. 73 On-farm Water Use .... .................. 74 Effects on Water Quality. .... . 74 Land Degradation on "Marginal" or Erodible Lands . 75 Effects of Runoff and Erosion ...... 75 Areas Affected . ................... 76 Loese Plateau . 9 9 * 9 .9 76 Red Sols Area . . . 77 The Northeast China Plain . . 78 Grasslands in Inner Mongolia, Xinjiang and Gansu . 79 Conversion of Grassland . . . . 79 Overgrazing .. . . . . 9 * * * 9 9 9 9 * o 80 Further Development and Convers40on of Land . . . . . . 80 Forestry and luelvood . ............................. 81 Marine Flisheries .... . ..... . a...................... 83 Overexploitation .t.o.. ..................... 83 Protection Efforts................. 83 C. Policies and Actions of the Chlnese Government . . 84 Laws and Regulations ................... . 84 Institutions . . * * 9 9 * # * . ... .. . . . . a. 84 Environmental Impact Assessment 9 * . . . . . 86 Environmental Monitoring and Research . . . o . . . . 86 Incentives and Sanctions . a t . n. ... 87 D. Recommendations and Proposed Strategy . . a . . . . a . 88 Economic Policies and Incentives . . . . . * * * * 89 Grain Production and Distribution 9 . . . . 89 Pricing and Distribution of Agricultural Inputs . . 91 Land Tenure anid Land Use Patterns . * . . . . . . . 92  - iv - Page No. Investments 93 Overall Investment Priorities . . 93 Water Conservation ... .......... .... 93 Support Siervic . ................. ............... 94 Fuelvood and Rural Energy . . . . . . . . 94 Research and Extension 94 Regulations * . . . . 95 IV. LOSS AUD DEGRADATION OF NATURAL ECOSYSTEMS . . . . . . . . . 96 A. Introduction . . . . . . . . . . 96 General Trendsnds. .......... 96 B. The Status of Natural Ecosystems in China 97 Forest Ecosystems . 97 Deforestation ... . . . . . . . . . . ....... 97 Information Available 98 Fuelwood . . . . . . . ........... . 100 Trends . . . . . . . . . . . . . . .. *. .. .. . 100 Grassland Ecosystems .. ................. 101 Reclamation and Conversion. ..101 Trends 9 * * * . . . . 9 102 River, Lake, and Marine Ecosystems 103 Cuses of Loss * . ....... ..... 103 Cultivation of Lakefront Land 103 Pollution . . . . . . . . . . . 104 Trends * a * . * . . . . . . . . . . . * * 104 Wftland Ecosystems............. ... 105 Coastal Wetlands ......................... 105 Trends . . . . . . . . . . & & . . . . 105 Inland Marshes .h.e. . . .................. 106 QuantifyingValue . . . .... . . ... . ... 107 C. Consequences and Causes of Loss and Degradation of Natural Ecosystems e ms........... 107 Consequences . .. o ..... . . ...... .. .o. . .. .... 107 Soil Erosion and Natural Disasters . 9 o . . . . o 107 Desertification . . . .. 0 ...... . . . . . . . . .... . 109 Causes . . . . . . . . . * * . . * . . o 110 Remedial Efforts . o . ... . . . . a. .*.. . . ... 110 Loss of Biological Diversity o . . o . . . . . 110 Causes . . . . . . . . . . . . . . . . . . 1. 91 111 Trends 112 Causes of Degradation and Loss. 112 High Population and Fragile Natural Resource Base . 112 Economic Policies . . . . . .. . .. .. . * * * * 113 Institutional Factors . . . . . a . . * * . 113 Attitudes . . . . . . 9 . . . 9 9 9 9 114 D. Chinese Actions to Arrest and Reverse Ecosystem Degradation . . . . . . 9 9 9 9 * * . * * * 114 Legal and Institutional Framework . . . . . . . . . . 114 Las and Regulations . . . . . . . . . . . . .*. . . 114 Inotitutrons . . . . . . . . . . * * 9 * * . * . 115 Enforcement .................... 115  V~~~~~~~~ Measures to Protect Critical Ecosystems of Economic Importance . . . . . . . . . . . . . . . . . . . . 116 Rational Use of Resources . . . . . . . . . . . . . 116 Restoration .. * . ..... ... . . . . . . . . . . .o. 117 Measures to Protect Wildlands . . . . . . . . . . . . 118 Nature Rserves . *...... . . . . .* . . . a . a .... 118 E. As sesMent . . . . . . . . . . . . . . . . . . . . . . .. . 121 F. Recomsondations . . . . . . . . . . . , . . . . . . ... 121 Institutions . . . . . . . . . . a . . . . . . . . . . ............................ 121 Environment and Natural Resources Ca?iiesion . . . . 121 Policy ..................................................... 122 Agricultural wconomic Policy . . . . . . . . . . . . 122 Agricultural Sustainability . . . . . . . . . . . . 123 EIA Guidelines for Land Reclamation . . . . . . . . 123 Protcting Wldlands ln.d...... .....a................... 124 Integrated Protected Areas System (IPAS) . . . . . . 124 Development of Wetland Management Plans . . . . . . 125 A Biological Diversity Action Plan . . . . . . . . . 126 V. WORLD BANK PROGRAM OF ENVIRONMENTAL ASSISTANCE IN CRINA . . 127 Overview . . . . . . . . . . . . . . . . . . . . . . . 127 Proposed Work Program .0 . . . .. ..... 131 Environment Studies .. .o. . . . . . . . . . .. . 131 Sector Studies with Major Environmental Components 131 Technical Assistance . . . . .. . . .. .. . . . . 132 Proposed Lending Program. .. . . . . . . . . . 132 Environment Procet . . ..... . .. . . . . . 132 Projects with Major Environment Components . . . . 133 Underlying Objectives . . . ******* * *... 134 Participant . . . . . . . . . . . . . . . . . . . . 135 Institution# 135 Regions . . . . . . . . . . . . . . . . . . . . . . 136 Processes . . . . . . . . . . . . . . . . . . . . . 136 Recommendations of Report and Proposed Program . . . . 137 Environment Pollution Control . . . . . . . . . . . 137 Choosing Priorities Better . . . . . . . . . . . . 137 Improve Environmental Policy . . . . . . . . . . . 137 Macroeconomic Policy Reform . . . . . . . . . . . 137 Improve Institutions . . . , w** . .. . . 138 Research an Development . . . . . . . . . . ... . 138 Agrlcultural Sustainability and Degradation of Natural Resources . . .. . . . . . .. . . . . 139 Agricultural Sustainability . . . . . . . . 139 Agricultural Economic Policy . . . . . . . . . . . 139 EIA Guidelines for Land Reclamation . . . , . . . 139 Biological Diversity Action Plan . . . . . . . . . 139 Integrated Protected Areas System . . . . . . . . 140 Development of Wetlands Management Plans . . . . . 140  - vi - Page No. TABLES IN TEXT 2.1 Groundwater Samples Violating the Nitrate (N03-N) Standard 13 2.2 Comparison of Levels of Air Quality in Selected Cities in China . ........................... o 189 e 2.3 Comparison -1 TVIE and Total Enterprise Discharges Per Unit of Uutput. . .......... ...... . ....... 22 2.4 Sample Contract for Tianjin Under the Environmental Responsibility System . . . . . . .. . . .... 34 2.5 International Comparisons of Primary Commercial Energy Consumption Relative to GDP, 1980-88 . . . . . . . . . . . 39 4.1 Comparison of Major Ecosystems . . . . . . . . . . . . . 98 4.2 China's Forest Cover . . . . . . . . . . . . ... . . . . 99 4.3 Summary of Major Causes and Consequences of Ecosystem Change . . . . .... ....... ....... .... ...... ......... ...... 108 4.4 China's "Megediversity" Status . . . . . . . . . . . . 111 4.5 Nature Rrserves in China . . . . . . . . . . . . . . . . . 119 FIGURES IN TEXT 2.1 Samples Violating Water Quality Standards . . . . . . . . 11 2.2 Average and Ranges of Mean Air Quality Concentrations . . 19 2.3 Estimated 1985 Global Anthropogenic Greenhouse Gas Emissions . . . . . . . . . . . . . . . . . . . . . . . . 25 2.4 Energy Use in Certain Industrial Sectors in China . . . . 26 BOXES IN TEXT 2.1 Summary of German Effluent Fee System . . . . . . . . . . 31 VOLUME II - ANNEXES 1. Environmental Legal, Regulatory and Institutional Frameworks 2. Enviroumental Control Administrative Structure 3. Standards, Permits, and Monitoring 4. Effluent Fees and the German System 5. Environmental Policies and Programs of Selected Sector Ministries 6. Strategic Planning for Regional Environmental Quality Management: An Economic Framework for Analysis 7. Laws Relating to Protection of Natural Resources 8. National-Level Institutions Dealing with Natural Resources and Envi- ronmental Conservation 9. Sino-Japanese Friendship Environmental Protection Center Project 10. Proposed Economic and Sector Work (ESW) and Lending Programs for the Environmei.t 11. Chinese Response to Global Environment  A - vii - CHINA ENVIRONMENTAL ST-RATGY PAPER Executive Summarl A. Introduction i. The problems of environmental pollution, and damage or destruction of natural resource systems that accompany increased economic development and spreading populations in developed countries are only exacerbated in countries where population is growing rapidly, per capita income is low, and technolo- gies lag by decades those available to more developed countries. China has not been immune to such problems. ii. For example, drinking water in many cities is polluted and/or in short supply, and the shortages have been aggravated by excessive use of groundwater by industries, even as these industries contaminate the supply through waste dumps. The air, also, in cities is heavily polluted by particu- lates and sulfur dioxide because the country must depend on coal as the chief source of fuel and energy. Most wastewater from industries and cities is dumped untreated into rivers, lakes, and oceans, and domestic garbage and industrial solid waste are piling up at the edge of cities. iii. In the countryside, excessive use of water, and inappropriate use of fertilizers and pesticides in some areas have begun to create environmental problems. Problems with irrigation and poor drainage are turning millions of acres into salt beds; wetlands, aquatic systems, and grasslands that are the source of a rich biological diversity and future resources are being destroyed through pollution or conversion to economic development; soil is being lost through improper agricultural practices, or overgrazing, especially on margi- nal lands where cropping has been intensified to levels that are unsustainable under current practices. The increasing and often conflicting demand for water for irrigation, industrial, and municipal uses has also created a press- ing environmental issue. iv. This paper identifies the most serious problems (and the importance the Chinese attach to them), analyzes the underlying causes, assesses Chinese policies and programs, suggeste measures that will improve their effectiveness and, finally, proposes an agenda of Bank activities over the next three years that will assist China in addressing its most pressing environmental and eco- logical problems. v. The interrelationship between environmental issues and economic growth and development is central to any discussion of environmental matters. The structure of the economy, and general economic policies and management, largely determine the nature of environmental problems and the framework for environmental policies and programs in any particular country. These interre- lationships in China are discussed th-oughout this report.  - viii - vi Unliko many doveloping countries, China hao a comprehensivo set of laws baosd on reasonable concepts to guido environmental policy dovolopmont; a range of command-and-control as well as economic incentivo approcches to imploment tho law; and an impressivo network for admiAistertig, monitoring and enforcing environmental policy. However, whilo paost efforts have somewhat reduced pollution per unit output and have holped to prevent an abrupt vorson- ing of environmental degradation during the past d4oade, the*s gains unfortu- natoly have been mostly canceled by the rapid growth of the economy and the population, and by industry's continued high share in gross domestic product (46 percent). Most of this Is technologically outmoded and highly polluting heavy industry. Thee* problems threaten to swamp China's significant, rocent achievements in environmental policies and programs, *nd pose the principal challenge for sustainable dovelopment in tho future. With increasing atten- tion being focused on environmental problems globally, this is an opportune time to assess the country's needs and review its strategios as part of an assistance program. vii. China hcs an institutional framework in place that can be used as a foundation in designing approaches for dealing with environmental and ecologi- cal problem. The State Environmental Protection Couission (SEPC), which includes the heads of all relevant ministries and agencies, and ultimately the State Council are at the ap*x of dacsion-making on environmental policy in China, SEPC provides policy direction at times and resolves interagency dis- putes, but it meats only quarterly and hence cannot regularly set overall policy. The colssion relUs heavily on the National Environmental Protec- tion Agency (NEPA), which ftnctions as its secr teriat. This agency is responsible for all aspects of environmental policy, although it shares authority with other agencies fer certain specific natural resources; for example, tho marine environment is managed primarily by the State Oceano- graphic Administration and the Ministry of Agriculture (fishing). Authority in conservation isoues rests primarily with the natural resourcoe ministries. The agency liaises with the environmental protection units within most other ministries and agenciesl and sets the overall policies and regulations govern- ing the provincial and municipal environmental protection bureaus. viii. Most onvironmsetal protection policy is implementod at the subna- tional level. Provinces are rssponsible for Implementing national policy and are authorizad to act in the absence of proemptive national standards; where warranted by local conditions, they may also impose more stringent standards than those roquired by the national government. In all provinces and munici- palities and in most counties around the country, environmental protection bureaus now have been established under loc-l environmental commissions headed by a vic*-governor or vice-magistrate. D. maior Pollution r-oblems ix. The Chineso have identified three pollution problems as thoir prin- cipal concerns urban water quality, urban air quality, end rural industrial pollution (see Chapter II for a full discussion). While rural drinking water is not included in this list, it also appears to be another major problem.  - ix - Urban Problems Wator Qu