Clear water, blue skies : China's environment in the new century

州方 C H I N A 2 CLEAR WATER, BLUE- SKIES China 2020: Development Challenges in the New Century Clear Water, Blue Skies: China's Environment in the New Century At China's Table: Food Security Options Financing Health Care: Issues and Options for China Sharing Rising Incomes: Disparities in China Old Age Security: Pension Reform in China China Engaged: Integration with the Global Economy 0 H E V VORLND BANK W A SH IN GTO0N D . C. --$LE R ~LU E SKIES CHINA'S ENVIRONMENT IN THE NEW CENTURY 0 THE WORLD BANK VW A SHIN G TON D.C. Copyright @ 1997 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 1997 The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. 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ISBN: 0-8213-4044-1 Contents Acknowledgments vii Overview 1 Chapter 1 Growth and China's Environment 5 Limited resources, better policies 6 Air pollution 7 Water pollution 11 Conclusion 14 Chapter 2 Pollution, Health, and Productivity: Estimating Today's Costs 17 Air pollution 17 Water pollution 20 Regional and global air pollution 21 Economic valuation of impacts 23 Conclusion 24 Annex 2.1 Economic valuation of air and water pollution damage 24 Annex 2.2 Simulating acid rain impacts using the RAINS-Asia model 26 Chapter 3 Pollution, HeaLth, and Productivity: Plotting Aternative Futures 29 Basic assumptions about macroeconomic and sectoral growth 30 Pollution without policy changes: The business as usual scenario 31 - v Making a change: Alternative scenarios 37 Conclusion 39 Annex 3.1 Modeling industrial output, energy demand, and emissions 40 Chapter 4 Energy: Coping with Coal 45 Trends in energy consumption 45 Improving energy efficiency 47 Diversifying away from coal 48 Controlling emissions: Options and costs 50 The special role of energy prices 51 Policies for reducing environmental impacts 53 Chapter 5 Industry: Creating Incentives to Abate 57 Pollution control policies 58 Determinants of industrial pollution 59 Growth and the environment: Reforms and structural change since 1987 62 Future pollution scenarios 64 Is stricter regulation worthwhile? 65 Toward effective and efficient industrial pollution control 67 Chapter 6 Urban Transportation: Controlling Cars 73 Where is China now? 74 China's urban environmental future 76 China's urban transportation future: The strategic choice 79 Air quality effects of alternative urban transport strategies 84 Chapter 7 Water: Preserving Scarce Resources 87 Water quantity 88 Water quality 90 Water resource management and pollution control regulation 92 Costs and benefits of a clean and adequate water supply 95 Policies for sustainable use of water resources 97 Chapter 8 Policies: Securing Higher Environmental Living Standards 103 Establishing priorities for policy 104 Harnessing the market: Making polluters pay 104 Harnessing growth: Investments for a brighter future 107 Harnessing administrative capabilities: Improving oversight, enforcing standards 108 Clear water, blue skies? 111 This report uses Hong Kong when referring to the Hong Kong Special Administrative Region, People's Republic of China. vi Clear Water, Blue Skies: China's Environment in the New Century Acknowledgments his report was written by Todd M. Johnson, Feng Liu, and Richard Newfarmer under the direction of Richard Newfarmer (task manager). The report benefited from the contributions of a World Bank team that included Ramesh Ramankutty and Jitu Shah (acid rain); Biliang Hu (economist); Susmita Dasgupta, Hua Wang, and David Wheeler (industry); Gordon Hughes and Kseniya Lvovsky (macro-environmental pro- jections); Robin Carruthers and Tilly Chang (transporta- tion); Leila Cruz and Jennifer Solotaroff (task assistants); and Natasha Berschorner, Daniel Gunaratnam, and Chantale Wong (water). The report also includes findings from papers prepared by Jonathan Sinton (indoor air pollution); David Fridley (lead); Zhongxiao Jiang, Laurence Lau, and Chen Xikang (macroeconomic projections); Helen Chan (ODS); and Noureddine Berrah, Masaki Takahashi, and Stratos Tavourlareas (power). In addition, the report benefited from the close col- including Richard Ackermann, Theodore Atwood, laboration of China's National Environmental John Briscoe, William Chandler, Maureen Cropper, Protection Agency and State Planning Commission. Devra Davis, David Fridley, Joseph Goldberg, Nicholas The authors are particularly grateful to Zhang Kunmin, C. Hope, Kathie Krumm, Jane Loos, Peter Midgley, Deputy Administrator of the National Environmental Vikram Nehru, Karen Polenske, Zmarak Shalizi, Protection Agency, for his thoughtful comments and Jonathan Sinton, Andrew Steer, Robert Taylor, Lee insights, as well to the Foreign Economic Cooperation Travers, and Robert Watson. Office of the National Environmental Protection Walter Spofford of Resources for the Future made a Agency in coordinating the counterpart team from the special contribution before he passed away in Chinese government. The authors also thank the repre- November 1996. Not only was he a peer reviewer for sentatives of various ministries and institutions for their the concept paper of this report, but his prior work on detailed comments on drafts of this report. The control of industrial pollution provided much of the Canadian International Development Association facil- rich detail of our knowledge in this important area. itated this collaboration by providing resources for a Finally, Nicholas C. Hope, former Director of the China workshop held in Beijing midway through the prepara- and Mongolia Department, provided the inspiration tion of this report. and impetus for the China 2020 series. The authors are The authors are also indebted to a number of grateful for his invaluable comments and insights into Chinese scholars who wrote background papers for this the economic issues facing China, as well as for his report: Cao Fengzhong, Guo Xiaomin, Hao Jiming, Liu unwavering support for this activity. Qifeng, Wang Hanchen, Yang Zhifeng, Zheng Yisheng, The report was edited by Paul Holtz, laid out by and Zhou Jin. Glenn McGrath, and designed by Kim Bieler, all with Several reviewers offered valuable comments at dif- the American Writing Division of Communications ferent stages during the preparation of the report, Development Incorporated. viii Clear Water, Blue Skies: China's Environment in the New Century Overview obust economic growth has brought immea- surable benefits to the Chinese people. Incomes have increased, poverty has fallen, and health indicators have improved. Yet the same unbridled growth that has lifted millions out of poverty has also caused seri- ous environmental damage. Over the past decade China has begun to curb this dam- age. New laws have established comprehensive regula- tions for the environment. The government has invested considerable resources in protecting air and water. And economic reforms have reduced the economy's energy intensity at an impressive pace. Although ambient con- centrations of most pollutants are still unacceptably high, they have been kept in check. Chinese leaders know that much remains to be done. Particulate and sulfur levels in major Chinese cities are among the highest in the world, exceeding World Health Organization and Chinese standards by two to five times. Pollution is one reason chronic obstructive pulmonary But these outcomes will not happen automatically. disease-emphysema and chronic bronchitis-has Indeed, they will require considerable effort. Although become the leading cause of death in China, with a mor- structural change and new technology will help reduce tality rate five times that in the United States. As Premier pollution per unit of output, without new policies the Li Peng noted last year, China not only has "to provide pressures from a growing economy will swamp these people with riches and material products, but also grad- improvements, and may even undermine recent gains. ually improve the quality of life, and environment is an The old pattern of growth, projected into the future, important part of the quality of life." would generate rising health costs and dramatically This report's findings underscore the environmental raise the cost of cleanup to future generations. concerns of Chinese leaders: A new growth strategy should aspire to: * An estimated 178,000 people in major cities suffer * Increase substitution of cleaner fuels-especially nat- premature deaths each year because of pollution. ural gas-for coal in household cooking and heating. * Indoor air pollution, primarily from burning coal * Improve energy efficiency and diversify energy sup- and biomass for cooking and heating, causes 111,000 plies into noncoal sources. premature deaths each year, mainly in rural areas. * Reduce emissions from industrial boilers and furnaces. * Each year some 7.4 million work-years are lost to * Curb indoor air pollution in rural households. health damages related to air pollution. * Increase wastewater collection and treatment from * Water pollution, a focus of recent Chinese policy, has cities and towns and industrial enterprises, especially contaminated 52 of 135 monitored urban river sections. small enterprises. These sections do not even meet the lowest standards nec- * Control increasing acid rain deposition in sensitive essary for irrigation water, rendering them mere waste regions. sinks. Unless action is taken, future access to safe drink- * Prevent automobile-related air pollution. ing water is threatened for tens of millions of people. Since current policies are fragmented across several * Acid rain in the high-sulfur coal regions of southern government agencies with differing policy mandates, a and southwestern China threatens to damage 10 per- serious assault on China's pollution problems will cent of the land area, and may already have reduced require not only more aggressive policies, but also bet- crop and forestry productivity by 3 percent. ter integration of policies and implementation efforts. * Children in Shenyang, Shanghai, and other major China's increasing market orientation requires a cities have blood-lead levels averaging 80 percent strategy for future environmental protection that goes higher than levels considered dangerous to mental beyond the command and control measures of the past. development. The next generation of policy should be based on three * Air and water pollution damages, especially the dan- principles: gers fine airborne particulates pose to human health, * China must harness the market to work for the envi- have been estimated to be at least $54 billion a year- ronment, not against it. This means accelerating eco- or nearly 8 percent of GDP in 1995.1 nomic reforms-reorienting state enterprises so that Despite the magnitude of the problem, China has an they respond to environmental penalties, adjusting the unprecedented opportunity to increase its environmen- pricing system to ensure that it reflects environmental tal quality of life. Rapid economic growth makes costs, liberalizing international trade to give Chinese clearer waters and bluer skies more attainable. High industry access to the latest environmental technology, rates of investment can be used to develop cleaner, more and developing capital markets to provide financing to energy-efficient industries. Policies that channel invest- firms and municipalities supplying environmental infra- ment into cleaner production, encourage material and structure. Harnessing the market also means recogniz- energy efficiency, and encourage conservation of scarce ing that China, with its limited resource base, is resources could reduce emissions in 2020 below today's underpricing energy and water. Prices of natural gas levels, improve air and water quality, and lower pollu- and water, for example, should be raised to reflect their tion-related health costs by 75 percent-even as China scarcity. Finally, harnessing the market means that the quadruples its output. government should expand the use of taxes on pollu- 2 Clear Water, Blue Skies: China's Environment in the New Century tion to incorporate its enormous social costs. The real pollution but are effectively exempt from regulation. If cost to society of coal-after its damages to human the government uses its powers to set national stan- health are included-is 100 percent higher in Beijing dards-for automobile and motorcycle emissions, the than its current price. Environmental taxes on coal and energy efficiency of buildings, and so on-it will achieve gasoline and on pollutants would use the market to major improvements in environmental quality. clean the environment. At the regional level, effective management of water * China must harness growth for the environment by basins and airsheds requires setting up regional author- pursuing investments with the highest environmental ities to overcome the paralysis afflicting current policy- benefits for future generations. Better pricing makes making. Similarly, regulation of sulfur emissions, like investments in clean technology economic and imposes that in the Air Pollution Prevention and Control Law of environmental discipline on firms. For example, 1995, must target areas suffering from acid rain to have Chinese industry today operates at 50-85 percent of the the maximum effect and to minimize control costs. energy efficiency of OECD countries. Pricing energy At the urban level, environmental master plans could correctly would create incentives for firms-state and help remove dirty industries from downtown areas and nonstate-to invest in more efficient technology and allow for effective urban transportation, two measures abatement. If emission taxes and coal transport charges that will reduce health damages and pollution loads in were correct, investment in coal washing-a priority to the years to come. By 2020 well-organized cities with curb particulate emissions-would be more economic. good public transit could have half as many cars clogging Beyond this, public investments in natural gas to their roads as poorly managed cities without public tran- replace home use of coal would increase energy effi- sit. Finally, environmental education, already under way, ciency by two to five times and reduce urban air pollu- will increase citizen demands for a cleaner environment. tion. Public investments in research and development These demands must find expression in wider commu- are critical for bringing new industrial technologies nity participation in environmental policymaking. (such as efficient industrial boilers and renewable Achieving these goals will require some sacrifices in energy) to the market. Public investment in wastewater the near term. Pollution control investments will have treatment is unavoidable, and would be more financially to double, to about 1 percent of GDP. Still, these costs viable if sewerage charges were universally introduced are small relative to China's annual investments, which and gradually raised to full cost recovery levels. total 35 percent of GDP. They are also small relative to Investments in public transit systems would help avoid the future costs of cleanup if action is delayed. Most the emergence of automobile-based urban transporta- important, today's sacrifices are small relative to the tion systems, which lead to congestion and heavy pollu- enormous improvements in the quality of life that will tion. Finally, public investments in wastewater systems, accrue to future generations. financed through increased cost recovery and better If China manages to grow by 6-7 percent a year for pricing, are crucial for conserving water resources and the next two decades or so, by 2020 its population will for cleaning China's rivers, lakes, and coastal waters. enjoy incomes roughly equivalent to those in Portugal * China must harness its administrative capabilities for today. New policies and careful investments made the environment. At the national level, better regula- today mean China's children and grandchildren would tions and policy coordination could replace direct also enjoy clear water and blue skies. investment controls. Some regulations, such as phasing out lead from gasoline by 2000, are essential for envi- Note ronmental improvement. As markets grow, regulations should spread to cover township and village industrial 1. Chinese researchers prefer to use the "human capita" approach to mortaLity and health risk valuation, which produces a damage esti- enterprises, which are an increasingly large source of mate of about 3.5 percent of GDP (see chapter 2). Overview 3 Growth and China's Environment ince 1978 China's economic reforms have pro- gressively unleashed market forces and dramat- ically improved the material well-being of most Chinese citizens. The transition from a command to a market economy has produced economic growth rates that put China among the world's five fastest growing economies. Over the past eighteen years rising incomes have eased poverty, reduced infant mortality, improved child and maternal health, and lengthened life expectancy. During the same period, however, China's environment has deteriorated significantly. Rapid urbanization and industrialization have generated enormous volumes of air and water pollutants, lowering air and water quality. Between 1980 and 1995 China's urban population soared from 191 million to 352 million people, moving more Chinese closer to industrial smokestacks and residential emissions and increasing the number of people exposed to polluted urban air and water. Today most Chinese cities are covered by blankets of sive legal and administrative framework to protect the harmful airborne particulates. In major cities levels of environment (box 1.2). Moreover, increasing resources total suspended particulates and sulfur dioxide are two are being invested in environmental protection, with to five times World Health Organization (WHO) guide- record amounts planned during the Ninth Five-Year lines (figure 1.1). Since 1980 surface water and ground- Plan. Finally, and perhaps most important, economic water have grown increasingly polluted because of reforms have helped increase the allocative efficiency of increased emissions of industrial waste, municipal the economy. sewage, and agricultural runoff. Urbanization has tight- ened already short water supplies, particularly in north- FIGURE 1.1 ern China, and has strained urban sewage treatment Ambient concentrations of air pollutants capacity. In 1996 less than 7 percent of municipal far exceed international standards, 1995 wastewater was treated. Ambient water quality, espe- Total suspended particulates cially in urban areas, has suffered. And the government WHO standard recently reported that acid rain affects 29 percent of Beijing China's land area (Hao and Liu 1997). Shenyang Over the years high levels of pollution have prompted the government to take corrective actions Shanghai and expand environmental policies (box 1.1). Still, Chongqing much remains to be done. This report focuses on two Taiyuan of China's most pressing environmental concerns-air and water pollution-and their relation to economic Jinan growth. Specifically, it addresses three questions: What Bangkok are the costs of pollution in China today? Will future Jakarta (1991) economic growth impair or improve air and water Los Angeles quality? And what policies are needed now to ensure that rising incomes translate into a higher environmen- Tokyo tal standard of living for current and future 0 100 200 300 400 500 600 Micrograms per cubic meter (annual mean concentration) Limited resources, better policies Sulfur dioxide WHO standard With 22 percent of the world's population living on just Beijing 7 percent of the world's arable land, China's per capita Shenyang resource base is unusually low. Agricultural land per Shanghai capita is 28 percent of the world average. Range lands per capita are less than half the world average. And Chongqing forests and wilderness areas per capita are only 15 per- Taiyuan cent of the world average (World Bank 1992, p. 98). Jinan Similarly, water resources per capita are about one- Bangkok third the world average, and energy resources (particu- larly hydrocarbons) are low as well. The Chinese government knows that these limited Los Angeles (1990) resources could eventually constrain economic growth Tokyo and improvements in welfare. It has recognized that 0 50 100 150 200 250 300 350 China must shift from an extensive and resource-inten- Micrograms per cubic meter sive development pattern to an efficient and sustainable (annual mean concentration) one. The government has implemented a comprehen- 6 Clear Water, Blue Skies: China's Environment in the New Century Government efforts to address China's environmental problems, 1979-97 1979 Envionmental Notectio Law (Tia ) establishes a gererat 1996 State Council appoves "Ninth Five-Year Plan for egal frieiok for regulating envioneta degradation Envronni l evte eisction for 2010," a first in nationaL 1982 Marine Environment Protection Lawi promutgated planning histoiy, and- tWO SuIPplemient documnents- 193 Governm et declares environmental protection a basic "Tota Emission Ouantit Control Plan for Major national poticy and formulates three policy principes for Polrutanti" and "Trans-centUry Geen-nineering Contrrtang pollution( Plan" 1984 Water Pollution Prevention and Controla La promutqated Amended Water Pollution Prevention and Control La m adds 1987 Air Poution Pr eention and Control Laing prugated provisions fot controrin rivet basin poltution and 1989 Environmenta n Protection Law revised and formatty imposes tougher regulations for protecting sourtces of promulgated, and eight environmnittal m anagemrent drinking wvatei program s endorsed Fourth National Environmental Protection Conference: 1992 C hina aiong the first nations to act on the Rio agenda: Party Secretary Jiang Zein and Preaier Li Peng deliver issues "Ten Strategic Policies for Deve[Lopment and the kevnote speeches calling for miore stringent pollution Environvment" Control China Environmental Protection Action Plan formulated State Councit issues Decisions Regarding Several Issues of 1994 State Council approves "China Agenda 2-White Paper on Ecironmhenta , Protection, laying out guidetnes for Population, Envir-onm-ent and Development," which lays achieving the environmentat targets of the Ninth Five- o et Majour cuntr sustainable deverlopmSent Year Plan 1995 Amended Air Pouition thevinte an d Control La i Govenmient intiates a nationwside capaign to close inicles tougher regu ations for contrinousg SL heavity pottuting toinship and vitlage enterprises t dioxde date more r than 60a000 have been closend So(id Waste Pollution Prevention and Control Law 1997 Governmient announces that China wilphase out leaded promul gated gasoline by 2000; imiptemnentation has begun in Beijing S Vhce:Wld B.ank staft. As identified by China's National Environmental addition, because of the extensive mode of eco- Protection Agency (NEPA 1993), several environmen- nomic growth and backward technological and tal priorities are likely to have long-term impacts on managerial levels, emissions of pollutants increase ecosystems and the economy: continuously. Environmental pollution in center * Water pollution cities is worsening and is extending into rural areas, * Water shortages in urban and northern China and the scope of ecological damage is increasing. * Urban air pollution (NEPA 1996b, p. 9) * Industrial toxic and hazardous wastes * Soil erosion Because air and water pollution are the most damag- * Forest and grassland degradation ing to human health, worker productivity, and agricul- * Habitat destruction and species loss. tural output, they are the focus of this report.1 The rest In a speech to the Fourth National Environmental of this chapter identifies the sources of pollutant emis- Conference in 1996, Premier Li Peng noted the envi- sions and their effects on ambient air and water quality. ronmental achievements that China had made, but admonished the nation that much remained to be done: Air pollution We clearly are aware that the situation of the envi- Many cities in China, especially large ones, have seen ronment in our country is still quite severe. Since ambient air quality improve thanks to industrial emis- China is now still at the stage of rapid industrial- sion control and residential fuel switching programs. ization and urbanization, the intensity of exploita- But ambient concentrations of suspended particulates tion of natural resources rises continuously. In are still extremely high in most cities, and ambient sul- Growth and China's Environment 7 Environmental regulation in China Since environmental regulations were first enacted in 1979, China As in many countries, regulatory enforcement has been the has continued to improve its regulatory practices and to learn weak link in China's system. In recent years the National from the experiences of other countries. Current environmental Environmental Protection Agency and national ministries have legislation covers the management of wastewater, solid waste, been closely monitoring the enforcement of environmental Laws. and atmospheric and noise pollution; the conservation of oceans But to be successful, monitoring and enforcement must take and watercourses; and the management and protection of forests. place at the local level. Local governments face a tradeoff grasslands, soil, fisheries, mineral resources, water resources, between protecting the environment and safeguarding the finan- wildlife, and coal and other energy resources. cial and employment performance of local firms. As a result pol- At the national level, environmental policies are formulated lution generally exceeds China's own standards. But local by the State Environmental Protection Commission and approved governments share with firms an interest in finding financially by the State Council. The National Environmental Protection attractive pollution abatement investments-in most cases Agency, established in 1988 as an independent agency, is the sec- focusing on process changes rather than end-of-pipe controls. retariat for the State Environmental Protection Commission. The Citizens affected by pollution damage can appeal directly to pot- agency's primary functions are to disseminate national environ- tuting factories for compensation. Failing a satisfactory resolution of mental policy and regulations, collect environmental data from the conflict, the matter is brought to the local environmental pro- and provide training and administrative support to local environ- tection bureau. Although large pollution accidents and intractable mental protection bureaus, and provide technical and policy cases find their way to local or higher-level bureaus, thousands of advice to the State Environmental Protection Commission on small environmental cases are negotiated directly because it is more both national and international environmental issues. efficient and because of the traditional Chinese disdain for legal or Implementation of environmental policy in China is also the administrative arbitration. By encouraging the public to be more vig- responsibility of ministries and related agencies at all levels of ilant about the environment and to report violations promptly, the government. enforcement record of local environmental agencies has improved. Source: World Bank staff. fur dioxide concentrations and acid rain are also high in coal and account for an even larger percentage of areas where high-sulfur coal is consumed. In general, ground-level air pollution. Although households northern cities have more serious particulate pollution account for just 15 percent of coal use, they typically because coal is used for space heating, while southern contribute 30 percent of the ground-level air pollution cities have serious sulfur dioxide pollution. in Chinese cities. The average sulfur content of coal pro- duced and consumed in the southwestern provinces of Sources of air pollutants Sichuan, Guizhou, and Guangxi is about 4 percent. Over the past decade the number of trucks and auto- Rapid growth and rising incomes have increased mobiles in major cities has increased dramatically, cre- China's demand for energy. As a result coal use has ating a new source-though still relatively limited in more than doubled since 1980, reaching some 1.3 bil- most of the country-of urban air pollution. Motor lion tons in 1995. Energy consumption-coal, biomass, vehicles emit particulates, sulfur, carbon monoxide, petroleum products-is responsible for most particu- nitrogen oxides, and volatile organic compounds. late emissions. Coal combustion in industrial boilers and small household stoves accounts for a dispropor- Emissions and concentrations tionately large percentage of ambient levels of fine (less than 10 microns) and ultrafine (less than 2.5 microns) Particulate emissions have remained relatively flat since particles, which are the most damaging to human the early 1980s, implying a substantial increase in con- health. Industrial boilers and household stoves are also trols given the near doubling of coal consumption (fig- responsible for most sulfur dioxide and nitrogen oxide ure 1.2). In contrast, sulfur dioxide emissions have emissions. Industrial boilers, many run inefficiently and roughly paralleled the increase in coal consumption with low smokestacks, consume 33 percent of China's because of inadequate sulfur control measures. 8 Clear Water, Blue Skies: China's Environment in the New Century FIGURE 1.2 dential gas use, expanded district heating, taller stacks on industrial boilers, and urban planning policies that much slower than GDP, 1985-95 have moved some industries out of central city Index (1985 = 100) districts' Although ambient particulate concentrations in 300 large cities fell significantly between 1985 and 1991, medium-size and small cities experienced less dramatic declines, and have even seen a slight increase since the early 1990s (figure 1.3). Despite the steady increase in 200 sulfur dioxide emissions, average ambient sulfur diox- Sludi ide concentrations have remained stable in medium-size 150 Chemical oxygen and small cities and declined in large cities (figure 1.4), 100 _da presumably due to residential fuel switching and taller ral supended stacks. On average, populations in large cities are 50 exposed to 30 percent higher particulate concentrations 1985 1990 1995 and 60 percent higher sulfur dioxide levels than popu- Source: Growth rates of major poltutants are World Bank staff estimates. GDP lations in medium-size and small cities. growth rates are from China Statistical Yearbook 1996. Indoor air pollution is a severe problem in China. A large portion of the population, especially in rural Ambient concentrations of particulates and sulfur areas, is regularly exposed to pollutant levels well above dioxide in many Chinese cities are among the highest in national ambient standards (table 1.1). Most house- the world and are significantly above WHO guidelines holds still burn solid fuels like raw coal and wood for and Chinese air quality standards. Still, average ambi- cooking and heating. Indoor combustion produces par- ent particulate concentrations in monitored cities have ticulates, sulfur and nitrogen oxides, carbon monoxide, decreased markedly since the mid-1980s, reflecting and other pollutants. These indoor air pollutants con- increased particulate control. In Heilongjiang Province tribute to high rates of respiratory disease, the leading falling ambient concentrations of particulates in a cause of death in rural areas and the third leading cause number of cities are reportedly due to increased resi- in cities. FIGURE 1.3 FIGURE 1.4 Average ambient particulate concentrations Average ambient sulfur dioxide have fallen, 1985-95 concentrations have been stable, 1985-95 Micrograms per cubic meter Micrograms per cubic meter 800 200 700 600 400 Large cities 200 Medium-size and small cities Medium-size and small cities 100 WHO guideline 0 50 WHO guideline 1985 1987 1989 1991 1993 1995 1985 1987 1989 1991 1993 1995 Note: Large cities are those with a 1994 population greater than 1 million; Note: Large cities are those with a 1994 population greater than 1 million; medium-size and small, 0.1-1 million. medium-size and small, 0.1-1 million. Source: China Environmental Yearbook, various years. Source: China Environmental Yearbook, various years. Growth and China's Environment 9 TABLE 1.1 Chinese ambient air quality standards are comparable to those of the World Health Organization (micrograms per cubic meter) Averaging China World Health Pollutant time Class 1 Class 2 Class 3 Organization Sulfur dioxide Annual 20 60 100 40-60 Total suspended particulates Daily 150 300 500 150-230b AnnuaLa 60 120 150 60-90 PM-10 Daily 75 150 250 70 AnnuaLa 20 60 100 Carbon monoxide Daily 4 4 6 10c Nitrogen oxides Daily 50 100 150 150 Ozone 8 hours 100-120 Lead Annual 0.7 0.5-1.0 Note: Class 1 are tourist, historic, and conservation areas. Class 2 are residential urban and rural areas. CLass 3 are industrial areas and heavy traffic areas. a. Since China does not have annual standards for total suspended particulates, it has been assumed that the same ratio between daily and annual standards for sulfur diox- ide applies to total suspended particuLates. Annual standards are needed for comparability with ambient concentration data. b. Guideline vaLues for combined exposure to sulfur dioxide and totaL suspended particulates. c. 8 hours. Source: WHO and UNEP 1992; WorLd Bank staff estimates. Indoor air quality in many urban households has and Wang 1992; Li, Gu, and Yu 1994). Other urban improved significantly as gas, electricity, and central areas in China also have reported increases in blood- heating have replaced solid fuels and coal stoves and as lead levels as automobile use has increased. Studies con- kitchen ventilation has improved. About one-third of ducted in Shanghai show that a newborn's risk of lead the urban population now has access to gas for cook- poisoning is associated with a number of factors, ing. Households that continue to burn coal increasingly including a family member's exposure to lead at work, use cleaner and more efficient briquettes in specially proximity to a major traffic way, and household and designed stoves. Use of briquettes and liquefied petro- neighborhood coal combustion (Shen and others leum gas (LPG) is spreading to many suburban areas as 1996). Nontransportation sources of lead are also well. Even biomass is used more cleanly, thanks to a important. For instance, ambient lead concentrations in Ministry of Agriculture program that provides efficient Tianjin are nearly twice as high during the heating sea- biomass stoves with flues to rural households. son as during warmer months. Lead is an especially pernicious pollutant because of Anecdotal evidence suggests that ambient lead lev- its irreversible effects on children's intelligence and apti- els are below Chinese and WHO standards in most tudes. Although detailed statistics on lead sources are Chinese cities but that levels have been rising over the lacking, the main sources of lead in air, water, and soil past decade as vehicle use has increased. In are probably industrial emissions from mining, lead Guangzhou the average ambient lead concentration smelting, production of lead-acid batteries and cables, increased twelvefold between 1988 and 1995, reach- and coal use. However, leaded gasoline is a growing ing 0.113 micrograms per cubic meter (g/m3). In a source of lead emissions. China's gasoline-powered heavy traffic area of Taiyuan, Shanxi Province, ambi- vehicle fleet-cars, motorcycles, and a large percentage ent lead concentrations nearly doubled in three years, of trucks-has grown by more than 10 percent a year from 0.625 gg/m3 in 1990 to 1.803 gg/m3 in 1993 since the mid-1980s, and gasoline consumption jumped (Chen 1995). from about 14 million tons in 1985 to 27 million tons In addition to local effects, air pollution has regional in 1994. About half of China's gasoline production is and global consequences. Long-range transport of acid leaded, primarily the higher-octane fuel used in high- rain, primarily from sulfur, has already caused serious compression engine automobiles. damage to agriculture, ecosystems, and materials (Hao Two studies from Fuzhou, Fujian Province, have and Liu 1997). In response, the National Environ- demonstrated a correlation between automobile emis- mental Protection Agency recently recommended estab- sions and elevated blood-lead levels in children (Li, Gu, lishing sulfur dioxide and acid rain control areas. 10 Clear Water, Blue Skies: China's Environment in the New Century Global effects of air pollution include changes in cli- culture, aggravate shortages and increase pollution. mate and destruction of the ozone layer. China became The lack of coordinated water basin management also the world's largest producer of ozone-depleting sub- has contributed to surface water pollution in many stances in 1995, after the production of such substances localities. For example, during dry periods local water was banned in industrial countries. By the early twenty- use agencies often close gates along their section of a first century China is expected to be one of the largest river to retain water for local users, but in so doing emitters of greenhouse gases (Johnson and others retain pollutants from industrial, municipal, and irriga- 1996). China attaches great importance to these and tion discharges. When the first rains come, gate opera- other global environmental concerns and was an early tors flush their sections of the river by forcing a highly signatory of the Climate Change Convention and the polluted waste stream into the main river channel. A Montreal Protocol (box 1.3). surge of this sort on the Huai River in 1994 killed mas- sive numbers of fish, caused widespread illness, and Water poLLution forced municipal and industrial water intakes along the river to shut down. Since 1980 the quality of China's surface water and groundwater has deteriorated significantly under the Sources pressure of rapid industrial development, brisk popula- tion and urban growth, and increased use of chemical Nationwide, municipal waste accounts for about 40 fertilizers and pesticides. As a result water pollution is percent of wastewater discharges; industry contributes now a serious problem for urban and rural drinking the rest (figure 1.5). In the Huai River Basin, which runs water. About 40 percent of the monitored river sections through Anhui and Jiangsu provinces, industrial dis- flowing past cities do not meet minimum water quality charges account for about 75 percent, and municipali- standards (NEPA 1996a). ties the remaining 25 percent, of point-source chemical Water shortages compound China's urban water oxygen demand pollution. Despite limited data, small- quality problems. Low water prices, especially for agri- scale activities-township and village enterprises and Protecting the ozone layer-a model of international cooperation Ozone-depleting substances comrntise chlorofRuorocarbons and fromi the Multitater-al Fund, created to hetp developing COLUntries hlAons,, which atta ck and deplete the,_stratosphenic ozone nae.met their Montrea Piotocol, obligations. China commnitted to WVithout the piotection of the o.zone layer. ultraviolet ladiation reduciing conlSumflptionl of ozone-depteting substancLes in 1996 to reaches the earth's surfac e, increasing thle incidence of skin ca n- thle 1991 le ve[ of 50,000 tons; it wvill then reduce that level by cers and eye disease, contributing to g[oba[ wamngceducing half by 2000 and phase out consumnption comnpltetl bv 2010. agricultuial yiel,ds, destroy ing natura:i vegqetatjon, anid damnaging With rapid econoick growth and a sLwstart in phaseout, the aqUatic organismns. Ozonle-dePlet1ng subistances are us-ed in m1aniv 1996 targetvwas notA met. But w ith the necess-ary legulations now commnon oM1-nlel' pro)dLUCS, inc[Udlnq iulos,ols, coolanits, om, inl p1ace, the goiVernlMent Is confidlent that it can mieet it,, future fire exti ngishers, ins ulation, auitomnobile air co)nditioniers, refrig- obhlgations,. erators, andsolvents. As the imiptemeonting agency "Or the Monitreat Protoco[ in With apdindustrialization ind urbanization, China's can- China, the World Ba,nk ha s been wrigon p)haSeoutJactivitie's s,umptioni ol oZone-depletinig substances gitew bv mioie than 12 inl China since 1c,991. when its fhrt thi)ee Mont_rea Protoco[ pro- percent a ye.ir betw een 1986 and 1994+. By the end of 1994 China jects are comiple,ted, about 25 percenit of China's potenitial produl-ed a bout 60,000 tons a-nd consumled about 81,000 tons oF o.-one-depleting pfodction and consumiption wilJU hav,\e beenl the-se substances, elimilnated. A fourth project,wiUtiarget ha lon,,w,hich account for The Chline-e governmient ratifie d the Montreat Protocol, on 20 percent of China's- consumiption oif ozone-depleting sub- Substances that De plete the Ozonet Layer in June 1991, commiit- stances. Most halons witt thenl be elimrinated w%ijthin three Vears. ting to phaise out production and consumnption of ozon-)e-dJep1et- China also plans to bano the- Use of chtorofluoroca rbons in ing suib,tances by 2010. These efforts, are e[Hqible for finlancing aeroso[ls in 1998. Growth and China's Environment 11 FIGURE 1.5 FIGURE 1.6 Industry accounts for most wastewater Regulated industries are treating more of discharges, 1981-95 their waste, 1985-95 Billions of tons Percent 40 100 35 Smokestack emissionsa 30 80 25 ~Wastewaterb_ 20 60 15 Industnal 10 40 5 0 20 1981 1983 1985 1987 1989 1991 1993 1995 1985 1990 1995 Note: Based on data reported to the National Environmental Protection a. Share of volume receiving dedust treatment. Agency by 67,956 industrial enterprises in 1994.Does not include more than b. Primary or secondary treatment. 100,000 small state-owned enterprises, 850,000 collective industrial Source: China Environmental Yearbook, various years. enterprises, and more than 1 million township and village enterprises. Township and village enterprises discharged an estimated 5 billion tons of wastewater in 1995. Source: NEPA 1996a. Agriculture. In addition to the indirect water pollu- tion generated by agroprocessing industries, agriculture small industries, coal mines, and agriculture-are is responsible for significant water pollution from crop known to be significant contributors to water pollution production and animal husbandry. Recent studies sug- problems in adjacent surface waters and groundwaters.2 gest that the intensive use of nitrogen fertilizer and pes- ticides are a serious source of water pollution. Although Industrial waste. Pulp and paper, metallurgical, fertilizer use in China is not high by international stan- chemical, and mining plants account for most indus- dards, its effectiveness is low because of poor-quality fer- trial water pollution.3 In addition, agroprocessing and tilizers and the excessive use of nitrogen-based fertilizers food industries-grain processing, breweries, leather, relative to phosphorous and potassium fertilizers. Of and tanning-are often a major source of chemical particular concern is the widespread use of ammonia oxygen demand and biological oxygen demand bicarbonate (ABC) fertilizer, which is cheap and easy to pollution. use but is also soluble and easily washed out to streams, lakes, and aquifers. Pesticide use, more widespread in Municipal waste. Although 77 percent of industrial recent years, has been implicated in species loss (birds) wastewater from regulated industries receives some and has polluted some important water bodies.4 Animal treatment (figure 1.6), only 7 percent of municipal waste from livestock farms is another major source of wastewater is treated. And while industrial wastewater biological oxygen demand and coliform pollution. Meat discharges have been decreasing over the past decade, production (chicken, pork, beef, lamb) has grown con- municipal wastewater discharges have been increasing. siderably over the past fifteen years, and much of the The contribution of municipal wastewater to chemical manure from livestock farms has found its way into oxygen demand and biological oxygen demand pollu- nearby water systems. A study of Hangzhou Bay con- tion varies by region. For example, municipal waste cluded that agriculture contributed 88 percent of chem- accounts for only 40 percent of wastewater discharges ical oxygen demand pollution in 1994, and that in Shandong, but accounts for 68 percent of chemical nutrients from fertilizer and manure posed the greatest oxygen demand pollution and 85 percent of biological threats to the bay's ecological balance and to inland sur- oxygen demand pollution in Chongqing. face water and groundwater quality (box 1.6). 12 Clear Water, Blue Skies: China's Environment in the New Century The poor get more . .. pollution Since richer areas hav)e miore industrial production, they mught triat productioni, production in those areas is also miuch cteaner, Also be expected to hav,e mruOe poQUtiOnl. UnIfortunately fo)r for at Leas t three reasons. First, anid probhabkly most imiporant, China's poor, howev,er, even this smfatt consolation is denied environmiental reguLation is stricter in rich areas because these themr. A comiparison of fifty Chinese cities shows that as w,ages communities contain high[V educated cit-izens w ho are concerned rise, the poUution density of suspended particuLates fatts (box fig- about evrn ntlprobVemis, wet informTed about themi, and ure). Poor cities atso have higher emliSSiOnIS Of sulfur dioxide than1 organized to defend their interests. Second, production in tw fich cities, atthough emTissions density rises fromi Lo,% to mriddle- wage comminunities generates more pollution because industrial incomie cities and then falts to the kowest tev el in high-incomle facilities wiJth un,kiled worikers are generaUy less efficient and areas. produce miore waste. Finatly, demnand in high-incomie miaikets Why this counterinltUitive association betw,een pov,erty and tends to fav,or prodUCtS Whose production generates less potiution? A[though richer areas do have higher tev,e[s of indus,- Pollution. Low-income cities are more polluted than high-income cities 0 3 M 2. *05= V414 - ------- - ------ 4 4 - 5 Is777~~2 c> Emissions and concentrations by similar-if not larger-amounts during the same period. Wastewater discharges from monitored sources Surface water quality in urban areas, especially in the increased slightly between 1981 and 1995 (see figure water-short northern regions, is poor. About half of the 1.5), but the trend was not consistent for industrial or monitored urban river sections in northern China do municipal wastes or for individual provinces or river not meet the lowest ambient standards (grade 5), mak- basins. Industrial wastewater discharges appear to have ing the water unsuitable even for irrigation (figure 1.7). fallen slightly over this time, though the data do not cap- Only about 8 percent of the monitored urban river sec- ture unmonitored township and village enterprises and tions in northern China meet the standards for direct small industries. Although some provinces (Tianjin, human contact (grade 3 and better). Southern urban Shanghai, Liaoning, Zhejiang) managed to cut indus- river sections are less polluted, partly because of the trial discharges leading to chemical oxygen demand pol- region's larger assimilative capacity. While the Yangtze lution, others (Shandong, Guangxi, Xinjiang, Shaanxi) and Pearl rivers in the south have fairly clean water, the experienced large increases. northern Yellow, Huai, Hai and Luan, and Daliao rivers Municipal wastewater discharges nearly tripled are quite polluted, with large portions of water unsuit- between 1981 and 1995, increasing by almost 7 percent able as a raw source of water for potable water systems. a year. Discharges from households without sewerage Rivers tend to be polluted with biological oxygen are not included in these data and presumably increased demand, chemical oxygen demand, and petroleum, and Growth and China's Environment 13 The death of the Xiaoqing River "Red tides" in Hangzhou Bay The Xbaoig River, in Shan-dong Prov ince, is- an example oif A StUdy of wate-r poULution in Hangzhou Bay found that nutri- industrial and MUnliCipDa[ poh_Ution at its worst. The river is ents from agricuilture posed the greatest threat to the bay'S nearlv dead, devoid of the fish and flora that once thrived there. ecoogical batance. The ratio of nitroen to phosphorous-an Atmost no part of the river contains dissolved oxygen, whkch ir indicato of the ptelntial nUtrient initation of prmary pro- e,senrtiat for plant and ainmal hfe. Just 5 percent of the [arge duction-ws 80-10 for the Yangtze River and more than 30 indus trial PO[LuterS in the basin account fcor more than 95 per- for parts of the bay; the idea[ ratio is 16. Exces, nUtfirit levels cent of the chemical oxy gen demand from industria[ waste- in the bay contribute to "red tides"-targe bLooms of free- water. One petfochemical plant (Qilu) alone is responsible fo floating plants containing red pigment -that can produce near[y 10 percent of the chemical oygen demand pollution shelhfish poisoning in human consu ers or result in tb despread ioad, Industries in the tvwo targe cit!e of Zibu and JNan, atong fish kit.s. Betwe,n tco and ten red tide are reported in wth the u petrochemicaL pant, acount for nearlty 70 per- Hangzhou Bay each sear. cent of the river asin's poLution load. Chemical oxygen demand and coliform concentrations sig- Over the past ten years the most significant poLhutants have nificantly exceed national standards in intertidal areas in the been ammlnia nitrogen, iooical oyen d emand chemwica mouth of the Yangtze River and in Hangzhou Bay. In the river oxywen deimarde voatile phen , ptrl m, and oganic pot- mouth an established protection zone for key species suffers tants. Heavy metav poflution has oturred in the e sections in from excess chemical oxygen demand. In the bay heavy met- some years, but annual mean value have a l been Lw thee aLS-admium, lead, copper, and mercury-are below grade h standard e A ethough ammonia nitrugen, biologica oxygen ambient standards, while petroleum pollution exceeds grade 3 demand, votatie phenol. petroleum, and suspended solids are sEandards in many key species habitats and nature function on the rise, chemical oxygen demand concentrations are areas. falling.Source: Delft Hydraulics, Mott MacDonald, and Welsh thaEer Source: World Bank staff. international 1995. water quality near cities and downstream of waste- chromium, mercury, lead, ammonia nitrogen, Petro- water discharges is particularly poor. Studies of the leum, acidity, and coliform exceeded National Environ- Yangtze River have found that the most polluted sec- mental Protection Agency standards. Heavy metal tions of the upper Yangtze are near Chongqing, where pollution of water is not a widespread problem, though in 1993 indexes for chemical oxygen demand, instances of severe metals pollution clo exiSt.s Although water pollution problems are serious, FIGURE 1.7 improvements have been made in a number of areas. Water quality is Low at 135 monitored The water quality of major rivers has remained rela- urban river sections, 1995 tively stable in the 1990s. Industrial wastewater control Percent efforts have reduced wastewater discharges. And large- 100 scale water pollution control campaigns are targeting 100 the most polluted rivers and lakes. Grade 2 - Grade 3 ConcLusion 60 GAlthough the past eighteen years of economic growth 40 Ghave brought many benefits to China, the environment has suffered. Moreover, the large scale and rapid 20 Below growth of China's economy have exposed a growing grade 5 population to serious air and water pollution (though in 0 Northern some cases pollution levels have fallen). Without more n orten rvers Southern rivers stringent pollution control, environmental damage will likely worsen. The government has made controlling air 14 Clear Water, Blue Skies: China's Environment in the New Century and water pollution a national priority because pollu- common and can pose a significant water pollution hazard. Lead con- tion damages human health, lowers worker productiv- centrations taken along the Yangtze are higher in low-stream (7.52 p/L) ity, reduces agricultural output, and disrupts normal and mid-stream (4.38 pg/[) than in up-stream (2.76 pg/1) sections. ecosystem functions. The value of these losses is the References subject of the next chapter. Chen, S.L. 1995. "China Vehicle Pollution Management: Notes Challenges and Prospects." Chongqing Environmental Protection Bureau, Chongqing. 1. Environmental degradation costs such as soil erosion, land Delft Hydraulics, Mott MacDonald, and Welsh Water degradation, deforestation, and desertification are difficult to quan- International. 1995. "Hangzhou Bay Environmental Study." tify. Moreover, it is hard to assess natural versus human-made causes. Report prepared for the World Bank's International Nonetheless, Chinese and international researchers have estimated Development Association, Washington, D.C. some of these costs. SmiL (1996), for instance, estimates that annual Hao, J.M., and B.J. Liu. 1997. "Acid Rain in China: Patterns, environmental degradation costs in China amounted to 5 percent of Trends and Impacts." National Environmental Protection GDP in 1990. The largest of these costs came from the overcutting of Agency, Beijing. mature forests (60 percent of the total) and soil erosion (20 percent). Johnson, T.M., J.E Li, Z.X. Jiang, and R.P. Taylor, eds. 1996. 2. Along the Xiaoqing River Basin, for example, the provincial envi- China: Issues and Options in Greenhouse Gas Emissions ronmental protection agency monitors only point sources, and relies Control. World Bank Discussion Paper 330. Washington, D.C. on other provincial agencies-the construction commission, agricuL- Li, G.H., WX. Gu, and D.M. Wang. 1992. "Effect of Lead tural bureau, hydraulic bureau-to monitor and estimate discharges Pollution on IQ in Children." China Journal of Preventive from small towns and from agriculture. Medicine 26: 380-81. 3. Of the thirty-six Large point-sources that are monitored for water Li, G.H., WX. Gu, and M. Yu. 1994. "Effect of Lead Pollution pollution along the JiaLing River near Chongqing, six enterprises on Blood Pb, Cu, Zn, and SOD in Primary Schoolers." China account for 80 percent of industrial chemical oxygen demand emis- Public Health 10: 204-05. sions, with two factories (pharmaceuticals and paper) contributing 42 NEPA (National Environmental Protection Agency). 1993. percent of the total; four enterprises (pharmaceuticals, print and dye- Environmental Action Plan of China. Beijing. ing, paper, glue) account for 75 percent of industrial biological oxy- . 1996a. China Environmental Yearbook. Beijing. gen demand emissions; one synthetic chemical plant accounts for all . 1996b. "Selected Documents from the Fourth National phenol emissions; one specialty steel plant accounts for 57 percent of Environmental Conference." Beijing. oil emissions; and one electroplating factory contributes half of all Shen, X.M., J.. Rosen, D. Guo, and S.M. Wu. 1996. "Childhood chromium emissions. Lead Poisoning in Children." Science of the Total Environment 4. Although the production and use of DDT has been banned in 181: 1001-109. China since the early 1980s, trace amounts of the pesticide exceeding Smil, V. 1996. "Environmental Problems in China: Estimates of maximum risk Levels were found in the mouth of the Yangtze River in Economic Costs." East-West Center Special Report 5. Hawaii. 1995 (Delft Hydraulics, Mott MacDonald, and Welsh Water WHO (World Health Organization) and UNEP (United Nations International 1995). Chinese researchers believe that these DDT con- Environment Programme). 1992. Urban Air Pollution in centrations are due to residual amounts of the pesticide remaining in Megacities of the World. Oxford: Blackwell. the river sediment. World Bank. 1992. World Development Report 1992: 5. Large waste heaps of metal ore and chemicals at a metallurgy Development and the Environment. New York: Oxford plant along the Yangtze River in Chongqing were found to be con- University Press. tributing serious chromium pollution to the river during rains and peri- WRI (World Resources Institute). 1995. World Resources, ods of high water. Storing dangerous waste along major rivers is 1994-95. New York: Oxford University Press. Growth and China's Environment 15 Pollution, Health, and Productivity: Estimating Today's Costs ir and water pollution are costly. Polluted air and water can damage the health of people exposed to them, in some cases leading to premature death. Air and water pollution can also lower the produc- tivity of workers, as with chronic bronchitis, diarrhea, or reduced intelligence from childhood lead exposure. Acid rain or water shortages associated with degraded water supplies can reduce agricultural productivity. What are the costs of these damages, and which damages should worry Chinese policymakers the most? Air pollution China has a high incidence of respiratory disease. Chronic obstructive pulmonary disease, including emphysema and chronic bronchitis, is the leading cause of death-a disease burden more than twice the average for developing countries (World Bank 1996a).1 While smoking is the most important proven risk factor for chronic obstructive pulmonary 17 disease in high-income countries, nearly equal rates of the exposure-response relationship exists between concentra- disease among men and women in China (despite the fact tions of particulates and sulfur dioxide and several health that few women smoke) suggest that high concentrations outcomes, including loss of pulmonary function, chronic of indoor and outdoor air pollutants are the main cause respiratory illness, bronchitis, premature death, and of chronic obstructive pulmonary disease in China. An increased hospital visits and admissions (box 2.1).2 Epidemiotogical studies of China's air pollution Since the late 1980s three teams of Chinese and international Shenyang study. Air pollution and daily mortality in residen- researchers have analyzed the relationship between ambient air tial and commercial areas of Shenyang were examined in 1992. As pollution and human health in Chinese cities. The statistical rela- in Beijing, very high concentrations of sulfur dioxide and partic- tionships between air pollution and health outcomes (dose- ulates were found. Daily mortality rates were regressed against response relationships) from these three studies are consistent sulfur dioxide and particulate concentrations, controlling for tem- with the findings in other countries, and have been combined perature, humidity, and season (box fiGure). Total mortality was with average ambient concentrations of air pollutants (the estimated to increase by 2.4 percent with each 100 micrograms "dose") in Chinese cities to estimate health damages in this per cubic meter increase in sulfur dioxide concentration, and by report. 1.7 percent for particulates. Beifing study. The association between air pollution and daily Chongqing study. A third study examined the health effects mortality was examined in two residential areas in Beijing in associated with high concentrations of air pollutants in 1989. Very high concentrations of particulates and sulfur dioxide Chongqing. Independent measurements of fine particles (less were observed in both areas. Total mortality was estimated to than 10 microns) and sulfur dioxide were taken in different air increase by 11 percent with each doubling in sulfur dioxide con- quality zones in summer and winter and correlated with cross- centration, and by 4 percent with each doubling in particulate sectional health survey data gathered from 3,500 adults and 300 concentration. When mortality was analyzed by underlying cause, primary schoolchildren. A significant association was found a doubling in the particulate concentration was associated with between air pollution and reduced pulmonary function. A year- a 38 percent increase in mortality from chronic obstructive put- Long study of ambient air pollution and associated hospital monary disease and an 8 percent increase in mortality from pul- admissions, emergency room visits, and daily mortality in 1995 monary heart disease. Data were also collected and analyzed to confirmed the correlation between high concentrations of par- assess the relationship between air pollution and hospital outpa- ticulates and sulfur dioxide and excess deaths and health tient visits and emergency room visits, impacts. Higher concentrations of pollutants increase daily mortality rates Sutfure dioxide Total suspended particulates Doily mortality Daily mortality 52 52 50 50 48 48 46 46 44 44 42 0 100 200 300 400 500 42100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 Micrograms per cubic meter Micrograms per cubic meter Note: Shows locally weighted regression smoothing plots of mortality in Shenyang in 1992 using a generally additive modebng approach to control for temperature, humidity, and season. Source: Xu and others 1994; Wells, Xu, and Johnson 1994; World Bank 1996a. 18 Clear Water, Blue Skies: China's Environment in the New Century Air pollution in excess of Chinese standards pro- Estimates based on conservative assumptions about vides a benchmark against which to quantify the effects indoor air pollution suggest that it causes 111,000 pre- air pollution has on human health (see table 1.1). To mature deaths a year (see table 2.1). Indoor air pollu- calculate urban air pollution damages, we assumed tion also causes deaths from carbon monoxide that average ambient concentrations of particulates poisoning in northern China, where coal is used to heat and sulfur in Chinese cities are similar to levels in tightly weatherproofed dwellings. The health problems Beijing in 1995 and that 80 percent of China's urban caused by indoor fuel use are on a scale roughly com- population-240 million people-is exposed to ambi- parable to that posed by smoking (box 2.2). Women ent air pollution in the relevant airsheds. Using dose- and children suffer the highest incidence of disease from response functions from studies in China and around indoor air pollution. the world (see box 2.1), it is estimated that about As noted in chapter 1, the proliferation of alternative 178,000 premature deaths could be avoided each year energy sources for cooking and heating-gas, electric- if China met its class 2 air pollution standards (table ity, central heating-is making inroads into this prob- 2.1). lem. About one-third of urban residents have access to Urban air pollution's toll on other aspects of human gas for cooking. Moreover, gas supplies are expanding, health is also severe. Hospital admissions due to respi- and more people are moving from single-story brick ratory illness are 346,000 higher because of excess pol- houses to apartment buildings (which are more likely to lution. Moreover, high pollution causes 6.8 million have gas). Households that continue to burn coal are emergency room visits each year. And some 4.5 million increasingly using more efficient, cleaner briquettes in person-years are lost because of illnesses associated specially designed stoves, and their use is spreading to with pollution levels that exceed standards. many suburban areas. Indoor air is sometimes more polluted than outdoor Exposure to lead is particularly damaging because of air. Studies from several parts of China have found that its effects on intelligence. The most common index of particulate levels (from biomass and coal combustion) lead exposure is the lead level of blood. While there are are generally higher indoors (above 500 micrograms no comprehensive national data, studies from various per cubic meter, or Rg/m3), and that the highest concen- Chinese cities show that blood-lead levels in children in trations (above 1,000 gg/m3) are found in kitchens (Sinton and others 1995). TABLE 2.1 A heavy annual tol in physical damages could be avoided if China met its class 2 air quality standards Number of Problem cases averted AM g iUrban air pollution a tPremature deaths 178,000 Respiratory hospital admissions 346,000 Emergency room visits 6,779,000 Lower respiratory infections or child asthma 661,000 Asthma attacks 75,107,000 Chronic bronchitis 1,762,000 Respiratory symptoms 5,270,175,000 f Restricted activity days (years) 4,537,000 i iIndoor air pollution o Premature deaths 111,000 Respiratory hospital admissions 220,000 r pEmergency room visits 4,310,000 i 1Lower respiratory infections or child asthma 420,000 SAsthma attacks 47,755 Chronic bronchitis 1,121,000 Respiratory symptoms 3,322,631,000 t: B)iik Restricted activity days (years) 2,885,000 Source: World Bank staff estimates. Pollution, Health, and Productivity: Estimating Today's Costs 19 both polluted and nonpolluted areas significantly exceed diseases, as well as the infant mortality associated with the U.S. standard-10 micrograms per deciliter diarrhea.' In general, water-related diseases are less (pg/dl)-above which adverse health effects occur. In common in China than in other developing countries. Shanghai children living in industrial and congested traf- Relative to other Asian countries at similar incomes lev- fic areas had blood-lead levels averaging 21.8-67.9 els, China's water supply and sanitation are good, pg/dl. Between 65 and 100 percent of children have although there are differences between urban and rural blood-lead levels above 10 pg/dl (Shen and others 1996). areas (table 2.2). In 1990 just 1.5 percent of deaths and Studies of children in Shanghai, Shenyang, Fuzhou, 3 percent of the disease burden were the result of com- and Beijing have consistently found a link between lead mon water- and sanitation-related diseases (diarrhea, exposure and deficits in intelligence, neurobehavioral hepatitis, trachoma, intestinal nematodes). By contrast, development, and physical growth. A study of 133 chronic obstructive pulmonary disease accounted for infants in the Yangpu District of Shanghai found a sta- 16 percent of deaths and 8.5 percent of the disease bur- tistically significant difference in mental development den, while respiratory infections accounted for S per- (based on standardized tests) between children with cent of deaths and nearly 6 percent of the disease high blood-lead levels and children with lower levels. burden (table 2.3). The prospect that millions of Chinese children might be Water pollution is believed to have other effects on exposed to lead and the productivity of an entire gener- health-including skin disease, liver cancer, birth ation of urban workers might be lowered underscores defects, and spontaneous abortion. Although several the importance of the government's recent decision studies have been carried out in China to assess the rela- about removing lead from gasoline and from the envi- tionship between human contact with polluted water ronment. and these diseases, it is often difficult to show the exact cause of these often chronic diseases without large epi- Water poLution demiological surveys carried out over many years. In contrast to fecal-borne diseases such as diarrhea, water Water pollution damages human health, fisheries, and pollution-related cancers and birth defects are believed agriculture (from polluted irrigation water) and to be caused by heavy metals and toxic chemicals that increases spending on clean water supplies. Water pol- should be removed through industrial primary and pre- lution also damages ecosystems-through eutrophica- treatment of wastewater. tion and the loss of plant and animal species-though Urban sanitation in China is in transition. Night soil these damages are more difficult to quantify. collection for agricultural use has decreased with alterna- Several diseases have been linked to human contact tive fertilizer sources and rising rural incomes, the volume with polluted water, including diarrhea, hepatitis, of municipal waste has increased with growing urban ascaris, hookworm infection, trachoma, and dracuncu- populations, and modern sewerage systems have not been liasis. Improvements in water supply and sanitation can able to keep up. Thus there is potential for an increase in substantially reduce the incidence and severity of these fecal-borne diseases, particularly in northern China. TABLE 2.2 China has fairly widespread access to safe drinking water and sanitation, 1990 (percent) Safe drinking water Sanitationa Country Urban Rural Total Urban Rural Total China 87 68 72 100 81 85 India 86 69 73 44 3 14 Indonesia 35 33 34 79 30 45 Sri Lanka 80 55 60 68 45 50 Japan 100 85 96 100 100 100 a. Assumes that residents have access to water for washing and that sewage is removed from the house through outdoor Latrines, night soil collection systems, or flush toilets. Source: World Bank 1996b. 20 Clear Water, Blue Skies: China's Environment in the New Century TABLE 2.3 Water pollution accounts for a much smaller share of China's mortality and disease burden than air pollution, 1990 Disability-adjusted Deaths life-years (DALYs) Share of Share of China's share Chinese total Chinese total of global DALYsa IlLness Thousands (percent) Thousands (percent) (percent) Water poLLution-reLated 134 1.5 6,042 2.9 9.6 Diarrhea 93 3,685 4.3 Hepatitis 34 626 34.7 Trachoma - 347 14.2 Intestinal nematodes 7 1,384 35.2 Air pollution-related 1,899 21.2 29,734 14.2 17.2 Chronic obstructive pulmonary disease 1,432 16.0 17,810 8.5 58.6 Lower respiratory tract infection 467 5.2 11,924 5.7 9.0 Total 8,885 208,407 15.1 - Not available. a. In 1994 China's population accounted for 21.3 percent of the world's population. Source: World Bank 1993 and 1996b. Regional and globaL air poLLution simulations using the Regional Air Pollution Information and Simulation Model-Asia (RAINS-Asia) Some air pollution problems, such as acid rain and cli- model show that a sizable portion of long-distance sul- mate change caused by greenhouse gas emissions, are of fur deposition comes from nonpower, or "area," regional and even global concern. sources.4 Acid rain is associated with many types of damage, Acid rain from effects on human health to destruction of boreal and subtropical evergreen forests. Effects on forests and Acid rain refers to the products of chemical reactions agricultural crops occur directly through high ambient between airborne pollutants (sulfur and nitrogen com- concentrations of sulfur dioxide and nitrogen oxides pounds) and atmospheric water and oxygen. When fos- and indirectly through the acidification of soils. Direct sil fuels are burned, oxides of sulfur and nitrogen are effects occur mainly near the sources of emissions. Soil emitted into the atmosphere. Once there, sulfur dioxide acidification is likely to have long-term impacts on and nitrogen oxides react with other chemicals to form ecosystems and is believed to be the cause of the exten- sulfuric acid and nitric acid. These gaseous emissions sive dieback of forests in Central Europe over the past can stay in the atmosphere for several days and travel several decades. The regions of China believed to be hundreds or thousands of kilometers before falling most sensitive to ecosystem damage from acid rain are back to the earth's surface as acid rain. This process is the subtropical evergreen forests of southern China, the more accurately termed acid deposition, since acidity high-altitude tundra areas of Tibet and parts of Qinghai can travel to the earth's surface in many forms: rain, Province, the coniferous forests in northeastern China, snow, fog, dew, particles (dry deposition), or aerosol and areas of southwestern and eastern China that are gases. expected to have extremely high deposition in the Sulfur emissions are highest in southern China, par- future. ticularly in Sichuan, Guizhou, Guangxi, and Hunan Based on the RAINS-Asia model, sulfur deposition provinces, primarily because of the large amounts of already exceeds the critical load (box 2.3) in Sichuan high-sulfur coal produced and consumed there. The and parts of eastern China and is expected to increase power sector, with its widespread use of tall smoke- there and elsewhere in the near future (map 1). In south- stacks, is probably the main contributor to the long- western China, especially around Chongqing, annual range transport of sulfur and nitrogen oxides. However, depositions already exceed the critical load by as much Pollution, Health, and Productivity: Estimating Today's Costs 21 as 11,000 milligrams per square meter. Some of the crop was damaged by acid rain in 1993, amounting to most sensitive ecosystems in southern China may a loss of about 62 million yuan. Similar losses in pro- already have been damaged by acidic precipitation. duction were found for grain crops, with losses totaling Although considerable research needs to be done on the about 184 million yuan. Total losses for the forestry sec- direct impact of sulfur on rice, studies suggest that dam- tor (both for trees that have died and for reduced age begins to occur on similar ecosystems at sulfur diox- growth) were estimated at 169 million yuan. ide ambient concentration threshold values of 20-30 Ambient concentration data from Chinese sources gg/M3 (Downing, Ramankutty, and Shah 1997). During and deposition estimates from the RAINS-Asia model the winter average ambient sulfur dioxide concentra- put estimated current crop and forest losses at $5 billion tions are above 600 gg/M3 in Chongqing. A survey of a year. The average crop loss for provinces experiencing forest growth in Sichuan Basin and Guizhou Province acid rain was estimated at 3.6 percent.s has found that forest damage (indicated by rates of tree and foliage growth) is higher in areas with highly acidic Climate change rain. A 50 percent drop in biomass production in com- mercial spruce forests experiencing acid rain has also The increasing concentration of carbon dioxide in the been reported (Zhao and Xiang 1988). Areas receiving atmosphere as a result of fossil fuel combustion and acid rainfall also show higher rates of material corro- other human activities is known as the greenhouse sion in exposure tests. effect. The greenhouse effect can cause changes in the In 1995 the Chongqing Environmental Protection earth's climate, resulting in damage to agricultural Bureau carried out the most detailed analysis to date of production, terrestrial and aquatic ecosystems, human crop and forest loss due to acid rain. An assessment of settlements, and human health. Based on current vegetable and crop losses was carried out for the nine trends in greenhouse gas emissions, leading climate central districts of Chongqing Municipality. Ambient change models project an increase in earth's mean sur- concentrations of sulfur dioxide in these districts aver- face temperature of 1.0-3.5 degrees Celsius (oC) by aged 390 gg/m3. The RAINS-Asia model projects that 2100 and an associated increase in sea level of about annual acid deposition in central Chongqing is on the 15-95 centimeters (Watson and others 1996). While order of 12,356 milligrams a square meter, while excess the science behind these models is improving, substan- deposition is about 11,379 milligrams a square meter. tial uncertainty remains about the climate change Surveys by the Chongqing Environmental Protection process and impact predictions, particularly for indi- Bureau found that about 24 percent of the vegetable vidual regions. Chinese researchers predict that increased greenhouse BOX 2.3 gas concentrations will lower rice, wheat, and cotton What is critical load? production because of higher temperatures, increased e csoil evaporation, and more frequent and severe storms. Rising sea level is another concern for China and other for the RAINS-Asia miodol (Doing, Ramiankuitt, ind Shh countries with large populations living in low-lying 1997). Criticat oad is defined ac, the highest deposition of areas. According to Chinese studies, a 1 meter rise in sea acJdic compounds that can occurrithio!t causing harfu level, combined with storm surges and the tide, could longy-termTA effect, on ecoSYSttrtr and functions. Areas flood an area of China the size of Portugal (including iat have a linited natuiral capacity to absorb or neutiraiZe acid the cities of Shanghai and Guangzhou), displacing 67 ram amillion people at current population levels (Johnson buiffer acidity (thirough different soil chiemTistry biotogical tok- erances, or othier factors) ha,e a higer crIticat load. Assessing and others 1996). the natural capacity of e-osystemris to withstand eveof pol- Although the risks from climate change are substan- ution is a miethod of mneasuriny ecosystem heatth and of tial, this report makes no attempt to quantify the asso- asessin the enironmientat benefit,, of em nreduictions. ciated economic losses. Aside from great uncertainty about potential damages and the complications of val- uation (see below), most of the effects of climate change 22 Clear Water, Blue Skies: China's Environment in the New Century are expected to occur beyond the time frame of this TABLE 2.4 study (that is, after 2020). Local and regional pollution Air and water poLlution cost China about 8 is expected to cause more damage in the short term. percent of GDP (millions of U.S. dollars) Economic valuation of impacts Willingness-to-pay Human capital Problem valuation valuation Valuation of the physical damages of air and water Urban air pollution 32,343 11,271 pollution can provide a useful guide to environmental Premature deaths 10,684 1,597 policy. For individual pollutants it is possible to find Morbidity 21,659 9,674 Restricted activity days 3,842 3,842 the least-cost means of abatement without assigning Chronic bronchitis 14,092 2,107 monetary values. One way is to rank the costs of var- Other health effects 3,725 3,725 Indoor air pollution 10,648 3,711 ious options for meeting environmental standards or Premature deaths 3,517 526 other targets. But when policymakers have to compare Morbidity 7,131 3,185 the costs of different pollutants-to human health or Lead exposure (children) 1,622 270 Water pollution 3,930 3,930 productivity-cost-effectiveness analysis based on Health care costs 1,988 1,988 physical damages is not feasible. How should a munic- Agricultural and fishery losses 1,159 1,159 Water shortages 783 783 ipality decide how much of its budget to devote to con- Acid rain 5,046 5,046 trolling air pollution relative to water pollution, for Crop and forest damage 4,364 4,364 Materials damage 271 271 example? Or, within the water pollution budget, how Ecosystem damage 411 41 Ecsse aae411 411 much should be devoted to controlling biological oxy- Total 53,589 24,228 gen demand pollution and how much for heavy Percentage of GDP 7.7 3.5 metals? Source: Annexes 2.1 and 2.2. The most common way to create a comparative framework is to convert physical damages to economic The valuation of other impacts, such as the medical values. The economic valuation of a human life poses costs of illness or damage to agricultural crops, is not as the greatest difficulty because it raises social, political, contentious. The health and productivity losses associ- and ethical questions. To value the excess mortality ated with urban air pollution, including hospital and attributable to pollution, this report uses measures of emergency room visits, lost work days, and the debili- willingness to pay, the standard methodology for valu- tating effects of chronic bronchitis, are estimated at ing environmental impacts in industrial countries. A more than $20 billion a year, making them the single mid-range estimate of the willingness to pay to avoid a largest environmental cost in China today. Although premature death in the United States is about $3 million comprehensive data on lead poisoning in China are not per statistical life. This estimate can be conservatively available, it is possible to estimate the lead exposure of scaled for use in China by multiplying by the ratio of children based on numerous studies of lead poisoning average per capita incomes in the two countries (annex 2.1). ($500/$25,000), which results in an estimate of Total air and water pollution costs are conservatively $60,000 per statistical life in urban areas and $31,800 estimated at $54 billion a year, or roughly 8 percent of in rural areas. Much lower values are obtained by using GDP (see table 2.4). The largest losses to health, pro- the "human capital" approach, which includes only the ductivity, and agriculture are: lost wages due to a premature death. Lost wages total * Health losses associated with urban air pollution- about $9,000 in urban areas and $4,800 in rural areas.6 particularly debilitating chronic bronchitis. Premature deaths caused by air pollution cost about * Health losses associated with indoor air pollution. $14 billion a year under the willingness-to-pay valua- * Chronic disease from water pollution-especially tion and $2 billion a year under the human capital val- heavy metals and toxics. uation (table 2.4). However, disease and illness account * Crop and forestry damage from acid rain. for far more damages under both the willingness-to-pay * Nervous system damage and reduced intelligence and human capital approaches. among children exposed to high levels of lead. Pollution, Health, and Productivity: Estimating Today's Costs 23 These losses vary among provinces because each has toms, restricted activity days-international studies a different balance of environmental problems. For were used. International dose-response functions for example, water shortages -and attendant pollution are health effects were used where they had not been more pervasive in northern China, while sulfur conta- directly measured in China. The dose-response func- mination and acid rain are more of a problem south of tions used to estimate mortality and morbidity effects the Yangtze River. Nonetheless, with total losses of from air pollution are shown in annex 2.1 table 1 (these about $54 billion a year, national policymakers cannot same dose-response functions were used for indoor air help but be concerned about China's environment. pollution; see below). Studies in China have found a statistically significant Conclusion relationship between health outcomes and both particu- lates (total suspended particulates and PM-10) and sul- As Premier Li Peng indicated in July 1996, improving fur (sulfur dioxide). The interpretation here is that China's environment is essential to realizing the poten- sulfur, generated primarily by coal combustion in China, tial improvements in the quality of life that rising is a good proxy for fine particulates, and that a portion incomes should bring. Today the damages of excessive of the fine particulates are formed from sulfur in the pollution-in the form of premature deaths, sickness, atmosphere. Thus we have used fine particulates (PM- and damage to productive resources and urban infra- 10) as the key measure of health impacts in this report. structure-are estimated to cost the Chinese about 8 Because only total suspended particulates are measured percent of GDP. consistently in China, PM-10 has been calculated These costs are high. But economic reforms and envi- throughout as 1 microgram per cubic meter (pg/m) of ronmental policies have held them in check. Will this total suspended particulates=0.6 pg/m of PM-10. continue? That is the subject of the next chapter. The valuation of physical impacts is based on two approaches: willingness-to-pay and human capital. As Annex 2.1 Economic valuation of air the field of environmental economics has developed, the and water pollution damage preferred approach to valuing environmental damages to health has shifted from the human capital approach This annex describes the methodology used to estimate to the willingness-to-pay approach. The human capital the environmental damage associated with air and approach values mortality and morbidity impacts sim- water pollution in China, and to value these damages in ply as lost productivity (discounted lost wages) plus monetary terms. The four types of environmental costs out-of-pocket expenditures (such as medical bills). In outlined here are urban air pollution, indoor air pollu- essence, the valuation of human life or health under this tion, water pollution, and lead pollution. Acid rain approach is similar to determining the value of any damage and cost estimates are provided in annex 2.2. physical asset (Hara, Anis, and Stieb 1995). The human capital approach continues to be used because it is a Urban air pollution ANNEX 2.1 TABLE 1 Damages from urban air pollution were estimated using Dose-response functions for PM-1 dose-response functions from Chinese and interna- tional studies. Epidemiological studies carried out in Health impacts Unita China, including some supported by the World Health Mortality (deaths) 6 Organization (WHO) and the World Bank (Xu 1993), s5prar spit admissions (cases) 2 Emergency room visits (cases)23 were used to assess the relationship between ambient Restricted activity days (days) 57,500 air pollution (concentrations of total suspended partic- Lower respiratory infection/child asthma (cases) 23 Asthma attacks (cases) 2,608 ulates and sulfur dioxide) and several morbidity end- Chronic bronchitis (cases) 61 points (hospital admissions and emergency room visits) Respiratory symptoms (cases) 183,000 and mortality. For other morbidity estimates-asthma a. Number of additional deaths, cases, or days per 1 miLLion people for every 1 pg/m increase in ambient concentrations of PM-10. attacks, lower respiratory infections, respiratory symp- Source: World Bank staff estimates. 24 Clear Water, Blue Skies: China's Environment in the New Century convenient way to estimate a complicated phenome- expectancy at birth. Average life-years remaining for non, and because wages are easily observed. each age group are multiplied by the number of deaths The willingness-to-pay approach measures the value avoided to obtain the number of life-years saved. Average of human life and health in the marketplace (Cropper annual urban ($866) and rural ($289) wages were used and Oates 1992). What are individuals willing to pay to to value the number of avoided mortalities (human cap- reduce the risk of injury or death, or willing to accept ital approach) and morbidities from assumed improve- for taking on a limited risk? In properly functioning ments in ambient urban air quality and rural indoor air markets, where risks are known, there is likely to be a quality, respectively. For urban wages an additional 30 risk premium, relative to jobs requiring similar skills, percent was added to account for remaining nonwage for risky occupations. The amount people pay to reduce benefits such as housing, schooling, and pensions. the risk of injury or death also can be observed (home fire alarms, seatbelts, safety seats, air bags), as can the Indoor air pollution amount people are willing to accept to avoid limited risk (life, health, and flight insurance). Given the current While many urban residents are exposed to indoor air transition from a planned to a market economy, mar- pollution, estimates of indoor air pollution here are lim- kets for risk in China are still in their infancy, and no ited to the rural population to avoid double counting. known willingness-to-pay survey has been carried out. Starting with the rural population of 859 million in To provide internationally comparable estimates of pre- 1995 (438 million men and 421 million women), it was mature mortality costs, this report estimated the will- assumed that: ingness to pay to avoid premature mortality in China. * Only the half of the population living in temperate These values have been converted from U.S. estimates climates is exposed. comparing wage rates for risky and nonrisky occupa- * Exposure in temperate areas is limited to the three tions and from other contingent valuation studies that winter months, when additional fuels are used for heat- estimate the value of making small reductions in the ing and doors and windows are kept closed. probability of death (annex 2.1 table 2). * Rural women spend as much time indoors as their For the human capital estimates, age-specific mortal- urban counterparts (in temperate areas during winter), ity data for Beijing (1989) were used to calculate the but rural men spend only two-thirds as much time number of "excess" deaths that could be avoided for indoors as their urban counterparts. each age group by meeting Chinese class 2 air pollution This leaves an exposed population of 109 million (44 standards. The number of life-years remaining for each million men and 65 million women), or 13 percent of age group has been calculated using age-specific life the rural population. expectancy tables for China. Thus if a child died before Fuel use data for rural areas were used to calculate age 1, the number of life years lost is 68, which is life the percentage of the population exposed to coal and to ANNEX 2.1 TABLE 2 Unit valuation of mortality and morbidity (U.S. dollars) Urban areas (ambient air) Rural areas (indoor air) Wi[ingness-to-pay Human capital Wilingness-to-pay Human capital Health impact approach approach approach approach Mortality, per death 60,000 8,970 31,762 4,748 Respiratory hospital admissions, per case 284 284 150 150 Emergency room visits, per case 23 23 12 12 Restricted activity days, per day 2.32 2.32 1.23 1.23 Lower respiratory infections/chiLd asthma, per case 13 13 7 7 Asthma attacks, per case 4 4 2 2 Chronic bronchitis, per case 8,000 1,196 4,235 633 Respiratory symptoms, per case 0.60 0.60 0.32 0.32 Source: World Bank staff estimates. Pollution, Health, and Productivity: Estimating Today's Costs 25 biomass fuels. These figures were then used to calculate Lead pollution the average concentrations of total suspended particu- lates inside rural households, using concentration data U.S. studies have estimated the benefit of reducing aver- from Sinton and others (1995). "Excess" pollution was age blood-lead levels by 1 microgram per deciliter then calculated comparing average indoor concentra- (pg/dl) in both children and adults (Schwartz 1993). To tions to Chinese standards. From the excess pollution estimate the total benefits of reducing lead pollution, data the physical damages were calculated in the same unit costs (1 pg/dl) were multiplied by the amount that way as for urban air pollution. the average blood-lead level exceeds the threshold for Rural wages were used to calculate indoor air pollu- lead impacts; the current definition of lead poisoning in tion losses using an approach similar to that for urban the United States is more than 10 pg/dl of blood. For air pollution (see annex 2.1 table 2). China the costs of lead pollution for children were cal- culated by scaling the U.S. figures by per capita incomes Water pollution in each country ($500/$25,000) and by the compara- tive number of children under six living in urban areas. A lack of data prohibited an independent estimation of To obtain total costs, however, the average blood-lead water impacts for this report. Instead, estimates pre- level of children in Chinese cities is needed. The lack of pared by Chinese researchers as background for this comprehensive studies on blood-lead levels in Chinese report were used. The Chinese researchers used studies cities precludes accurate estimates of average blood- carried out in areas near Shenyang and Fushun where lead levels. Still, a number of studies of lead in China land had been irrigated with highly polluted water, and have been carried out (Shen and others 1996). The esti- estimated the resulting impacts on agricultural produc- mates presented in this report assume that the average tion. The Chinese researchers also compared disease blood-lead level in urban areas of China exceeds the rates among fishermen and farmers living near the impact threshold by at least 8 pg/dl (annex 2.1 table 3). Bohai and Huanghai seas and among persons in the Other estimates of lead impacts can be obtained by mul- same county in Northeast China who were near and tiplying alternative excess blood-lead levels by the per far from the Songhua River. In both studies the subjects unit figures presented in the second column of annex living near the water bodies had significantly higher 2.1 table 3. rates of liver cancer and other water-related diseases. Studies conducted by researchers from Harvard Annex 2.2 Simulating acid rain impacts University and China in Anhui Province also found using the RAINS-Asia model much higher rates of spontaneous abortion among people dependent on pond water than on well water. The acid rain scenarios in the report were developed Despite the difficulty of generalizing the results of these using the Regional Air Pollution Information and limited studies, it was conservatively estimated that the Simulation Model-Asia (RAINS-Asia) model, a tool for health costs of water pollution are at least $2 billion a integrated analysis of air pollution. The model was cre- year. ated through an international collaborative program designed to study the effects of sulfur deposition in ANNEX 2.1 TABLE 3 Asia. It is based on the framework of a pioneering acid Costs of lead exposure for children rain prototype for Europe (RAINS-Europe) that is (millions of U.S. doLlars) being used for policy analysis under the European United States China Excess Convention on Long-Range Transboundary Air Cost (per 1 pg/d[) (per 1 pg/d[) (8 pg/dl) Pollution. Medical costs 189 5.5 44.2 . Compensatory education 481 14.0 112.5 The RAINS-Asia model covers East, South, and Earnings 5,060 147.9 1,183.3 South-East Asia, with particular emphasis on China, Infant mortality 1,140 33.3 266.6 India, Indonesia, Japan, the Republic of Korea, and Neonatal care 67 2.0 15.7 Total 6,937 202.8 1,622.2 Thailand. The model contains databases on energy con- Source: Schwartz 1993; World Bank staff estimates. sumption for 23 countries, 94 regions, and 250 large 26 Clear Water, Blue Skies: China's Environment in the New Century point sources. The model also estimates the carrying In Asia a limited amount of work has been con- capacity for acid deposition of 31 types of ecosystems. ducted on acid rain impacts and their costs. Studies of Values for sulfur depositions are based on a yearly aver- acid rain impacts have been carried out in parts of age and are calculated at a 1 x 1 degree resolution. southwestern China. Some of the impacts seen in the Aggregate results of source and receptor information vicinity of Chongqing, Sichuan, and Guiyang, Guizhou, on acid deposition patterns for each region or country include 50 percent dieback of forests on Nanshan can be obtained. Local impacts of acid deposition can mountain, more than 50 percent reduction in biomass be estimated as well. The temporal range of the model production in commercial spruce forests experiencing is 1990-2020. A detailed description of the model and acid rain with a pH of less than 4.5, yellowing of rice in its uses can be found in Downing, Ramankutty, and large areas near Chongqing after rainfall with a pH of Shah (1997). less than 4.5, and wheat fields that are seriously affected Acid deposition can have a range of impacts, including: by rainfall with a pH of less than 3.5 during the middle * Acidification of soils and damage to trees and other and late growing periods. vegetation, including agricultural crops and forests. Simulations with the model show that excee- * Acidification of lakes and rivers, leading to fish loss. dences-that is, deposition of sulfur exceeding the * Eutrophication of surface waters due to excess nitro- critical loads of the ecosystem-are most severe in and gen inputs. around urban areas such as Shanghai and large * Direct impacts on vegetation due to exposure to sul- regions around Chongqing (see map 1). It is estimated fur dioxide and nitrogen oxides in the vicinity of major that nearly 10 percent of the total land area is exposed emitting sources. to more than 1,000 milligrams per square meter * Corrosion of metals and building materials. (mg/M2) a year of sulfur deposition in excess of critical * Health effects caused by increased levels of sulfate loads. About 1 percent of the total land area (concen- and other aerosols. trated in and around Chongqing) has exceedences of ANNEX 2.2 TABLE 1 Estimates of sulfur dioxide damage to farming and forestry, 1995 Gross output Annual sulfur Ambient Share of (bi[[ions of yuan) dioxide deposition sulfur dioxide output damaged Total damage Province Farming Forestry Tota[ (mg/M2) concentrations (percent) (108 yuan) Liaoning 392 13 405 1,500 50 1.9 7.70 Beijing 87 3 90 1,700 56 2.2 1.98 Tianjin 85 1 86 3,100 104 5.2 9.15 Hebei 754 24 778 1,500 50 2.0 15.56 Shanxi 203 13 216 1,000 33 0.8 1.73 Shanghai 78 0 78 4,600 154 8.5 6.63 Jiangsu 986 21 1,007 4,200 141 7.6 76.53 Zhejiang 482 50 532 2,500 84 4.0 21.28 Anhui 638 40 678 2,100 71 3.2 21.70 Fujian 340 59 399 1,300 44 1.5 5.99 Jiangxi 332 41 373 1,800 60 2.5 9.33 Shandong 932 42 974 2,300 77 3.8 37.01 Henan 866 38 904 2,000 66 3.0 27.12 Hubei 612 28 640 1,800 60 2.5 16.00 Hunan 580 42 622 1,500 50 1.9 11.82 Guangdong 778 46 824 1,900 62 2.6 21.42 Guangxi 384 33 417 1,600 53 2.0 8.34 Sichuan 887 45 932 2,900 97 5.0 46.60 Guizhou 224 15 239 3,000 101 5.1 12.19 Yunnan 299 41 340 400 12 0.0 0.00 Shaanxi 258 17 275 1,300 43 1.5 4.13 Total 10,197 612 10,809 44,000 362.19 ($4.36 bit[ion) Source: WorLd Bank staff estimates. Pollution, Health, and Productivity: Estimating Today's Costs 27 more than 5,000 mg/m2 a year of sulfur deposition. Downing, T., R. Ramankutty, and J. Shah. 1997. "RAINS-Asia: Chongqing has depositions that exceed 11,000 mg/m2 Regional Air Pollution Information and Simulation Model." World Bank, Washington, D.C. a year. Esrey, S.A, J.B. Potash, L. Roberts, and C. Shiff. 1991. "Effects of Studies conducted in Chongqing provide informa- Improved Water Supply and Sanitation on Ascariasis, tion to arrive at a stylized relationship between deposi- Diarrhoea, Dracunculiasis, Hookworm Infection, Schistosomiasis, and Trachoma." Bulletin of the World Health tion, ambient exposure, and crop loss. An exponential Organization 69 (5): 609-21. dose-response function was derived linking some data Fisher, A., L.G. Chestnut, and D.M. Violette. 1989. "The Value points available from field studies in Chongqing. A sim- of Reducing Risks of Death: A Note on New Evidence." Journal of Policy Analysis Management 8: 88-100. ilar dose-response function was assumed for impacts on Hara, D., A. Anis, and D. Stieb. 1995. "Review of Methods for forestry. The dose-response function was applied to Valuing Human Injury and Lost Productivity Under Changes in deposition data available from the RAINS-Asia deposi- Air Quality." Health Canada, Ottawa, Canada. Johnson, T.M., J.F. Li, Z.X. Jiang, and R.P. Taylor, eds. 1996. tion maps and from farming and forestry output to China: Issues and Options in Greenhouse Gas Emissions obtain damage results (annex 2.2. table 1). The result- Control. World Bank Discussion Paper 330. Washington, D.C. ing estimate of economic costs from crop and forestry Pope, C.A., and X. Xu. 1993. "Passive Cigarette Smoking, Coal losses alone is more than $4 billion a year. This is a con- Heating, and Respiratory Symptoms of Nonsmoking Women in China." Environmental Health Perspectives 101(4): 314-16. servative estimate, since it does not include impacts on Schwartz, Joel. 1993. "Societal Benefits of Reducing Lead materials or human health. Exposure." Environmental Research 66: 105-24. Shen, X.M., J.E Rosen, D. Guo, and S.M. Wu. 1996. "Childhood Lead Poisoning in Children." Science of the Total Environment Notes 181: 1001-109. Sinton, Jonathan E., Kirk R. Smith, Hansheng Hu, and Junzhuo 1. Throughout this chapter, the disease burden in China is mea- Liu. 1995. Indoor Air Pollution Database for China. sured in terms of disability-adjusted Life years, or DALYs. For an expla- Environmental and Occupational Epidemiology Series. World nation of DALYs and the disease burden in China, see World Bank Health Organization, Global Environmental Epidemiology (1996b), annex 3. Network, Geneva. 2. See the research by X. Xu and coLleagues, a partial List of which Streets, David G. 1996. "Acid Rain in Asia." World Bank, is given in Wells, Xu, and Johnson (1996). Washington, D.C. 3. Reductions in morbidity from better water supply and sanita- Watson, R. T, M.C. Zinyowera, R.H. Moss, and D.J. Dokken, tion are 26 percent for diarrhea, 27 percent for trachoma, 29 percent eds. 1996. Climate Change 1995: Impacts, Adaptations and for ascariasis, 77 percent for schistosomiasis, and 78 percent for dra- Mitigation of Climate Change: Scientific-Technical Analyses. cunculiasis. Mean reductions in diarrheal-specific mortality are 65 per- Intergovernmental Panel on Climate Change. Cambridge: cent, while overaLL child mortality drops by 55 percent (Esrey and Cambridge University Press. others 1991). Wells, G.J., X.P. Xu, and T.M. Johnson. 1994. "Valuing the 4. The RAINS-Asia model estimates sulfur emissions from two Health Effects of Air Pollution: Application to Industrial sources. Large point sources, of which there are 161 in China, are Large Energy Efficiency Projects in China." World Bank, Washington, power plants. ALL other sources, including smaLL power stations, indus- D.C. trial boilers, residential fueL use, and transportation, are considered World Bank. 1992. "China: Environmental Strategy Paper." "area" sources. China and Mongolia Department, Washington, D.C. 5. The empirical evidence for these estimates is Limited to a few - . 1993. World Development Report 1993: Investing in Chinese studies. The uncertainty of crop yield estimates are further Health. New York: Oxford University Press. aggravated by other confounding variables, such as ozone and other - . 1996a. "China: Chongqing Industrial Pollution Control pollutants (annex 2.2). and Reform Project." Staff Appraisal Report. Washington, D.C. 6. The human capital approach is the most common methodology - 1996b. "China: Issues and Options in Health Financing." used in China. A typical value of a statistical Life used by Chinese social China and Mongolia Department, Washington, D.C. scientists is 70,000 yuan, or about $8,400. Xu, X., B.L. Li, and H.Y. Huang. Forthcoming. "Air Pollution and Unscheduled Hospital Outpatient and Emergency Room Visits." Environmental Health Perspectives. References Xu, X., J. Gao, D.W. Dockery, and Y. Chen. 1994. "Air Pollution and Daily Mortality in Residential Area of Beijing, China." Cropper, M.L., and W.E. Oates. 1992. "Environmental Economics: Archives of Environmental Health 49(4): 216-22. A Survey." Journal of Economic Literature 30 (June): 675-740. Xu, Z.Y. 1993. "The Report of the WHO Consultation on Air Delft Hydraulics, Mot MacDonald, and Welsh Water Pollution and Health." World Bank, China and Mongolia International. 1995. "Hangzhou Bay Environmental Study." Department, Washington, D.C. Report prepared for the World Bank's International Zhao, D., and Y. Xiang. 1988. "Acid Rain in Southwestern Development Association. Washington, D.C. China." Atmospheric Environment 22(2): 349-58. 28 Clear Water, Blue Skies: China's Environment in the New Century Pollution, Health, and Productivity: Plotting Alternative Futures hina has set ambitious quantitative objectives for reducing air and water pollution by 2000, as well as more qualitative objectives in its long-range plan to 2010. The quantitative goals include containing the increase in wastewater discharges to 14 percent between 1995 and 2000 and holding particulate and sul- fur dioxide emissions nearly constant (box 3.1). For the qualitative goals, by 2010 the government hopes to have reversed increasing environmental deterioration and ecosystem degradation. Drinking water in major cities will be expected to meet national standards and surface water to meet standards for appropriate use. Urban air should meet class 2 standards. Finally, the government plans to significantly reduce discharges of major industrial pollutants, halt the deterioration of major river basins, and bring an end to worsening acid rain. 29 Although past economic growth has generated high environmental costs, future growth will give China the opportunity to correct the damage. With continued C rapid growth newer and cleaner technologies can Miny goverments commit themselves to onty vague environ- replace outmoded and dirty ones. And with rising mental objectives; China, by contrast, has defned a clear set of incomes Chinese consumers will buy different products measurable targtS, Achieving the targets for towe r water poIu- and services than in the past, propelling changes in the tion lited in the tabte be[ovv require increaing industria[ structure of China's economy. A cleaner, safer future is bined municipat and industia wastewater treatment frm 19 not a given, however. peicent to 25 percent. Mloreoverl the. govemnment ptaans to invest Will rapid growth, combined with existing policies, 450 billion yuan in abatement technology between 1996 and be sufficient to achieve China's ambitious environ- 2000, with about half going toward controlling air pollution and mental objectives? If not, could a different pattern of 40 percent being used to cut back wastewater discharges. investment allow China to both grow rapidly and achieve its environmental objectives? This chapter for 2000 answers these questions by exploring three alternative scenarios. The first, "business as usual" scenario 1995 2000 examines the beneficial effects of projected technolog- Pat Water ical and structural change on environmental quality Wastewater discharges (billions of tons) 42.2 48 based on the assumption that current environmental Industrial 27.1 30 Municipal 15.1 18 policies remain broadly unchanged. Although techno- Chemical ox9gen demand (millions of ton-) 22.3 22 logical and structural change will bring benefits, the nuirial 16 business as usual scenario will not be sufficient to Air (millions of tons) Smoke dust 17.4 17.5 change the pattern of growth and achieve China's Industrial fugitive dust 17.3 17.0 ambitious environmental objectives. Thus two alter- Sulfur dioxide 23.7 24.6 Solid waste (millions of tons) 1.110 native scenarios are presented to show the changes in Industrial 930 policies and investment patterns China will require to Municipal ISO Industrial solid waste disposal (mitlions of tons) 62 60 achieve its goals. ~~ rtA P.3dSI q6 So=urce: NEPA, 5PH, 3r.d SETC 1996. Basic assumptions about macroeconomic and sectoraL growth stricter environmental controls should lower both emis- sion coefficients and total pollution. During 1995-2020 real GDP growth is expected to A second consequence of growth is the structural average 6.7 percent a year.' Two factors inherent to shifts it induces in the composition of demand. Over growth have important consequences for the environ- time the share of agriculture in China's GDP will ment. The first is the rate of investment, assumed here undoubtedly fall and the share of services will increase, to gradually fall from its high current rate of more than while the shares of industry and construction will 40 percent to 34 percent by 2020. The capital stock remain roughly constant. Since services tend to be less accumulated as a result of new investment generally polluting than agriculture, this shift will also likely acquires the characteristics of advanced technology cause pollutant emissions to fall. available elsewhere. This is an optimistic assumption Demand for energy will also be affected by growth for China, however, because it presumes that domesti- and will rise over the next twenty-five years. Demand cally manufactured capital equipment is comparable in for primary energy in thermal power generation and abatement technology to equipment manufactured else- heat production is expected to reach 1,430 million tons where. If the economy continues to grow rapidly, the of coal equivalent (Mtce) by 2020, while demand for contribution of the current capital stock to future out- primary electricity production in nonthermal power put will be quite small after 2005. As this capital stock plants (from hydro, nuclear, and others) will rise to 93 is replaced by new technology, technical progress and Mtce.2 30 Clear Water, Blue Skies: China's Environment in the New Century Energy prices will have an important effect on energy This drop will be particularly sharp over the next ten intensities (that is, energy consumed per unit of GDP). years, with energy intensity falling to 80 percent of its Low average prices for coal-perhaps 10-20 percent 1995 level by 2005. In 1995 China had an energy con- below the equivalent border parity price during sumption to GDP ratio of 1.8 kilograms of coal equiv- 1990-953-have encouraged its inefficient use. Further, alent per U.S. dollar (similar to India's). By 2020 that the environmental damage caused by coal use is wors- ratio should improve to 1.1. Even then, however, it ened by the high ash content of much of the coal that is would be far above current values for Japan (0.2) and delivered and the inconsistent quality of different grades the United States (0.4). of coal. Although most petroleum prices are close to their equivalent border parity prices, low taxes on gaso- PoLLution without poLicy changes: line and diesel fuel could be raised to discourage use.4 The business as usual scenario Assuming that these relative prices do not change, primary energy demand is projected to increase from The central idea of the business as usual scenario is about 1,240 Mtce in 1995 to about 3,700 Mtce in 2020 that it allows for those improvements in environmen- (figure 3.1). Final energy demand will grow from about tal performance that accompany market-driven 920 Mtce to 2,630 Mtce over the same period (figure changes in the economy.6 Under this scenario there 3.2).s Coal accounted for 78 percent of primary energy will be no significant change in environmental poli- demand in 1995; this share is projected to decline to 70 cies or in the degree of regulatory pressure used to percent by 2020. However, coal use will shift from small enforce those policies. But even in the absence of a and medium-scale users to large users such as power concerted effort to address environmental problems, plants and large heating boilers. Final use of coal will the advent of cleaner production techniques, the decline from 60 percent of final energy consumption in redesign of existing technologies, the shift toward 1995 to 40 percent in 2020. This shift could bring enor- higher value-added products and activities, and other mous environmental benefits because it is much easier to such changes will cause emission coefficients to fall as control and monitor emissions from large plants than China grows.7 from myriad small and medium-scale users. Bearing these considerations in mind, we address Taken together, changing consumption patterns and two questions in the following sections: How will eco- more efficient technologies could easily reduce China's nomic growth affect emissions? And how will emissions energy intensity to 62 percent of its 1995 level by 2020. affect air and water quality? FIGURE 3.1 FIGURE 3.2 Coal will continue to provide most of ... as well as much of its final energy China's primary energy demand ... demand Millions of tons of coal equivalent Millions of tons of coal equivalent 4,000 4,000 3,500 3,500 3,000 3,000 Power and heat 2,500 2,500 Power 2,000 Gas 2,000 and heat 1,500 1,500 Oil products 1,000 Coal 1,000 . 500 500 Coal 0 0 1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020 Source: World Bank staff estimates. Source: World Bank staff estimates. Pollution, Health, and Productivity: Plotting Alternative Futures 31 Future pollution loads 2020 (figure 3.4). As with particulates, growth in the use of coal by households and other small sources dri- Particulates. Fine particulate emissions will increase ves the initial increase in emissions. Later, an increase in by 39 percent between 1995 and 2010 but will decline demand for electricity outweighs the initial drop in sul- slowly thereafter (figure 3.3). By 2020 particulate emis- fur dioxide emissions per ton of coal burned in power sions will be 35 percent higher than in 1995. This out- and heat plants (a drop made possible by improvements come represents the sum of two sets of forces. Better in the thermal efficiency of new power plants and by the particulate controls for large sources-heavy industry adoption of low-cost control measures). As a result and power and heat plants-will reduce emissions as power and heat plants account for all of the growth in older equipment is replaced, causing their share in total sulfur dioxide emissions after 2005. emissions to fall from 60 percent in 1995 to 52 percent in 2020. Emissions in the residential, commercial, and Nitrogen oxides. Nitrogen oxide emissions will small industrial sectors will increase, however. New increase rapidly during 1995-2020 as a result of brisk technology offers much smaller gains in these sectors- growth in emissions from small sources (figure 3.5). except to the extent that more coal washing, improved Much of this growth is the result of increased oil con- energy efficiency, and better boiler and stove designs sumption by motor vehicles-motorcycles, cars, lower average emissions per ton of coal burned. trucks, and buses. Nitrogen oxide emissions from Unless policies are changed, there will be substantial power and heat plants follow the same pattern as for growth in fine particulates emitted from small sources. sulfur dioxide emissions but with a higher overall Pollution discharged from low chimneys is the main growth rate. Although the scenario assumes that burn- contributor to poor air quality in urban areas. Under the ers with lower nitrogen oxide emissions will gradually business as usual scenario the amount of smoke emitted be incorporated in new boilers, this will only partly off- by households will grow by 90 percent between 1995 set the effects of rapid growth in electricity demand and and 2020. Thus particulate emissions would stabilize at production. a level that is associated with extremely poor air quality for most urban households, which continue to rely on Lead. To be consistent with the rest of the scenario, coal as the primary fuel for heating and cooking. the projections for lead do not take into account the government's recent announcement of plans to phase Sulfur dioxide. Under the business as usual scenario out lead from gasoline by 2000. As such, the scenario sulfur dioxide emissions will increase 150 percent by provides a baseline against which to measure imple- mentation of that decision. FIGURE 3.3 FIGURE 3.4 Particulate emissions from households, Sulfur dioxide emissions more than double automobiles, and small industries will rise under the business as usual scenario under the business as usual scenario Millions of tons Millions of tons 80 50 60 Tota 40 50 30 40 Power and heat pLants 2l s30 20 Large sources 10 Power and heat plants 10 mlsources 0 0 1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020 Source: World Bank staff estimates. Source: World Bank staff estimates. 32 Clear Water, Blue Skies: China's Environment in the New Century FIGURE 3.5 FIGURE 3.6 Nitrogen oxide emissions also increase Lead emissions from cars jump under the under the business as usual scenario business as usual scenario Millions of tons Thousands of tons 50 35 40 TotaL 40 30 2 ag ore 30 Power and Small sources 20 heat plants 10 Small sources 10 1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020 Source: World Bank staff estimates. Source: WorLd Bank staff estimates. The trend in lead emissions reflects distinct factors trends in industrial and nonindustrial discharges of affecting discharges from small and large sources (figure water pollutants. No attempt has been made to estimate 3.6). Better technology and controls will reduce the discharges of phosphorus from agricultural runoff, so amount of lead emitted by large sources-nonferrous phosphorus discharges under the business as usual sce- smelters, iron and steel mills, power plants-if Chinese nario are almost entirely accounted for by sewage. On technologies embody modern abatement technology. the other hand, about 35 percent of biological oxygen But increased traffic congestion and consumption of demand and about 60 percent of suspended solids dis- leaded gasoline will more than offset this decline, so charged in 1995 came from industry. that by 2020 lead discharges will be about 35 percent In certain parts of China phosphorus emissions are higher than in 1995. Under the business as usual sce- an increasingly serious problem, causing the eutroph- nario the average lead content of gasoline will drop by ication of lakes and rivers that are sources of drinking half over the period. Still, lead emissions from small water. Biological oxygen demand levels provide a gen- sources will more than quadruple by 2020, reflecting eral indicator of water quality and are often corre- rapid growth in the motor vehicle fleet and traffic vol- umes over the period-and illustrating the importance of swiftly implementing the decision to phase out lead. Volatile organic compound emissions skyrocket under the business as usual Volatile organic compounds. Similar factors lie scenario behind the quadrupling in emissions of volatile organic Millions of tons compounds by 2020 (figure 3.7). There is no zero- or 15 low-cost technology-apart from simple improvements 12 Total in fuel efficiency-that will substantially reduce volatile organic compound emissions per ton of petroleum g products used by motor vehicles. Thus any increase in the amount of motor fuels consumed translates directly 6 Small sources into higher emissions of these compounds. 3 3 Large sources Power and heat plants Biological oxygen demand, suspended solids, and 0 phosphorus. These water pollutants are considered 1995 2000 2005 2010 2015 2020 together because they provide an indication of the Source: World Bank staff estimates. Pollution, Health, and Productivity: Plotting Alternative Futures 33 lated with levels of coliforms, especially where that overall loads of biological oxygen demand and sus- untreated sewage is the main source of discharges. pended solids fall below their 1995 levels by 2020. Where lakes and rivers are used for fish farming or However, further progress will depend on the extent industrial processes, excessive biological oxygen and nature of sewage treatment. The costs may be high demand levels may impose heavy costs on enterprises. since the construction of sewerage networks and Suspended solids increase water treatment costs, and sewage treatment plants will be required. industrial discharges are often associated with phe- nols and other organic compounds or heavy metals Other water pollutants. Inadequate data preclude whose presence may render water unfit for drinking detailed projections of other industrial water pollu- or irrigation. tants. Still, trends in emissions of suspended solids, 60 Under the business as usual scenario phosphorus percent of which originated from industry in 1995, sup- emissions increase by 21 percent between 1995 and port the view that better technologies and controls will 2020. Biological oxygen demand levels rise slightly substantially reduce industrial emissions over the next until 2005, after which improvements in industrial ten to twenty years, even under existing policies. Thus wastewater discharges and the spread of municipal even stricter policies would accelerate these improve- treatment outweigh the effects of population and indus- ments. trial growth (figure 3.8). However, the downward trend is eventually overtaken by population growth, and by Global issues. Carbon dioxide emissions under the 2020 domestic sewage accounts for 85 percent of bio- business as usual scenario will produce 2,380 million logical oxygen demand levels. Emissions of suspended tons of carbon in 2020, nearly three times the 800 mil- solids fall sharply after 2005 as low-cost measures to lion tons in 1995. Clearly, the international community reduce industrial- water pollution become more wide- should have a strong interest in helping China achieve spread (figure 3.9). Domestic sewage still accounts for its energy efficiency and diversification objectives. 62 percent of these discharges in 2020, so measures to reduce industrial emissions will have much more Is business as usual enough? impact on emissions of suspended solids than of bio- logical oxygen demand. Air quality. A simple analysis was carried out for Thus cleaner production technologies and better China's largest cities (populations of more than 1 mil- controls on industrial wastewater discharges can ensure lion people) and other cities (less than 1 million people) FIGURE 3.8 FIGURE 3.9 Biological oxygen demand levels eventually Emissions of suspended solids also come fall under the business as usual scenario down under the business as usual scenario Millions of tons Millions of tons 40 2Large sources 80 N SmaLL sources Large sources 35 70 0 SmaLL sources 30 60 25 50 20 40 1 30 10 20 5 10 0 0 1995 2000 2005 2010 2015 2020 1995 2000 2005 2010 2015 2020 Source: World Bank staff estimates. Source: World Bank staff estimates. 34 Clear Water, Blue Skies: China's Environment in the New Century to examine the impact changes in emissions under the Under the business as usual scenario urban air qual- business as usual scenario will have on air quality in ity will improve in the largest cities and become much these areas. The average contribution of different worse in most other cities. However, improvements in sources of pollution (that is, power plants, large indus- the largest cities will not be sufficient to lower average try, and small sources, including households) was particulate concentrations to China's own class 2 (or derived for eleven major cities-Beijing, Chengdu, even class 3) ambient air quality standards. In the Chongqing, Guangzhou, Harbin, Jinan, Shanghai, largest cities fine particulate concentrations will drop Shenyang, Tianjin, Wuhan, and Xian.' The most from 211 micrograms per cubic meter (gg/m3) in 1995 important determinant of air quality in China today is to 126 gg/M3 in 2020 (figure 3.10). Only three cities- the quantity of coal burned by households and other Guangzhou, Shanghai, and Wuhan-will likely be in small pollution sources in urban areas with populations compliance with class 3 standards in 2020. In other of more than 20,000 people.9 Thus, to the extent that cities fine particulate concentrations will increase from overall coal consumption remains the same, the fact an average of 170 gg/m3 in 1995 to 270 jig/m3 in that one city adopts a district heating system merely 2010-20. Thus tens of millions of urban residents will represents a change in the location of pollution-not a be exposed to fine particulate levels about four times reduction in its overall impact. If the total use of coal by higher than World Health Organization (WHO) guide- households is held constant, the construction of a dis- lines. All but a small portion of fine particulate levels are trict heating system in Beijing or Jinan means that less accounted for by emissions from small pollution coal is burned by households in these two cities but sources-households, services, commerce, and small more will be burned in other urban areas. Air quality in industrial activities (figure 3.11). Thus emission control Beijing and Jinan will be better, but air quality in other efforts will need to focus on small sources if the deteri- cities will be worse. Reducing the total damage caused orating trend in air quality is to be reversed. by air pollution will require reducing the total amount As noted, under the business as usual scenario sulfur of coal burned. dioxide emissions grow much faster than fine particulate Historical patterns of growth in other countries sug- emissions-a 150 percent increase compared with a 40 gest that large efforts may be made to improve air qual- percent increase. As a result average sulfur dioxide ambi- ity in Beijing and other large cities while it deteriorates ent levels in the largest cities will increase from 96 jig/m3 in medium-size and small cities. Current evidence from in 1995 to 140 gg/m3 by 2020 (figure 3.12). In other China confirms this pattern. While China's largest cities cities average ambient sulfur dioxide levels will increase are converting households to district heat or cleaner fuels and relocating industries to the suburbs, smaller FIGURE 3.10 cities lag significantly behind. At the same time, rural Increased particulate emissions will worsen households and small enterprises are increasing coal the air quality in smaller cities under the use, switching from biofuels, and adopting other envi- business as usual scenario ronmentally damaging practices. Micrograms per cubic meter To reflect these disparities, differentiated trends in 300 1995 emissions from small sources were applied to China's 2000 250 thirty largest cities (with a total population of nearly 70 2010 million) and to other cities (total population of more 200 2020 than 230 million) and rural areas (towns and villages). 150 In assessing the possible social costs implied by these 100 trends, it is important to keep in mind that even the WHO thirty largest cities will contain less than 10 percent of 50 standard China's population by 2020. These emission trends a were used to estimate trends in ambient air quality for citBes cities the thirty largest cities (including individual estimates average average Source: World Bank staff estimates. for eleven megacities) and other cities. Source:_WorLd_Bank_staff_estimates. Pollution, Health, and Productivity: Plotting Alternative Futures 35 FIGURE 3.11 FIGURE 3.12 Households, small firms, and automobiles Prospects for reducing sulfur dioxide will be the main sources of particulate emissions are not too bright under the emissions under the business as usual business as usual scenario scenario Micrograms per cubic meter Micrograms per cubic meter 350 250 T 1995 20300 2000 200 Sma sources 2010 250 22 150 200 100 150 100 50 Power and heat plants 50 WHO Large sources standard 00 f 1995 2000 2010 2020 Largest Beijing Shanghai Chongqing Xian Other cities cities Source: World Bank staff estimates. average average Source: World Bank staff estimates. even faster-from 66 gg/M3 in 1995 to 135 gg/M3 by 2020. Power plants will account for most of the increase in sulfur dioxide emissions, while small sources dominate Costs of business as usual the increase in particulate emissions. Higher emissions from power plants in or near large cities do not translate Estimating the current and future costs of air pollution into a large increase in ambient sulfur dioxide levels, is difficult. Reasonably reliable dose-response functions however, because of the tall stacks on the power plants in can be used to estimate the economic costs associated these cities.10 On the other hand, higher sulfur dioxide with damage to human health from exposure to various emissions from small sources (largely from burning huge pollutants (box 3.2). But reducing air pollution also has quantities of medium- or high-sulfur coal by households other, less tangible benefits. Surveys consistently find and in small boilers) will result in high ambient levels and that people are willing to pay some portion of their exposure to sulfur dioxide. income to ensure that they can enjoy cleaner air. The analysis here focuses exclusively on the costs air Regional pollution. The business as usual projections pollution imposes on human health. These costs are so indicate that sulfur dioxide and nitrogen oxide emis- high under the business as usual scenario that it is sions will more than double. The impact of such a jump hardly necessary to consider the amenity and ecosystem in acid depositions on crops, forests, and surface waters benefits of cleaner air to justify action. will depend on the location of new power plants as well The absolute value of pollution damages in a given as on the capacity of the soil to buffer acid depositions. city for a given year depends on the reference air quality The RAINS-Asia model was used to simulate the standard used in the calculations, since the gap between effects by 2020 of sulfur emissions and depositions. As that standard and current exposure determines the cost. map 2 shows, in more than 25 percent of the land area Here an annual standard of 60 gg/m3 has been used for sulfur depositions are expected to exceed the annual both fine particulates and sulfur dioxide because this carrying capacity of the ecosystems by at least 1,000 level corresponds to the Chinese class 2 standard and is milligrams per square meter; in about 5 percent of the near the upper range of WHO guidelines. land area annual depositions are expected to exceed Under the business as usual scenario the health costs carrying capacity by 5,000 milligrams per square meter of exposure to particulates (for urban residents only) or more. Most of the excess sulfur depositions are in the will rise from $32 billion (or $129 per resident exposed) rich agricultural lands in southern China. in 1995 to nearly $98 billion (or $197 per resident 36 Clear Water, Blue Skies: China's Environment in the New Century exposed) in 2020 (figure 3.13). When expected income Making a change: Alternative scenarios growth is also taken into account the costs in 2020 are some four times higher ($390 billion). Contrary to the assumptions underlying the business as Lead exposure creates additional health care costs. usual scenario, policies in China are unlikely to remain Infants and children who are exposed to excessive lead static over the next two decades. But how should suffer impairments in neurological development and a investments be altered to improve China's environ- consequential loss of intelligence, reduced earnings over mental future? If China began "growing differently," their lifetimes, and increased neurobehavioral problems investing in technologies less damaging to the environ- and infant mortality. Lead poisoning among Chinese ment and in a less resource-intensive economic struc- children has been estimated to cost about $1.6 billion in ture, emissions could fall. This section explores the 1995. Under the business as usual scenario these costs most effective potential investments and quantifies will rise to more than $13 billion in 2020. their effects on the environment and on human health. Acid rain will also become increasingly costly. If cur- Later chapters discuss the policies that would lead to rent trends persist, damage will occur to more than 25 their realization. percent of China's land, and forest and crop losses may Among the changes that will reap the greatest bene- reach $60-80 billion. Quantifying these effects, how- fits for China's environmental future are: ever, requires additional research. * Increasing substitution of cleaner fuels-especially Finally, if a "shadow price" of carbon of $20 a ton (a gas and district heating-for coal for household heating value currently used by the Global Environment and cooking than under the business as usual scenario Facility that corresponds to available estimates of mar- would reduce particulate and sulfur emissions as well as ginal damage) is attached to carbon dioxide emissions, greenhouse gases. the damage from these emissions totaled $4.4 billion in * Improving energy efficiency and conservation and 1995 and will rise to $13 billion in 2020. Although diversifying energy supplies into noncoal sources would small relative to other health care damages, these costs reduce ambient and solid waste emissions. are still significant. * Investing in industrial air pollution control could decrease emissions of key pollutants at least fivefold by 2020, especially with strict controls on particulates. * Developing public transportation systems and dis- e ccouraging automobile use would mitigate hydrocar- In 1995 emissions (mainly fine particulates) mn China's urban bon-related air pollution in urban areas. areas cauised 178,000 piemiature deaths (equiva[ent to 2.3 mil- Lion [ife-years tost), 1.7 mittion case, of chronic bronchitis, 1.6 FIGURE 3.13 bittion restricted activity davs, and more than 5 bithi cases of Hat aecsso xouet Health care costs of exposure to respiratory illness (see chapter 2). The social costs totat $32 priuae r eti ors ne h Sparticulates are certain to rise under the billion, or 5 percent of GDP: $21 billion in increased illness in bsns suutseai business as usual scenario urban areas (uISIng a cost of illness approach) and $11 bithon in premuature death, (using the conservative willinqness to pay BiLLions of 1995 U.S. dollars to reduce the probabitity of premature death). 100 If assertiv,e policies to tackle combustion emissions are not adopted imme,diately, by 2020 air po[ution wil cause 600,000 80 Other symptoms premature deaths (correSpondhng to 9 mittion life-years lost)' 5.5 mitlhon cases of chronic bronichitis, more than 5 billiOn 60 restricted activity davs, and 20 milhion cases of respicatory it[[ ness each year. At current income lev els the health care costs 40 ; of this increased disease burden will reach $98 billion, When 2 60 adjusted to the projected increase in income, the costs will ilW MNTEilgi total more than $390 billion, or 13 percent of GDP. 0 Word BInk staff. 1995 2000 2010 2020 Source: World Bank staff estimates. Pollution, Health, and Productivity: Plotting Alternative Futures 37 * Raising the abatement rate for industrial water pol- High investment scenario lution and increasing the coverage and level of munici- pal wastewater treatment would improve water quality. In many settings the marginal cost of pollution abate- Shifting the structure of the economy in this direction ment rises sharply once emissions have been cut by is economically feasible. The speed at which the econ- 60-80 percent. The high investment scenario assumes omy would adjust depends on the environmentally that emission standards correspond to the concept of friendly investments China makes in the near term to best available techniques that has been adopted by the avoid social costs later. Two scenarios have been exam- European Union as the basis for its environmental poli- ined to analyze the implications of the alternative strate- cies.12 The scenario assumes that by 2020 policies gies that might be followed. would induce China's commercial sector-state and nonstate-to invest in and maintain abatement levels Medium-cost investment scenario close to what OECD countries have achieved today. Under this scenario cleaner combustion technologies A medium-cost investment scenario begins with the (sorbent injection, fluidized bed combustion) will assumption that China will adopt policies to achieve become widespread in the industrial sector. End-of-pipe emission standards by 2020 that are broadly equivalent particulate removal will increase to 97.5 percent for to those in the United States and Europe in the early large industries and to 99.8 percent for power plants. 1980s. Policy interventions (discussed in subsequent All new power plants will have flue gas desulfurization chapters) would elicit investments from both the state systems. Some type of particulate controls will be and nonstate sectors that would shift the economic installed on small industrial boilers, and smokeless coal structure along the lines suggested above. There would will be widely used by households and other small be more investment in cleaner fuels-including washing sources of pollution. coal, phasing out lead more quickly, and converting In the transport sector, in addition to catalytic con- from coal to gas or district heating in the residential and verters for all new cars, new trucks and buses are commercial sectors. There would also be improvements assumed to have lean-burn engines and particulate in process technologies, such as better utility and indus- traps. Furthermore, the scenario substantially increases trial boilers and the adoption of catalytic converters in public investments in infrastructure-notably gas and new vehicles. Finally, end-of-pipe technologies would district heating as well as sewage treatment-to deal be adopted, including 95 percent particulate removal with emissions from dispersed sources. The scenario from the emissions of large industries and 99.5 percent assumes that all urban sewage receives secondary treat- from power plants, and primary treatment of all urban ment and that 80 percent of rural sewage receives pri- sewage and industrial wastewater. mary treatment. Annual investment in pollution Under the business as usual scenario investments in abatement would rise to 2 percent of GDP, and the pollution abatement would average 0.5 percent of GDP. annualized cost would rise to 4-5 percent of GDP. Under the medium-cost investment scenario significant Because a larger portion of these costs would be borne environmental improvements could be obtained through by nonstate companies, the state's share of these costs investments averaging 1 percent of GDP. This is a 100 would be about 60 percent. percent increase in environmental investment relative to the business as usual scenario. China's Ninth Five-Year Choosing a strategy Plan calls for a 70 percent increase in environmental investment over the previous planning period." On an Air quality, as we have seen, has a significant impact on annualized cost basis-that is, annual operating costs health. Under both the medium-cost and the high plus the value of depreciated plants and equipment- investment scenarios, particulate emissions from small China would invest about 2 percent of GDP in environ- sources fall to less than half their 1995 level by 2020. mental protection. The state would shoulder only about Average exposure to fine particulates in urban areas 66 percent of these costs, compared with 84 percent falls to 79 .g/m3 under the medium-cost investment under the business as usual scenario (see chapter 8). scenario and to 36 Rg/m3 under the high investment sce- 38 Clear Water, Blue Skies: China's Environment in the New Century nario (figure 3.14)-implying a dramatic reduction in RAINS-Asia model show that an untargeted strategy premature deaths and ill health relative to the business with low-cost technology would require $6 billion a as usual scenario. Health costs from urban air pollution year to stabilize sulfur dioxide emissions at the 1995 are also sharply curtailed under the two alternative sce- level by 2000 and beyond (map 3). This strategy would narios. By 2020 these costs fall nearly to zero in the high avoid damages of some $24 billion in agriculture and investment scenario (because China would achieve its forestry. However, the same benefits could be achieved own air quality standards) but exceed 10 percent of at about half the cost with a targeted application of low- GDP in the business as usual scenario (figure 3.15). cost controls only to those sources that cause the most Abating water pollution may require greater invest- damage and only in the regions with the most acid rain ment from both the commercial sector (state and non- (map 4). Such controls include limestone injection for state) and the public sector. Although China has managed new coal-fired power plants, flue gas desulfurization to reduce wastewater discharges from industrial sources, systems for large industrial boilers, and adoption of industrial emissions account for only 35 percent of bio- low-sulfur fuels for household and transport use. logical oxygen demand levels, and large industrial sources Although the untargeted strategy would almost elim- account for just one-quarter of industrial emissions. Real inate acid rain in China, the costs would be very high. progress in reducing water pollution will require large However, at a fraction of the cost the targeted acid rain investments in sewage collection and treatment. Progress control strategy described above would produce the under the medium-cost investment scenario will likely be same benefits as implied by the government's untar- sufficient to address the most pressing water pollution geted emission reduction goal. problems. Going beyond this program would require more careful comparison of costs and benefits. ConLusion Controlling acid rain would avoid the enormous costs of acidification to Chinese agriculture and forestry The foregoing analysis suggests that there is good news projected under the business as usual scenario. for China's environment. An environmentally sustainable Untargeted application of the best available technology pattern of growth can both increase incomes and improve across the country would be very expensive ($18 billion environmental quality. And with a few crucial adjust- a year) and would have a low economic return.13 ments, this future is well within reach of China's current Current sulfur dioxide emissions total about 26 million policies and resources. Moreover, the rate of return to tons a year, and without controls will increase to as these investments is enormous. Each yuan invested in the much as 45 million tons by 2020. Simulations with the medium-cost investment scenario will yield 3 yuan in FIGURE 3.14 FIGURE 3.15 Particulate concentrations under three Health costs of urban air pollution under investment scenarios three investment scenarios Micrograms per cubic meter Percentage of GDP 350 15 E 1995 H 1995 300 2000 302010 12 2000 250 2020 2010 2020 150 6a 0- -o 0 Business Medium-cost High Business as usual Medium-cost High as usual investment investment investment investment Source: World Bank staff estimates. Source: World Bank staff estimates. Pollution, Health, and Productivity: Plotting Alternative Futures 39 reduced pollution damages.14 The returns are even higher Annex 3.1 Modeling industrial output, if the effects of growing income are considered. energy demand, and emissions There is a cautionary note in this chapter as well. The business as usual projections indicate that, unless poli- The projections made in this report were produced cies are changed, China will not achieve its objectives using a model that attempts to capture the impact of for air and water quality by 2000. Although its objec- economic reform and industrial restructuring on the tives for 2010 might be obtained for certain water pol- evolution of industrial output in transition economies. lutants, there are likely to be sharp increases in The model, originally constructed for use in Central pollutants before pollution loads return to today's lev- and Eastern Europe and the former Soviet Union, is not els. The outcomes of the business as usual scenario are a full general equilibrium model because it is based on sufficiently worrisome to give pause to environmental exogenous assumptions about macroeconomic perfor- policymakers who are tempted to rest on their laurels. mance. Still, it is possible to check the consistency of The challenge is to identify policies that will generate these assumptions against industry-level projections. the type of growth assumed in the medium-cost and The results of this cross-check are used to highlight high investment scenarios. The projections raise strate- some of the technical and economic difficulties involved gic questions for policymakers: in making medium- and long-term projections for * How can China reduce its reliance on coal, improve economies undergoing drastic structural changes. overall efficiency, and adopt cleaner technologies? Needed changes will require more than a gradual shift Basic assumptions based on relative costs, preferences for convenience, and changing patterns of fuel use (these effects are already The basic assumption driving the model is that over the taken into account under the business as usual scenario). next two decades transition economies will converge (at It will require nothing less than a determined, systematic varying speeds) toward economic performance and set of new policies for developing and using energy. industrial structures similar to those in today's middle- * What policies can induce enterprises to invest in pol- income countries. Differences in initial endowments of lution abatement? As a greater share of output origi- capital and natural resources and established patterns nates in the nonstate sector, creating incentives for of comparative advantage will affect how this process nonstate enterprises to invest in protecting the environ- works out. Convergence implies uniformity only to the ment is important. This includes incentives to use fewer extent that the legacy of central planning means these materials and less energy as well as to control pollution countries have similar characteristics that differentiate using end-of-pipe measures. Such measures will also them from comparable market economies. reduce the government's investment costs. The full model is based on an input-output framework * How can China develop environmentally friendly with separate matrices of coefficients for old capital and transport modes that reduce pollution and avoid the new capital. The coefficients for old capital change grad- mistakes made by other East Asian countries? The gov- ually over time. The standard input-output convention- ernment's recent decision to phase out lead is an impor- that the output of a sector is equal to the demand for tant step that will protect large numbers of Chinese, goods and services produced by that sector-is followed. particularly children, from exposure to lead. In the long As a result the model is (piecewise) linear as far as calcu- run China should implement comprehensive urban lating each year's output is concerned, though the under- transport planning that provides alternatives to private lying cost functions are not linear. This means that the automobiles, traffic jams, and smog. model can be solved sequentially by matrix techniques. * Finally, can China develop water policies that protect Various adjustment mechanisms have been incorporated precious clean water supplies by inducing enterprises to ensure conformity between the macroeconomic and municipalities to invest in abatement efforts as well assumptions about trade and the sectoral data and as conserve? assumptions about import and export dependence. These issues are the subject of the next four chapters, The model has been implemented with the aid of a gen- on energy, industry, urban transport, and water. eral matrix programming language, MATILDA (Hughes 40 Clear Water, Blue Skies: China's Environment in the New Century and Voss 1991), that was primarily designed for model- wise be used to generate heat within the enterprise. This ing based on an input-output framework. The model is unlikely to apply to new plants, while old plants will could easily be translated to a number of other matrix gradually want to control their own use of energy rather programming languages such as MATLAB or SAS-IML. than rely on external heat supplies. Thus it has been assumed that heat inputs are zero for new capital and Specifications for China projections that heat inputs per unit of output for old capital fall by 50 percent by the end of the forecast period. As with all linear models, there is a considerable The model contains a special submodel dealing with amount of special case detail designed to ensure that the the generation of electricity and heat-an important issue projections do not violate conventional bounds on vari- because of its effect on primary energy use and emissions. ables and to prevent various kinds of degeneracy. The The submodel rests on a simplification of a merit order China version of the model includes sectoral break- model for operating electricity plants. First, net electricity downs of twenty-four sectors, including twenty manu- demand is adjusted by a factor reflecting transmission facturing sectors and four energy sectors (coal, gas, oil losses and own use to give gross electricity demand. The products, power and heat), that can be matched with sum of primary electricity production and net imports is two- to three-digit International Standard Industrial deducted to yield the need for electricity from thermal Classification (ISIC) industries (with a few modifica- plants. The stock of thermal generating capacity available tions). China's input-output table for 1992 was used as in any period is used in proportions that reflect the rela- the base year for the model. tive advantages of relying on different fuels. New plants The model incorporates assumptions that can be have a higher thermal efficiency than old plants and are at grouped into four major categories: macroeconomic the top of the merit order Old plants are brought on line growth (GDP in constant prices, GDP expenditure cat- in accordance with the merit order implied by the egories, and adjustment period), power sector develop- assumed utilization shares. The potential output from old ment, energy prices, and environmental policies capacity depreciates by 3 percent a year, while explicit (technological or emission standards, pollution fees). assumptions are made about investment in new capacity. By changing some of the assumptions, the model can test a number of growth scenarios and policy choices, Emission factors. There are five matrices representing including speed of adjustment, energy prices (for exam- the emission coefficients for output from old capital and ple, fuel taxes), fuel use patterns, emission standards for five for output from new capital. For each set, the first new technologies, and pollution fees. matrix represents process emissions per unit of output and thus is applied to total output. The next three matri- Energy coefficients. There are a number of special ces represent emissions per unit of fuel used in each sec- features concerning the treatment of energy inputs in the tor for three fuels-coal, gas, and oil. Power generation model. Over the past thirty years market economies is included as one of the sectors to which these matrices have had an increasing share of electricity in industrial are applied. The final matrix relates to emissions from energy despite increases in the price of electricity relative households and other sources whose volume is linked to to other fuels. Thus a trend in the share of electricity has population rather than output or inputs. The coefficients been incorporated in the model for all industrial sectors. represent emissions per 1 million people. In the main scenarios this trend includes a higher rate of The emission factors for new capital are much lower increase for new capital than for old, reflecting the than those for old capital because modern technology greater potential for automating Western technologies. embodies process improvements and better controls Heat also poses a problem. Institutional arrange- that drastically reduce most pollutant emissions. ments-which are reinforced by statistical conventions However, various environmental scenarios have been in the reporting of data-mean that enterprises purchase constructed by making alternative assumptions about (or are recorded as purchasing) heat from electricity util- the stringency of the environmental regulations that ities and other sources for process use or space heating must be satisfied by production from new capacity. The instead of purchasing primary energy that would other- base scenario assumes that these regulations reflect U.S. Pollution, Health, and Productivity: Plotting Alternative Futures 41 and EC emission standards that were in force during the sion coefficients for new investment fall because of new technology. early 1980s, which correspond to typical emission fac- Emissions from the post-1995 component of the capital stock in each sector correspond to those from modern technologies achievable tors for U.S. and Western European plants today. This through zero or [ow-cost environmental improvements. New machin- assumption captures the idea that current technologies ery typically is 25-50 percent more efficient than the existing capital have been fully adapted to these past emission stan- stock and has the kind of emissions performance typical of new invest- is ments carried out in industrial countries in the early 1980s. dards, so that the cost of meeting these standards i 7. Inevitably, the assumptions underpinning the business as usual small relative to the total cost of new capacity. Other scenario do rough justice to the complexities of technical change and scenarios are constructed by assuming that old capital environmental progress in different sectors. The most obvious con- cerns are : has to be brought into the emission standards for new * The scenario makes no allowance for reductions in emission coef- capital by the end of the forecast. ficients for the pre-1995 capital stock. In the long run this makes no Data on actual emission coefficients are difficult to difference, since such capital will represent a negligible portion of the o i total capital stock by 2010. In the short term it is not clear whether the assumption of constant emission coefficients over- or understates air pollutants linked to energy use, but most of the emis- total emissions because improvements in environmental performance sion matrices used in the model have been compiled must be set against a general tendency for emissions to increase as from a wide variety of sources, plants and equipment get older. * Presumably, future technical advances will ensure that average emissions from new capital investments made in 2010 that incorpo- Notes rate zero or Low-cost controls will be Lower than that from new invest- ments made now. Thus the average emission coefficient for new capital 1. The main assumptions about economic growth are taken from should fall over time. Although this assumption is correct, it will be the general equilibrium model developed for the analysis in World Bank partly or wholly offset by the gradual decline in the emissions perfor- (1997). Under the assumption that investment will decline from over mance of the plants and equipment installed in the early part of the 40 percent of GDP today to about 34 percent by 2020, consumption post-1995 period. At worst the projections may slightly overstate the will increase from 58 percent of GDP in the mid-1990s to 66 percent level of pollution loads in 2020. These and other uncertainties imply in 2020. The share of agriculture in consumption will decline, the that the projections should be regarded as providing merely a general shares of industry and construction will remain almost the same, and indication of the trends in total emissions of different pollutants. the share of services will rise. Within the industrial sector the share 8. The sample included aLL cities with an estimated population of of food, drink, and tobacco (currently 43 percent) will increase 3 million or more in 1995. slightly, with offsetting declines in textiles and chemicals. 9. This is not to suggest that burning coal in smaller towns and 2. Assumptions in the model about the fuel composition of new villages has no effect, which is clearly incorrect. The point is that the generating capacity are based on the analysis in Johnson and others number of people affected by the smoke generated by burning 1 ton (1996). of coal is likely to be significantly Less in small towns and villages than 3. Energy prices can play an important role in determining both the in medium-size or Large urban areas. Of course, the distinction is rate and composition of growth in energy use. In general, Chinese blurred where rural areas are very densely populated, as around the energy prices for industrial users in some parts of the country were close periphery of Shanghai, in which case it may be appropriate to treat to world market levels during the first half of the 1990s. Since there is the whole region as a single conurbation. no direct link between border prices and domestic wholesale prices, 10. Indeed, the main effect on urban air quality is likely to be sharp movements in the exchange rate can lead to short-term diver- through an increase in the level of fine particulates as a result of the gences until domestic prices adjust. Thus in 1994 the wholesale prices conversion of sulfur dioxide into sulfates in the atmosphere. However, of both coal and diesel oil in coastal cities such as Tianjin, Shanghai, this too is widely dispersed, so the typical impact on a particular urban and Guangzhou were below the equivalent import parity price at the area will be small relative to the impact of changes in direct emissions current exchange rate (after adjusting for calorific value). The high cost of particulates from small sources. of transporting coal in China means that there are Large differences 11. According to the National Environmental Protection Agency, between border parity prices for coal in these coastal cities and those China invested about 0.7 percent of GDP in environmental protection in more distant inland cities. Nonetheless, relative prices for steam coal between 1991 and 1995, and plans to invest about 1.2 percent of GDP in inland cities were often much Lower than would be justified on a between 1996 and 2000. The investment shares estimated in this report simple netback basis using a reasonable (or even high) cost of freight. cannot be directly compared with the National Environmental Protection 4. Demand for gasoline and dieselfuels is quite inelastic with respect Agency's figures because of differences in coverage. However, it is use- to price in the short run-short-run price elasticities typically range ful to compare the relative increase in investment in both cases. from -0.1 to -0.2-but it is much more elastic in the long run (eight 12. European Union Legislation defines the goal of such policies as to ten years)-tong-run price elasticities range from -0.8 to -1.2. the attainment of a "high overall level of protection for the environ- 5. This estimate of final energy demand is slightly higher than the ment." The concept of best available techniques is defined in the baseline scenario developed for Johnson and others (1996), in part European Union's Directive on Integrated Pollution Prevention and because of slower changes in the technical input-output coefficients. Control, formally adopted in September 1996. Note that the concept For energy unit conversions, see chapter 4, note 1. of best available techniques is not identical to best available control 6. To allow for the improvements in environmental performance technology because it places much greater emphasis on waste preven- emanating from new capital investment and growth in total factor pro- tion, operational practices, and maintenance, and relies less on end- ductivity, the business as usual scenario assumes that average emis- of-pipe controls. As such, it is much more relevant to industrializing 42 Clear Water, Blue Skies: China's Environment in the New Century countries that face severe constraints on capital resources and that Johnson, T.M., J.F. Li, Z.X. Jiang, and R.P. Taylor, eds. 1996. need to invest in training as well as cleaner production technologies China: Issues and Options in Greenhouse Gas Emissions in developing cost-effective approaches to pollution management. Control. World Bank Discussion Paper 330. Washington, D.C. 13. Untargeted emission reduction policies are the same for all sec- Marer, P., J. Arvay, J. O'Connor, M. Schrenk, and D. Swanson. tors and all regions. 1992. Historically Planned Economies : A Guide to the Data. 14. These estimates are derived by calculating the net present val- Washington, D.C.: World Bank. ues of annualized costs and benefits of air pollution abatement for the NEPA (National Environmental Protection Agency), SPC (State medium-cost and high investment scenarios relative to the business Planning Commission), and SETC (State Economic and Trade as usual scenario, using a 12 percent discount rate. Commission). 1996.National Environmental Protection Ninth Five-year Plan and 2010 Long-term Goals. Beijing: China Environmental Science Press. References Steinberg, D. 1992. "Economies of the Former Soviet Union: An Input-Output Approach to the 1987 National Accounts." Hughes, G.A., and S. Voss. 1991. "MATILDA: Reference World Bank, Socioeconomic Data Division, Washington, D.C. Manual." University of Edinburgh, Department of World Bank. 1997. China 2020: Development Challenges in the Economics. New Century. Washington, D.C. Pollution, Health, and Productivity: Plotting Alternative Futures 43 Energy: Coping with Coal I A?. o other major economy is as reliant on coal as China. Current consumption of more than 1.3 billion tons of coal a year is the main cause of China's air pollution and acid deposition. If current trends in energy consumption continue, much of the increase in energy demand over the next twenty-five years will be met by coal. Thus reducing emissions from coal burning is cru- cial to resolving much of China's air pollution problem. Mitigating the environmental effects of energy consump- tion will require improving energy efficiency, diversifying energy supplies, and controlling emissions. Energy pricing and pollution regulation will be important since they affect incentives to pursue these goals. Trends in energy consumption Two distinct trends in China's energy consumption have developed over the past fifteen years: growth in demand for primary energy has been consistently lower than growth in 45 GDP (by as much as a factor of two) and final energy son, most internationally traded steam coal has 25 per- demand has been increasingly shifting toward high- cent more heating value per kilogram, 25-50 percent grade sources such as electricity and gaseous fuels (nat- less sulfur, and 50 percent less ash. ural gas, coal gas, liquefied petroleum gas). Sustaining High-grade, less-polluting energy sources, such as these trends over the next twenty-five years would go a electricity and gaseous fuels, account for a growing long way toward reducing China's energy-related pol- share of final energy demand. During 1990-95 solids lutant emissions. (coal and coke) accounted for one-third of the growth Even though China's GDP has quadrupled since in final energy demand, down from two-thirds during 1980, its primary commercial energy demand has only 1980-89. The share of solids in final demand fell from doubled, reaching 1,240 million tons of coal equivalent 65 percent in 1980 to 60 percent in 1995. in 1995, second in the world behind the United States.1 Compared with OECD countries, the sectoral pat- In addition, rural households burn 250 million tons of tern of China's energy demand is highly skewed, with a coal equivalent of biomass each year, including 173 mil- large industrial share and relatively small transport and lion tons of dry fuelwood and 298 million tons of dry commercial shares (figure 4.2). Over time, however, crop stalks (SETC and CERS 1996). China's sectoral pattern of energy use is expected to Increased power plant demand and constrained become more like that in OECD countries. domestic oil supply raised coal's share in primary com- Industry accounts for about two-thirds of China's mercial energy consumption from 74 percent in 1980 to final commercial energy demand. Boilers are the largest 78 percent in 1995.2 This high dependence on coal is industrial energy user, followed by kilns and furnaces. unique among the world's major economies (figure 4.1). Nonmetal minerals processing (cement, bricks and tiles, Coal is consumed in almost every part of China's and so on), metal smelting and processing (steel, alu- economic life. Besides power plants, about 410,000 minum, copper, and so on), and chemicals manufactur- industrial boilers and 180,000 furnaces and kilns burn ing (fertilizers, acids, soda ash, and so on) use the most coal. Power plants account for about 30 percent of coal energy, accounting for about 60 percent of industrial consumption, industrial boilers about 30 percent, and final coal consumption. Thus emission reduction efforts furnaces and kilns about 20 percent. Most Chinese should focus in these sectors. urban households use coal stoves for cooking or space Reducing household coal consumption will also be heating, often with poor ventilation. And most central- an important part of controlling urban air pollution. ized heating is provided by small coal-fired boilers Households account for 15 percent of China's final located in residential or business districts. commercial energy demand and for a larger share of The low quality of commercial coal complicates environmental management. Most coal reserves in FIGURE 4.1 China have medium ash content and low to medium China consumes more coal for primary sulfur content. Because there are few incentives to pro- commercial energy than other large duce and consume washed coal, most users rely on raw economies, 1995 coal. About 20 percent of mined coal is washed, but Millions of tons of coal equivalent . 3,000 = RenewabLe sources most washed coal is used in metallurgy. Less than 10 m Nuclear power percent of steam coal is washed in China, compared 2,500 = Hydropower rtlNatural gas with about 45 percent in the United States and more 2,000 Petroleum than 75 percent in Europe. The average ash content of commercial coal has hovered around 20 percent for 1,500 decades.3 The high ash content contributes to the rela- 1,000 tively low heating value of Chinese steam coal, rated at 500 less than 21 megajoules per kilogram. The average sul- fur content of commercial coal is about 1.1 percent, Brazil China India Japan United although parts of southwestern China consume coal States Source: SSB 1996 and ETA 1996. with a sulfur content as high as 4 percent. By compari- 46 Clear Water, Blue Skies: China's Environment in the New Century ambient air pollution. Although increasing gaseous fuel changing product mix-are believed to have been the consumption in households has greatly improved main force behind reduced industrial energy intensity, indoor and ambient air quality in large urban centers, in accounting for about two-thirds of the drop (World 1995 about two-thirds of urban households continued Bank 1993). Technical changes-that is, shifts in tech- to burn coal for cooking and space heating. More than nologies, processes, and management for producing 100 million rural households still rely on fuelwood or goods and services-have also been important in low- crop stalks for cooking and space heating, but coal use ering industrial energy intensity (World Bank 1994). rises with incomes. Commerce, transportation, and Government policies have played a crucial role in agriculture are minor contributors to coal-related air promoting these structural and technical changes. Three pollution, types of policies have been particularly important: * Economic reforms. Economic reforms since the late Improving energy efficiency 1970s have spurred investment in more efficient pro- duction technologies and processes, expanded high- Energy intensity, measured by primary commercial value economic activities, and increased competition. energy consumption per unit of GDP, is a nominal indi- These developments helped make the economy more cator of an economy's energy efficiency. Since 1980 energy efficient. China's energy intensity has fallen by 50 percent, or 4.5 * Energy pricing policies. Evidence strongly suggests percent a year (figure 4.3). Although a reduction of that rising real prices for coal, oil, and electricity have energy intensity over time is not unusual for mature improved resource use and increased conservation economies, the consistent and impressive drop in China's among energy consumers (see below). energy intensity is unprecedented for an industrializing * Energy conservation policies. China has imple- economy and has been the subject of several studies mented nationwide energy conservation programs since (World Bank 1993 and 1994; Lin 1996; Sinton 1996). the early 1980s. Although these programs were largely Efficiency gains in industry are the main reason technology-driven, they played a key role in reducing China's energy intensity has fallen. Slow residential industrial energy intensity during the 1980s (World energy growth also has contributed significantly. Bank 1993). Structural factors-that is, shifts in final as well as inter- Despite the dramatic fall in energy intensity, China's mediate demand for goods and services, driven by a economy is still among the world's most energy-inten- FIGURE 4.2 FIGURE 4.3 Industry uses the most energy in China, China is using energy more efficiently 1992 but still has not achieved the U.S. Level, Percent 1980-95 100 Tons of coal equivalent consumed per $1,000 3.5 80 3.0 60 2.5 40 2.0 hn India Chn 1.5 20 0 0.5 United States BraziL China India Japan United Statesa Japan H Industry ransport 1980 1983 1986 1989 1992 1995 M Agriculture Residential and commercial Note: China's GDP is in 1995 prices. All others are in 1990 prices. 1995 a. Agricultural energy use is included in industry. exchange rates are used. Source: LBNL 1996. Source: SSB 1996; LBNL 1996; and IMF 1996. Energy: Coping with Coal 47 sive economies. Acknowledging the pitfalls in cross- returns from saved energy costs and avoided emission country GDP comparison, China's energy intensity in control costs. 1995 was about four times that of the United States (see If the 1986 energy-efficient building standards for figure 4.3). Moreover, industry plays a larger role in heated residential buildings were implemented, new China's economy than in Japan and the United States residential buildings with central heating could cut (table 4.1) and still relies on inefficient and small-scale heating coal consumption by more than 30 percent. At production technologies. China is also much less tech- a construction speed of 1,456 million square meters a nically efficient than industrial countries, especially in year in 1995, China's building stock will double in energy-intensive industries and major energy-consum- about fifteen years. Thus improving the energy effi- ing equipment (table 4.2). If current trends continue, ciency of buildings is crucial to curbing future residen- China's energy intensity will reach 0.586 tons of coal tial and commercial energy demand. equivalent per $1,000 of GDP by 2020-three times less than in 1995 but still about 40 percent more than Diversifying away from coal the current U.S. level. Thus there is huge potential for reducing China's energy intensity. As China's economy enters the twenty-first century, the China can achieve energy savings through further environmental consequences of expanding the energy structural shifts toward high value-added and low system based on coal are prompting a search for alter- energy-intensity products and through industrial mod- natives. But China is an energy-scarce economy, with ernization. Over time China's economic structure is per capita energy endowments far below the world likely to become similar to that in Japan and the United average (table 4.3). Although future exploration will States, with an increasing role for services (see table increase energy reserves, especially for natural gas, 4.1). Services consume far less energy per unit of China may have limited scope to reduce its dependence output. on coal by relying solely on domestic energy resources. Technological progress will significantly improve Since 1980 China has increased its reliance on coal to industrial energy efficiency. The potential industrial fuel its rapid economic growth. A massive hydroelectric energy savings identified in table 4.2 could save 250 program has been sustained, yet hydropower's overall million tons of coal (at 1995 energy consumption lev- contribution to the energy supply has fallen. Limited els), or about 20 percent of current coal consumption- domestic oil resources have been used mainly for trans- a level that will rise over the next twenty-five years. portation and the petrochemical industry, with oil-fired Investing in these key technologies would generate high power plants converted to coal-fired during the 1980s and net oil exports ceasing in 1993. Natural gas has TABLE 4.1 played an insignificant role in China's economy, but Energy-consuming industries play a large role in new exploration may increase its contribution. Nuclear China's economy and renewable energy play a small role today but could (percentage of GDP) grow significantly in the future, depending on invest- United ment and research and development policies. Indicator China, 3apan, States, China's energy diversification strategy should reflect Idctr1995 1992 1993 Total GDP 100 100 100 concerns about energy security and the costs of alter- Agriculture 21 2 2 native energy supplies. Continued strong support for Industry 48 43 26 oil exploration and development is crucial for meeting Services 31 55 72 Total manufacturing value added 100a 100 100 future demand. The government also plans to develop Energy-intensive sectors 35.8 22.9 20.5 domestic natural gas reserves to increase supplies to Metals smelting and processing 14.2 6.0 4.1 cities. China will also develop its vast hydropower Nonmetal mineral products 9.4 4.3 2.6 Chemical materials and products 9.8 10.0 9.0 resources, bringing long-term benefits to hydro-rich Paper products 2.4 2.6 4.8 southwestern provinces (where large amounts of high- Rest of manufacturing 64.2 77.1 79.5 sulfur coal are used now). Efforts should be made to a. Based on data for enterprises with independent accounting status. Source: SSB 1996; World Bank 1995a; and UNIDO 1995. deal with dam-related environmental problems, how- 48 Clear Water, Blue Skies: China's Environment in the New Century TABLE 4.2 Adopting best-practice technology could reduce China's coal consumption by 20 percent Equipment or One-time energy production Share of China's Average efficiency High efficiency in savings at 1995 level process energy consumption in China OECD countries of energy use Industrial boilers 30 percent of 65 percent > 80 percent 70 million tons of coat coal consumption Coat-fired power plants 30 percent of 414 grams of coal < 350 grams of coal 60 million tons of coal coal consumption equivalent per equivalent per kilowatt hour kilowatt hour Steel making 10 percent of 40 gigajoules per 20 gigajoules per 60 million tons of coal total energy use ton of steel ton of steel Cement kilns 7 percent of 170 kilograms of coal 100 kilograms of coat 30 million tons of coat coat consumption equivalent per ton equivalent per ton of clinker of clinker Fans and pumps 30 percent of 75 percent > 85 percent 30 billion kilowatt hours electricity use or 17 million tons of coat Electric motors 40 percent of 87 percenta 92 percent 18 billion kilowatt hours or electricity use 10 million tons of coal Total savings 247 million tons of coat a. Average efficiency of mean motor size. Source: Wang and others 1995; World Bank staff estimates. TABLE 4.3 China has scarce energy reserves to support its large population, 1994 Country Raw coal Crude oil Natural gas Hydropower China Total 115 billion tons 3.3 billion tons 1.7 trillion cubic meters 1,923 billion kilowatt hours Per capita 95 tons 3 tons 1,416 cubic meters 1,603 kilowatt hours a year United States Total 241 billion tons 3.8 billion tons 4.6 trillion cubic meters 376 billion kilowatt hours Per capita 962 tons 15 tons 18,400 cubic meters 1,504 kilowatt hours a year World Total 1,044 billion tons 141.0 billion tons 142.0 trillion cubic meters 14,546 billion kilowatt hours Per capita 209 tons 28 tons 28,400 cubic meters 2,909 kilowatt hours a year Source: LBNL 1996; SETC and CERS 1996. ever. China's ambitious nuclear energy program must been a net oil importer since 1993 because of rising deal with high capital costs, inadequate domestic domestic demand for oil products. Chinese experts esti- expertise, a potential lack of indigenous uranium mate that domestic crude oil production will peak at 200 reserves, and the uncertain costs and safety of nuclear million tons by 2020. But between 1980 and 1995 oil waste disposal. China should also invest more to demand increased about 4 percent a year. If these trends develop its large renewable energy resources. Studies continue, total demand for oil will reach 415 million have shown that windfarms, solar home systems, and tons by 2020, implying that China will need to import bagasse cogeneration projects have the potential to more than 200 million tons of oil.4 This extrapolated become commercially viable on a large scale. Other growth in oil demand only partly factors in the poten- technologies, such as biogas power and geothermal tially huge demand from automobiles and excludes the power, need further research and development before possibility of using oil as a fuel source for base-load commercial development, but have substantial power plants, industrial boilers, and space heating. promise in the long term (World Bank 1996). China could use energy trade to the advantage of its International trade is another avenue of diversifica- economy and its environment. In 1995 China spent tion, especially in the short to medium term. China has about $5 billion on 35 million tons of oil and gas Energy: Coping with Coal 49 imports (SETC and CERS 1996). Net oil and gas Sulfur emissions control for industrial coal combus- imports totaled about 10 million tons, worth roughly tion would be expensive if only end-of-pipe measures $1.4 billion. China's rapidly increasing incomes and were applied. China has been experimenting with export revenues will enable it to import substantially scrubber technology for large industrial boilers and more oil and gas.5 Given the coastal provinces' wealth promoting the use of industrial briquettes. Controlling and easy access to imports, using imported oil and gas sulfur emissions with briquettes or with lime injection to reduce coal consumption is a realistic and possibly during combustion is relatively cheap and removes cost-effective option for coastal cities. Establishing a 30-50 percent of sulfur. In the long term, fluidized bed transparent pricing framework for crude oil, oil prod- combustion boilers, which remove 50-80 percent of ucts, and natural gas is essential to achieving effective sulfur, would be a cost-effective way to reduce sulfur and efficient management of the domestic oil and gas dioxide emissions. market. It is also vital for attracting foreign investment Because China's industrial users normally consume in developing domestic oil and gas resources as well as raw coal with an ash content of 25 percent or more, the infrastructure for imports. If China's oil and gas increasing the use of washed coal would substantially imports were to rise to 200 million tons by 2020, the lower dust emissions nationwide and sulfur dioxide cost would be only $28 billion at today's prices, a small emissions in regions using high-sulfur coal. portion of its anticipated $700 billion in export earn- ings in that year. Power Controlling emissions: The power sector consumes nearly one-third of China's Options and costs coal and is a major contributor to acid rain. Many of the thermal plants constructed before 1980 are located In addition to improving efficiency and developing near cities and have relatively low smokestacks, and alternatives to coal, controlling emissions is critical for therefore are large contributors to local air pollution. In an energy system that depends on coal. Abatement 1991 only 38 percent of China's power plant boilers should focus on industry, power, and residential and were equipped with electrostatic precipitators. Chinese commercial sources. power plants remove an average of 93 percent of the dust from the coal they consume-a low level by inter- Industry national standards. Few coal-fired power plants in China have flue gas Industrial boilers and furnaces consume almost half of desulfurization equipment. Faced with increasing sul- China's coal and are the largest source of urban air pol- fur dioxide emissions and acid rain in some regions, lution. Low-efficiency cyclones, the most common China has begun implementing various abatement emissions control equipment for Chinese industrial measures in existing and new coal-fired power plants boilers, remove only 65-85 percent of fly ash. Medium- (box 4.1). High-efficiency sulfur scrubbers can increase size and large industrial furnaces often have dust cap- the initial cost of new power plants by 15 percent or turing equipment such as bag houses and electrostatic more. In the United States retrofitting old plants for precipitators. But the massive number of small furnaces sulfur dioxide control is 20-50 percent more costly and kilns, especially those operated by township and than applying similar measures to new plants, implying village industrial enterprises, generally lack emissions the benefits of installing sulfur removal equipment at control. the outset in areas with serious sulfur deposition prob- As industry adopts larger and more efficient boilers, lems. such as spreader stokers, dust emissions could triple- The near-term strategy for controlling emissions or worse. Fluidized bed combustion boilers require from the power sector includes: stringent dust control, too. Thus the government * Speeding up the adoption of electrostatic precipita- should strengthen dust removal standards for all boilers tors in coal-fired power plants, especially those that are to keep dust emissions in check. located near cities. 50 Clear Water, Blue Skies: China's Environment in the New Century petroleum gas, natural gas, and coal gas in urban house- holds has improved air quality in large cities across China. In addition, urban households using coal stoves Since coatwit continue to be a mrajor- source of energ ov,et the have benefited from the government's persistent efforts the development of dpan Coa1 tech- to promote coal briquettes. But burning briquettes is for p ow'er gen eraton anid tafge iniduistry,, not all that much healthier than using raw coal. Urban shouild be pait of ChinaYs ong-tm eniergy sttategv. 1heie are household fuel policy should instead accelerate gasifica- broad appltic,ations for coil gaifca ion lidtized bed comibuis- tion programs. tion, anid initegrated(l iiato n combinied ocle technoDlo- to rgas During the winter much of the population in north- xnes i the cos of these ern regions still suffers from high exposure to particu- cleaner technioolies anid making themi miore o titi n late matter, carbon monoxide, and sulfur dioxide certa in ateas. integirated gasifcation a o de tech- because space heating-whether it is household stoves, iologyv has become an increasingly attactive way to generate small boilers, or district heating-is almost entirely powepr in counities whiere baselad powerpants are predomi dependent on coal. District heating facilities with strin- gent emission controls are an effective way of control- mi-egaw att initegra ted gasification an coimbinedi cycle pLan t (5850 a kiowatt) is comparable to thati of a puLeJ.zed cotf ling space-heating emissions. fired planit wJth irted genieiating units anid ekectrostatc Reducing indoor air pollution remains a major chal- piecipitato;rs (5 0akilowatt), Over twenty years the Lev- lenge for China's rural households. The government's eed cost of electricity from a 500 megawatt plantt u;in efficient stove program has succeeded in both reducing state-of-the-art integra,ted gaifc tion andombinied cyce excess biomass consumption and improving rural S ctindoor air quality (Smith and others 1993). Other cost- The cost comiipetit iess of initegrated gasification and effective strategies for rural households include pro- e 1 d moting the efficient use of biomass and coal briquettes. the co-production of chemcal products Itom synthetjC ga'. Educating rural families about indoor air quality is also Stilt, the capit cost of ai domestic '50 megawatt pudveiized important. The provision of low- or zero-emission alternatives such as biogas, liquefied petroleum gas, and gatedigatio an co mbtined UCyentwh theti samt iite- small hydropower, solar, and wind energy will largely output. There is ocompe m naturL a-fiied Com- depend on regional access to these energy sources and bWned cde po generation. Thus a ptanits choice of techniot should be encouraged by government research and ag4y wMl hav/e to be deterined ont a case by case baiss.Oer development policies. time thewiderapp[ication of ntegrated gasificitioni anid com- Tea boilers and large coal stoves used by cafeterias and restaurants also contribute to ambient air pollution tecno iesti tecioms revec to onventiona coa in Chinese cities. A 1994 survey in Beijing found more technologies. than twice as many operating tea boilers and work-unit STdcafeteria stoves as industrial boilers. Switching to coal briquettes and eventually to gaseous fuels is the best way to reduce emissions from these sources. * Focusing sulfur dioxide emissions control efforts on regions suffering from serious acid rain damage, and The special role of energy prices allowing power plants a choice of abatement measures. * Tightening emission controls for old plants whose Prices affect energy intensity and the choice of fuels. retirement has been postponed (box 4.2). Compared with the energy-rich United States, China's energy prices are low (table 4.4). Lower prices may be Residential and commercial sectors partly justified by China's relatively low production costs. Over the past decade energy pricing in China has While coal is still the dominant commercial fuel for moved from complete controls to a mix of market-dri- Chinese households, the increasing use of liquefied ven allocation and government interventions. Govern- Energy: Coping with Coal 51 The costs and benefits of emissions control in Shanghai's power sector Total suspended particulate emissions. About 22 percent of par- * Installing flue gas desulfurization in power plants that burn ticulate emissions in Shanghai come from the power sector, and coal with a sulfur content of more than 2 percent ($144 per ton more than 90 percent of these emissions come from small power of sulfur dioxide removed). plants (less than 125 megawatts). Retiring these old plants would * Using atmospheric fluidized bed combustion technology dramatically cut particulate emissions from the power sector. If ($163 per ton of sulfur dioxide removed). retirement of the plants is delayed, complying with emission * Using washed coal in existing power plants (5176 per ton of standards will require installing high-efficiency electrostatic pre- sulfur dioxide removed). cipitators in these plants. * Using liquefied natural gas-fired combined cycle technology The cost of removing particulates in Shanghai's seven 25 ($100-400 per ton of sulfur dioxide avoided, depending on megawatt units using electrostatic precipitators is just $100-240 whether plants are dispatched as base-load or peaking units). per ton of particulates removed (assuming ten years of opera- These costs are less than or comparable to the estimated costs tion). The cost for 100-125 megawatt units is $300-500 per ton of health and other damages of sulfur dioxide in Shanghai- of particulates removed. These costs are much lower than the about $390 per ton of sulfur dioxide. Each option could lower sul- estimated costs of health and other damages From particulate fur dioxide emissions by 2,000-4,000 tons over 1997-2020. If emissions in Shanghai, which range from $1,200 to $2,600 per more sulfur dioxide removal is required, additional and more effi- ton of particulates. cient options will be needed. Applying simplified flue gas desul- Using washed coal, especially in small power plants, is also a furization technology to new coal-fired power plants would cost socially cost-effective option for reducing particulate emissions. 5225 per ton of sulfur dioxide removed; using wet flue gas desul- Removing particulates using washed coal costs about $720 per furization technology in new plants would cost $310 per ton of ton of particulates removed. sulfur dioxide removed. Pressurized fluidized bed combustion Sulfur dioxide emissions. The power sector accounts for 72 per- technology costs $210 per ton of sulfur dioxide removed, and cent of sulfur dioxide emissions in Shanghai. Removing sulFur diox- integrated gasification and combined cycle technology costs ide emissions costs 1100-400 a ton. The lowest-cost options are: $300 per ton of sulfur dioxide removed. Source: World Bank staff. ment control varies but is normally associated with the have created a special interest group within the oil scarcity of specific energy types. industry that keeps refinery margins high and distribu- Coal prices are largely decided by the market6 and tion margins low. vary significantly depending on the destination of the The natural gas supply is fully controlled. The high- coal.7 Transportation costs for coal are high in China, est-priced gas usually goes to the commercial sector, accounting for up to 70 percent of the delivery price of while the lowest-priced gas goes to fertilizer plants coal, compared with 30-50 percent in the United States (which consume about one-third of China's natural (X. Wang 1996). Current coal prices are probably close gas). In 1995 natural gas prices in Sichuan ranged from to the direct economic costs of bringing the coal to local 470 yuan per 1,000 cubic meters for fertilizer plants to markets. The heating value of the coal-and thus, the 670 yuan per 1,000 cubic meters for the commercial ash content-is at least partly factored into current sector, and were lower in other regions (Q. Wang 1996). prices. Urban natural gas users are probably willing to pay About 70 percent of the domestic crude oil supply is considerably more than prevailing prices. Deregulation controlled. As a result the average crude oil price is of the natural gas industry will speed up the develop- 13-24 percent below international prices. But domestic ment of domestic natural gas. oil products are priced significantly higher than inter- In most coastal provinces, where new power capac- national spot market prices, giving refineries an unfair ity has expanded the fastest, electricity prices have been profit. As a relatively scarce energy source, domestic raised to levels approximating marginal costs. Average crude oil should be priced at least at international lev- consumer prices of power in Zhejiang Province at the els. The separation of crude oil production from oil end of 1994 were about 50 fen per kilowatt hour, com- refining and the favorable pricing policies for refineries pared with the long-run marginal cost of about 45 fen 52 Clear Water, Blue Skies: China's Environment in the New Century TABLE 4* Cleaner coal and energy diversification. To make China's energy prices are Lower than those of the coal consumption cleaner and secure the reduced emis- resource-rich United States, 1995 sions of alternative energy sources, policies should (U.S. dollars) encourage coal washing (using steam coal for industrial Energy type C hina , United Statesb Spot marketc boilers and anthracite for residential and commercial Steam coal (gigajouLe) 1.1-2.0 12-1.5 -1.5 users), promote gaseous fuels for residential and com- Crude oil (ton) 103 126 118-135 mercial use, and support research and development in Gasoline (ton) 322-356 382 158 low- or zero-emission energy sources and technologies. Diesel (ton) 273-290 348 148 In the short to medium term, increasing the use of Natural gas (gigajoute) 1.4-2.1 1.8-5.5 Electricity (thousand imported gas and oil could reduce the growth in kilowatt hours) demand for coal and consequently overall emissions. Industrial users 26-72 47 Residential users 26-60 84 * Emissions control. Emissions would fall if high-effi- a. Prices include value-added taxes. Calculated using 1995 average exchange rate ciency dust precipitators were installed in industrial ($1 = 8.4 yuan). Coat prices are for cities in nonmnining areas, and the rangean ' ' elcrsti roughly indicates different transport costs. Crude oil price is the weighted average boilers and furnaces, high-efficiency electrostatic pre- of controlled prices and planned prices. Gasoline prices are #90 RON retail prices in cipitators were installed in power plants and large point different cities. Natural gas prices are for fertilizer plants (Low) and households (high) in Sichuan. Electricity prices are for Jinan, Shandong (low) and Shenzhen, sources, and sulfur dioxide emissions were controlled in Guangdong (high) in 1994. b. Coal prices are for power utilities (low) and industry (high) and vary depending areas burning high-sulfur coal. on quality. Gasoline and diesel prices are the average retail prices of all grades. To realize these obectives in the least-cost way the Average natural gas pnices are for power plants (Low) and households (high). To relz hs1becie ntelas-otwyh c. Coal price is for Australian exports. Crude oil price is for OPEC crude. Gasoline and government should develop market-based policies to diesel prices are Rotterdam product prices. Source: SETC and CERS 1996; EIA 1996. shift incentives, pursue institutional reforms, and intro- duce regulatory changes. per kilowatt hour (World Bank 1995a). In interior provinces, by contrast, a large portion of the electricity Market-based instruments: Energy pricing and taxation is produced by plants that were built before 1980. Because these plants effectively have no capital costs, Arguably the most important policy to encourage effi- since they were built with nonrepayable central govern- cient energy development is to ensure that energy prices ment funding, it has been difficult to raise power tariffs at least cover economic costs and then begin to reflect to marginal cost levels in these areas. environmental damages through taxes. The govern- ment should quickly lift all remaining price controls on Policies for reducing coal so that prices reflect its full market value. It is crit- environ mental impacts ically important for China to reform the coal allocation and distribution system, which distorts the market and To achieve their emissions and energy objectives, poli- obscures the pricing signal for coal quality. cies must create strong incentives for improving energy The case for levying a pollution tax on coal is strong. efficiency, diversifying energy sources, and reducing About two-thirds of China's coal is consumed in the emissions through economic instruments as well as reg- nonpower sectors, with a massive number of small ulations. Key issues include: users. Enforcing emissions control among these users is * Energy efficiency improvement. To improve energy an impossible task for regulatory agencies. As an initial efficiency, policies should promote industrial moderniza- approach, a tax based on the quality of coal (ash and tion (cleaner and more efficient production technologies sulfur content) should be introduced. Such a tax would and processes, economies of scale, and better enterprise not produce direct and immediate emission reductions, management), high-efficiency industrial equipment (boil- but over time it would lead to increased production and ers, electric motors, fans, and pumps), industrial energy use of better-quality coal as well as raise the demand for conservation (plant or equipment renovation, energy more efficient equipment or alternative fuels. Such taxes housekeeping, and demand-side management), and could be collected by local fuel companies that distrib- energy-efficient buildings (lighting systems, space condi- ute coal to small users at local markets and to larger tioning efficiency, and building standards). users at the mouth of mines. Energy: Coping with Coal 53 Eventually, the government should tax coal in a way similar problems. Expenses for environmental control that reflects its enormous social costs. If health costs will have to be factored into electricity prices. were included, the price of coal would increase by 100 Gaseous fuel prices are generally too low. Town gas percent in Beijing (box 4.3). A tax to mitigate the social is normally subsidized, and its prices often do not cover costs of coal use could be phased in over time, perhaps production costs.9 The same situation applies to cen- three to five years, so that current investment deci- tralized heating. Urban households with access to gas sions-in boilers, space heating, and so on-could antic- and centralized heating usually can afford the full costs ipate future prices and adjust technology accordingly. of these services. Subsidies not only drain local govern- China's "new plant, new price" policy has helped ment budgets but also impede the expansion of these raise much-needed capital for the country's power services through private investment. Subsidies for development. The overall grid price increased by about gaseous fuel supply and centralized heating should be 4.5 percent a year (in real terms) during 1990-94, with removed and tariffs increased to allow for full cost coastal provinces registering even higher growth.' recovery of such projects, essential for improving urban Electricity pricing is rather chaotic but is moving in the air quality. right direction. The pricing authorities do not, however, Hydrocarbon prices also need to be adjusted. support the idea of increasing electricity prices to con- Despite its limited resource base, China prices petro- trol pollution. Because of the difficulties of getting leum products more like the resource-rich United States approval for a higher grid purchase price, Chongqing's than energy-scarce East Asia. Although gasoline prices Luohuang Power Plant often has opted not to run its cover the costs of production and importation, they cre- imported flue gas desulfurization facility. As the gov- ate incentives to expand vehicle use (see chapter 6). ernment moves to implement its acid rain control pro- For large point sources, such as power stations and gram, power plants in the control region will face large industrial boilers and furnaces, emissions can and Assessing the health costs of coal use in Beijing Because market-based pricing of coal does not reflect the danger than externality costs, so a less-than-full tax is sufficient to it poses to human health, coal is by far the cheapest fuel for achieve abatement targets. Chinese consumers. The relative price of coat would increase sig- Other policies that reduce ambient concentrations of fine par- nificantly ifit viere adjusted to reflect the health costs. Using the ticulates from coal consumption in urban areas would have high methods outlined in chapter 2, a range of possible price increases social rates of return, including efforts to promote district heat- ,vas calculated reflecting low. moderate. and high valuations of ing, residential gasification, and taller smokestacks. relocating these costs. In Beijing including the health costs of coal use power and industry away from densely populated areas, and would increase the base price of coal by an average of 100 per- installing pollution control equipment. cent, to 400 yuan a ton ($48) on coal with a base price of 200 yuan a ton (see table). The market price of coal is less than half Because space heating accounts for a disproportionately large its cost to society share of ground-level air pollution in Beijing, particularLy during (Health cos of coat use in Beijing as a perceniage of cunient coat the winter, the health costs of coat use by space-heating boilers pri is 163 percent of the base price of coal. Damages from the resi- LOWv ModeratW High, dential (cooking), industrial, and power sectors are Lower. Sector estimate estimate estimate Mear This calculation indicates that taxes could help internalize the Power 49 60 173 94 Re!;dential 37 Ab 129 70 health costs of air pollution in Beijing. While the best policy Space healing 55 104 299 163 would be to tax the emissions associated with coal burning, this Industry 62 76 219 119 is not feasible for small users. Moreover, the amount of an envi- Total 52 64 184 00 ronmental tax need not be as high as the full externality costs i r..Iude rorcalr ihumin capit c.r.3rd -CU". rTiOrbdir, cast.. b Irclude r mortal.r. thumnan p3ICA pproqchi and !-:utt and . i.-c mobidir, because coat consumption fats as the price increases, reducing the health damage costs, and because abatement costs (emis- c. Include morn ht l-1 en%s-ro-pay,approach,and acute ind chraon,t'.t, sions control, energy efficiency, fuel switching) are much lower sOurce w.rll anl. .Tff e:r.arc 54 Clear Water, Blue Skies: China's Environment in the New Century should be taxed. A tax on emissions would discourage and more efficient coal use, the levy for dust emissions investment in small power plants (less than 100 should be adjusted to reflect the cost of abatement nec- megawatts), which have high emissions per unit of elec- essary to meet emission standards. tricity. Taxing emissions would send the right signals for China should implement its plans for sulfur dioxide future investment. and acid control regions as proposed in the revised 1995 National Air Pollution Prevention and Control Institutional reform: Making the right investment Law. The government should introduce market-based decisions regulations to reduce sulfur dioxide emissions from coal-fired power plants and large industrial sources, One of the main pitfalls of China's investment policy is especially in areas that have high ambient concentra- that it inadvertently encourages investment in small-scale tions and high sulfur deposition. Regulation should and often inefficient technologies. Examples of such allow emission sources to choose among least-cost investment pervade energy-intensive industries such as abatement measures. cement, steel, fertilizers, and power generation.'o This Energy efficiency standards for heated residential misguided investment orientation is as much a capital buildings are needed to curb long-term space-heating constraint problem as it is an institutional problem. The coal demand and should be implemented without fur- provision that any project costing more than 30 million ther delay. Introducing energy efficiency standards for yuan has to be approved by the State Planning major household appliances is also important for Commission overburdens the central government and China's consumer market. discourages investors from building large-scale plants. China is at an energy and environmental crossroads. Local and regional protectionism also undermine the The performance of its huge and growing energy system economic efficiency of investment. Reforming state lend- will have a tremendous effect on air quality. If it can ing institutions and the financial market and giving local harness the market, strengthen institutions, and regu- governments more autonomy in making investment deci- late more effectively, China can ensure that more effi- sions would facilitate investment in modern technologies cient and environmentally friendly technologies are and increase the economies of scale of new plants. adopted. The potential benefits for the future quality of The government should strengthen its financial sup- life are enormous. port to research and development for low- or zero-emis- sion energy alternatives, especially in promising Notes renewable energy sources and clean coal technologies. These new technologies would improve and preserve 1. The conversion factors are 1 ton coal equivalent = 29.310 giga- joules; I ton Chinese average raw coa[= 20.934 gigajoules; I ton Chinese China's environmental quality in the long run and put average crude oil = 41.868 gigajouLes; 1,000 cubic meters Chinese aver- China in a favorable position to deal with global envi- age natural gas= 38.98 gigajoules; and 1 kilowatt-hour= 3.6 megajouLes. ronmental issues. 2. The share of coal cited here is higher than the official figure because a different conversion factor for electricity was used. 3. According to a user survey, the ash content of steam coal is usu- Regulations and standards: Overcoming market failures ally more than 25 percent (NEPA 1996). 4. In 1995 the world oil trade (imports and exports) was 1,800 mil- Lion tons. U.S. net imports were 390 million tons, and Japan's were Left to themselves, markets will not necessarily make 280 million tons (BP 1996). environmentally sound choices. Regulations and stan- 5. Importing 100 million tons of crude oil would have cost about dards, whether market-based or command-and-con- $14 billion in 1995. Total imports that year were $132 billion (SSB 1996). trol, must be enforced to ensure that the economy 6. Steam coal used by power plants is priced 20 yuan a ton lower achieves its environmental goals. Air pollution control than the market price because electricity prices are kept relatively Low regulation and enforcement must be tightened to by the government (Q. Wang 1996). 7. For example, in June 1994 the mine-mouth price of Datong improve urban air quality. A high priority for regulation mixed coal was 128 yuan a ton. The same coal retailed for 230 yuan is to introduce standards to control fine particulate a ton in Shanghai, 280 yuan a ton in Guangzhou, and 340 yuan a ton e iin Xiamen (LBNL 1996). emissions from space heaters, mdustrial boilers, kilns 8. Assessed based on the national average of power company sales and furnaces, and power plants. To promote cleaner prices adjusted by an implicit GDP deflator. Energy: Coping with Coal 55 9. In 1995 town gas (from coal gasification) prices ranged from Handbook of Industrial Pollutants Emission Factors. Beijing. 0.3-0.7 yuan a cubic meter in twelve of fifteen Chinese cities, white SETC (State Economic and Trade Commission) and CERS (China the costs of gasification alone ranged from 0.6-1.0 yuan a cubic meter. Energy Research Society). 1996. China Energy 1996. Beijing. Only three cities charged more than 1.0 yuan a cubic meter for town Sinton, Jonathan. 1996. "Energy Efficiency in Chinese Industry: gas (Q. Wang 1996). Positive and Negative Influences of Economic System Reforms," 10. About 20 percent of newly installed thermal power capacity in PhD dissertation. University of California at Berkeley. China between 1991 and 1995 was in 6-75 megawatt units (JiangLong Smith, Kirk, Shuhua Gu, Kun Huang, and Daxiong Qiu. 1993. 1997). During this period China's cement production increased by 235 "One Hundred Million Improved Cookstoves in China: How million tons, more than 70 percent of which came from plants with Was It Done?" World Development 21(6). average capacity of less than 50,000 tons a year, one-tenth the aver- SSB (State Statistical Bureau). 1996. China Statistical Yearbook age U.S. plant size (Sinton 1996). 1996. Beijing: China Statistics Press. Stoll, Harry, and Douglas M. Todd. 1996. "Current IGCC Market Competitiveness." General Electric Company, Schenectady, References New York. UNIDO (United Nations Industrial Development Organization). BP (British Petroleum). 1996. BP Statistical Review of World 1995. International Yearbook of Industrial Statistics 1995. Energy. London. New York. EIA (Energy Information Agency). 1996. United States Energy Data, Wang, Qingyi. 1988. Zhong Guo Neng Yuan (Energy in China). International Energy Data. EIA Web site: http:/www.eia.doe.gov. Beijing: Metallurgical Industry Press. U.S. Department of Energy, Washington, D.C. . 1996. Personal communication. Ministry of Coal, Beijing. IMF (International Monetary Fund). 1996. International Wang, Qingyi, Jonathan Sinton, and Mark Levine. 1995. "China's Financial Statistics Yearbook. Washington, D.C. Energy Conservation Policies and Their Implementation, 1980 Jianglong, Zhou. 1997. Personal communication. Beijing to the Present, and Beyond." Lawrence Berkeley National Economic Research Institute of Water Resources. Laboratory, Berkeley, Calif. Johnson, T.M., J.E Li, Z.X. Jiang, and R.P. Taylor, eds. 1996. Wang, Xiaodong. 1996. "China's Coal Industry: Moving toward China: Issues and Options in Greenhouse Gas Emissions Market Economy." World Bank, Summer Internship Project, Control. World Bank Discussion Paper 330. Washington, D.C. Washington, D.C. LBNL (Lawrence Berkeley National Laboratory). 1996. China World Bank. 1993. China: Energy Conservation Study. Report Energy Data Book. Berkeley, Calif. 10813-CHA. Washington, D.C. Lin, Xiannuan. 1996. China's Energy Strategy: Economic - . 1994. "Energy Efficiency in China Technical and Sectoral Structure, Technological Choices, and Energy Consumption, Analysis." Issues and Options in Greenhouse Gas Emissions Westport, Conn.: Praeger Publishers. Control. Washington, D.C. Liu, Feng. 1996. "Energy Use and Conservation in China's _. 1995a. Investment Strategies for China's Coal and Residential and Commercial Sector." Report LBL-33867. Electricity Delivery System. Report 12687-CHA. Washington, Lawrence Berkeley National Laboratory, Berkeley, Calif. D.C. MOEP (Ministry of Electric Power). 1995. "China's Electric . 1995b. World Tables. Washington, D.C. Power Industry 1995." Beijing. . 1996. China: Renewable Energy for Electric Power. NEPA (National Environmental Protection Agency). 1996. Report 15592-CHA. Washington, D.C. 56 Clear Water, Blue Skies: China's Environment in the New Century MAP 1 Sulfur deposition in China, 1995 nong ri. r- Source: World Bank staff estimates. MAP 2 Sutfur deposition in China under the business as usuat scenario, 2020 Source: World Bank staff estimates. Milligrams per square meter 0 100 500 1,000 2,000 5,000 10,000 20,000 99,999 MAP 3 Sutfur deposition in China with untargeted controt efforts, 2020 -S- .. - E...n n Source: World Bank staff estimates. MAP 4 Sutfur deposition in China with targeted control efforts, 2020 -Y m wm --li n .n Source: World Bank staff estimates. Miigrams per square meter 0 100 500 1,000 2,000 5,000 10,000 20,000 99,999 MAP 5 Water quality in China's major water systems, 1981 7S Water classification - Class 1 - Class 4 - Class 2 - Class 5 - Class 3 - No data Source: China Ministry of Water Resources. MAP 6 Water quality in China's major water systems, 1995 - Cs3N Source Chin M o Clas 22ls "Class 3 - No data _____________________________________Source: China Ministry of Water Resources. Industry: Creating Incentives to Abate ndustry is the engine of growth for the Chinese econ- omy, accounting for 48 percent of GDP in 1995. In the 1990s the output of China's 10 million industrial enter- prises has increased by more than 15 percent a year. But this engine of growth is highly polluting. The National Environmental Protection Agency estimates that discharges from industry-including power plants- account for more than 70 percent of national pollutant emissions. Many polluting industries are located in densely populated metropolitan areas, exposing urban residents to serious health risks. The prospect of continued rapid industrial development creates the opportunity for cleaner industrial technologies to replace today's highly polluting ones. With growth expected to average nearly 7 percent a year over the next twenty-five years, 80 percent of China's industrial pro- duction capacity remains to be built. To realize the poten- tial for cleaner production, China must revamp its 57 regulatory system to harness market forces and reorient The effectiveness of both mechanisms is limited new investment to safeguard the environment. because they focus on source-specific emission stan- dards. As a result, even if all new projects in a region Pollution controL policies meet the standards, ambient air quality can deteriorate because no limit is placed on total pollutant discharges. Over the past decade the Chinese government has Another weakness is their strong bias toward end-of- enacted more than a dozen laws affecting the environ- pipe treatment. Both the assessments and the Three ment, and these now provide a comprehensive legal Synchronizations program focus on making projects framework for China's environmental management. meet emission standards through onsite hardware The pollution control system encompasses a wide range installation rather than by pursuing cost-effective of environmental regulations and standards and a strategies at the regional level. As a result broader, more nationwide enforcement network of local environmen- flexible approaches-such as resource pricing and tal protection bureaus working with sector agencies. incentive-based control-are precluded. The National China's pollution control policies are based on three Environmental Protection Agency has proposed chang- main principles administered through eight regulatory ing both mechanisms to facilitate its efforts to control programs.' The three principles emphasize: the total quantity of pollutant emissions. * Prevention first, then prevention with control. * Polluters pay. Control * A strong regulatory framework. Pollution prevention focuses on new pollution Pollution levies, discharge permits, and mandatory pol- sources, which are regulated through environmental lution controls help contain pollution from existing impact assessments and the Three Synchronizations sources. Pollution levies were introduced to create an program.2 Pollution from existing sources is regulated economic incentive for industrial enterprises to comply through pollution levies, pollution discharge permits, with emission and effluent standards, to raise revenue and mandatory pollution controls. These five programs for investment in industrial pollution control, and to have played a major role in containing emissions from provide financial support for regulatory activities. regulated industrial enterprises. The levies combine two elements: noncompliance Prevention and control efforts have targeted mainly fees assessed on pollutant discharges that exceed emis- state-owned enterprises. However, rapidly growing sion and effluent standards, and fines and other charges township and village industrial enterprises have assessed on violations of the levy regulations. Of the fees emerged as an increasingly important source of pollu- collected, 80 percent are used for grants and low-inter- tion (table 5.1). These enterprises' pollution is generally est loans to pollution control projects and 20 percent are unregulated. retained by local environmental protection bureaus to support administrative and monitoring activities. Prevention The pollution levy system has several design deficiencies: Environmental impact assessments and the Three * Pollution fees, established at the national level, are Synchronizations program are the main mechanisms often lower than the marginal cost of abatement required for ensuring that new industrial facilities invest in pol- to meet emission standards. As a result many industrial lution control equipment. The program mandates that enterprises choose to remain noncompliant and pay the new industrial enterprises and existing enterprises that levy on their excess pollution. In addition, since the early plan to expand or change their production process 1990s inflation has lowered the real value of the levies receive environmental impact assessment approval for because they are not indexed, and local governments are their plans from the National Environmental Protection not allowed to make their own adjustments. Agency or local environmental protection bureaus. In * Levies are based only on the pollutant that exceeds this way pollution control facilities are integrated with its standard by the greatest amount, rather than on all enterprises' development plans. the pollutants that exceed their standards. 58 Clear Water, Blue Skies: China's Environment in the New Century TABLE 5.1 Township and village industrial enterprises are becoming a major source of industrial pollution, 1989 and 1994 (tons) Chemical oxygen demand Smoke dust Processing dust Sulfur dioxide Type of enterprise 1989 1994 1989 1994 1989 1994 1q89 1994 Regulated enterprises 6.8 6.8 8.5 8.1 7.6 5.8 10.5 13.4 Township and village industrial enterprises 1.8 5.3 5.4 8.0 4.7 5.8 3.6 5.5 Source: NEPA 1995 and 1996. * Levies are assessed only on above-standard emis- gies, so such forced investment for end-of-pipe control sions, so they provided no incentive for firms to abate has often wasted scarce capital by inducing pollution emissions below the standards. abatement at excessively high cost. * Levies are based on pollutant concentrations rather than on total discharges to the environment. Despite these problems, pollution levies, combined Monitoring and enforcement with subsidized loans from the levy fund and other subsidy programs, have created incentives to control National and local environmental regulations and stan- pollution. dards are enforced primarily by municipal and county Discharge permits were introduced in 1987 to environmental protection bureaus that report to local compensate for the lack of mechanisms to control governments. The bureaus' ability to monitor compli- total pollution loads. Two basic schemes have ance is seriously constrained by limited financial and emerged from trial implementation: capacity-based human resources. In general, medium-size and large permits allocate pollution loads to industrial enter- enterprises are monitored by the bureaus once or twice prises based on the assimilative capacities of the local a year. Small enterprises are monitored less often, and atmosphere and receiving waters, and goal-based per- continuous monitoring of wastewater flows and mits allocate pollution loads to industrial enterprises smokestack emissions occurs rarely, if ever. based on environmental goals not related to assimila- Although China's environmental standards are con- tive capacities. sistent with international standards, compliance with The government has experimented widely with per- these standards is greatly undermined by inadequate mits to control water pollution but has not used them enforcement. Weak monitoring, excessive local govern- much to control air pollution. The main problems with ment intervention (to protect enterprises), and insuffi- the water pollution discharge permits are: cient public involvement contribute to lenient * Conflicts between fixed quantity (mass-based) dis- enforcement. According to recent surveys, during charge permits and programs based on concentration 1993-94 only 36-49 percent of industries were in com- standards, such as the environmental impact assess- pliance with their environmental impact assessment ments, the Three Synchronizations program, and the and the Three Synchronizations program. The compli- pollution levies. ance rate for mandatory pollution controls is 80 per- * The inadequacy of monitoring and administrative cent. Among enterprises or work units that are required capacity for implementing the discharge permit system. to pay pollution levies, 60 percent pay in full and on As a result discharge permits have not realized their time. In general, compliance is higher among larger potential for controlling total pollution loads and enterprises (Millison 1997). inducing cost-effective abatement. Mandatory pollution controls under threat of clo- Determinants of industrial pollution sure have been used as a last resort to force highly pol- luting enterprises to adopt control measures. Many of The severity of pollution in different parts of China is these enterprises are old plants using obsolete technolo- largely determined by variations in the pollution inten- Industry: Creating Incentives to Abate 59 sity-pollution per unit of output-of industrial enter- prises. To identify potential mechanisms for reducing Pollution intensities have fallen, 1998 pollution, this section analyzes the determinants of pol- and 1993 lution intensity using data from regulated firms. Focusing on variations in five provinces-Liaoning, Chemical oxygen demand Beijing, Shanghai, Guangdong, and Sichuan-we trace Kilograms per 10,000 yuan 70 the effects of reforms and structural change since 1987, 1988 particularly trade reform. 60 Aside from variation among different types of indus- 50 tries, China's provinces have different levels of pollu- tion because the pollution intensity of plants in the same 40 1993 industry varies considerably. Since 1988, however, pol- 30 lution intensity has fallen substantially in all five provinces (figure 5.1). Particularly sharp reductions 20 have occurred in Guangdong and Sichuan. 10 Great variation persists across provinces, however. Holding the sectoral share of industry constant, facto- 0 Sichuan Guangdong Liaoning Beijing Shanghai ries are dirtiest in Sichuan and cleanest in Shanghai. Three basic differences across provinces explain such Sulfur dioxide Kilograms per 10,000 yuan variation: degree of regulation, pressure applied by 300 neighboring communities, and industrial characteristics. 1988 250 Regulation 200 Enforcement of pollution standards varies greatly 1993 across China's provinces. For example, actual collec- 50 tions of pollution levy assessments (or effective levies) 100 per unit of wastewater discharge above the legal stan- dard vary greatly because of variations in enforcement 50 (figure 5.2). Effective levies per unit of air pollutant dis- charge above the standard also cover quite a range (fig- Sichuan Guangdong Beijing Liaoning Shanghai ure 5.3). Using the effective levy as a proxy for all the regula- Total suspended particulates Tons per 10, 000 yuan tions applied to industrial enterprises, we studied the Tnp 100y relationship between regulatory strictness and pollu- tion intensity. Controlling for other factors, effective levies have had significant effects on the pollution inten- sity of production across China's provinces. Each 1 per- 0.2 cent increase in the effective water pollution levy yields 1993 an 0.8 percent decrease in chemical oxygen demand intensity per unit of output. It does not matter whether the increase in the levy originates from increased penal- ties or tightened enforcement. Each 1 percent increase in the effective air pollution levy yields an 0.3 percent decrease in sulfur dioxide pollution intensity, an 0.8 0 Sichuan Liaoning Guanydong Beijing Shanghai percent decrease in particulate pollution intensity from coal burning, and an 0.4 percent drop in particulate Source: Wor[d Bank data. 60 Clear Water, Blue Skies: China's Environment in the New Century FIGURE 5.2 FIGURE 5.3 Effective water pollution levies vary widely, Effective air pollution levies have fallen 1988 and 1993 in recent years, 1988 and 1993 Yuan per ton of chemical oxygen demand Yuan per ton 0.25 30 1988 1988 0.20 25 1993 20 0.15 15 1993 0.10 0.05 10 0 0 Shanghai Beijing Liaoning Guangdong Sichuan Beijing Liaoning Guangdong Shanghai Sichuan Source: World Bank data. Source: World Bank data. pollution intensity from production processes. 5.4). Areas with high illiteracy are notably silent when Pollution intensities are significantly lower in provinces it comes to complaining about pollution; uneducated with higher effective levies, and since 1987 they have citizens are less likely to be aware of environmental fallen in provinces where levies are rising. Thus regula- problems and less willing to confront the authorities. As tion makes a significant difference in lowering pollution complaints rise, so do effective levies for both air and intensities. water pollution. As in other countries, citizen feedback China's provincial regulators have pursued very dif- is a powerful independent force for environmental ferent regulatory policies. Beijing, for example, has the improvement. highest effective levies and among the lowest pollution intensities; the converse is true for Sichuan. Notably, FIGURE 5.4 however, Shanghai does not conform to the general pat- Citizens in richer provinces complain more . . about the environment, 1988 and 1993 tern: its effective air pollution levy seems entirely out of line, both with its effective water pollution levy and its Complaints per 100,000 residents status as the area with the lowest pollution intensity. 50 1988 Community influence 40 Whether pollution charges or fines are enforced partly 30 depends on the extent of the damage and the commu- nity's capacity to influence the authorities. As local pol- lution loads increase and the exposed population 20 grows, the damage to human health increases. These factors, especially in wealthy provinces, trigger 10 increased enforcement. Educated citizens are also more likely to complain about pollution. 0 It is no accident that Shanghai, a highly developed Shanghai Beijing Guangdong Liaoning Sichuan .Source: World Bank data. province, registers the most citizen complaints (figure S Industry: Creating Incentives to Abate 61 Plant and industry characteristics FIGURE 5.5 Pollution intensities are influenced by a range Three enterprise-related factors are also important of factors determinants of a province's pollution intensity. First, Chemical oxygen demand some industrial processes generate large volumes of harmful pollutants, so the composition of industries 0.8 Enterprise- Sectoral related affects pollution. And because some sectors face higher 0.6 abatement costs than others, cost-sensitive enterprises are more resistant to pollution control measures. 0.4 Second, because end-of-pipe pollution abatement has 0.2 significant economies of scale, large plants have lower 0 unit abatement costs and respond more readily to regu- 0.2 latory incentives. They also tend to be more technically -0.2 3: . E . I?E M_ . - E cJE efficient, since their size allows them to spread overhead * -.E . costs for skilled personnel across many units of produc- l0.4 * 2 2 0 tion. Finally, ownership makes a difference. China's -0.6 state-owned enterprises generate a lot more pollution than their nonstate counterparts. One reason is their Sulfur dioxide lower operating efficiency, which affects both abate- 0.4 Enterprise- Sectoral ment costs and the generation of waste residuals in pro- reLated duction (Dasgupta and others 1996). In addition, state 0.2 enterprise equipment and technologies tend to be older. And state enterprises are less sensitive to price signals, 0 including pollution charges or fines, because they often -A operate at the pleasure of government authorities and - have privileged access to finance. 0.2 E When the effects of these three factors are analyzed L together, for both water pollution (chemical oxygen -0.4 c demand) and air pollution (sulfur dioxide) the share of - production in large plants is the most significant factor -0.6 in determining overall pollution intensity (figure 5.5). Note: The weight of each variable differs depending on the pollutant. Intensity factors are based on beta coefficients, which measure the direction The share of production in state-owned plants also car- and relative importance of expLanatory variabLes in a multivariate relationship. The sectors are identified by multivariate anaLysis, in which ries a lot of weight. Among industries the main contrib- exceptionally clean or dirty sectors are those that depart significantly from average pollution intensities after the effects of ownsership, levy, and scale utors to higher intensity vary by pollutant. are accounted for. The results for smoke and dust intensity are simiLar to those for suLfur dioxide. Source: World Bank staff estimates. Growth and the environment: Reforms and structural change since 1987 Shanghai (from 41 percent to 58 percent). Since larger China's economic reforms over the past decade have plants pollute less per unit of output, increasing scale increased the role of price signals in the economy, eased has brought environmental benefits. Second, the role of constraints on enterprise growth, and reduced barriers state enterprises has diminished, again with a particu- to competition from new domestic (often nonstate) larly rapid change in Shanghai (from a share of state firms and foreign trade. These developments have had enterprises in total enterprises of 70 percent in 1988 to three positive effects on the environment. First, average 54 percent in 1994). Since nonstate firms tend to pollute plant scales have increased: the share of large plants in less per unit of output, the decline in state enterprises industrial production grew from 30 percent in 1988 to has been accompanied by a significant drop in pollution 37 percent in 1994, with a particularly rapid increase in intensity. Third, rapid growth has brought structural 62 Clear Water, Blue Skies: China's Environment in the New Century change in industry. The share of particulate-intensive indicator is the trend in net imports (imports minus industry has declined significantly, while the shares of exports) of products from these sectors. Trade liberal- chemical oxygen demand- and sulfur dioxide-intensive ization would accompany a shift toward net exports of industry have remained about constant. Reforms have these products if any specialization in pollution-inten- also had a notably clean effect in the five provinces cov- sive industries were emerging. In fact, real net imports ered earlier. The share of pollution-intensive sectors has of these products have increased considerably since dropped in all cases for water pollution and in all but 1987 (figure 5.7).4 one case (sulfur dioxide in Liaoning) for air pollution. Overall, trade liberalization has been accompanied The largest changes have occurred in Beijing for chem- by expanded output of goods that are less pollution- ical oxygen demand-intensive sectors and in intensive. Of course, all industries experienced rapid Guangdong and Shanghai for sulfur dioxide- and par- growth over the past ten years, including pollution- ticulate-intensive sectors. intensive ones. But cleaner industries have grown faster, Trade reform also has had a positive effect on both in domestic production and in China's interna- China's environment. Increased production efficiency tional trade. in export-oriented enterprises and more rapid absorp- Market-based regulation during this period failed to tion of newer, cleaner technologies from OECD sources reinforce the positive effects of economic reforms, have offset any tendency for China to specialize in pol- however. Despite damaging air pollution since 1987, lution-intensive industries because it has weaker envi- real effective air pollution levies have fallen in the five ronmental regulation and lower-cost heavy raw provinces covered earlier (see figure 5.3). The decline is materials than many of its trading partners.3 particularly striking in Beijing and Shanghai. Real Moreover, there is no evidence of any long-run shift effective water pollution levies have also fallen in both toward a pollution-intensive industry structure. The provinces, while they have risen sharply in Liaoning shares of the five most polluting industries-chemicals, and Guangdong (and more modestly in Sichuan). pulp and paper, nonferrous metals, ferrous metals, and Although they have affected plant-level pollution nonmetallic minerals (principally cement)-in total intensities, different levies have not influenced location industry have declined (figure 5.6; see Hettige and oth- decisions: there apparently has been no regulation- ers 1995 and Mani and Wheeler 1997). Another useful induced migration of dirty sectors within China (Lucas 1996). FIGURE 5.6 Output of the five dirtiest industrial sectors FIGURE 5.7 has been falling, 1977-92 Net imports of polluting products have been Shore in industry increasing, 1987-94 (percent) Share of net imports 80 (percent) 25 70 20 15 60 10 50 1977 1982 1987 1992 5 Note: The five sectors are chemicals, pulp and paper, nonferrous metals, ferrous 1987 1988 1989 1990 1991 1992 1993 1994 metals, and nonmetallic minerals (principally cement). Source: World Bank data. Source: World Bank data. Industry: Creating Incentives to Abate 63 Since 1987 declining real air and water pollution FIGURE 5.8 levies in Beijing and Shanghai have created incentives Pollutant emissions from regulated enterprises for increased pollution intensity. Thus the observed under three scenarios, 1988-2020 declines in intensity should be attributed to counter- Chemical oxygen demand vailing shifts in scale, ownership, and sectoral composi- Millions of tons tion induced by economic reforms as well as by other 1o regulatory instruments. For air pollution intensity the Economic reform only same conclusion follows for Liaoning, Guangdong, and Sichuan. For water pollution, on the other hand, there 5 percent a year has been a sharp drop in intensity in these three 6 poution Levy increase provinces because higher levies and economic reforms have been mutually reinforcing. 10 percent a year , , oLLuion evy ncrease Future pollution scenarios pollution Levy i 2 Assuming that economic reforms will continue, recent regulatory and industrial trends can be used to project 09 1994_2000_2010_2020 1988 1994 2000 2010 2020 their future effects. While several policies can increase Sulfur dioxide pollution abatement, we have used the effective pollu- Millions of tons tion levy to illustrate the potential impact of policy 20 reforms under three scenarios for 1997-2020 for five important cities-Beijing, Shanghai, Shenyang, Guang- zhou, and Chongqing. The three scenarios are: Economic reform only * Economic reform and the regulatory status quo. 15 5 percent a year Economic reforms have accounted for much of the pollution levy increase decline in air and water pollution intensities since 1987. Even if regulations were not tightened, growth and eco- 10 10 percent a year nomic reform would still drive changes in sectoral com- pollution levy increase position, scale, and ownership. But will reform be sufficient to achieve China's objective of holding indus- trial pollution to 1995 levels? 5 * Tighter regulation: "Polluters pay some." Tight- 1988 1994 2000 2010 2020 Totlsseddpriuae ening regulations would create incentives to reduce pol- tal suspended particulates lution intensity and would complement the effects of Millions of tons 25 economic reform. Under this scenario air and water pollution levies would increase by 5 percent a year. Such growth is equivalent to the increase in Sichuan's effec- 20 Economic reform only tive water pollution levy over the past five years and is less than the increases in Guangdong and Liaoning. By 15 5 percent a year 2020 the real levy would be four times today's level. pollution Levy increase * Strict regulation: "Polluters pay more." Under a third 10 scenario levies would increase by 10 percent a year. By 10 percent a year 2020 levies would be thirteen times their current level. 5 pollution levy increase Economic reform and the regulatory status quo would probably hold the chemical oxygen demand load from 0 regulated enterprises to a modest increase (figure 5.8). 1988 1994 2000 2010 2020 This is remarkable because the industrial base will have Source: World Bank staff estimates. 64 Clear Water, Blue Skies: China's Environment in the New Century nearly quintupled by 2020. For sulfur dioxide, in the increase in the pollution levy would prevent further reform-only scenario, continued decline in the air pollu- deterioration from the 1993 level in Shenyang and tion intensity of industrial production is not enough to Beijing, while Shanghai, Guangzhou, and Chongqing offset emission increases caused by industrial growth.5 would experience strong improvements in air quality. Increasing the pollution levy by 5 percent a year- Particulate loads behave similarly. For the 5 percent and that is, merely continuing recent trends in water pollu- 10 percent levy scenarios, the projected trends generally tion regulation-has a dramatic effect on chemical replicate the sharp drop in particulate loads projected at oxygen demand discharges. Projected emissions would the national level. The exception is Shenyang, which fall by more than half, from about 7.0 million tons in experiences only a modest decline. Experiences else- 1995 to 3.3 million tons in 2020. A 5 percent annual where indicate that such charges can be an effective way increase in the air pollution levy would cause sulfur of achieving pollution reduction targets (box 5.1). dioxide emissions to fall by a third and particulate emis- sions to fall by half. Were the levy to increase by 10 per- Is stricter reguLation worthwhile? cent a year, sulfur dioxide and particulate emissions would each fall by three-quarters. Reducing pollution loads in China would save lives, All three scenarios suggest that the solutions to improve the health of China's people, and increase the China's industrial pollution problems are within reach. productivity of workers (see chapter 2). In the five cities If chemical oxygen demand regulations were tightened studied here, increasing the air pollution levy by 10 per- substantially, organic water pollution would fall cent a year rather than relying solely on economic sharply in regulated industries. Better regulation would reforms would save the lives of more than 4,000 people also lower sulfur dioxide emissions, significantly each year. Compared with the status quo scenario, pro- improving air quality in all five cities. A 10 percent jected deaths from sulfur dioxide pollution in 2020 Global experience with pollution charges M Ian;-, contIe' hav1 e epE- I entI"IIIC! ed 'Oth poRution 1 cha es T - he * Eim isin chmre q e m ue I ef I e whn plemnentedt t- perfrwmanice of these- iha-rgeS leads to sev,era[ o)n,du,ions- about parin of bn-oadef polluioni :onitro pnagrams] Jth laaminar their effeJtive use : qualitv taicet, fo-r ii specific area or wa,tershed 3nd eiso * For controlling emissions irom a large number of smalt 5ources reduction targets for particular sources. Successful imptementa- in areas where command-and-controt requlations are expensive to tion of such programs requires adequate institutional support (for enforce. fuel taxes and water charges have an advantage over example. establishing niver basin agencies ai urban air quality emission and effluent charges. Fuel tayes have a particular ad van- councils) and strong political commitment. tage as a proxy for the air pollution charge. Unlike emission * Emission charges should proide an incentive For the targeted charges, fuel taxes are easy to collect and can be used to contrut level of pollution abatement in an area of watershed. Lot- emis- sma3ll sources such as vehicles and small boilers. When air pollu.- sion charges that are introduced primarily to raise funds do not tion is closely associated with the pattern and type of energy use. have a comparative advantage over other charges and taxes, Fuel taxes also Create an -ncentdve to improve energy efficiency given, their higher administrative complexity and costs. and use better-qualitv fuels. * User charges for municipal or collective wastewater treatment * Effluent charges based on water use, including user charges should be applied wherever such treatment takes place and for waste%vater treatment, can be effectively applied to all cate- should recover the cost of the senn9ce to the largest extent possi- gories of consumers in areas v,here water consumption is ble. It is important to define the size of collective plant; and the metered. HowEver, po.,sible equity effects on large Low-income level of treatment adopted when optimizing the %-aste*atef hous.wholds should be acsesced and miticiated. treatment strategy across aR significant sources in a wiatershed. * Emission charges can be effectively applied to a limited nium- * If revenue from pollution charges is earmarked for environ- ber of pollutants and to large polluters because the e.-,pected mental funds, itis important tohave acoherent, transparent and gains in Pollution reduction justify the cost of monitoring and accountable allocation zYstem with clear Financing objectives collection. and priorities. CourcE: World Banii 4taff. Industry: Creating Incentives to Abate 65 TABLE 5.2 GURE 5.9 Projected annual deaths from industrial sulfur Incremental benefits and costs per 100 tons of dioxide pollution under three scenarios air pollution abatement in Beijing Sulfur dioxide 5 percent 10 percent Su.5. doar a year a year Economic pollution Levy pollution levy 80,000 City reform only increase increase Beijing 4,500 3,200 2,400 Chongqing 3,200 2,600 2,200 60,000 Shenyang 1,200 900 600 Shanghai 1,100 700 700 Guangzhou 300 200 100 Source: World Bank staff estimates. 40,000 Small and medium-size plants would be 67 percent lower in Guangzhou, 50 percent 20,000 Large plants lower in Shenyang, 47 percent lower in Beijing, 36 per- cent lower in Shanghai, and 31 percent lower in n Chongqing (table 5.2). O Although saving lives by reducing air pollution is a 15 25 35 45 55 65 75 85 Althogh svingAbatement (percent) laudable objective, expenditures on pollution abate- Particulates ment must be judged against other expenditures that U.S. dollors might also improve the quality of life. China remains a 800 poor country in which hundreds of millions of citizens Wage have many unmet basic needs. Public investment in health facilities and education can also yield major 600 health benefits, and direct investment in productive Small and capital can improve health by increasing incomes. Thus medium-size plants any analysis of air pollution abatement must consider 400 its costs as well as its benefits. The analysis has to be undertaken at the margin. The cost of abating China's industrial pollution rises 200 steadily at the margin with the degree of abatement. At Large plants some level of abatement further pollution reduction 0 may no longer be warranted because the same resources 15 25 35 45 55 65 75 85 could be used for other investments with greater life- Abatement (percent) . Source: WorLd Bank staff estimates. saving potential. Using Beijing to illustrate our Source:_WorLd_Bank_staff_estimates. approach, we address this issue with a systematic assessment of abatement benefits and costs. are particularly interesting. The marginal abatement cost Because marginal abatement costs vary by pollutant, curve for 100 tons of sulfur dioxide abatement by large sector, plant size, ownership, and degree of abatement, it plants in Beijing ranges from $2,900 at 15 percent abate- makes little sense to talk about abatement costs in a gen- ment to $27,000 at 85 percent.7 The marginal abatement eral way. The question for Chinese regulators is: which cost curve for large plants crosses the $8,000 incremental facilities should be regulated, and how much abatement is benefit line at around 60 percent abatement; by implica- socially desirable? To reflect the overlap between particu- tion, the marginal abatement cost curve for nonstate large lates and sulfur dioxide as sources of fine particulates, plants would cross the incremental benefit line at a much abatement costs for both pollutants are shown in figure higher abatement level. The marginal abatement cost 5.9.6 Large plants are a major source of air pollution in schedule for smaller facilities crosses the incremental ben- Beijing, so the marginal abatement costs for these facilities efit line at around 15 percent abatement.' 66 Clear Water, Blue Skies: China's Environment in the New Century For particulates the numbers are much more attrac- TABLE 5.3 tive. Marginal abatement costs scarcely rise above $500 Industrial sulfur dioxide abatement in five cities, for each 100 tons abated, even at 85 percent abatement 1993 for smaller plants. Costs are even lower for large plants. (tons) Marginal abatement costs for our other four cities differ Sulfur dioxide Suffur dioxide Abatement somewhat but have the same order of magnitude. city produced emitted (percent) A useful contrast is provided by the National Shenyang 196,100 144,700 26.2 Environmental Protection Agency's current estimates of Shanghai 393,700 356,700 9.4 actual abatement levels in the five cities bl 53) Chongqing 544,800 494,800 9.2 (tae Guangzhou 165,100 151,500 8.2 According to the agency, Beijing's current abatement Beijing 208,900 203,700 2.5 rate for industrial sulfur dioxide is 2.5 percent. To derive Source: NEPA 1994. a conservative benefit-cost assessment, we adopted the lowest rate of abatement-15 percent-that is included become more comprehensive, the regulatory frame- in figure 5.9. At 15 percent abatement, the incremental work still lacks enforcement capacity and design coher- cost of abating 100 tons of sulfur dioxide pollution is ence. The transitional state of the economy requires estimated to be $2,860. Taking this to be the incremen- China's environmental management agencies to deal tal cost of saving a life, we use our estimated incremen- with the lingering problems of the centrally planned tal lifesaving benefit ($8,000) to calculate a social rate of system as well as the new challenges of the emerging return to abatement of about 180 percent. market regime. It appears that the proposed sulfur dioxide levy of The National Environmental Protection Agency has $24 a ton will induce less than 15 percent abatement in set ambitious targets for controlling China's industrial large plants.' To achieve a 60 percent abatement in pollution.10 Realizing those targets will require China's large plants, the levy has to be raised to $80 a ton in pollution control authorities to harness the market, Beijing. strengthen regulations, and reform institutions so that The estimated rate of return to abatement, while new investment will be channeled to cleaner production clearly attractive, is extremely conservative in terms of technologies and better pollution control. the lifesaving value of reducing air pollution in Beijing. For a large nonstate plant our econometric results imply Harnessing the market and strengthening regulations a marginal abatement cost of $332 for each 100 ton reduction in sulfur dioxide emissions when the abate- The increasing market orientation of the industrial sec- ment rate is 10 percent. If-as seems likely, given over- tor offers an opportunity to use market-based pollution all abatement rate of 2.5 percent-large nonstate plants controls more effectively. But changes and reforms in in Beijing are abating less than 10 percent of sulfur the existing regulatory system, if not properly intro- dioxide emissions, then the failure to enforce greater duced, could actually have an adverse effect on China's abatement is equivalent to valuing a Beijing citizen's life environmental management. Thus it may be necessary at less than $500 at the margin. Thus continued inac- to tighten existing controls at the same time market- tion means ignoring a public investment with a social based instruments are being introduced. Recognizing rate of return in excess of 1,500 percent. The opportu- that effective pollution control depends on local nities for such high returns may be quite rare in China's enforcement, the following recommendations are made urban health sector. with respect to national policies. Toward effective and efficient Redesign environmental impact assessments and industrial pollution control the Three Synchronizations program. New approaches are required, both to incorporate environmental China has made considerable efforts to solve its indus- impact assessments and the Three Synchronizations trial pollution problems, and these efforts have slowed program into China's overall pollution control strat- the growth of major pollutants. But even though it has egy and to increase their capacity to make the indus- Industry: Creating Incentives to Abate 67 trial sector adopt cleaner production technologies, the large investment required to achieve desired ambi- Both programs should be revised to reflect the assim- ent air quality in Chinese cities (box 5.2). ilative capacities of local and regional airsheds and Changing the design of the levy system would watersheds, rather than continuing the current focus increase its effectiveness. Because pollution levies are on source-specific discharge standards. Integrating assessed only on above-standard discharges, emissions both programs with a market-based discharge permit are "free" for polluters until the standards are reached. system would encourage enterprises to adopt least-cost Moreover, effluent charges are based on the pollutant abatement measures. that exceeds the standard by the greatest amount and do not reflect the relative risk of individual pollutants. For Reform the levy system. Achieving pollution control both air and water discharges it would be sensible to objectives will require increasing pollution charges. The consider adopting a complete charge system that would National Environmental Protection Agency has pro- target specific pollutants and be assessed on all types of posed a tenfold increase in the air pollution levy; such pollution. A volume-based levy system would also be an increase would go a long way toward reducing air easier to integrate with the discharge permit system. pollutant emissions (see figure 5.8). Higher levies are Reforming the management of the levy funds is also needed both to lower current emissions and to finance crucial to realizing the levy system's potential. Returning The optimal air pollution levy in Zhengzhou-and its implications for China Zhengzhou is the capital of Henan Province, in China's cential Sulfur dioxide abatement yields enormous region. With a 1993 population of 1.8 million people and an aver- soCial returns age industrial wage of 3,350 yuan a year, Zhengzhou is representa- . Mo' ron ti,e of China's large cities. Its industry emits about 45,000 tons of 1 4 suLfur dio.ide every year. It is estimated that more than 400 people a year are dying from sulfur dio:ide-related pollution in Zhengzhou. 120 and thousands are suffering from serious respiratory illness. 1 Environmental regulators could reduce pollution and improve health in Zhengzhou by increasing the air pollution levy. But how 31) 63r.pinal benefh far should they go? The optimal levy should be set at the point 60 where the incremental benefits of abatement are equal to the incremental cost of achieving it. Our estimates of the current sit- 40 uation in Zhengzhou, and the implications of raising the levy to M31;r3l can reduce sulfur dioxide emissions, are shown in the figure. For this analysis we have assumed a statistical life value of ' $8,000 a person. At the city's current atmospheric sulfur dioxide 1: 11 o :, so ;o e lo ? concentration, abating 1 ton of sulfur dioxide saves about 0.63 4tarenltri PEr' percent of a statistical Life, vielding 3 benefit of about i50. By The proposed levy of $24 a ton for sulfur dioxide emissions contrast, the incremental cost of abating I ton of sulfur dioxide would achieve about 55 percent abatement in Zhengzhou. Current at current emission levels is estimated to be about $1.70. Thus inaction is equivalent to valuing the life of an average urban resi- there is huge social return to abating more pollution. As the fig- dent at about $270 ($1.7.0.0063) at the margin. This figure seems ure shois, additional abatement remains socially profitable at Ludicrously low relative to the loss of a life, with the associated pain the margin until 73 percent of current emissions are eliminated. and suffering and the elimination of a lifetime's contribution to The Levy that would induce this reduction is about $90 a ton, at China's economic output. Even our suggested life value of S8.000 the intersection of the marginal benefit and cost curves. This is is a conservative number that only takes account of forgone eco- the optimal levy for Zhengzhou, since a lower levy would leave nomic output. But to meet even this conservative standard, our socially profitable abatement opportunities unexploited and a result suggests that the proposed suLfur diodide levy should be higher lesy would impose an abatement cost higher than the increased to about $50 per ton of sulfur dioxide emissions in social gain from further pollution reduction. Zhengzhou-and, by implication, in the rest of urban China. Source: World Bani staff. 68 Clear Water, Blue Skies: China's Environment in the New Century part of the levy to enterprises (in the form of low-inter- in market-based approaches. The government should est loans for pollution control) reduces the political dif- start experimenting with a regulatory system based on ficulty of levy enforcement. But financial oversight must full-cost pricing of natural resources and environmental ensure that the money is well spent. At a minimum, the taxes, while continuing to strengthen existing regula- funds should be pooled and allocated competitively tory measures. based on the highest marginal abatement per unit of expenditure. In addition, the funds should not be used to Continued economic reform is needed to preserve support local environmental protection bureaus, which past environmental gains. The impact of economic should be funded from general government revenues. reforms-and accompanying technical and structural change-on the air and water pollution intensity of Fast-increasing pollution loads from township and Chinese industry has been powerful. Reform-induced village industrial enterprises deserve special attention. changes in sectoral composition, ownership, and scale of The recent closing of thousands of heavily polluting production have compensated for much of the increase township and village industrial enterprises probably in total output during the past decade. Continued could have been avoided if past regulation had covered reforms can have similar mitigating effects over the next these enterprises. In any case, the long-term solution to few decades. Rapid industrial growth that is not accom- regulating these myriad, price-sensitive enterprises lies panied by further changes in ownership and production ISO 14000-The new international standard for environmental performance Certification by the Interniational Standards Organization (ISO') is firmis can follow a ser ies of guidetines that provide operationat essential for Maniufacturing and servJce finrs seeking ralpidj instructions. Geniera[auditingprincipLesfortracking perfoinmance growth in the globat mnaretptace. Many teading international have alreadv been Published as ISO 14010, ISO 14069, and ISO firmns wiJl only do business with subcontractors that have sati- 14012. More specific mneasres willtibe detailed in ISO 14030. on fied the ISO's universaUly recognized performance standards, In environmental performiance evaluation, w%hich wYas reviewed by the past ISO benchmiarks were app[lied to overalt mnanagemnent and the ISO Technical Commnittee in April 1997. Other comnponents of quality control. The new% ISO 14000 standard, however, expticitty the ISO 14000 environmental certification process are stilt being r'esponids to environmentrtat concerns by defining iequiremrents for developed, These include life-cycle assessmnent, enrvironm ental an environmental mianagemrent sy'stemn. tabeting, and env ironmental aspects of product standards. Alt Because the standard is new,,, somne components are still being standards devetoped under ISO 14000,,wilt be review,ed ev,ery five negotiated. But the core e[emients of the certification process are years for possibte miodification. now , in place. To be certified under ISO 14000, ffirmis rniust: Atthough it is ne,ISO 14000 is atready affecting the * Unidergo aninFitial reve2w by mianagemTet to identif-y environi- evrnntlstance of firms, in both industrial and developing mnental issues of concern (f or examipte, excessive use of poarutingq countries. In Europe businesses are rapidly adopting an eco- inputs, potential for a serious enviroinmientat accident). mnanagemnent and audit regUtation that incorporates the 150 * Establish priorities for action, taking into account factors 14000 principles and requires firmis to publicdy report their envi- suich as locat eniironmentat regiulations anid potential cots. ionmiental perfoirmiance. To remiain comipetitiv,e in Europe, * Dev,elop an environmiental policy statement, to be signed by Japanese comrpanies, are aggressivelyv pur-suing ISO 14000 certifi- the chief executiv,e officer. cation. Most U.S. firmis witl undoubtedly folhow. * Set performance targets based on the policy statemrent (for AmTong dev,eloping countries, Mexico's MinistT\y of the examiple, reducing heavy mretal emiissions bv 50 percent by somie Environment has alreadY incorporated ISO 14000 into its iegula- date). tory sys-temn, The mrinistry is offerinq Mex ican firms major incen- * Im plemnent the environmientat mnanagemnent systemn as part oif tives to adopt ISO 14000, including acce[erated de preijation on reaching the pefdormnance targets. envirornmental equipmient (for tax purposes-) anid etigibility for * Measure performnanc_e, review imiplemrentation, and mnake simnplified licensing procedures. Anid both Indonesia and the 3ppropriate adjustments to ensure, that targets are mect. Philippaines plan to incorporate ISO 14000 standards into their These "verifiaible core e[emnenrts" of the environmrentaL man- new programrs for public disclosure of firmns' enviionmentat per- agemnent sylstemn are referred to as ISO 14001. To achieve themn, formiance. Soce,: WrLd Bank stalff Industry: Creating Incentives to Abate 69 scale, by contrast, would produce far greater pollution As its importance in global trade grows, China will loads than those contemplated in this report. be subjected to increasingly stringent international standards, including environmental performance and An incentive-based discharge permit system would production standards such as ISO 14000 (box 5.3). In reduce control costs while achieving local or regional response, China should establish an institutional frame- pollution goals. China should move quickly to adopt its work for incorporating ISO 14000 into its clean pro- overall pollution control strategy by implementing an duction strategy, starting with trial certifications in the incentive-based discharge permit program. The integra- short term and expanding to cover major industries in tion of such a program with existing pollution control the medium term. programs will be a major task for China's regulatory Local communities should have ways to voice their agencies. environmental concerns. In the long run community voice may be the most important way of controlling Enforcement should be targeted at low-cost sources. pollution. The strength of regulation in China's The cost analysis in this chapter shows why targeting is provinces is largely determined by each province's a good idea: large polluters are easier to monitor and social and economic development. Poor communities have far lower unit abatement costs. Thus the key to with low education levels are far less able to promote cost-effective pollution control in China's cities is tar- their environmental interests than their more developed geted enforcement of higher abatement standards for counterparts. Ultimately, China's environmental inter- large facilities. ests will be best served by rapid economic development, Adequate compliance monitoring is essential to coupled with concerted efforts to inform and empower achieving China's pollution control targets. Com- poor communities. Nongovernmental organizations pliance monitoring should be strengthened by increas- will also play an important role in future pollution con- ing financial support for equipment and skilled trol efforts. personnel. Random monitoring should increase and more enterprises should be monitored in order to raise Notes the pressure on polluters to abate. Continuous moni- toring of large point sources should become mandatory. 1. The eight programs form the core of China's environmental pro- tection activities: environmental impact assessments, the Three Synchronizations program, pollution Levies, pollution discharge per- Reforming institutions mits, mandatory pollution controls, centralization of pollution con- trol, the goal-responsibility system of environmental protection, and Institutional obstacles have impeded the implementa- the quantitative appraisal system of urban environment comprehen- sive control. tion of China's environmental programs. These obsta- 2. The Three Synchronizations program mandates that a project and cles have been particularly serious for programs its pollution control facility be designed, built, and operated in syn- requiring coordination between government agencies chronization. and between governments that share natural resources i3. Martin, Huq, and Wheeler (1993) find that more open develop- ing economies absorb clean technologies in metals and paper pro- (such as water) or face regional pollution problems duction much more rapidly than their less open counterparts. (such as acid rain). Limited public participation also 4. Finally, we have used the available data to calculate China's con- undermines environmental management. sumption-production ratio for the output of the five dirtiest sectors. If China's comparative advantage lies in "dirty" production, then two Institutional responsibility for pollution enforcement things should be true. First, this ratio should be Less than 1, since should be more clearly assigned. Local governments China should be a net exporter of pollution-intensive goods. Second, need to have more control over managing local and the ratio should fall over time because production for export should National increase faster than production for domestic consumption. The regional environmental quality. However, the Nevidence is mixed but generally is not consistent with the hypothesis Environmental Protection Agency should continue to that China's comparative advantage is in pollution-intensive serve as the central agency for supervision and moni- production. Although China's consumption-production ratio has fallen toring. This two-tier arrangement will prevent local since 1987, it has remained weLl above 1 throughout the period. This supports the story in figure 5.6: China has been and remains a net complacency about pollution control and ensure effec- importer of pollution-intensive goods. tive management of cross-regional pollution issues. 5. We used projected pollution levies and shares of large plants, 70 Clear Water, Blue Skies: China's Environment in the New Century state enterprises, and "dirty" and "clean" sectors to project national although considerable losses are also associated with working days and provincial pollution intensities. We assumed that provincial inten- Lost to nonfatal respiratory disease. sities are the same as the pollution intensities of our five cities (not 9. The National Environmental Protection Agency has been con- an unreasonable assumption since these cities are the main industrial ducting trial implementation of a sulfur dioxide levy in selected cities. centers of their provinces and in two cases-Beijing and Shanghai- The 200 yuan per ton of sulfur dioxide levy is equivalent to $24 per are identical to their province). ton of sulfur dioxide (1995 exchange rate). To estimate city emissions, we multiplied projected provincial 10. The targets are contained in the State Environmental industrial output by the city's share of provincial industrial output in Protection Ninth Five-Year Plan and 2010 Long-Term Goals. 1993. Thus we assumed that the growth of industry in the province's main industrial city is identical to the growth of industry in the province. To obtain projected particulate and sulfur dioxide loads for References China and the five cities, we multiplied projected pollution intensities by projected industrial outputs. For sulfur dioxide the available infor- Dasgupta, Susmita, Mainul Huq, David Wheeler, and C.H. mation allowed us to go several steps further. We calculated sulfur Zhang. 1996. "Water Pollution Abatement by Chinese dioxide concentrations in each city's atmosphere by adjusting the pre- Industry: Cost Estimates and Policy Implications." Policy vious year's concentration at 0.51 times the rate of change in the esti- Research Working Paper 1630. World Bank, Washington, D.C. mated pollution Load. This adjustment reflects the results of an Hettige, Hemamala, Paul Martin, Manjula Singh, and David econometric analysis of the relationship between emissions and Wheeler. 1995. "The Industrial Pollution Projection System." atmospheric concentrations in a large number of Chinese cities. Next Policy Research Working Paper 1431. World Bank, we estimated the changes in mortality rates that are induced by Washington, D.C. changes in atmospheric sulfur dioxide concentrations. For this exer- Lucas, Robert. 1996. "Environmental Regulation and the cise we relied on recent empirical studies in Beijing and Shenyang by Location of Polluting Industry in China." World Bank, Policy X. Xu and others (1994). Finally, we multiplied estimated concentra- Research Department, Washington, D.C. tions by projected city populations to project deaths from air polu- Mani, Muthukumara, and David Wheeler. 1997. "In Search of tion. Pollution Havens? Dirty Industry in the World Economy, 6. Marginal abatement costs for Beijing are estimated by combin- 1960-95." World Bank, Policy Research Department, ing the results of an econometric abatement cost study of Chinese Washington, D.C. industry with current sectoral and ownership data for that city. Martin, Paul, Mainul Huq, and David Wheeler. 1993. "Process 7. This calculation averages the distribution of production between Change, Economic Policy, and Industrial Pollution: Cross- state and nonstate enterprise plants in Beijing. Because nonstate Country Evidence from the Wood Pulp and Steel Industries." plants are less polluting than state plants, a targeted regulatory strat- Paper presented at the annual meetings of the American egy could exploit this difference to capture the largest returns from Economic Association, Anaheim, Calif., January. stricter enforcement for the least-cost plants. Millison, Dan. 1997. Personal communication. Ecology and 8. How should Lifesaving be valued for comparison with abatement Environment, Inc., Lancaster, N.Y. costs? A useful benchmark is provided by the average wage of a worker NEPA (National Environmental Protection Agency). 1994. China in Beijing, which was about $800 (6,526 yuan) in 1995. A baseline Environmental Yearbook 1994. Beijing. estimate of the loss to society when one worker dies from respiratory _. 1995. Environmental Pollution Protection Policies for disease is the presented discounted value of the annual wage over a TVIEs. Beijing: China Environmental Science Press. working lifetime. For Beijing this is about $8,000 in present value -. 1996. China Environmental Yearbook 1996. Beijing. terms at a 10 percent discount rate. We should stress that it is a very Xu, Xiping, J. Gao, D. Dockery, and Y. Chen. 1994. "Air partial index of loss, for two main reasons. First, it takes no account Pollution and Daily Mortality in Residential Areas of Beijing, of pain and suffering. Secondly, it focuses exclusively on mortality, China." Archives of Environmental Health 49(4): 216-22. Industry: Creating Incentives to Abate 71 Urban Transportation: Controlling Cars gh China's motor vehicle fleet is relatively small, these vehicles are a significant source of urban pollution. Ambient hydrocarbon, carbon monoxide, and ozone concentrations in major cities exceed Chinese standards and are approaching interna- tional levels. Mobile sources-especially automobiles- account for a large share of these emissions. Although the number of motor vehicles in Beijing is only about one- tenth of that in Los Angeles and Tokyo, vehicle emissions are about the same for all three cities (Walsh 1996). The automobile fleet, though small relative to both income and population, is growing rapidly. Since the late 1970s vehicle registrations have grown by 12-14 percent a year. If incomes continue to rise, urban densities fall, and public transit worsens, urban automobile ownership could reach 85-130 vehicles per 1,000 people by 2010, and possibly twice this range by 2020. 73 This pattern of growth would make traffic jams and accounted for 87 percent of carbon monoxide and 67 smog a way of life. In recent years the number of auto- percent of nitrogen dioxide concentrations in 1993. mobiles has grown nearly twice as fast as the growth in The national motor vehicle fleet grew from 3 million road construction, leading to increasing congestion and in 1985 to more than 10 million by the end of 1994. much lower average driving speeds. Lower driving Still, in 1994 there were only 8 motor vehicles per 1,000 speeds increase emissions per kilometer because motors people. Private automobile ownership is quite low- are less efficient at lower speeds and because they take less than 2 vehicles per 1,000 people-but has been longer to travel the same distance. growing by almost 50 percent a year. If rapid urbanization and motorization are not care- Despite rapid growth, China's motorization rate is fully managed, these trends could produce environmen- low for its level of income relative to other East Asian tal problems that would rival those of Bangkok, economies (figure 6.1). Two factors make China differ- Jakarta, Mexico City, and Sdo Paulo. These cities are ent. Higher residential densities and more integrated shackled with high health costs associated with exorbi- land uses result in shorter work journeys, making walk- tant pollution loads, with reduced labor productivity ing and cycling possible. And until recently policies dis- because workers are caught in traffic jams, and with couraged individual vehicle ownership.1 insatiable demands for increased public investment in Cycling and walking were the dominant form of roads (Faiz 1990). transportation as late as 1992, the year of the most China can avoid this future. Its limited dependence recent survey of urban travel (table 6.2). Since then on automobiles, high urban densities, and extensive motorcycle use has increased dramatically, mostly at administrative capacity will enable it to shape its urban the expense of public transit and cycling. Increased environmental destiny. Doing so will require using both urban sprawl-with longer trips, increasing incomes, the conventional pollution control policies of other and falling residential densities-will increase the countries-emissions controls and the like-and the reliance on motorized transport unless the quality of full range of policies that shape the future of cities. public transit improves. Where is China now? Motor vehicles are a major source of emissions in large China is much Less motorized than its Chinese cites (table 6.1), and without new policies their neighbors, 1960-90 contribution will increase. In Beijing, for example, Motor vehicles per 1,000 people (log scale) mobile sources accounted for 40-75 percent of carbon 1,000 monoxide, hydrocarbon, and nitrogen oxide emissions e Japan in 1989. In Guangzhou traffic-related emissions Singapore 100 TABLE 6.1 Hgo Motor vehicles account for a large share S' Hong Kong of pollutant emissions Malaysia ; (percent) Carbon Hydro- Nitrogen Particulate 10 Philippines Korea, Rep. of Location, year monoxide carbons dioxide matter Beijing, 1989 39 75 46 Indonesia 1 China Guangzhou, 1993 87 67 Shanghai, 1994 37 85 15 European Union, 1990 72 40 62 Thailand Japan, 1989 40 39 1 Korea, Rep. of, 1991 99 96 81 18 100 1,000 10,000 100,000 United States, 1993 78 36 44 211 GOP per capita (log scale) a. PM-10. Source: Stares and Liu 1996. Source: Wa[sh 1996. 74 Clear Water, Blue Skies: China's Environment in the New Century TABLE 6.2 TABLE 6.3 Walking and cycling account for sizable shares of Different driving modes generate different urban transport emissions, United States, 1984 (percent) (parts per million) Beijing Shanghai Guangzhou Carbon Nitrogen Mode (1986) (1986) (1992) Driving mode Hydrocarbons monoxide oxides Walk 13.8 38.2 30.6 Idling 1.34 16.19 0.11 Bicycle 54.0 34.2 33.8 Cruising Motorcycle 0.0 0.2 6.4 15 mph 5.11 67.36 0.75 Taxi 0.3 0.2 6.1 30 mph 2.99 30.02 2.00 Bus and metro 24.3 24.0 21.7 45 mph 2.90 27.79 4.21 Car 4.4 2.2 0.0 Source: Faiz 1990. Other 3.2 1.0 1.4 Total 100.0 100.0 100.0 Note: Data are for format popuLations onLy. designs are at least ten years old. Current emission stan- Source: Li 1996. dards for gasoline-fueled engines are based on 1978 European and 1981 U.S. standards. Vehicles do not Congestion and vehicle speeds require catalytic converters to meet current standards. Emission standards for diesel-fueled engines are also The slow operating speeds of motor vehicles in major weak, covering only tailpipe smoke and not particulates Chinese cities result in high fuel consumption. Speeds on and nitrogen oxides. Beijing's third ring road average less than 20 kilometers While emission standards in industrial countries an hour (Walsh 1996). At these low speeds, fuel con- have become increasingly stringent, those in China have sumption is twice that on more freely flowing urban stagnated. Chinese standards for cars allow forty times highways. Even a small reduction in average speed-say, more carbon monoxide, six times as many hydrocar- from 20 kilometers an hour to 15 kilometers an hour- bons, and eight times as many nitrogen oxides than U.S. increases fuel consumption by 25 percent (Stares and Liu standards. Motorcycle standards are even more lax 1996). Stop-and-go driving also substantially increases than those for cars, and standards for two-stroke emissions (table 6.3). And congestion erodes the perfor- engines (mopeds and three-wheelers) are similar to mance of public transit, such as buses and mini-buses, those for trucks. But even these standards are weakly enforced. Air quality standards and vehicle emissions Emissions from in-use vehicles are ten to fifty times those of vehicles in the United States and Japan. Relative to The National Environmental Protection Agency has U.S. automobiles, domestically manufactured Chinese issued eight motor vehicle emission control standards. cars emit thirty to forty times as much carbon monox- Standards for light-duty vehicles, including cars, were ide, forty to sixty times as many hydrocarbons, and eight adopted in 1983 and are similar to European standards to fifteen times as many nitrogen oxides. from the same year. Environmental performance stan- dards for heavy-duty vehicles were adopted in 1989 and Fuels for motorcycles in 1993. Periodic inspections are required for all operational Gasoline supply is split about evenly between 70 MON vehicles and are conducted by local vehicle manage- (equivalent to 82 RON) and 90 RON and higher ment offices. The effectiveness of the tests varies signif- grades. The lower (70 MON) grade, mostly unleaded, icantly by jurisdiction. is used primarily in low-compression truck engines, The current vehicle fleet is highly polluting, in part while the higher grades are predominantly used in because of outdated vehicle designs and inadequate urban areas, where most higher-compression cars oper- emission standards for new vehicles (Fridley 1995). For ate. Chinese leaded gasoline contains about 0.12 grams example, truck engines are based on designs that are of lead per liter-less than the average of 0.15 grams per more than twenty years old, and most car engine liter for other Asian countries but more than the previ- Urban Transportation: Controlling Cars 75 ous international standard of 0.08 grams per liter, China's urban environmental future which is now considered high (World Bank 1995). Atmospheric lead levels in major cities such as Beijing Three sets of transportation-related factors will influence typically are 1.0-1.5 micrograms per cubic meter China's urban environmental future. The pace of income (pg/im), more than twice the World Health growth and urbanization will dictate the demand for Organization (WHO) standard, and in some areas urban transportation. Urban planning and infrastructure reach 14-25 pg/M3 (Walsh 1996). development will influence urban layout and the distance Although about half the gasoline produced in China workers have to commute. And the supply options avail- is unleaded, most of this is low grade (70 MON) or able for transport-bicycles, cars, or public transit-will higher grades for export. The domestic supply of 90 provide competing choices. If demand exceeds supply, RON and higher-grade unleaded gasoline accounts for congestion will extend travel times, reduce average only about 20 percent of gasoline consumption, and speeds, and increase emissions per trip. much of it is contaminated by leaded fuel at storage ter- minals. Wider use of unleaded gasoline is hindered by Demand issues: Vehicle use and urban growth the lack of a dedicated storage and distribution system. Refineries are not responsible for distributing fuel, so China's rapid urbanization shows few signs of abating. most fuel is transported by truck or rail car rather than By the end of 1995 the formal urban population stood by pipeline. Since few of these vehicles transport only at more than 350 million people and had been growing unleaded fuel and refueling sites generally have only by 4 percent a year since 1980. The informal population one holding tank, unleaded gasoline is often contami- was estimated at about 50 million and has been grow- nated with lead (Wang 1995). Even small amounts of ing even faster. The urban share of the population is lead inactivate catalytic converters. expected to reach 42 percent by 2010 and 50 percent by The quality of China's diesel fuel is poor-with low 2020, more than doubling the total number of urban stability and a high aromatic content-resulting in high residents. vehicle emission of particulates and smoke. Although Since 1990 the number of cities has been growing by the sulfur content of nationally produced diesel is low almost 8 percent a year and the number of townships, by international standards, the average sulfur content of diesel fuel will increase in the future if the transport TABLE 6.4 sector relies more on imported diesel (much of the China's fuel prices are low by international standards, second quarter 1997 imported diesel, which has up to 2 percent sulfur con- (cents per liter) tent, is currently used for power generation). Most East Asian countries limit the sulfur content of diesel to less Premium gasoline ta1.pecn.Economy (unleaded where available) Diesel than 1.5 percent. Ai Asia China 25 22 Fuel pricing Japan 97 65 Korea, Rep. of 94 41 Taiwan, Chinaa 60 41 The pump prices of gasoline and diesel are low by inter- Thailand 37 34 national standards (table 6.4). The current small price Vietnam 40 31 differential between 82 RON and 90 RON gasoline Europe France 111 77 does not justify the cost of upgrading refineries to pro- Germany 101 72 duce more high-quality fuel. Moreover, a shortage of Italy 113 84 liquefied petroleum gas is driving up its price, and refin- Spain 82 64 ers are diverting their feedstock to producing it rather Americas Brazil 83 45 than regular gasoline. In addition, since diesel is the Canada 48 40 main fuel for agricultural use, it remains underpriced Mexico 38 30 .United States 36 31 relative to gasoline, reducing refinery incentives to pro- a. Data are for August 1996. duce diesel (Fridley 1995). Source: WorLd Bank data. 76 Clear Water, Blue Skies: China's Environment in the New Century by 13 percent a year. The government plans to establish FIGURE 6.2 about 400 new cities over the next fifteen years.2 Low-density urban popuLations require Although this would create an average of twenty-eight more roads per capita cities a year, it is a significant reduction in the rate of Length of roads per capita increase of the past five years. The numbers of town- (meters) ships will need to increase even faster to cope with pro- 16 jected urban population growth and to avoid having large urban centers develop into megacities. The devel- opment of new cities and the expansion of smaller set- 12 + tlements into townships provides more scope for 10 managing the transport impacts of urban growth than 8 .4 would the unconstrained growth of larger cities. Until recently high population densities have helped 6 constrain the demand for motorized transport in China. 4 But the low quality of life resulting from these high den- * * sities is propelling their reduction, which will reduce the * potential for nonmotorized travel and increase the need 0 5,000 10,000 15,000 20,000 25,000 30,000 for road infrastructure. The planned reduction in resi- Population density (people per square kilometer) dential densities in areas with densities of nearly 20,000 Note: Figure plots 137 observations for 65 world cities. people per square kilometer will not create excessive Source: Stares and Liu 1996. demand for urban road space, but in new residential areas with densities of about 10,000 people per square ger vehicles (table 6.5). This segment of the fleet has kilometer the need for road space will be much higher grown nearly twice as rapidly as trucks. While most of (figure 6.2). The demand for motorized travel will also these cars are owned by companies or government increase as land use becomes less integrated. The agencies (80 percent in 1995), privately owned cars are authorities plan to move people away from polluting the most rapidly growing segment of the automobile industries, which will increase the separation of land market. uses. Future car ownership in China, particularly house- The portion of built-up land area devoted to roads is hold car ownership, will depend on three main factors: low-less than 10 percent in major cities (Li and others * Affordability (the ratio of car price to per capita 1996). Right-of-way on these roads is shared by pedes- income). trians and nonmotorized and motorized vehicles. With * Need for car use. poor traffic management and little segregation of users, * Infrastructure available for car use. speeds are low and accident rates are high. The lack of Considering only affordability and the need for car road space will become a critical issue as car ownership use, and ignoring any effects of congestion or changes increases. To prevent traffic congestion from getting in public transit, a study sponsored by the State worse, road space should increase at about the same Planning Commission estimated that household car rate as the increase in the vehicle fleet. Achieving this ownership would surpass the benchmark level of 15 objective will be difficult because of cost, resettlement, cars per 1,000 people when the affordability ratio falls and space considerations, so congestion will probably to 2-3 (table 6.6). Based on a random survey of nearly only get worse. 10,000 high-income households, the study calculated the number of households that would be able to afford Supply options: Car ownership and be willing to own a private car and estimated car ownership, potential domestic car production, and fuel In the absence of good public transit options, the consumption. demand for private automobile ownership and use will Car ownership rates in urban areas are much higher rise. About one-third of China's vehicle fleet is passen- than the national average, with about 24 cars per 1,000 Urban Transportation: Controlling Cars 77 transit may have 20 percent more cars than the projected TABLE 6.5 The registered civil vehicle fleet is growing quickly, average. But cities that organize themselves well, with 1985, 1990, and 1994 higher densities and good public transit, would have 20 (thousands) percent fewer cars than average (table 6.7). Average annual growth, Supply options: Public transit 1985-95 Type of vehicle/owner 1985 1990 1995 (percent) Efficient public transit is associated with high residential Passenger vehicles 795 1,622 4,179 18 densities and results in less dependence on automobiles. Professional transport 83 108 131 5 Privately owned 19 241 786 45 So far, however, provision of good public transit has not Trucks 2,232 3,685 5,854 10 been a policy priority. Bus services have suffered from Professional transport 194 198 142 -3 Privately owned 265 573 1,226 17 underinvestment, inefficient management, poor mainte- Other 616 411 1,227 7 nance, and a lack of user orientation, resulting in poorly Total 3,642 5,717 11,260 13 maintained vehicles and unreliable services. Congested Source: China Statistical Yearbook 1996. urban roads also result in unreliable services, with long people in Beijing, 15 per 1,000 in Shanghai, and 21 per delays between buses and unpredictable travel times. 1,000 in Guangzhou (Stares and Liu 1996). These rates Lower service levels could cause ridership to fall off and are low by international standards, even taking into increase the need to subsidize fares or further reduce ser- account China's low per capita income, so the potential vices. Few cities have built underground railways, none for growth is enormous. Most studies in other countries has a surface suburban railway, and light rapid transit of the factors that affect car ownership find a strong has yet to be used. Fixed-link public transit systems are correlation with personal income, and recent studies now so expensive that they can be justified only in excep- have found a close relationship between the quality of tional circumstances. Although the poor quality of pub- public transit and residential density (high densities lic transit did not contribute to air pollution when the being conducive to better bus and metro services). only alternative was to walk or travel by bicycle, the Car ownership rates in some urban areas are expected consequences are more significant now that average to grow by four to seven times over the next fifteen years urban incomes are high enough to afford cheap motor- and could double again in the following ten years. Actual cycles with heavily polluting two-stroke engines. growth rates will depend on how residential densities If China were to develop public transit options ahead change as existing cities grow and new cities are built and of urban transport demand, major cities would have 20 on the success of policies for improving mass transport. percent fewer automobiles and, based on experience Cities with lower population densities and poor public elsewhere, about 35 percent less car use. TABLE 6.6 National car ownership and production should rise considerably, 2000, 2005, and 2010 Projections Item 2000 2005 2010 Households able and wiLLing to buy a car (millions) 4.0-4.7 15.5-16.5 37.5-40.5 Demand for cars (millions) 1.3-1.6 2.2-2.7 3.5-4.4 Household demand (miLLions) 0.4-0.6 1.2-1.6 2.3-3.0 Car ownership (millions) 6 12 22 Household car ownership (percent) 20 40 60 Cars per 1,000 people 4.7 9 15.8 Car production capacity (miLions) 1.2 2.2 3.5 Car production capacity for household use (miLLions) 0.4 1.2 2.3 Household car gasoline consumption (miLLions of tons) 0.8 2.8 6.5 Share of national gasoline consumption (percent) 2 6 11 Average gasoline consumption (tons per household car) 0.7 0.6 0.5 Source: TEI 1994. 78 Clear Water, Blue Skies: China's Environment in the New Century China's urban transportation future: would be possible to walk or cycle to the transport The strategic choice nodes. Commuters traveling further could transfer to the high-quality public transit services. Unlike many developing countries, China has a strate- Curitiba, Brazil, and Portland, Oregon (United gic choice before it that will shape its urban environ- States), are among the few cities that have successfully mental future. One option is to let market forces, rising implemented this model since the advent of high car incomes, and uncontrolled urban growth create cities. ownership and use, although it was the basic pattern of This option entails high social costs of lost worker pro- urban growth in the nineteenth century (box 6.1). For ductivity and damage to human health as well as rising maximum effect, the policy needs to be introduced demand for funds for road construction. before urban growth is too far advanced, so that the But there is a second option. China's unusually low land for public transit services and radial roads can be dependence on automobiles, the unusually high density made available without excessive relocation of resi- of its cities, and the strength of its administrative capac- dents and high land costs. China's current strategy of ity at both the national and municipal levels is unique creating new townships and cities and limiting the among developing countries. China can take advantage growth of existing large cities will support the applica- of these circumstances to create a new framework for tion of this strategy. urban transport and environmental management. In Because this strategy is not as easy to apply in exist- addition to developing and enforcing regulations and ing cities, a more dramatic solution, based on demand environmental standards, this option would require management coupled with excellent public transit and integrated actions in six areas: planning land use, sup- the development of regional centers, will minimize the plying transport infrastructure, managing demand, demand for radial travel and ease the pressure for more managing traffic, promoting car production as a pillar road construction. This second strategy can also reduce industry, and implementing technical standards for the demand for car ownership, as it has in Hong Kong vehicles and fuels. (China) and Singapore (see figure 6.1). Land use planning Public investments and the supply of infrastructure China can take advantage of its unique pattern of urban The demand for urban road construction will probably development (Li and others 1996). Instead of dispersing exceed the supply for some time. The experience of high-density populations, urban growth could be orga- other countries suggests that this demand will quickly nized along corridors with established public transit find its way into automobile purchases, but soon traffic services at the transport nodes along those corridors. jams will put pressure on the public sector to build more This approach would minimize automobile use since it roads (table 6.8). But if China relies on an automobile- TABLE 6.7 By 2010 urban car ownership will be considerably higher (cars per 1,000 people) Density and public transit assumptions Beijing Shanghai Guangzhou Chengdu Jinan Current ownership rate 24 15 21 8 15 Basic projected ratea 96 105 116 55 70 Actual residential densitya Better public transit 77 84 92 50 58 Worse public transit 106 116 127 65 80 Reduced residential densitya Better public transit 92 100 110 65 69 Worse public transit 116 127 140 87 90 a.Data are projections. Source: World Bank staff estimates. Urban Transportation: Controlling Cars 79 A model for China's urban development? Curitiba, Brazil, a city of 2 million people and an area of 1,100 acc(ounting fof 75 percent of work commnutes. This outcome has bepen square kilomLes, has managed tO cOntiOl the tvin chalilges of achieved in a reLtOvely nch city (Per capita GDP was $5,149 in 1990) rapid urbanization and motorization. In the late 1960s city officials with high rates of car ownership (267 cars per 1,000 people). feared that immigration and rapid growth would overwhelm the Convenient transit services result in car use and gasoline con- city, ruin the downtown, and turn the city into an uncontrolable, sumption 30 percent below those in comparable Brazilian cities, sprawling metropolis-as had occurred in other Brazilian cities. helping to produce a living environment with low vehicle emis- City planners adopted comprehensive transportation and land sion and congestion levels. With more than twenty years of devel- use planning to manage the surge of new entrants to the city. opment, Curitiba's model has proven highly sustainable. Mindful of budget constraints, they required simple, low-cost solu- The main lessons of Curitiba's experience? Urban planning tions that could be implemented quickly and easity. creating must be comprehensive and make future transportation needs its momentum and political credibility. Development focused on five centerpiece. In addition, city officials relied on the local Urban linear corridors and coordinated transport and land use planning to Planning Institute, which provided high-quality, innovative solu- shape the new metropolis. The primary tools were a system of exciu- tions to planning problems. The institute, with the support of the sive and integrated busways, a transit-supportive zoning law, and municipal government, worked closely with businesses and com- restrictions on automobile use in the downtown area. The privately munities in developing ideas and planning concepts. As a result operated all-bus transit system today offers a rich and integrated community ownership and pride in city achievements became an variety of services, carrying more than 1 million passengers a day and integral part of the city development process. Source: World Bank staff based on (evero 1995. based urban development strategy, public investments and associated lower projected levels of car ownership. in roads will never catch up with private investments in Both estimates are less than that projected for interur- automobiles. ban transport (highways, railways, ports, and airports) The costs of an automobile-based strategy are much and represent about 2 percent of GDP; the public tran- higher than those of a public transit strategy. The fol- sit option would be about 17 percent less costly than the lowing estimates show the total investment needed in automobile-oriented strategy. urban roads and public transit systems based on two In both strategies highway maintenance would be the assumptions-one of no change from current policies largest expenditure, accounting for 30-44 percent of the and the other of an emphasis on public transit corridors total. In the automobile-based strategy new ring roads would account for a further 30 percent, but this would TABLE 6.8 only be 12 percent under the public transit strategy. Public spending on roads will eat up a large share Many Chinese cities plan to build ring roads to of investment in urban transport, 2000-10 expressway standards, sometimes with radial routes (billions of U.S. dollars) connecting them to the downtown business area. In AutomobiLe-based Public transit cities in the rest of the world, however, the share of road strategy strategy space dedicated to ring roads is quite small and varies Annual Share Annual Share within a narrow range.3 Current plans for expressway Investment investment of total investment of total construction go well beyond the standard in developed New roads 14.9 51.2 8.9 36.9 motorized cities around the world. Ring roads 8.5 29.2 3.0 12.4 Why have motorized cities in other parts of the Arterial roads 3.5 12.0 3.5 14.5 Other roads 2.9 10.0 2.4 10.0 world stopped short of such elaborate expressway Highway maintenance 12.8 44.0 9.4 30.0 plans? In part, because of the huge costs of constructing Buses 1.4 4.8 4.0 16.6 Metros and Light rapid urban expressways, especially in city centers (where transit 0.0 0.0 1.8 7.5 land is costly). Because the intrusion of these roads dis- Total 29.1 100.0 24.1 100.0 Note: Data are projections. rupts communities and encounters local resistance, few Source: World Bank staff estimates. new expressways have been built in Western city centers 80 Clear Water, Blue Skies: China's Environment in the New Century in recent years. Moreover, the notion that it is possible Traffic management to build a way out of congestion is being increasingly questioned. Traffic management is designed to make the best use of Urban transport investment in China should average space to accommodate demand with minimal invest- about $25 a year billion over the next twenty years to ments in new infrastructure. Using traffic engineering, avoid further deterioration in travel speeds and conges- traffic control, and traffic enforcement to manage traf- tion-induced pollution. A substantial portion of the fic flow, traffic management gives priority to the move- total should be allocated to road maintenance and ment of people rather than vehicles. Street capacity in improvements to existing arterial roads, with a reduc- China can be increased by installing junction improve- tion in planned expenditure on ring roads. Investment ments and traffic signals, creating bus lanes, limiting in fixed-link public transit should be restricted to corri- and otherwise controlling on-street parking, and intro- dors with high demand and areas where it is cost-effec- ducing one-way streets and other traffic flow measures. tive to avoid building new highways. Investment in One of the most cost-effective traffic management buses should be aimed at improving service quality and measures is to time traffic signals according to the flow frequency so that commuters are not tempted to turn to of traffic or to the priority desired for high-occupancy cars. vehicles such as buses. Timed signals can increase total highway capacity by up to 20 percent. Although a few Demand management Chinese cities have invested in such systems, they are not as effective as they should be and are not designed Demand management should be aimed at making the to give priority to buses. best use of existing infrastructure, incorporating envi- In many parts of the world an initial response to ronmental costs, and responding to the demand for new urban traffic congestion has been to require downtown facilities. It can also be used to reduce the unit costs of offices to provide adequate off-street parking so that public transit by reducing peak demand and stimulating on-street parking controls can be enforced. Over time, off-peak use. The tools of demand management com- however, this move often induces additional car travel, bine pricing and regulatory measures designed to make ultimately causing both on-street and off-street parking people's travel choices take account of the economic to be severely restricted. Depending on the stage of consequences of their actions. They aim to manipulate development at which the change is made, its effective- demand to avoid both excess use and overloaded infra- ness is limited by the amount of available off-street structure on the one hand and unnecessary duplication parking. Thus municipalities in China should resist and underuse of capacity on the other. While fixed toll pressures to make off-street parking a condition of systems can be used effectively on some principal roads, approving a building license, and go straight to the sec- they are not an efficient way of managing urban trans- ond stage of making a low level of off-street parking a port demand. New technology will make electronic condition of approval. But this policy must be accom- charging for road use more feasible. Given that elec- panied by one that makes other modes of transport- tronic charging provides the opportunity for an accu- walking, cycling, and public transit-attractive rate and sensitive road pricing system and that China's alternatives; otherwise it will be impossible to impose cities are embarking on a major period of new road on-street parking controls. The use of bicycles in cities building, incorporating these technologies would not requires special traffic management techniques in order add excessively to the cost of road development, to protect their use and avoid conflicts with motorized Demand management will need to supplement traffic. investment to create an efficient urban transport sys- No traffic management system can function if it is tem. Large cities should introduce appropriate pricing not enforced. In China the responsibility for designing and regulatory measures to restrict car and motorcycle and implementing traffic management is shared by use on congested roads or in congested areas, minimize municipalities, the Ministry of Construction, and the the cost of public transit services, and reduce congestion Public Security Bureau, but the allocation of responsi- on main highways. bility among them is not always efficient. Given the Urban Transportation: Controlling Cars 81 importance of traffic management in adding to system better solution is to focus on developing various forms capacity and reducing congestion, these responsibilities of public transit (NEPA 1996). should be clarified and the various measures vigorously In the meantime, however, extending the "polluter applied. pays" principle to automobiles and other vehicles Area traffic management systems should be devel- would require companies and individuals using cars to oped and implemented to deal with the mix of motor- pay for the social costs of pollution. Thus motorcycle ized and nonmotorized traffic in Chinese cities. Where and car owners would be faced with the full costs of their advantages can be demonstrated, systems that give their choices, resulting in economically efficient out- priority to buses and other high-occupancy vehicles comes. The revenues from the charges could be used to should be designed and implemented. Planning stan- finance additional pollution and congestion mitigation dards for new commercial developments should include measures. reference to the development's provision of parking Policies in several Asian cities make car ownership spaces, and where adequate public transit is available, expensive. Singapore's example is well known, but the number of parking spaces should be strictly limited. Hong Kong (China) and Seoul (Korea) also have high Regulation of on-street parking and observation of traf- car purchase and ownership taxes. Korea is a particu- fic markings and signals should be better coordinated larly interesting case because price disincentives to between the ministry, the bureau, and municipal gov- operate cars are used in parallel with a successful policy ernments. of developing an export market for cars. This is a good Traffic accidents in urban areas, already high by example for China, where the potential domestic mar- international standards, are increasing at alarming rates ket would still be huge even with such taxes in place. throughout China. Congestion generates impatience Japan distinguishes between ownership and usage. and a deterioration in driver discipline and driving con- Despite high car ownership, many Japanese cities are ditions. Road networks in many cities were never relatively free of congestion because of low car usage. designed for current traffic volumes and speeds. The These cities have well-developed, efficient public transit push to provide more road space for motorized vehicles services and strict controls on parking. In addition, has resulted in inadequate facilities for pedestrians and parking is prohibitively expensive in downtown areas slow-moving vehicles. The government must improve and there are few off-street parking spaces. Nearly 90 road safety by raising road design standards, imposing percent of motorized trips in Tokyo are by rail-based road safety legislation and penalties, enforcing traffic public transit. laws, testing and inspecting vehicles, strengthening dri- ver training and testing, and educating children and Vehicle emissions and fuel standards adults in traffic safety. Three policies can be used to modify the air quality Car production as a piLlar industry impact of increased motorization: imposing emission standards on new vehicles, affecting their design; con- Exercising control over automobile ownership and use trolling emissions from in-use vehicles; and setting the is not necessarily inconsistent with China's objectives of prices of the fuels that vehicles consume. A start has developing its automobile industry. The potential size been made on addressing vehicle-induced pollution at of China's domestic car market is so huge that it will not the national level through vehicle registrations and require artificial stimulus to promote an export indus- ownership regulations, but these are weakly enforced. try. Other Asian countries with successful car export Regulation of fuel quality is fragmented, with juris- industries, such as Japan and the Republic of Korea, diction over fuel quality shared among several agencies, have already implemented policies to invest in public including the China Petrochemical Corporation (indus- transit and contain the demand for car use. National try standards) and the National Technical Supervision environmental policy recognizes that the development Bureau (national standards on petroleum products and of cars will be controlled to a "proper extent and con- other products). While the bureau has final authority for sistent with the actual situation in China" and that a setting standards, the corporation, which produces 82 Clear Water, Blue Skies: China's Environment in the New Century about 87 percent of China's motor fuels, is responsible octane blending components, and using detergents to for proposing those standards. As with other standards control deposits in gasoline-fueled engines.4 Other low- in China, this approach has resulted in standards that polluting hydrocarbon fuels used for transport in other match industry needs more than environmental needs. countries include liquefied petroleum gas, liquefied nat- The National Environmental Protection Agency, which ural gas, methanol, ethanol, and biogas. However, the sets national standards for lead, sulfur dioxide, particu- feasibility of these alternatives usually depends on a lates, nitrogen oxides, carbon monoxide, and hydrocar- readily available supply, often as a byproduct of the bons, historically has had little input into the process. production of other hydrocarbon products. China will Pollution from motorized vehicles comes from the not have an excess supply of any of these fuels in the fuels they consume, so an appropriate system of pollu- near future, so they are unlikely to play a significant role tion charges would relate to fuel prices. In addition to a in reducing vehicle emissions. market price based on a sum of the opportunity cost of Widespread use of unleaded fuel will permit the the fuel (equal to its international market price), the cost introduction of new environmental standards that can of distribution, and ad valorem taxes on consumption only be met by requiring motor vehicles to be equipped (as for other products), the fuel price could include an with catalytic converters. Although the rest of the world infrastructure surcharge and a pollution charge. The uses vanadium and similar rare earths as the catalyst, pollution charge could be proportional to the energy China has an abundance of lower-priced alternative content of the fuel and its potential for pollution, minerals that could function almost as well, so the including its sulfur and lead content. increase in initial vehicle costs will be negligible. Given Emissions testing of new vehicle models should be the time it will take to develop a parallel distribution carried out by an agency that is independent of vehicle system for unleaded fuel, unleaded fuels should be manufacturers and is responsible for air quality, such as phased into use. They should first be made available in the National Environmental Protection Agency. those urban areas where lead contamination is greatest. Emission standards should be revised more frequently, Lowering lead emissions will have high and immedi- giving manufacturers incentives to improve the emis- ate payoffs to society by reducing the incidence of lead sions performance of their products. Once a system for poisoning among millions of Chinese children. Although distributing unleaded gasoline is in place, much stricter the complete phaseout of lead will be difficult and standards requiring the use of catalytic converters costly-requiring significant industry coordination and should be introduced. Testing of in-use vehicles needs to investment-it will be even more costly if it is left until be more stringent and uniform, at least in urban areas. vehicle use and fuel consumption are much higher. Some Similarly, fuel standards should not be left entirely to refineries are already producing higher-octane unleaded the petroleum industry and the China Petrochemical fuel (part of the output is exported), but the greater cost Corporation to determine, but should be the responsi- will be developing a parallel distribution system, essential bility of the National Environmental Protection so long as both leaded and unleaded fuel are on the mar- Agency. Transport fuels should include a surcharge ket. In the United States cooperation between the auto- according to their polluting capacity, to provide an mobile and oil industries resulted in nationwide incentive to use less damaging fuels and promote the availability of unleaded gasoline in four years, but it took more efficient use of all fuels. about ten years to completely eliminate lead from the fuel supply. Technical standards for transport fuels The market pricing of unleaded gasoline must be carefully controlled. If it is priced cheaper than leaded China plans to phase out lead by 2000. The experiences gasoline while its supplies are limited, there is a risk that of other countries suggest that this will be a challenging it will be used by vehicles that do not need it (that is, task. Other planned improvements in fuel quality those not equipped with catalytic converters), leaving include eliminating low-octane gasoline (70 MON pro- insufficient supply for those that cannot operate with- duction), raising the octane level by increasing the use out it. Owners of catalytic converter-equipped vehicles of reformate, oxygenates, alkylates, and other high- could then be tempted to use leaded gasoline, destroy- Urban Transportation: Controlling Cars 83 ing their catalytic converters and eliminating any air larly introducing unleaded gasoline and low-sulfur pollution reduction. But if unleaded gasoline is more diesel and implementing higher emission standards, will expensive than leaded gasoline, owners of cars be taken. Lead emissions will only fall to zero when all equipped with catalytic converters will be tempted to the vehicles that depend on leaded fuel have been with- use leaded gasoline, with the same final result. Thus, at drawn from the vehicle fleet and distribution of even least until adequate supplies of unleaded gasoline are low-leaded fuel has stopped. available, there are good reasons not to differentiate If there is no change in urban growth trends-that is, between the price of leaded and unleaded gasoline. if urban densities continue to fall, investment in public Since domestically produced diesel is already low in transit remains inadequate, demand and traffic manage- sulfur, it should not be difficult to control sulfur dioxide ment are avoided, and there is no improvement in vehicle emissions from diesel-fueled vehicles. But it will be dif- emission standards and their implementation-exhaust ficult and expensive to achieve the particulate emission emissions will be about twenty-five times higher by 2020 standards of some other countries because of the low (table 6.9). Implementing tougher emission standards and stability and high aromatic content of domestically pro- improving traffic management would hold the level of duced diesel. increase to about fifteen times. If a bus-based urban pub- It is difficult to justify an increase in the price of diesel lic transit system were promoted as well, vehicle emissions for transport purposes (to encourage more efficient use) would be only about five times higher. since more diesel is used in agricultural tractors than in A public transit strategy would also lower future oil road vehicles. There is a possibility of having two classes consumption by two-thirds. At current prices, in 2020 of diesel fuel, one for transport and the other for every- the public transit strategy would require only $30 bil- thing else, with the second retaining its low price. Such a lion in gasoline and diesel consumption, compared with policy would require strict enforcement to avoid trans- $87 billion under an automobile-based strategy. port users simply buying the cheaper alternative. This pol- In summary, if China wants to prevent skyrocketing oil icy is applied in the United Kingdom with some success. demand from automobile use and effectively control urban air pollution from automobile operation, it must Air quality effects of alternative take early and decisive action to plan cities around viable urban transport strategies public transit systems. Such actions will also free up petro- leum and capital for other purposes-for example, as a Three scenarios were developed to simulate the poten- substitute for coal in residential and commercial energy tial effects of different urban transport strategies on fuel use-thus creating ripples of environmental benefits. demand and pollutant emissions. The first scenario The larger task of creating a clean and healthy urban assumes that the current policy framework remains environment will require harnessing China's considerable unchanged. The second and third scenarios assume that administrative and coordinating capacity in transporta- all other measures to reduce vehicle emissions, particu- tion management. Emission controls and cleaner fuels are TABLE 6.9 A public transit strategy would mitigate increasing fuel demand and worsening pollutant emissions Automobile- Automobile- based strategy based strategy Public Base year, without improvement, with improvement, transit strategy, Fuel or pollutant 1993 2020 2020 2020 Gasoline (millions of tons) 29 789 473 144 Diesel (millions of tons) 8 144 86 49 Carbon monoxide (thousands of tons) 8,389 215,359 55,105 15,831 Lead (thousands of tons) 4.6 126 0 0 Nitrogen oxide (thousands of tons) 956 22,305 8,824 3,094 Volatile organic compounds (thousands of tons) 1,138 22,895 6,025 1,948 Particulate matter (thousands of tons) 80 1,838 868 362 Source: World Bank staff estimates. 84 Clear Water, Blue Skies: China's Environment in the New Century essential. Achieving them will require greater municipal China State Statistical Bureau. 1995. China Statistical Yearbook planning to shape land use patterns in economically effi- 1995. Beijing. Faiz, Asif. 1990. "Automotive Air Pollution: Issues and Options cient ways, greater investment in coordinating mass for Developing Countries." Policy Research Working Paper transport, and greater efforts to accommodate bicycles 492. World Bank, Washington, D.C. and other nonmotorized uses. The strategic choice is clear. Fridley, David. 1995. "China Fuel Quality Specifications." World Bank, Washington, D.C. Li, Yaming. 1996. "Annex: Urban Statistics and Transport Notes Characteristics." In Stephen Stares and Zhi Liu, eds., China's Urban Transport Development Strategy. Washington, D.C.: 1. In 1994 the government affirmed its policy of making automo- World Bank. bile manufacturing a pillar industry and began encouraging private Li, Yaming, and others. 1996. "Land Use and Transport Planning ownership of cars. in China." In Stephen Stares and Zhi Liu, eds., China's Urban 2. Many of these new cities will be upgraded towns. Transport Development Strategy. Washington, D.C.: World 3. Several East Asian cities with high Levels of motorization have Bank. similar shares of road space dedicated to ring roads: 2.4 percent in NEPA (National Environmental Protection Agency). 1996. Tokyo (Japan), 2.6 percent in Seoul (Korea), and 3.4 percent in "Seclected Documents from the Fourth National Singapore. But an average of sixteen cities throughout the world has Environmental Conference." Beijing. an average of just 1.7 percent. Even U.S. cities have an average of less Stares, Stephen, and Zhi Liu. 1995. "Motorization in Chinese than 3 percent with a similarly small standard deviation, considering Cities: Issues and Actions." In Stephen Stares and Zhi Liu, eds., that the sample embraces a wide range of city types, from New York China's Urban Transport Development Strategy. Washington, to Los Angeles. If Chinese cities follow this pattern, the entire express- D.C.: World Bank. way "allocation" for most cities might be taken up by just one ring TEI (Technical and Economic Institute of the State Planning road and one or two radial routes, with perhaps an additional ring in Commission). 1994. "The Development Strategy for Cars to the largest cities (Stares and Liu 1996). be Used by Households in China." Economic Daily, October 4. The China Petrochemical Corporation, China's main motor fuel 24. producer, plans to upgrade the quality of gasoline using advanced Walsh, Michael P. 1996. "Motor Vehicle Pollution Control in refining technology and alkylates and oxygenates in order to reduce China: An Urban Challenge." In Stephen Stares and Zhi Liu, vehicle emissions (Wang 1995). eds., China's Urban Transport Development Strategy. Washington, D.C.: World Bank. Wang, Xichu. 1995. "The Features of Motor Fuels and Lubricants References in China and their Future Directions." Research Institute of Petroleum Processing, China. Cevero, Robert. 1995. "Creating a Linear City with a Surface World Bank. 1995. "Why Lead Should be Removed from Metro: The Story of Curitiba, Brazil." University of California Gasoline." Environment Department Dissemination Note 32. at Berkeley, National Transit Access Center. Washington, D.C. Urban Transportation: Controlling Cars 85 Water: Preserving Scarce Resources F011. hina has a long history of managing water -- resources to compensate for its uneven spatial and temporal distributions of water. In recent decades rapid economic growth and urbanization have brought new challenges to water management. Increasing soil ero- sion and reclamation of natural water reservoirs have heightened pressures for flood control. Rising water demand has outpaced municipal water supply capacity. Widespread water pollution has become a prominent environmental problem. And investment and reform in the water sector have lagged behind the general economy. The underinvested and overburdened water system is taking its toll. Floods have become more frequent and more damaging. In 1996 floods caused 220 billion yuan in damages, compared with 160 billion yuan in 1994 (Chen 1996). More than 300 of China's 600 cities experience water shortages totaling about 6 billion cubic meters a year and causing 120 billion yuan a year in lost industrial 87 output (SPC 1995). China's rivers, lakes, and reservoirs average is just 10 percent of the world average. The lack are all polluted to some degree. Except for some inland of water is particularly acute in the Hai River Basin, rivers and large reservoirs, water pollution has wors- which covers all of Hebei Province and Beijing and ened, especially in waters adjacent to industrial cities Tianjin municipalities and parts of Shanxi, Henan, and towns (NEPA, China Environmental Yearbook Shandong, Jiangsu, and Anhui provinces. Groundwater 1995). Water pollution causes annual damages on the in the Hai River Basin is overextracted by as much as 30 order of 33 billion yuan (NEPA 1997). percent and in many areas groundwater tables have While floods cause enormous damage, water short- dropped by 100-300 meters. The depletion of indige- ages and water pollution are considered the two main nous water resources in the north is the primary reason water-related constraints to China's socioeconomic for China's south-north water transfer project. development, and are the focus of this chapter. The temporal disparity of rainfall aggravates water Resolving both problems will require large capital shortages and causes devastating floods and droughts in investment and, equally important, effective policies major river basins. For example, 70-80 percent of rain- and strong institutions. fall in the Hai River Basin occurs between June and August. Such a pattern requires extensive water storage Water quantity to ensure a stable supply. China is relatively poor in water resources.' Among sev- Demand patterns and projections eral major nations, China has the second lowest per capita water resources (behind India)-less than one- In 1980 (the most recent year for which national data third the world average (table 7.1). Northern China, are available) irrigation was the main user of freshwa- however, has only one-fifth the per capita water ter (82 percent), followed by industry (10 percent), resources of southern China. rural activities (including household use, animal feed- China is divided into nine water resource regions, ing, and nonfarming activities; 6 percent), and munici- roughly based on the boundaries of major river basins pal use (2 percent; table 7.3). There is considerable (table 7.2). Southern China (regions 5, 6, 7, and 8) con- variation among regions, with irrigation's share as high tains 81 percent of China's water resources and 55 per- as 95 percent in the mostly rural northwest and as low cent of its population. Northern China (regions 1, 2, 3, as 69 percent in the highly industrial northeast. Over and 4) contains 14 percent of China's water resources the past fifteen years the demand for nonirrigation yet must support 43 percent of its population. Northern water has increased quickly. For example, in the Hai China's 750 cubic meters per capita water resource River Basin irrigation's share of the total dropped from 81 percent in 1980 to 74 percent in 1987 (SPC 1995). TABLE 7.1 Total water demand is projected to reach 765 billion China's water resources are limited-especiaLly cubic meters in 2000, an increase of 72 percent over in the north, 1995 1980. Nonirrigation uses will account for 56 percent of (cubic meters) the increase in demand, with industrial and municipal Water per demand expected to grow the fastest (see table 7.3). Annual Land area About 62 percent of the increase in water demand will renewabLe (per square Water Country resources kilometer) per capita come from the south, 35 percent from the north, and 4 percent from the inland rivers region. Canada 2,901 290,944 98,462 Brazil 6,950 816,494 42,957 China's maximum freshwater withdrawal is esti- Russian Federation 4,498 263,426 30,599 mated at 1,100 billion cubic meters. At the national United States 2,478 264,659 9,413 China 2,812 292,917 2,292 level the balance between demand and supply could be Northern China 405 150,528 750 maintained. Striking this balance, however will require Southern China 2,278 654,532 3,440 huge investments in water supply and wastewater col- India 2,085 700,840 2,228 World 41,022 301,988 7,176 lection and treatment facilities, as well as enormous Source: WRI 1996: SSB 1996. conservation efforts. Otherwise water shortages and 88 Clear Water, Blue Skies: China's Environment in the New Century TABLE 7.2 Southern China contains half the population but most water resources (percent) Water resources Per capita Region Share (cubic meters) Cultivated Land Population Total 100.0 2,292 100.0 100.0 1. Northeastern rivers 6.9 1,625 19.8 9.8 2. Hai River 1.5 355 10.9 9.8 3. Huai/Shangdong rivers 3.4 515 14.9 15.4 4. Yellow River 2.6 749 12.7 8.2 5. Yangtze River 34.2 2,280 24.0 34.8 6. Southern rivers 16.8 3,534 6.8 11.0 7. Southeastern rivers 9.2 2,892 3.4 7.4 8. Southwestern rivers 20.8 32,216 1.7 1.5 9. Inland rivers 4.6 5,126 5.8 2.1 Note: These data were compiled in the early 1980s. It is assumed that the patterns have not changed. The 1995 population was used as the base for per capita water resource calculations. Source: Wu 1989. pollution will hamper economic growth and impair the cation of these sources. A study of 270 cities with seri- quality of life. ous water shortages found that 136 have inadequate water resources, 110 have insufficient supply infra- Main causes of water shortages structure, and 74 are short of water because water pol- lution has contaminated sources of raw water (SPC Water shortages are a chronic problem in China. In 1995).2 1980 estimated national shortages were already nearly The rapid growth in demand is not entirely justified 39 billion cubic meters, assuming average annual rain- because water has not been allocated and used effi- fall (Wu 1989). A more recent estimate puts annual ciently. Agriculture, the main consumer of water, wastes shortages at about 60 billion cubic meters (Chen 1996). about 60 percent of the water passing through its old- Increased shortages are as much a supply-side problem fashioned ditch irrigation system. The expansion of rice as a demand-side one. planting in water-short northern regions has aggravated In much of northern China water extraction is near shortages (Lu 1993). Most industrial enterprises, many or exceeds sustainable levels. Underinvestment in water extracting their own water from rivers or the ground, supply infrastructure has caused water shortages in do not recycle water. (The national industrial water many urban areas that have adequate water resources. recycling rate is about 40 percent, compared with about Increasing pollution has rendered many raw water 70 percent in OECD countries.) Outdated production sources unsafe, requiring expensive and disruptive relo- technologies also contribute to excessive water con- TABLE 7.3 Water demand is rising sharply (billions of cubic meters) Municipal Industry Irrigation Rural Total Region 1980 2000 1980 2000 1980 2000 1980 2000 1980 2000 Total 6.8 29.4 45.7 177.3 365.6 506.4 25.6 51.7 443.7 764.8 Northern China 3.2 11.1 17.9 69.3 132.2 171.7 9.5 22.0 162.8 274.1 Hai River Basin 1.1 3.0 4.9 19.0 30.9 36.2 1.5 3.7 38.4 61.9 Southern China 3.4 17.8 27.1 105.3 180.2 272.4 14.4 27.1 225.1 422.6 Inland rivers 0.2 0.5 0.7 2.7 53.2 62.3 1.7 2.6 55.8 68.1 Note: Data for 2000 are projections. Source: Wu 1989; World Bank staff estimates. Water: Preserving Scarce Resources 89 sumption. For example, coal-based ammonia manufac- prises and municipal sources have increased rapidly, turing consumes 500-1,000 tons of water per ton of underscoring the urgency of controlling these enterprises' ammonia, compared with 12 tons of water in the nat- pollution and treating municipal sewage. ural gas-based process. Chinese paper industries con- The relative pollution load is much greater in the sume 400-500 tons of water to produce one ton of water-short north because of its limited natural assimila- paper product, compared with 5-200 tons in OECD tive (dilution) capacity. In 1995 wastewater accounted countries (NEPA 1997). for about 4 percent of surface water runoff in the north Solving the problems of water supply and demand and 1 percent in the south, even though the south gener- will require concerted efforts in pricing, investment, ates 64 percent more wastewater. In the Hai River Basin regulation, and institutional reform. (water region 2) the wastewater-runoff ratio is a high 11 percent (figure 7.2). Overall, water pollution is much Water quality more severe in the north than in the south. Among regulated enterprises, in 1995 chemical oxy- Water quality is largely determined by pollutant dis- gen demand discharges were highest from paper (42 charges. As noted, most of China's bodies of water are percent of industrial discharges), food and beverage (28 becoming increasingly contaminated by these discharges. percent), and chemical (9 percent) industries. Petroleum pollutants were highest from chemical (29 percent of Pollutant discharges industrial discharges), metallurgical (21 percent), and machinery (13 percent) industries. The chemical indus- The main sources of China's water pollution are indus- try is also the largest source of mercury (42 percent of trial and municipal wastewater discharges, agricultural industrial discharges), arsenic (46 percent), cyanide (42 runoffs of chemical fertilizers, pesticides, and animal percent), and volatile phenol (28 percent) discharges. manure, and the leaching of solid waste. Water contamination from agricultural runoff is In 1995 regulated industries discharged 27 billion becoming more serious because of more intensive use of cubic meters of wastewater into open bodies of water chemical fertilizers and pesticides as well as a huge (figure 7.1). Municipal sources discharged 15 billion increase in livestock production. Over the past decade cubic meters. Although wastewater discharges from reg- chemical fertilizer applications doubled, reaching 36 ulated industries have stabilized since the early 1990s, million tons in 1995. Pesticide applications also dou- discharges from township and village industrial enter- bled, to 1 million tons. FIGURE 7.2 FIGURE 7.1 Water pollution is much more severe in Wastewater discharges are on the rise northern regions, 1995 Billions of cubic meters Wastewater as a share of surface water runoff (percent) 50 Township and village 12 industrial enterprises 40 10 8 30 6 20 Regulated 4 10 industries 2 0 1190 1981 1989 1995 1 2 3 4 5 6 7 8 9 Note: Wastewater discharges from township and village industrial enterprises Water region in 1981 are estimated based on the 1989-95 increase. Source: NEPA, China Environmental Yearbook 1996. Source: WorLd Bank staff estimates. 90 Clear Water, Blue Skies: China's Environment in the New Century The leaching of solid waste, especially toxic waste, Urban sections of rivers are polluted mainly by also may be an important source of water contamina- organic matter, especially petroleum and perman- tion. China has accumulated an enormous amount of ganate. Other major pollution includes biological oxy- solid waste-industrial solid waste now totals more gen demand, ammonia nitrogen, volatile phenols, and than 6.6 billion tons, and is increasing by 180 million mercury (table 7.5). Grade 3 standards are the mini- tons a year. About 10 percent of industrial solid waste mum requirements for raw water sources for potable is hazardous or toxic. In 1995 regulated enterprises water systems. While most pollutant levels remained alone dumped 6.5 million tons of solid waste into water stable or fell slightly between 1991 and 1995, ammonia bodies (NEPA 1996). nitrogen increased by about 50 percent. This jump may Mobile sources such as barges and ships also con- be the result of increased discharges of untreated tribute to the contamination of rivers, lakes, and coastal municipal sewage, agricultural runoff of nitrogen fertil- waters through oil leaks and spills. Some 300,000 ves- izers, and discharges from fertilizer plants. sels discharge or leak more than 5,000 tons of oil into Major river systems in northern China are severely the Yangtze River each year. Wastewater discharges polluted, while those in the south (Yangtze and Pearl from these vessels into the Yangtze are estimated at 90 rivers) are relatively clean. Half of the cross-section million tons a year. Solid waste discharges are estimated water samples drawn from the Hai and Luan rivers do at 80,000 tons a year (MOT 1997). not meet grade 5 standards (figure 7.3). About 94 per- cent of the Daliao River is unsuitable as a raw water Ambient water quality source for potable water. By 1995 industrial water pol- lution in the Huai River Basin was nearly disaster level, The government has defined five categories of ambient prompting the central government to adopt drastic freshwater quality standards. Grades 1, 2, and 3 permit measures to control wastewater discharges along the direct human contact and use as raw water for potable river. water systems. Grade 4 is restricted to industrial use Lakes and reservoirs generally suffer from eutrophica- and recreational use other than swimming. Grade 5 is tion (abnormal growth of aquatic plant life caused by restricted to irrigation. Each grade specifies an acidity adverse biological enrichment) caused by increasing con- level (pH) and maximum concentrations for twenty- centrations of nitrogen and phosphorus. Among China's eight major pollutants. Exceeding the pH or any of the large freshwater lakes, Taihu, Chaohu, and Dianchi are concentration standards for a given grade disqualifies the most polluted. Five-year (1991-95) average nitrogen the measured water body from being designated as that levels in the three lakes were 2.5, 3.8, and 2.3 milligrams grade. a liter compared with the grade 5 standard of 2.0 mil- Urban bodies of water are among the most polluted ligrams a liter. Mercury concentrations are also high in because they receive large amounts of untreated indus- the three lakes. The five-year average mercury levels of trial and municipal wastewater. National monitoring of Chaohu and Dianchi exceed the grade 3 standard of 135 urban river sections found that 34 of 66 urban river 0.0001 milligrams a liter (NEPA 1996). sections in the north and 18 of 69 in the south are pol- Groundwater quality has been declining, especially luted beyond grade 5 standards, rendering them waste in the north, where groundwater is used intensively to sinks (table 7.4). None of the sections was rated grade 1. compensate for the lack of surface water. Pollution indi- TABLE 7.4 Many urban river sections do not even meet grade 5 standards, 1995 (percent) BeLow Region Grade 2 Grade 3 Grade 4 Grade 5 grade 5 North (66 observations) 4.6 3.0 18.2 22.7 51.5 South (69 observations) 17.4 18.8 29.0 8.7 26.1 NationaL (135 observations) 11.1 11.1 23.7 15.6 38.5 Source: NEPA 1997. Water: Preserving Scarce Resources 91 TABLE 7.5 In summary, the waters in China, with few exceptions, Urban river sections contain a variety of have seen much of their assimilative capacity exhausted polLutants, 1995 by growing pollution. Water quality in major water sys- tems has deteriorated since the early 1980s, with a sig- Urban river sections nificant portion falling below grade 3 (maps 5 and 6). Grade 3 with annual average standard concentrations Because China has managed to provide safe drinking (milligrams exceeding grade 3 water to its large population, it has been able to avoid Pollutant per liter) standard (percent). . an epidemic of waterborne diseases. But unless pollu- Permanganate 6.0 51.1 tion control efforts are stepped up, the quality of Biological oxygen demand 4.0 44.7 China's rivers, lakes, groundwater, and coastal waters Ammonia nitrogen 1.0 44.4 will continue to deteriorate-with potentially serious VolatiLe phenots 0.005 37.3 Dissolved oxygen 5.0 31.9 long-term effects. Mercury 0.0001 18.8 The government recognizes the potentially dire con- Cadmium 0.005 7.7 Lead 0.05 7.0 sequence of inaction. Regulation has improved Source: NEPA 1997. markedly since the late 1980s and in recent years has stabilized pollution levels in some major rivers. A large- cators such as total hardness, degree of mineralization, scale cleanup effort for the Huai River Basin started in and nitrate concentration have increased. Pollutants 1995, and similar programs are being implemented or such as volatile phenols, cyanide, and nitrate are found planned for other heavily polluted major rivers and in groundwater, indicating the seepage of polluted sur- lakes. Through these and similar efforts, China hopes to face water. reverse the trend of deteriorating water quality by early Coastal waters have seen a rapid decline in quality. in the next century. Inorganic nitrogen pollution is serious and widespread, with half of 839 monitored samples exceeding the maxi- Water resource management mum limits (NEPA 1996). Major estuaries, bays, har- and pollution control regulation bors, and waters near medium-size and large cities are the most polluted. For example, in the Yangtze River Estuary, Both national and local institutions are responsible for Hangzhou Bay, and Zhoushan fishing ground areas inor- water resources and pollution control management. ganic nitrogen exceeds the maximum limit by 100 percent The Water Law and the Water Pollution Prevention and and phosphorus, by 87 percent (NEPA 1996). Control Law assign these responsibilities and provide the legislative underpinnings of China's water manage- FIGURE 7.3 ment regulations. The water quality of China's seven main rivers varies considerably, 1995 NationaL agencies Yangtze GThe Ministry of Water Resources is responsible for Pearl national water resources management, including improv- Ye[tow ing and developing major rivers, planning water resources for urban water supplies, constructing basic rural irriga- Huai tion facilities, implementing soil and water conservation Songhua programs, supplying rural hydropower, and building and managing medium-size and large reservoirs for flood con- Hai and Luan trol, irrigation, water supply, and rural hydropower. The Datiao ministry oversees seven river basin commissions that 0 20 40 60 80 100 coordinate regional water resource management activi- Percent ties. Provincial, municipal, and county governments Source: NEPA, China Environmental Yearbook 1996. maintain relatively autonomous water resource bureaus. 92 Clear Water, Blue Skies: China's Environment in the New Century The National Environmental Protection Agency is and managing irrigation, drainage, flood control charged with developing water pollution regulations to works, and rural hydropower. Bureaus at the municipal protect national water quality. These regulations are and county levels are responsible for constructing and enforced primarily by local environmental protection maintaining most canals, associated irrigation and bureaus. flood control structures, and medium-size reservoirs. The Ministry of Construction and its local counter- Townships and villages share responsibility for con- parts play a key role in planning and constructing structing and maintaining branch canals, ancillary municipal water systems, including sewage collection works, and small reservoirs. Staff of municipal and and treatment facilities. county water resource bureaus are organized into irri- Because of its large hydropower operations, the gation districts responsible for operating and maintain- Ministry of Electric Power is also involved in managing ing projects, planning and distributing water, and water resources. As with the other ministries, it also levying water charges. At the township and village level draws on its regional and local agencies. water users elect members to canal committees. These A few other national agencies and their local coun- committees handle on-farm water management under terparts are also involved with managing, developing, the direction of irrigation district staff. or protecting water resources. The Ministry of Water pollution control is essentially undertaken by Transportation develops and manages inland rivers and the provinces through municipal and county govern- coastal waters for navigational activities. The Ministry ments. The environmental protection bureaus at each of Geology explores groundwater resources. The level are responsible for implementing national and local Ministry of Public Health monitors drinking water water pollution regulations. Water pollution control quality and waterborne diseases. along the borders of a river basin has not been dealt with The National Coordination Group on Water effectively, however. Boundary-area water quality is mon- Resources was established to unify the management of itored by the water protection institutes of river basin water resources, enhance information exchange, and commissions. But the institutes are often underfunded facilitate coordination among agencies. The group is and do not have enforcement authority. The interim headed by the minister of water resources and has as arrangements for Huai River Basin are the first attempt to members the ministers of all the concerned ministries, as control water pollution on a basinwide level (box 7.1). well as representatives from the National Environmental Protection Agency, the State Planning Commission, and Urban water supply and wastewater treatment the Academy of Sciences. Several provinces and munici- palities have established similar water resource The Ministry of Construction regulates investment in committees. municipal water supply and wastewater treatment; major investments require ministry approval. River basin management Municipal water supply responsibilities are usually shared by city governments and enterprises. Enterprise The river basin commission is the principal administra- self-extraction of water, both for production and for tive, advisory, and consulting agency within a river employees, accounted for about half of the urban water basin. The commissions' focus is on flood, sediment, and supply in the early 1990s. drought control. In water-short basins the commissions Urban water supply has long been considered a basic often must resolve interprovincial water conflicts within government service. Water quotas have been the norm the basin and monitor water quality in coordination for demand management. Prices traditionally have not with relevant ministries and environmental protection reflected resource value and cost recovery. Self-extracted agencies. The commissions tend to be well staffed. For water charges are even lower (World Bank 1994). example, the Yellow River Conservancy Commission Reforms have been introduced to raise water prices and employs about 29,000 people throughout the basin. self-extraction fees and reduce the reliance on quotas. Provincial water resource bureaus are responsible for But subsidized water supply, even for commercial users, planning, surveying, designing, constructing, operating, is still common in Chinese cities. Cheap water has led to Water: Preserving Scarce Resources 93 Interim water pollution control regulation for the Huai River Basin The Huai Rivef Basin wvater pol[ution controt progtrm was initiated * The costs and financing of Load reduiCtionIS are not dealt with in 1995. The Ministry of Water Resources and the National in the interim plan. The cost of shutting down industries will have Environmental Protection Agency head the program's central gov- to be borne by Local governments at different levels. These costs ernment Leading group, which includes members from the four basin can be enormous, and financial arrangements will have to be provinces and other relevant central agencies. A basinwide pollution made between the central and provincial governments to finance control plan has been formulated and interim regulations promul- some of these activities. gated. The government considers the Huai initiative a model for * The interim plan does not say how industries are going to water pollution control in other river basins. The initiative repre- reduce their loads. The technical expertise does not exist, espe- sents a major step forward in China's water pollution control policy: cially at the county and township levels, for industrial pollution * For the first time pollution control is being undertaken on a control or prevention. Technical assistance should be provided to basinwide Level and is being jointly implemented by the National each county and township to help them come up with meaning- Environmental Protection Agency and the Ministry of Water ful pollution load reduction plans. Resources. * There is no plan to unify municipal and industrial waste treat- * Potlution loads are defined by province, county, and township ment so as to reduce the unit cost of treatment and make it more for sections of the river basin. affordable to industries. Cities and townships should ensure that * Key polluting industries are targeted for reduction of pollution all industrial wastewater, after inplant pretreatment to remove load, and heavily polluting and unprofitable enterprises will be toxic substances and heavy metals, flows to a municipal sewerage closed down. system. The plan also does not discuss sewerage standards for * Time limits are provided for pottuting industries to comply. industrial waste. * Local governments wilt incorporate the pollution load plan * There is no plan to unify the city agencies that collect and into their economic development plans. treat sewage. Collection systems are part of the drainage * All charges collected from pollution fines and other charges department of the municipalities, funded in part by the districts will be channeled directly to pollution abatement facilities. of the municipalities. Treatment plants are run by separate * A monitoring system will be established for industries to departments. report their pollution loads. * River water quality monitoring is fragmented into agencies at * Water quality monitoring along borders wil be done by the Huai county, municipal, and provincial environmental protection River Basin Commission, with results reported to the leading group. bureaus and the river basin agency for boundary sections. Such Although the initiative is the first step in a major effort to fragmentation can create a lot of confusion because monitoring control water pollution, as things stand the plan may not be sus- quality and standards can vary considerably between different tainable: levels of government. Source: World Bank staff. widespread inefficiency in water utilization, encouraged mainly been targeted at state-owned enterprises, often industries to adopt water-intensive technologies, and the main sources of local pollution.4 The rapid growth generated inadequate funds for water investment. of township and village industrial enterprises has spread In the late 1980s 57 percent of municipal sewage was what used to be a relatively concentrated urban problem collected. The situation is unlikely to have improved to a much wider area. Many of the small tributaries of much given the explosive growth of cities and towns in main rivers are now heavily polluted by effluents from the 1990s. Municipal wastewater treatment is even these enterprises, which are largely unregulated. lower because of a lack of investment funds. In 1992 only 4.5 percent of municipal wastewater received any Problems with the current framework kind of treatment. Including treated industrial waste- water the amount of treated urban wastewater rises to Although the water management system is elaborate, a about 17 percent (World Bank 1994). number of weaknesses must be addressed. The National Environmental Protection Agency and First, there is no legal framework for managing local environmental protection bureaus regulate and water resources along river basin boundaries. The enforce industrial water pollution control, which has Ministry of Water Resources has drafted a directive to 94 Clear Water, Blue Skies: China's Environment in the New Century address this shortcoming. This draft regulation should which should be corporatized and should have the be promulgated as soon as possible. authority for water abstraction, flood control, Second, except for flood control, there is no real-time drainage, effluent discharge into any part of the river management of water resources in the seven major river system, water quality maintenance (which requires a basins. Real-time management must be implemented basinwide water quality monitoring system), naviga- for catchments and subcatchments, especially in tion, coastal pollution, and water flow management. provinces where water is in short supply. These entities should also be responsible for collecting Third, there is little agency coordination on water water abstracting charges (similar to China's water projects in the seven major river basins.5 resource fee), including monitoring charges; flood con- Fourth, within provinces water resource planning is trol and drainage charges; and effluent charges and fines designed to maximize provincial benefits. In some cases for discharges into river waters. this results in suboptimal basin benefits. River basin * All cities and towns should have an integrated sew- commissions should have more authority in examining erage system for municipal and industrial wastewater. the provincial plans and fitting the plans into the over- Industries should have inplant treatment to remove all basin plan. toxic materials and heavy metals before discharging Fifth, water resource charges are extremely low. The into the municipal sewer system. No discharge to open river basin commissions cannot meet their operating watercourses from industry should be allowed. costs from these low charges. The commissions are not * Charges for water abstraction, water supply, sewage allowed to charge for regulating dams or for flood con- treatment, flood control, and drainage should be set trol or sediment control. Large sums of central govern- high enough to recover the full costs of these operations. ment money are used to subsidize the commissions' operations, and this is not financially sustainable. Costs and benefits of a clean Finally, the water pollution control responsibilities of and adequate water supply the river basin commissions only cover boundary areas. The commissions' water protection institutes have very lit- Limited water resources can be managed in ways that tle funding to monitor pollution even in the river sections ensure a safe and sufficient supply without imposing that they are authorized to monitor. The commissions enormous costs on the government. Two mechanisms should monitor all parts of the river basin, including the that can achieve this goal are higher water prices and tributaries. They also should collect and collate water wastewater treatment efforts. quality data from provincial, municipal, and county envi- ronmental protection bureaus to obtain a comprehensive Raising water prices understanding of river basin water quality. The separation of water resource management and Many cities in northern China are using pricing and pollution control and the fragmentation of national and technical assistance programs to reduce water shortages, local agencies are the main institutional problems of the manage demand, and reduce losses in water systems. water sector. The government is adopting policies to Although water prices have been low for all users, ameliorate these problems. provincial and state governments are encouraging price increases that reflect both cost recovery and shortage Water resource management and pollution control costs. In Taiyuan (Shanxi Province) the Price Bureau has in other countries announced that water prices will increase from an aver- age of 1.24 yuan a cubic meter to 4.94 yuan a cubic Most industrial countries have addressed water meter over the next five years in order to recover supply resource management and pollution control at the same costs. Many cities in Hebei Province have proposed an time. Several lessons can be learned from these coun- increase in the water tariff to recover supply costs. Water tries' experience: tariffs in these cities range from 0.5-0.9 yuan a cubic * Water resource management and water pollution meter (table 7.6), while the marginal cost of new water control should be vested in river basin authorities, projects is generally above 1.20 yuan a cubic meter Water: Preserving Scarce Resources 95 TABLE 7.6 Water tariffs are low in selected cities of Hebei Province, 1996 (yuan per cubic meter) User Handan Hengshui Langfang Qinhuangdao Shijiazhuang Tangshan Residential 0.50 0.45 0.40 0.40 0.65 0.50 Government 0.50 0.75 0.80 0.60 0.60 0.50 IndustriaLa 0.80 1.00 1.00 0.80 1.20 0.70 Commercial 1.25 - 1.50 2.50 1.40 1.20 Average 0.63 0.85 0.76 0.73 0.90 0.56 a. The charge for self-extracted water is much lower. Source: World Bank staff estimates. The willingness to pay for urban water is estimated 1994). Raising wastewater treatment prices toward full to be about 1.8 yuan a cubic meter in some coastal cities cost recovery would generate badly needed funds for and about 4.3 yuan a cubic meter in the extremely expanding urban wastewater treatment facilities. In water-short city of Taiyuan, which is representative of water-short cities wastewater treatment would provide water-short cities in the Hai River Basin. The economic a cheaper water supply alternative to some industrial value of water across industries in Shanxi and through- users (box 7.3). out the Hai River Basin is about 24 yuan a cubic meter. Since irrigated agriculture is the main user of pol- Water shortages in Shanxi, China's coal mining base, luted water, uncontrolled wastewater discharges into are so severe that they threaten the growth of local rivers and lakes have significant consequences for agri- industries (box 7.2). culture. In general, agriculture cannot use irrigation water below grade 5 standards because it contains large Increasing wastewater treatment amounts of heavy metals and toxins. In 1993 about 8 percent of China's irrigated areas received water below Many urban areas will face increasing shortages of grade 5 standards, resulting in an estimated 1 million grades 1, 2, and 3 water if the quality and quantity of municipal and industrial wastewater treatment do not rise. Safe drinking water extraction is already a serious Industnes are conserving water in Shanxi problem along the major rivers in northern China. Province, but supply is stilt a problem Large water transfer projects require huge investments Shanxi industries have gone to great tengths to conserve water and take years to complete. In cities and towns where In 1980 the average output value per cubic meter of water was water shortages are caused primarily by water pollu- 22 yuan. By 1990 this had risen to 48 yuan, and by 1994 it tion, wastewater treatment provides basic health bene- reached 75 yuan. Shanxi industries surpassed nationwide recy- fits and contributes to industrial and agricultural cling goals for 2000 in 1992, achieving an 84 percent recycling productivity. Increased water supply and water con- rate in 1993. In recent years most investment in Shanxi indus- tries went toward increasing the productivity of water. Still, water remains the overriding constraint on industry. It is esti- sions if effluent treatment does not catch up. mated that industrial output in 1993 could have been 6.5 biL- World Bank studies suggest that primary treatment Lion yuan greater (22 percent more) had there been no water (which typically removes about 30 percent of biological shortage. Factories periodically have to shut down when water oxygen demand and most heavy metals in wastewater) is not available. would require a tariff of 0.50 yuan per cubic meter of If water shortages are alleviated, Shanxi's industrial capac- ity will continue to grow based on its location and endowment water (1994 yuan) to recover costs. Adding secondary of natural resources. With additional water, annual industrial treatment (which removes 85-95 percent of biological output is projected to increase by 75 percent between 1993 and oxygen demand) boosts the tariff to 0.77 yuan per cubic 2000. Without additional water, output is likely to stagnate and meter. Imposing this treatment charge on users would remain near current levels. increase the cost of using water by 50 percent or more Source: World Bank staff. but could be easily absorbed by most users (World Bank 96 Clear Water, Blue Skies: China's Environment in the New Century tons of lost grain production (NEPA 1997). Since irri- Policies for sustainable use gation peaks during the dry season, when natural dilu- of water resources tion capacity is at a minimum, industrial and municipal wastewater generally should be treated up to grade 5 China faces enormous challenges in resolving chronic quality for irrigation purposes, especially in northern water shortages in the north and controlling wide- regions. Current treatment fails to meet this require- spread water pollution. Policies to speed up investment ment by a substantial margin, with the chemical oxygen in water supply and wastewater treatment are a top pri- demand concentration of industrial discharges exceed- ority. Prices for freshwater supply and charges for efflu- ing the grade 5 standard by thirteen times. Lost grain ent treatment are increasing but much more needs to be production could increase significantly if treatment of done to achieve an economically sound and socially effi- industrial and municipal wastewater does not improve, cient tariff structure. National and local water institu- affecting China's food supply. tions are the key to successful water policies. A The effect of wastewater treatment on China's future basin-oriented management system with strong central grain production has been evaluated with a water and regional leadership and clearly defined local demand model covering China's nine major river responsibilities will be essential for integrated water basins. Treated wastewater is assumed to account for resource and pollution control management. about 30 percent of the total effluent volume by 2000, from less than 20 percent today. Thus the model Managing demand by raising tariffs and treatment fees allowed for projected treatment levels to vary from 30 to 75 percent. Net grain production under different Despite recent water pricing and management reforms, treatment levels are shown in figure 7.4. Increasing China's water supply and wastewater treatment ser- wastewater treatment from 30 to 50 percent would vices are generally underpriced, leading to excess increase grain production by about 24 million tons by demand, high pollution, and inadequate funds to meet 2020-enough to support 65 million people (at 1996 investment needs. International experience has shown per capita gross grain consumption levels). The addi- that water users are sensitive to water prices. Among tional gain is much smaller if the treatment level is fur- households the price elasticity of water demand varies ther increased from 50 to 75 percent-about 7 million between -0.3 and -0.6, meaning that a 1 percent tons. increase in water prices reduces demand by 0.3 to 0.6 percent. In the industrial sector the range is -0.45 to FIGURE 7.4 Grain output will rise along with wastewater treatment Millions of tons S 600 Output with 75 percent Output with 50 treatment percent treatment %tde fctres,,it atw-riedatenai e atrsorc ad500 11- Otput with 30 percent Best~ ~ ~ ~ ~ ~~ ~~~~' treatmentti afrdbe Dlai' ndsresp 500 2000 2005 2010 2015 2020 Sj1Source: World Bank staff estimates. Water: Preserving Scarce Resources 97 -1.37. And for irrigation the elasticities fall between in China, and should be raised substantially to induce -0.37 and -1.50 (World Bank 1995). Higher prices greater abatement. Controlling water pollution from would encourage large water consumers in industry small industrial enterprises will be difficult. In the short and agriculture to adopt more efficient water use prac- term it will be necessary to close highly polluting small tices and technologies. factories. In the long term, however, collective treat- Water must be priced to reflect its scarcity and eco- ment of these enterprises' discharges and municipal or nomic costs. The Ministry of Water Resources recently small-town wastewater is a viable solution. recommended freeing water prices, starting with all The absence of adequate planning undermines water new water projects. More aggressive local governments resources management. Most Chinese cities do not have have already started to allow fully self-financed water watershed management master plans that integrate projects to set their own prices. Economic water pricing water supply, demand management, and pollution pre- will enhance demand management and provide the vention and control. Water supply investment is gener- financial resources water companies need to increase ally based on a needs approach, without much maintenance and service quality and expand system consideration of the role of water prices and their effect coverage. on consumption. China's cities and regions must Groundwater and surface water must be protected improve their planning capacities by adopting new from overexploitation. Since half of the urban water methods and taking a comprehensive approach to supply is used by enterprises, fees for raw water extrac- watershed management. tion should be increased to a level that equates self-sup- Improving irrigation efficiency should be the top pri- ply costs with municipal supply costs. Water demand ority of demand management for agricultural water management that uses economic pricing of water use, and could be accelerated with government techni- extraction and supply would reduce investment needs, cal assistance programs that disseminate water-saving free enterprises from water quotas, and allow cities to irrigation technologies. reallocate much of the urban infrastructure budget that currently finances water investments. Ensuring supply by increasing investment To prevent further deterioration in water quality, cities and towns must increase municipal wastewater Only by increasing investment can China ensure a reli- treatment levels at a pace at least equal to the growth in able water supply and improve water quality. To relieve effluent discharges. Wastewater treatment plants are the the severe water shortages in northern China, it may be only effective means of dealing with the growing necessary to invest in south-north water transfer pro- domestic and commercial wastewater loads in urban jects. But such projects are no substitute for using water areas. General government revenues will not be nearly resources as efficiently as possible, through conserva- enough to meet the required investments in treatment. tion, recycling, and wastewater treatment. All cities will Cities must raise sewerage fees for domestic, commer- need capital to strengthen water supply and sanitation cial, and enterprise discharges to levels that recover the services. These investments will reduce the economic costs of collection and treatment. While imposing user losses due to water shortages and lower the social costs fees may be politically difficult, city leaders must recog- of water pollution. The government cannot shoulder all nize that the costs ultimately will be paid directly or of the investment costs. Proper pricing policies and indirectly, and that relying on indirect payments leads environmental regulation can help realize the potential to excess effluent discharges and makes it impossible to for private investment in the sector. finance treatment needs. The result is more pollution A major effort must be made to install sewerage in all and higher social costs. cities to ensure that all waste (municipal and industrial) Controlling discharges at their source is crucial. is collected. Treatment plants should also be built. Enterprises will not have an incentive to reduce pollu- Financing for collection and treatment may have to be tion unless it becomes an internal cost through effluent obtained by issuing bonds or by attracting private or levies, violation fines, and enforcement monitoring. public investments. Cities and towns in Britain and Levies and fines for water pollution are universally low France initially received loans from the central govern- 98 Clear Water, Blue Skies: China's Environment in the New Century ment for such undertakings; over time the companies The river basin commissions should establish a water generated enough cash to continue the programs. In the quality monitoring system for the entire basin (includ- end these water and sewerage investments became ing the tributaries) for daily, weekly, and monthly mon- financially attractive to private companies. itoring. For regulatory purposes, the National China's central government should ensure that Environmental Protection Agency and local environ- within ten years all medium-size and large cities provide mental protection bureaus should set up an indepen- primary treatment (with provisions to expand to sec- dent primary network for monthly or random ondary) for any discharge that lowers water quality monitoring to verify the measurements undertaken by below grade 5 standards. All cities should be required the river basin commissions. to develop sewerage systems that facilitate the later addition of treatment works and that provide immedi- Local governments. Cities and towns should inte- ate treatment if water does not meet standards for irri- grate wastewater collection and treatment systems for gation within 3 kilometers of wastewater discharge municipal and industrial waste. In the long term dis- points or standards for domestic raw water at the near- charges by any point-source polluter into any open body est downstream community extraction point. The costs of water should not be permitted. All point-source dis- of investing in urban wastewater collection and treat- charges should be collected through municipal sewerage ment will be offset by a decrease in water supply invest- and treated. The unit cost of treatment for industries ment resulting from better water demand management using an integrated system will drop to 1-5 percent of (World Bank 1994). the cost of self-treatment because of the system's huge economies of scale. Pretreatment for industrial waste- Reforming institutions by integrating resource water should be required to remove toxins and heavy management and pollution control metals before the water is discharged into sewers. Sewer discharge standards should be developed and imple- Institutional reform should aim to facilitate the integra- mented. Wastewater charges for industry discharging tion of water resource management and pollution con- into sewers should be based on volumetric charges for trol on a basinwide basis. This in turn will require primary and secondary treatment, chemical oxygen stronger institutions for basin management. demand and biological oxygen demand levels and loads, and suspended solids and the cost of sludge disposal. River basin commissions. The seven river basin com- Wastewater collection and treatment should be the missions should be corporatized and become legally responsibility of one agency in the city government. responsible for the following functions in the basin: This sewerage agency should be corporatized and made * Water abstraction. financially autonomous. Sewerage charges should be * Flood control. included in water bills and transferred to the sewerage * Drainage. agency. * Navigation. * Hydropower discharges. The National Environmental Protection Agency and * Water flow maintenance. local environmental protection bureaus. The roles of * Water quality maintenance of all main and tributary the National Environmental Protection Agency and the rivers. environmental protection bureaus at different levels of * Coastal pollution. government should be expanded to regulate and The commissions should be able to set water tariffs enforce all environmental standards. Both entities for each function so that they can recover their opera- should: tional costs and develop new projects to control water * Elaborate and supplement the regulatory framework flows in the river basin. A portion of the charges for through legislation that establishes standards for water effluent control and water abstraction should be chan- supply and sewerage services, sets out criteria for classi- neled to cities and industry for water pollution fying river water quality, and imposes requirements to control. protect against pollution. Water: Preserving Scarce Resources 99 * Approve codes in various aspects of conservation, issues will improve the efficiency and effectiveness of recreation, ecology, and so on. water management. * Ensure that water and sewerage companies under- take work to the standards required and, if these stan- Notes dards are continuously violated, prosecute any water and sewerage company. 1. Water resources can be divided into surface water and ground- water. But except for deep deposits (sometimes called fossil water), * Appoint technical assessors of water quality in river groundwater occurs only as a result of seepage of surface water runoff. or coastal areas. 2. These number add up to more than 270 because some cities suf- * Oversee waste disposal authorities, especially for fer from multiple problems. 3. The National Environmental Protection Agency classifies three toxic waste. grades of seawater quality. Marine nature reserves must obtain grade * Provide independent advice at different levels on pol- 1 quality, grade 2 seawater permits swimming, and grade 3 permits lution control practices. industrial uses. 4. The National Environmental Protection Agency regulates waste- * Approve, inspect, and oversee potentially polluting water discharges through three classes of discharge standards. Class processes and those that endanger the safety of workers. 1 standards apply to discharges into key protected water bodies, including drinking water sources, general fishery areas, and important scenic areas. Class 2 standards apply to discharges into generally pro- Ministry of Water Resources. The Ministry of Water tected water bodies, including general industrial water sources and Resources's role should be expanded to: irrigation water sources. Class 3 standards apply to discharges receiv- * Oversee river basin developments by the basin ing secondary wastewater treatment. Despite the reported increase in treatment, chemical oxygen demand concentrations in wastewater dis- authorities. charged by regulated enterprises rose from 250 milligrams a Liter in * Approve all water abstraction charges. 1986 to about 350 milligrams a liter in 1995, compared with the class * Prepare water dispatching systems for all states of 2 standard of 100 milligrams a Liter. Wastewater discharged by town- ship and village industrial enterprises is believed to be significantly river water (flood, ice flood, drought, sediment) and more polluted because of the near-absence of treatment. have complete authority over all river regulation 5. Projects on the main stem of the river basin are operated by (including discharges from major hydropower stations). individual provinces or the relevant ministries. The operation of a major power dam follows the Load dispatch requirements of the * Develop water protection zones and ensure that regional electric grid. Although some arrangements have been made these zones receive minimum supplies, to ensure that flows are maintained in certain months of the year, these cannot be changed. There are no real-time operating rules, which are under the control of the river basin commissions. For example, the Ministry of Construction. The Ministry of Yellow River Conservancy Commission has an explicit water allocation Construction's role should be expanded to: for each province, but there is no control over the abstraction rates * Carry out technical audits of water and sewerage by the provinces. Hence the Yellow River has been drying up for as long as 130 days of the year for as much as 600 kilometers of the companies in cities. lower-reach sections. The basin commission's power has been Limited * Investigate incidents that adversely affect drinking to flood and sediment control for the lower reach of the basin. It is water. not even authorized to develop a water dispatching system for the * Provide technical and scientific advice on drinking whole basin. water policy. References * Identify hazards relating to drinking water and initi- ate research. Chen, Xiaojun. 1996. Personal communication. Senior * Provide guidance on analytical methods used in Economist, Ministry of Water Resources, Beijing. monitoring drinking water. Lu, Dadao. 1993. "An Important Solution to the Problem of e aWater Shortage in North China." Chinese Environment and * Review all major plans for water supplies and assess Development 4(3). the chemicals and materials used in connection with MOT (Ministry of Transportation). 1997. "Mobile Pollution these supplies. Sources on Chinese Rivers." Background paper submitted to the World Bank. Beijing. NEPA (National Environmental Protection Agency). 1996. A role for the public. Water management and pollu- Report on the State of the Environment of China 1995. tion control are public services that require public sup- Beijing. .1997. "China's Water Quantity and Quality Issues." port and public participation. Public involvement in the Background paper submitted to the World Bank. Beijing. legislative and regulatory processes affecting water - Various years. China Environmental Yearbook. Beijing. 100 Clear Water, Blue Skies: China's Environment in the New Century Rui, Haifeng. 1997. Personal communication. China Academy of Regional Office, Washington, D.C. Sciences, Beijing. - . 1995. "Water Conservation and Reallocation: Best Practice SPC (State Planning Commission). 1995. Report on China's Cases in Improving Economic Efficiency and Environmental Population, Resources and Environment. Beijing: China Quality." In Water and Sanitation Currents. UNDP-World Bank Environmental Sciences Press. Water and Sanitation Program. Washington, D.C. SSB (State Statistical Bureau). 1996. China Statistical Yearbook - .1997. "China Wanjiazhai Water Transfer Project." Report 1996. Beijing. 15999-CHA. Washington, D.C. World Bank. 1993. "China Yellow River Basin Investment WRI (World Resources Institute). 1996. World Resources, Planning Study." Report 11146-CHA. East Asia and Pacific 1996-97. Washington, D.C. Regional Office, Washington, DC. Wu, Yiao, ed. 1989. Water Resources Utilization in China. - 1994. "China Urban Environmental Service Beijing: Ministry of Water Utilization and Power Management." Report 13073-CHA. East Asia and Pacific Generation. Water: Preserving Scarce Resources 101 Policies: Securing Higher Environmental Living Standards he spread of markets in China has driven economic growth, leading to higher incomes, lower poverty, and improvements in nearly all aspects of Chinese life. But growth has also increased the pressures on China's environment. Awareness of these problems triggered new environ- mental protection efforts starting in the late 1970s. Trickles of policy change have since become a steady stream of new initiatives, policies, and regulations. China has enacted more than a dozen significant pieces of legis- lation to safeguard the environment, and each year the government has invested more resources to protect the environment. These efforts, together with economic reforms, have reduced the pollution intensity of Chinese production. Air and water quality, though still far below Chinese aspirations, have been held in check despite the unrelenting pressures of an expanding economy. 103 But as Premier Li Peng noted in his speech to the Addressing these challenges will require a new strat- Fourth National Environmental Conference in 1996, egy for environmental protection that reflects China's much remains to be done. Air and water pollution lev- increased market orientation, dynamic growth pat- els in China are among the highest in the world and, terns, and extensive administrative capacity. These new according to World Bank estimates, cause $54 billion a policies must: year-about 8 percent of GDP-in damages to human * Harness the market to work for the environment, health and lost agricultural productivity.' Yet the same not against it. This will require adjusting prices to cover rapid growth that has added to China's environmental economic costs and incorporating social costs through woes in the past provides the opportunity to boost envi- pollution taxes. ronmental living standards in the future. With a bit * Harness growth for the environment. This will more investment (see chapter 3), China can "grow require creating incentives to elicit investments-from greener." What should be the priorities, and what poli- both the commercial state and nonstate sectors and cies will elicit the required investments? from the public sector-with the largest environmental benefits for future generations. Establishing priorities for policy * Harness the government's administrative capabilities to the cause of the environment. This will require pro- Estimates of pollution-related damages to health, viding better regulations but with fewer investment worker productivity, and agriculture (presented in controls at the national level as well as ensuring better chapter 2 and projected as future scenarios in chapter 3) planning and pollution enforcement in urban airsheds point to several environmental priorities: and regional water basins. * Among the various types of pollution, urban air pol- lution causes the most damage-$33 billion a year, Harnessing the market: mostly through its effects on human health. Without Making polluters pay assertive policies, future emission reductions from large point sources, such as power plants, could be offset by Unregulated market forces are not much better than a worsening emissions from small point sources. command economy in protecting the environment. In Increasing automobile use will also have an adverse its legislation the government has recognized that pol- effect on urban environmental quality. luters, rather than victims, should pay for pollution. * Severe indoor air pollution from burning coal and Yet the full potential of this principle has not been real- biomass causes about $10 billion a year in health and ized. mortality damages. * The costs of water pollution, difficult to quantify and The prerequisite: Economic reform probably underestimated in this report, are at least $4 billion a year. These costs will grow as water shortages Harnessing the market requires, first, accelerating eco- become more acute, municipal waste increases with nomic reform of state enterprises, the pricing system, urbanization, and agriculture practices (particularly and international trade. Government efforts to increase fertilizer and pesticide use) continue to generate runoff competition (especially from nonstate firms), improve pollution. price signals, and expand international trade have made * Acid rain, responsible for $5 billion a year in dam- major contributions to lower pollution intensities over ages, is also likely to worsen because of China's depen- the past decade (chapter 5). Yet other, related reforms dence on coal. remain: * The government's decision to phase out lead from * Reforming state enterprises would make them more gasoline is important. Now it must be swiftly imple- responsive to market signals, including pollution taxes mented to prevent irreversible damage to the intelli- and regulatory penalties; it is nearly impossible to make gence and neurological development of Chinese polluters pay when enterprises can fund their pollution children and save costs of neonatal care, medical treat- taxes or levies through implicit subsidies from the trea- ment, compensatory education, and lower productivity. sury or financial system. 104 Clear Water, Blue Skies: China's Environment in the New Century * Expanding the realm of competitively determined China also allocates its domestic crude oil below prices, including the price of investment capital, would international prices. To develop alternatives to coal, the channel resources to efficient firms; firms that have priv- government should establish a transparent pricing ileged, noncompetitive access to capital waste resources framework for oil and gas and ease entry to all parts of at a high cost to the environment. the oil and gas industry for domestic and foreign * Extending trade reform would end pockets of pro- investors alike. tection for industries and put pressure on inefficient Pricing to cover the economic costs of production will industries, many of which are pollution-intensive. reinforce current efforts to encourage energy conserva- * Deepening domestic capital markets and establishing tion. Efficient pricing will induce more cost-effective a framework for private participation in infrastructure conservation in several activities: cogenerating steam would open up new ways for municipalities to finance and electricity, renovating furnaces and kilns, managing their investments in water supply and sanitation. These energy systems, and recovering waste heat, combustible measures would also facilitate investment in energy-effi- gas, and materials from industrial processes. cient equipment that embodies abatement technology. Water pricing will soon become even more of a Since these reforms touch every aspect of Chinese major policy issue. Although one of its most precious economic life, they will take time to complete. resources, China wastes a lot of water by failing to Nonetheless, accelerating the pace of reform will reduce charge full value for water supply and wastewater treat- the cost of cleanup and rapidly improve China's envi- ment services. China also lacks the frequent monitoring ronmental living standards. and substantially higher fines and other controls that are needed to enforce industrial wastewater discharge Pricing to cover costs standards. Although not always possible for political and practical reasons, China should continue adjusting Despite the fact that China is resource-poor, it prices its sewerage user fees toward full cost recovery. Targeted energy and water like the resource-rich United States. subsidies can be carefully designed and provided to Over the past three years the government has raised and low-income users. partly deregulated coal prices, and in most areas coal prices now cover economic costs. In many places, how- Taxing environmental externalities ever, market prices do not fully reflect the sulfur and ash content of coal. Markets are distorted because the plan- Pollution taxes and charges are another way to harness ning system continues to allocate a sizable portion of the market to protect the environment (box 8.1). The coal to certain activities and firms; because the coal government should consider taxing coal in a way that transport system is overburdened, antiquated, and sad- reflects its enormous social costs. If health damages dled with anticompetitive regulations; and because were included in its price, coal in Beijing would cost 100 many small, unregulated mines, unburdened by the percent more (see chapter 4). A tax based on sulfur and costs of safety and environmental regulations and ash content would deter the use of poor-quality coal worker benefits, produce low-quality coal that under- and make competing fuels more economic. Though it cuts the price of quality coal. Pricing reform and reform might be preferable to tax emissions rather than inputs, of the production and distribution system must go hand the enormous number of small polluters makes collec- in hand. tion difficult. A quality-based coal tax, levied at mines Natural gas remains heavily regulated. This is done for large producers and distribution points for small to provide supplies to the fertilizer industry at below- producers, would create incentives for users to use market prices. Low prices do not, however, provide cleaner or washed coal and for producers to improve incentives for state-owned, much less private, gas sup- coal quality. Such a tax could be announced and phased pliers to enter the market. Moreover, households are in over time so that current investment decisions-in willing to pay more for this clean heating and cooking boilers, space heating, and other coal-consuming equip- fuel. Deregulation and market-based pricing are needed ment-can anticipate future prices and invest in clean to substitute for household uses of coal. technology accordingly. Policies: Securing Higher Environmental Living Standards 105 China does have pollution levies, but they are poorly the pollutant among their emissions that exceeds the designed and inadequately enforced. In fact, levies are discharge standard by the greatest amount, and then so low they do not even encourage firms to make cost- only for the amount over the standard. For both air and effective investments in abatement. As a result the over- water emissions the government should consider modi- all abatement rate is far below the optimal level. Data fying the levy to impose charges on all emissions of a for Zhengzhou indicate that reducing sulfur dioxide few harmful pollutants (such as particulates and sulfur emissions by 100 tons costs about $170 and produces dioxide for air and chemical oxygen demand and bio- benefits (measured in avoided mortality) of about logical oxygen demand for water). To increase effec- $5,000-an implicit social rate of return to abatement tiveness, the central government should give local of about 2,800 percent. At such a low abatement cost governments the authority to raise pollution levies to level, failure to enforce control implicitly values a citi- achieve local pollution control goals. Local govern- zen's life at less than $300 at the margin (see chapter 5). ments should also be able to decide how to use the levy Still, even today's low levies are encouraging some funds in the context of local conditions. The central firms to abate. This responsiveness suggests that by government should shift its attention to monitoring and 2020 higher levies could reduce particulate emissions ensuring local compliance with national environmental and chemical oxygen demand pollution from regulated management requirements. Levies on coal-related air industries to less than 20 percent of current levels. pollution should be coordinated with any externality The government's recent proposal for a tenfold tax to avoid double taxation. increase in the air pollution levy is especially important The power industry is one large point source whose for controlling emissions from medium-size and large emissions can and should be taxed. A fully enforced air industrial sources. Such a levy would significantly pollution levy would create an incentive for power com- improve air and water quality in China's cities. panies to invest in larger (more than 200 megawatts), Changing the levy system's design also would more efficient plants. Some 40 percent of the new increase its effectiveness. Today firms are taxed only for capacity added to the power grid in the past five years Pollution charges: What works and why Water potlut ion charge in the tVetherlands Sulfur tax in Sweden The water pollution charge in the Netherlands is determined by Sweden's sulfur tax is levied on diesel fuel and heating oiL that how much revenue is required to treat sewage and to maintain contain more than 0.1 percent sulfur, and on coaL coke, and peat. and improve general water quality. The charge is imposed by The tax on oil is 27 krona ($4.09) per cubic meter of oil for every Water Boards-self-governing bodies of surface water users 0.1 percent of sulfur content (by weight). For coal and peat the responsible for water management. The charge for industries, tax is 30 krona ($4.55) per kilogram of sulfur in the fuel. The tax based on biological oxygen demand and (in most cases) heavy approximates an emissions charge and is refundable if taxpayers metal pollution, is levied on all direct and indirect discharges. can demonstrate a reduction in sulfur emissions. Between 1990 In 1993 charges across basins ranged from $1.14 to $3.00 per and 1992 the sulfur content of oil decreased nearly 30 percent as kilogram of discharged biological oxygen demand. Households a result of the tax. Emissions from burning coal and peat also fell and small firms pay a fixed amount. Research has found that the considerably. The tax promoted higher-level flue gas desulfuriza- polLution charge encourages conservation among large firms tion, but emissions also fell because users have been substitut- that are metered, especially those engaged in Livestock ing for fossil fuels. A tax on carbon dioxide provides an additional production. incentive to switch away from fossil fueLs. Administrative costs Why does the charge vwork? First, it is rather high, and aims to are somewhat less than 1 percent of revenue. achieve full cost recovery for sewage treatment. Second, the Why does the tax work? First, it is high. Moreover, a transpar- charge is directly linked to pollution Load (for Large firms). Finally, ent rebate scheme strengthens the tax's incentive effect. Finally, the charge program is decentralized and transparent for water the program iz easy to implement and has low administrative users. costs. Polluters are responsible for proving their emission levels. SourcE: World Bank ;taff. 106 Clear Water, Blue Skies: China's Environment in the New Century was in small plants (less than 200 megawatts), which Harnessing growth: Investments for a have high emissions per unit of electricity. Since these brighter future plants will be in operation for at least two more decades, they lock China into a high-pollution growth Economic growth also should be harnessed to work for path. Taxing emissions up to the value of damages the environment, primarily through the cleaner invest- would send the right signal for future investment. These ments that better pricing brings about. taxes would be especially welcome in cities such as Correct pricing creates incentives for nonstate and Chongqing, where sulfur dioxide emissions are so high commercial state firms to invest in more energy-efficient they are having measurable effects on surrounding agri- technology and abatement. China's industrial boilers culture. are only 80 percent as efficient as those in OECD coun- Although China's gasoline prices cover production tries, its steelmaking consumes twice as much energy and import costs, they are low relative to most East per unit of output as in.OECD countries, its fans and Asian and European countries, which use gasoline taxes pumps are only 85 percent as efficient as advanced to pay for roads and reduce environmental damage. international equipment, and its electric motors con- China's low gasoline prices damage the environment in sume 5-10 percent more electricity to generate the same two ways. First, automobile-based urban transport power (chapter 4). Raising China's industry to interna- consumes more fuel per person-kilometer than alterna- tional standards will create the opportunity for envi- tive travel modes. Second, traffic congestion drives up ronmentally friendly investment. emissions because road construction cannot keep up Public investments are also important for harnessing with the number of automobiles. Gasoline prices growth for the environment. Small point-source emis- should be set at levels that, in conjunction with other sions impose the highest costs on human health. About traffic regulations, discourage car use for urban trans- two-thirds of China's urban population still relies on portation and encourage the use of public transporta- coal for cooking. Gas fuels are two to five times more tion. Wider use of less-polluting travel modes would energy efficient than coal and can drastically reduce reduce fuel consumption and smog and take pressure emissions. Thus rapid gasification of household fuel off crowded roadways, allowing everyone to travel consumption is a high-priority environmental policy. faster. Similarly, sales taxes and annual licensing fees on Residential consumers prefer gas, so investment in automobiles should reflect the cost of the huge public urban gas supply could be quite profitable. This is an investments in roads and traffic management needed to activity where public investments could be supple- support automobiles. mented with private and even foreign resources. Harnessing market forces has two important addi- Finally, to combat rural indoor pollution, the gov- tional advantages. First, it better allocates financial ernment should invest in education campaigns, increase responsibilities between consumers and commercial access to efficient stoves, and supply cleaner coal and producers on the one hand and the government on the coal substitutes for cooking and heating. other. By using prices, environmental taxes, and levies, Several investments require government coordina- the government ensures that polluters and their cus- tion; others require the government to absorb risks that tomers pay for environmental maintenance. If the gov- private investors will not accept. A top priority is devel- ernment were to raise the levy on a redesigned tax base oping a state-of-the-art, clean coal-burning industrial by tenfold and enforce it, tax revenues could reach 37 boiler. Since current technology has not yet been billion yuan a year ($4.5 billion), or 0.6 percent of GDP adapted to Chinese materials and scales, the government in 1995. Second, market-based instruments allow the should play an active role in supporting the boiler's government to concentrate on monitoring and enforce- development. Other investments are riskier but might ment rather than on deciding the best abatement invest- have high payoffs. Some renewable energy technologies ment for a given plant or industry. Thus the fall into this category. For example, photovoltaics have government's administrative resources are focused on the potential to become cost-effective, superior substi- tax policy and enforcement rather than on the invest- tutes for coal. Because they are risky, the private sector ment decisions of businesses. rarely invests in renewable energy sources, even if prices Policies: Securing Higher Environmental Living Standards 107 internalize all environmental externalities. Thus the gov- cent of GDP through 2020 would reduce air and water ernment should consider investing in pilot projects to damages to nearly 2 percent of GDP, an environmental ensure experimentation and adaptation to Chinese cir- standard of living comparable to that in the United cumstances. Renewable energy sources may become States today. important-and eventually profitable-as global con- These investments have an economic rate of return cerns about greenhouse gas emissions heat up. that surpasses any conceivable threshold for public In transportation, the government must elicit invest- investment. Investing 100 yuan in pollution abatement ments in public transit to ease congestion and smog. The under the medium-cost investment scenario saves 300 government does not need to actually finance and make yuan in avoided pollution damages relative to the busi- the investments, but it must create a regulatory frame- ness as usual scenario (see chapter 3). If the effects of work that ensures nonstate investments are made. Prices future income growth are considered, the return on pol- must incorporate externalities (through automobile and lution control investments is even higher. gasoline taxes) and be accompanied by expanded public One of the advantages of shifting to a market-based transit alternatives to cars. Otherwise the pricing mea- environmental strategy is that the government would sures will simply shackle Chinese consumers with the not bear the full cost of these investments. Under the worst of both worlds-traffic jams and high costs. By business as usual scenario the government (mainly 2010 the costs of a public transit-based system are pro- municipalities) would shoulder 84 percent of invest- jected to be 17 percent less than an automobile-based ment costs. The rest would come from the nonstate sec- system-not even counting environmental benefits. tor and, to a lesser extent, the state commercial sector Public investments in water will be among China's (for example, state industrial enterprises). But with most important and most costly. Investing in pollution reforms that widen the scope for nonstate investment in abatement-whether for industrial or municipal waste infrastructure and policies that encourage investment in treatment-is much cheaper than investing in huge industrial pollution abatement, as in the medium-cost water transfer projects. Even so, projections suggest investment scenario, the government's share of environ- that even if China creates incentives for firms to abate mental investment would be about 66 percent. Under cost-effectively, water shortages will be so severe that it the high investment scenario the government's share will have to invest in large-scale south-north water would be 59 percent (table 8.1). transfer projects (chapter 7). Given the rapidly increasing pollution effects of Harnessing administrative capabilities: municipal wastewater discharges and the near-absence Improving oversight, enforcing of treatment, Chinese cities should move fast to invest standards in wastewater collection and treatment facilities. Pricing wastewater discharge and treatment to allow China's administrative and organizational capabilities for full cost recovery would attract private investment can be used to improve environmental living standards. and free public funds for other urban investment needs. Even if markets are harnessed for the environment, and The investments needed to achieve major improve- even if the government elicits a steady stream of envi- ments in environmental quality are not enormous. ronmentally friendly private and public investments, Increasing the amount of pollution control investment the government still must regulate and plan with an eye from the 0.5 percent of GDP assumed in the business as to the environmental future. At the national level this usual scenario to about 1 percent of GDP (the medium- often means fewer investment controls but better regu- cost investment scenario) would lower projected lations and standards. At the local level it means better health-related pollution costs from 13 percent of GDP urban planning and better enforcement of regulations to 4 percent in 2020. About 40 percent of these invest- and standards. ments, mainly in power and industry, would protect air- Environmental management at all levels of govern- sheds. Investments in water, some 60 percent of the ment should be strengthened. This will require coordi- total, would mostly be for municipal wastewater and nating decisionmaking at the national level to industrial discharge abatement. Investments of 2 per- implement, monitor, and ensure policy consistency 108 Clear Water, Blue Skies: China's Environment in the New Century TABLE 8.1 ical frontier of cleanliness are essential for reducing these Environmental investments have enormous emissions. Similarly, prohibitions on two-stroke motor- returns, 1995-2000 cycles, major sources of pollution in southern cities, are a priority. Energy efficiency standards should be set for Investment scenario products that are likely to become major drains on Business as usual energy, such as automobile engines, air conditioners, Cost (percentage of GDP) 0.5 State share (percent) 84 refrigerators, and other major consumer appliances. Medium-cost investment Standards introduced today can markedly lower Cost (percentage of GDP) 1.0 future energy consumption in residential and commer- State share (percent) 66 Economic returna 3 to 1 cial buildings. Given the massive building program High investment planned over the next twenty-five years, China has a Cost (percentage of GDP) 2.0 State share (percent) 59 unique opportunity to improve the energy efficiency of a. Present value of accumulated benefits (damage avoided) relative to present value its buildings. Priority should be given to efficient light- of annualized polLution control costs. r: Worl k sfco stis. ing, improved centralized heating, and implementation and enforcement of energy-efficient building standards. among different levels of government. It will require Better regulation, combined with market-based committing more tax resources at all levels-in strategy, instruments, may obviate the need for direct investment policymaking, and scientific research at the national controls at the center. In the near term investment con- level and in monitoring and enforcement at the regional trols may be needed to maintain macroeconomic stabil- and local levels. All levels must help disseminate best ity, but the current investment system inadvertently practices and environmental education and publicize encourages the building of suboptimal-scale power information about environmental quality. plants. The investment approval process allows provinces to invest up to $30 million without securing National policies, regulations, and standards central government approval. Since getting approval often entails delays, power-starved provinces find it eas- One of the government's most important recent deci- ier to install small units than large ones. Phasing out the sions is to phase out leaded gasoline by 2000. In investment approval system and strictly enforcing emis- Shanghai, for example, more than half the children are sion taxes would discourage the construction of small estimated to suffer from blood-lead levels in excess of power plants and create incentives to build more effi- 10 micrograms per deciliter, the definition of blood poi- cient and less polluting plants. soning. It takes about ten years to completely eliminate lead from the fuel supply system. Thus rapid imple- Regional regulation mentation must be a top priority. Another priority is incorporating township and vil- River basin management is a pressing concern. As lage industrial enterprises into the regulatory frame- things stand, divided jurisdictions across municipalities work. Most of these enterprises are ignored in and provinces have not worked to the environment's environmental regulation, and in certain industries- advantage. An integrated river basin management sys- coking, small metallurgy, coal mining-they have tem under strong leadership is needed to implement become a major source of pollution. Pollution could be water policies ranging from extraction rights to pollu- better controlled if local zoning restricted these enter- tion abatement. prises to rural industrial parks where monitoring and Controlling sulfur emissions is also an important control are feasible. regional issue. The National Air Pollution Prevention The government could also set standards that incor- and Control Law of 1995 includes abatement plans for porate pollution abatement and energy savings. At pre- regions with high levels of sulfur dioxide and acid rain. sent cars operating in Beijing are about ten times as Sulfur removal can be costly. It is important that regu- polluting as cars in the United States. Tighter standards lation allow plants to choose among abatement mea- that push the automobile industry toward the technolog- sures within the limits of regional control targets. Policies: Securing Higher Environmental Living Standards 109 An alternative to installing sulfur control equipment the automobile with high urban densities and low levels in all of China's power plants is to concentrate on area of car ownership. These two features create the oppor- sources in regions with high acid rain. A medium-cost tunity to develop cities in ways that incorporate efficient investment plan could achieve similar environmental and environmentally sustainable transportation. Well- goals-protecting human health, forests, and agricul- organized cities with good public transit can have half as ture-at much lower cost, even while allowing greater many automobiles clogging their streets as poorly man- emissions than the current target. This strategy would aged cities with weak public transit. To achieve this goal, focus on cleaning coal and applying medium-cost tech- transportation planning will have to avail itself of the nology to new power plants and industrial boilers and, full range of available tools-from time-of-day tolls to where feasible, using low-sulfur fuels. This targeted, restricted access to downtown areas, from well-con- medium-technology strategy promises the largest ceived parking requirements to better land use planning. return to investments. Since the number of automobiles is growing at twice the rate of urban road systems and average driving Urban planning speeds are slowing, only better planning can channel urban transportation into efficient growth patterns. New regulations at the national and regional levels will Planning should be linked to planned relocation of only be fully effective if they are accompanied by urban industries from downtown areas to industrial changes in municipal planning. Urban land use planning parks, away from population concentrations. This is one of China's greatest long-term opportunities. move would do much to reduce the exposure of Chinese China today is unique in beginning its relationship with people to damaging air pollution. Curitiba, Brazil, for Markets join national regulators in controlling polLution A new approach to regulation in Asia is showing that local com- and earn market rewards, investors can more accurately assess munities and market forces can be powerful allies in the struggle environmental Liabilities, and regulators can focus their limited against industrial pollution. The new programs, called the enforcement resources on the worst performers. During its first Program for Pollution Control, Evaluation, and Rating (PROPER) two years of operation PROPER has proven quite effective in mov- in Indonesia and Ecowatch in the Philippines, rate and publicly ing poor performers toward compliance. The number of factories disclose factories' environmental performance. receiving a blue rating increased by more than half between June Both programs assign factories a color rating based on the 1995 and September 1996 (see table). PROPER has now moved government's evaluation of its environmental performance. A beyond the pilot stage; 400 factories are currently in the system, blue rating is given to factories in compliance with regulatory and Indonesia plans to etend coverage to 2,000 polluters by the standards, gold is reserved for world-class performers. and black year 2000. for factories that have made no attempt to control pollution and Inspired by these and other examples of public information in are causing serious damage. Intermediate ratings are red, for fac- action, Colombia and Mexico are now moving rapidly toward their tories that have some pollution control but that fall short of com- own public disclosure programs. pLiance, and green, for factories whose emissions control and housekeeping procedures significantly exceed those needed for PROPER considerably boosted factories' compliance compliance. In the future both Indonesia and the Philippines will with environmental standards assign green ratings to factories that meet the environmental Inumber of factories) conditions of the new ISO 14000 standard (see box 5.3). The ratings are designed to reward good performance and call Rain J 1 public attention to polluters who are not in compliance with reg- Goldn0 0 ulations. Armed with this information, local communities can Blue 61 94 negotiate better environmental arrangements with neighboring Red 115 87 factories, firms with good performance can advertise their status Black 6 1 Source: World Bank staff. 110 Clear Water, Blue Skies: China's Environment in the New Century example, began effective urban planning two decades FIGURE 8 ago, and today gasoline consumption is 30 percent less China's particuLate emissions do not have than in comparable Brazilian cities. to rise as incomes grow The odds of successful environmental planning and regulation increase with greater community participa- Micrograms per cubic meter tion in environmental matters. In China community 350 Chin under th participation is closely correlated with enforcement of 300 business as usual scenario pollution levies. In other countries basic information 250 about ambient pollutant concentrations and plants' 200 9 2000 2010 2020 emissions performance have been instrumental in China under the improving community participation in regulatory 50enio enforcement. The government might well consider 100 adopting programs similar to those in Indonesia and the 50 Philippines (box 8.2). o - 2,000 4,000 6,000 8,000 10,000 Clear water e skies? Per capita income (1985 purchasing Cerwater, blesis power parity dollars) Source: World Bank staff estimates. China's environment can improve dramatically if assertive policies are adopted promptly and systemati- national level, new regional initiatives for water basins cally. These policies must encourage conservation and and sulfur control, and enhanced urban planning and efficiency in resource use while eliciting the investments enforcement at the local level (table 8.2). needed to achieve China's environmental objectives. If These efforts will require some sacrifices in the near they do, China's environment should be as livable as its term. Investments in the environment will have to be per capita income suggests (figure 8.1). somewhat more than is currently planned, and policy China can turn its assets-an increasing market ori- efforts will have to be intensified. But these costs are entation, rapid economic growth, and strong adminis- small relative to the future costs of cleanup if actions are trative capacity-into advantages for preserving and delayed. More important, these sacrifices are small rel- improving its environment for future generations. To ative to the enormous improvements in the quality of do so, China must harness the market to preserve the life that will accrue to future generations. environment by ensuring that prices reflect environ- mental costs. It must harness growth by creating incen- N ote tives for private investments and by making wise public investments. And it must harness its formidable admin- 1. Chinese researchers prefer to use the "human capital" approach to mortality and health risk valuation, which produces a damage esti- istrative capacity through better regulations at the mate of about 3.5 percent of GDP (see chapter 2). Policies: Securing Higher Environmental Living Standards 111 TABLE 8.2A Summary of policy recommendations-Harnessing markets Short term Medium term Energy * To encourage more efficient use, remove remaining controls on coal * Complete phaseout of planned coal allocation. prices and begin phasing out planned coal allocation. * To encourage shipment of high-quality coal, phase out coal transport * Establish a rational pricing framework for coal transport and subsidies and reduce the administrative allocation of railway capacity.' distribution services. * To develop alternatives to coal, establish a transparent pricing framework for oil and gas and ease entry to all parts of the oil and gas industry for domestic as well as foreign investors. * To spur clean fuel use, reduce price discrimination and increase * Fully deregulate natural gas production and supply to market allocation of natural gas, and allow prices to reflect consumers' encourage wider use of natural gas in residential as well as willingness to pay.a industrial applications. * To allow for full cost recovery, remove subsidies for coal, gas, and district heating and adjust tariffs. * To internalize health costs, introduce a pollution tax based on * Generalize sulfur tax based on experiment. sulfur and ash content of coal in experimental provinces. * Apply "polluter pays" principle to car use by increasing gasoline * Complete increase in gasoline and diesel taxes, possibly to and diesel taxes. Levels approximating those in Japan and the Republic of Korea. Industry and urban transportation * To control sulfur in acid rain regions, implement sulfur emission * Establish tradable sulfur emission permits for medium-size and Levies for Large point sources (such as power plants) and allow Large coal users in acid rain regions. adjustment of electricity prices.a * To increase abatement, redesign pollution Levies based on volumes of discharges (rather than concentrations).' * To induce abatement levels in line with regional pollution control goals, raise pollution Levies. * To reflect the real cost of automobile transport, apply infrastructure * Develop tolls, parking fees, and other mechanisms to price car charge to car ownership through sales and licensing taxes. infrastructure use in heavy-traffic urban areas. Water * To reflect the marginal cost of supply, increase water prices, * Adjust prices to encourage water conservation. especially for industrial and commercial users, with compensatory measures for low-income households. * To protect water resources from overexploitation, introduce regulations on a raw water extraction tax.a * To match the costs of self-supply with municipal water supply, raise fees for self-extraction. * To cover the full costs of construction and operation, increase sewerage charges and wastewater treatment fees. * To improve collections, integrate collection of water and sewerage tariffs. 112 Clear Water, Blue Skies: China's Environment in the New Century TABLE 8.2B Summary of policy recommendations-Harnessing growth Short term Medium term Energy * Remove obstacles to commercial investment, particularly from nonstate firms, in coat washing. * Set emission standards for small coat-fired power units at the same Levels as for 200 megawatt units and tighten enforcement through factory certification and onsite inspection. * Increase natural gas supply by developing domestic reserves and investing in infrastructure for importing piped natural gas and Liquefied natural gas. * Begin to phase out coal-based fertilizer plants by importing * Complete phaseout of coal-based fertilizer plants. fertilizers, investing in natural gas- or petroleum-based plants, and removing incentives for building and operating coal-based plants. * Increase investment in research and development for clean coat * Increase investment in research and development for renewable technologies and their commercial application. energy sources and their commercial application. Industry and urban transportation * Strengthen programs to promote high-quality and high-efficiency pollution control equipment, especially for particulate control and wastewater treatment. * Formulate a public transit-based urban transport investment strategy * Implement public transit-based urban transport plans. and create incentives for private participation in the construction and operation of public transit systems. * Establish general framework for financing Long-term municipal * Expand municipal governments' access to the domestic bond investments, including water and public transport, through bonds market based on creditworthiness. and build-operate-transfer (BOT) schemes. Investments should be limited to creditworthy municipalities with comprehensive public transit strategies. Water * Increase investment in water supply and sewerage systems in both rural and urban areas to meet basic drinking and sanitary needs.a * Provide technical and financial assistance to disseminate water-saving technologies for agriculture and industries. Policies: Securing Higher Environmental Living Standards 113 TABLE 8.2C Summary of poLicy recommendations-Harnessing administrative capacities Short term Medium term Overall * Develop Long-term environmental master plans to strengthen the * Begin implementing the master plans by phasing in interim management of airsheds, watersheds, and hazardous waste.a targets, emphasizing relocation of polluting industries away * Redesign environmental impact assessments and the Three from population centers. Synchronizations program to broaden their evaluation basis from * Gradually detach financial support for local environmental discharge standards to local and regional assimilative capacities.' protection bureaus from the Levy fund to eliminate the incentive * Promote public awareness of environmental degradation and its to maintain revenue with less enforcement. consequences through education and open access to information on * Fund local environmental protection bureaus from municipal pollution and environmental quality.a budgets.' * Build a strong knowledge base for more effective environmental management by investing in monitoring and scientific research.a Energy * To reduce environmentally destructive and unsafe mining practices, tighten regulation of small coal mines and collect resource and pollution taxes. * Enforce energy efficiency standards for heated residential buildings * Enforce energy efficiency standards for all residential and and formulate energy efficiency standards for other residential commercial buildings. buildings and for commercial buildings.a * Formulate and implement energy efficiency standards for major household appliances in close collaboration with industry. * Implement the lead phaseout plan, first in high-emission cities.a Industry and urban transportation * To remove disincentives to invest in cleaner and energy-efficient * Enact grading system for plants environmental performance. production technologies, reform industrial investment approval and * Establish a framework for implementing ISO 14000. Lending policies.' * Incorporate township and village industrial enterprise pollution * Designate industrial zones for water-poLLuting township and control into the existing regulatory framework and control highly village industrial enterprises so that centralized control and polluted ones through stricter enforcement and access to abatement abatement technology can be applied. fund. * Pool pollution Levies into a fund not earmarked for specific * Phase out subsidies for pollution control. enterprises, and use the Levy fund primarily to support high-return pollution abatement. * To contain urban sprawl and avoid traffic congestion, formulate urban land use planning strategies in aLL medium-size and Large cities. * Implement progressive emission and fuel efficiency standards for automobiles in close collaboration with the automobile industry.' Water * Strengthen river basin management by consolidating government agencies and allocating responsibilities to fewer institutions. a. Initial steps have been taken to adopt and implement this poLicy. 114 Clear Water, Blue Skies: China's Environment in the New Century 2 0 2 0 THE W ORLD BANK 1818 H Street, N.W. Washington, D.C. 20133 USA Telephone: 202-477 1234 Facsimile: 202- 477 6391 Telex: MCI 64145 WORLDBANK MCI 248423 WORLDBANK Cable Address: INTRAFRAD WASHINGTONDC World Wide Web: http://www.worldbank.org/ E-mail: Books@world bank.org 1 40 4 4 Cover design by Glenn Pierce/The Magazine Group 1 -8213-444-1