China's Environment in the 21st Century

CONFIDENTIAL 16481 -CHA CHINA'S ENVIRONMENT IN THE 21ST CENTURY April L, 1997 China and Mongolia Department East Asia and Pacific Region FILE COPY,. CURRENCY EQUIVALENTS (as of April 1997) Currency = Renminbi Currency Unit = Yuan $1.00 = Y 8.3 V 1.00 = $0.12 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS USED BOD Biological Oxygen Demand MTCE Million Tons Coal Equivalent CERS China Economic Research Society MTOE Million Tons Oil Equivalent CFS Chloroflorocarbons NEPA National Environmental Protection Agency CO Carbon Monoxide Nox Nitrogen Oxide COD Chemical Oxygen Demand NTSB National Technical Supervision Bureau COPD Cardio-pulmonary Disease ODS Ozone Depleting Substances CS Consumer Surplus PMIO Particle Matter Less than 10 Micros CSY China Statistical Yearbook PSB Public Security Bureau DALY Disability Adjusted Life Year SETC State Economic and Trade Commission EIA Environmental Impact Assessment SO2 Sulfur Dioxide EPB Environmental Protection Bureau SOEs State-Owned Enterprises ESPs Electrostatic Precipitators SPC State Planning Commission FBC Fluidized-bed Combustion SSB State Statistical Bureau GDP Gross Domestic Product TSP Total Suspended Particulates HC Hydrocarbons TVEs Township and Village Enterprises LPG Liquifed Propane Gas TVIEs Township and Village Industrial Enterprises MAC Marginal Abatement Cost VAT Value Added Tax MB Marginal Benefit VOC Volatile Organic Compounds MOC Ministry of Construction WTP Willingness-to-Pay MOEP Ministry of Electric Power Contents PREFACE iii SUMMARY v CHAPTER 1 GROWTH AND CHINA'S ENVIRONMENT I CHAPTER 2 POLLUTION, HEALTH AND PRODUCTIVITY: THE COSTS TODAY 11 CHAPTER 3 POLLUTION, HEALTH AND PRODUCTIVITY: THE COSTS TOMORROW 22 CHAPTER 4 ENERGY: COPING WITH COAL 34 CHAPTER 5 INDUSTRY: INCENTIVES TO ABATE 46 CHAPTER 6 URBAN TRANSPORTATION: COPING WITH CARS 61 CHAPTER 7 WATER: PRESERVING SCARCE RESOURCES 75 CHAPTER 8 POLICIES FOR A HIGHER STANDARD OF LIVING 86 APPENDIX TABLES 101 iii Preface This report has benefited from the close collaboration of the National Environmental Protection Agency (NEPA) and the State Planning Commission (SPC), under the auspices of the Ministry of Finance. We are particularly grateful to Mr. Zhang Kunmin, Deputy Administrator of NEPA and Mr. Gao Guangshen, Division Chief , Environmental Policy of SPC, for their thoughtful comments and insights as well help in coordinating the counterpart team from the Chinese Government. We thank the representatives of various ministries and institutions, for their detailed comments on various drafts of this report. The Canadian International Development Association (CIDA) kindly facilitated this collaboration by providing resources for a workshop held in Beijing mid-way through the preparation of this report. We are also indebted to various Chinese scholars who provided background papers on technical matter for this report: Chao Fengzhong, Guo Xiaomin, Li Yuqin, Liu Bingjiang, Qiang Yihong, Wang Shiwen. Wang Hanchen, Yang Zhifeng, Zheng Yisheng, and Zhou Jing. Several reviewers offered valuable comments: Richard Ackermann, Theodore Atwood, Maureen Cropper, Devra Davis, David Fridley, Joseph Goldberg, Kathie Krumm, Nicholas C. Hope, Peter Midgley, Jane Loos, Vikram Nehru, Jonathan Sinton, Andrew Steer, Robert Taylor, Lee Travers. Walter Spofford of Resources for the Future made a special contribution before he passed away in November 1996. Not only was he a peer reviewer for concept paper of this report, but his prior work on control of industrial pollution provided much of the rich detail of our knowledge in this important area. The task manager for the report was Richard Newfarmer. The World Bank team included: Robin Carruthers and Tilly Chang (Transportation) Leila Cruz (Task Assistant) Daniel Gunaratnam, Chantelle Wong, and Natasha Berschorner (Water) Biliang Hu (Resident Mission) Gordon Hughes and Kseniya Lvovsky (Macro-environmental projections) Todd M. Johnson (Evaluation) Feng Liu (Energy) Ramesh Ramankutty and Jitu Shah (Acid Rain) David Wheeler, Susmita Dasgupta, and Hua Wang (Industry) The report also includes findings from papers prepared by: Noureddine Berrah, Masaki Takahashi, and Stratos Tavourlareas (Power) , Helen Chan (ODS) Laurence Lau and Zhongxiao Jiang of Stanford University and Chen Xikang of Chinese Academy of Science (Macro projections); David Fridley (Lead) Jonathan Sinton (Indoor Air Pollution) The primary authors of the report were Todd M. Johnson, Feng Liu and Richard Newfarmer. Nicholas C. Hope is Director. SUMMARY v 4/18/97. Summary China's twin transitions-to an urban, industrial cooking and heating, causes an estimated society and from plan to market-have brought im- 200,000 premature deaths. measurable benefits to its people. Econormc growth has increased incomes, reduced poverty, and im- * Some 7.2 million person-work-years are lost proved health. But the same unbndled economic annually to air pollution-related diseases that re- growth that has lifted millions out of poverty has strict activity. also damaged the environment. * Water pollution has claimed 13 of China's 15 China has made considerable progress over the major rivers in areas passing cities, and threat- last decade to curb the environmental damages asso- ens access to future safe drinking water supplies ciated with fast growth. New laws have established for tens of millions of people. comprehensive regulations for the environment, the government has invested a rising amount of re- * Acid rain in the high sulfur coal regions of the sources in protecting air and water, and economic south and southwest have reduced agricultural reforms have reduced the energy intensity of the productivity by as much as 25 percent. economy at a pace faster than similar efforts in the industrialized countries. Ambient concentrations for Taken together, ambient concentrations of particu- most pollutants, though still unacceptably high, have lates and sulfur dioxide as well as several water pol- held constant or risen only slightly despite enormous lutants are among the highest in the world, and cause increases in output. damages to human health and lost agricultural pro- ductivity estimated to be at least 7-9 percent of GDP. Chinese leaders recognize that much remains to be done. Li Peng put the matter succinctly last year If assertive policies to tackle emissions are not when he said: "We have not only to provide people taken soon, China will not meet its objective of con- with riches and material products, but also gradually taining emissions by 2000 and lowering them early improve the quality of life, and environment is an in the next century. Although structural and tech- important part of the quality of life." The govern- nological changes would help control emissions, ment is acutely aware of several facts: damages to health, worker productivity and agricul- ture in the absence of new policies are likely to rise * Major Chinese cities have particulate and sulfur by 2020. Health costs associated with environ- levels that exceed WHO and Chinese standards mental damage are likely to rise to perhaps US$370 by two- to five- times. billion by 2020, and agricultural damages from acid rain and water pollution could reach $80 billion. * Children studied in Shenyang, Shanghai and other major cities have lead levels in their blood China can avoid this clouded future. Rapid that average some 80 percent above levels con- growth is compatible with a rising environmental sidered to be dangerous to mental development. standard of living. In fact, as this report argues, growth makes it more attainable. Carefully formu- * Cardio-pulmonary disease is the leading cause lated policies, implemented energetically, can by of death in China, with a mortality rate five 2020 lower emissions from today's level, improve times greater than the US. An estimated air and water quality, and reduce pollution-related 100,000 Chinese in major cities suffer early health costs to one quarter of today's level -- even as pollution-related deaths annually because of China quadruples its output. Achieving these objec- pollutants in excess of standards, and indoor air tives requires establishing clear priorities and imple- pollution, primarily from burning coal for menting new policies. SUMMARY vi 4/18/97 ESTABLISHING PRIORITIES FOR POLICY * Water pollution is rapidly exhausting China's clean water resources. The costs of damages to Were it not for other pressing demands on the health, industrial and agricultural productivity government, making the decision to spend for a and the ecosystem from water-related problems cleaner environment would be straightforward. But are difficult to quantify and are under-estimated China must also spend resources to continue raising in this report. Because of this and because the welfare of the millions that live in poverty. The other damages are so high, water pollution costs country needs better health care and education, to constitute only 6 percent of measured damages. say nothing of ensuring the adequacy of pensions for But these are likely to grow as water shortages an increasingly older nation. So, the government become more acute, municipal wastes increase must devise ways to reduce these environmental with urbanization, and agriculture practices damages in ways that are most cost-effective. continue to lead to run off pollution. A first step is to establish priorities of action. * Acid rain presently causes about 8 percent of The rough quantification of pollution-related dam- damages through lost agricultural production ages to health, worker productivity, and agriculture and accelerated depreciation of infrastructure presented in Chapter 2 suggests a set of environ- and equipment. This problem is likely to grow mental priorities: because of the country's energy dependence on coal. * Urban air pollution causes about 36 percent of damages in mortality and morbidity. Over the To be sure, the quantification of damages presented next twenty five years, reforms and existing in this report is subject to a large margin of uncer- policies will have a positive effect on large tainty. But the fact remains: over a large range in point sources, such as power, but these im- assumptions and valuations, these priorities remain provements might well be offset by worsening essentially valid. emissions from small point sources without as- sertive policies. Increasing motorization, Even though it is still a relatively poor country though a small contributor now to overall pol- with a remarkably poor endowment of natural re- lution loads, will have a perceptible impact on sources per capita, China stands before its environ- urban environmental quality in the future; mental challenge with several advantages. One is moreover, as congestion worsens, it will also rapid growth itself. Rapid growth can be an advan- take a toll on worker productivity at the same tage, rather than a detriment, to the environment, if time that slower average speeds drive up pollu- the additions to productive capacity are progressively tion. cleaner. Newer, more efficient technology rapidly becomes a major share of the capital stock. With * Indoor air pollution associated with burning industrial growth rates of 10 percent, half of all in- coal and biomass for heating and cooking dustrial capacity projected to be operating in 2005 causes roughly 30 percent of the health and has yet to be built. This provides an enormous op- mortality damages today. The most effective portunity for improving the environment. Second, measure are policies to encourage adoption of China as a society has shown it can learn from the cleaner fuels. successes and mistakes of other countries, and the government understands the importance of taking * Lead causes roughly 20 percent of damages steps now to produce results for future generations. through neonatal care, medical costs, compen- Finally, the government has developed a strong satory education, and lower earnings. This planning capacity that is unusually effective among underscores the importance of the government's countries of the world. recent decision to phase out lead in gasoline. SUMMARY vii 4/18/97 To capitalize on these advantages, the govern- firms; firms that have privileged noncompetitive ment has to build its policies around three ideas: access to capital will waste resources at a high cost to the environment. * China has to harness the market to work for the environment, not against it. * Deepening trade reform would end pockets of protection for industries, and put pressure on in- * China has to harness growth for the environ- efficient industries, many of which are pollution- ment-by eliciting investments with the highest intensive. environmental benefits of future generations. Pricing to Cover Costs * China has to harness its planning capabilities for the environment - with better regulations Although China today has a per capita resource and fewer investment controls at the center as base more like Europe or East Asia, it prices its well as better urban planning and pollution en- energy and water more like the resource-rich United forcement at the local level. States. The Government has raised coal prices pro- gressively over the last three years. Prices in most HARNESSING THE MARKET areas probably now cover economic costs (if not social costs). Market prices in many places, how- Market forces, unregulated, are not much better ever, do not fully reflect the sulfur and ash content than a command economy in conserving the envi- of the coal. Markets are distorted because the plan- ronment. The government has recognized in its leg- ning system still allocates a sizable portion of coal to islation that polluters, rather than victims, ought to particular activities and particular firms; because the pay for pollution. However, the rich potential of coal transportation system is overburdened, anti- the principle has not yet been realized. quated and rusty with anti-competitive regulations; and because small, unregulated mines, unburdened Prerequisite: Economic Reform by the costs of safety or environmental regulations or worker benefits, produce low quality coal that un- A pre-requisite for harnessing the market is to dercuts the price of quality coal. Pricing reform and accelerate economic reform -- of state enterprises, reform of the production and distribution system the pricing system and international trade. Improv- have to go hand in hand. ing price signals, widening competition, especially from nonstate firms, and increasing international Natural gas is now heavily regulated, and chan- trade have been major contributors to reduction in nels supplies to the fertilizer industry at below mar- pollution intensities over the last decade (Chapter 5). ket prices. This is inefficient because low prices do These reforms, worthy in their own right by the not provide incentives for state owned, much less standard of increasing efficiency, have an especially private, gas suppliers to come into the market. positive effect on the environment: Moreover, it does not take advantage of the willing- ness of households to pay for this superior heating * Reforming state enterprises would make these and cooking fuel. Deregulation and market-based firms more responsive to market signals, in- pricing are of high priority to substitute for house- cluding pollution taxes and regulatory penalties; hold uses of coal. it is nearly impossible to make polluters pay when enterprises can fund their taxes or levies Pricing to cover economic costs of production through implicit subsidies from the treasury or will reinforce existing Chinese efforts to encourage financial system. energy conservation. Efficient pricing will induce more cost effective conservation in several activities: * Expanding the realm of competitively deter- waste heat, combustible gas, and materials recovery mined prices, including the price of investment from industrial processes; cogeneration of steam and capital, would channel resources to efficient SUMMARY Viii 4/18/97 electricity; furnace and kiln renovation; and energy $16,000-an implicit social rate of return to abate- management systems. ment of over 500 percent. At present, the low levy rates implicitly ask polluters to value a Chinese life Water picing will soon be even more of a major at less than $500. policy issue than it is already. Although water is one of its most precious resources, China destroys a sub- Even at present low rates, however, statistical stantial portion of it by failing to charge for water analysis in Chapter 5 shows that firms are respond- supply and wastewater treatment services at full ing to the levy with increased abatement. Based value. It lacks the frequent monitoring and sub- upon observed responsiveness, projections of the stantially higher fines and other controls that are future indicate that a higher levy could reduce TSP necessary to enforce industrial wastewater discharge and COD industrial pollution to less than 20 percent standards. Although politically difficult, China must of current levels by 2020. adjust sewerage user fees for full cost recovery across various users. Targeted subsidies may be NEPA's recent recommendation for a tenfold carefully designed and provided to lower income increase in the air pollution levy is especially im- groups of users, but not to all users. portant for controlling large and medium industrial sources of emissions. It would produce major im- Taxing Environmental Externalities provements in air and water quality of China's cities. Even a 10-fold increase would probably not incorpo- Another step in harnessing the market to protect rate optimally the costs of pollution. In Zhengzhou, the environment is to tax pollution. The government the levy should be increased 50 times on S02 to should consider taxation of coal in a way that incor- reach "optimal pollution tax" -- levels that equate porates its enormous social costs. This study has marginal benefits to society of abatement with mar- shown that, were health damages included in its cost, ginal costs (Chapter 5). This suggests that a phased the price of coal in Beijing would on average be approach beginning with the 10-fold increase and roughly 78 percent higher (Chapter 4). A tax based followed by annual incremental increases ought to be on sulfur and ash content would deter use of poor considered. quality coal and make competing fuels economic. Though it might be preferable to tax emissions rather Changing the design of the levy system would than inputs, the myriad of small sources make col- also increase its effectiveness. At present, firms are lection difficult. A quality-based coal tax levied at taxed only for the pollutant that exceeds the standard the mine for large producers, or distribution points by the greatest amount, and then only for the amount for small producers, would provide incentives for over the standard. For both air and water emissions, coal users to use cleaner or washed coal and for pro- the levy should be modified to impose charges on ducers to improve coal quality. Such a tax might be all emissions of the most harmful pollutants (such as pre-announced and phased in over time so that pres- TSP and S02 for air and COD/BOD for water). To ent investment decisions-in boilers, space heating, improve effectiveness, the central government and other coal consuming equipment-can anticipate should give local governments the authority to raise future prices and invest in clean technology accord- pollution levies to the marginal costs of pollution ingly. control at the local levels of emission and effluent standards. Local governments should also be given China does have pollution levies, but they are the authority to decide the most effective and effi- poorly enforced and poorly designed. In fact, levies cient use of the pollution levy fund within the con- are so low they do not encourage firms to make even text of local conditions. Finally, enforcement of the most cost-effective investments in abatement. levies (as well as other regulations) should be tar- The overall abatement rate is less than 10 percent. geted on sources where compliance can be moni- Data for Beijing indicate that the incremental cost of tored and enforced at low costs. Large polluters are reducing 100 tons of SO, is less than $3,000, and easier to monitor, and have far lower unit abatement produce mortality and health benefits in excess of costs. For coal-related emissions, the levy system SUMMARY ix 4/18/97 for coal-related air pollution control must be coordi- ment on the other. By using pnces, environmental nated with any externality tax to avoid double taxa- taxes, and levies, the government ensures that pol- tion. luters and their customers pay for environmental maintenance, not the government. If NEPA were to Power is one large point source where emission raise its levy on a redesigned base by ten-fold and can and should be taxed. At present, the absence of enforce it, tax revenues could approximate reach a fully enforced air pollution levy misses the oppor- Y$37 billion (USS4.5 billion), or 0.6 percent of tunity to create an incentive for power companies to GDP. Second, using market-based instruments al- invest in larger scale, efficient plants, above 200 lows the government to concentrate its efforts on MW in capacity. Forty percent of new power ca- monitoring and enforcement rather than shouldering pacity added to the grid in the last five years were the microeconomic burden of deciding the best smaller than 200 MW and have high emissions per abatement investment for a given plant or industry unit of electricity. Since they will be on stream for This focuses the government's administrative re- two decades or more, they are locking China into a sources on tax policy and enforcement rather than high pollution growth path. Taxing emissions up to the investment decisions of businesses. the value of the damages would ensure the proper signals for future investment. This is especially true HARNESSING GROWTH FOR THE ENVIRONMENT: for sulfur emissions in cities such as Chongqmg INVESTMENTS FOR A BRIGHTER FUTURE where levels are so high they are having measurable effects on surrounding agriculture. Harnessing the market to work for the environ- ment through better pricing makes clean investments Current gasoline prices, although they cover the economic, and permits economic growth to be har- costs of production and importation, are low by nessed to the cause of environment. comparison with most other countries of East Asia and Europe, where gasoline is highly taxed to pay For the nonstate and commercial state sectors, for roads and reduce environmental damage. Low pricing correctly creates market incentives for firms Chinese prices stimulate auto-related damages to the to begin to invest in more energy-efficient technol- environment in two ways: first, auto-based urban ogy and abatement. China's industrial boilers oper- transport requires more fuel per person-kilometer, ate at only 80 percent the efficiency of those in and, second, because road construction cannot keep OECD countries; its steel making consumes twice as up with the number of autos, slower average urban much energy per unit of output as developed coun- transport speeds drive up emissions per kilometer. tries; its fans and pumps are only 85 percent interna- Gasoline prices ought to be set at levels that, in tional efficiency levels; its electric motors consume conjunction with other forms of traffic regulation, 5-10 percent more electricity for the same power discourage car use relative to use of bicycles or pub- (Chapter 4). Eliciting these investment will harness lic transportation. This would reduce fuel con- growth for the environment. sumption, reduce smog, and take pressure off crowded roadways, allowing everyone to travel Public investments are also important for har- faster. Similarly, sales taxes on automobiles and nessing growth to the environment. Small point annual licensing fees should reflect the cost to the source emissions entail the greatest human costs of treasury of the huge public investments in roads and pollution. About two thirds of the current urban traffic management needed to support automobiles; population in China still rely on coal for cooking. to be effective, these measures must be coupled with Gas fuels are about five times more energy efficient a different strategy for transport investment. than using coal and can drastically reduce emissions. Rapid gasification of household fuel consumption is Harnessing market forces has two important ad- a high priority environmental policy. Residential ditional advantages: First, it better allocates finan- consumers prefer gas, and so investment in urban cial responsibilities between consumers and com- gas supply could be potentially quite profitable. This mercial producers on the one hand, and the govern- could become an activity where public investments SUMMARY x 4/18/97. could be supplemented with private and even foreign Public investments in water will be among resources. China's most important and costly. Investment in pollution abatement-whether for industry or mu- Finally, for rural indoor pollution, the govern- nicipal waste treatment-is much cheaper for the ment must invest in educational campaigns, widen- volume of water conserved than investing in huge ing access to efficient small coal stoves, and sup- water transfer projects. Even so, projections suggest plying cleaner coal and coal substitutes for cooking that even if China creates incentives for firms to and heating. abate cost effectively, water shortages will be so severe that it will have to invest in the large scale Several investments require government coordi- south- north water transfer projects (Chapter 7). nation and others require the government to absorb risks because private returns cannot compensate Given the fast increasing pollution impact of risks: A high priority is developing a state of the municipal wastewater discharges and a virtual ab- art, clean-coal burning industrial boiler. Since cur- sence of treatment, Chinese cities ought to invest in rent technology has not yet been adapted to Chinese wastewater collection and treatment facilities at a materials and scales, the government must play an rapid rate. Pricing wastewater discharge and treat- active role in supporting its development. Other ment to allow for full cost recovery would attract investments are riskier but might have particularly private investment and free public funds for other high pay-offs in China's unique environment. Some urban investment needs. technologies in renewable energy fall into this cate- gory. For example, photo-voltaics have the potential HARNESSING PLANNING CAPABILITIES TO THE to become cost-effective and superior substitutes to ENVIRONMENT coal. These investments are rarely undertaken by the private sector even if prices internalize all envi- China's planning capacity and its organizational ronmental externalities because of risk. The gov- capabilities are an important asset that can be turned ernment should consider investing in pilot projects to to the advantage of improving environmental living ensure experimentation and adaptation to Chinese standards. Even if markets are harnessed for the circumstances. These may become important-and environment, and even if the government elicits an eventually profitable-to replace fossil fuels as efficient supply of private and public investments, global concerns over greenhouse gas emissions heat the government still must regulate and plan with an up. eye to the environmental future. At the national level, this often means fewer investment controls but In transportation, the government cannot avoid better regulations and standards. At the local level, eliciting investments in public transit to offer an al- it means better urban planning and better enforce- ternative to traffic jams and smog. The government ment of national standards. need not burden itself with actually financing and makmg the investments; but it must provide a regu- Perhaps the most important regulatory decision latory framework to ensure that nonstate investments is the phase out of lead from the fuel supply. In are made. Ensuring prices that incorporate exter- Shanghai, for example, more than half the children nalities-through automobile and gasoline taxes- are estimated to suffer from lead blood levels in ex- must be accompanied by expansion of public transit cess of 10 milligrams per deciliter, the definition of alternatives to the automobile-or the pricing meas- blood poisoning. The government recently an- ures will simply shackle Chinese consumers with the nounced its objective of removing lead from the worst of both worlds, traffic jams and high costs. gasoline supply in major cities by 2000. The deci- The costs of a public transit base system are pro- sion to phase out lead cannot be allowed to falter in jected by 2010 to be 17 percent less than a roads- poor implementation because of the serious risks of based system -- not counting environmental benefits. lowering the productivity of a whole generation of workers. Rapid implementation is a high priority. SUMMARY Xi 4/18/97, Standards for auto emissions are no less impor- deficiency of the current investment system is that it tant. At present one car operating in Beijing or inadvertently encourages the building of sub-optimal- Shanghai emits the same amount of carbon monox- scale power plants. The investment approval proc- ide as 30-40 autos in the US, and about the same ess allows provinces to invest up to $30 million about of hydrocarbons as 40-60 autos. Periodically without securing central government approval. tightemng standards to push the industry toward the Since approvals often entail delays, power-starved technological frontier of cleanliness is essential for provinces find it more convenient to build small reducing auto emissions. scale plants rather than efficient units. Phasing out the investment approval system, combined with Another priority is incorporating TVIEs into the strictly enforced emissions taxes, would penalize the regulatory framework. These enterprises are virtu- construction of power plants below efficient scale ally ignored in environmental regulation, and in and create incentives to build fewer, but more effi- certain industries-coking, small metallurgy, coal cient and environmentally friendly plants. mining-have become major uncontrolled point sources for emissions. New regulations at the national level will only have full effect if they are matched with changes in China needs to implement its plans for sulfur di- municipal planning. Urban land use planning is one oxide and acid control regions as proposed in the of China's greatest long term opportunities. China revised National Air Pollution Prevention and Con- today is unique in beginning its relationship with the trol Law of 1995. The main focus of acid rain pol- automobile with very high urban densities and low icy should be power plants and other large point levels of car ownership. The Chinese have not yet sources. Sulfur removal can be costly. It is impor- fallen in love with their cars. These twin facts give tant that regulation allow power plants the flexibility the country the opportunity to develop cities in ways to choose alternative abatement measures under the that incorporate efficient and environmentally sus- limits of regional control targets. tainable transportation. Well organized cities with good public transit may have as many as 50 percent The government could also set standards that in- fewer automobiles clogging their streets than poorly corporate pollution abatement and energy savings. managed cities with bad public transit. This means Prohibitions on two stroke motorcycles, major transportation planning will have to avail itself of the sources of pollution in southern cities, are high pri- full range of instruments-from time-of-day tolls to ority. Performance standards should be set for in- access to the crowded downtown and well thought dustries that are soon likely to be major drains on out parking requirements to better land use planning. energy, such as automobile engines, air condition- ers, refrigerators and other major consumer appli- Since autos are growing at twice the rate of ur- ances. ban road systems, and average velocities are slow- ing, only better planning can channel urban trans- Standards introduced today can markedly cut portation into efficient growth patterns. This should into future energy consumption in residential and be linked with the progressive and planned reloca- commercial buildings. China has a unique opportu- tion of urban industries from downtown areas to ac- mty to improve the average energy efficiency of cessible industrial parks away from population con- buildings given the massive building program centrations. This would do much to reduce exposure planned over the next 25 years. Priority should be of Chinese people to damaging air pollution. Cu- given to efficient lighting, improved centralized rtiba, Brazil, for example, began effective urban heating, and implementation and enforcement of planning two decades ago, and today gasoline con- energy efficient building standards. sumption is some 30 percent less than other compa- rable Brazilian cities. Investing smarter has to re- Better regulation, combined with system of place investing in the next ring road. market based instruments, may obviated the need for direct investment controls at the center. A major SUMMARY xii 4/18/97 The chance of success in environmental plan- China's environmental quality can improve ning and regulation will increase with greater com- dramatically if assertive policies are adopted munity participation on environmental matters. In promptly and systematically. China can turn its as- China, indicators of commumty participation are sets-rapid economic growth and strong orgamza- positively correlated with enforcement of the pollu- tional capacity-into advantages for preserving and tion levy. In other countries, simple information improving its environment for future generations. about plant emission performance and ambient con- To do so, China has to harness the market to pre- centrations were instrumental in improving commu- serve the environment by ensuring prices reflect en- nity participation in regulatory enforcement. The vironmental costs. It has to harness growth by es- government might well consider adopting programs tablishing adequate incentives for private investments similar to those that have proven effective in Indone- and by making wise public investments. And it has sia and Mexico. to harness its formidable planning capacity through better regulations at the national level and enhanced Finally, the complexity of environmental man- urban planning and enforcement at the local level. agement in China requires strong leadership of key agencies and great coordination among government These efforts will require some sacrifices in the agencies. An urgent matter is planning for river near term, but they are small relative to future costs basin management. At present, divided jurisdictions of clean-up costs if the country delays action. More across municipalities and provinces have worked to important, these sacrifices of today's generation are the disadvantage of the environment. An integrated small in comparison to the enormous improvements river basin management system under one authority in the quality of life that will redound to China's is needed for implementing effective water policies children and grandchildren. ranging from extraction rights to pollution abate- ment. CHAPTER 1: GRONH"H AND CHINA'S ENVIRONMENT 1 4/19/97 W 1 Growth and China's Environment Since 1978, China's economic reforms have icy choices can China make now to ensure that rising progressively unleashed market forces and incomes translate into a rising environmental stan- dramatically improved the material well-being dard of living for future generations? of the vast majority of Chinese people. The transi- tion from command economy to market economy FIGURE1.1 Concentrations of TSP and SO2 exceed standards by produced economic growth rates that put China large margins. among the top five fastest growing economies in the Ambient concentration of air pollutants in selected cities, amon th to fiv fates groingecoomie inthe 1995 (ug/m3) world for the last 18 years. Rising incomes have TSP reduced the rate of poverty, and contributed to re- ductions in infant mortality, improvements in child and maternal health, and lengthened life expectancy. But the same unbridled economic growth that has lifted millions out of poverty has also caused significant deterioration in the environment. In part, this is because rapid urbanization and industri- alization accompanied the transition from plan to market. Between 1980 and 1995, China's urban population grew from 191 million to 352 million. More and more Chinese moved closer to the smoke- stacks of a growing number of industrial plants, and increased their exposure to poor quality urban air SO2 and polluted water. At the same time, rising urban and industrial densities created greater volumes of air and water emissions. Today, blankets of harmful air-born particu- lates cover most Chinese cities. Total suspended particulates (TSP) and sulfur levels (SO2) exceed the World Health Organization (WHO) recommended limits by two- to five-fold in major Chinese cities (FIGURE 1. 1). Surface and groundwater quality has , , deteriorated significantly since 1980. Urbanization . . t 3W _ has further reduced already tight water supplies, particularly in North China, and has exacerbated urban sewerage treatment. In 1996, less than one- third of municipal sewerage was treated LIMITED RESOURCES, IMPROVING POLICIES (Transcentury Green Plan, 1996). The government recently reported that acid rain affects as much as 29 Because 22 percent of the world's population percent of the country's total land (NEPA, 1997). live on only 7 percent of the world's arable land, the resource base of China is unusually low. The This study explores two of China's most country has to make do with only 28 percent of the pressing environmental concerns-air and water world average agricultural land per person. Its range pollution---and their relation to economic growth. lands are less than half the world average. Its forests What are the costs of environmental damage today in and wilderness are only 15 percent (World Bank, China? Will economic growth in the future under- 1992:98). Similarly, China's water resources are mine or improve environmental quality? What pol- CHAPTER 1: GROWTH AND CHINA'S ENVIRONMENT 2 4/19/97 about one quarter of the world per capita average, Of all China's problems, none take a greater and energy resources are low as well. toll on human health, worker productivity and agri- cultural output than pollution of air and water. The The Chinese Government has recognized remainder of this chapter surveys the state of air that limited resources could eventually constrain quality and water quality in China, identifying economic growth and improvements in Chinese wel- sources of emissions and their effects on ambient fare. It has identified several environmental prob- concentrations. lems that are likely to have long-term impacts on ecosystems and the economy. Besides air and water AIR POLLUTION pollution, these include forest and grassland destruc- tion, soil erosion, desertification, habitat destruction, Sources of Air Pollutants and the loss of biodiversity. In each area it has en- acted comprehensive laws and programs to begin to Rapid growth and rising family incomes have reverse the damage wrought, especially from the increased the demand for energy. This has meant pre- reform era when environmental consciousness more use of coal. Since 1980, total coal use has was virtually absent. Over the last decade, the Gov- more than doubled, reaching some 1.3 billion tons of eminent has put in place a comprehensive legal raw coal in 1995. framework to protect the environment (see Box 1.1). Thirteen major laws now form the basis of the gov- Energy-coal, biomass, petroleum products-is ernment's regulatory framework. Similarly, the responsible for the majority of particulate emissions. Government has invested an increasing amount of Coal combustion in industrial boilers and small resources in environmental protection, with record household stoves accounts for a disproportionately amounts planned during the 9th Five Year Plan. high percentage of ambient levels of small particles Finally, economic reforms have reduced the amount -those less than 10 microns in size (PM,o)-and of energy used for each unit of output-and at a sulfur dioxide (SO2). Industrial boilers, many run faster pace than in the industrialized countries, inefficiently and with low smoke stacks, are the sin- gle largest consumer of coal in China (33 percent) Nonetheless, Li Peng in his speech to the 4th and account for an even larger percentage of ground environmental conference in 1996 admonished the level air pollution. While the residential sector ac- nation that much remains to be done: counts for about 15 percent of total coal use, its contribution to ground level air pollution in Chinese We clearly are aware that the situation of the envi- cities is typically above 30 percent. Coal combustion ronment in our country is still quite severe. Since contributes the majority all of the sulfur emissions in China is now still at the stage of rapid industriali- China. Areas of the country with extremely high- zation and urbanization, the intensity of exploita- sulfur coal include the southwestern provinces of tion of natural resources rises continuously. In ad- Sichuan, Guizhou, and Guangxi-and in Chongqing, dition, because of extensive mode of economic growth and backward technological and managerial 'th aee s ct of ca i aoe4prnt level, emissions of pollutants increase continu- ously. Environmental pollution in center cities is worsening, and is extending into rural areas, and Over the past decade, the number of trucks and the scope of ecological damage is increasing. automobiles in major cities has also increased dra- matically, and is a new source-through still rela- tively small-of urban air pollution. Diesel vehicles contribute to the particulate problem while motor CHAPTER 1: GROWT7H AND CHINA'S ENVRONMENT 3 4/19/97 Box 1.1: ENVIRONMENTAL REGULATION IN CHINA Since 1979, when China enacted its first set of environmental regulations, it has continued to improve its regulatory prac- tices and learned from the experience of other governments. Among the areas covered by current environmental legislation are the management of wastewater and solid wastes, atmospheric and noise pollution: the conservation of oceans and water courses: the management and protection of forests, grasslands, soil, fisheries, mineral resources, water resources, wildlife and coal and other energy resources. The regulatory system includes several specific programs and instruments (see Chapter 5) At the national level, environmental policy and regulations are formulated by the State Environmental Protection Commission (SEPC), which includes the heads of all relevant ministries and agencies, and ultimately approved by the State Council. The National People's Congress, through its Environment and Resources Protection Committee, has increasingly become a strong voice for environmental policy in China. The National Environmental Protection Agency (NEPA), established in 1988 as an independent agency, is the secretariat for SEPC. NEPA's primary functions are to disseminate government environmental policy and regulations throughout the country, collect environmental data from and provide training and administrative support to local EPBs, and provide technical and policy advice to SEPC for both national and international environmental issues. Like many countries, the enforcement of rules has been the weak link in the Chinese system. In recent years, the NEPA has been closely monitoring the enforcement of environmental laws, however, the key to environmental monitoring and enforcement in China resides at the local level Local governments face a clear trade-off between environmental protection and the financial and employment performance of local firms, since local governments in China are responsible for social welfare. including providing for the unemployed, and since they often have ownership interest in local firms. As a result, pollution levels in China generally exceed national laws and regulations. At the same time, local governments share with the firm an interest in finding financially attractive pollution abatement investment- process change rather than end-of-pipe controls Also, citizens affected by pollution damage can appeal directly to polluting factories for compensation Failing a sat- isfactory resolution of the conflict, the matter is brought to the local EPB While large pollution accidents and intractable cases find their way to the local or higher-level EPB, reports indicate that there are thousands of small environmental cases that are negotiated directly, due to the relative efficacy of direct negotiation, and the traditional Chinese disdain for legal or administra- tive arbitration By encouraging the public to increase its vigilance over the environment and to promptly report violations, the en- forcement record of local environmental agencies has greatly improved. In the second half of 1996 alone, some 70,700 small busi- nesses were closed down for environmental pollution. Source: vehicles as a whole add other pollutants as well, fur control measures. Ambient concentrations of such as lead, sulfur, carbon monoxide (CO), nitro- TSP and SO2 in many Chinese cities are among the gen oxide (NOx)) and other volatile organic com- highest in the world. The annual mean levels of pounds (VOC). A recent study estimates that as TSP in five Chinese cities are 2 to 6 times the guide- much as 40 percent of Beijing's NOx emissions are lines recommended by the World Health Organiza- attributable to motor vehicles (Beijing Environment tion (WHO, 1992) (Figure 1. 3). A number of cities Study, 1996). in Heilongjiang Province have experienced a con- sistent fall in ambient TSP, NOx, and SO, concen- Emissions and Concentrations trations since the mid-1980s, reportedly due to in- creased residential gas usage and the expansion of Accordig to NEPA, total particulate emissions district heating. Nonetheless, ambient concentra- have remained relatively flat since the early 1980s, tions of all pollutants are still very high compared to implying a substantial increase in controls given the international levels and significantly above Chinese near doubling of coal consumption (Figure 1. 2). In air quality standards. contrast, SO, emissions have roughly paralleled the increase in coal consumption due to the lack of sul- CHAPTER 1: GROWNTH AND CHINA'S ENVIRONMENT 4 4/19/97 FIGURE 1. 2 TSP and S02 emissions have grown more FIGURE 1. 3 and ambient concentrations have leveled slowly than the economy. off..but at unacceptably high levels National TSP and SO2 Emissions China: TSP and S02 Emissions, 1981-1993 million tons Average Ambient TSP Concentration Weighted by 18 TSP (ugJm3) Population in Chinese Cities 600 162 14 Soo _. ------- --- _------ _ -- . --- ---- -------_ - 12 Too 0 - ---- -- ---- 10 S-o- S02 300 --.------- -. . . - Whole 8200 --------------------------------------- --------- g Coastal 6 1oo --------------------------------------- .- ..- .-- North 4 1981 1983 1985 1987 1989 1991 1993 o 1917 1988 1989 1990 Wi? 1992 1993 1994 1995 Lead is especially worrisome because of its effects cities of China, but that levels have been rising over the on children's intelligence and aptitudes. Industrial past decade as vehicle use has increased. In emissions from mining, lead smelting, production of Guangzhou, the average ambient lead concentration lead-acid batteries and cables are probably the major increased 12 times between 1988 and 1995 to reach source of lead in air, water and soil in China. A 0.113 ug/m3. In a heavy traffic area of Taiyuan, growing source of lead in China is from the use of Shanxi Province, ambient lead concentrations nearly leaded gasoline. About of half of China's gasoline pro- doubled in 3 years to much higher concentrations of duction is leaded, primarily the higher-octane fuel (90 0.625-1.803 ug/m3 in 1993 (Chen, Chongqing EPB, RON) used for imported and high-compression engine in Chinese, date). automobiles. The gasoline-powered vehicle fleet in Chma-cars, motorcycles, and a large percentage of Indoor air pollution is also a severe problem. A trucks-has grown by more than 10 percent per year large portion of China's population, especially in rural since the mid-1980s, with the consumption of gasoline areas, is regularly exposed to levels of pollutants an increasing from about 22 million tons in 1985 to 37 order of magnitude higher than any standard. Most million tons in 1992. households in China still burn solid fuels like raw coal and wood for cooking and heating. Indoor combustion Two studies from Fuzhou, Fujian Province, have sources produce particulates, sulfur and nitrogen ox- demonstrated a correlation between automobile emis- ides, carbon monoxide, and other pollutants. Indoor sions and elevated blood levels in children (Li et al, air pollution contributes to high rates of respiratory 1992, 1994). Other urban areas in China have also re- disease, the leading cause of death in rural areas and ported increases in lead levels as automobile use has the third leading cause in cities. increased. Studies conducted in Shanghai show that newborn risk of lead poisoning is associated with a Indoor air quality in many urban residences m number of factors, including a family member occupa- China has improved significantly as solid fuels are tionally exposed to lead, proxinuty to a major traffic slowly replaced by gas, electricity, and central heating, way, and household and neighborhood coal combustion and as kitchen ventilation has improved. At present, (Shen et al, 1996). Non-transportation sources of lead not quite half of the urban population has access to gas are still quite important. In Tianjin, ambient lead con- for cooking. Those households that continue to burn centrations are nearly twice as high during the heating coal increasingly use cleaner and more efficient bri- season than during warmer months. quettes in specially designed stoves. Use of briquettes and LPG is spreading to many suburban areas. Even Anecdotal evidence suggests that ambient lead biomass is used more cleanly, thanks to the Ministry of levels are below Chinese and WHO standards in most Agriculture's long-standing program that has made CHAPTER 1: GROWTH AND CHINA'S ENVIRONMENT 5 4/19/97 efficient biomass stoves with flues available to most Global impacts of air pollution include climate rural households. change and destruction of the ozone layer. China be- came the largest producer of ozone depleting sub- In addition to local impacts, air pollution also has stances in 1995, following the ban of production in the regional and global consequences. According to Chi- industrialized countries, and is predicted to become the nese research, long-range transport of acid rain, pri- largest emitter of greenhouse gasses early in the 21st marily from sulfur, has already resulted in serious century. China has shown that it attaches great impor- damages to agriculture, ecosystems, and materials. tance to these global environmental concerns and was Given the government's concern over acid rain, NEPA an early signatory to both of the Climate Change Con- has recently designated acid rain impacted and acid rain vention and the Montreal Protocol. control areas. Box 1.2 PROTECTING THE OZONE LAYER-A MODEL OF INTERNATIONAL COOPERATION Ozone depleting substances (ODS) comprise chloroflorocarbons (CFCs) and halons, which attack and deplete the stratospheric ozone layer Without the protection of the ozone layer, ultraviolet radiation reaches the earth's surface, leading to higher incidence of skin cancers and eye disease. contributes to global warming, reduces agricultural yields, destroys natural vegetation, and damages aquatic organisms Many daily products involve the use of ODS. including aerosols, coolants, foams, fire extinguishers, insulation. automobile air conditioning, refrigerators, and solvents With rapid industrialization and urbanization, China's ODS consumption has been growing over 12 percent per annum from 1986 to 1994 By the end of 1994, China's ODS production was about 60,000 tons and consumption about 81,000 tons When production and consumption of ODS in developed countries was eliminated at the end of 1995, China became the world's largest ODS consumer and producer The Chinese Government ratified the Montreal Protocol on Substances that Deplete the Ozone Layer in June 1991, committing to phase out ODS production and consumption by 2010 China is eligible for financing from the Multilateral Fund for the implementation of the MP, which was created to provide support to eligible developing countries to meet their MP obligations China committed to reduce ODS consumption by 1996 to the 1991 level of 50,000 tons, it would then reduce that level by 50 percent by 2000 and phase out ODS consumption completely by 2010 With rapid economic growth, and a slow start in ODS phaseout, the original 1996 objective was not met, but the Government, having now put in place the necessary regulations and policies, remains confident that it can meet its obligations as scheduled As implementing agency for the Montreal Protocol in China, the World Bank has been working on ODS phaseout activities in China since 1991 Upon completion of the first three MP projects in China, about 25 percent of China's ODP (ozone depleting potential) production and consumption will have been eliminated A fourth project will target the halon sector, whose ODP accounts for 20 percent of China's ODP consumption, most of which would be eliminated within three years China also plans to ban CFC use in the aerosol sector in the beginning of 1998 Source CHAPTER 1: GROWrH AND CHINA'S ENviRoNmENT 6 4/19/97 Box 1.3 THE POOR GET MORE ... POLLUTION Poverty is a curse, but environmentalists might hope for at least one compensation- Since richer areas have more industrial production, they might well have more pollution. Unfortunately for inhabitants of China's poor regions, however, even this consolation is not available. For 50 Chinese cities, the two graphs below display the relationship between average wages and emissions density (or emissions per unit area; a reasonable proxy for atmospheric concentration, as shown in Chap- ter 4). For suspended particulates, pollution density clearly rises as wages fall. In the case of S02, the poorest cities also have higher emissions density than the richest cities, although the graph also suggests a 'Kuznets Curve' relationship in which emissions density rises from poor to middle income cities and then falls to the lowest levels in the richest areas. Log TSP Density vs. Log Wage, 50 Cities Log S02 Density vs Log Wage, 50 Cities 3 3 25 *,**25 2* 2 , , * * . 2 s . - os * os= C 1 a 05 05 0 _____________0 335 345 355 365 375 385 395 335 345 355 365 375 385 395 Log Wage Log Wage Why this counterintuitive and tragic association between poverty and pollution? Of course, richer areas do have higher levels of industrial production. But production in those areas is also much cleaner, for at least three reasons. First, and probably most important, environmental regulation is tighter in richer areas because richer communities with more highly- educated citizens are more concerned about environmental problems, are better informed about them, and are organized to defend their interests Second, production in low-wage communities is more pollution-intensive because industrial facilities with unskilled workers generally operate at lower efficiency and create more waste residuals. Finally, demand in higher- income markets tends to favor products whose production process are less intensive in air and water pollutants. So production scale plays second fiddle to pollution intensity in China's regional pollution story .. and the poor. unfortunately, get far more than their share of pollution. Source World Bank Staff WATER POLLUTION ods, local governments often close gates to retain water for local supply. During this period, the gates The quality of surface water and groundwater retain the pollutants from industrial, municipal in China has deteriorated significantly since 1980, wastewater, and irrigation discharges. When the under the pressure of rapid industrial development, first rains come, gate operators attempt to flush their population and urban growth, and increased chemi- sections of the river with the result that a highly cal fertilizer and pesticide use by the agricultural polluted waste stream enters the main river channel. sector. Water pollution has become a serious prob- Such a surge occurred on the Huaihe in 1994, re- lem for urban and rural drinking water quality. sulting in massive fish kills, human illnesses, and the Thirteen of the 15 major river sections flowing past need to shut down municipal and industrial water cities are "seriously polluted" according to a report intakes all along the river. by NEPA (Qu and Li, 1990). Sources of Water Pollutants Water shortages compound China's urban wa- ter quality problems. Low water prices, especially Municipal wastes accounted for about 40 per- for the agricultural sector, aggravate shortages and cent of total waste water discharges and industry the increase pollution. So does water management of remaining 60 percent. In the Huai River Basin, many Chinese rivers. For example, during dry peri- which runs through Anhui and Jiangsu Provinces, CHAPTER 1: GROWTH AND CHINA'S ENVIRONMENT 7 4/19/97 industrial discharges account for about three- Industrial wastes. Industries that account for a quarters, and municipalities the remaining 25 per- largest portion of water pollution mclude- pulp and cent, of point source chemical oxygen demand paper, metallurgy, chemicals, cement, and mmning.3 (COD) pollution. Despite the lack of accurate in- In both urban and rural parts of China, agricultural formation, small scale activities-TVEs and small processing and food industries-grain processing, industries, the non-sewered population, coal mines, breweries, and leather and tanning-often account and agricultural run-off-are known to be significant for a major source of COD and biological oxygen contributors to water pollution problems in adjacent demand (BOD) pollution. surface and ground waters.2 Box 1.4 THE DEATH OF THE XIAOQING RIVER The Xiaoqing River is an example of industrial and municipal pollution at its worst. The Xiaoqing River in Shandong Province is virtually dead, devoid of fish or fauna that had previously lived in the river. In nearly all sec- tions of the river, there is no dissolved oxygen (DO) which is essential for both plant and animal life. In terms of the total quantity of pollutants, the largest industrial polluters are pulp and paper (19 enterprises), brewing (10), chemi- cals (9), pharmaceuticals (3), and iron and steel (1). Just five percent of the large industrial polluters in the basin ac- count for more than 95 percent of the COD from industrial wastewater. One petrochemical plant (Qilu) alone is re- sponsible for nearly 10 percent of the COD pollution load. Industries in the two large cities of Zibo and Jinan, along with the Qilu petrochemical plant, account for nearly 70 percent of the pollution load of the Xiaoqing River Basin. The most significant pollutants over the past 10 years in the Xiaoqing River have been ammonia nitrogen, BOD, COD, volatile phenol, petroleum, and organic pollutants. Heavy metal pollution has occurred in some sections in some years, but the annual mean values have all been below the standards. Analysis of yearly variations show that while ammonia nitrogen, BOD, volatile phenol, petroleum, and suspended solids have all been increasing, COD has shown a decreasing trend. Source: World Bank Staff Municipal wastes. Although 69 percent of in- pollution. Fertilizer use in China is heavily skewed dustrial wastewater in China receives some treat- toward nitrogen-based fertilizer. Of particular con- ment, only 18.5 percent of municipal waste is treated cern is the widespread use of ammonia phosphate (WRI, 1994-95). Moreover, industrial wastewater fertilizer in China, which is cheap and relatively easy has been decreasing over the past decade, but the to use, but which is also soluble and easily washed quantity of municipal wastewater has been increas- out via irngation water and other runoffs to streams, ing The contribution of municipal wastewater to lakes, and aquifers. Widespread pesticide use has COD and BOD pollution varies considerably across also polluted water bodies in China, as evidenced by the country. For example, while municipal wastes a recent study of Hangzhou Bay.4 Another major account for only about 40 percent of total wastewater source of BOD and coliform pollution is animal discharges in Shandong, in Chongqing, municipal wastes from livestock farms. Meat production wastes account for 68 percent of total COD pollution (chicken, pork, beef, lamb) has grown considerably and 85 percent of the BOD pollution. over the past fifteen years, with the result that much of the manure from these farms has found its way Agnculture. In addition to the indirect water into nearby water systems. In Hangzhou Bay, COD pollution of agricultural processing industries, agri- was found to be largely contributed by the agricul- culture is responsible for significant water pollution tural sector (88 percent of total load in 1994). The from both crops and animal husbandry. Recent supply of nutrients from fertilizer and manure pose studies suggest that the intensive use of nitrogen fer- the greatest threat to the ecological balance of the tilizer and pesticides are a serious source of water CHAPTER 1: GRowNTH AND CHINA's ENVIRONMENT 8 4/19/97 Box 1. 5 "RED TIDES" IN HANGZHOU BAY A study of water pollution in the Hangzhou Bay revealed that nutrients from the agricultural sector posed the greatest threat to the ecological balance of the Bay. The Nitrogen/Phosphorous (N/P) ratio -- an indicator of potential nutrient limitation of primary production -- was found to be 80 to 160 for the Yangtze River, and more than 300 for parts of the Bay; the ideal ratio is 16. Excess nutrient levels m the Bay contribute to "red tides" -- large blooms of free-floating plants containing red pigments -- which can produce shellfish poisoning in human consumers or result in widespread fish kills. Currently between 2-10 red tides are reported in the Hangzhou Bay each year. COD and total coliforms significantly exceed standards in intertidal areas in the Yangtze mouth and in Hangzhou Bay. The greatest exceedance of COD is in the Yangtze mouth, covering 100 percent of an established protection zone for key species. Heavy metals in the Bay-cadmium, lead, copper, and mercury-all fall below the Class 1 standards, while petroleum pollution exceeds the standard (0.05 mg 1-1) in many key species habitats and nature function areas. Source: Hangzhou Bay Study, 1995: [2, 26] Emissions and Concentrations discharges appear to have fallen slightly over the ten- of Pollutants in Water year period, though these data do not capture un- monitored TVE and small industries. While some Wastewater discharges in China appear to provinces achieved a fall in industrial COD dis- have increased slightly between 1981 and 1995 charges (Tianjin, Shanghai, Liaoning, Zhejiang), (Figure 1. 4), but the trend was not consistent for others experienced large increases (Shandong, industrial and municipal wastes, or for individual Guangxi, Xinjiang, Shaanxi). provinces and river basins. Industrial wastewater CHAPTER 1: GROWTH AND CHINA'S ENvIRONMENT 9 4/19/97 FIGURE 1. 4 Rising tides of discharges...probably led by municipalities... Wastewater Discharges, 1981-1994 Million tons 40.000 35,000- 30,000-..oo 25.000- 20Total discharges 20,0001 Industrial - Municipal 15,000-- 10,000 -- -. - - - 5,000 0 Year Municipal wastewater discharges nearly tripled CONCLUSIONS between 1981 and 1995, increasing by nearly 7 per- cent per year. Again, household discharges from the Air and water quality in China's major airsheds non-sewered population is excluded from this data and river basins are seriously contaminated. The and presumably increased by similar, if not larger economic growth that has brought so many other amounts, during the same period. benefits to China has yet to confer upon its citizens a healthier, safer environment. That said, it is impor- Rivers tend to be highly polluted with BOD, tant to note that in recent years new policies, new COD, and petroleum, and the water quality near technologies, and new environmental investments cities and downstream of wastewater disclarges is have markedly lightened the burden of environ- particularly poor. Studies of the Yangtze River have mental degradation. Since 1978, the economy has found that the most polluted sections of the upper quadrupled in size, but concentrations in air and Yangtze are near Chongqing, where 7 indices ex- water have worsened at a much slower rate. Pollu- ceeded NEPA standards in 1993: COD, chromium tion emissions per unit of output have fallen. But in mercury, lead, ammonia nitrogen, petroleum, pH, the race between falling emissions per unit of output and total coliform. Heavy metal pollution of water and rising output, output has won, and the environ- has not been found to be a widespread problem in ment has suffered. Because these levels of pollution China, though specific instances of severe metals damage human health, lower worker productivity, pollution do exist.5 and reduce agricultural output-costs reviewed in the following chapter-the Chinese Government has made improving the environment a national priority. CHAPTER 1: GROWTH AND CHINA'S ENvIRONMENT 10 4/19/97 Endnotes I This data was reported to NEPA from 67,956 indus- trial enterprises in 1994. Excluded, however, were more than 100,000 small SOEs, 850,000 collective industrial enterprises, and more than 1 million TVEs. 2 Along the Xiaoqing River Basin, the provincial envi- ronmental protection agency only monitors point sources, and relies on other provincial agencies -- construction commission, agricultural bureau, hydraulic bureau -- to monitor and estimate discharges from small towns and from the agricultural sector. (Project Files, Shandong Environment Project, 1996) 3 Of the thirty-six large point-sources that are monitored for water pollution along the Jialing River near Chongqing: (i) six enterprises account for 80 percent of industrial COD pollution, with two factories (pharmaceuticals and paper) contributing 42 percent of the total, (ii) four enterprises (pharmaceuticals, print and dyeing, paper, glue) account for 75 percent of industrial BOD emissions; (iii) phenol emissions are contributed by one synthetic chemical plant; (iv) one specialty steel plant accounts for 57 percent of the oil emissions; and (v) half of the chromium emissions are contributed by one electro- plating factory. Although the production and use of DDT has been banned in China since the early 1980s, trace amounts of the pesticide exceeding Maximum Risk Levels were found in the mouth of the Yangtze River in 1995 (Hangzhou Bay Study, 1995). It is not known whether these DDT con- centrations are due to :zsidual amounts of the pesticide left in the river sediment -r whether there are still stockpiles of the chemical being used illegally. Large waste heaps of metal ore and chemicals at a metallurgy plant along the Yangtze River in Chongqing were found to be contributing serious levels of chromium pollution to the river during rains and periods of high water. The practice of storing dangerous wastes along major rivers in China is quite common and can pose a significant water pollution hazard. Lead concentrations taken along the Yangtze have been found to be higher in low- (7.52 ug/1) and mid- (4.38 ug/1) stream than in up- stream (2.76 ug/1l) sections. CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY: 11 4/18/97 THE COSTS TODAI W21Pollution, Health and Productivity: The Costs of Today Air and water pollution entail costs. Poor quality air the prevalence of coal use for residential cooking and water can damage health of exposed people, in and heating, and high ambient levels of air pollution. some cases leading to premature death. Pollution Cardio-pulmonary disease (COPD) is the leading can lower the productivity of workers, as with cause of death in China, with a mortality rate five chronic and debilitating bronchitis, diarrhea, or as times that of the U.S. (World Bank, 1992). The with reduced intelligence from childhood lead poi- studies outlined in Box 2. 1 demonstrate that, much soning. Acid rain or water shortages associated with like studies in other countries, an exposure-response the degradation of water supplies can reduce agri- relationship exists between high concentrations of cultural productivity. What are the costs of these particulates and sulfur dioxide and several health damages, and what damages should worry Chinese outcomes, including loss of pulmonary function, policy makers the most? chronic respiratory symptoms, bronchitis, and mor- tality as well as increased hospital visits and admis- AIR POLLUTION sions. The incidence of respiratory disease is quite high in China. This is due to high smoking rates, Box 2.1 EPIDEMIOLOGICAL STUDIES IN CHINA Beginning in the late 1980s, the relationship between ambient air pollution and human health has been analyzed in three sepa- rate epidemiologic studies in Chinese cities, carried out by Chinese and international researchers The statistical relationships be- tween air pollution and health outcomes ("dose-response" relationships) from these three studies are consistent with the findings in other countries, and have been used to estimate overall health damages from air pollution for China in this report 2 Beijing Study. The association between air pollution and daily mortality was examined in two residential areas in Beijing in 1989 Total mortality was found to increase by 8 5 percent with each 100 ug/m3 increase in the S02 concentration, and 3.6 percent for each 100 ug/m3 increase in TSP concentrations When mortality was analyzed by underlying cause, a doubling in the TSP con- centration was associated with a 13 percent increase in mortality from COPD, a 4 percent increase in pulmonary heart disease mortality. and an 2 percent increase in cardio-vascular disease mortality. Data was also collected and analyzed in Beijing to assess the association of air pollution with hospital outpatient visits and emergency room visits. Sheiang Study. Air pollution and daily mortality was examined in Shenyang in 1992. In residential and commercial areas of the city. very high concentrations of sulfur dioxide (mean 197 ug/m3, maximum 659 ug/m3) and total suspended particulates (mean 430 ug/m3. max 1140 ug/m3) were observed. Daily counts of deaths were regressed against S02 and TSP concentrations, controlling for temperature, humidity, and season (Figure 5) Total mortality was estimated to increase by 2.4 percent with each 100 ug/m3 increase in S02 concentration, and by 1.7 percent for TSP. Chongqing Study. An air pollution health impacts study examined the health effects, including morbidity, mortality, and re- production. associated with high concentrations of air pollutants in Chongqing. Based on data from 1993, a significant association of increased cardiovascular disease mortality was found with ambient concentrations of particulates (40 percent increase for 100 ug/m3 increase). S0 (23 percent increase for 100 ug/m3 increase) and NOx (37 percent increase for 20 ug/m3 increase) Independent measurements of fine particles (PM10/PM2 5) and sulfur dioxide were taken in different air quality zones in the city in summer and winter, and correlated with cross-sectional health survey data gathered from 3,500 adults and 300 pnmary school children. Among other findings. a significant association was found between air pollution and reduced pulmonary function Based on a twelve-month study of ambient air pollution and the association of hospital admissions, emergency room visits, and daily mortality in 1995, the correlation between high concentrations of particulates and sulfur and excess deaths and health impacts in Chongqing was confirmed. Source CHAPTER 2: POLLUTION, HEALTH AND PRODLCTIVITI: 12 4/18/97 THE COSTS TODAY FIGURE 2. 1 Higher concentrations increase daily mortality rates.... 52 - 52 51 *S 50 so * * 4g 4 48 4 O46 47 211 '6 44 49 44 4 s02 TSP 43 43 4 ___________________L_____ I . . . 4 0 50 100 160 200 250 300 350 400 450 600 8SI 100 200 300 400 600 500 700 100 D0c 1000tDDt 1200 Air Pollution Concentrationa (ug/m ) Loc=ny shwd rsi moohdn pmeat maub.y. 1992 i Shayang wift SO2 ad TsP, == zWddiwtWv-dn approach= tocoral for temerana haddity, and sao ESTIMATING TOTAL PHYSICAL DAMAGES year in China if Class II air pollution standards were met. These 100,000 plus excess deaths a year consti- Air pollution in excess of Chinese standards tute about 7 percent of all deaths in urban areas. provides a benchmark against which to quantify the physical damages to human health of air pollution. The toll on other aspects of human health is also (Chinese standards. though based on different meas- severe. Hospital admissions due to respiratory illness ures. approximate WHO standards, as shown in annex are 240,000 higher because of excess pollution levels; table 3). We assume that damages begin to occur around 4.7 million visits to emergency rooms occur wAhen pollutants surpass the limits set in standards, because of high pollution (Table 2. 1). China*s work- and then base our calculations on an exposed urban ers also suffer periods lost to avoidable sickness be- population of 240 million in relevant airsheds. Using cause of pollution; some 3.1 million person-years are the dose-response functions from the studies in China lost because of illnesses associated with pollution lev- and around the world (see footnote 2), we estimate els in excess of standards. that around 106.000 mortalities could be avoided each CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY: 13 THE CoSTS TODAY 4/19/97 TABLE 2. 1 Air pollution exacts a heavy toll in physical damages... Physical Damages of Selected Environmental Problems in China Problem Impact Physical Damages Urban air pollution - mortality Excess deaths 105,991 Urban air pollution - morbidity Respiratory Hospital Admissions (RHA), cases 240.890 Emergency Room Visits (ERV), cases 4,725,453 Restricted Activity Days (RAD), years 3,162,365 Lower Respiratory Infection/ child asthma, cases 460,702 Asthma attacks, cases 32,720,854 Chronic bronchitis, cases 1.227,868 Respiratory symptoms, cases 3,673,568,327 Indoor air pollution*- mortality Excess deaths 138,801 Indoor air pollution - morbidity Respiratory Hospital Admissions (RHA), cases 315,457 Emergency Room Visits (ERV), cases 6,190,836 Restricted Activity Days (RAD), years 4,141,269 Lower Respiratory Infection/ child asthma, cases 1,005,518 Asthma attacks, cases 71,415,876 Chronic bronchitis, cases 1,607,953 Respiratory symptoms, cases 4,810,713,589 The quality of indoor air is often worse than indoor fuel use in China is roughly comparable to outdoor air. Indoor pollution studies from several that posed by smoking (see Box 2.2). The inci- areas of China find that particulate levels (from both dence of disease from indoor air pollution falls biomass and coal combustion) are generally higher mainly on women and children. All in all, this indoors (above 500 ug/m3), and that the highest means some people are regularly exposed to levels concentrations (above 1,000 ug/m3) are found in of sulfur dioxide and fine particulates of magnitudes kitchens (Sinton et al, 1995). Surveys have shown similar to those associated with the fatal smog epi- that an average urban person in China spends around sodes in London and Donora, Pennsylvania. 90 percent of their time indoors. For rural areas, it has been conservatively assumed that the average As noted in Chapter 1, the proliferation of al- person spends only half of their time indoors, and ternative energy sources for cooking and heating- that only half of the rural population is exposed to gas, electricity, and central heating-is making in- high indoor air pollution levels. roads into this problem. At present, not quite half of the urban population has access to gas for cooking, Under these assumptions, excess deaths as- as gas supplies expand and more people move from sociated with indoor pollution averages about single-story brick houses to apartment buildings. 140,000 year. The acute effects of indoor air pol- Remaining coal-burning households increasingly use lution are also dramatic: each year deaths from car- more efficient, cleaner briquettes in specially de- bon monoxide poisoning occur in northern China, signed stoves, and these are spreading to many sub- where coal is used to heat in tightly weatherproofed urban areas. dwellings. The scale of the health problem from CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVrrY 14 4/18/97 THE CosTs TODAY Box 2.2: SNIOKING... as everywhere... .is more harmful. While indoor and ambient air pollution are responsible for large numbers of health impacts in China (see Box 2.1), cigarette smoking is arguably more harmful The reason for public concern on ambient air pollution is often a moral one-while cigarette smoking is voluntary, exposure to outdoor air pollution is not. The economic loss in terms of only health care expenditures related to smoking was estimated at US$1.5 billion in 1989 (Jin, 1995). Smoking related deaths in China-coronary heart disease, chronic obstructive lung disease, and lung cancer-amounted to around 1 million in 1990, or over 9 percent of total deaths. This figure is expected to double over the next twenty-five years. Average consumption in China rose from 730 cigarettes per person in the early 1970s to 1.290 in the early 1980s, to 1,900 by the 1990s. If current smoking patterns persist, about 50 million Chnese who are now 0-19 will die as a result of smoking (Peto, 1986). For people exposed to high levels of indoor and outdoor air pollution, smoking multiplies the risk of respiratory disease. Source: World Bank, 1996 Exposure to lead is particularly damaging be- prospective study 133 infants was carried out in the cause of its effects on intelligence. The most com- Yangpu District of Shanghai beginning in November monly used index of lead exposure is the lead level 1993. The study found a statistically significant dif- of blood. While there are no nationwide data, stud- ference in mental development between the two ies from Shenyang show 24 percent of children in groups based on standardized tests (Bayley's Mental non-polluted urban neighborhoods had lead blood Development Index). The prospect that millions of levels in excess of the US standard of lead poison- Chinese children might be exposed to lead and the ing, 10 micrograms per deciliter (ug/dl). In polluted productivity of a whole generation of urban workers neighborhoods virtually all children suffered from might be lowered underscores the importance of the lead poisoning. In the six studies, encompassing Government's recent discussions about removing nearly 1,500 children from different parts of Shen- lead from gasoline and from the environment. yang, children had mean lead levels ranging from 7.9 to 39.5 ug/dl. In Beijing, six studies showed CosTs OF WATER POLLUTION that anywhere from 17-80 percent of children suf- fered from lead poisoning, depending on neighbor- Water pollution damages human health, fisher- hood, and means varied from 7.8 to 22.4. ies, agriculture (from polluted irrigation water), and increases expenditures for securing clean water. In Shanghai, children residing in industrial and There are also damages to ecosystems-soil erosion busy traffic areas had average blood level levels of and the loss of plant and animal species-though 21.8-67.9 ug/dI, with the percentage of lead levels these damages are more difficult to quantify. above 10 ug/dl, ranging from 64.9 to 99.5 percent (Shen, 1996). Even in relatively unpolluted areas of Health impacts. Several human diseases have Shanghai, more than half of the children had lead been linked to polluted water, including ascariasis, poisoning. The most comprehensive study of ele- diarrhea, hookworm infection, schistosomiasis, tra- vated lead levels in children was carried out in choma, and dracunculiasis. Studies have shown that Shanghai in 1993. This study found that the average improvements in water supply and sanitation can umbilical cord blood level of 605 live newborns in a substantially reduce the rates of morbidity and se- hospital in Shanghai was 9.2 ug/dl, and that 41 per- verity of these diseases, as well as infant mortality cent of the babies had cord lead levels that exceeded associated with diarrhea disease.3 In general, the the danger level of 10 ug/dI. The study estimated incidence of these diseases is lower in China than in that some 60,000 newborns are born each year in other developing countries, in part due relatively Shanghai with lead poisoning high access to safe drinking water and sanitation (Table 2. 2). Relative to other Asian countries at Studies of children in Shanghai, Shenyang, similar levels of income, China's levels of access to Fuzhou, and Beijing have consistently found a link both water supply and sanitation are good, although between low-lead exposure and deficits in IQ, neu- differences exist between urban and rural areas in robehavioral development and physical growth. A China (World Bank, 1996). In 1990, only 1.5 per- CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY 15 4/18/97 THE COSTS TODAY cent of total mortalities m China, and 3 percent of young and old accounted for 5 percent of the mor- the total disease burden (measured in DALYs), was talities and nearly 6 percent China's disease burden due to common water- and sanitation-related diseases m 1990, while COPD accounted for 16 percent of (diarrhea, hepatitis, trachoma, intestinal worms). By total deaths and 8.5 percent of the disease burden contrast, lower respiratory infections among the (Murray and Lopez, 1996) (see Annex table ). TABLE 2. 2 ACCESS To SAFE DRINKING WATER AND SANITATION CHINA AND COMPARATORS, 1990 Safe Drinking Water Sanitation 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 Source: World Bank 1996. There are other health impacts that are believed sands of kilometers before falling back to the earth's to be associated with water pollution-skin disease, surface as acid rain (ph< 5.6). This process is liver cancer, birth defects, spontaneous abortion- more accurately termed "acid deposition", since however, the precise cause of such impacts is much acidity can travel to the earth's surface in many more difficult to discern without large epidemologi- forms: rain, snow, fog, dew, particles (dry deposi- cal surveys carried out over many years. In contrast non), or aerosol gases. to feacal-borne diseases, cancers and birth defects are believed to be due to toxic chemicals that are not Emissions and ambient concentrations. Sulfur easily removed through water treatment. emissions have tended to be most serious m southern China, particularly Sichuan, Guizhou, Guangxi and However, with increasing volumes of municipal Hunan Provinces, due primarily to the large amounts wastes and the lack of adequate water supplies for of high sulfur coals produced and consumed in those sanitation, particularly in North China, there is likely areas. The power sector, because of the use of tall to be an increase in faecal-borne diseases In China in smoke stacks, is probably the primary contributor to the future. the long-range transport of sulfur and nitrogen ox- ides. However, simulations with the RAINS ASIA REGIONAL AND GLOBAL AIR POLLUTION model show that a significant percentage of long- distance sulfur deposition is due to non-power, or Acid Rain "area" sources.4 Man-made emissions of nitrogen dioxides are increasing from combustion of coal and Acid rain refers to the products of chemical re- gasoline due to the increased demand for electricity actions between airborne pollutants (sulfur and nitro- and automobile use. Nitrogen oxides contribute to gen compounds) and atmospheric water and oxygen. acidic deposition and the formation of ozone (with When fossil fuels are burned, oxides of sulfur and volatile organic compounds), impacting both humans nitrogen are emitted into the atmosphere. Once in and plants. the atmosphere, sulfur dioxide and nitrous oxides react with other chemicals to form sulfuric and nitric Environmental impacts. Acid rain is associated acid 'he gaseous emissions are either absorbed by with a wide range of damages, from the destruction plants and materials in the vicinity, or they are of boreal and subtropical evergreen forests to human transported. These emissions can stay in the atmos- health effects of long-range transport of sulfate and phere for several days, and travel hundreds or thou- nitrate aerosols. Effects on forests and agricultural CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY 16 4/18/97 THE CosTs TODAY crops occur directly through high ambient concen- * damage to aquatic resources, and their eco- trations of SO, and NOx, and indirectly through the systems acidification of soils. Direct effects occur primarily near emitting sources. Soil acidification is likely to * increased rate of erosion of monuments, have long-term impacts on ecosystems, and is be- buildings, and other cultural and commercial lieved to be the cause of the extensive dieback of resources, and, forests in Central Europe over the past several dec- ades. * direct, adverse impact on human health, espe- cially sensitive populations with respiratory or In the 1980s, the evidence of acid rain damage cardiovascular problems. in Europe convinced a large group of countries to agree to limit SO, and NOx emissions. Unfortu- Based on the RAINS ASIA model, the critical nately, much less empirical evidence exists on acid load (see Box 2.3) is already being exceeded in Si- rain damage in Asia. Regions of China believed to chuan and parts of East China, and is expected to be most sensitive to ecosystem damage from acid increase in these and other areas in the near future rain are the subtropical evergreen forests of South (Figure 2. 2). Areas of Southwest China, especially China, the high-altitude tundra areas of Tibet and around Chongqing, have already exceeded the criti- parts of Qinghai Province, the coniferous forests in cal load by as much as 11,000 mg/m2/yr . Some of northeastern China, and areas of Southwest and East the most sensitive ecosystems in southern China may China that are predicted to have extremely high already have been damaged by precipitation with an deposition in the future. Based on the European and average pH below 3.5. Although considerable re- North American experiences, current levels of emis- search needs to be done on direct sulfur impacts on sions have the potential of causing regional ecologi- rice, existing studies suggest that at threshold ambi- cal and health damage. Given the high and rising ent concentration values of 20-30 ug/m3, damages levels of S02 emissions in China over the coming begin to occur on similar ecosystems (World Bank, decades, a number of impacts are expected: 1995). For comparison, average SO2 concentrations are currently above 600 ug/m3 in the winter months * direct damage to crops and vegetation by high in Chongqing. A survey of forest growth in the Si- ambient concentrations of pollutants, or indi- chuan Basin and Guizhou province has indicated that rect damage through chemical changes in the incidence of forest damage (indicated by rates of tree soil and foliage growth) is higher in areas with highly acidic rain (Dianwu and Xiaoshan, 1992, p. 224). * major contributions to forest decline, possibly Reduction in the total biomass production in com- in complex interactions with natural stresses mercial spruce forests of more than 50 percent in areas experiencing rain with pH < 4.5 (Zhao and * release of toxic metals such as aluminum that Xiong, 1988) has also been reported. Areas receiv- can damage soils, vegetation, and surface ing rainfall with a pH of 4.5 or less also show higher waters rates of material corrosion in exposure tests. CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY: 17 4/18/97 THE COSTS TODAY FIGURE 2. 2 ACID RAIN AND DEPOSITION IN CHINA, 1995 50~ Unat mg/m2-yr 100 30- 25 72 78 84 9108 120 126 132 138 Box 2.3. WHAT IS "CRITICAL LOAD"? The concept of critical load has been used in the European acid rain negotiations and in the analysis of acid rain impacts conducted for the Rains-Asia model (Amnann and Dhoondia, 1994). The crutical load is defined as the highest deposition of acidic compounds that can occur without causing harmful long-term effects on eco- system structure and function. Areas that have a lunited natural capacity to absorb or neutralize acid ran :ave a low critical load. Ecosystems that are better able to buffer acidity (through different soil chemistry, biological tolerances, or other factors), correspondingly, have a higher critical load. Assessing the natural capacity of eco- systems to withstand current and projected levels of pollution is a method of measuring ecosystem health, and can serve as a way to assess the environmental benefits of emissions reductions. Source: CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY: 18 4/18/97 THE COSTS TODAY The most detailed analysis of crop and forest Chinese researchers have predicted that in- loss due to acid rain has been carried out by the creases in greenhouse gas concentrations will have a Chongqing Environmental Protection Bureau (1995). negative impact on rice, wheat, and cotton produc- An assessment of vegetable and crop losses was car- tion due to the combined effects of higher tempera- ned out for the nine central districts of Chongqing ture, increased soil evaporation, and more frequent Mumcipality, which account for approximately 20 and severe storms. Rising sea level is another con- percent of the total land area of the municipality. cern for China and other countries with large popu- Ambient concentrations of SO, in the nine central lations living in low-lying areas. According to Chi- districts averages around 390 ug/m2. Using the nese studies, a one-meter increase in sea level, when RAINS-Asia model, current acid deposition in the combined with storm surge and the astronomical central Chongqing districts is on the order of 12,356 tide, could flood an area of China the size of Portu- mg/m2/yr, while excess deposition is around 11,379 gal, including the entire cities of Shanghai and mg/m2/yr. At such high levels of deposition, sur- Guangzhou, displacing 67 million people at current veys carried out by the Chongqing EPB found that population levels (Johnson et al., 1996). While the about 24 percent of the vegetable crop was damaged potential for disastrous consequences exists as a re- by acid rain in 1993, amounting to a loss of about 62 sult of global climate change, substantial uncertainty million yuan. Similar losses in production were remains in the climate change process and in impact found for grain crops, with a loss of approximately predictions, particularly for individual regions. 184 million yuan. Total losses for the forestry sector both for trees that have died and for reduced growth, ECONOMIC VALUATION OF IMPACTS are estimated at 169 million yuan. Quantifying the benefits of reducing pollution Based on the Chongqing and other studies of beyond physical damages can provide a useful guide the impact of acid deposition on crop and forestry to environmental policy. For individual pollutants, it production, the correlation between ambient con- is possible to find the least-cost way of abating pol- centrations, deposition, and crop loss has been esti- lution without assigning monetary values. One mated and is shown in Figure 3. Using ambient could, for example, rank the costs of various options concentration data from Chinese sources and deposi- for meeting environmental standards or other targets. tion estimates from the Rains-Asia model, estimates However, when policy makers have to compare the of current crop and forest loss have been calculated costs of different pollutants-to human health or as $5 billion per annum. The average crop loss for productivity-cost-effectiveness analysis based on provinces of China experiencing acid rain is 3.6 per- physical damages is not feasible. How does a mu- cent.5 nicipality decide how much of its budget to devote to air pollution control compared with expenditures on Climate Change water pollution control? Or, within the water pollu- tion budget, how much should be devoted to con- The increasing concentration of carbon dioxide trolling BOD pollution and how much for heavy in the atmosphere as a result of fossil fuel combus- metals? tion and other human activities is known as the greenhouse effect. It is feared that the greenhouse The most common way to create a comparative effect will lead to changes in the earth's climate, framework is to convert physical damages to an eco- resulting in damage to crops, terrestrial ecosystems, nomic value.6 As discussed below, the valuation of and human settlements. According to the leading a human life poses the greatest difficulty for eco- climate change models, based on current trends in nomic valuation, as it raises social, political, and greenhouse gas emissions, global mean surface tem- ethical questions. This report uses the range formed peratures could increase by 1.5 to 4.5 degrees centi- by the most "conservative measure"-the present grade and the global mean sea level could rise by 25 value of lost earnings due to premature death-and to 50 centimeters before the year 2050 (Houghton, the higher number that individuals indicated they Jenkins, and Ephraum, 1990). would be "willing to pay" to reduce risks associated CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY 19 4/18/97 THE COSTS TODAY with pre-mature death. In China, average urban * lead poisoning wages are about US$866 per year, and the present value of the 13.5 years of lost wages works out to Acid rain and water pollution are also costly. be US$6,900.' Willingness-to-pay calculations suggest a much higher (and more reasonable) value These pnorities would vary among provinces compared to other countries of $60,000 per statisti- because each has a different balance of problems. cal life. Water shortages and attendant pollution is like to be more pervasive and harmful in the north China The valuation of many other impacts, however, plain, while sulfur contamination and acid ram are is not particularly contentious, such as the medical likely to be more of a problem in southern China. costs of illness or damage to agricultural crops.' Nonetheless, total national losses of U$49-60 billion While comprehensive data on lead poisoning is not -7-9 percent of GDP-cannot help but underscore available in China, it is possible to estimate lead ex- the concern of national policy makers about China's posure of children based on the numerous studies of environment. lead poisoning that have been carried out in China (see annex table 6).9 CONCLUSIONS The costs of air and water pollution in China As Li Peng indicated in July 1996, improving are conservatively estimated at roughly 7-9 percent the environment in China is essential to realizing the of GDP (Table 2. 3). The lower bound is estab- potential improvements in the quality of life that ns- lished by the minimum valuation of Chinese life, and ing incomes should bring. Today, the total cost of the maximum by the willingness to pay methodol- excessive pollution to the Chinese people-in the ogy. In either case, Table 2. 3 is useful in sug- form of additional premature deaths, sickness, dam- gesting some important priorities for government. age to productive resources, and urban infrastructure The largest losses in health, productivity and agri- -is estimated to be in the range of about 7-9 percent culture are: of GDP. * health losses associated with urban air pollu- These costs are high. But economic reforms tion-particularly debilitating chronic bron- and environmental policies have held them in chitis check. Is this likely to continue? That is the sub- ject of the next chapter. * health losses associated with indoor air pollu- tion CHAPTER 2: POLLUTION, HEALTH AND PRODUCTIVITY 20 4/18/97 THE CoSTS TODAY TABLE 2. 3 Environmental pollution costs China roughly 7-9 percent of GDP Summary of Selected Annual Environmental Costs in China Problem Impact Valuation Range (USS millions) Urban air pollution - mortality Excess deaths $731 -6.359 Urban air pollution - morbidity Morbidity Subtotal S15,118 Respiratory Hospital Admissions (RHA), cases 167 Emergency Room Visits (ERV), cases 109 Restricted Activity Days (RAD). days 2,678 Lower Respiratory Infection/ child asthma, cases 6 Asthma attacks, cases 131 Chronic bronchitis, cases 9,823 Respiratory symptoms, cases 2,204 Indoor air pollution - mortality Excess deaths $666 - 5.793 Indoor air pollution - morbidity Morbidity Subtotal S12,100 Respiratory Hospital Admissions (RHA), cases 192 Emergency Room Visits (ERV), cases 96 Restricted Activity Days (RAD), days 2,371 Lower Respiratory Infection/ child asthma, cases 9 Asthma attacks, cases 183 Chronic bronchitis, cases 7,165 Respiratory symptoms, cases 2,083 Lead impacts - children Children Affects Subtotal SIJ,911 Medical costs $177 Compensatory education $450 Earnings $4,733 Infant mortality $63 Neonatal care $6,489 Lead impacts - adults not estimated Water pollution Health* $1,988 Agricultural and fishery loss* $1,159 Water shortage* $783 Acid rain Crop and forest damage $4,364 Materials damage* $271 Ecosystem damage** $411 Climate change not estimated Total $49-60 billion (% of GDP) 7.1-8.6% * Qian et al (1997) ** Dixon et al (1995). Assumes that ecosystem damages are double those of timber. CHAFMER 2: POLLUTION, HEALTH AND PRODUCTIVITY 21 4/18/97 THE COSTS TODAY Endnotes be avoided for each age group by meeting Chinese Class II See the research by Xu and colleagues, a partial list of air pollution standards. The number of life-years remaining which is given in Johnson, Wells, and Xu (1994). for each age group has been calculated using age-specific life expectancy tables (China Population Yearbook, 1995, p. 2 The following dose-response functions were used in 232-33). Thus, if a child died prematurely before age 1, the number of life years lost is 68, which is life expectancy at this report for estimatng mortality and morbidity impacts birth. Average life years remaining for each age group is from air pollution. They are measured as the percentage multiplied by the number of deaths avoided to obtain the increase in the number of annual deaths, cases, or days, per number of life years saved. Average urban and rural wages 100 ug/m3 increase in TSP concentrations: have been used to value the number of avoided mortalities (human capital approach) and morbidities from assumed Mortality, deaths 0.576 improvements in ambient and indoor air quality Respiratory Hospital Admissions (RHA), cases 0.72 Emergency Room Visits (ERV) , cases 14.124 There may be uncertainty in the range of physical Restricted Activity Days (RAD), days 0.0345 impacts for morbidity or crop loss, however, this should be Lower Respiratory Infection (LRI)/ child seen as separate from "valuation uncertamty." asthma, cases 0.00102 s Asthma attacks (AA), cases 0.01956 9 Studies in the US have estimated the benefit of reduc- Chronic bronchitis (CB), cases 3.67 Crsibrocstos (B), cases 3.08 ing average blood level content by 1 ug/d in both children Respiratory symptoms (RS), cases 1.098 and adults (Schwartz, 1994). To obtain an estimate of the 3 Reductions in morbidity from improvements in water total benefits of reducing lead, one must multiply the 1 ug/di unit costs by the amount that the average lead level exceeds supply and sanitation frate from 26 percent for diarrhea, 27 t ts fo ead imat the cure efinition ofcled percent for trachoma, 29 percent for ascariasis, 77 percent for schistosomiasis, and 78 percent for dracunculiasis. poisoning in the US is 10 ug/dl). For China, the lead im- Mean reductions in diarrheal-specific mortality was found to pact costs for children have been calculated by scaling the be 65 percent, while overall child mortality declined by 55 US figures calculated by Schartz by the respective per capita percent. (Esrey et al, 1991) income figures in each country ($500/$25,000), and by the comparative number of children under six living in urban 4 IAareas. To obtain total costs, one needs the average blood In the RAINS-Asia Model, sulfur is emitted from two level for China, which is not available. Studies of lead lev- sources Large point sources, of which there are some in els in Bangkok indicate that the average lead level of blood China, are power plants over 200 MW. All other sources, is about 22 ug/dl. Based on a number of studies of lead neluding small power stations, mdustrial boilers, residential levels in China (see Annex Table __), the lead costs for fuel use, and transportation,. are meluded under "area" children presented in Table 2.3 assume that blood levels in urban areas of China are 18 ug/dI. * Because few studies have been undertaken of the ac- tual crop and forestry damages in China, these estimates should be considered highly tentative. 6 The method adopted here for valuing the human health damages is the "human capital" approach, where both mor- tality and morbidity are measured in terms of the loss of "productive" days. Willingness-to-pay surveys (contingent valuation), while theoretically more correct for measuring environmental benefits, have not yet been undertaken in China Other approaches to benefit estimation, especially those relying on competitive markets for capital and labor, are also not yet appropriate for valuation work in China. The willingness-to-pay estimates for China used in this pa- per have used low to mid-range estimates for the US (3 million per statistical life) and scaled them by the ratio of GDP per capita for the two countries (i.e., $500/$25,000). 7 Age specific mortality data for Beijing (1989) has been used to calculate the number of "excess" deaths that could CHAPTER 3: POLLUTION, H EALTH AND PRODUCTIVITY: 22 4/18/97 THE COSTS TOMORROW Pollution, Health and Productivity: The Costs of Tomorrow C hina has set for itself several ambitious quan-Box1 CHINAIs ANIBnOus OBJECTIVES titative objectives by 2000, and several more qualitative objectives in its long range plan to While many governments around the world commit 2010. These include containing water emissions to a themselves to only vague environmental objectives. China 14 percent rise over the five years to 2000, and has defined a clear set of measurable targets For water. holding TSP and SO2 emissions nearly constant (Box these include holding water discharges to a 14 percent rise 3.1). By 2010, the government wants to have re- during the 9th Five Year Plan and holding COD discharges versed the trends of the deterioration of environ- constant For air, it wants to hold TSP and S02 emissions mental quality and the degradation of the ecosystem. roughly constant. Water quality of drinking water sources of key cities are to meet standards, and surface water quality, in TABLE 3.1 CHINA'S HEROIC TARGETS FOR 2000 general, is to meet standards for appropriate use. 1995 2000 Levels Targets Urban air quality should in general meet Class 11 Water standards. In addition, the government aspires to Wastewater discharges (bil tons) 42 2 48 reducing discharges of major industrial pollutants Industrial 27 I 30 significantly, and have halted the deterioration of all Municipal 151 18 major river basins. It desires to halt the worsening COD discharges (mil tons) 22 3 22 trend of acid rain. Industrial 109 16 Municipal 11 4 6 Although economic growth has entailed high Air (mil tons) costs of environmental damage in China in the past, Smoke dust 174 17 5 future growth creates the opportunity to reduce dam- Industrial fugitive dust 173 170 age. Rapid growth means that new capital and cleaner technologies can replace outmoded and dirty ones. It Other (mil tons) also means that Chinese consumers, with rising in- Solid waste generation 1110 comes, will buy a different basket of products and Inutral 930 services than before, and this will propel changes in the Industrial solid waste disposal 60 structure of the Chinese economy. Petroleum pollutants (tons) 83100 Source The State Environmental Projection 9th Five-Year Plan and 2010 Long-term Goals, NEPA, SPC and SETC, 1996 Will this rapid growth in combination with ex- isting policies be sufficient to achieve China's ambi- The water objectives would require increasing industrial tious objectives? The answer depends on the impact wastewatet nenr from 63 percent to 74 percent and mumcpal of technological and structural changes on total emism calculates a total investment in abatement of RMB 450 billion sions of pollution, and then how emissions translate over five years, about half in air pollution control and about 40 into higher or lower ambient exposures in different percent in water discharge abatement cities and regions. This chapter explores the pro- Source NEPA, SPC and SETC 1996 jected impact of growth-through technological and _ structural change-on environmental quality. Sub- sequent chapters explore alternative policies. CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 23 4/18/97 THE COSTS TOMORROW MACROECONOMIC AND SECTORAL GROWTH: clear, and other non-thermal power plants) will rise to BASIC ASSUMPTIONS the equivalent of 93 Mtce.3 Growth and composition of GDP Annual growth Energy pricing will have an important effect on rates for real GDP are assumed to be 6.7 for 1995- energy intensities. Low average prices for coal- 2020.' Under the assumptions that investment rates perhaps 10-20 percent below the equivalent border are likely to decline from over 40 percent of GDP to parity price during 1990-95 4 -have encouraged its about 34 percent by 2020, total consumption will in- inefficient use. Further, the environmental damage crease from 58 percent of GDP in the mid-I 990s to 66 caused by coal use is worsened by the lugh ash con- percent in 2020. The share of agriculture in consump- tent of much of the coal that is delivered and mcon- tion will decline, the share of industry and construction sistencies m the quality premia for different grades of will remain almost the same,2 and the share of services coal. Most petroleum product prices were close to will rise. their equivalent border parity prices. Still, taxes on gasoline and motor diesel fuel are low by world stan- Sectoral growth patterns The capital stock accu- dards, so that there is scope for raising prices in order mulated as a result of new investment gradually ac- to discourage inefficient use.' On these assumptions, quires the characteristics of technology available else- total final demand for energy is projected to increase where in the world. This is an optimistic assumption from about 1240 Mtce in 1995 to about 3530 Mtce in because it presumes capital equipment manufactured 2020. Coal accounted for 78 percent of total primary in China, the primary supply of investment goods, is energy demand in 1995; this share is projected to comparable in abatement technology to competing decline to 64 percent by 2020. However, the results international equipment Further, it is assumed that imply a substantial shift in coal use from the con- technical progress is manifested as a reduction in aver- sumption of coal by small and medium scale users age inputs of materials, energy, labor, and capital per towards large users such as power plants and large unit of output for all new capital in the industrial sec- heating boilers. Final use of coal will decline from tor. 60 percent of total coal consumption in 1995 to only 40 percent in 2020. This shift has the potential to In the short-run, opportunities to change average bring large environmental benefits because it is much input-output coefficients for the existing capital stock easier to control and monitor emissions from large in response to domestic price changes (including pol- plants than from a myriad of small and medium scale lution charges) are limited. However, in a rapidly users. growing economy, the contribution of the current capital stock to filling future demands is quite small Taken together, the effects of changing con- after 2005. For total pollution loads, this is more im- sumption patterns and new more efficient tech- portant because average emission coefficients for new nologies, could easily reduce China's energy intensity capital are usually much lower than those for current to 62 percent of its initial level by 2020. Under sce- plant and equipment as a result of technical progress nario assumptions, the decline will be particularly and stricter environmental controls in the rest of the sharp in the first decade, reaching 80 percent of the world. 1995 level by 2005. In 1995 China had a energy consumption to GDP ratio of 1.8 kg of coal- Energy deserves special attention in any scenario equivalent per US dollar (similar to India). By 2020 about the environment. Demand for electricity will the ratio should improve to 1.1. Even at that level it certainly rise over the next 25 years. Total demand would be far above the current value for Japan (0.2) for primary energy in thermal power generation and or the US (0.4). heat production is assumed to reach the equivalent of 1,430 million tonnes of coal-equivalent (Mtce) by 2020, while primary electricity production (from hydro, nuclear, and other non-thermal power plants) CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 24 4/18/97 THE COSTS TOMORROw POLLUTION WITHOUT POLICY CHANGES: THE BUSINESS AS USUAL SCENARIO Inevitably, the assumptions underpinning the Business as Usual scenario do rough justice to the What is 'Business as Usual' ? complexities of technical change and environmental progress in different sectors. The most obvious con- The central idea of the Business as Usual sce- cerns are nario is that it allows for those improvements in envi- ronmental performance that accompany other changes No allowance is made for reductions in emission which are in the interest of individuals or enterprises.' coefficients for the pre-1995 capital stock. In the It assumes no significant change in environmental longer run this makes no difference, since such capi- policies or in the degree of regulatory pressure used tal represents a negligible proportion of the total to enforce those policies. However, the advent of capital stock by 2010. In the shorter term, it is not cleaner production techniques, the redesign of exist- clear whether the assumption of constant emission ing technologies to lower use of materials and energy, coefficients over- or understates total emissions be- the gradual shift towards higher value-added products cause improvements in environmental performance and activities, and other such changes all mean that must be set against a general tendency for emissions emission coefficients will decline as China grows to increase as plant and equipment gets older. even in the absence of any concerted effort to address environmental problems. Coal will be the energy base of China for sometime... FIGURE 3. 1 PRIMARY ENERGY DEMAND FIGURE 3. 2 FINAL ENERGY DEMAND Presumably, future technical advances will en- be regarded as providing a general indication of the sure that the average level of emissions from new trends in total emissions of different pollutants. capital investments made in 2010 that incorporate zero or low cost controls will be lower than that These considerations in mind, we can now ad- from new investments made now. Thus, the average dress two questions in the subsequent sections: emission coefficients for new capital should fall gradually over time. While this is correct, it will be * How will economic growth affect emissions? partially or wholly offset by the gradual decline in the emissions performance of the plant and equip- * How will emissions affect concentrations? ment installed in the earlier part of the post-1995 period. At worst the projections may slightly over- state the level of pollution loads in 2020. These and other uncertainties imply that the projections should CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 25 4/18/97 THE COSTS TOMORROW POLLUTION LOADS OF TOMORROw contributor to poor air quality in urban areas. The amount of smoke emitted by households grows un- Particulates. Total emissions of particulates der the Business as Usual scenano to an index of will increase by a little over 39 percent in the period 190 in 2020. Thus, the stabilization of total emis- to 2010, but will decline slowly thereafter. By 2020 sions of particulates will only occur at a level which total emission will be 35 percent higher than in would be associated with extremely poor air quality 1995. This outcome represents the sum of two very for most of the population of urban areas where coal different sets of forces. Better particulate controls is the primary fuels for household heating and for large sources-heavy industry and electricity and cooking. heat plants-will reduce tImissions as older equip- ment is replaced, so tha. neir share in total emis- sions falls from about 60 percent in 1995 to 52 per- FIGURE 3. 3 Pariculate emissions will risesfroI Tesi cent in 2020, mostly as a result of a fall of 6 percent in particulates emitted by large industrial plants. Emissions of Particulates However, total use of coal in the residential, com- illon ons mercial, and small industrial sector will increase. 600 New technology offers much smaller gains in these 5oo rota sectors-except to the extent that more coal washing, improved energy efficiency, and better boiler/stove designs lower average emissions per tonne of coal 300 smansoues burnt (Figure 3. 3). 200 Without changes in policies, there will be sub- 10.0 Power/heat plants stantial growth in particulates emitted from small 00 sources. Pollution discharged from low chimneys 1995 200D 2005 2010 2015 2020 scattered all over urban areas is the most important Even though industry become cleaner, growth will increase SO2 and NOx... FIGURE 3. 4 EMIssioNS OF SULFuR DioxiDE Figure 3. 5 Emissions of Nitrogen Oxide -------- - s 00 201 oIS SO2 and NOx. Total emissions of SO, will crease in demand for electricity outweighs the ini- increase by 150 percent up to 2020 under the sce- tial fall in average emissions of SO, per tonne of nano with the rate of growth gradually declining coal burnt in power and heat plants made possible after the first 10 years (Figure 3. 4). As for par- by improvements in the thermal efficiency of new ticulates, the growth in the use of coal by house- power plants and by the adoption of low cost con- holds and other small sources drives the initial trol measures. As a result, the power and heat growth in emissions. Later, the inexorable in- CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIITY: 26 4/18/97 THE CoSTS TOMORROW sector accounts for all of the growth in total dis- 6). Better technology and controls reduce the charges of SO, after 2005. amount of lead emitted by large production sources-non-ferrous smelters, iron and steel mills, Total, discharges of NOx increase rapidly power plants-presuming Chinese technologies throughout the period as a result of a very rapid embody international levels of abatement technol- growth in enissions from small sources which ogy. However, growth in levels of traffic and con- reach an index of 370 by 2020 (FIGURE 3. 5). sumption of leaded gasoline will more than offset Much of this growth is the result of the increase in this decline, so that total discharges of lead in 2020 consumption of petroleum products by motor vehi- will be about 35 percent higher than the level in cles-motorcycles, cars, trucks, and buses. Emis- 1995. Under the Business as Usual scenario the sions of NOx from the power and heat sector fol- average lead content of gasoline falls by one-half low the same pattern as emissions of sulfur dioxide over the penod, and this does not reflect recent from the sector but with a slightly higher overall policy announcement on lead phasing-out. Even growth rate. While it is assumed that low NOx so, lead emissions from small sources, which is burners are gradually incorporated in new boilers, almost entirely the consequence of the use of this can only partially offset the effects of rapid leaded gasoline, rise to an index of 410 in 2020. growth in electricity demand and production. This illustrates the very high rate of growth in the motor vehicle fleet and traffic volumes over the Lead. The overall trend in total emissions of penod. lead is the result of quite distinct factors affecting discharges from small and large sources (Figure 3. Lead emissions, increasingly from autos, are likely to rise.... FIGURE 3. 6 EMISSIONS OF LEAD FIGURE 3. 7 EMISSIONS OF VOCS 100 .0 "w. a o 2o10 2013 nO '0 20 0 2oso 2015 20o VOCs. Similar factors lie behind the rapid in- BOD, suspended solids and phosphorus. crease in total emissions of VOCs to an index of These water pollutants are taken together because 400 in 2020. There is no zero or low cost technol- they provide an indication of the trends in indus- ogy - apart from simple improvements in fuel trial and non-industrial discharges of water pollut- efficiency - which will substantially reduce VOC ants. No attempt has been made to estimate dis- enussions per tonne of petroleum products used by charges of phosphorus from agricultural run-off, so vehicles. Thus, any increase in the amount of that the discharges are almost entirely accounted motor fuels consumed translates directly into addi- for by sewage. On the other hand, about 35 per- tional discharges of VOCs (Figure 3. 7). cent of total BOD and about 60 percent of total suspended solids discharged in 1995 came from the industrial sector (Figure 3. 8). CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 27 4/18/97 THE CoSTS TOMORROW In certain regions of China emissions of ers are used for fish farming or industrial proc- phosphorus are an increasingly serious problem esses, excessive levels of BOD may impose heavy because of the eutrophication of lakes or rivers that costs on enterprises. Suspended solids increase are used for the abstraction of drinking water. water treatment costs and industrial discharges are Levels of BOD provide a general indicator of wa- often associated with phenols and other orgamc ter quality and are often correlated with levels of compounds or heavy metals whose presence may coliforms (i.e. microbiological indicators of water render water unfit for use both for drinking water quality), especially where untreated sewage is the supplies or irrigation. major source of discharges. Where lakes and riv- Water contamination is likely to worsen before it gets better... FIGURE 3. 8 EMISSIoNS OF BOD FIGURE 3. 9 EMIssIONS OF SUSPENDED SOLDS '00 As a baseline indicator of population growth until the end of the period. However, further pro- total emissions of phosphorus mcrease by 21 per- gress must depend upon the extent and nature of cent from 1995 to 2020. Total discharges of BOD sewage treatment. Of course, this will also involve rise slightly until 2005 after which cumulative im- the construction of sewer networks as well as sew- provements in the quality of industrial discharges age treatment plants, so that the costs involved may of wastewater and the slow spread of municipal be high. collection treatment outweigh the effects of popu- lation and industrial growth. However, the down- Other water pollutants. Lack of data pre- ward trend will eventually be overtaken by popula- cludes detailed consideration of other industrial tion growth as domestic sewage accounts for 85 water pollutants at this stage, though it may be percent of total BOD emissions in 2020. Emis- possible to include COD and some measure of sions of suspended solids fall quite sharply after toxics later in the study. Trends in emissions of 2005 as low cost measures to reduce water pollu- suspended solids, of which about 60 percent origi- tion from the industrial sector become more wide- nates from the industrial sector at the beginning of spread (Figure 3. 9). In this case, the share of the period, confirm the conclusion that better tech- domestic sewage in total discharges is still only 62 nologies and controls should produce substantial percent m 2020, so that measures to reduce indus- reductions in industrial emissions over the next 10- trial emissions will have much more impact on 20 years even under existing policies. Stricter total emissions of suspended solids than of BOD. policies will, therefore, accelerate the improvement without changing the main prognosis for the end of Thus, cleaner production technologies and the period. better controls on industrial discharges of water pollutants can ensure that the overall loads of BOD and suspended solids fall below their initial level CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 28 4/18/97 THE COSTS TOMORROW How WOULD EmISSIONS AFFECT CONCEN- and relocating industries into the suburbs, smaller TRATIONS? AND WOULD CHINA'S ENVI- cities lag significantly behind. At the same tnie, RONMENTAL STANDARD OF LIVING BE rural households and small enterprises increase ADEQUATE? coal use, switching from biofuels, etc. Air quality. A simple analysis has been car- To reflect these realities, differentiated trends ried out for largest cities (over one million) and in emissions from small sources were applied for other cities (below one million) in order to examine 30 largest cities with a total population of nearly 70 the impact of changes in emissions under the Busi- million, other cities with a total population of over ness as Usual scenario on air quality in urban ar- 230 million and rural areas (towns and villages). eas. Within this analysis, the pollution situation in In assessing the possible social costs implied by 11 major cities-Beijing, Chengdu, Chongqing, these trends, it is important to keep in mind that Guanghou, Harbin, Jinan, Shanghai, Shengyang, the 30 cities, defined as largest in this analysis, will Tianjin, Wuhan and Xian-was studied in a greater represent less than 10 percent of the total Chinese detail and used to derive an average pattern in population by the year 2020. contribution from different sources (i.e., power plants, large industry and small sources, including Based on these emission trends, trends in am- households). I In China today, the quantity of coal bient quality were estimated separately for 30 larg- burned by households and other small sources in est cities, including individual estimates for 11 urban areas with populations larger than 20,000 megacities, and other cities. people8 is the single most important determinant of air quality. to the extent that consumption of spe- Under the Business as Usual scenario, urban cific fuels remains the same, the fact that one city air quality will be improved in largest cities and get adopts a distinct heating system merely represents substantially worse in the majority of other cities. a change in the location of pollution but not a re- However, improvements in the largest cities will duction in its overall impact. If we hold constant not be sufficient to bring down the average level of the total use of coal by households the construction PM 10 concentrations to Chinese Class II (and even of distnct heating systems in Beijing or Jman Class III) standards. In largest cities, the level of means that less coal is burnt by households in these PM10 on average will be reduced from 211 ug/m3 two cities but more will be burnt in other urban in 1995 to 126 ug/m3 in 2020 (Figure 3. 11). areas. Air quality in Beijing and Jinan will be Only three cities-Guanghou, Shanghai and Wu- better, but air quality in other-perhaps smaller- han-will be likely in compliance with Class III cities will be worse. Reducing the total burden of standards (which is double that of WHO standard) damage caused by air pollution must involve a re- in 2020. In other cities, the level of PM IO in- duction in the total amount of coal burnt in such creases on average from 170 ug/m3 in 1995 to 270 sources. ug/m3 in 2010-2020. Overall, the implication is that tens of millions of people living in urban areas Historical patterns of growth in other coun- will be exposed to levels of PMIO in excess of 200 tries suggests that large efforts may be made to ug/m3. This is four times higher than current improve air quality in Beijing and some other very WHO target levels. All but a small fraction of large cities, while it deteriorates rapidly in many average levels of PM10 is accounted for by emis- other medium and large cities. The current evi- sions from small sources-households, services, dence from China confirms this pattern. While commerce, and small industrial activities. Thus, China's largest cities are adopting the accelerated focusing on reducing emissions from small sources programs of improving air quality, including con- is essential if the deteriorating trend in air quality is verting households to district heat or cleaner fuels to be reversed. CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVrrY: 29 4/18/97 THE CosTs TOMORROW FIGURE 3. 10 Worsening air quality in smaller cities... FIGURE 3. 11 Greater emissions will worsen air quality of Trends in TSP Emissions from Small Sources for Different Urban dangerous particulates... and Rural Areas Trends in Exposure PM1O 0202 FIGURE 3. 12 Households, small firms, and vehicles will FIGURE 3. 13 The prospects for reducing SO2 exposure are increasingly be sources of particulate emission... not much brighter..,.without new policies Contributions To Ambient levels oF PM10 Trends in exposure to SO2 Iwo In ff . 7 0200 15002MD002m 2000000202o 12020 21 20 w.20 ono w aM Total emissions of SO, grow much more rapidly Greater emissions from power plants in or near large under the Business as Usual scenario than do total cities or other urban areas do not translate into a emissions of PM 10 (150 percent increase compared large increase in ambient levels of SO2 in the cities to 40). One implication for the air quality analysis is affected due to tall stacks on power plants.9 On the that even in largest cities the ambient level of SO2 other hand, higher emissions of SO, from small will increase on average from 96 ug/m3 in 1995 to sources, largely as a result of the burning of large 140 ug/m3 by 2020. In other cities, the average quantities of medium or high sulfur coal by house- ambient level will increase more rapidly-from 66 holds and in small boilers, will result in high ambi- ug/m3 in 1995 to 135 ug/m3 by 2020. Compared to ent levels and exposure to SO, Chmnese standards, excess levels of PM 10 will re- main significantly greater for the majority of urban Regional and global pollution. The Business as areas. Between 1995 and 2020, it is emissions from Usual projections indicate that the total emissions of power plants that account for the major part of the sulfur dioxide will more than double, while total increase in SO2 pollution loads, while small sources emissions of NOx will increase 2.5 times. This im- dominate the increase in particulate emissions. plies a doubling of potential acid depositions by the CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVrfy: 30 4/18/9' THE CosTs ToMoRROw end of the penod. The impact of such depositions The health costs of exposure to paruculates (for on crops, forests and surface waters will depend urban residents only) nse from $21 billion or $88 upon the location of new power plants as well as on per resident exposed to air pollution in 1995 to near the capacity of the soil to buffer acid depositions (see $95 billion in 2020 or $190 per exposed resident in Figure 3. 14). 2020 under the Business as Usual scenario. It must be stressed that these numbers, as well as numbers in Using the RAINS-ASIA model, impacts due to Figure 3.13 below refer to the health cost of air sulfur emissions and deposition for 2020 was simu- pollution at the current levels of incomes for the lated. As the map shows, in more than 25 percent of country and cities examined. If one were to take the land area sulfur depositions are expected to ex- account of growth in average incomes from 1995 to ceed the carrying capacity of the ecosystems by at 2020, the costs for 2020 would be at about 4 times least 1,000 mg/m2-yr; about 5 percent of the land the figure given (over US$370 billion). have exceedences of 5,000 mg/m2-yr and above. Most of the sulfur exceedences are in the rich agri- Box 3.1 THE COSTs OF INACTION FOR CHNESE HEALTH cultural lands in southern parts of China. According to calculations in Chapter 2, in 1995 in urban areas alone, combustion enussions (predomnantly fine particulates) caused THE COSTS OF BUSINESS AS USUAL 106,000 cases of excess mortality that were equivalent to 1 4 million life-years lost; 1.2 million excess cases of chronic bronchins. 1.2 billion additional restncted activity days and nearly 4 billion additional Air pollution. Difficulties abound in attempting cases of respiratory symptoms The social costs that are unposed by to construct a full estumate of the costs of air pollu- excess morbidity of the urban population approach US$15 billion tion both today and in the future. There are rea- ("cost of illness" approach), and a conservative estimate of the mor- snabefunctions which can tality loss is US$6 billion (based on a "willigness-to-pay" to reduce sonably reliable dose-response fthe probability of premature death), adding up to US$21 billion, or 3 be used as the basis for estimating the economic percent of GDP costs associated with damage to human health asso- ciated with exposure to various pollutants. How- If assertive policies to tackle combustion emissions from van- ous sources and the current pattern of coal use are nor taken today, by ever, there are also more intangible benefits which the year 2020 cases of excess mortality will raise to over 600,000 that flow from a reduction in air pollution. Surveys con- will correspond to 9 mullion life-years lost; excess cases of chronic sistently reveal that people are willing to pay some bronchins will be nearly 5.5 million, additional "restricted activity days" for the exposed population will amount to over 5 billion and proportion of their income if this would ensure that excess cases of respiratory symptoms and chest discomfort will reach they can enjoy cleaner air and better visibility. 20 billion per annum. The health costs for the urban population, measured at current income levels, wil reach US$95 million, or when adjusted to an increase in income, will be over US$370 billion, The analysis here will focus exclusively on the reaching 13 percent of the GDP level impact of air pollution on human health. As will be seen, the costs of the Business as Usual scenario are Source Bank staff extremely high on this basis alone, so that it is hardly necessary to take account of amenity and eco- system benefits to justify action. The absolute value of the damages in any city and year depends upon the reference air quality standard used in the calculations, since it is the gap between that standard and current exposure that de- termines the cost. Here, a standard of 100 ug/m3 average over the year has been used for both PMIO and SO, as this seems to corresponds to the Chinese Class II standard and is near the upper bound of the target levels recommended by WHO. CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 31 4/18/97 THE COSTS ToMORRow FIGLRE 3. 14 RALN-ASLA SNWLATIO.N Sulfur deposition today... ICO --CCO L - -- CC 7- 2C C-i Sulfur depositions in 25 years.. r r -ICCO ----~~ - cC 72 73 5- i 5 12 15 1a 12 3 7 f is i- CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 32 4/18/97 THE CosTs TOMORROW FIGURE 3. 15 Health costs of failing to curb pollution are Without major policy changes, growth will not almost certain to rise... without new policies work to China's advantage in reducing pollution. Health costs of urban air pollution This scenario has been constructed around the assumption of growth in the context of existing policies. But policy in China is not static. The projections surface strategic questions for policy- makers: ,* Can China diminish its reliance on coal, im- prove its efficiency, or use it with cleaner technologies? This does not just mean a .....gradual shift in accordance with costs, prefer- 00 _ences for convenience, and changing patterns of fuel use. The effects of such a shift have already been taken into account. It will re- quire nothing less than a determined and sys- Another health cost of air pollution is lead. If tematic set of policies toward energy develop- infants and children are exposed to excessive levels ment and use. of lead, their neurological development is ham- pered with consequential loss of IQ, reduced earn- * Can industry be induced to make investments ings over their lifetimes, a variety of neuro- in pollution abatement? Creating incentives behavioral problems, as well as increased infant for non-governmental units to invest in pro- mortality. The rough costs of lead poisoning tecting the environment, whether indirectly by among children in China have been estimated at using fewer materials and energy or directly around $12 billion at present, rising to more than through end of pipe measures, will be a maior $100 billion in 2020 under the Business as Usual challenge for policy. scenario. * Can China develop environmentally friendly Acid Raid will also become costly. If current transport modes that reduce pollution and trends persist damages will occur to over 25 per- avoid repeating the mistakes of other East cent of the land, and cost losses to forests and Asian countries? A first priority is to reduce crops of US$60-80 billion, exposure of Chinese, particularly children, to lead originating from leaded gasoline. A long run priority is to implement comprehensive urban transportation planning that provides al- The implication of these projections is that traie opiaeatmbls rfi as China will probably not meet its five year objec- and smog. tives for air and water quality. Its objectives for 2010 might be obtained for certain water pollut- * Finally, can China develop water policies that ants, but are likely to involve steep increases be- protect precious supplies by inducing the fore declines revert pollution loads to today's lev- commercial sector and municipalities to invest els. The health consequences of shortfalls are im- portant While this scenario remains sensitive to assumptions about GDP growth, sectoral changes These issues are analyze in the following four and energy uses, it points to rather robust trends. chapters on energy, industry, transport and water. CHAPTER 3: POLLUTION, HEALTH AND PRODUCTIVITY: 33 4/18/97 THE CoSTS TOMORROW Endnotes 7 The sample included all cities with an estimated The main assumptions about economic growth are population of 3 million or more in 1995 taken from the Bank's macro general equilibrium model developed for the analysis of China's economy in the early This is not to suggest that burning coal in small part of the 21st century (see annex -) towns and villages has no effect, which is clearly incor- rect. The point is that the number of people affected by 2 Within the industrial sector the share of food, drink the smoke generated as a result of burning one tonne of and tobacco (currently 43 percent) will increase slightly with coal is likely to be significantly smaller in small towns and offsetting declines in textiles and chemicals, but none of villages than in medium or large urban areas. Of course, these shifts are major. the distinction is blurred where rural areas are very densely populated as around the periphery of Shanghai, in 3 Assumptions in the model about the fuel composition which case it may be appropriate to treat the whole region of new generating capacity have been based on the analysis as a single conurbation. prepared for the joint study of Issues and Options in Green- I house Gas Emissions Control. Indeed, the main effect on urban air quality is likely to be via an increase in the level of fine particulates as a 4 The level of energy pnces can play an important role result of the conversion of SO, into sulfates in the atmos- in determing both the rate and composition of growth in phere. However, this too is widely dispersed so that the energy use. In general, Chinese energy prices for industnal typical impact on a particular urban area will be small by users in some parts of the country were close to world mar- comparison with the impact of changes in direct emissions ket levels during the first half of the 1990s. Since there is of particulates from small sources. no direct limk between border prices and domestic wholesale prices, sharp movements in the exchange rate can lead to short term divergences until domestic prices adjust. Thus, in 1994 the wholesale prices of both coal and diesel oil in coastal cities such as Tianjin, Shanghai, and Guangzhou were below the equivalent import parity price at the current exchange rate after adjusting for calorific value. The high cost of transporting coal means that there are large differ- ences between border parity prices for coal in these coastal cities and those in more distant mland cities. Nonetheless, relative prices for steam coal in inland cities were often much lower than would be justified on a simple netback basis using a reasonable (or even high) cost of freight. 5 Demand for gasoline and motor diesel fuels is quite inelastic with respect to price in the short run - typically short run price elasticities fall in the range -0. 1 to -0.2 - but it is much more elastic in the longer run (8-10 years) - long run price elasticities range from -0.8 to -1.2. 6 To allow for the improvements in environmental per- formance emanating from new capital investment and the growth of total factor productivity, the Business as Usual scenario assumes that average emission coefficients for new investment fall because of new technology. Emissions from the post-1995 component of the capital stock in each sector correspond to those that are from modern technologies achievable via zero or low cost environmental improve- ments Typically, new machinery are 25 percent to 50 per- cent more efficient that the existing capital stock and they reflect the kind of emissions performance that was typical for new investments carried out in the rich industrial coun- tries in the early 1980s. CHAPTER 4: ENERGY: COPING WITH COAL 34 4/18/97 [ Energy: Coping with Coal No other major economy in the world is among the world's major economies (FIGURE 4. more reliant on coal than China. The cur- 1). rent annual consumption of over 1.3 bil- lion tons of coal is the main cause of China's air Coal is consumed in virtually all aspects of pollution and acid deposition. If the current trend China's economic life. Beside coal-fired power in energy consumption continues, much of the plants, about 410,000 industrial boilers, 180,000 incremental energy demand in China in the next furnaces and kilns burn coal. These three groups 25 years will be met by coal. Reducing emissions account for about 30, 30 and 20 percent of total from coal-burning is the key to resolving much of coal consumption in China, respectively. The China's air pollution problem. majority of China's urban households use coal stoves for cooking and/or space heating, often Mitigating the effect on the environment of with poor ventilation. Much of centralized heat- energy consumption involves three broad ap- ing is provided by small boilers located in resi- proaches: improving energy efficiency, diversify- dential or business districts. Most restaurants also ing energy supplies, and controlling emissions. use coal stoves. This pattern of coal consumption Pricing of energy plays a special role since it af- leads to pervasive air pollution, both indoors and fects intensity and source. out. ENERGY CONSUMPTION: FIGURE 4. 1 China's reliance on coal PATTERNS AND TRENDS Primary Commercial Energy Consumption Structure, 1995 Two distinctive trends in energy consump- tion have developed in the last 15 years: primary energy growth has been consistently lower than GDP growth by as much as a factor of two; and final energy growth has been increasingly shifting towards high-grade sources, such as electricity and gaseous fuels. Sustaining these trends over the next 25 years will be a major contribution to China's efforts in reducing energy-related pollut- me ant emissions. Even though China's GDP has risen four Source SSB, 1996 and EA, 1996 fold since 1980, China's primary commercial en- ergy demand only doubled, reaching 1,238 mil- The low quality of commercial coal compli- lion tons of coal equivalent (mtce), second in the cates environmental management. Most coal re- world behind the US.' In addition, rural house- serves in China are low-to-medium in sulfur with holds burn an equivalent of 250 mtce of biomass medium ash content. Due to the lack of incen- per year, including 173 mt of dry fuelwood and tives for producing and consuming screened 298 mt of dry crop stalks (SETC & CERS, 1996). and/or washed coal, most users in China consume raw coal directly. While about 20 percent of Coal's share in primary commercial energy mined coal is washed, most washed coal is used in consumption increased from 74 percent in 1980 to metallurgy. Less than 10 percent of Chinese 78 percent in 1995, a result of increased power- steam coal is washed, compared to about 45 per- plant coal demand and constrained domestic oil cent in the U.S. and more than 75 percent in supply. Such a high dependency on coal is unique Europe. The average ash content of commercial coal has hovered around 20 percent for decades.2 CHAPTER 4: ENERG Y: COPING WITH COAL 35 4/18/97 The high ash content contributes to the relatively 60 percent of total industrial final coal consumption low heating value of Chinese steam coal, rated at and are key industries for emissions reduction. less than 21 megajoules (MJ)/kg. The average sul- fur content of commercial coal is about 1.2 percent, Reducing household coal consumption re- although areas of southwest China consume coal mains a big task for urban air pollution control. with sulfur content as high as 4 percent. By com- The residential sector accounts for 15 percent of parison, internationally traded steam coal usually China's final commercial energy demand, but ac- has 25 percent more heating value per kilogram, counts for larger share of ambient air pollution. 25-50 percent less sulfur, and 50 percent less ash. Increasing gaseous fuel consumption in households has greatly improved indoor and ambient air quality High-grade energy sources that pollute less, of large urban centers. Still, as of 1995, about two- such as electricity and gaseous fuels, have been the thirds of urban households burned coal for cooking dynamic segment of final energy demand. Solids and/or space heating. Over 100 million rural (coal and coke) accounted for one third of the final households still rely on fuelwood or crop stalks for demand growth from 1990 to 1995, while they cooking and space heating, but increasingly use contributed two thirds from 1980 to 1989. The coal as incomes rise. Commerce, transportation, share of solids fell from 65 percent in 1980 to 60 and agriculture are minor contributors to coal- percent in 1995. related air pollution. Compared to OECD countries, the sectoral Reducing the impact of energy on the envi- pattern of China's energy demand is highly ronment requires improving energy efficiency, di- skewed, with a large industrial share and relatively versifying energy supplies, and controlling emis- small transport and commercial shares (FIGURE 4 2). SiOnS. Overtime, China's sectoral energy use pattern is expected to gradually approach those of the OECD IMPROVING EFFICIENCY countries. Energy intensity, measured by primary com- FIGURE 4. 2 Industry is the big energy user in China mercial energy consumption per unit of GDP, is Sectoral Energy Consumption, Selected Countries, 1992 used as a nominal indicator of the energy efficiency IWVr. of an economy. The energy intensity of the Chi- .0% nese economy totally declined by 50 percent since 0% CommcrcW 1980 (FIGURE 4 3). This meant annual reductions of 40. 4.5 percent Although the reduction of energy in- 30W. 205. tensity over time is not unusual for mature econo- ___. . *mies, the phenomenal reduction of China's energy a-nd...a. USA J*= intensity since 1980 is unprecedented for an indus- trializing economy, and has been a subject of sev- Agnicultural energy use is included in industry in the USA 3 Source: LBNL, 1996 eral studies. The industrial sector accounts for about two The principal cause for the decline in the en- thirds of China's final commercial energy demand. ergy intensity of China's economy has been effi- Boilers are the largest industrial energy user, fol- ciency gains in industry. Slow residential energy lowed by kilns and furnaces. Nonmetal minerals growth also contributed significantly. Structural processing (cement, bricks and tiles, etc.), metal factors are believed to have been the key force smelting and processing (steel, aluminum, and cop- behind the reduction of industrial energy intensity.5 per, etc.). and chemicals manufacturing (fertilizers, Structural changes-driven by a changing product ethylene, and soda ash, etc.) are the largest energy- mix-accounted for an estimated 70 percent share using industrial subsectors; they account for about of industrial energy intensity reduction in the past. Technical changes have been an important but less CHAPTER 4: ENERGY: COPING WITH COAL 36 4/1J8/97 influential factor on intensity reduction (World energy consumers. (Pricing is discussed Bank, 1994a). below.) FIGURE 4. 3 China has improved its energy efficiencY, * Energy conservation policies. China has but still has not achieved US levels successfully implemented nationwide energy Energy Intensity Trends, Selected Countries conservation programs since the early 1980s. * _ _ _ _ _ _Although these programs were largely tech- nology-driven, the programs played a key role in reducing industrial energy intensity during the 1980s (World Bank, 1993a). Despite the dramatic fall in energy intensity, China's economy is still among the most energy- intensive in the world. Acknowledging the pitfalls in cross-country GDP comparison, China's energy intensity in 1995 was about 4 times that of the . z z X z z r T - USA. China's economy has a much larger share of Note- China's GDP is in 1995 prices, all others are in 1990 industrial sector that still relies heavily on ineffi- prices. 1995 exchange rates are used. cient and small-scale production technologies. Sources SSB, 1996, LBNL, 1996; EIA, 1996; and IMF, 1996 China also lags behind the OECD countries in technical efficiency by a large margin, especially in Government policies have played a crucial energy-intensive industries and major energy- role in promoting structural and technical changes consuming equipment. Extrapolating from histori- in China, that have lowered industrial energy inten- cal trend, China's energy intensity will reach a level sity. Three types of policies have been particularly of 0.586 tce/$1OOOGDP by 2020, a three fold re- important: duction compared with 1995 level, but still about 40 percent higher than current US level. This may . .i be taken as an indication of the huge potential for * Economic reforms. Continuous economic rdcn hn' nryitniy reforms since the late 1970s have spurred in- vestment in more efficient production tech- China has large potential to achieve direct en- nologies and processes, expanded high-value ergy-savings through further structural shifts to- economic activities, and strengthened corn- ward high value-added and low energy-intensity petition. All this helped moved the economy products and through industrial moderization. towards higher energy efficiency. China's economic structure is likely to evolve to- ward a pattern similar to the US and Japan, with an increasing role for services (Table 4. 1). Services * Energy pricing policies. Anecdotal evidence consume far less energy per unit of output. In in- strongly suggests that rising prices for coal, dustry, further structural change will be away from oil, and electricity have improved resources high-energy intensive industries. use and spurred conservation efforts among CHAPTER 4: ENERGY: COPING WITH COAL 37 4/18/97 TABLE 4. 1 Energy-consuming industries dominate China 's economy Structure of GDP: China, the US, and Japan (percent) China (1995) USA (1993) Japan(1992) Total GDP 100 100 100 Agriculture 21 2 2 Industry 48 26 43 Services 31 72 55 Total Manufacturing Value Added 100* 100 100 Metals Smelting and Processing 142 4.1 60 Nonmetal Mineral Products 9 4 2.6 4.3 Chemical Materials and Products 9.8 9.0 10 0 Paper products 2.4 4.8 2.6 Energy-intensive Subtotal 35 8 20 5 22 9 The Rest of Manufacturing 64.2 79.5 77 1 * Based on statistics for enterprises with independent accounting status. Sources: SSB, 1996, The World Bank. 1995a; and UNIDO, 1995 Substantial energy-saving potential remains 30 percent of heating coal consumption. At a con- to be tapped in industry. Potential industrial struction speed of 1,456 million m2 per year sector energy savings identified in Table 4. 2 could (1995), current building stock in China will save 250 mt coal at 1995 energy consumption double in about 15 years. Improving the thermal levels, about 20 percent of current coal quality of buildings could save a great deal of coal consumption-and more over the next 25 years. and electricity for China in the long term with the If the 1986 energy-efficient building standards for added benefits of avoided emissions. heating zone residential buildings were implemented, new residential buildings with central heating could save over 30 percent of TABLE 4. 2 Adopting best practice technology could reduce energy consumption by 20 percent Major Energy-Savin, Opportunities in China Equipment or Share of Energy Average Efficiency High Efficiency in One-time Energy Production Consumption in China OECD Countries Savings at 1995 Level Processes of Energy Use Industrial Boil- - 30 percent of China's 65 percent > 80 percent - 70 Mt coal ers Coal Consumption Coal-fired - 30 percent of China's 414 gce/kWh <350 gce/kWh - 60 Mt coal Power Plants Coal Consumption Steel Making - 10 percent of China's - 40 GJ/ton-steel - 20 GJ/ton-steel - 60 Mt coal Total Energy Use Cement Kilns - 7 percent of China's 170 100 - 30 Mt coal Coal Consumption kgce/ton-clinker kgce/ton-clinker Fans and Pumps - 30 percent of China's 75 percent > 85 percent - 30 billion kWh Electricity Use or - 17 Mt coal Electric Motors - 40 percent of China's average efficiency, - 18 billion kWh Electricity Use mean size, 87 percent 92 percent or - 10 Mt coal Total Savings 1 _ 247 Mt coal Source Wang, et al, 1995. World Bank estimates. CHAPTER 4: ENERGY: COPING WITH COAL 38 4/18/97 DIVERSIFYING AWAY FROM COAL capita energy endowments far below the world average (Table 4. 3). While future exploration As China's economy races into the 21st cen- will certainly increase China's energy reserves, tury, the environmental consequences of a sim- especially natural gas. China may have very lim- ple expansion of the energy system based on ited scope to reduce its dependency on coal over coal are prompting a search for alternatives, the next 25 years by relying solely on indigenous But China is an energy scarce economy, with per energy resources. TABLE 4. 3 China has scarce energy resources to support its large population Proven Energy Reserves for Selected Countries, 1994 Raw Coal Crude Oil Natural Gas Hydropower Uranium Country 109 ton 109 ton 1012 m3 109 kWh/year 103 ton U China 114 5 3.3 1.7 1,923 -- USA 240.5 3.8 4.6 376 356.1 World Total 1,043 9 141 0 142 0 14,546 2,083.7 China per capita 95 ton 3 ton 1,416 m3 1,603 kWhlyr - US per capita 962 ton 15 ton 18,400 m3 1,504 kWh/yr - World per capita 209 ton 28 ton 28.400 m3 2.909 kWh/yr -- Sources LBNL. 1996, SETC & CERS, 1996 Since 1980, China has increased its reliance nium reserves, and the uncertain costs and safety on coal to fuel its rapid economic growth. A of nuclear waste disposal. China also needs to massive hydroelectric program has been sus- invest in the R&D of renewable energy sources, tamed, but even so hydro's overall contribution such as solar and wind, as well as sophisticated has fallen. Limited domestic oil resources have biomass technologies. been predonunantly used for transportation and the petrochemical industry, with oil-fired power International trade is another avenue of di- plants being converted to coal during the 1980s versification, especially in the short to medium and net oil exports ceasing in 1993. Natural gas term. China has become a net oil importer since has played an insignificant role in China's econ- 1993 because of rising domestic demand for oil omy, but new exploration may increase the con- products. Chinese experts estimate that China's tribution of gas. Nuclear and renewable energy crude oil production will reach its peak at 200 mt play a small role currently, but could grow sig- by the year 2020. But oil demand increased about nificantly in the future, depending on respective 4 percent per year from 1980 to 1995. If this investment and R&D policies, trend continues, total demand for oil would reach 415 mt by 2020, implying that China would need China's energy diversification strategy to import some 200 mt of oil.' This extrapolated should base on concerns for energy security and growth of oil demand has not factored in the po- the costs of alternative energy supplies. While tentially huge demand from automobiles, and has continued strong support for oil exploration and excluded the possibility of using oil as a fuel development is crucial for meeting future demand, source for base-load power plants, industrial boil- the eovernment intends to further develop its natu- ers, and space heating. ral gas program to increase supplies to cities. China has committed to developing its vast hydro China could use energy trade to the advan- resources. Such effort will in the long-term bene- tage of its economy and the environment. China fit the hydro-nch southwest provinces where large spent about $5 billion on about 35 mt of oil and amounts of high-sulfur coal are used now. Its am- gas imports in 1995 (SETC and CERS, 1996). bitious nuclear energy program must deal with Net imports of oil and gas were about 10 mt, difficulties of high capital costs, inadequate do- worth roughly $1.4 billion. The rapidly increas- mestic expertise, potential lack of indigenous ura- ing income and export revenue of China would CHAPTER 4: ENERGY: COPING iTTH COAL 39 4/18/97 enable it to import substantially more oil and gas.' Sulfur emissions are not controlled for in- Given the coastal region's relative wealth and its dustnal coal combustion, and would be expensive easy access to imports, using imported oil and gas if end-of-pipe measures are applied. Sulfur fixing to reduce end-use coal consumption is a realistic through briquetting or lime mjection during com- and cost-effective option for coastal cities. Estab- bustion are low-cost alternatives. In the long term, lishing a transparent pricing framework for crude FBC technology would become a cost-effective oil, oil products, and natural gas is the key to way to reduce SO, emissions. Because China's achieving effective and efficient management of industrial users normally consume raw coal with the domestic oil and gas market. It is also vital ash content of 25 percent or more, increasing the for attracting foreign investment in developing use of washed coal will bring substantial emis- domestic oil and gas resources as well as the in- sions reduction. frastructure for imports. If China's imports were to rise to 200 mt by 2020, the cost would be only $28 billion at today's prices, and this is a small Power. The power sector consumes nearly portion of its anticipated $700 billion in export one third of China' coal, and is a major contribu- earnings in that year. tor to acid rain. Many of the pre-1980 thermal plants are located close to cities and have rela- EmISSION CONTROLS: OPTIONS AND COSTS tively low stacks, and therefore are large con- tributors to local air pollution. As of 1991, elec- Besides improving efficiency and developing trostatic precipitators (ESPs) were installed on alternatives to coal, direct emissions control is only 38 percent of China's power-plant boiler also critical for a energy system dependant on capacity. The dust removal efficiency of Chinese coal. Abatement should focus on industry, power power plants ranges from below 80 percent to and residential sources. over 99 percent with an average of 93 percent, low by international standards. Industry. Industrial boilers and furnaces consume close to half of China's coal. They are Few coal-fired power plants in China have the largest contributor to urban air pollution. flue-gas desulfurization equipment. Faced with Low-efficiency cyclones, the typical emissions increasing S02 emissions and acid rain in some control equipment for Chinese industrial boilers, parts of the country, China has begun to imple- remove only 65 to 85 percent fly ash. Medium- ment various abatement measures in existing and to large-industrial furnaces often have dust cap- new coal-fired power plants. Compared with par- turing equipment, such as bag houses. But the ticulate control, options for reducing S02 emis- massive number of small furnaces and kilns, espe- sions are quite expensive (Table 4. 4). High effi- cially those operated by TVIEs, are generally ciency sulfur scrubbers can increase the initial cost without emissions control. of new power plants by 15 percent or more. Ex- periences in the US indicate that retrofitting old As the industrial sector gradually adopts plants for SO2 control is 20-50 percent more larger and higher-efficiency boilers, such as costly than applying similar measures to new spreader stokers, dust enussions could increase by plants, implying the benefits of installing sulfur a factor of three or more. Fluidized-bed- removal equipment at the beginning in areas with combustion (FBC) boilers require stringent dust serious sulfur problems. control. The government will have to require more stringent dust removal standards for boilers. CHAPTER 4: ENERGY: COPING WTrH COAL 40 4/18/97 TABLE 4. 4 CHINA: OPTIONS FOR AND COSTS OF SO, EmissioNS REDUCTION IN COAL-FIRED POWER PLANTS Options SO, Removal Investment Costs Costs of Removal Percentage US$/kW USS/ton-SO,-year (1990 prices) 1.5 percent S Coal 3 percent S Coal Coal washing * 30 20 640 320 Limestone injection 30-60 50 790-1590 395-795 Dry FGD 70-90 110 1160-1500 580-750 Wet FGD 90-99 120 1150-1270 575-635 Pressurized FBC 80-95 1200 -- -- Atmospheric FBC 70-95 1300 -- -- IGCC * 90-99.9 1500 -- -- * Also reduces particulate emissions. a Each option is evaluated as a stand alone measure. Assume that 1 kW capacity consumes about 3.5 ton coal per year (1kW*8760hr*0 8*500g-coal/kWh). Sources: Streets, 1996; Wang, 1996a. This suggests the most cost effective strategy Reducing indoor air pollution remains a ma- entails: jor challenge for China's rural households. The government's efficient stove program has been a * speeding the adoption of ESPs in coal-fired success both for reducing excess biomass con- power plants, especially on those which are sumption and for improving rural indoor air qual- located close to cities, ity (Smith, et al, 1993). Cost effective strategies for rural households include promoting efficient * focussing SO, emissions control on regions utilization of biomass as well as coal briquettes. suffering senous acid rain damages and al- Educating rural families about indoor air quality lowing power plant flexibility in choosing issues is important as well. The provision of low alternative abatement measures, or zero-emission alternatives, such as biogas, LPG, small hydro, solar and wind energy will be * cr.ating incentives for coal washing as a largely dependent on regional access to these en- low-cost measure for controlling both par- ergy sources. ticulates and sulfur. Tea boilers and large coal stoves used by Residential/commercial sectors. While coal cafeterias and restaurants are important contribu- is still the dommant commercial fuel for Chinese tors to ambient air pollution in Chinese cities. A households, the increasing use of LPG, natural 1994 survey in Beijing showed that tea boilers and gas, and coal gas in urban households has im- work-unit cafeteria stoves outnumber industrial proved air quality in large cities across China. boilers by a factor of over 2. The use of bri- Urban households using coal stoves have bene- quettes and eventually gaseous fuels are obvious fited from the government's consistent efforts in options for reducing emissions from such sources. promoting briquettes. But briquettes do not dras- tically reduce health risks compared to using raw THE SPECIAL ROLE OF ENERGY PRICES coal, so urban household fuel policy should shift to accelerating gasification programs. Prices affect energy intensity and the choice of fuels. Compared with the energy-rich USA, Much of the northern population still suffers China's energy prices are generally lower (Table from high exposures to particulate matter, CO and 4. 5). This situation may be justified by the rela- SO, durng winter months because space-heating tively low production costs in China. Energy is almost entirely dependent on coal whether it is pricing in China has moved from complete con- household stoves, small boilers, or district heat- trols over a decade ago to a mix of free market ing. Distnct heating facilities with stringent emis- and government intervention. The degree of gov- sions control are cost effective. ernment control varies, but is normally associated CHAPTER 4: ENERGY: COPING WITH COAL 41 4/18/97 with the relative scarcity of the specific energy the delivery price of coal, is high, compared with type. 30-50 percent in the US (Wang, 1996b). Current coal prices are probably close to the value of the The prices of coal are largely decided by the direct economic costs of bringing the coal to local market,8 and vary significantly depending on the markets. The heating value of the coal, thus the destination of coal.' The transportation cost of ask content, is factored into prices. coal in China, accounting for up to 70 percent of TABLE 4. 5 China Prices Energy More Like Resources Rich USA International Comparison of Energy Prices, 1995 China' USA Spot Market C Steam Coal (US$/GJ) 1.1 -2.0 ~ 1.5 - 1.5 Crude Oil (US$/ton) 103 126 118- 135 Gasoline (US$/ton) 322 - 356 382 158 Diesel (US$/ton) 273 - 290 348 148 Natural Gas (US$/GJ) 1.4-2.1 1.8-5.5 Electricity (US$/103 kWh) Industrial user 26-72 47 Residential user 26-60 84 a Prices include VAT taxes. 1995 average exchange rate: $100 = RMB 835 yuan Coal prices are for cities in non-mining areas, and the range roughly indicates difference in transport costs. Crude oil price is the weighted average of controlled prices and in-plan prices. Gasoline prices are #90 RON retail prices in different cities. Natural gas prices in Sichuan, ranging from $1.4/GJ for fertilizer plants to $2. 1/GJ for households. Electricity prices are for Jinan of Shandong (low) and Shenzhen of Guangdong (high) in 1994. b Coal prices are for exported coal and vary depending on quality. Gasoline price is the average retail prices of all grades. Natural gas prices range from the lowest of $1.8/GJ for power plants to the highest of $5.5/GJ for households. C Coal price is for Australian exports. Crude oil price is for OPEC crude. Gasoline and diesel prices are Rotterdam product prices. Sources- SETC and CERS, 1996; EIA, 1996. About 70 percent of domestic crude oil sup- while the lowest priced gas goes to the fertilizer ply is controlled. The average price is 13 to 24 industry which consume about one third of percent below international prices. On the other China's natural gas. Natural gas prices in Sichuan hand, domestic oil products are priced signifi- ranged (1995) from 470 yuan/1000 m3 for fertil- cantly higher than international spot market izer plants to 670 yuan/1000 m3 for the commer- prices, giving refineries an unfair profit advan- cial sector, and were lower in other regions tage. As a relatively scarce energy source, do- (Wang, 1996a). The willingness to pay for natu- mestic crude oil ought to be priced at least at in- ral gas in cities is probably significantly higher ternational levels. The separation of crude oil than prevailing prices. Only the deregulation of production and oil refining and the favorable the natural gas industry will speed up the devel- pricing policies for the refining sector has created opment of domestic natural gas. a special interest group within the oil industry that keeps refinery margins high and distribution mar- In most coastal provinces, where new power gins low. capacity has expanded the fastest, electricity prices have been raised for cost-recovery purposes Natural gas is fully controlled. The highest to levels approximating marginal costs. Average priced gas usually goes to the commercial sector, consumer prices of power in Zhejiang Province at CHAPTER 4: ENERGY: COPING WITH COAL 42 4/18/97 the end of 1994 were around 50 fen/kWh, com- nalities were considered. Using the methods of pared to the long-run marginal cost of about 45 Chapter 2, a range of price increase was calcu- fen/kWh (World Bank, 1995). A large proportion lated, reflecting the low and high assumptions of of electricity in inland provinces is still produced valuation. Overall, including the health damages by plants built before 1980 that effectively have from coal use in Beijing would increase the base no capital costs, since they were built with non- price of coal by an average of 78 percent, or 156 repayable central government funding; it has been yuan/ton on coal with a base price of 200 more difficult to raise power tariffs to marginal yuan/ton (Table 4. 6). In US dollars, the base cost levels in these areas. price of US$24 per ton would be US$43 if health costs were included. ENVIRONMENTAL EXTERNALITIES OF COAL IN BEIJING Because space-heating accounts for a dispro- portionately large share of ground-level air pollu- Because market based pricing of coal does tion in Beijing, particularly in winter, the envi- not include its health danger, coal is by far the ronmental cost of coal use by space heating boil- cheapest fuel to consumers at present. Because ers is 127 percent of base coal price. The dam- health damages society must pay are not included ages from the residential (cooking), industrial, and in the market price of goal, the relative price of power sectors are lower. coal would shift significantly if pollution exter- TABLE 4. 6 Externality Costs of Coal Use in Beijing (as a percent of current coal price) Sector Low Medium High Mean Power 32 85 103 73 Residential 24 63 77 55 Space Heating 56 146 179 127 Industry 41 108 131 93 Total 34 90 110 78 Low = includes mortality (human capital (HC) approach) plus acute morbidity costs. Medium = includes mortality (HC approach) plus acute and chronic morbidity costs. High = includes morbidity costs (acute and chronic) plus mortality (willingness-to-pay approach). Source: Annex - This calculation indicates that taxes could dustry away from densely populated areas, and help to internalize the health damages of air pollu- pollution control equipment. tion in Beijing. While a first best policy would be to tax emnssions associated with coal burning, this POLICIES FOR REDUCING ENVIRONMENTAL is not feasible for small users. The amount of an IMPACTS environmental tax need not be as high as the full externality costs because coal consumption falls as To achieve its emissions and energy objec- the price increases, reducing the health damage tives, policies must focus on creating strong in- costs, and because abatement costs (emissions centives for energy efficiency improvement, en- control, energy efficiency, fuel switching) are ergy diversification, and emissions abatement much lower than externality costs, so a less-than- through economic instruments as well as regula- full tax is sufficient to achieve abatement targets. tions. The key issues include: Other policies that reduce ambient concen- * Energy Efficiency Improvement: (1) Indus- trations of fine particulates from coal consumption trial modernization-cleaner and more effi- in urban areas would have high social rates of cient production technologies and proc- return, including district heating, residential gasi- esses, economies of scale, and enterprise fication, taller stacks, relocating power and in- management; (2) High-efficiency industrial equipment-boilers, electric motors, fans CHAPTER 4: ENERGY: COPING wITH COAL 43 4/18/97 and pumps; (3) Industrial energy conserva- it will lead to increased use and production of tion-plant or equipment renovation, energy better quality coal as well as demand for higher housekeeping and demand-side manage- efficiency equipment or alternative fuels. Such a ment; and (4) Energy efficient buildings- tax scheme is enforceable through local fuel com- lighting systems, space conditioning effi- pamues that distribute coal to small users at local ciency, and energy efficient building stan- markets. Eventually, the government should be- dards. gin to tax coal in a way that incorporates its enormous social costs. This study has shown that * Cleaner Coal and Energy Diversification: such a tax would increase the price of coal by (1) Coal washing-steam coal for industrial roughly 80 percent in the Beijing area. Such a tax, boilers and anthracite for residential and aiming at deterring socially inefficient coal con- commercial users; (2) Gaseous fuels for sumption, might be pre-announced and phased in residential and commercial use; and (3) over time--perhaps three-five years-so that pres- R&D in low or zero-emission energy ent investment decisions--m boilers, steam heat- sources or technologies. ing, etc.-can anticipate future prices and adjust technology accordingly. * Emissions Control: (1) High efficiency dust precipitators for industnal boilers and fur- China's "new plant, new price" policy has naces; (2) High efficiency ESPs for power helped to attract much needed capital for the plants and large point sources; (3) SO2 country's power development. The overall grid emissions control in areas burning high- price level increased at about 4.5 percent per year sulfur coal. in real terms from 1990 to 1994, with coastal provinces registering an even higher increment. 'o To realize these objectives in the least-cost Electricity pricing in China, while chaotic at pres- way, the government should develop market- ent, is nevertheless moving in the right direction. based policies to shift incentives, undertake insti- Increasing electricity prices for pollution control tutional reforms, and make regulatory changes. reasons has not been greeted with positive reac- tions from pricing authorities. Because of the Market-based instruments: energy pricing difficulties of getting approval for higher grid pur- and taxation. Arguably the most important policy chase price, Chongqing's Luohuang Power Plant to encourage efficient energy development is to often opted not to run its imported FGD facility. ensure that prices at least cover economic costs As the government moves to implement its acid and then begin to reflect environmental damages rain control program, power plants in the control through taxes. The government should quickly region will face similar problems. Expenses for remove all remaining price controls on coal, so environmental control have to be factored into that prices reflect the full market value of coal. It electricity pricing principles. is critically important for China to implement re- form of the coal distribution system, which dis- Gaseous fuel prices are generally too low. torts the market and obscure the pricing signal for Town gas is normally subsidized, and its prices coal quality. often do not cover production costs." The same situation applies to centralized heating. House- The case for levying a pollution tax on coal holds with access to gas and centralized heating is strong. About two thirds of China's coal are are usually the well-to-do ones that can afford the consumed in non-power sectors with many small full costs of these services. Price subsidies are not users. Enforcing emissions control among these only a drain to local government budgets but are users is an impossible task for regulatory agen- also a major barrier for expanding these urban cies. As an imtial approach, a tax based on the services through private investment. Subsidies for quality of coal (ash and sulfur content) should be gaseous fuel supply and centralized heating must introduced. Such a tax would not produce direct be removed to allow for full cost recovery of such and immediate emissions reduction, but over time, projects, essential for improving urban air quality. CHAPTER 4: ENERGY: COPING WITH COAL 44 4/18/97 Hydrocarbon prices also ought to be ad- sure that the economy meet its environmental justed. In spite of its limited resource base, China goals. China must tighten its air pollution control prices petroleum products more like the resource regulation and enforcement in order to improve rich United States than energy-scarse East Asia. urban air quality. A high priority for regulation is Low gasline prices, although they cover the costs to introduce standards for the control of fine par- of production and importation, create great mcen- ticulate emissions from space-heating, industrial tive to expand vehicle use (see Chapter 6). and power boilers. In order to promote cleaner and more efficient coal use, the existing levy for For large point sources, such as power sta- smoke dust emissions should be adjusted to reflect tions and large industrial boilers and furnaces, the cost of abatement necessary to meet emissions emissions can and should be taxed. The presence standards. of a tax on emissions will discourage investment in small scale power plants (below 100 MW in China should implement its plans for sulfur capacity) which have high emissions per unit of dioxide and acid control regions as proposed in electricity. Taxing emissions would ensure the the revised National Air Pollution Prevention and proper signals for future investment. Control Law 1995. The government should in- troduce market-based regulations to reduce SO, Institutional reform: making the right invest- emissions from coal-fired power plants and large ment decisions. One of the major pitfalls of industrial sources, especially in areas that cur- China's investment policy is that it inadvertently rently have high ambient concentrations and high encourages investments in small scale and often sulfur deposition. Regulation should allow the mefficient technologies. Such examples are viv- flexibility for emission sources to choose abate- idly displayed in energy-intensive industries, such ment measures that will minimize the cost. as cement, steel and chemical fertilizers, as well as in power generation. 12 This misguided in- The government needs to introduce and/or vestment orientation is as much a capital con- implement a series of standards to promote effi- straint problem as it is an institutional problem. cient energy use. China's Energy Conservation The provision that any projects larger than 30 Law, pending for approval, will be an impetus for million yuan have to be approved by the SPC not such efforts. Energy efficiency standards for only overburdens the central government but also heated residential buildings is key to curb long discourage investors to build larger scale plants term space heating coal demand and need to be because of the long approval process. Local or implemented without further delay. Introducing regional protectionism also work against the eco- energy performance standards for household ap- nomic efficiency of investment. Reforming the pliances is important for China's huge and grow- state lending institutions and the financial market ing electric appliances market. China has already and giving the local governments more autonomy had successful experiences in energy performance in making investment decisions will facilitate in- standards for industrial equipment and should vestment in modern technologies and improve- continue to strengthen such programs. ment of the economies of scale of new plants. China is at a critical point in environmental The government should strengthen its sup- and natural resource management. The perform- port to R&D for low or zero-emission energy al- ance of China's huge and growing energy system ternatives, so that China will be better positioned will have a tremendous effect on air quality. If it to deal with global climate issues. can harness the market, change institutions and regulate more effectively, China can ensure that Regulations and standards: overcoming mar- more efficient and environmentally friendly tech- ket failures. By itself market will not make envi- nologies are adopted. The effects on China's fu- ronmentally sound choices. Regulations and stan- ture quality of life will be dramatic. dards, whether they are market-based or com- mand-and-control types, must be enforced to en- CHAPTER 4: ENERGY: COPING WITH COAL 45 4/18/97 Endnotes ton/year, one-tenth that of the US average plant size Statistical Yearbook of China 1996 The conver- (Sinton, 1996). sion factors are: 1 ton coal equivalent = 29.310 GJ; 1 ton Chinese average raw coal = 20.934 GJ; I ton Chi- nese average crude oil = 41.868 GJ; 1000 m' Chinese average natural gas = 38.98 GJ; and I kWh = 3.6 GJ. 2 According to user survey, the ash content of steam coal is normally higher than 25 percent [NEPA, 1996]. See the World Bank, 1993a and 1994a; Lin, 1995; and Siton, 1996. 4 Structural changes are defined as shifts in final demand as well as intermediate demand for goods and services, such as changes of sectoral and sub-sectoral composition, product mix, and net imports. Technical changes are defined as shifts in technologies, processes, and management for producing goods and services. 5 Additional analysis of these structural factors, and their role in China, can be found in The World Bank, China: Energy Conservation Study. 6 The world oil trade (imports or exports) in 1995 was 1800 Mt. The US net imports were 390 Mt, and Japan's net imports were 280 Mt. [BP, 1996] 7 Importing 100 mt of crude oil would cost about $14 billion in 1995. The value of China's total imports in 1995 was $132 billion [SSB, 1996]. 8 Steam coal used by power plants is priced 20 yuan/ton lower than the usual market price because elec- tricity prices are kept relatively low by the government. [Wang, 1996a] 9 For example, in June 1994, the minemouth price of Datong mixed coal was 128 yuan/ton. The same coal would retail for 230 yuan/ton m Shanghai, 280 yuan/ton in Guangzhou, and 340 yuan/ton in Xiamen. [LBNL, 1996] 10 Assessed based on the national average of power company sales prices adjusted by implicit GDP deflator. " In 1995, the prices of town gas (from coal gasifica- tion) ranged from 0.3 to 0.7 yuan/m in 12 out of 15 Chinese cities, while the costs of gasification alone would be in the range of 0.6 to I yuan/m'. Only three cities charged over 1 yuan/m for town gas [Wang, 1996a]. " About 20 percent of newly installed thermal power capacity in China between 1991 and 1995 was 6-75 MW units (BERI, 1997). China's cement production in- creased 235 mt, over seventy percent of which came from plants with average capacity of less than 50,000 CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 46 4/18/97 W 5Industry: Incentives to Abate Industry is the engine of growth for the Chinese China's pollution control policies are formed on economy. It contributes 48 percent of China's the basis of three major principles and is adminis- GDP, and in the 1990s, output of China's 10 tered through eight regulatory programs.' The three million industrial enterprises increased by more than principles emphasize: 15 percent annually. * prevention first, then prevention with control But the engine of growth is a highly polluting * polluters pay one. NEPA estimates that pollutant discharges from * a strong regulatory framework industry-including power-account for over 70 per- cent of national emissions. Many polluting indus- Pollution prevention focuses on new pollution tries are located in densely populated metropolitan sources, which are regulated through implementation areas, exposing urban residents to serious health of environmental impact assessment (EL4) and the risks. Three Synchronizations programs. Pollution from existing sources are regulated through the pollution The prospect of rapid industrial development in levy, pollution discharge permits, and mandatory the future creates the opportunity that cleaner indus- pollution control programs. These five programs trial technologies will replace today's outdated, have played a major role in containing emissions of highly polluting ones. At an expected growth rate of the regulated industrial enterprises. near 7 percent over the next 25 years, 80 percent of China's industrial production capacity remains to be Both prevention and control efforts have tar- built. To realize that potential, China has to revamp geted state-owned enterprises. However, the rap- its regulatory system to harness market forces and idly growing township and village industrial enter- new investment to the cause of the environment. prises (TVIEs) emerged as an increasingly important pollution source (Table 5. 1). Their pollution is in POLLUTION CONTROL POLICIES general left unregulated. Over the past decade, the Chinese government Prevention has enacted more than 13 separate laws affecting the environment, and these now provide a comprehen- The Environmental Impact Assessments and sive legal framework for China's environmental Three Synchronizations have been the main mecha- management. The pollution control system now en- nisms to ensure investment in pollution control compasses a nation-wide enforcement network of equipment at new industrial facilities. local environmental protection bureaus (EPBs) and a wide range of environmental laws and standards (see Annex 5.1). TABLE 5. 1 TVIESARE BECOMING A MAJOR SOURCE OF INDUSTRIAL POLLUTION COD (10 ton) Smoke dust (mt) Fugitive dust (mt) SO2 (mt) 1989 1994 1989 1994 1989 1994 1989 1994 Regulated Enterprises 6,779 6,811 8.5 8.1 7.6 5.8 10.5 13.4 TVIEs 1,769 5,300 5.4 8.0 4.7 5.8 3.6 5.5 Sources NEPA, 1995, 1996 and 1997. CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 47 4/18/97 The weakness of these programs is that they amount, rather than on all the pollutants that rely on standards based on pollutant concentrations. exceed the standards. As a result, even if all new projects in a region met standards, ambient quality could deteriorate because , Levies are assess only on emissions above- no limit is placed on the total quantity of pollutant standards, so it provides no incentives for firms discharges. These instruments strongly favor man- to abate emission below standard. datory end-of-pipe treatment. Both the ElA and Three Synchronizations programs focus on making * Pollution levies are based on the concentrations individual projects meet emission standards through of pollutants in waste streams rather than on the on-site hardware installation without allowing for total mass of pollutants discharged to the envi- minimizing abatement costs in the context of regional ronment. pollution control requirements, creating a bias against flexible and broad policy approaches, such as resource * TVIEs, as with other measures, have generally pricing and incentive-based control. been left out of regulation. Control: Making Polluters Pay For all these failings, the pollution levy in combination with subsidized loans from the levy fund The pollution levy system was introduced with and other subsidy programs has provided some two main objectives: to provide an economic incen- incentive for industrial enterprises to control pollution, tive for industrial enterprises to comply with emission a point discussed further below. and effluent standards, and to raise revenues for investment in industrial pollution control as well as The discharge permit system was introduced in for financial support of regulatory activities. 1987 to compensate for the lack of mechanisms to control total pollution loads in the existing regula- The levy system is a combination of non- tions. Two basic schemes have emerged from the trial compliance fees assessed on pollutant discharges that implementation: capacity-based permits allocate exceed the emission and effluent standards, and fines pollution loads to industrial enterpnses based on the and other charges, assessed on violations of the levy assimilative capacities of the atmosphere and water regulation. Eighty percent of the fees collected are bodies; and the oal-based permits allocate pollution used to subsidize pollution control projects in the form loads to industnal enterprises on the basis of envi- of grants and low-interest loans, and 20 percent are ronmental goals not related to assimilative capacities. retained by local EPBs to support administrative and monitoring activities. The government has experimented widely with the permit system in the control of water pollution, but Deficiencies in the design of the pollution levy very little in air pollution control. The main problems system include: with water pollution discharge permits are: * Pollution fees, established at the national level, . The conflicts between fixed quantity (mass- are too low to provide an incentive to industrial based) discharge permits and concentration- enterprises to reduce emissions and effluents so standard based programs, such as EIA, Three as to meet standards. Also, inflation since early Synchronizations, and pollution levy. 1990s has lowered the real value of the levies further because they are not indexed. Local . The inadequacy of monitoring and administra- governments are not authorized to adjust tive capacity for implementing the discharge pollution levies. permit system. . Pollution levies are based on only one pollutant The discharge permit system as it is configured has that exceeds the standard by the greatest not realized its potential in controlling total pollution loads and economizing abatement activities. CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 48 4/18/97 FIGURE 5. 1 All provinces have improved.. but some are Mandatory pollution control under threat of lower than others closure has been used as a last resort to force highly COD Intensities, Chinese Provinces pollution enterprises to adopt control measures. The consequences of not meeting the requirements could 700 be plant closure. Since many of the heavily polluting 60 0 enterprises are often old plants using obsolete Soo technologies, local cases have shown that additional 400 01980 investment for end-of-pipe control are usually not 300 0l993 cost-effective and waste scarce capital. DETERMINANTS OF INDUSTRIAL POLLUTION 00 Sichuan Guangdong Liaoning Beijing Shanghai This section explores the determinants of pollu- tion intensity-pollution per unit of output on the basis of data from the regulated firms. A following section traces the effects of reforms and structural change since 1987, particularly trade reform. S02 Intensities, Chinese Provinces Aside from the obvious effect of variation in 300O types of industries, provinces have different levels of 2500 pollution because the pollution intensity of plants in 2000 the same industry varies considerably. Our analysis 1500 of variation in five provinces as a case study provided 1500 993 some good news: Pollution intensity has fallen since 1000 1988 in all provinces and by very substantial 500 amounts (Figure 5. 1). 00 R Holding the sectoral share of industry constant, a factories are 'dirtiest' in Sichuan, 'cleanest' in U Shanghai. Particularly sharp reductions occurred in Guangdong and Sichuan. Three basic reasons explain this variation in the pollution intensities of Chinese TSP Intensities, Chinese Provinces factories-regulation, the pressure applied by owo neighboring communities, and industrial characteris- tics. 020 015 .1988 .1993 010 0 05 000 CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 49 4/18/97 Regulation FIGURE 5.2 Effective levies are widely different... and have actually fallen for air pollution Enforcement of pollution standards has varied Effective COD Levies greatly across China's provinces. For example, actual collections of pollution levy assessments (or effective 025 levies) per unit of waste water discharge above the 020 legal standard vary greatly, though they should be the same if enforcement were consistent. Similarly, *1993 levies per unit of discharge for air pollutants vary 010 greatly. As might be expected. provinces with higher 005 effective levies have lower pollution intensities. O00 Beijing, for example, has the highest effective levies M' and is among the lowest in pollution intensity; the converse is true for Sichuan. Notably, however, Shanghai does not conform to the general pattern: Its effective air pollution levy seems entirely out of line, both with its effective water pollution levy and its Effective Air Pollution Levies status as the area with lowest pollution intensity. 300 250D Using "effective levy" as a proxy for all regu- 200 lations applied to industrial enterprises, we studied the 150 W relationship between pollution intensity and regulatory 100 strength. Effective levies, controlling for other so factors, have had significant effects on the pollution 00 intensity of production across China's provinces. 2 2 Each 1 percent increase in the effective water 0- pollution levy leads to an approximately .8 percent 0 decrease in COD pollution intensity (COD per unit of output)* It does not matter whether the increase Community Influence originates from increased levels of legally-defined penalties or tightened enforcement. Each 1 percent Enforcement of charges or fines for polluting is increase in the effective air discharge levy leads to a related to the extent of damage and the community's decrease of approximately .3 percent in SO2 capacity to influence the authorities. As local pollu- intensity. For the two components of suspended tion loads increase and the size of the exposed popu- particulates, those from coal burning and production lation rises, the damage to human health increases. processes, reductions in emissions intensity are .8 These factors, especially in wealthier provinces, trig- percent and .4 percent, respectively, when the effec- ger greater enforcement. Educated citizens are also tive air levy is raised by 1 percent. Pollution inten- more likely to complain about pollution. It is no acci- sity is significantly lower in provinces with higher dent that Shanghai has the greatest number of com- effective levies, and it has fallen after 1987 in prov- plaints (Figure 5. 3). Areas with high illiteracy are inces where the levies are rising. It is clear that notably 'silent'; uneducated citizens are less likely to regulation makes a significant difference, and that be aware of environmental problems and less willing China's provincial regulators have pursued quite to confront the authorities. As complaints rise, so do different regulatory policies. effective levies for both air and water. As in other countries, citizen feedback is a powerful independent force for environmental improvement. CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 50 4/18/97 FIGURE 5. 3 The share of production in state-owned plants also Citizen Environmental Complaints has large weight as a contributor to pollution intensity. per 100,000 Inhabitants Among industries, the major contributors to higher intensity vary by pollutant (Figure 5.4).4 45 40 FIGURE 5. 4 COD INTENSITY FACTORS 30 M COD Intensity Factors. 20 I Effect and Significance _______ 080. 5 0400 10 o o ECOR M8 C.02 00 Plant and Industry Characteristics ..00 U 0 80 Three other factors join regulation and commu- -______________________ nity voice as important determinants of pollution intensity in a province. Some industrial processes generate large volumes of harmful pollutants, so the FGRS O NEsn ATR composition of industries affects pollution. Some sO2 Intensity Factors: sectors also face substantially higher abatement costs, Effect and Significance increasing the resistance to pollution control in cost- ooSETR sensitive enterprises. Also, because end-of-pipe 020 pollution abatement has very significant scale 010e economies, large plants have lower unit costs of a abatement, and respond more readily to regulatory .00e incentives. They also tend to be more technically 40.20 costs for skilled personnel across many units of pro- lu t duction. Finally, ownership makes a difference. F State-ow ned enterprises (SOEs) are substantially more pollution-mtensive than other plants in China. One cause is apparently lower operating efficiency than GROWTH AND ENVIRONMETr: REFORMS AND their nonstate counterparts; this affects both abatement STRUCTURAL CHANGE SINCE 1987 costs and the generation of waste residuals in production.2 Second. SoE equipment and tech- China's economic reforms during the past dec- nologies are generally older, and this probably plays a ade have increased the role of price signals in the role. Third, SOEs are less sensitive to price signals, economy, reduced constraints on enterprise growth, including pollution charges or fines, because they and reduced barriers to competition from new domes- often have to operate at the pleasure of their tic, often nonstate firms and foreign trade. This has government authorities and have privileged access to produced three positive effects for the environment. finance. Average plant scales in China have increased; the share of large plants in industrial production grew When the effects of all these factors on pollution from 30 percent in 1988 to 37 percent in 1994, with a intensi e(COD) particularly rapid increase in Shanghai (from 41 per- antnsare anae of produ th wate s cent to 58 percent). Since larger plants pollute less anarS2 theshareofproduction inu l a per ut of output, increasing scale has brought envi- is the most significant factor in reducing itensity.3 CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 51 4/18/97 less per unit of output, increasing scale has brought perienced rapid growth during the past ten years, environmental benefits. Second, the role of SOEs including pollution-intensive ones. But their cleaner has dimimshed, again with a particularly rapid counterparts have simply grown faster, both in do- change in Shanghai (from an SOE share of 70 per- mestic production and in China's international trade. cent in 1988 to 54 percent in 1994). Since nonstate firms tend to pollute less per unit of output, the de- Unfortunately, market-based regulation during cline in SOE share has been accompanied by a sig- this period did -ot reinforce the positive effects of nificant decline in pollution intensity. Third, rapid economic refornS. Despite damaging levels of air growth has brought with it a structural change in pollution, real effective air pollution levies have ac- industry. For China as a whole, the share of TSP- tually fallen since 1987 in all five of the focal prov- intensive industry has declined significantly while the inces. The decline is particularly striking in Beijing shares of COD- and SO,-intensive industry have and Shanghai. Real effective water pollution levies remained approximately constant. In our five have also fallen in these provinces, while they have provinces, the reforms have also had a significantly risen sharply in Liaoning and Guangdong (and more 'clean' effect. The share of pollution-intensive sec- modestly in Sichuan). In any case, differential lev- tors has dropped in all cases for water pollution and ies are not significant as location factors, so there in all but one case (SO2 in Liaoning) for air pollu- has apparently been no regulation-induced migration tion. The largest changes have occurred in Beijing of dirty sectors within China.8 for COD-intensive sectors, and in Guangdong and Shanghai for both SO,- and TSP-intensive sectors. Since 1987, for both air and water pollution, declining real levies in Beijing and Shanghai have Trade reform also has had a positive effect on produced incentives for increased pollution intensity. the environment in China. The potentially positive The observed declines in intensity are therefore at- effects on production efficiency in export-oriented tributable to countervailing shifts in scale, ownership enterprises and more rapid absorption of newer, and sectoral composition induced by the economic cleaner technologies from OECD sources' have reforms as well as the effect of other regulatory in- dominated any tendency for China to specialize in struments. For air pollution intensity, the same con- pollution-intensive industries because it has weaker clusion follows for Liaoning, Guangdong and Si- environmental regulation and lower-cost heavy raw chuan, because the air pollution levy has actually materials than many of its trading partners. fallen in real terms. In the case of water pollution, on the other hand, there has been a sharp drop in Moreover, there is no evidence of any long-run intensity in these three provinces because the two shift toward a pollution-intensive industry structure. factors have reinforced one another: Effective water The shares of five heavily-polluting industries"- pollution levies have risen substantially, and the chemicals, pulp and paper, non-ferrous metals, fer- structural impact of reforms has been strongly pollu- rous metals, and non-metallic minerals (principally tion-reducing. cement)-has declined (Figure 5. 6). Another indi- cator is the trend in net imports (imports minus ex- ports) of products from the five heavily-polluting sectors. Trade liberalization would accompany a shift toward net exports of these products if any spe- cialization in pollution intensive industries were emerging. In fact, real net imports of these products have trended strongly upward since 1987 (Figure 5. 6). Overall, trade liberalization has been accompa- nied by expanded output of goods that are less pol- lution-intensive. Of course, all industries have ex- CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 52 4/18/97 FIGURE 5. 6 China's provinces since 1987. If regulation were not TRED IN THE OUTPUT SHAR tightened, growth and economic reform would still drive changes in sectoral composition. scale. and Share of Polluting Sectors: Chinese Industry, 19771992 ownership. But will reform by itself be enough to 08 achieve China's objectives of holding industrial pol- lution to 1995 levels? 0 75 07 Tighter Regulation: "Polluters Pay Some". 065 -Tightening regulation will provide explicit incentives to reduce pollution intensity, and will complement the 06 effects of economic reform. In this scenario, air and water pollution levies are both increased by 5 percent annually. This is equivalent to the increase in Sichuan's effective water pollution levy during the past five years, and less than the increases in Guang- TRENI) IN NET IMPORTS OF PRODUCTS FROM POLLUTION- dong and Liaoning. It leads to a fourfold increase in INTENSIVE INDUSTRIES the real levy by 2020. Net Imports of Polluting Products 25 Strict Regulation: "Polluters Pay More. " A third scenario increases levies by 10 percent annually. 2D This leads to a thirteenfold increase, with the lowest air pollution charge in 2020 (about $12/ton) in Chongqing and the highest ($28/ton) in Guangzhou. 10 These charges would still be modest when compared with recently-reported S02 charges for other industrial s countries ($70/ton in Poland (1993), $60/ton in the US (1996) and $29/ton in France (1992). 1987 1988 1989 1990 1991 1992 1993 1994 Results THE FUTURE: POLLUTION SCENARIOS Economic reform and regulatory status quo would probably hold the total COD load in China's Policy Choices and Environmental Conse- waterways to a modest increase (Figure 5.7). This is quences: Three Scenarios for Five Cities remarkable because the industrial base will have grown nearly fivefold by 2020. For China as a whole, Assuming that the economic reforms will con- total COD emissions from industry are projected to tinue, recent trends in regulatory and industrial vari- rise only modestly. For TSP and SO2,9, in the reform ables can be used to project their future paths (see only scenario, continued decline in the air pollution Annex -). While several policies can increase pol- intensity of industrial production is not enough to lution abatement, we have used the effective pollution offset industrial growth. levy to illustrate the potential impact of policy reform in three scenarios for the years 1997-2020 for five Increasing the pollution levy by 5 percent-that important cities-Beijing, Shanghai, Shenyang, is, merely continuing recent trends in water pollution Guangzhou, and Chongqing. The Three scenarios regulation-would have a strong impact on COD dis- are: charges. It would produce a projected reduction from 8.3 million tons in 1995 to 3.3 million tons in 2020. Regulatory Status Quo and Economic Reform. This amounts to over 120,000 tons annually in Economic reforms have accounted for much of the Shanghai alone. A 5 percent annual increase in the decline in air and water pollution intensity across levy induces reductions of SO2 and TSP emissions to CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 53 4/18/97 10.3 and 7.5 million tons. respectively. When the FIGURE 5. 7 increase is 10 percent annually, emissions fall to 6.9 AIR POLLuTANT EM%issioNs AND CONCENTRATIONS and 3.6 million tons, respectively. u% THREE SCENARIOS Industrial COD Loads in China The imposition of a 10 percent annual increase Milion Tons in the levy leads to a fall in emissions from 8.3 million 100 tons to 1.1 million tons nationally and 88 percent 80 70 reductions for the five cities. When the increase is 10 60o Reform percent annually, emissions fall to 6.9 and 3.6 million 50 -SLevy 5% 40 ---Levy 10% tons, respectively. Thus, the 10 percent annual levey 30 20 increase is sufficient to eliminate half of SO2 10 emissions and three-fourths of TSP emissions from 00 regulated industries by 2020. 1988 1994 2000 2010 2020 All three scenarios lead us to a sanguine view of Industrial S02 Loads In China the potential for solving China's industrial water pollution problems. If COD standards are tightened substantially, organic water pollution should fall 170 sharply in regulated industries. Increased regulation, 150 also lowers emissions of SO2, significantly improves 130 Reform air quality in all five cities. A 10 percent increase is 110 ..LeW 5% sufficient to prevent further deterioration from the o L 10% 1993 status quo in Shenyang and Beijing, while 70 Shanghai, Guangzhou and Chongqing experience 50 2 1988 194 20 00 2020 strong improvements in air quality. TSP loads behave similarly. For the 5 percent and 10 percent levy scenarios, the projected trends generally replicate the sharp drop in TSP loads which is projected at the industrial TSP Loads in China national level. The exception is Shenyang, which 250 experiences only a modest decline. 20 0 IS STRICTER REGULATION WORTHWHILE? .s o Reform too Levy 5o% lo00o . ..,,.LeW 10% Reducing pollution loads in China, as shown in so Chapter 2, will save lives, improve the health of China's people, and improve the productivity of 0 1988 19 2000 2010 2020 workers. Improvements will also have positive ef- fects in the five cities studied here. In these five cities alone, increasing the levy 10 percent annually, rather Lifesaving through air pollution reduction is a than relying just on the economic reforms, will save laudable objective, but expenditures on pollution the hves of over 4,000 people each year. When abatement have to be judged against other expendi- results of the 10 percent annual levy increase are tures that might also improve the quality of life of compared with the pure reform scenario, proi'ected Chinese. China remains a poor country with many deaths in 2020 fall by 67 percent in Guangzhou. 50 basic needs unmet for hundreds of millions of citi- percent in Shenyang. 47 percent in beijing, 36 percent zens. Public investment in health facilities and edu- in Shanghai and 31 percent in Chongqing (Table 5.2). cation can also yield major health benefits, and direct investment in productive capital can improve health by increasing incomes. An appropriate analysis of air pollution abatement must therefore consider its costs, as well as its benefits. CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 54 4/18/97 TABLE 5. 2 PROJECTED ANNUAL DEATHS FRON INDUSTRIAL SO2 POLLUTION % Decrease Reform Levy 5 % Levy 10% for Levy 10% Beijing 4500 3200 2400 47 Chongqing 3200 2600 2200 31 Shenyang 1200 900 600 50 Shanghai 1100 700 700 36 Guangzhou 300 200 100 67 The analysis has to be undertaken at the margin. at 85 percent." Taking health and economic impacts The cost of abating China's industrial pollution rises into account, we use $16,000 as the measure of in- steadily at the margin with degree of abatement. At cremental benefit for abating 100 tons of SO2 POlIU- some level of abatement, further pollution reduction tion. In Figure 5.8, the marginal abatement cost may no longer be warranted because the same (MAC) curve for large plants crosses the $16,000 resources could be used for other investments with incremental benefit line at around 75 percent abate- greater lifesaving potential. Using the case of Beijing ment. The MAC schedule for small facilities crosses to illustrate our approach, we address this issue with a the incremental benefit line at around 45 percent systematic assessment of abatement benefits and abatement. costs. For particulates, the numbers are even more at- Which facilities should be regulated, and how tractive: MAC scarcely rises above $500 for 100 tons much abatement is socially desirable? Since marginal abated, even at 85 percent abatement for small plants. abatement cost (MAC) vary by pollutant, sector, size Costs are substantially less for large facilities. MAC class, ownership and degree of abatement, it makes estimates for the other four cities differ somewhat, but little sense to talk about abatement costs in a general have the same order of magnitude. A useful contrast way. To reflect the overlap between TSP and SO2 as is provided by NEPA's current estimates of actual sources of fine particulates, abatement cost evidence abatement in the five cities, displayed in Table5.3. for both pollutants is shown in Figure 5. 8.1o Large According to NEPA, Beijing's current abate- plants are the source of most of the air pollution in accoringut NEA in cent abate- Beijing, so the MAC numbers for large facilities are ment rate for industrial SO2 is 2.5 percent. For a con- particularly interesting. Consider the more expensive servative benefit-cost assessment, consider the lowest option, SO2 abatement. The MAC curve for 100 tons rate of abatement-i5 percent- that has been in- of SO2 abatement by large plants in Beijing varies cluded in Figure 5. 8. For Beijing, the data indicate from about $2,900 at 15 percent abatement to $27,000 that the incremental cost of reducing 100 tons of TABLE 5.3 INDUSTRIAL SO2 ABATEMENT IN FIVE CITES SO2 SO, Abatement Produced Emitted % Shenvang 196,100 144,700 26.2 Shanghai 393,700 356,700 9.4 Chongqing 544,800 494,800 9.2 Guangzhou 165,100 151,500 8.2 Beijing 208,900 203,700 2.5 CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 55 4/18/97 SO2 is $2,860. Spending $2,860 to save life and FIGURE 5. 8 INCREMENTAL BENEFITS AND COSTS OF AIR POLLLUTION health valued conservatively at $16,000 produces an ABATEMENT enormously high implicit social rate of return to abate- ment- approximately 460 percent. d d AterrEt (110D Tar. of SC2) vs Presert Ciscote Benefit It should be stressed that this estimate is ex- 70 tremely conservative as a guide to the lifesaving value 6= of air pollution abatement in Beijing. For a large, 50000 non-SOE plant, our econometric results imply a MAC 4 -0-s7idMd of $332 for 100 tons of SO2 abated when the 3 abatement rate is 10 percent. The equivalent figure 10 - for 100 tons of particulates abated is around $120. If 0* u2 to Ln uL n LM n Ln LO (as seems likely, given the overall abatement rate of C! V LO 0 r- 2.5 percent) there are large non-SOE plants in Beijing which are abating at less than 10 percent, then failure to enforce greater abatement is equivalent to valuing arginal Cost of Abatement (1100 Tons of a worker's life at less than $500. Said differently, Particulates) vs. Annual Wage continued inaction means ignoring a public 800 700 investment with a social rate of return likely to be in 60 excess of 3,000 percent. There are few comparable o a0 D social rates of return to public investment. 0 Iwage TOWARDS EFFECTIVE AND EFFIciENT IN- N M V 0 0 P` 0D DUSTRIAL POLLUTION CONTROL 0 o a o a 0 o China has made considerable efforts to solve its has set ambitious targets and goals for China's indus- industrial pollution problems. These efforts were re- trial pollution control. 12 The realization of those tar- warded with slower growth of major pollutants. gets and goals will depend on how successful China While increasing in comprehensiveness, the existing can be in harnessing the market, reforming institutions regulatory framework still lacks enforcement capacity and strengthen regulations, so that new investment and design coherence. The transitional state of the will be channeled to cleaner production technologies economy forces China's environmental management and better pollution control. agencies to deal with the lingering problems of the centrally-planned system as well as the new chal- lenges of the emerging market regime. NEPA CHAPTER5: INDUSTRY: INCENTIVES TO ABATE 56 4/18/97 Box 5.1 T HE OPTIMAL AIR POLLUTIO\ LEVY IN ZHENGZHOU AND IMPLICATION FOR CHINA Zhengzhou, the capital of Henan Province, is representative for China's large cities in terms of populatior, income and air pollution level, and is used to develop an estimate of the optimum air pollution levy for urba China. Zhengzhou's industry pours approximately 45,000 tons of SO, into the atmosphere every year, contributin to an ambient SO2 concentration of 90 ug/m'. The optimum levy should be set at the point where the incremental benefit of abatement is equal to its incremental cost. To identify this point, we simulate pollution control alternatives by reducing Zhengzhou's SC, emissions in 10 percent increments until 90 percent abatement is reached. We value mortality reductions at $8,00) per 'statistical life,' yielding the marginal benefit (MB) schedule in the figure. Our results for Zhengzhou suggest that air pollution control in Zhengzhou should be far Additional S02 Abatement in Zhenqzhou: stricter. At the city's current atmospheric SO2 usron Marainal Benefits and Costs concentration, abating a ton of S02 will save 140 about .63 percent of a 'statistical life,' yielding a 120 benefit of approximately $50. By contrast, we 1oo estimate the incremental cost of abating one ton at the current emissions level (represented by the zero point in the figure) to be approximately $1.70 Clearly, there is huge social 'profit' to be 4o made by abating more pollution. As the graph 20 shows, additional abatement remains socially 0 profitable at the margin until about 73 percent of 0 s o IS 20 25 30 35 40 45 50 55 00 6 70 75 current emissions are eliminated. The levy which Abt.mnt % will induce this reduction is about $90/ton, at the intersection of the marginal benefit and cost The ODtimum Air Pollution Levy in Zhenizhou curves. This is our estimate of the optimum industrial air pollution levy for Zhengzhou, since a lower levy would leave socially profitable abatemert opportunities unexploited, and a higher levy would impose an abatement cost higher than the social gain fror further pollution reduction. According to our results, the current levy in Zhengzhou makes sense only if China's policymakers valu! the life c average urban resident at approximately $270 ($1.70/.00625). This figure seems tragically low when compare the loss of a life, with the associated pain, suffering, and elimination of a lifetime's contribution t> China's economic output. Even our suggested statistical life value, $8,000, is a very conservative number whic i only takes account of economic output foregone. But to meet even this conservative standard, our result suggesis that the air pollution levy should be increased more than fiftyfold in Zhengzhou - and, by implication, in the ret of urban China The optimum rate-$90/ton- is not exceptionally high by industrial-economy standards (e.g , $130/ton for tradable SO, permits in the US (1995); an emissions charge of $72/ton in Poland (1993), and $29/toi in France (1992)). However, China is much poorer than any of these countries. The optimal levy for Zhengzho i (and, by implication, for the rest of urban China) is so high because current air pollution is so bad. CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 57 4/18/97 HARNESSING THE MARKET individual pollutants. For both air and water dis- charges, it would be sensible to consider adoption of a The growing market-orientation of the industrial complete charge system which would be targeted on sector offers an opportunity to employ market-based specific pollutants and assessed on all units of pollu- pollution control instruments more effectively. tion. A mass-based levy system would also facilitate However, changes and reforms in the existing regu- its integration with the discharge permit system. latory system, if not properly introduced, could bring Reforming the management of levy fund is about an adverse impact on China's environmental critical to fully realize the regulatory potential of the management. It may be necessary to tighten the levy system. While returning part of the levy to existing control mechanisms at the same time market- enterprises in the form of low-interest subsidy for based instruments are being introduced. Recognizing pollution control investment reduces the political that effectiveness of pollution control depends on loca enorceent thefolowin reommedatons difficulty of levy enforcement, financial oversight local enforcement, the following recommendations mutasrthtonyiwelpn.Atiiu, must assure that money is well spent. At minimum. are made with respect to national policies, funds should pooled and then be allocated competi- tively on the basis of highest marginal abatement per Redesign the EIA and three synchronza- expenditure. Second, the grant element should be tions programs. New approaches will need to be transparent and considered as part of general revenue. adopted in order to incorporate EIA and three syn- Third, funds should be de-linked from the ad- chronizations into China's total pollution load con- ministration of the EPBs, which should be funded trol strategy and make them an impetus for the in- from general revenues. dustrial sector to adopt cleaner production technolo- gies. The evaluation basis for EIA and three syn- The fast-increasing pollution loads from TVIEs chronization should be broadened to consider the deserve special attention. The recent drastic measure assimilative capacities of local and regional of closing thousands of heavily-polluting TVIEs could air/water sheds instead of the current practice of fo- probably have been avoided if past regulation had also cusing on meeting individual discharge standards. covered these enterprises. In any case, the long-term The integration of EIA and three synchronizations solution to regulating the myriad but price-sensitive with a market-based discharge permit system would TVIEs lies in market-based approaches. For TVIEs, create a mechanism that enable enterprises to adopt the central government should began to study and least-cost abatement measures. experiment with a regulatory system based on full- cost pricing of natural resources and environmental Reform the levy system Large increases in taxes, while continuing to improve and strengthen pollution charges will be needed to create an effec- existing regulatory measures. tive incentive for enterprises to achieve discharge standards. NEPA has proposed a tenfold increase in the air pollution levy. This study showed that the Continue eonme for is necessact o pre in te ciof Zen zou wuld serve past environmental gains. The impact of the Optimum S02 levy ty g reforms-and accompanying technical and structural be 50 times of the current air pollution levy, an indi- change-on the air and water pollution intensity of cation of the severity of the current pollution level as Chinese industry has been powerful. Reform-induced well as the large investment required to improve changes in sectoral composition, ownership and scale ambient air quality in Chinese cities. of production have been sufficient to compensate for much of the increase in total output during the past Changing the design of the levy system would decade. Continuing reforms can have similar miti- increase its effectiveness. Pollution levies are as- gating effects during the coming decades. Rapid in- sessed only on 'above-standard' discharges, making dustrial growth without further changes in ownership emissions 'free' for polluters until the standards are and production scale would produce far greater pollu- reached. Effluent charges are determined based on tion loads than those contemplated in this study. the pollutant that exceeds thp ,tqnTird hv thp arentpct amount without consideratit CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 58 4/18/97 Box 5.2 WORLDWIDE EXPERIENCE ITH POLLUTION CHARGES: LESSONS LEARNED Analysis of performance of various pollution charge programs, implemented up to date, suggests that the following conclusions can be made regarding the effective use of these instruments: * For controlling emissions from a large number of small sources, where command-and-control regulations are very expensive to enforce, fuel taxes and water charges have a advantage over emission and effluent charges. * Fuel taxes have a particular advantage as a proxy for the air pollution charge. Unlike air emission charges, they are relatively easy to collect and can be used to control small sources, such as vehicles and small boilers. When air pollution is largely associated with the pattern and type of energy use, fuel taxes also provide a direct incentive to improving energy efficiency and using better quality fuels. * Water charges: effluent charges based on water usage, including user charges for wastewater treatment, can be effectively applied to all categories of consumers where water consumption is metered. However, possible distribution effect on large-size, low-income households has to assessed and mitigated. * User charges for municipal or collective wastewater treatment services should be applied in all cases where such treatment takes place and provide for cost-recovery of the service to the largest extent possible. It is important to define the size of collective plants and the level of treatment adopted in the process of optimizing wastewater treatment strategy across all significant sources in a watershed. * Emission charges can be effectively applied to a limited number of standard pollutants and to large polluters, in which case the expected gains in pollution reduction justify the cost of monitoring and collection. * Emission charges proved to achieve best results when implemented as part of broader medium-based pollution control programs with clear ambient quality targets for a specific area/watershed and/or emission reduction targets for particular sources. Successful implementation of such programs requires adequate institutional support (e.g. establishing river basin agencies or urban air quality councils) and strong political commitment. * Set emission charges at a level that is sufficient to provide an incentive for the targeted level of pollution abatement in an area/watershed over a designated period of time. Low emission charges, which are introduced with the primary purpose of raising funds, do not prove to have a comparative advantage over other charges and taxes, given higher administrative complexity and costs. * Environmental funds: If revenues from charges are earmarked for environmental expenditure, it is important to have a coherent, transparent and accountable allocation system with clear financing objectives and priorities. Source: Promulgating regulations of an incentive-based quire coordination between different government discharge permit system would reduce control costs agencies, and coordination between different local while achieving local or regional pollution control governments that share natural resources such as goals. China should move quickly to adopt its total water, or face regional pollution problems, such as pollution load control strategy by implementing an acid rain. Several experimenting regulatory pro- incentive-based discharge pernut program. The in- grams, such as the discharge permit system and tegration of such a program with existing pollution SO, levy, ought to be incorporated into the existing control programs will be a major task for China's programs. The lack of public participation is a regulatory agencies. serious deficiency of China's environmental management system. REFORMING INSTITUTIONS The Government should adopt clearer guide- lines designating institutional responsibility for pol- Institutional obstacles have impeded to success- lution enforcement. While local governments need ful implementation of environmental programs in to be given greater power in managing local or China. This is especially true for programs that re- regional environmental quality, NEPA's role as a CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 59 4/18/97 environmental quality, NEPA's role as a central their more highly-developed counterparts. Ulti- agency of supervision and monitoring should be mately, Chma's environmental interests will be best strengthened to prevent potential complacency of served by rapid economic development, coupled local pollution control, on the one hand, and assure with concerted efforts to inform and empower effective management of cross-region pollution is- poorer commumties. Non-governmental organiza- sues. tions have an important role to play in this area. Creating vehicles for effective community voice Enforcement should be targeted at low-cost on environmental concerns will promote stricter sources. The cost analysis in this chapter shows pollution control. In the long run, this may be the why targeting is a good idea: Large polluters are most important factor of all. The strength of regula- easier to monitor, and have far lower unit abatement tion in China's provinces is heavily affected by their costs. The key to cost-effective reduction of pollu- levels of social and economic development. Poor tion in China's cities is targeted enforcement of communities with low education levels are far less higher abatement standards for large facilities. able to promote their environmental interests than ENDNOTES this ratio should be less than one, since China should be a net exporter of pollution-intensive goods. Second, the ratio The eight programs represent the core of China's en- should fall over time because production for export should vironmental protection activities: (1) Environmental impact increase faster than production for domestic consumption. assessment; (2) Three synchronizations; (3) Pollution levy; The evidence is Figure 19 is mixed, but is not generally (4) Pollution discharge permit; (5) Mandatory pollution consistent with the hypothesis that China's comparative ad- control with deadlines; (6) Centralization of pollution con- vantage is in pollution-intensive production. The series has trol; (7) The goal-responsibility system of environmental a modest downward trend for the period since 1987. How- protection; and (8) The quantitative appraisal system of ur- ever, the consumption/production ratio has remained well ban environment comprehensive control. above one throughout the period. This supports the story in Figure 18: China has been and remains a net importer of 2 For evidence, see Dasgupta, Huq and Wheeler (1996). pollution-intensive goods from its trading partners. The weight of each of these variables differs depend- ' See Lucas (1996). ing on the pollutant. The intensity factors displayed in Fig- W ures 11 and 12 are based on 'beta coefficients,' which meas- We use projected pollution levies and shares ure the direction and relative importance of explanatory of large plants, SOE's, 'dirty' sectors and 'clean' sec- variables in a multivariate relationship. The results for tors to project national and provincial pollution inten- smoke and dust intensity are similar to those for SO,. sities. We assume that provincial intensities are the same as the pollution intensities of our focal cities (not These sectors are identified by multivariate analysis, an unreasonable assumption, since these cities are the in which exceptionally 'clean' or 'dirty' sectors are those main industrial centers of their provinces and, in two which depart significantly from average pollution intensities cases (Beijing and Shanghai) are identical to the prov- after the effects of the levy, scale and ownership are ac- counted for. inces). s Huq, Martin, and Wheeler (1993) have found that more To estimate city emissions, we multiply pro- open developing economies absorb clean technologies in jected provincial industrial output by the city's share of metals and paper production much more rapidly than their provincial industrial output in 1993. Thus, we assume less open counterparts. (again, not unreasonably) that the growth of industry in the province's main industrial city will be identical to 6 See Hettige, et. al. (1995) and Mani and Wheeler the growth of industry in the province. (1997) for detailed information on pollution intensities by To obtain total projected TSP and SO, loads for China and sector. the five cities, we multiply projected pollution intensities by projected industrial outputs. For SO, the available infor- Finally, we have used the available data to calculate mation permits us to go several steps further: We calculate China's consumption/production ratio for the output of the SO, concentration in each city's atmosphere by adjusting the five dirty sectors. If China's comparative advantage lies in previous year's concentration at .51 times the rate of change 'dirty' production, then two things should be true. First, CHAPTER 5: INDUSTRY: INCENTIVES TO ABATE 60 4/18/97 of the estimated pollution load This reflects the economet- ric result illustrated in Figure 1. 10 The marginal abatement cost (MAC) schedules are estimated for Beijing by combining our econometric MAC equation with current sectoral and ownership information for that city. " We should note that this MAC curve is an average which reflects the distribution of production between SOE and non-SOE plants in Beijing. As we have seen, the MAC schedule for non-SOE plants is always far lower than the SOE schedule. A targeted regulatory strategy could, of course, exploit this difference to capture the largest returns from stricter enforcement for the least-cost plants. 2 The State Environmental Protection Ninth Five-year Plan and 2010 Long-term Goals, NEPA, SPC and SETC, 1996 CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 61 4/18/97 [ Urban Transportation: Coping with Cars URBANIZATION AND MOTORIZATION ban environmental destiny. Doing so requires using not only the conventional policies of other countries- Although China still has a relatively small vehi- emissions controls and the like-but the full range of cle fleet, its cities are already blanketed with smog. policies that shape the future of cities. Hydrocarbons (HC), carbon monoxide (CO) and par- ticulates as well as ozone already surpass Chinese THE STARTING POINT: WHERE IS CHINA NOW? ambient standards and are approaching international levels.' Mobile sources account for a large share of Vehicles are a major source of emissions in large these emissions. Although the number of motor vehi- Chinese cites (Table 6. 1), and their contribution will cles in Beijing is only about one-tenth of that in Los increase without new policies. In Beijing, for exam- Angeles and Tokyo, vehicle emissions are about the ple, where the average concentration of CO already same for all three cities.2 exceeds the standards, mobile sources account for about half of total CO, HC and nitrous oxide (NOx) The auto fleet, though low relative to both in- emissions. In Guangzhou, traffic-related emissions come and population, is growing rapidly. Vehicle accounted for about 87 percent of CO and 67 percent registration rates have averaged 12-14 percent per of the NO2 concentrations.3 year since the late 1970s. If incomes continue to rise, if density of urban areas falls, and if public transit The national vehicle fleet grew from 3 million alternatives worsen, this combination could produce vehicles in 1985 to more than 10 million by the end of urban auto ownership rates of 85 to 130 vehicles per 1994, and still averaged only 8 vehicles per 1000 per- 1,000 population by 2010 and double this range by sons in 1994. Private auto ownership is quite low- 2020. less than 2 vehicles per 1000-but has been growing This pattern of growth would make traffic jams at almost 50 percent a year. as well as smog a way of life. In recent years, the TABLE 6. 1 MOTOR VEHICLE SHARE OF EMISSiONS aY number of autos has grown nearly twice as fast as the POLLUTANT growth in road construction, leading to increasing (in percent) congestion and much lower average speeds. Lower CO HC NO, PM Beijing, 1989 39 75 46 vehicle speeds increases emissions per kilometer. Guangzhou, 1993 87 67 This is because motors operate less efficiently at Shanghai, 1994 37 85 15 n a. lower speeds and because they operate longer to travel EU, 1990 72 40 62 the same distance. Japan, 1989 40 39 Korea, 1991 99 96 81 18 If rapid urbanization and motorization are not Manila, 1990 carefully managed, these trends could produce envi- 110) ronmental problems that would rival those today of M_0) Bangkok, Jakarta, Mexico City, and Sao Paulo. Sources- Walsh, 1996 These cities are shackled with high health costs asso- ciated with exorbitant pollution loads, with lower la- Despite rapid growth, China's motorization rate bor productivity as workers are caught in traffic jams, for its level of income is low relative to other East and with insatiable demands for more public invest- Asian cities (Figure 6. 1). Two factors make China ments in roads. different. Higher residential densities and more inte- grated land uses result in shorter work journeys and China is probably unique in being able to avoid therefore make walking and cycling possible. Also, this future. Because its current lower level of depend- until recently, policies discouraged individual vehicle ence on autos, its high urban densities, and its capac- ownership.4 These low levels of vehicle ownership ity to plan, China has the opportunity to shape its ur- CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 62 4/18/97 provide China with a great opportunity to shape its CONGESTION AND VEHICLE SPEEDS urban environmental future. The operating speed of motor vehicles in major FIGURE 6. 1 EAST ASIA MOTORIZATION, 1960-90 Chinese cities already results in high fuel consump- tion. Average speeds within the third ring road of 1oooon5 Beijing are below 20 km/hr. Fuel consumption at these low speeds is double that of the higher free-flow design speeds of urban highways. Even a small re- duction in average speed -- say, from 20 km/h to 15 km/h - will result in a 25 percent increase fuel con- sumption.6 The stop-and-go operating mode causes substantial increase in emissions (Table 6. 3). Con- gestion also erodes the performance of public trans- port, such as buses and mini buses. FPtaOSite Korea 1000 TABLE 6. 3 EMISSIONS BY AUTOMOBILES UNDER DIFFERENT DRIVING MODES IN USA (1984, in parts per million) "" Driving Mode HC CO NOx Idling 1.34 16 19 011 m0 Cruising 100 W a I . 10000 100000 15 mph 5.11 67.36 075 30 mph 299 30.02 200 Source. Chuna's Urban Transport Development Strategy 45 mph 2.90 27.79 4.21 Mode Shares Source World Bank, 1990 Bicycle and walking were the dominant form of Air quality standards and transportation as late as 1992, the date of the most Vehicle emissions pecent survey of urban travel (Table 6. 2). Since then, motorcycle use has increased dramatically, mostly at NEPA has issued 11 motor vehicle emission the expense of the bus/metro and bicycle shares. In- control standards. Standards for light-duty vehicles, creased urban sprawl, with longer trip lengths, in- including cars, were adopted in 1979 and are similar creasing incomes, and falling residential densities will to the European standards of the same year. Environ- increase the reliance on moterorized transport-unless mental performance standards for heavy duty the quality of public transport improves. vehicles were adopted in 1983 and for motor-cycles in 1985. TABLE 6. 2: URBAN TRANSPORT PERCENT Periodic inspections are required for all opera- MODE SHARES tional vehicles and are conducted by the local vehicle (formal population only) management office. The effectiveness of the tests Mode Beijing Shanghai Guangzhou varies significantly from one jurisdiction to another. (1986) (1986) (1992) Walk 13 8 382 306 Bicycle 54 0 342 33.8 The current vehicle fleet is highly polluting, Motor cycle 00 02 64 due in part to the use of old vehicle designs and Taxi 03 0.2 6 1 Bus and metro 24 3 24 0 21.7 outdated vehicle emissions standards for new Car 44 22 00 vehicles. For example, truck engines are based on Other 3 2 I 0 1 4 designs that are more than twenty years old, while Total 1000 1000 1000 most car engine designs are at least ten years old. Current emission standards for gasoline engines are based upon outdated 1978 European and 1981 US standards.' Catalytic converters are not necessary for vehicles to meet the present standards. Diesel- engine emissions standards are also weak, covering CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 63 4/18/97 dards are also weak, covering only tailpipe "smoke" of fuel, so most of it is transported by truck or rail and not particulates and NOx.1 car rather than by pipeline. Since none of these vehi- cles are dedicated to transport unleaded fuel, and Emission standards in the US have become refueling sites generally have only one holding tank, progressively more stringent in their allowable emis- it is impossible to ensure that unleaded fuel is not sion, while those in China have stagnated. Chinese contaminated with lead." Even small amounts of standards for cars allow for 40 times more carbon lead will mactivate the catalyst in catalytic converters monoxide, 6 times more hydrocarbons, and 8 times and they will not fulfill their function. more nitrogen oxide. Motorcycle standards are even more lax than those for cars and those for two-stroke The quality of China's diesel fuel is poor -low engines are similar to those for trucks. stability and high aromatic content-resulting in high vehicle emission of particulates and smoke. Fur- Because even these standards are weakly en- thermore, while the sulfur content of nationally pro- forced, emissions from in-use vehiles are anywhere duced diesel is low by international standards, the from 10 to 50 times higher than those of present-day average sulfur content of retailed fuel is increasing vehicles in the US or Japan. One car operating in as China relies more on imported diesel, for which it Shanghai or Beijing, for example, emits an amount allows up to 3.5 percent sulfur content, whereas in of CO equivalent to 30-40 US automobiles, HC most nations of the region the allowable sulfur limit equivalent . that of 40-60 US autos, and NOx is less than 1.5 percent. equivalent to that of 8-15 US automobiles. Fuels Fuel Pricing Currently, the pump price of gasoline and die- Gasoline supply is split about equally between sel are low by international standards (Table 6. 4). 70 MON (equivalent to 82 RON) and 90 RON and The current small price differential between 82 RON higher grades. The lower (82 RON) grade, mostly and 90 RON gasoline does not justify the cost of unleaded, is used primarily in low-compression truck upgrading refineries to produce more of the latter, so engines, while the higher grades are predominantly the excess demand for higher octane gasoline is in- used in urban areas, where most of the higher- creasingly met by imports. Moreover, the shortage compression-engine cars operate. Most high-grade of LPG is driving up its price, and refiners are di- gasoline is leaded with between 0.22g/1 to 0.45 g/I verting their feedstock to LPG production rather than of lead, substantially more than the average level of gasoline production. In addition, as diesel is the 0.15 g/l for other Asian countries and much more main fuel for agricultural use it remains heavily sub- than the previous international standard of 0.08 g/l sidized, reducing refinery incentive to produce gaso- level which is now considered high." The resulting line.12 atmospheric lead levels in the urban area of major cities such as Beijing are typically I to 1.5 ug/m3 CHINA'S URBAN ENVIRONMENTAL FuTuRE (more than double the WHO standard), and can reach 14 to 25 ug/m3 in some areas.'o Three sets of transportation-related factors will influence China's urban environmental quality in the Although about 50 percent of gasoline produced future. The pace of income growth and urbanization in China is unleaded, most of this is low grade 70 will dictate the demand for urban transportation. MON, or high grades for export. Domestic supply Urban planning and infrastructure development will of 90 RON and higher grade gasoline account for influence urban lay-out, the distance workers have to about 20 percent of total gasoline consumption, and commute, and the supply options available for trans- much of it is mixed with leaded fuel at storage ter- port-bicycles, cars or public transit. If demand ex- minals. The use of unleaded fuel is hindered by the ceeds supply, congestion will extend travel time, lack of a dedicated storage and distributior system. reduce average speeds, and increase emissions per Refineries do not have responsibility of di,mrbution trip. Regulation and pricing can have significant CHAPTER 6: URBAN TRANSPORTATION: COPING WrmT CARS 64 4/18/97 impacts on vehicle standards, vehicle use, while fuel growth and if the larger urban centers are not to de- pricing can reduce emissions, as well as influence velop into megacities. The development of new cit- supply and demand. ies, or the expansion of smaller settlements into townships gives more scope for managing the trans- DEMAND port impacts of urban growth than would the uncon- strained growth of larger cities. China's rapid urbanization shows few signs of abating. By the end of 1995, the total formal urban High population densities have, until recently, population stood at more than 350 million, and had helped constrain the demand for motorized transport been growing at a rate of 4 percent per year since in China. However, the low quality of life involved 1980, while the informal population was estimated at in these very high densities is propelling their reduc- about 50 million and growing even faster. The urban tion, which will reduce the potential for non- share of the population is expected to approach 42 motorized travel and increase the need for road in- percent by 2010 and 50 percent by 2020, a growth frastructure. The planned reduction of the highest that will more than double the total number of urban residential densities in already developed areas with residents. densities of close to 20,000 people per km2 will not itself create excessive demands for urban road space, Since 1990, cities and townships have been but in new residential areas with densities about forming at a rate of almost 8 percent and 13 percent 10,000 people per kIn', the need for road space will per year respectively. The government plans to es- be much higher. tablish about 400 new cities over the next 15 years, FIGURE 6. 2 RELATIONSHp BETwEEN URBAN an average of 28 cities per year,'3 a significant re- POPULAON DENSIy AND PER CAPTTA duction in the rate of increase of the last five years. LENGTH OF URBAN ROADS However, (137 observations for 65 world cities) TABLE 6. 4 INTERNATIONAL COMPARISON OF FuEL PRICES; Premium (unleaded "" where available) Country Gasoline pnce Diesel pnce (cents/liter) (cents/liter) Asia China (RON 90) 28 25 000 Taiwan (China) 61 43 ___*_*_ Japan I13 83 ... Republic of Korea 87 40 Thailand 37 35 Viet Nam 39 28 ** Europe 400 France 118 82 Germany 120 74 Spain 94 75 200 * * Italy 121 99 * , Americas 0 3 0 o0 n l 2.w0 ON AO- United States 38 37 Canada 48 36 Mexico 38 26 Brazil 65 37 Source International Gas and Diesel Prices, World Bank, Dec. In addition to high densities, land use is still 1996. integrated. Moving people away from polluting in- dustries will increase separation of land uses is the numbers of townships will need to increase even planned. When combined with lower residential faster to cope with the projected urban population CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 65 4/18/97 densities, this will further increase demands for mo- stramt and will bring with it the frustrations of lost torized travel. time and the dangers to health through increased air The percentage of built-up land area devoted to pollution. roads is low, presently less than 10 percent for all of the major cities.14 Rights of way on these roads are SUPPLY OPTIONS: CAR OWNERSHIP shared between pedestrians, non-motorized and mo- torized vehicles, and with poor traffic management In the absence of good public transit options, and little segregation of users, so speeds are low and there will be a higher demand for private auto own- accident rates high. Lack of roadspace will become ership and use. Of China's current vehicle fleet, a critical issue as car ownership increases. To pre- about one-third are passenger vehicles (Table 6. 5) vent traffic congestion from getting worse, road- This segment of the fleet has grown nearly twice as space should increase at about the same rate as the rapidly as the truck fleet. While most cars are increase in the vehicle fleet. But this will be impos- owned by companies and government agencies, the sible due to cost, resettlement, and available space most rapidly growing segment of the auto market is considerations, so congestion will probably only get individually-owned cars. worse. Increasing congestion is likely to be a con- TABLE 6. 5 REGISTERED CIVIL VEHICLE FLEET (thousands) 1985 1990 1994 Annual growth (percent) Passenger 814 1,863 4,077 20 Business and government 795 1.622 3,497 18 Individually owned 19 241 580 46 Trucks 4258 6,535 11 Business and government 2,230 3.685 5,603 11 Individually owned 265 573 932 15 Total 3,309 6.121 10612 14 Source China Statistical yearbook, 1995 Future car ownership in China, particularly sit, an SPC-sponsored study estimated that household household car ownership, depends on three key fac- car ownership would break through the benchmark tors: level of 15 cars per 1,000 people when the af- fordability ratio falls into the range of 2.0 to 3.0 * affordability (the ratio of car price to per capita (Table 6. 6). Based on a random survey of nearly income); 10,000 high income households, the study estimated * the need for car use; and, the number of households that would be able to af- * infrastructure available for car use. ford and willing to own a private car, and made the following estimates of car ownership, potential for Considering only the first two, and ignoring domestic car production and fuel consumption. any impact of congestion or changes in public tran- CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 66 4/18/97. TABLE 6. 6 NATIONAL CAR OwNERSHIP AND PRODUCTION PROJECTIONS BY SPC-ITE Projections Item 2000 2005 2010 Households able and willing to buy a car (mil.) 4.0-4.7 15.5-16.5 37.5-40.5 Annual total demands for cars (mil.) 1.3-1.6 2.2-2.7 3.5-4.4 of which: household demands (mil.) 0.4-0.6 1.2-1.6 2.3-3.0 Total car ownership (mil.) 6 12 22 of which: share of household cars ( percent) 20 40 60 Cars per 1,000 population 47 9 15.8 Annual car production capacity (mil.) 1.2 2.2 3.5 of which: household car production (mil.) 0.4 1.2 2.3 Household car gasoline consumption (mil. ton) 0.8 2.8 6.5 percent of national total gasoline consumption 2 6 11 Average gasoline consumption (ton/household car) 0.7 0.6 0.5 Source: SPC-ITE (1994). In urban areas, car ownership rates are much Car ownership rates in some principal urban lugher than the national average, with about 24 per areas are expected to grow by between four and 1,000 in Beijing, 15 per 1,000 in Shanghai, and 21 seven times over the next fifteen years and could per 1,000 in Guangzhou." These rates are very low double again in the following ten years. Actual rates by international standards, even taking account of of growth will depend very much on how residential the low per capita income in China, so the potential densities change as existing cities grow and new cit- growth is enormous. Most studies in other countries ies are built, and how successful are policies to im- of the factors that affect car ownership indicate a prove mass transport. Cities with lower densities and strong correlation with personal income, and recent poorpublic transit may have 20 percent more cars studies have found a strong relationship with the than the projected average. But cities that organize quality of public transit and residential density (high themselves well with higher densities and good pub- densities being conducive to better bus and metro lic transit would have 20 percent fewer cars than services), average (Table 6. 7). TABLE 6. 7 PROJECTED CAR OWNERSHiP, 2010 (CARS PER 1,000 POP.) Density and public transit as- Beijing Shanghai Guangzhou Chengdu Jinan sumptions Current ownership rate 24 15 21 8 15 Basic projected rate 96 105 116 55 70 Actual residential density Better public transit 77 84 92 50 58 Worse public transit 106 116 127 65 80 Reduced residential density Better mass transport 92 100 110 65 69 Hk orse mass transport 116 127 140 87 90 Source Hk orld Bank Supply Options: Public transit cities have built underground railways, none have surface suburban railways and light rapid transit has Efficient public transit is associated with higher yet to make an entry. Fixed link public transit sys- residential densities and results in less dependence on tems are now so expensive that they can only be jus- automobiles. However, provision of good public tified in exceptional circumstances. Bus services transit has not so far been a policy priority. Few have suffered from under-investment, inefficient CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 67 4/18/97 management, poor maintenance and a lack of user * Land-use orientation in their operation, with vehicles being * Supply of transport infrastructure uncared for and services unreliable. Congested ur- * Management of demand ban roads result in even less reliable services, with * Regulation and environmental standards longer delays between buses and less predictable * Traffic management travel times. Lower levels of service could cause * Car production as a pillar industry ridership to fall off and increase the need to subsi- * Technical standards for vehicles and fuels dize fares or reduce services further. Although the poor quality of mass transport did not contribute to Land use planning the air quality problem when the only alternative was to walk or travel by bicycle, now that average urban Advantage can be taken of the unique Chinese incomes have risen to a level where cheap motorcy- pattern of city development. Instead of dispersing cles with heavily polluting 2-stroke engines are an high densities, urban growth could be organized alternative, the consequences are more significant. along corridors with pre-established public transit services, and with continued high densities and If China were to develop public transit op- mixed land uses at the transport nodes along those tions-ahead of urban transport demand-projections corridors. This would minimize the use of cars, indicate that major cities would have 20 percent since walking or cycling to the transport nodes in the fewer autos and based on experience elsewhere, corridors would be possible, and for those traveling about 35 percent less car use. further, a transfer to the high quality public transit services would be viable. CHINA'S URBAN TRANSPORT FUTURE: THE STRATEGIC '"TOICE Curitiba, Brazil and Portland, USA are among the few cities where this model has been successfully Unlike many developing countries, China has a implemented since the advent of high car ownership strategic choice before it that will shape its urban and use, although it was the basic pattern of urban environmental future. One option is to let market growth in the last century. For maximum effect, the forces, rising incomes, and uncontrolled urban policy needs to be introduced before urban growth is growth create cities. This option entails high social too far advanced, so that the land for the public tran- costs of lost worker productivity and damage to sit services and radial roads can be made available human health as well as rising demands for funds for without excessive relocation of residents and high road construction. land costs. The current Chinese strategy of creating new townships and cities, and limiting the growth of But there is a second option. The unusually low existing large cities, will favor the application of this level of dependence on autos, the unusually high policy. density of Chinese cities, and the strength of plan- ning capacity at both the national and municipal lev- In existing cities, the pattern cannot be applied els are unique among developing countries. The so easily. A more dramatic solution, based on de- country can take advantage of these circumstances to mand management coupled with excellent public create a new framework for urban transport and en- transit and the development of regional centers, will vironmental management. The strategy would com- minimize the demand for radial travel and ease the prise integrated actions in seven areas: pressure for more road construction. It will also reduce the demand for car ownership, as can be seen for Singapore and Hong Kong in Figure 6. 1. CHAPTER 6: URBAN TRANSPORTATION: COPING WTrH CARS 68 4/18/97 Box 5.1: A MODEL FOR CHINA'S URBAN DEVELOPMENT? Curitiba in Brazil, a city of 1.6 million and an area of 1,100 square kilometers, is one of the few that have successfully managed to control the twin challenges of rapid urbanization and motorization. City officials feared that immigation and rapid growth would overwhelm the city, ruin the downtown, and turn the city into an uncontrollable, sprawling metropolis--as had occured in other Brazilian cities City planners decided on comprehensive transportation and land use planning to manage the surge of new entrants to the city. Mindful of budget constraints they required simple, low-cost, solutions that could be quickly and easily implemented, creating momentum and political credibility. Development focused on five linear corridors, with coordinated transportation and land use planning to shape the new metropolis. The primary tools were a system of exclusive and integrated busways, a transit-supportive zoning law, and restrictions on automobile use in the downtown area. The privately operated all-bus transit system today offers a rich and integrated variety of services, carrying over a million passengers per day and accounting for 75 percent of work trips. This has been achieved in a city of relative affluence (a per capita GDP of US$5,149) with high rates of car ownership (267 cars per 1000 person). Convenient transit services result in car use and gasoline consumption 30 percent below those of comparable Brazilian cities, helping to produce a living environment with very low vehicle emission and congestion levels. With more than twenty years of development, Curitiba's model has proven to be highly sustainable. Lessons Urban planning has to be comprehesive and put future transportation clearly at its centerpiece Also, city officials relied on the local Urban Planning Institute, which provided high quality, innovative so- lutions to planning problems over time. The institute, with encouragement of the municipal government, worked closely with businesses and the community in developing ideas and planning concepts Hence, community ownership and pride in city achievements became an integral part of the city development proc- ess Source: Bank staff Public investments and the supply jected for interurban transport (highways, railways, of infrastructure ports and airports) and represent about 2 percent of GDP; the public transit based option would be about The demand for urban road construction will 17 percent less costly than a more roads-oriented probably exceed supply for some time. The experi- system. ence of other countries suggests that this demand will quickly find its way into automobile purchases, In both strategies, the cost of highway mainte- but soon traffic jams will put pressure on the public nance would be the largest expenditure accounting sector to build more roads (Table 6. 8). However, if for about 40 percent of the total. In the road-based China relies on a roads-based policy, public invest- strategy, new ring roads would account for a further ments in roads will never catch up with private in- 30 percent, but this would only be 12 percent of the vestments in autos. public transit based total. The costs of a roads-based strategy are much higher than those of a public transit strategy. The following estimates show the total investment needed in urban roads and public transit systems, based on two assumptions-one of no change from current policies, and the other of an emphasis on public tran- sit corridors and associated lower projected levels of car ownerstup. Both estimates are less than that pro- CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 69 4/18/97 TABLE 6. 8 ESTIMATED ANNUAL INVESTMENT IN URBAN TRANSPORT, 2000 THROUGH 2010 (US billion per year) Roads based policy Public transit based policy Annual Percent Annual Percent of Investment of total Investment total Roads New 14.9 51.2 8.9 36.9 Ring roads 8.5 29.2 3.0 12.4 Arterial roads 3.5 12.0 3.5 14.5 Other roads 2 9 10.0 2.4 10.0 Maintenance 12.8 44.0 9.4 30.0 Buses 1 4 4.8 4.0 16.6 Metros and Light Rapid Transit 0.0 0.0 1.8 7.5 Total 29 1 100.0 24.1 100.0 Source: World Bank estimates Many Chinese cities are already planning to improving service quality and frequency, so that build ring roads to expressway standards, sometimes commuters are not tempted to turn to cars. with radial routes connecting them to the downtown business area. However, the share of road space Management of demand given over to this class of roads in cities in the rest of the world is quite small and varies within a nar- Demand management is mostly aimed at mak- row range.'" Current plans for expressway con- ing the best use of existing infrastructure, incorpo- struction go well beyond the standard in existing rating environmental costs, and giving appropnate developed motorized cities across the world (see signals of the demand for new facilities. It can also Annex table ). be used to reduce the unit costs of public transit through reducing peak demand and stimulating off- Why have existing motorized cities throughout peak use. The instruments of demand management the world stopped short of such elaborate express- are a combination of pricing and regulatory meas- way plans? In part, it is because of the huge costs of ures, designed to make peoples' travel choices take construction of urban expressways, especially in the account of the economic consequences of their ac- city centers where land is costly. Because the intru- tions. They aim to manipulate demand to avoid both sion of these roads disrupts communities and creates excessive utilization and overloading of infrastruc- local resistance, few new expressways have been ture on one hand, and the unnecessary duplication built in Western city centers in recent years. More and underuse of capacity on the other. While fixed fundamentally, the belief that it is possible to build a toll systems can be used effectively on some princi- way out of congestion is increasingly questioned. pal roads, they are not an efficient way of managing urban transport demand. New technology is making Urban transport investment should average electronic charging for road use feasible. Given that about about US$25 bilhon, for the next twenty it provides the opportunity for an accurate and sensi- years, to avoid further deterioration in travel speeds tive road pricing system, and that China's cities are and congestion induced pollution. A substantial pro- only now embarking on a major period of new road portion of the total should be allocated to road building, incorporation of facilities for electronic maintenance and improvements to existing arterial charging should not add excessively to the cost. roads, with a reduction in planned expenditure on ring roads. Investment in fixed link public transit This suggest that demand management will be should be restricted to corridors with high demand needed to supplement investment to create an effi- and where it is cost effective to avoid building new cient urban transport system. Large cities should highways. Investment in buses should be aimed at introduce appropriate pricing and regulatory meas- CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 70 4/18/97 ures to restrict car and motorcycle use on congested attractive alternatives, otherwise the imposition of roads or m congested areas; munmize cost of public on-street parking controls will be impossible. The transit services; and reduce congestion on main use of bicycles in cities requires special traffic highways management techniques in order to protect their use and avoid conflicts with motorized traffic. Traffic management No system of traffic management can func- tion if it is not enforced and a culture of non- Traffic management is designed to best make observance develops. Responsibility for designing use space to accommodate demand with minimal and implementing traffic management is shared investments in new infrastructure. Using traffic between the municipalities, Ministry of Construc- engineering, traffic control and traffic enforce- tion (MOC) and the Public Security Bureau ment to manage traffic flow, it is designed to give (PSB), but the allocations between them do not priority to the movement of people, rather than produce an efficient result. Given the importance vehicles. Street capacity in China can be effec- of traffic management in adding to system capac- tively increased by junction improvements and ity and reducing congestion for a given level of traffic signal control; introducing bus lanes; lim- traffic, these responsibilities need to be clarified iting and otherwise controlling on-street parking; and the various measures vigorously applied. and introducing one way streets and other traffic flow measures. Area traffic management systems should be developed and implemented to deal with the par- One of the most cost-effective measures is to ticular mix of motorized and non-motorized traf- time traffic signals according to the flow of traffic fic found in Chinese cities. Where its advantages or the priority desired for high occupancy vehicles can be demonstrated, systems that give priority to such as buses. This can increase total highway buses and other high occupancy vehicles should capacity by up to 20 percent. Although some Chi- be designed and implemented. Planning standards nese cities have invested in such systems, they are for new commercial developments should include not operated to maximize their impact nor are reference to the provision of parking places, and they designed to give priority to buses. where adequate public transit services are avail- able, the number of car parking spaces should be An initial reaction in many parts of the world strictly limited. Regulation of on-street parking to urban traffic congestion has been to require and observation of traffic markings and signals downtown offices to provide adequate off-street should be better coordinated between MOC, PSB, parking so that controls of on-street parking can and municipal governments. be enforced. However, this is often later seen as an inducement to more car travel, so the policy is Car production as a "pillar industry" reversed with off-street parking being strictly re- stricted as well as on-street parking. Depending Control of auto ownership and use is not neces- on the stage of development in which the change sarily inconsistent with China's objectives of devel- is made, its effectiveness is limited by the amount oping its auto industry. The potential size if China's of off-street parking already available from the domestic car market is so huge that it will not re- original policy. With this lesson in mind, munici- quire artificial stimulus to act as basis for an export palities in China should resist pressures to make industry. Other Asian countries with successful car off-street parking a condition of approving a export industries, such as Japan and Korea, have building license, and go straight to the second already implemented policies to invest in mass trans- stage of making the condition a low level of off- port and contain the demand for car use. National street parking space. But this policy must be ac- environmental policy recognizes that the develop- companied by one that makes other modes of ment of cars will be controlled to a "proper extent transport-walking, cycling, and public transit- and consistent with the actual situation in China" and CHAPTER 6: URBAN TRANSPORTATION: COPING ITH CARS 71 4/18/97 that a better solution is to focus on developing van- Regulation of fuel quality is fragmented, with ju- ous forms of public transit.'7 risdiction over fuel quality being shared among three agencies: NEPA (environmental agency), SINOPEC However, extending to automobiles and other (industry standards) and the National Technical Su- vehicles the "polluter pays" principle would mean pervision Bureau (NTSB, for national standards on that companies and individuals using autos should petroleum products as well as other products). While pay for the social costs of pollution. If this were the NTSB has final authority to set standards, adopted, motorcycle and car owners will be faced SINOPEC, which produces about 87 percent of with the full costs of their choices and economically motor fuels in China, has the responsibility to set efficient outcomes should result. The revenues from fuel standards. This has resulted in the application of the charges would be available to finance further standards that match refinery needs more than those pollution and congestion mitigation measures and that would satisfy environmental needs. NEPA, over time both would be reduced. which regulates lead, SO, particulates and NOx has histoncally had little input into the process. Policies in several Asian cities make car owner- ship expensive. The example of Singapore is well The pollution from motorized vehicles comes known, but Hong Kong and Seoul also have high car from the fuels they consume, so an appropriate pol- purchase and ownership taxes. The case of Korea is lution charging system would relate to fuel prices. In particularly interesting as the price disincentives to addition to a market price based on sum of the op- car use operate in parallel with a very successful portunity cost of the fuel itself (equal to international policy of developing an export market for cars. This market price), the cost of distribution and ad valo- is a good precedent for China, where the potential rem taxes on consumption as for other products, the domestic market would still be huge even with such fuel price could include an infrastructure surcharge taxes in place. and a pollution charge. The last of these could be proportional to the energy content of the fuel and its Japan distinguishes between ownership potential for pollution, including its sulfur and lead and usage. With high car ownership, many Japa- content. The latter would be more subjective as the nese cities are relatively free of congestion be- costs of different types of emissions vary signifi- cause of low car usage. These cities have well cantly according to small changes in geographic lo- developed and efficient public transit services and cation and with local microclimates and according to very strict controls on parking. In addition, park- the vehicle design and level of maintenance. ing is prohibitively expensive downtown and few spaces exist off-street. Nearly 90 percent of It would be preferable for the emissions testing "motorized" trips in Tokyo are by rail based pub- of new vehicle types to be carried by an agency in- lic transit. dependent of the vehicle manufacturing industry and responsible for air quality, such as NEPA. The Vehicle emissions and fuel standards emissions standards should be revised more fre- quently, giving the manufacturing industry incentives Three policy areas where action can directly to improve the emissions performance of their prod- modify the air quality impact of increased motoriza- ucts. Once a system for distributing lead free gaso- tion: (i) through the emission standards for new ve- line is inn place, the much stricter standards that hicles and their impact on vehicle design, (i) require the use of catalytic converters should be in- through the control of emissions from vehicles in use troduced. Testing of vehicles in use needs to be and from regulations and, (iii) pricing relating to the stricter and applied on a more uniform national fuel that the vehicles consume. A start has been scale, at least in urban areas. Similarly, fuel stan- made on addressing vehicle induced pollution at the dards should not be left to the petroleum industry national level through the vehicle registration process and SINOPEC to determine, but should be the re- and ownership regulations, but so far these are sponsibility of and implemented by NEPA. Trans- weakly enforced. port fuels should include a surcharge according to CHAPTER 6: URBAN TRANSPORTATION: COPING ITH CARS 72 4/18/97 their polluting capacity, to give an incentive for the much higher, it will be even more costly, giving an use of less damaging fuels and the more efficient use incentive for completing the policy quickly. Some of all fuels. refinery capacity to produce a higher octane lead- free fuel is already in operation (the output is ex- Technical standards for transport fuels ported) but the greatest cost will be that of a parallel distribution system, needed so long as both leaded China plans to phase out lead by the turn of the and unleaded fuel are on the market. In the US, co- century, but given the experience of other countries, operation between the auto and oil industries resulted this will be difficult to achieve. Other planned im- in nationwide availability of unleaded gasoline in provements in fuel quality include the elimnation of four years but US, Europe and Japan are still in the low octane gasoline (70 MON production), raising transition phase with both leaded and unleaded fuel the octane level instead through the increased use of available. reformate, and the use of detergents for deposit con- trol in gas engines." Other low polluting hydrocar- The market pricing of lead-free gasoline must bon fuels used for transport in other countries in- be carefully controlled. If it is priced cheaper than clude liquefied petroleum gas (LPG), liquefied natu- leaded gasoline while its supplies are limited, there is ral gas (LNG), methanol, ethanol and biogas. How- a risk that it will be used by vehicles that do not need ever, their feasibility usually depends on a readily it, leaving insufficient supply available for those that available supply, often as an otherwise useless by- cannot operate without it, whose owners are then product of the production of other hydrocarbon tempted to use leaded gasoline, destroying their products. China will not have an excess supply of catalytic converters and eliminating any air pollution any of these fuels in the near future, so they are un- reduction from the measure. On the other hand, if it likely to play a significant part in reducing harmful priced higher than leaded, there will a direct incen- vehicle emissions. tive for owners of cars equipped with converters to use leaded gasoline, with the same final result. So The introduction of unleaded fuel will permit there are good reasons not to differentiate in price the introduction of new environmental standards that between leaded and unleaded gasoline, at least until can only be met through the use of catalytic convert- adequate supplies of unleaded are available. ers (the action of the catalyst is seriously inhibited by the presence of lead products). Although the rest of the world uses vanadium and similar rare earths as China is already a net importer of diesel fuel, the catalyst, China has an abundance of lower priced and its domestically produced fuel is already low in alternative minerals that could function almost as sulfur, so it should not be difficult to obtain a rapid well, so the increase in the initial vehicle cost would reduction in SO2 emissions from diesel powered ve- be negligible. Given the long lead time to provide a hicles. It will require only a change in the specifica- full parallel distribution system for unleaded fuel, it tion of the sulfur content of imported diesel. This would be reasonable for unleaded fuels to be phased will involve a small financial cost and a one-time into use, their being made available first in those possible impact on inflation. A cost benefit analysis urban areas where lead contamination is greatest. will be needed to determine whether it is a justifiable measure, but the results of similar analyses in other Efforts to reduce lead emissions have the high- countries have shown a clear advantage in reducing est and most immediate pay-offs to society by re- sulfur levels to about 1 percent. Reducing particu- ducing lead poisoning of millions of Chinese chil- lates ennssions will also be easier when the propor- dren. These measures are the least difficult to un- tion of imported diesel fuel increases, but it will be dertake because they involve better emission controls difficult and expensive to achieve the standards of and use of clearer fuels. The complete phase out of some other countries since the low stability and high lead will be difficult and costly, requiring significant aromatic content of nationally produced diesel is so industry coordination and investment. However, if it high. is left until vehicle use and fuel consumption are CHAPTER 6: URBAN TRANSPORTATION: COPING WTH CARS 73 4/18/97. Justifying an increase in the price of diesel for strategies on fuel demand and pollutant enussions. transport purposes to encourage more efficient use is The first assumes the present policy framework. difficult since more diesel is used in agricultural The second and third assume that all other measures tractors than road vehicles, so the inflationary impact to reduce vehicle emissions, particularly introducing could be significant. There is a possibility of having lead-free gasoline and low sulfur diesel, and imple- two classes of diesel fuel, one for transport and the menting higher enussions standards, will be taken. other for everything else, with the second of these Lead enussions will only reduce to zero as shown retaining is low price. Such a policy would require when all vehicles dependent on leaded fuel have strict enforcement to avoid transport users simply been withdrawn from the fleet and distribution of buying the cheaper alternative. This policy is applied even low leaded fuel has stopped. The the assumes in the UK with some success so there is at least one that the full range of polcies suggested abbove are successful precedent. implemented. A distribution system for unleaded gasoline If there is no change in trends of urban growth, should be planned and implemented as quickly as falling urban densities, under-investment in public possible. Supplies should first be made available in transport, avoidance of demand and traffic manage- cities with a high lead content in the atmosphere. Its ment, no improvement in vehicle emissions stan- pump pnce should not be very different to that of dards and their implementation, then the level of leaded gasoline. The permitted sulfur content of exhaust emissions will increase by a factor of about imported diesel fuel should be reduced, at least to 25 times by 2020 (Table 6. 9). By implementing levels compatible with other Asian countries. A tougher emissions standards and improving traffic pricing strategy for diesel fuel should be developed management the level of increase can be reduced to that discourages its excessive use. about 15 times. By promoting a bus-based mass- transit system in Chinese cities, vehicular emissions AIR QUALITY IMPACTS OF ALTERNATIVE URBAN will only increase by about 5 times. TRANSPORT STRATEGIES Three scenarios are developed for simulating the potential impacts of different urban transport TABLE 6. 9 IMPACTS ON FUEL DEMAND AND POLLUTANT EMISSIONS OF ALTERNATIVE STRATEGIES Base Year Road-Based Strategy Road-Based Strategy Public transit-based Conditions without Improvement with Improvement Strategy 1993 2020 2020 2020 Gasoline (106 ton) 29 789 473 144 Diesel (106 ton) 8 144 86 49 CO (103 ton) 8,389 215,359 55,105 15,831 Pb (103 ton) 4.6 126 0 0 NOx (101 ton) 956 22,305 8,824 3,094 VOC (103 ton) 1,138 22,895 6,025 1,948 PM (103 ton) 80 1,838 868 362 Source. World Bank estimates A public transit strategy will also save two third In summary, if it wishes to prevent skyrocket- of the future oil consumption. At current prices, the ing oil demand from automobile use and effectively iblic transit strategy in 2020 would require only control urban air pollution from automobile opera- .e US$30 billion in gasoline and diesel consump- tion, China has to take early and decisive action to tion compared to US$87 billion under a roads based plan cities around viable mass-transit -based urban strategy. transport system for its cities. Such actions will also free up petroleum and capital that could have been CHAPTER 6: URBAN TRANSPORTATION: COPING WITH CARS 74 4/18/97, consumed by a car-based urban transport system for seven areas of transportation management. Not only other purposes, such as substitute coal in residential are enussion controls and cleaner fuels essential, but and commercial energy use, thus create ripples of they require greater municipal planning to shape land environmental benefits. use patterns in economically efficient ways, greater investment in coordinating mass transport, and The larger task of creating a clean and healthy greater efforts to accommodate bicycles and other urban environment will require harnessing China's non-motonzed uses. The strategic choice is clear. considerable planning and coordinating capacity to ENDNOTES 16 Several East Asian cities with high levels of motoriza- Particulate problems vary from city to city, due to re- tion have similar shares- 2.4 percent in Tokyo, 2.6 strictions on motorcycle and truck use in some major percent in Seoul, and 3.4 percent in Singapore, but an cities, such as Beijing, leaving buses as the significant average of sixteen cities throughout the world has an av- diesel vehicle population. Walsh, p. 122. erage of just 1.7 per cent. Even US cities have an aver- age of less than 3 percent with a similarly small stan- 2 Zhang et. al., p. 34, 1994 in Polenske and Lin, . 8-9, dard deviation, considering that the sample embraces a 1995; and Walsh, p. 121. wide range of city types, from New York to Los Ange- les. If Chinese cities follow this pattern, the entire ex- Qin and Chan 1993, p. 284 and Qin and Kot 1993, p. pressway "allocation" for most cities might be taken up 276 in Polenske and Lin, p. 9. by just one ring road and one or two radial routes, with perhaps an additional ring in the largest cities. 4 In 1994, the government affirmed its policy for making 17 automobile manufacturing a pillar industry, and began Li Peng Speech at the Fourth National Conference on to encourage private ownership of cars. Environmental Protection, July 15, 1996, p.10. 5 Walsh, p. 122. 1 Wang, p. 3. Sinopec, China's main motor fuel producer, plans to upgrade the quality of gasoline with 6 Stares and Liu, p. 58. advanced refining technology and the use of alkylates and oxygenates (MTBE, and TAME) toward a strategy 7 David Fridley, Memorandum to Mark Levine, p.3., for reduced vehicle emissions. Wang, 1994. August, 1995 B Fridley, p. 2. 9 Why lead should be removed from gasoline, Environ- ment Department, World Bank, Dissemination Note No. 32, December, 1995. p. 3. 10 Pokenski and Lin " CAT Workshop recommendations, p. 23. Beijing, Octo- ber 26-28, 1995 2 Fridely, August 1995, p. 4-5. 13 Note, many of these new cities will be upgraded towns. Chong, China Trade Report, October, 1996. 4 China's Urban Transport Development Strategy, Annex 1, Tables 1-4. 1 Stares and Zhi, p. 47. CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 75 .4/18/97 W7 Water: Preserving Scarce Resources Economic growth and rapid urbanization have capita (behind India). China has about one-third of led to widespread water shortages and serious the world average runoff per capita. water pollution in China. The lack of fresh- water is a major factor affecting agricultural and The nationwide total masks a great regional industrial productivity in northern China. The na- disparity within China. "South China" (the Yangtze tionwide contamination of water resources due to and rivers of the southern, southeastern, and south- pollution has become a threat to human well-being western regions), has 81 percent of China's total and the ecosystem. While other sources of pollu- run-off for 55 percent of the total population. tions merely impose costs on Chinese society, water "North China" (the Yellow, Hai, Huai and rivers of pollution imposes cost and threatens to constrain the northeastern and the Shangdong peninsular re- China's future-growth. gions) gets only 14 percent of China's runoff, yet must support 43 percent of its population. The 750 WATER QUANTITY: DEMAND GROWTH AND m3 per capita runoff for North China in 1995 is only RESOURCES CONSTRAINTS 10 percent of the world average, indicating serious shortages of water resources. The northern regions China is relatively poor in water resources also have relatively low volumes of groundwater; 69 (Table 7. 1). Of the major nations included in the percent is concentrated in the southern regions. This comparison, China is next-to-lowest in runoff per disparity in water resources is the main motivation for South-North water-transfer projects. TABLE 7. 1 INTERNATIONAL COMPARISON OF WATER RESOURCES Country Annual Internal Water Per Water Per Capita Renewable Land Area 1995 (km') (m/km2) (M) Canada 2,901 290,944 98,462 Brazil 6,950 816,494 42,957 Russian Fed 4,498 263,426 30,599 Indonesia 2,530 12,804 U. S. A. 2,478 264,659 9,413 Japan 547 1,447,090 4,373 China 2,812 292,917 2,292 India 2,085 700,840 2,228 World 41,022 301,988 7,176 Source WRI, 1996 and SSB, 1996. Water withdrawal in 1995 is estimated at about But in the Hai River Basin (covering most of North- 500 kM3, 15 percent higher than in 1980.' The em China Plain), groundwater supplied more than maximum annual withdrawal for the country is esti- half. In general, the north relies much more heavily mated at about 1,100 km'. Irrigation accounted for on groundwater than surface, but much of ground- 80.7 percent of total consumption in 1980, while all water is used to meet municipal and industrial de- rural activities totaled 88 percent. Groundwater mands as it is the more reliable source (Table 7. 2). supplied 14 percent and surface water, 86 percent. CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 76 .4/18/97 TABLE 7. 2 WATER CONSUMPTION (KII) AND SOURCE, 1980 Water Consumption Water Supply Source River Basin Urban Rural Other Total Surface Ground Total Life Industn Irrigation Life Rural Cons Water Water Water I Northeast 10 64 239 12 29 354 269 85 354 II Hai 1 1 49 304 1.5 04 383 181 202 383 III Huai/Shangdong 05 3 8 454 27 07 53 1 402 129 53 1 IV Yellow 06 28 306 1 0 08 35 8 274 84 35 8 V Yangtze 22 209 104 1 75 06 1353 1286 67 1353 VI South China 1 0 46 55 1 54 00 660 654 06 660 VII SE China 02 16 166 09 00 19.3 188 0.5 193 VIII SWChina 00 01 39 03 01 44 43 01 44 IX Inland 02 07 479 08 62 55 8 51.9 39 55.8 Total 68 45 8 357.9 21.3 116 4434 381.6 61 8 4434 Total distribution I 5% 103% 807% 48% 2 6% 1000% 86 1% 13 9% 100.0% Source Wu, 1989 China wastes water, even in water-deprived There is 20 million ha cultivated land suffering from areas, because of problems in pricing, manage- drought, and 47 percent of 640 cities have water ment, and technologies. Agriculture, the pre- shortages (Chen, 1996). This is because local water dominant water consumer, wastes about 60 per- resources, especially in North China are fully utilized cent of the water passing through its old- and the only sources of additional water is from inter- fashioned ditch irrigation system. Most industrial basin transfers. In fact groundwater is over-extracted enterprises, many extracting their own water from by as much as 30 percent and groundwater tables have rivers or ground, do not recycle water. The na- dropped between 100-300m in many areas. Also, tional average recycle rate is about 40 percent, China has underinvested in water supply. Finally, 7 iserious water pollution around cities has reduced the compared to about 70 percent mn OECD countries. -2 Outdated production technologies also contribute water available for municipal and industrial purposes. to excessive water consumption in industrial The highest growth in water demand is expected processes. For example, coal-based ammonia in the urban and industrial sectors. Water demand is manufacturing consumes 500-1000 tons of water projected to grow most rapidly in the northeast and per ton of ammonia, compared to 12 tons in the southern regions, and the slowest in the Yellow River natural-gas based process. Chinese paper industry and western inland regions. Most of the shortages are normally requires 400-500 tons of water for one in the Hai River Basin (II) covering all or part of He- ton of paper product, compared to 5-200 tons in bei, Shanxi, Henan, Shangdong, Jiangsu, and Anhui OECD countries (NEPA, 1997). provinces and Beijing and Tianjin municipalities (Table 7.3). China's South-North water transfer is The Ministry of Water Resources estimates that intended to relieve water shortages in this region. annual water supply is 60 km3 short of demand. TABLE 7.3 URBAN WATER SHORTAGES/SURPLUSES(-/+) (KM3/YR) (95% Probability Flow) River Basins I II III IV V VI VII VIII IX 1995 2000 18.9 -13.6 8.5 25.1 123.7 63.6 17.3 5.2 43.5 2005 16.8 -17.1 5.7 23.3 114.0 61.2 18.9 5.3 43.4 2010 13.9 -21.1 2.5 21.2 102.0 58.2 20.3 5.3 43.2 2020 13.9 -21.1 2.5 21.2 102.0 58.2 20.3 5.3 43.2 2 Assumes surpluses in Regions IV-VI and transferred to Region II. Source.Annex 7 The above projections do not take into account become an increasingly important factor affecting the shortages caused by water pollution which has stable and clean water supply in China. CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 77 .4/18/97 WATER QUALITY: POLLUTANT DISCHARGES The total industrial and municipal wastewater AND WATER CONTAMINATION discharged into open water bodies was about 42.2 billion m3 in 1995, increasing at an annual rate of Discharges 1.4 percent since 1989 (Table 7. 4). While waste- water discharges from county-and-above level in- Major sources of water contamination include dustnal enterprises (called regulated enterprises industrial and municipal wastewater discharges, ag- hereafter) have stabilized since the early 1990s, ricultural run-offs of chemical fertilizers, pesticides TVIE and municipal wastewater discharges have and animal manure, and the leaching of solidwaste increased rapidly, implying a fast shift in pollution sites. Few of the water pollution sources receive source location as well as pollutant composition. even minimum levels of control. TABLE 7. 4 INDUSTRIAL AND MUNICIPAL WASTEWATER DISCHARGES, 1981, 1989 AND 1995 (billion M3) 1981 1989 1995 National Total a 29.2 (100%) 38.8 (100%) 42.2 (100%) Industrial Total 23.3 (80%) 28.8 (74%) 27.1 (64%) Regulated Industries 23.3 26.1 22.2 TVIEs no datum available 2.7 4.9 Municipal Total 5.9 (20%) 10.1 (26%) 15.1 (36%) a Figures may be smaller than actual discharges because NEPA data do not cover all industrial enterprises and all towns and cities. Sources: China Environmental Yearbook, vanous years and NEPA, 1997. Major pollutants in industrial wastewater have remained stable or even seen some rebound in streams include COD, BOD, petroleum, volatile recent years, in spite of increased wastewater treat- phenols and various heavy metals. Discharges of ment among these enterprises (Table 7. 5). The these pollutants from the regulated enterprises have amounts of toxic chemicals are not reported. decreased by varying degrees in the late 1980s, but TABLE 7. 5 DISCHARGES OF MAJOR WATER POLLUTANTS FROM REGULATED ENTERPRISES 1981 1986 1990 1992 1995 COD (10' tons) 7,254 7,164 7,148 7,684 BOD (estimated, 103 tons) 2,539 2,507 2,502 2,689 Petroleum (tons) 131,408 83,486 66,468 65,076 64,194 Phenols (tons) 21,296 10,603 9,324 6,361 6,335 Pb (tons) 3,006 2,136 1,294 973 1,251 Cr+6 (tons) 2,367 1,101 700 383 331 As (tons) 1,200 1,566 1,260 872 1,086 Cd (tons) 236 157 152 138 202 Hg (tons) 62 35 25 22 13 Source: China Environmental Yearbook, various year. Water contamination caused by agriculture run- The leaching of solid wastes, especially toxic offs is serious and increasing because of intensive wastes, could be a widespread water contamination use of chemical fertilizers and pesticides as well as a problem because of the huge accumulation of solid huge increase of livestock production. Fertilizer and wastes. Current accumulation of industrial solid pesticide applications, already high, have doubled in wastes in China is over 6.6 billion tons with an an- the last decade. nual addition of 180 million tons. NEPA assesses that about 10 percent of industrial solid wastes is CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 78 *4/18/97 hazardous or toxic. In 1995, the regulated enter- crease in municipal sewer system coverage and prises alone dumped 6.5 million tons of solid wastes wastewater treatment capacity. Only 4.5 percent of into water bodies (NEPA, 1996). combined municipal and industrial wastewater re- ceive collective treatment, and 15 percent receive Mobile sources, such as barges and slups, are a pretreatment. Directly discharging lughly-polluting significant contributor to water contamination of riv- effluent into China's rivers, lakes, and coastal waters ers, lakes and coastal waters. Oil leaks and spills are has led to water pollution of increasing scale and a major source of pollution. For example, some severity. 300,000 vessels navigate the Yangtze River, dis- charging and leaking over 5,000 tons of oil per year. Urban Water Bodies are among the most se- Annual discharges of wastewater and solid wastes verely polluted because of receiving largely un- into the river are estimated at over 90 million tons treated industrial and municipal wastewater dis- and over 80,000 tons, respectively (NEPA, 1997). charges. In 1995, 52 out of 135 monitored urban river sections did not even qualify for Grade V sur- Water quality face water ', rendering them mere waste sinks. Only 30 sections qualify for Grade II and III water, and The government regulates wastewater dis- none meets Grade I requirements. Top pollutants charges through three classes of discharge stan- include petroleum, BOD, phenol, COD, ammonia dards.3 COD concentration in wastewater dis- nitrogen, permanganate, and mercury (NEPA, charged by regulated enterprises had risen from 250 1996). mg/l in 1986 to about 350 mg/l in 1995, surpassmg Class II standard by 150 mg/I, implying minimal Major Rivers Systerns are polluted by various industrial wastewater treatment, either because of lax degrees. Except the Yangtze and Pearl, other nver enforcement or a wide application of inferior treat- systems suffer from rather serious contamination ment technologies. The same situation applies to (Table 7. 6). Over 50 percent of the water bodies of BOD concentration. It appears that concentrations Huai, Yellow, Songhua and Liao rivers are not suit- of all other pollutants listed in Table 7. 4 meet Class able as raw water sources for potable water systems. I discharge standards.' Wastewater discharged by In fact, industrial water pollution in the Huai River TVIEs is believed to have significantly higher con- Basin had reached near disaster level, prompting the centrations of relevant pollutants because of the near central government to adapt drastic measures to absence of treatment. The rapid increase of munici- control wastewater discharges along the river bank pal wastewater has not been accompanied by in- (Box 7.1). TABLE 7. 6 WATER QUALITY OF CHINA'S MAJOR RIVER SYSTEMS, 1995 (percent of the river system) Grade I & II Grade M Grade IV & V Yangtze 45 31 24 Hai 42 17 41 Pearl 31 47 22 Huai 27 22 51 Yellow 5 35 60 Songhua & Liao 4 29 67 Source- NEPA, 1996. CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 79 .4/18/97 Box 7.1 WATER POLLUTION IN HUAI RIVER BASIN More than 10 million people draw their drinking water from the Huai River, though the waterway has been designated a danger to plant life by the Ministry of Agriculture due to high levels contamination. At least 3,000 mills, factories, and breweries discharge effluent into the Huai. The Huai receives an annual discharge of untreated effluent and sewage totaling more than 3 billion tons. Only 27 percent of the waters of the Huai River basin in 1995 meet the Grade I or 11 standard. The toxicity level is 10-20 times higher than the national level for drinking water despite municipal treatment. In 1994, the releasing of flood water with high levels of pollutant concentrations in the upper reach caused large-scale pollution incidents affecting four provinces, and prompted the central government to designate a special leading group for the Huai River Basin clean-up effort. Reduction tar- gets for major pollutants such as COD are set and tied to the appointments of local leaders. By the end of June 1996, a total of 1094 paper mills had been closed. The estimated investment for the Huai River clean-up efforts from 1995 to 2000 is 12 billion yuan. Source: China Environmental Yearbook, vanous years Lakes and Reservoirs in general suffer from THE COSTS AND BENEFITS OF CLEAN AND eutrophication caused by increasing concentration of ADEQUATE WATER SUPPLY nitrogen and phosphorus. Among China's large freshwater lakes, Chaohu and Dianchi are seriously Inter-basin transfers polluted with nitrogen and phosphorus levels ex- ceeding the maximum limits by 2 to 8 times. Taihu, The economic losses of not having adequate the third largest freshwater lake in China, has be- water are benefits forgone because of water short- come a major sink of effluent discharges from Ji- ages. The willingness to pay (WTP) for urban water angsu Province and other regions of its watershed. is observed to be about 1.8 yuan/m3 in some coastal About 25 percent of its water body is seriously pol- cities of China and is estimated to be 4.3 yuan/M3 in luted and some areas cannot support life at all water-short cities such as Taiyuan. Consumer sur- (NEPA, 1996). plus from water consumed, which is more conserva- tive than the WTP measure, has been estimated to be Coastal Waters have seen accelerated quality 2.5 yuan/m3 for cities such as Taiyuan in 2000, ris- degradation. Most polluted are major estuaries, ing to 4.5 in 2020. These economic values are bays, harbors and waters near large and medium- lower than the amortized cost of many water proj- sized cities. In the waters of the Yangtze River Es- ects, but the increased supplies also will generate tuary, the Hangzhou Bay, and the Zhoushan fishery unmeasured social benefits. For example, lack of area of the East China Sea, inorganic nitrogen and water for basic household sanitary washing is be- phosphorus exceed the maximum limits by 100 and lieved to be one of the major reasons of high inci- 87 percent, respectively (NEPA, 1996). dence of diarrhea in Shanxi Province. Values esti- mated for Taiyuan City are similar to that estimated The 1995 Report on the State of the Environ- for other water-short cities in the Hai Basin. ment in China summarized the current state of China's water: "The waters of rivers, lakes and The economic value of water across industries reservoirs in China were universally polluted in in Shanxi is about 24 yuan/M3, similar across the Hai varying degrees. Except for some inland rivers and River Basin. Water shortages in Shanxi, China's large reservoirs, the pollution of waters has tended to coal mining base, are so severe that they threaten the worsen and the pollution adjacent to industrially de- further growth of local industries (Box 7.2). veloped cities and towns was particularly conspicu- ous." If no major water transfers were undertaken in the Hai Basin, water shortages would vary with the river hydrology. For a 95 percent probability flow, the shortages would increase from 13.6 billion M3 in CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 80 .4/18/97 2000 to about 21.1 billion m' in year 2020. The net in 2000 to 164 billion yuan by 2020 using the values economic loss increases from 103.6 billion yuan/yr estimated above (Table 7. 7). TABLE 7. 7 WATER SHORTAGES AND ECONOMIC Loss IN HAI RIVER BASIN, WITHOUT/wITH TRANSFERS (95 percent probability flow) Without Transfers With Transfers Shortages Losses Shortages Losses (km3/year) (billion Yuan) (k m /vear) (bllion 2000 -13.6 -103.6 -13.6 -103.3 2005 -17.1 -120.3 -15.2 -152.6 2010 -21.1 -164.3 -10.7 -73.3 2020 -21.1 - 164.3 -5.7 92.6 Source: Annex 7. There have been many recommendations to re- from an average of 1.24 yuan/M3 to 4.94 yuan/m duce water shortages, including managing demand over the next 5 years. (increasing water charges), and reducing losses in water systems (increasing utilization efficiencies). Importing water into water-short areas through Most of these measures have been undertaken in inter-basin transfers will dramatically reduce the some fashion in most cities in the North China Plain. economic losses due to water shortages. Imple- Although prices of water have been low for all sec- menting the East and Middle South-North Transfers tors the governments at provincial and state level are will significantly reduce the shortages (Table 7. 7) encouraging price increases which reflect both cost The costs of these transfers are significantly less than recovery and shortage costs. In Taiyuan, the Price the losses. A benefit-cost analysis shows that the Bureau has announced a schedule of price increase rate of return for implementation of the transfer projects is over 40 percent. Box 7.2 BENEFITS FOR INDUSTRIAL WATER USE IN SHANXI PROVINCE Shanxi industries have gone to great lengths to conserve water. In 1980, average output value per cubic meter of water was 22 Yuan. By 1990, this had risen to 48 Yuan and by 1994 it reached 75 Yuan. Shanxi in- dustries surpassed China-wide norms for 2000 for recycling in 1991, reaching an 84.3 percent recycling rate in 1993. Production function analysis shows that most investment in Shanxi industries in recent years went toward increasing the productivity of water. Still, water remains the overriding constraint on industry. It is estimated that 1993 industrial output could have been 6.5 billion yuan greater (22 percent more) had there been no water shortage. Factories have to shut down periodically when water is not available. Given an alleviation of the water shortage, Shanxi industrial capacity will continue to grow based on the natural resources endowment and location of the province. With additional water, annual industrial output is pro- jected to increase by 75 percent between 1993 and 2000. Without additional water, output is likely to stagnate and remain near current levels. Source: Losses through water contamination is the cost of ecosystem degradation resulting from water pollution. According to Chinese experts as- Costs of water pollution include damages to sessment, water pollution in 1993 resulted in 16.5 human health as well as losses of industrial and agri- billion yuan health damages, in addition to 16.1 bil- cultural productivity caused by water contamination. lion yuan losses in agricultural and industrial pro- These losses are difficult to calculate. Even more so duction (NEPA, 1997). CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 81 4/18/97 to greater water pollution if effluent treatment does Many urban areas will face increasing shortages not catch up. of Grade I-III water, if the quality and quantity of municipal and industrial wastewater treatment do not In the late 1980s, costs of fresh water supply rise, as safe drinking water extraction is already a range from 0.15 yuan/m3 in the Northeast to about 3 serious problem along Songhua, Liao, Yellow, and yuan/M3 in the Western inland area, averaging 0.35 Huai rivers. Large water transfer projects require yuan/M3. Adjusting for inflation, the average cost of huge investments and take years to complete. Only water supply could have gone well over 0.5 yuan/m3 in regions suffering severe water shortages would by the nud 1990s. According to previous World the benefit justify the cost for such undertakings. In Bank studies, the investment cost for secondary cities and towns where water shortages are primarily treatment (which removes 85-95 percent of BOD and caused by water pollution, wastewater treatment not most heavy metals) was about 0.4 yuan/M3. [World only provides basic health benefits but also contrib- Bank, 1994] It is likely in many circumstances that utes to industriil and agricultural productivity. In- treating wastewater to Grade IV quality would be creased water supply and consumption will only lead cheaper than supplying fresh water to industrial users (Box 7.3). Box 7.3 CosTs OF TREATING WATER ARE ABOUT HALF THAT OF NEw FRESH WATER IN DALIAN... Dalian is one of the coastal cities suffering from water shortages. About 40-50 percent of the city's tap water is consumed by industries. During the dry season, the government used to order some large industrial users to stop operation for as long as 60 days. A wastewater treatment plant (10,000 m'/day) was put into operation in 1992, supplying processing water for one of the city's industrial districts. The adequately treated wastewater not only provided factories a relatively low priced alternative water source but also boosted production and reduced pollution. Cost comparison of using fresh water and treated wastewater for industrial processes: Industrial tap water price: 1.5 yuan/ton Cost of fresh water supply (treatment cost excluded): 1.2 yuan/ton Pollution surcharge: 0.1 yuan/ton Price for treated wastewater: 0.8 yuan/ton Cost of treatment 0.5 yuan/ton Source: Rui, 1997. The economic impact of the considerable of loss in grain production (NEPA, 1997). Since amounts of uncontrolled waste discharges into rivers irrigation peaks in the dry season, industrial and mu- and lakes will have significant consequences for ag- nicipal wastewater in general has to be treated up to nculture. Irngated agriculture is the main user of at least Grade V quality for irrigation purpose. Cur- polluted water. However, irrigated agriculture can- rent treatment fails to meet this requirement by a not use water with quality worse than Grade V stan- substantial margin, with COD concentration ex- dards which have a considerable amount of heavy ceeding the standard by 13 times. If such situation metals and toxics. In 1993, about 8 percent of does not change the loss of grain production could China's irrigated areas received water below Grade increase dramatically in the future, undermining V standards, resulting in an estimated I million tons China's food security (Table 7. 8). CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 82 .4/18/97 TABLE 7. 8 IMPACT OF WASTEWATER TREATMENT ON GRAIN PRODUCTION Projected Gram Production (million tons) Projected Grain Treatment Levels (% of total wastewater discharge) Demand 30% 50% 75% 2000 500.0 469.4 474.4 477.6 2005 540.0 482.1 489.2 489.6 2010 580.0 513.5 536.4 543.3 2015 612.5 520.0 543.2 550.1 2020 645.0 526.5 550 0 557.0 Source Annex 7 The impact of wastewater treatment is evalu- percent. The incremental value of this production ated with a water demand model covering China's is US$4.4 billion or 36.6 billion yuan per year nine major river basins. Wastewater treatment (1995 prices). The additional gain is much smaller level is assumed to be about 30 percent of the total if the treatment level is further increased from 50 effluent volume by 2000. Options were give in the to 75 percent, about 7 million tons of grain, or model for treatment levels to vary to 50 and 75 US$1.3 billion. percent. The outputs are the net grain production in the future under different wastewater treatment The incremental net benefits are significant if levels (Table 7. 8). The total incremental grain wastewater is treated up to 50 percent or 70 per- production would be about 24 million tons by 2020 cent. It does not pay to maintain the status quo if wastewater treatment increases from 30 to 50 (Table 7. 9). TABLE 7. 9 Net Benefits of Treatment (billion 1995 yuan) Treatment Levels 30% 50% 75% Investments 1995-2010 (Amortized) 6.0 12.0 16.7 Operating Costs 10.1 16.8 23.5 Total Costs 16.0 28.7 40.2 Incremental benefits 0.0 36.6 44.2 Net Benefits -16.0 7.9 4.0 Source: Annex 7 POLICIES FOR SUSTAINABLE UTILIZATION OF prices. In the household sector, price elasticity of WATER RESOURCES water demand varies between -0.3 and -0.6. In the industrial sector, the range is -0.45 to -1.37. And Only a combination of pricing, management, for irrigation, the elasticities fall between -0.37 and and investment policies can reverse the current -1.50 (World Bank, 1995). For large water con- trend of water quality degradation. These policies sumers in industry and agriculture, higher prices will also require institutional reforms to be effec- would encourage users to conserve water by tive. adopting more efficient water using practices and/or technologies. Raise prices to induce water conservation and effluent control. Despite water pricing and man- Water must be priced to reflect its scarcity agement reforms in recent years, China's water and economic costs. Water supply has long been supply and wastewater treatment services are gen- considered a basic social service of government erally underpriced, leading to excess demand, high responsibility. Prices were set by local govern- levels of pollution, and inadequate funds to meet ments without consideration of the resource value investment needs. International experience has and cost recovery. The government still subsidizes shown that all water users are sensitive to water water prices in Chinese cities. This practice has CHAMrER 7: WATER: PRESERVING SCARCE RESOURCES 83 - 4/18/97 led to widespread low efficiency in water utiliza- that the costs will be paid directly or indirectly, tion and the adoption of water-intensive technolo- and that the current choice to rely on indirect pay- gies in industries. Water quotas are the norm for ment leads to excess effluent discharges, on the demand management. The Ministry of Water Re- one hand, and an inability to meet treatment needs, sources has recently recommended freeing water on the other. The result in the end is greater pol- prices, starting from the new water projects. More lution and higher social costs. aggressive local governments have already begun to allow fully self-financed water projects to set Direct control of termmnal discharges is cnti- their own prices. Economic water pricing will en- cal. Enterpnses will not have economic incentives hance demand management and provide the finan- to reduce pollution unless it becomes an internal cial resources water companies need to Increase cost through effluent levies, violation fines and maintenance and service quality and expand system enforcement monitorng. Current levies and fines coverage. for water pollution are universally low in China, and should be raised substantially to induce greater Ground and surface water must be protected abatement. from overexploitation. Fees for raw water extrac- tion should be increased to a level that, on average, Strengthening institutions and regulation to equates self-supply costs to municipal supply costs. improve water resources management. Pricing The Ministry of Water Resources has been con- policies will not work effectively without a com- ducting the trial implementation of water resources plementary institutional and regulatory framework. tax. Even without clear national policy guidance, Water supply and water pollution control are many counties already started to collect water re- highly inter-regional, and often involve multiple sources tax. Such development puts pressure on institutions and governments of different regions. the central government to provide proper legisla- In water-short areas, water management must pro- tion so that such tax schemes become an effective vide rational allocations of water-usage rights. For instrument for water resources conservation. pollution control, there is no substitute for regula- tion. A water demand management using economic pricing of water extraction and supply would re- The lack of close coordination among institu- duce sector investment needs by an estimated 4.5 tions and local governments involved in the man- billion yuan annually by the year 2000, free enter- agement of water rights, the non-consumption use prises from water quotas, and allow cities to real- of water, water extraction and supply, and post locate the 12 percent of municipal urban mfra- consumption treatment is a major deficiency in structure budget that currently finances water in- water resources management. The Ministry of vestment (World Bank, 1994). Water Resources is designated to control China's water resources (sole owner of the water rights), To prevent further detenoration of water but the development and protection of water re- quality, cities and towns must increase municipal sources are mainly shared by the Ministry of wastewater treatment levels at a pace at least Transportation, the Ministry of Construction, the equaling the growth in effluent discharges. Ministry of Public Health, the Ministry of Power, Wastewater treatment plants are the only effective and NEPA; each has other prionties, and each has means of dealing with the growing domestic and to work with corresponding agencies of local gov- commercial wastewater loads. Relying on general ernments in different areas or segments of water government revenues will not be nearly enough to resources management. To protect effectively meet the requirements. Cities must raise sewerage scarce water resources and control worsening wa- fees for domestic, commercial, and enterprise dis- ter pollution, strong leadership in water manage- charges to recover the full costs of collection and ment is needed so that an integrated approach to- treatment. While the imposition of user fees may wards river basin management can be adopted. be politically difficult, city leaders must recognize The Huai River clean-up effort may serve as a test CHAFTER 7: WATER: PRESERVING SCARCE RESOURCES 84 4/18/97 for one model of approach. But an integrated river basin management system has to consider the long- Nearly 40 percent of urban China is unserved term stability and effectiveness of the institutional by sewers. Only 4.5 percent of municipal waste- framework. water flows receive treatment of any kind. Given the low quality of urban surface waters, known The absence of adequate planning undermmes downstream effects, and widespread aquifer pollu- water resources management. Most Chinese cities tion, the national government should require the do not have watershed management master plans 203 large and medium-size cities to provide pri- that integrate water supply, demand management, mary treatment (with provision for expansion to and pollution prevention and control. Water sup- secondary) within ten years for any discharge that ply investment is generally based on a reduces water quality to below irrigation use stan- "requirement approach" without much considera- dards. Such treatment would reduce pollution tion of the role of water price and its effects on loads by some 30 percent from those cities, which quantity consumed. It is critical for China's cities account for over 80 percent of total pollution loads. and regions to improve their planning capacities by All cities should be required to design and develop adopting new methods and taking a comprehensive sewerage systems that facilitate the later addition of approach toward watershed management. treatment works, and which provide immediate treatment if water quality cannot meet either irri- China has already mitiated pernut systems for gation use standards within 3 km of waster water effluent discharges as well as for water extraction. discharge points, or standards for domestic raw Such schemes are considered effective ways of water at the nearest downstream community ex- controlling the total levels of effluents and pre- traction point. The estimated cost of this waste- ventmg over exploitation of water resources. The water investment program is 4.3 billion yuan per government should move to formal legislation for year (US$500 million) over the next 10 years, or such permits after correcting problems that have about a 15 percent increase in the annual urban emerged during trials. infrastructure construction program, which would be offset by decrease in water supply investment Water management is a public service that resulting from the recommended water demand needs public support and public participation. management program (World Bank, 1994). Prop- Public involvement in the legislation and regulation erly pricing sewerage collection and treatment processes of water issues will improve the effi- could attract private investment in wastewater ciency and the effectiveness of water management. treatment projects. Increase investment to assure reliable water The government also needs to support water supply and improve water quality. China will have conservation through technical assistance, espe- to invest in inter-basin water transfer projects to cially to improve irrigation efficiency. relieve severe water shortages in the North China Plain region. Cities, old and new, will need capital The Chinese government is keenly aware of to improve or increase services in water supply the critical situation of China's water problems. and samtation. Agriculture and industry also need Actions have been taken to relieve water shortages to adopt water-saving new technologies. These in north China and large scale clean-up efforts of investments will dramatically reduce the economic heavily polluted rivers, such as the Huai, Songhua losses due to water shortages and reduce the social and Liao, and lakes, such as Chaohu and Dianchi, costs of water pollution. Government is not in a are planned or already underway. The actions position to shoulder all the investment costs. suggested above will go far to enhancing the effec- Proper pricing policies and environmental regula- tiveness of these efforts. tion would help realize the potential for private investment in the sector. CHAPTER 7: WATER: PRESERVING SCARCE RESOURCES 85 4/18/97 ENDNOTES The 1995 total water withdrawal figure is based on current water supply capacity, actual withdrawal could be either larger or smaller [Chen, 1996] 2 According to a study of 270 cities which have seri- ous water shortages conducted by the Ministry of Water Resources, 136 cities have inadequate water resources, 110 cities have insufficient supply infrastructure, and 74 cities' water supply is cut short because of pollution. [SPC, 1995] Class I standards apply to discharges into key pro- tected water bodies, including drinking water sources, general fishery areas and important scenic areas; Class II standards apply to discharges into generally protected water bodies, including general industrial water sources and irrigation water sources; and Class III standards apply to discharges receiving secondary wastewater treatment. 4 It is important to point out that, during dry seasons, wastewater discharges ought to meet surface water quality standards. Under such conditions, only chromium and arsenic concentrations in industrial wastewater now meet Grade III surface water standards which are mimmum for drinking water sources The rest of pollutants exceed Grade III standards by 2 (Pb) to 60 (phenol) times. 5 The government defines five categories of surface water quality standards, of which the top three grades permit direct human contact and use as raw water sources for potable water systems. Grade IV is restricted to in- dustrial use and recreational use other than swimming and Grade V to irrigation. CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 86 4/18/97 FoslPolicies For a Higher Standard of Living China has made considerable progress in its ef- A first step is to establish priorities of action. forts over the last decade to control the environ- The rough quantification of pollution-related dam- mental damages associated with fast growth. But, as ages to health, worker productivity, and agriculture Li Peng noted in his speech to the 4th environmental presented in Chapter 2 suggests a set of environ- conference in 1996, much remains to be done. Am- mental priorities: bient concentrations of particulates and sulfur diox- ide are among the highest in the world, and cause * Urban air pollution causes about 36 percent of damages to human health and lost agricultural pro- damages in mortality and morbidity. Over the ductivity estimated at least 7-9 percent of GDP. next twenty five years, reforms and existing policies will have a positive effect on large It seems unlikely under current policies that point sources, such as power, but these im- China will not meet its objective of containing emis- provements might well be offset by worsening sions by 2000 and lowering them early in the next emissions from small point sources without as- century. The projections in Chapter 2 indicate that sertive policies. Increasing motorization, if anything health costs are likely to rise, even with though a small contributor now to overall pol- probable improvements in technologies and struc- lution loads, will have a perceptible impact on tural change in the economy. While estimates are urban environmental quality in the future; subject to considerable uncertainty, health and agri- moreover, as congestion worsens, it will also cultural damage could rise to more than 10 percent take a toll on worker productivity at the same of GDP rather than improve. time that slower average speeds drive up pollu- tion. Policy in China, however, is unlikely to remain static. The preceding sectoral analyses show that * Indoor air pollution associated with burning alternative policies are open to the country. This coal and biomass for heating and cooking chapter outlines the changes in the economy that causes roughly 30 percent of the health and would have greatest impact in reducing pollution and mortality damages today. The most effective its damages, and then discusses policies necessary to measure are policies to encourage adoption of achieve those changes. The conclusion is straight- cleaner fuels. forward. if many of these policies are adopted, rapid growth is compatible with a rising environ- * Lead causes roughly 20 percent of damages mental standard of living through neonatal care, medical costs, compen- satory education, and lower earnings. This ESTABLISHING PRIORITIES FOR POLICY underscores the importance of the government's recent decision to phase out lead in gasoline. Were it not for other pressing demands on the government, making the decision to spend for a * Water pollution is rapidly exhausting China's cleaner environment would be straightforward. But clean water resources. The costs of damages to China must also spend resources to continue raising health, industrial and agricultural productivity the welfare of the millions that live in poverty. The and the ecosystem from water-related problems country needs better health care and education, to are difficult to quantify and are under-estimated say nothing of ensuring the adequacy of pensions for in this report. Because of this and because an increasingly older nation. So, the government other damages are so high, water pollution costs must devise ways to reduce these environmental constitute only 6 percent of measured damages. damages in ways that are most cost-effective. But these are likely to grow as water shortages become more acute, municipal wastes increase CHAPTER 8: POLICIEs FOR A HIGHER STANDARD OF LIVING 87 4/18/97 with urbanization, and agriculture practices Shifting the structure of the economy in the continue to lead to run off pollution. direction is economically feasible. The speed at which the economy adjusts depends on the invest- * Acid rain presently causes about 8 percent of ment the country wishes to make in the near-term to damages through lost agricultural production prevent social costs accunng later. More investment and accelerated depreciation of infrastructure will produce greater social benefits. Two scenarios and equipment. This problem is likely to grow (described in detail in Annex ---) have been exam- because of the country's energy dependence on ined to analyze the implications of the alternative coal. strategies that might be followed. To be sure, the quantification of damages pre- Medium investment scenario. A medium in- sented in this report are subject to a large margin of vestment scenario begins with the assumption that uncertainty. But the fact remains: over a large China will adopt policies necessary to achieve pro- range in assumptions and valuations, these priorities gressively emission standards broadly equivalent to remain essentially valid. those in force in the US and Europe in the early 1990s. Policy interventions (discussed below) By adopting a combination of interventions, is would elicit investments, both public and private, it possible for China to achieve a marked improve- that would shift the economic structure along the ment in environmental quality as its economy lines suggested above. grows? If so, what policies would be needed to realize those changes? High investment scenario. In many settings, the marginal cost of pollution abatement rises ALTERNATIVE SCENARIOS sharply once emission reductions of 60-80 percent have been achieved. The high investment scenario The business-as-usual scenario in Chapter 3 assumes that emissions standards correspond to the painted a rather bleak picture of future environment concept of 'best available techniques' (BAT) that quality in China. But if China could "grow differ- has been adopted by the European Union as the ently" into a different economic structure, emissions basis for its environmental policies'. The scenario would certainly fall. Among the changes that will assumes policies that would induce China's com- make the most difference to future environmental mercial sector to invest in abatement closer to the quality in China are: maximum social benefits for China. Furthermore, the scenario allows for substantial public invest- * Substitution of coal with cleaner fuels for ments in infrastructure to deal with emissions from household heating and cooking-especially gas dispersed sources. and district heating. Projections show that under realistic assump- * Improved energy efficiency, conservation, and tions, economic growth is compatible with environ- diversification of energy supplies into non-coal mental improvement. sources. * Widespread adoption of pollution abatement in industry. * Reliance on public transit rather than automo- biles as primary form of urban transporation. * Widespread adoptions water pollution abatement to protect scarce water supplies. CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 88 4/18/97 FIGURE 8. 1 EMIsSIONS OF PARTICULATES by the year 2020. Thus, a strategy more ambitious UNDER ALTERNATIVE SCENARIOS than the medium investment scenano would seem to be both financially feasible and would generate sig- ificant improvements in water quality and urban conditions. ___ .FIGURE 8. 2 HEALTH COSTS OF URBAN AIR POLLUTION Note: Annual standards derived from daily standards. Air quality, as we have seen, has a significant impact on health. Emissions of particulates from small sources fall to less than one-half of their 1995 -- level. Based on simulation of 11 large cities (Figure 8. 1), the average exposure to PM10 declines to 80 ug/m3 by 2020 in the medium investment scenario. The health damages from pollution are sharply All but one of the cities-Jman is the exception- constrained under these assumptions. Where in the would meet Class III air quality standards for PM10 business as usual scenario in 2020, health damages of 100 ug/m3 as an annual average. Class II stan- exceed 10 percent of GDP, with the investments dards could be met if China were to invest more. promoted in the high investment scenano, damages This would imply a dramatic reduction in the burden fall to nearly zero -- because China would achieve its of premature mortality and ill-health compared to the objectives of clean air and water that meets its own business as usual scenario. standards. Abating water pollution may require greater in- Acid rain can be reduced through targeted in- vestment from both the commercial sector (state and vestments of sulfur control in key acid rain areas. nonstate) and the public sector. China has made While a high-investment approach would be to install progress in reducing discharges of water pollutants high efficiency sulfur control equipment on all power from industrial sources, but, industrial emissions plants, a medium-investment approach could meet account for only 35 percent of total discharges of similar environmental goals at much lower cost and BOD, while large industrial sources represent only would focus on coal cleaning and domestically avail- one-quarter of all industrial emissions. Real progress able pollution control technologies for both power in reducing water pollution depends upon making and industrial boilers. large investments in sewers and sewage treatment. The high investment scenario assumes that all urban Such a program would markedly scale back the sewage receives secondary treatment together with damage from acid rain (Error! Reference source primary treatment for 80 percent of rural sewage. not found.). Instead of adversely affecting more While such a program of infrastructure investment than one-quarter of China's agricultural lands, the may be beyond China's resources, the development scale of the acid rain problem under the high invest- of sewer networks in medium and large urban areas, ment scenario is virtually eliminated. combined with a mixture of primary and secondary treatment, should be feasible. Willingness-to-pay surveys for other countries imply that sanitation services would be affordable in China's urban areas CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF Lr%r,G 89 4/18/97 FIGURE 8. 3 Two Acid Rain Futures... 30 -_'-- 20 -0s --2"- 72 78 8- 9'9 9'6 102~ 10 5 - 120 126 132 I-L! "o - 30 - 25 20< 72 78 8 90 96 102 108 10 1 120 126 1 2 l 11 Unit: mg/m2-y,r 0 0 100 50 - - 1500 --- 1000 2000 i1000 20C00 9999 CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 90 4/18/97 POLICIES FOR THIS BRIGHTER FUTURE islation that polluters, rather than victims, ought to pay for pollution. However, the rich potential of Implementing policies that would achieve these the principle has not yet been realized changes m the economy is a challenge. However, China stands before its environmental task with sev- Prerequisite: Economic Reform eral advantages. One is rapid growth itself. Rapid growth can be an advantage, rather than a detnment, A pre-requisite for harnessing the market is to to the environment, if the additions to productive accelerate economic reform -- of state enterprises, capacity are progressively cleaner. Newer, more the pricing system and international trade. Improv- efficient technology rapidly becomes a major share ing price signals, widening competition, especially of the capital stock. With industrial growth rates of from nonstate firms, and increasing international 10 percent, half of all industrial plant projected to be trade have been major contributors to reduction in operating in 2005 has yet to be built. This provides pollution intensities over the last decade (Chapter 5). an enormous opportunity for improving the envi- These reforms, worthy in their own right by the ronment. Second, China as a society has shown it standard of increasIng efficiency, have an especially can learn from the successes and mistakes of other positive effect on the environment: countries, and the government understands the im- portance of taking steps now to produce results for * Reforming state enterprises would make these Chinese children and grandchildren. Finally, the firms more responsive to market signals, in- government has developed a strong planning capac- cluding pollution taxes and regulatory penalties; ity that is unusually effective among countries of the it is nearly impossible to make polluters pay world. when enterprises can fund their taxes or levies To capitalize on these advantages, the govern- through implicit subsidies from the treasury or ment has to build its policies around three ideas: financial system. * China has to harness the market to work for the * Expanding the realm of competitively deter- environment, not against it. This requires ad- mined prices, including the price of investment justing prices to cover economic costs and in- capital, would channel resources to efficient corporating social costs through pollution taxes. firms; firms that have privileged noncompetitive access to capital will waste resources at a high * China has to harness growth for the environ- cost to the environment. ment. This requires creating incentives to elicit investments-from both the commercial state * Deepening trade reform would end pockets of and nonstate sectors and from the public sec- protection for industries, and put pressure on in- tor-with the highest environmental benefits of efficient industries, many of which are pollution- future generations. intensive. * China has to harness its planning capabilities to Pricing to Cover Costs the cause of the environment. This means pro- viding better regulations but with fewer invest- Although China today has a per capita resource ment controls at the national level as well as base more like Europe or East Asia, it prices its better urban planning and pollution enforcement energy and water more like the resource-rich United at the local level. States. The Government has raised coal prices pro- gressively over the last three years. Prices in most HARNESSING THE MARKET areas probably now cover economic costs (if not social costs). Market prices in many places, how- Market forces, unregulated, are not much better ever, do not fully reflect the sulfur and ash content than a command economy in conserving the envi- of the coal. Markets are distorted because the plan- ronment. The government has recognized in its leg- ning system still allocates a sizable portion of coal to CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 91 4/18/97 particular activities and particular firms; because the porates its enormous social costs. This study has coal transportation system is overburdened, anti- shown that, were health damages included in its cost, quated and rusty with anti-competitive regulations; the price of coal in Beijing would on average be and because small, unregulated mines, unburdened roughly 78 percent higher (Chapter 4). A tax based by the costs of safety or environmental regulations or on sulfur and ash content would deter use of poor worker benefits, produce low quality coal that un- quality coal and make competing fuels economic. dercuts the price of quality coal. Pricing reform and Though it might be preferable to tax emissions rather reform of the production and distribution system than inputs, the myriad of small sources make col- have to go hand in hand. lection difficult. A quality-based coal tax levied at the mine for large producers, or distribution points Natural gas is now heavily regulated, and chan- for small producers, would provide incentives for nels supplies to the fertilizer industry at below mar- coal users to use cleaner or washed coal and for pro- ket prices. This is inefficient because low prices do ducers to improve coal quality. Such a tax might be not provide incentives for state owned, much less pre-announced and phased in over time so that pres- private, gas suppliers to come into the market. ent investment decisions--in boilers, space heating, Moreover, it does not take advantage of the willing- and other coal consuming equipment-can anticipate ness of households to pay for this superior heating future pnces and invest in clean technology accord- and cooking fuel. Deregulation and market-based ingly. pricing are of high priority to substitute for house- hold uses of coal. China does have pollution levies, but they are poorly enforced and poorly designed. In fact, levies Pricing to cover economic costs of production are so low they do not encourage firms to make even will reinforce existing Chinese efforts to encourage the most cost-effective investments in abatement. energy conservation. Efficient pricing will induce The overall abatement rate is less than 10 percent. more cost effective conservation in several activities: Data for Beijing indicate that the incremental cost of waste heat, combustible gas, and materials recovery reducing 100 tons of SO2 is less than $3,000, and from industrial processes; cogeneration of steam and produce mortality and health benefits in excess of electricity; furnace and kiln renovation; and energy $16,000-an implicit social rate of return to abate- management systems. ment of over 500 percent. At present, the low levy rates implicitly ask polluters to value a Chinese life Water pricing will soon be even more of a major at less than $500. policy issue than it is already. Although water is one of its most precious resources, China destroys a sub- Even at present low rates, however, statistical stantial portion of it by failing to charge for water analysis in Chapter 5 shows that firms are respond- supply and wastewater treatment services at full ing to the levy with increased abatement. Based value. It lacks the frequent monitoring and sub- upon observed responsiveness, projections of the stantially higher fines and other controls that are future indicate that a higher levy could reduce TSP necessary to enforce industrial wastewater discharge and COD industrial pollution to less than 20 percent standards. Although politically difficult, China must of current levels by 2020. adjust sewerage user fees for full cost recovery across various users. Targeted subsidies may be NEPA's recent recommendation for a tenfold carefully designed and provided to lower income increase in the air pollution levy is especially in- groups of users, but not to all users. portant for controlling large and medium industrial sources of emissions. It would produce major im- Taxing Environmental Externalities provements in air and water quality of China's cities. Even a 10-fold increase would probably not incorpo- Another step in harnessing the market to protect rate optimally the costs of pollution. In Zhengzhou, the environment is to tax pollution. The government the levy should be increased 50 times on S02 to should consider taxation of coal in a way that incor- reach "optimal pollution tax" - levels that equate CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 92 4/18/97 marginal benefits to society of abatement with mar- Current gasoline prices, although they cover the ginal costs (Chapter 5). This suggests that a phased costs of production and importation, are low by approach beginning with the 10-fold increase and comparison with most other countries of East Asia followed by annual incremental increases ought to be and Europe, where gasoline is highly taxed to pay considered. for roads and reduce environmental damage. Low Chinese prices stimulate auto-related damages to the Changing the design of the levy system would environment in two ways: first, auto-based urban also increase its effectiveness. At present, firms are transport requires more fuel per person-kilometer, taxed only for the pollutant that exceeds the standard and, second, because road construction cannot keep by the greatest amount, and then only for the amount up with the number of autos, slower average urban over the standard. For both air and water emissions, transport speeds drive up emissions per kilometer. the levy should be modified to impose charges on Gasoline prices ought to be set at levels that, in all emissions of the most harmful pollutants (such as conjunction with other forms of traffic regulation, TSP and S02 for air and COD/BOD for water). To discourage car use relative to use of bicycles or pub- improve effectiveness, the central government lic transportation. This would reduce fuel con- should give local governments the authority to raise sumption, reduce smog, and take pressure off pollution levies to the marginal costs of pollution crowded roadways, allowing everyone to travel control at the local levels of emission and effluent faster. Similarly, sales taxes on automobiles and standards. Local governments should also be given annual licensing fees should reflect the cost to the the authority to decide the most effective and effi- treasury of the huge public investments in roads and cient use of the pollution levy fund within the con- traffic management needed to support automobiles; text of local conditions. Finally, enforcement of to be effective, these measures must be coupled with levies (as well as other regulations) should be tar- a different strategy for transport investment. geted on sources where compliance can be moni- tored and enforced at low costs. Large polluters are Harnessing market forces has two important ad- easier to monitor, and have far lower unit abatement ditional advantages: First, it better allocates finan- costs. For coal-related emissions, the levy system cial responsibilities between consumers and com- for coal-related air pollution control must be coordi- mercial producers on the one hand, and the govern- nated with any externality tax to avoid double taxa- ment on the other. By using prices, environmental tion. taxes, and levies, the government ensures that pol- luters and their customers pay for environmental Power is one large point source where emission maintenance, not the government. If NEPA were to can and should be taxed. At present, the absence of raise its levy on a redesigned base by ten-fold and a fully enforced air pollution levy misses the oppor- enforce it, tax revenues could approximate reach tumuty to create an incentive for power companies to Y$37 billion (US$4.5 billion), or 0.6 percent of invest in larger scale, efficient plants, above 200 GDP. Second, using market-based instruments al- MW in capacity. Forty percent of new power ca- lows the government to concentrate its efforts on pacity added to the grid in the last five years were monitoring and enforcement rather than shouldering smaller than 200 MW and have high emissions per the microeconomic burden of deciding the best umt of electricity. Since they will be on stream for abatement investment for a given plant or industry. two decades or more, they are locking China into a This focuses the government's administrative re- high pollution growth path. Taxing emissions up to sources on tax policy and enforcement rather than the value of the damages would ensure the proper the investment decisions of businesses. signals for future investment. This is especially true for sulfur emissions in cities such as Chongqing where levels are so high they are having measurable effects on surrounding agriculture. CHAPTER 8: POLIcIES FOR A HIGHER STANDARD OF LIVING 93 4/18/97 BOX 8.1 POLLUTION CHARGES - EXAMPLES OF HARNESSING GROWTH FOR THE ENVIRONMENT: APPLICATION: WHAT WORKS AND WHY INVESTMENTS FOR A BRIGHTER FUTURE Example 1 Harnessing the market to work for the environ- * Water Pollution Charge in the Netherlands. The rate of the Dutch water pollution charge is determined by reve- ment through better pricing makes clean investments nue required for sewage treatment and for maintaining economic, and pernuts economic growth to be har- and improving water qualit- in general The charge is nessed to the cause of environment. implemented by the "Water Boards** - self governing bodies of surface water users responsible for water man- For the nonstate and commercial state sectors, agement The charge for industries is based on BOD and p . (in most cases) heavy metal pollution It is levied on all direct and indirect discharges In 1993, the charge rates to begin to invest in more energy-efficient technol- across basins ranged from US$ 1.14 to US$ 3.00 per ogy and abatement. China's industrial boilers oper- kilogram of BOD per year Households and small firms ate at only 80 percent the efficiency of those in pay a fixed amount According to the research done on OECD countries; its steel making consumes twice as this issue, there has been a significant incentive effect much energy per unit of output as developed coun- for large firms that are actually metered, including the agricultural sector, especially livestock production tries; its fans and pumps are only 85 percent interna- Why does it work9 tional efficiency levels; its electric motors consume -The level of the charge is rather high and aimed at pro- 5-10 percent more electricity for the same power viding full cost-recovery ofsewage treatment (Chapter 4). Eliciting these investment will harness -The charge base is directly linked to pollution load (for growth for the environment. large firms) -The charge program is decentralized and transparent Public investments are also important for har- for vtater users nessing growth to the environment. Small point Example 2 source emissions entail the greatest human costs of * Sulfur Tax in Sweden. The Swedish tax is levied on the pollution. About two thirds of the current urban sulfur content of diesel fuel and heating oil which ex- population in China still rely on coal for cooking. ceeds a threshold of 0.1 percent S-content, an on coal, Gas fuels are about five times more energy efficient coke and peat. For oil, the tax is payable at SEK 27 than using coal and can drastically reduce emissions. (USS4.09) per cubic meter of oil for every 0.1 percent of Rapid gasification of household fuel consumption is S-content (by weight), and for coal and peat, the tax cor- a high priority environmental policy. Residential responds to SEK 30 (USS4 55) per kilogram of sulfur in the fuel The tax. which is a product charge, approxi- consumers prefer gas, and so investment in urban mates an emission charge and is repayable if a taxpayer gas supply could be potentially quite profitable. This can demonstrate an actual reduction of SOx emissions. could become an activity where public investments An official evaluation indicates that sulfur content of oil could be supplemented with private and even foreign decreased nearly 30 percent between 1990 and 1992 as a resources. result of the tax Emissions from burning coal and peat also considerably decreased The tax promoted cleaning flue gases to a larger degree than before, but emissions Finally, for rural indoor pollution, the govern- have also been reduced by substituting fossil fuels The ment must invest in educational campaigns, widen- CO2 tax provides an additional incentive for that. Ad- ing access to efficient small coal stoves, and sup- ministrative costs are somewhat less than 1 percent of plying cleaner coal and coal substitutes for cooking re% enue and heating. If h1 does it work9 -The tax level is high --I transparent rebate scheme strengthens the incentive Several investments require government coordi- effect of the tal nation and others require the government to absorb -The design of the program provides for easy implemen- risks because private returns cannot compensate tation and low administrative costs The burden ofprov- risks: A high priority is developing a state of the ing the actual emission level is imposed on polluters art, clean-coal burning industrial boiler. Since cur- Source rent technology has not yet been adapted to Chinese CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 94 4/18/97 materials and scales, the government must play an ment to allow for full cost recovery would attract active role in supporting its development. Other private investment and free public funds for other investments are riskier but might have particularly urban investment needs. high pay-offs in China's unique environment. Some technologies in renewable energy fall into this cate- HARNESSING PLANNING CAPABILITIES TO THE gory. For example, photo-voltaics have the potential ENVIRONMENT to become cost-effective and superior substitutes to coal. These investments are rarely undertaken by China's planning capacity and its organizational the private sector even if prices internalize all envi- capabilities are an important asset that can be turned ronmental externalities because of risk. The gov- to the advantage of improving environmental living ernment should consider investing in pilot projects to standards. Even if markets are harnessed for the ensure experimentation and adaptation to Chinese environment, and even if the government elicits an circumstances. These may become important-and efficient supply of private and public investments, eventually profitable-to replace fossil fuels as the government still must regulate and plan with an global concerns over greenhouse gas emissions heat eye to the environmental future. At the national up. level, this often means fewer investment controls but better regulations and standards. At the local level, In transportation, the government cannot avoid it means better urban planning and better enforce- eliciting investments in public transit to offer an al- ment of national standards. ternative to traffic jams and smog. The government need not burden itself with actually financing and Perhaps the most important regulatory decision making the investments; but it must provide a regu- is the phase out of lead from the fuel supply. In latory framework to ensure that nonstate investments Shanghai, for example, more than half the children are made. Ensuring prices that incorporate exter- are estimated to suffer from lead blood levels in ex- nalities-through automobile and gasoline taxes- cess of 10 milligrams per deciliter, the definition of must be accompanied by expansion of public transit blood poisoning. The government recently an- alternatives to the automobile-or the pricing meas- nounced its objective of removing lead from the ures will simply shackle Chinese consumers with the gasoline supply in major cities by 2000. The deci- worst of both worlds, traffic jams and high costs. sion to phase out lead cannot be allowed to falter in The costs of a public transit base system are pro- poor implementation because of the serious risks of jected by 2010 to be 17 percent less than a roads- lowering the productivity of a whole generation of based system -- not counting environmental benefits. workers. Rapid implementation is a high prionty. Public investments in water will be among Standards for auto emissions are no less impor- China's most important and costly. Investment in tant. At present one car operating in Beijing or pollution abatement-whether for industry or mu- Shanghai emits the same amount of carbon monox- nicipal waste treatment-is much cheaper for the ide as 30-40 autos in the US, and about the same volume of water conserved than investing in huge about of hydrocarbons as 40-60 autos. Periodically water transfer projects. Even so, projections suggest tightening standards to push the industry toward the that even if China creates incentives for firms to technological frontier of cleanliness is essential for abate cost effectively, water shortages will be so reducing auto emissions. severe that it will have to invest in the large scale south- north water transfer projects (Chapter 7). Another priority is incorporating TVIEs into the regulatory framework. These enterprises are virtu- Given the fast increasing pollution impact of ally ignored in environmental regulation, and in municipal wastewater discharges and a virtual ab- certain industries-coking, small metallurgy, coal sence of treatment, Chinese cities ought to invest in mining-have become major uncontrolled point wastewater collection and treatment facilities at a sources for emissions. rapid rate. Pricing wastewater discharge and treat- CHAPTER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 95 4/18/97 China needs to implement its plans for sulfur di- New regulations at the national level will only oxide and acid control regions as proposed in the have full effect if they are matched with changes in revised National Air Pollution Prevention and Con- municipal planning. Urban land use planning is one trol Law of 1995. The main focus of acid rain pol- of China's greatest long term opportunities. China icy should be power plants and other large point today is unique in beginng its relationship with the sources. Sulfur removal can be costly. It is impor- automobile with very high urban densities and low tant that regulation allow power plants the flexibility levels of car ownership. The Chinese have not yet to choose alternative abatement measures under the fallen in love with their cars. These twin facts give limits of regional control targets. the country the opportunity to develop cities in ways that incorporate efficient and environmentally sus- The government could also set standards that in- tainable transportation. Well organized cities with corporate pollution abatement and energy savings. good public transit may have as many as 50 percent Prohibitions on two stroke motorcycles, major fewer automobiles clogging their streets than poorly sources of pollution in southern cities, are high pri- managed cities with bad public transit. This means ority. Performance standards should be set for in- transportation planning will have to avail itself of the dustries that are soon likely to be major drains on full range of instruments-from time-of-day tolls to energy, such as automobile engines, air condition- access to the crowded downtown and well thought ers, refrigerators and other major consumer appli- out parking requirements to better land use planning. ances. Since autos are growing at twice the rate of ur- Standards introduced today can markedly cut ban road systems, and average velocities are slow- into future energy consumption in residential and ing, only better planning can channel urban trans- commercial buildings. China has a unique opportu- portation into efficient growth patterns. This should nity to improve the average energy efficiency of be linked with the progressive and planned reloca- buildings given the massive building program tion of urban industries from downtown areas to ac- planned over the next 25 years. Priority should be cessible industrial parks away from population con- given to efficient lighting, improved centralized centrations. This would do much to reduce exposure heating, and implementation and enforcement of of Chinese people to damaging air pollution. Cu- energy efficient building standards. ritiba, Brazil, for example, began effective urban planning two decades ago, and today gasoline con- Better regulation, combined with system of sumption is some 30 percent less than other compa- market based instruments, may obviated the need for rable Brazilian cities. Investing smarter has to re- direct investment controls at the center. A major place investing in the next ring road. deficiency of the current investment system is that it inadvertently encourages the building of sub-optimal- The chance of success in environmental plan- scale power plants. The investment approval proc- ning and regulation will increase with greater com- ess allows provinces to invest up to $30 million munity participation on environmental matters. In without securing central government approval. China, indicators of community participation are Since approvals often entail delays, power-starved positively correlated with enforcement of the pollu- provinces find it more convenient to build small tion levy. In other countries, simple information scale plants rather than efficient units. Phasing out about plant emission performance and ambient con- the investment approval system, combined with centrations were instrumental in improving commu- strictly enforced emissions taxes, would penalize the nity participation in regulatory enforcement. The construction of power plants below efficient scale government might well consider adopting programs and create incentives to build fewer, but more effi- similar to those that have proven effective in Indone- cient and environmentally friendly plants. sia and Mexico (Box 8.2). CHAPrER 8: POLICIES FOR A HIGHER STANDARD OF LIVING 96 4/18/97 Box 8.2 MARKETS JOIN NATIONAL REGULATORS IN CONTROLLING POLLUTION A new approach to regulation in Asia is showing that local communities and market forces can be pow erful allies in the struggle against excessive industrial pollution The new programs, called PROPER in Indonesia and ECOWATCH in Philippines, rate and publicly disclose factories' environmental performance. In PROPER and ECOWATCH, a factory is assigned a color rating based Grading Factories on the Government's evaluation of its * environmental performance A Blue in Indonesia ratmg is given to factories in and Philippines O World Class compliance with regulatory standards, Excellent Gold is reserved for world-class O Excellent performers, and Black for factories 0 Satisfactory %Nhich have made no attempt to control pollution and are causing serious 0 Poor damage. Intermediate ratings are Red, Very Poor for factories which have some pollution control but fall short of compliance, and Green, for factories whose emissions control and housekeeping Figure 1 procedures significantly exceed those needed for compliance In the future, both Indonesia and Philippines will assign Green ratings to factories which have satisfied the environmental conditions of the new ISO PROPER's Impact 14000 standard. June 1995 Sept 1996 The ratings are designed to reward good performance and call public attention to GOLD 0 0 polluters who are not in compliance with regulations Armed with this information, GREEN 5 - 5 local communities can negotiate better environmental arrangements with neighboring BLUE61 94 factories, firms with good performance can advertise their status and earn market rewards; RED 115 - 87 investors can more accurately assess environmental liabilities; and regulators can - BLCK6 1 focus their limited enforcement resources on the w orst performers. During its first two Figure 2 %ears of operation, PROPER has proven quite effective in moving poor performers toward compliance. As Figure 2 shows, over 30 percent of the first 187 factories rated moved from Red or Black to Blue status in fifteen months. PROPER has now moved beyond the pilot stage; 400 factories are currently in the system, and Indonesia plans to extend coverage to 2.000 polluters by the year 2.000. Inspired by these and other examples of public information in action, the governments of Colombia and Neico are now moving rapidlk toward their own public disclosure programs. Source CHAPTER 8: POLIcIES FOR A HIGHER STANDARD OF LIVING 97 4/18/97 Finally, the complexity of environmental man- improving its environment for future generations. agement in China requires strong leadership of key To do so, China has to harness the market to pre- agencies and great coordination among government serve the environment by ensuring pnces reflect en- agencies. An urgent matter is planning for nver vironmental costs. It has to harness growth by es- basin management. At present, divided jurisdictions tablishing adequate incentives for pnvate investments across municipalities and provinces have worked to and by making wise public investments. And it has the disadvantage of the environment. An integrated to harness its formidable planning capacity through river basin management system under one authority better regulations at the national level and enhanced is needed for implementing effective water policies urban planning and enforcement at the local level. ranging from extraction rights to pollution abate- ment. These efforts will require some sacrifices in the near term, but they are small relative to future costs of clean-up costs if the country delays action. More important, these sacrifices of today's generation are China's environmental quality can improve small in comparison to the enormous improvements dramatically if assertive policies are adopted in the quality of life that will redound to China's promptly and systematically. China can turn its as- children and grandchildren. sets-rapid economic growth and strong organiza- tional capacity-into advantages for preserving and Endnote I European Union legislation defines the goal of such policies as the attainment of a 'high overall level of protection for the environment'. The concept of 'best available techniques' is defined and used in the EU's Directive on Integrated Pollution Prevention and Control, which was formally adopted in September 1996. Note that the concept of 'best available techniques' is not identical to 'best available control technology' because it places much greater emphasis on waste prevention, operational practices, and maintenance, and relies less on end-of-pipe control options. As such, it is much more relevant to industrializing countries which may face severe constraints on capital resources and which need to invest in training as well as cleaner production technologies in developing cost-effective approaches to pollution management. 98 Appendix Tables APPENDIX TABLES 100 Appendix Tables CHINESE AND WHO AIR POLLUTION STANDARDS (pg/M3) China WHO Averaging time Class I Class II Class III SO, annual 20 60 100 40-60 TSP daily 150 300 500 150-230 annual 60 120 150 60-90 PM-10 daily 75 150 250 70 annual' 20 60 100 CO (mg/m3) daily 4 4 6 10 mg/m3 (8 hour) NOx daily 50 100 150 150 Ozone 8 hours 100-120 Lead annual 0.7 0.5-1 Class 1: Tourist, historic, and conservation areas Class II: Residential urban and rural areas Class III: Industrial areas and heavy traffic areas. a/ Since China does not have annual standards for TSP, it has been assumed that the same ratio between daily and annual standards for SO2 applies to TSP. As will be discussed, annual standards are needed to compare with actual ambient concentration data. b/ Guideline values for combined exposure to SO, and TSP. Sources- WH( 'UNEP (1992); China Environmental Science Press, 1986; World Bank estimates. 101 Appendix Tables KEY AIR POLLUTANTS Characteristics Impacts Particulates, total Particulates are solid and liquid matter that Fine and ultrafine particles (<10 microns suspended remains suspended in the air for varying and <2 microns, respectively), pose the particulates lengths of time depending on the size and greatest risk to health because they are most (TSP), fine and density of the particles. Particulates may easily absorbed and retained in the lining of ultrafine particles include a variety of chemicals including metal the lungs and because of greater toxicity and hydrocarbon traces. Industrial (e.g., compared to large particles (Dockery et al, cement) and natural sources of dust can be a 1993). Studies have shown a significant significant portion of TSP, however, only fuel correlation between exposure to fine combustion can produce ultrafine particles (<2 particles and excess morbidity and mortality microns). Ultrafines contain most of the toxic from chronic obstructive pulmonary disease or carcinogenic elements associated with coal (COPD). In addition to size, the factors combustion, such as H+ ions, trace metals which influence the interaction between (nickel, beryllium, arsenic, mercury, particulates and the human body are cadmium) and organic compounds. chemical composition, other physical characteristics (shape, density), atmospheric concentration, duration of exposure, and individual susceptibility. Sulfur dioxide Sulfur dioxide oxidizes in the atmosphere to Respiratory illnesses have been shown to be (SO,), sulfur form sulfates, which can have adverse effects directly associated with acid aerosol oxides (SOx) on human health, animals and plants, and concentrations in the air. Sulfur and nitrogen property. Sulfur (and NOx) emissions act emissions are the primary contributors to acid synergistically with ultrafine TSP, forming rain. acid aerosols (sulfuric and nitric acid). Nitrogen oxides Nitrogen oxides are produced from nitrogen Exposure to nitrogen oxides is believed to (NOx) and oxygen in the air during fuel combustion, increase the risks of acute respiratory disease with the quantity of NOx produced being and susceptibility to chronic respiratory greatest when combustion temperatures are infection. Nitrogen dioxide (NO,) contributes highest. Motor vehicles and stationary to heart, lung, liver, and kidney damage, and combustion sources, such as power plants, are can be fatal at high concentrations. NOx is the primary sources of man-made NOx in the also an acid rain precursor. atmosphere. NOx is converted into ground- level 03 in the presence of sunlight, and is also an acid rain precursor. Lead (Pb) Common human routes of exposure to lead Low levels of lead exposure can cause are through contaminated drinking water and serious health damage, including reduced foods, ingestion of lead-based paints, toys IQ, reading and learning disabilities, and stationery, air and soil contamination by impaired growth and hearing loss, leaded gasoline, and contamination of the hyperactivity, and other developmental home environment by lead-exposed parents. disorders among children. At high levels of Lead from automotive use is the major exposure, lead poisoning can cause coma, source of airborne lead worldwide. convulsions, or death. Carbon monoxide CO is formed by the incomplete combustion When inhaled, CO binds to the hemoglobin (CO) of carbon fuels, principally gasoline vehicles. of blood, reducing the oxygen supply to the brain and heart, resulting in shortness of breath, increased blood pressure and headaches. 102 Appendix Tables Characteristics Impacts Ozone (03) Ozone is a secondary pollutant formed by Short-term exposure to high ambient 03 chemical reactions in the atmosphere between concentrations causes irritation and oxides of nitrogen (Nox), unburned inflammation of the eyes and respiratory hydrocarbons and other volatile organic tract, increased mucous production and compounds (VOC) m the presence of sunlight. decrease in lung function. Long term exposure may lead to permanent lung damage. Greenhouse gases Increasing concentrations of greenhouse (C02, methane, gases in the atmosphere are predicted to 0, N,0) result in a warming of mean global temperatures, the consequent rising of sea levels due to polar ice melting, and unpredicted changes in weather patterns as a result of changes in global temperatures and precipitation. 103 Appendix Tables KEY WATER POLLUTANTS Sources and properties Impacts Biological oxygen Bacterial contamination of ground and surface demand (BOD) waters -- diarrheal diseases, hepatitis A (bacteria), schistosomiasis, typhoid, cholera. Redtides Chemical oxygen demand (COD) Fecal coliform Because it is difficult to The pathogens most commonly transmitted detect pathogens in water through water are those responsible for intestinal directly, a benign indicator infections (typhoid, dysentery, cholera) and those organism present in feces, responsible for polio and infectious hepatitis. fecal coliform, is used as a measure of the amount of human and animal wastes in water. Heavy metals (lead, Industry and mining are Low levels of lead exposure can cause serious mercury, cadmium, responsible for the majority health damage, including reduced IQ, reading and copper, chromium) of heavy metal pollution of learning disabilities, impaired growth and hearing water. loss, hyperactivity, and other developmental disorders among children. At high levels of exposure, lead poisoning can cause coma, convulsions, or death. Ammonia nitrogen Nitrogen and phosphorous pollution - Nitrates in drinking water have been linked to various diseases, particularly blue baby syndrome [is this a problem in China?]. Volatile phenol Suspended solids (SS) Suspended solids -- reduces light necessary for photosynthesis Petroleum Oil enters water systems through industrial wastewater discharges, from boats, and due to drilling and tanker accidents. 104 Appendix Tables AMBIENT CONCENTRATIONS OF AIR POLLUTANTS IN SELECTED CITIES, 1995 (pg/m') TSP NOx SO, Concentration Concentration Concentration Annual Mean Annual Mean Annual Mean Beijing 370 123 94 Shenyang 374 74 105 Xian 374 56 60 Shanghai 246 75 53 Guangzhou 295 129 57 Chongqing 322 69 338 Guiyang 330 53 424 Taiyuan 568 55 211 Datong 432 43 192 Jinan 472 45 132 Tianjin 306 50 82 Bangkok (1989) 200 13 Delhi (1990) 500 30 Jakarta (1990) 300 -- London (1988) 23 40 Los Angeles (1990) 99 5 New York City (1989) 50 70 Tokyo (1988) 55 22 WHO Guidelines (annual) 60-90 40-60 Sources- WHO, 1992; Johnson, Wells, Xu, 1994; Zhao and Zhang, 1990. DOSE RESPONSE FUNCTIONS FOR CHINA TSP S02 Premature Mortality 1.0-6.3 2.7-14.6 Respiratory Hospital Admission Emergency Room Visit 0.5-2.7 1.4-12.2 Outpatient Visit 8.5-24.5 9.9-30.7 Respiratory Symptoms Chronic Bronchitis Restricted Activity Day 105 Appendix Tables CHINA: MORTALITIES AND DISEASE BURDEN, 1990 Water pollution-related Deaths ('000) DALYs Diarrhea 93 3,685 Hepatitis 34 626 Trachoma -- 347 Intestinal Nematodes 7 1,384 Subtotal 134 (1.5%) 6,042 (3%) TOTAL 8,885 208,407 Air pollution-related COPD 1,432 (16%) 17,810 (8.5%) LRI 467 (5.2%) 11,924 (5.7%) Source: World Bank, 1996 AMBIENT AIR POLLUTION: EXPOSED POPULATION AND "EXCESS POLLUTION" Excess Pollution" Excess Pollution" City Urban Ambient Concentrations Class II Standards WHO Standards Population TSP S02 120 60 60-90 40-60 (non-ag) ug/m3 ug/m3 TSP SO2 TSP S02 ug/m3 ug/m3 ug/m3 ug/m3 Beijing 6104292 340 117 220 57 265 67 Shanghai 8249107 230 90 -- 30 155 40 Tianjin 4720544 320 140 200 80 245 90 Chongqing 2377797 490 380 370 320 415 330 Datong 844951 483 150 363 90 408 100 Taiyuan 1642348 570 256 450 196 495 206 Baotou 1032980 525 119 405 59 450 69 Anshan 1251667 322 125 202 65 247 75 Shenyang 3762143 500 150 380 90 425 100 Changchun 1810351 378 63 258 3 303 13 Jilin 1117812 663 89 543 29 588 39 Harbin 2505176 358 23 238 -- 283 -27 Mudanjiang 602679 371 34 251 -- 296 -16 Anyang 458362 447 94 327 34 372 44 Pindingshan 517638 433 34 313 -- 358 -16 Zhengzhou 1323695 421 90 301 30 346 40 Xian 2114917 400 50 280 -- 325 0 Guangzhou 3113783 200 50 -- -- 125 0 Total 43550242 106 Appendix Tables ESTIMATED ANNUAL PREMATURE DEATHS FROM "EXCESS" AIR POLLUTION Exceedance of Class II Standard Exceedance of WHO Standard City low high ave. low high ave Beijing 519 2806 1663 Shanghai 369 1996 1182 Tianjin 563 3046 1804 Chongqing 1135 6137 3636 Datong 113 613 363 Taiyuan 480 2596 1538 Baotou 91 492 291 Anshan 121 656 389 Shenyang 505 2731 1618 Changchun 8 44 26 Jilin 48 261 155 Harbin -- -- -- Mudanjiang - -- -- Anyang 23 126 74 Pindigshan -- -- -- Zhengzhou 59 320 190 Xian -- -- -- Guangzhou -- -- -- Total 4,036 21,824 12,930 Note: "--" means standard not exceeded. 107 Appendix Tables INDOOR AIR POLLUTION Rural Population Rural Energy Use* TSP Concentrations Indoors "Excess Pollution" Exposed (million) (ug/m3) (ug/m3) Male Female (mtce) % Kitchen Bedroom Time- Class II WHO weighted Average Raw coal 112 108 79 256% 1109 535 527 407 452 Biomass 326 313 229 74.4% 732 353 348 228 273 Total 438 421 308 100.0% 1 * Electricity is excluded since it does not directly generate indoor emissions. Sources: Sinton, 1995; Sinton, ed, 1996; World Bank estimates. EXCESS MORTALITY FROM INDOOR AIR POLLUTION: BY FUEL USE AND GENDER Male Female Total Exceedance of Class II Standards Coal 25257 24235 49492 Biomass 40975 39317 80292 Total 66231 63552 129783 Exceedance of WHO Guidelines Coal 28052 26917 54969 Biomass 49077 26917 75993 Total 77128 53834 130962 108 Appendix Tables LEAD LEVELS OF CHILDREN IN CHINA Places Subjects N Age BPb range Mean >10 ug/DI BPb pg/dl(%) Shenyang, Liaoning Polluted urban 198 7-10 30 5 99.5 Non-polluted urban 758 7-10 12.2 67.9 Non-Polluted urban 169 7-10 7 9 23.7 Polluted urban 112 7-11 10.5-68.7 39.5 Polluted urban 118 7-10 6.9-96.4 28.4 Non-polluted urban 119 7-10 5.1-44.6 12.9 Beijing Non-polluted urban 119 5-7 3.9-14.1 7.8 16.8 Non-Polluted suburban 46 5-7 7.0-24.9 13.1 80.4 Non-Polluted suburban 37 5-7 4.8-17.1 11.0 64.9 Non-Polluted suburban 87 5-7 5.2-22.2 12.3 75.5 Polluted suburban 77 11-16 22.4 64.9 Non-polluted suburban 89 12-16 15.9 73 Xi'an, Shanxi Polluted Urban 20 5-7.5 12.0-173.0 50.0 Non-polluted urban 26 4-8 1.0-54.0 18.5 Zhengzhou, Henan Non-polluted urban 55 9-12 0-65.5 6.6 Jinan, Shandong Non-polluted urban 296 0-6 9.2 Guichi, Anhui Polluted urban 108 14 67.9 Non-polluted urban 60 14 32.3 Gaoyou, Jiangsu Polluted rural 39 Schooler 28.4 Non-polluted rural 37 Schooler 10.9 Parents exposed 17 6-9 16.4-59.5 34.2 Home/school unexposed 21 6-9 16.2-28.8 23.4 School exposed 21 6-9 5.1-49.7 19.5 Jiangyi, Jiangsu Home/school unnexposed 27 6-9 5.9-14.8 8.8 Shanghai Polluted urban 99 4-15 5.0-55.0 23.4 85.6 Non-polluted urban 83 8-13 0-55.0 18.4 88.2 Polluted urban 273 1-7 5.1-66.8 21.8 95 Non-polluted urban 243 4-6 6-12 8.6 9.7 Guzou, Fujian Near to highway 104 12 96.8 Far from highway 106 12 41.4 Near to highway 83 12 32.3 Far from highway 99 12 20.9 Guangzhou, Guangdon Parents exposed 38 1-4 19.5 Parents unnexposed 116 1-4 11.4 109 Appendix Tables COSTS OF LEAD EXPOSURE (MILLION USS) US China Excess= Excess= Excess= (per 1 ug/dI) (per I ug/dI) 4 ug/di 8 ug/dI 12 ug/dI Children medical costs 189 4 15 30 45 compensatory education 481 10 38 77 115 earnings 5,060 101 405 810 1,214 infant mortahty 1,140 23 91 182 274 neonatal care 67 1 5 11 16 Total 6,937 139 555 1,110 1,665 Adults not estimated for China Medical costs hypertension 399 heart attacks 141 strokes 39 Lost wages hypertension 50 heart attacks 67 strokes 19 Mortality 9,900 Total 10,215 Grand Total 17,152 110 Appendix Tables HUMAN CAPITAL APPROACH TO VALUING EXCESS MORTALITY IN BEIJING Age group Age-specific Life years Annual deaths Life years saved Discounted value of life expectancy remaining avoided by life years saved meeting Class II standard 0 68.55 0-9 71.75 66.71 10-19 72 17 57.17 20-29 72 74 47.74 30-39 73 38 38.38 40-49 74.23 29.23 50-59 75.74 20.74 60-69 78.44 1344 70-79 82.86 7.86 80 + 85.83 5.83 TOTAL * Average life-expectancy at birth in China in 1990 was 68.55 years. Sources. China Population Statistics Yearbook, 1995, China Statistical Press. ESTIMATE OF ECONOMIC LOSSES FROM WATER POLLUTION ON THE XIAOQING RIVER Costs (million Yuan) Surface and groundwater resources 28.8 River fisheries (crab, fish, shrimp) 9.6 Coastal fisheries (fish, shellfish) 75.6 Coastal aquatic resources 14.0 Agricultural losses from irrigation water 67.1 Morbidity (treatment, lost work, preventive expenditures) 37.8 Other 5.0 Total 238.0 ($30 m) 111 Appendix Tables ESTIMATES OF S02 DAMAGE TO FARMING AND FORESTRY, 1995 Gross Output 100,000,000 yuan Deposition Estimated Damage 10 ^8 Province Farming Forestry Toal (F+F) mg/m2/yr S02 Conc % Yuan ug/m3 Liaoning 392 13 405 1500 50 1.9 7.695 Beijing 87 3 90 1700 56 2.2 1.98 Tianjin 85 1 176 3100 104 5.2 9.152 Hebei 754 24 778 1500 50 2 15.56 Shanxi 203 13 216 1000 33 08 1.728 Shanghai 78 0 78 4600 154 8.5 6.63 Jiangsu 986 21 1007 4200 141 7.6 76.532 Zhejiang 482 50 532 2500 84 4 21.28 Anhui 638 40 678 2100 71 3.2 21.696 Fujian 340 59 399 1300 44 1.5 5.99 Jiangxi 332 41 373 1800 60 2.5 9.33 Shandong 932 42 974 2300 77 3.8 37.01 Henan 866 38 904 2000 66 3 27.12 Hubei 612 28 640 1800 60 2.5 16 Hunan 580 42 622 1500 50 1.9 11.82 Guangdong 778 46 824 1900 62 2.6 21.42 Guangxi 384 33 417 1600 53 2 8.34 Sichuan 887 45 932 2900 97 5 46.6 Guizhou 224 15 239 3000 101 5.1 12.19 Yunnan 299 41 340 400 12 0 0 Shaanxi 258 17 275 1300 43 1.5 4.13 AVG % TOTAL 10899 362.191 3.32 1 $4.36 billion 112 Appendix Tables Progress of US vehicle emission standards FOR SMALL GASOLINE FUELED CARS (GRAMS PER MILE) Model year Carbon monoxide Hydrocarbons Nitrogen oxides pre 1968 90.0 15.0 6.2 1970 34.0 4.1 - 1972 28.0 3.0 - 1973/74 28.0 3.0 3.1 1975/76 15.0 1.5 3.1 1977 15.0 1.5 2.0 1980 7.0 0.4 2.0 1981 34 0.4 1.0 1994 3.4 0.3 0.4 2004* 1.7 0.1 0.2 Source: Air pollution from Motor Vehicles, World Bank, November 1996. International comparison of vehicle emission standards (GRAMS PER KM) Countr Year Carbon monoxide Hydrocarbons Nitrous oxides China* 1993 4.0 0.40 1.00 USA 1994 1.1 0.06 0.12 Mexico 1993 2.1 0.25 2.30 India 1989 14.3 2.00 - Colombia 1996 2.3 0.25 0.62 Canada 1987 2.1 0.25 0.62 Brazil 1997 2.0 0.30 0.60 Australia 1996 4.3 0.26 1.24 Argentina 1997 2.0 0.30 0.60 Europe 1994 3.2 1.10 inc. in HC * Estimated since China's standards are measured in different units Source: Air pollution from Motor Vehicles, World Bank, November 1996. 113 Appendix Tables Composition of Urban Road Facilities (percent of total urban road length) All world 113 US 16 cities Urban Areas Standard Standard Road Type Mean Deviation Mean Deviation Expressways 1.71 1.53 2.93 1.15 Arterial Roads 16.31 5.88 15.67 4.00 Projected Urban Population 1995 2010 2020 Total Population (mil.) 1,212 1,350 1,450 Formal urban population (mil.) 352 567 725 Formal urban share ( percent) 29 42 50 Informal urban population (mil.) 50 110 140 Informal urban share ( percent) 4 8 10 Total urban population (mil.) 402 677 865 Total urban share ( percent) 33 50 60 Source: Statistical Yearbook of China 1996 and World Bank estimates REFERENCE CITED 114 REFERENCE CITED Chapter 1 Environmental Health Monitormg Institute, Chinese Academy of Preventive Medicine. 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