Environmental challenges in china : determinants of success and failure : Environmental challenges in China : determinants of success and failure

Report 34/02 Environmental challenges in China: determinants of success and failure  ECON-Report no. 34/02, Project no. 36190 Public ISSN: 0803-5113, ISBN 82-7645-519-0 PHO, HVE/lip, LLU, 16. April 2002 Environmental challenges in China: determinants of success and failure Commissioned by The World Bank ECON Centre for Economic Analysis P.O. Box 6823 St. Olavs plass, N-0130 Oslo, Norway. Phone: + 47 22 98 98 50, Fax: + 47 22 11 00 80, http://www.econ.no  - ECON Centre for Economic Analysis - Environmental challenges in China: Determinants of success and failure Table of Contents: EXECUTIVE SUMMARY......................................................................................1 1 INTRODUCTION..........................................................................................7 2 THE STORY ON LEAD................................................................................8 2.1 Benefits, costs and emission trends.......................................................8 2.2 Regulatory developments....................................................................10 2.3 Why a rapid phase out of lead emissions? ..........................................12 3 URBAN AIR POLLUTION.........................................................................14 3.1 Benefits, Costs and emission trends....................................................14 3.2 Regulatory Developments...................................................................17 3.3 Why The Continued Problem of Urban Air Pollution?.......................23 4 THE STORY ON GROUND-LEVEL OZONE...........................................26 4.1 Benefits, Costs and emission trends....................................................26 4.2 Why the lack of attention to ozone?....................................................27 5 DETERMINANTS OF CHINESE ENVIRONMENTAL PRIORITIES.....29 5.1 Collecting and disseminating information about environmental problems..............................................................................................29 5.2 The balancing mechanism...................................................................37 5.3 Execution of decisions ........................................................................41  - ECON Centre for Economic Analysis - Environmental challenges in China: Determinants of success and failure Executive summary Air pollution remains a serious problem in China, but all things considered the situation is slowly improving. We discuss the reasons for this slow improvement, using lead, urban air pollution and ground-level ozone as examples. We find that general technological upgrading is a factor that explains much of the improvement. The upgrading originates with the liberalisation of the Chinese economy. Another important factor to explain the progress is greater awareness and greater willingness to prioritise environmental concerns among the Chinese public. This awareness has been stimulated by media attention, increased education and increased affluence. Background Air pollution is serious in China. Thousands of poor city-dwellers die every year from causes related to air pollution. Millions more are ill with pollution-related diseases. In rural areas, indoor air pollution is a major cause of death and disease. Other impacts of air pollution are less serious, but represent problems nevertheless. Examples include dust that reduces visibility in city streets and crops suffering from a lack of direct sunlight or increased exposure to ground-level ozone. Despite chronic problems, the Chinese policy towards air pollution is not without successes. A few facts underscore this: Lead, once a main environmental threat, has been reduced almost to insignificance. Urban air pollution as measured by SO2 and particulates probably peaked in the mid to late nineties. Since then emissions and ambient concentrations have been reduced. Although new problems on the horizon deserve attention, for instance ground-level ozone and NOx- emissions, there is little doubt that the Chinese are working seriously to reduce air pollution. Central leaders have gradually become more tuned in to environmental problems, and attention has increased in public policy as well as in the media and among the public. The ambition has moved from the simple and serious problem of lead to the subtle urban air problem and the even more subtle ozone problem. The problem What is it that explains the Chinese experience with tackling air pollution, and what might other countries learn from this experience? That is the question we pose in this report, which was commissioned by the World Bank as a background paper to the World Development Report 2003. 1  - ECON Centre for Economic Analysis - Environmental challenges in China: Determinants of success and failure The balancing act In our view, Chinese environmental policy and Chinese policy outcomes at any point in time are best seen as consequences of a search for the right balance between environmental and other priorities. The search is imperfect and subject to conflict and power struggles, but when all is said and done the result gravitates around some sort of perception of right balance. If Chinese environmental policy is the outcome of a search for a balancing point, it is important to explain what determines the balance. To this end we introduce the economic workhorse, the supply and demand diagram, see figure A. On the vertical axis we depict the cost of environmental actions in China, but also the willingness to pay for environmental actions. On the horizontal axis we depict the environmental quality of the country. We assume that this quality is measurable by some indicator. Figure A Striking the balance between environmental and other priorities Cost, willingness to pay Marginal cost Marginal willing- ness to pay Right balance Environmental quality We assume that at any point in time the marginal cost of improving environmental quality is increasing. This is to say that to take the first steps to improve the environment is cheap, but the steps thereafter are more expensive since the cheap solutions are in use. This seems to us a reasonable assumption. We also assume that at any point in time the willingness to pay for environmental quality is decreasing. This is to say that most members of the public are willing to pay to improve the environment when environmental quality is low, but fewer are willing to improve it (as much) when environmental quality is high. This also seems a reasonable assumption. Conceptually the right balancing point is the point where the marginal cost of environmental improvements equals the willingness to pay for environmental improvements. To the right of this point we find the measures that are too expensive to be deemed worthwhile. To the left we find the measures that are deemed worthwhile. 2  - ECON Centre for Economic Analysis - Environmental challenges in China: Determinants of success and failure As one example of how Chinese environmental policy searches for the balancing point, consider the following quote from SEPA (2001):"..in the ninth five year period, the installation of sulfur removal facilities in thermal power plants was rather slow, largely because the manufacturing of the facilities was not satisfactorily localized and the prices were too high if they had to be imported." Sulfur removal facilities, in other words, were considered worthwhile during the ninth five year plan (a host of analyses have called for the introduction of such facilities), but not worthwhile enough to defend the high price tag. They were to the right of the balancing point. Technology matters What moves the balancing point over time? We have concluded that the Chinese are experiencing a moderate success in their fight to reduce air pollution in the sense that conditions are slowly improving and attention is moving from the immediately dangerous to the subtly unsafe. A reasonable interpretation is that the balancing point slowly swings in the direction of better environmental quality. Most observers of Chinese environmental outcomes point to the essential role of technological improvement (see e.g., SEPA (2001)). Surely over the last decades the improvements in technology have been tremendous. In 1991 China's power industry emitted 110 tons of SO2 per million Yuan produced. By 1999 the figure was reduced to 24 tons. The chemical industry formerly emitted 7.1 tons per million Yuan, by 1999 the figure was down to 2.2 tons. The textile industry used to emit 2.3 tons per million, by 1999 it emitted 0.9 tons. Other industries report similar improvements. Figure B Technological improvement and shifting the balance point Cost, willingness Old technology to pay New technology Environmental quality In terms of the supply and demand diagram, the technological improvements make protection of the environment cheaper, as depicted in figure B. The reasonable response from society is to protect more of the environment