Environmental Regulations in China: The battle between Beijing and the regions

The article below is a timely reminder of the difficulties China faces in trying to control its emissions of pollution. Along with a PhD student, Shanshan Wu, we have recently written a paper looking at the determinants of Chinese industrial pollution and include numerous measures of environmental regulations and how they differ at the regional level even if, centrally, they should be identical.

A full PDF will be up on the academic website soon (see sidebar).

Industrial Activity and the Environment in China: An Industry Level Analysis

Matthew A. Cole
Robert J.R. Elliott
Shanshan Wu
Department of Economics, University of Birmingham, UK

Abstract
Given China’s rapid industrial expansion a detailed understanding of the linkages through which industrial activity affects the environment is crucial if the resultant environmental impact is to be minimised. This paper utilises a dataset of Chinese industry specific emissions for a variety of pollutants between 1997 and 2003 to provide the first study of its kind for China. For instance, we find an industry’s emissions to be a positive function of its energy use and human capital intensity and a negative function of its productivity and R&D expenditure. We also investigate the role played by environmental regulations, both formal and informal.

JEL Classification: O13, L60, Q21, Q25, Q28
Key words: Chinese manufacturing; air pollution; environmental regulations.


Wen hits at failure to cut pollution

Wen Jiabao, China's premier, has delivered a scathing assessment of his government's inability to meet long-stated goals to cut pollution and energy use, saying this must be corrected to sustain growth. The speech, delivered in late April but re-leased in full only yesterday, sets the scene for a battle between Beijing and provincial and city authorities over implementing the central government's energy and pollution standards.

Beijing is often forced to make high-profile arrests to assert its power over recalcitrant provinces and cities that habitually ignore the central government, even on economic policy.

The government is also debating whether to introduce more stringent export controls, for steel-related industries in particular - which it may choose to announce before a top-level economic dialogue with US officials in Washington later this month.

China has already begun to cut tax rebates for exports of steel, but Mr Wen signalled that further reductions were in the pipeline.

"This year is crucial for China in its efforts to meet the energy saving and pollutants emission reduction target set for the 2006-2010 period," he said. "We will continue to curb the energy-guzzlers by further adjusting export rebates, levying more export tariffs and reducing export quotas."

Beijing has promised for three years to rein in heavy industries, and set targets early last year for cuts in energy use and pollution emissions, but has fallen short on every marker.

In his speech, delivered to an internal party meeting, Mr Wen said the six sectors using 70 per cent of energy for industry had grown by 21 per cent in the first quarter of this year, seven percentage points more than for the same period last year. The sectors are power, steel, oil refining, chemicals, construction materials and metals, according to an account of the speech by Xinhua, the official news agency.

"Without faster restructuring and an efficient method of economic growth, China's natural resources and the environment will not be able to sustain its economic development," Mr Wen said.

"Outmoded production facilities must be eliminated at a faster pace, and how this policy is implemented by local governments and companies will be open to the public and subject to social supervision."

Mr Wen said inefficient use of energy and other resources would force the government to reform prices for natural gas and water, something it has been reluctant to do because of the poverty of many consumers, especially in rural areas.

Mr Wen's self-censure also takes into account mounting foreign criticism of the contribution to global warming made by China's energy-intensive economic model.

China could overtake the US as early as this year as the world's biggest emitter of greenhouse gases, according to the International Energy Agency, although its economy is only about a fifth as big.

"China must take responsibility for reducing polluting emissions," he said. China remains steadfastly opposed, however, to mandatory cuts in emissions.