T40 H RLDB0 wv S t~~~~st.m I9q? .. a,~ ~~ 1 _ f~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~g . ; TH WO L BANK; , @' C H I N A 2 0 2 0 CLEAR WATER, BLUE_, SKIES L China 2020: Development Challenges in the New Century Clear Water, Blue Skies: China's Environment in the New Century At China's Table: Food Security Options Financing Health Care: Issues and Options for China Sharing Rising Incomes: Disparities in China Old Age Security: Pension Reform in China China Engaged: Integration with the Global Economy 0 T H E W O R L D B A N K W A S H I N G T O N D . C -~~~lk~A - m 1- PA@~ CLEAR W-AT ER, SA KIES CHINA'S ENVIRONMENT IN THE NEW CENTURY T T H E W O R L D B A N K W A S H I N G T O N D . C. Copyright © 1997 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 1997 The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemina- tion of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. Cover photograph by Dennis Cox/China Stock. Cover insets (from left to right) by Vince Streano/Aristock, Inc.; Claus Meyer/Black Star; Serge Attal/Gamma Liaison; Dennis Cox/China Stock; Joe Carini/Pacific Stock; Erica Lansner/Black Star. ISBN: 0-8213-4044-1 Contents AcknowLedgments vii Overview 1 Chapter 1 Growth and China's Environment 5 Limited resources, better policies 6 Air pollution 7 Water pollution 11 Conclusion 14 Chapter 2 PoLlution, Health, and Productivity: Estimating Today's Costs 17 Air pollution 17 "'4 ~~~~~~Water pollution 20 Regional and global air pollution 21 Economic valuation of impacts 23 Conclusion 24 Annex 2.1 Economic valuation of air and water pollution damage 24 Annex 2.2 Simulating acid rain impacts using the RAINS-Asia model 26 Chapter 3 Pollution, HeaLth, and Productivity: Plotting Alternative Futures 29 Basic assumptions about macroeconomic and sectoral growth 30 Pollution without policy changes: The business as usual scenario 31 a" il-- v S I S W~~~,4 Making a change: Alternative scenarios 37 Conclusion 39 Annex 3.1 Modeling industrial output, energy demand, and emissions 40 Chapter 4 Energy: Coping with Coal 45 Trends in energy consumption 45 Improving energy efficiency 47 Diversifying away from coal 48 Controlling emissions: Options and costs 50 The special role of energy prices 51 Policies for reducing environmental impacts 53 Chapter 5 Industry: Creating Incentives to Abate 57 Pollution control policies 58 Determinants of industrial pollution 59 Growth and the environment: Reforms and structural change since 1987 62 Future pollution scenarios 64 Is stricter regulation worthwhile? 65 Toward effective and efficient industrial pollution control 67 Chapter 6 Urban Transportation: ControLling Cars 73 Where is China now? 74 China's urban environmental future 76 China's urban transportation future: The strategic choice 79 Air quality effects of alternative urban transport strategies 84 Chapter 7 Water: Preserving Scarce Resources 87 Water quantity 88 Water quality 90 Water resource management and pollution control regulation 92 Costs and benefits of a clean and adequate water supply 95 Policies for sustainable use of water resources 97 Chapter 8 Policies: Securing Higher Environmental Living Standards 103 Establishing priorities for policy 104 Harnessing the market: Making polluters pay 104 Harnessing growth: Investments for a brighter future 107 Harnessing administrative capabilities: Improving oversight, enforcing standards 108 Clear water, blue skies? 111 This report uses Hong Kong when referring to the Hong Kong Special Administrative Region, People's Republic of China. vi Clear Water, Blue Skies: China's Environment in the New Century Acknowledgments 3a gW _ _ ~~~~~~~his report was written by Todd M. Johnson, 31 =- Fe~~~~~Fng Liu, and Richard Newfarmer under the 11 >fX ~~~~direction of Richard Newfarmer (task manager). The r -; ~~~~~~report benefited from the contributions of a World Bank l W ~~~~~team that included Ramesh Ramankutty and Jitu Shah ] 00 ~~~~~~(acid rain); Biliang Hu (economist); Susmita Dasgupta, 33 00 ~~~~Hua Wang, and David Wheeler (industry); Gordon a > 0 ~~~~~Hughes and Kseniya Lvovsky (macro-environmental pro- 13 t 0 l~~~~~ections); Robin Carruthers and Tilly Chang (transporta- = ; 0 ~~~~~~tion); Leila Cruz and Jennifer Solotaroff (task assistants); = = ~~~~~and Natasha Berschorner, Daniel Gunaratnam, and >0: ~~~~Chantale Wong (water). 0X: ~~~The report also includes findings from papers prepared > 00 ~~~~by Jonathan Sinton (indoor air pollution); David Fridley S ~~~~(lead); Zhongxiao Jiang, Laurence Lau, and Chen Xikang (macroeconomic pro'ections); Helen Chan (ODS); and 31 >0 ~~~~Noureddine Berrah, Masaki Takahashi, and Stratos .S; ~~Tavourlareas (power). vii - Ld;~~~ In addition, the report benefited from the close col- including Richard Ackermann, Theodore Atwood, laboration of China's National Environmental John Briscoe, William Chandler, Maureen Cropper, Protection Agency and State Planning Commission. Devra Davis, David Fridley, Joseph Goldberg, Nicholas The authors are particularly grateful to Zhang Kunmin, C. Hope, Kathie Krumm, Jane Loos, Peter Midgley, Deputy Administrator of the National Environmental Vikram Nehru, Karen Polenske, Zmarak Shalizi, Protection Agency, for his thoughtful comments and Jonathan Sinton, Andrew Steer, Robert Taylor, Lee insights, as well to the Foreign Economic Cooperation Travers, and Robert Watson. Office of the National Environmental Protection Walter Spofford of Resources for the Future made a Agency in coordinating the counterpart team from the special contribution before he passed away in Chinese government. The authors also thank the repre- November 1996. Not only was he a peer reviewer for sentatives of various ministries and institutions for their the concept paper of this report, but his prior work on detailed comments on drafts of this report. The control of industrial pollution provided much of the Canadian International Development Association facil- rich detail of our knowledge in this important area. itated this collaboration by providing resources for a Finally, Nicholas C. Hope, former Director of the China workshop held in Beijing midway through the prepara- and Mongolia Department, provided the inspiration tion of this report. and impetus for the China 2020 series. The authors are The authors are also indebted to a number of grateful for his invaluable comments and insights into Chinese scholars who wrote background papers for this the economic issues facing China, as well as for his report: Cao Fengzhong, Guo Xiaomin, Hao Jiming, Liu unwavering support for this activity. Qifeng, Wang Hanchen, Yang Zhifeng, Zheng Yisheng, The report was edited by Paul Holtz, laid out by and Zhou Jin. Glenn McGrath, and designed by Kim Bieler, all with Several reviewers offered valuable comments at dif- the American Writing Division of Communications ferent stages during the preparation of the report, Development Incorporated. viii Clear Water, Blue Skies: China's Environment in the New Century Overview obust economic growth has brought immea- surable benefits to the Chinese people. Incomes have increased, poverty has fallen, and health indicators have improved. Yet the same unbridled growth that has lifted millions out of poverty has also caused seri- ous environmental damage. Over the past decade China has begun to curb this dam- age. New laws have established comprehensive regula- tions for the environment. The government has invested considerable resources in protecting air and water. And economic reforms have reduced the economy's energy intensity at an impressive pace. Although ambient con- centrations of most pollutants are still unacceptably high, they have been kept in check. Chinese leaders know that much remains to be done. Particulate and sulfur levels in major Chinese cities are among the highest in the world, exceeding World Health Organization and Chinese standards by two to five times. ! St~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Pollution is one reason chronic obstructive pulmonary But these outcomes will not happen automatically. disease-emphysema and chronic bronchitis-has Indeed, they will require considerable effort. Although become the leading cause of death in China, with a mor- structural change and new technology will help reduce tality rate five times that in the United States. As Premier pollution per unit of output, without new policies the Li Peng noted last year, China not only has "to provide pressures from a growing economy will swamp these people with riches and material products, but also grad- improvements, and may even undermine recent gains. ually improve the quality of life, and environment is an The old pattern of growth, projected into the future, important part of the quality of life." would generate rising health costs and dramatically This report's findings underscore the environmental raise the cost of cleanup to future generations. concerns of Chinese leaders: A new growth strategy should aspire to: * An estimated 178,000 people in major cities suffer * Increase substitution of cleaner fuels-especially nat- premature deaths each year because of pollution. ural gas-for coal in household cooking and heating. * Indoor air pollution, primarily from burning coal * Improve energy efficiency and diversify energy sup- and biomass for cooking and heating, causes 111,000 plies into noncoal sources. premature deaths each year, mainly in rural areas. * Reduce emissions from industrial boilers and furnaces. * Each year some 7.4 million work-years are lost to * Curb indoor air pollution in rural households. health damages related to air pollution. * Increase wastewater collection and treatment from - Water pollution, a focus of recent Chinese policy, has cities and towns and industrial enterprises, especially contaminated 52 of 135 monitored urban river sections. small enterprises. These sections do not even meet the lowest standards nec- * Control increasing acid rain deposition in sensitive essary for irrigation water, rendering them mere waste regions. sinks. Unless action is taken, future access to safe drink- * Prevent automobile-related air pollution. ing water is threatened for tens of millions of people. Since current policies are fragmented across several * Acid rain in the high-sulfur coal regions of southern government agencies with differing policy mandates, a and southwestern China threatens to damage 10 per- serious assault on China's pollution problems will cent of the land area, and may already have reduced require not only more aggressive policies, but also bet- crop and forestry productivity by 3 percent. ter integration of policies and implementation efforts. * Children in Shenyang, Shanghai, and other major China's increasing market orientation requires a cities have blood-lead levels averaging 80 percent strategy for future environmental protection that goes higher than levels considered dangerous to mental beyond the command and control measures of the past. development. The next generation of policy should be based on three * Air and water pollution damages, especially the dan- principles: gers fine airborne particulates pose to human health, * China must harness the market to work for the envi- have been estimated to be at least $54 billion a year- ronment, not against it. This means accelerating eco- or nearly 8 percent of GDP in 1995.1 nomic reforms-reorienting state enterprises so that Despite the magnitude of the problem, China has an they respond to environmental penalties, adjusting the unprecedented opportunity to increase its environmen- pricing system to ensure that it reflects environmental tal quality of life. Rapid economic growth makes costs, liberalizing international trade to give Chinese clearer waters and bluer skies more attainable. High industry access to the latest environmental technology, rates of investment can be used to develop cleaner, more and developing capital markets to provide financing to energy-efficient industries. Policies that channel invest- firms and municipalities supplying environmental infra- ment into cleaner production, encourage material and structure. Harnessing the market also means recogniz- energy efficiency, and encourage conservation of scarce ing that China, with its limited resource base, is resources could reduce emissions in 2020 below today's underpricing energy and water. Prices of natural gas levels, improve air and water quality, and lower pollu- and water, for example, should be raised to reflect their tion-related health costs by 75 percent-even as China scarcity. Finally, harnessing the market means that the quadruples its output. government should expand the use of taxes on pollu- 2 Clear Water, Blue Skies: China's Environment in the New Century tion to incorporate its enormous social costs. The real pollution but are effectively exempt from regulation. If cost to society of coal-after its damages to human the government uses its powers to set national stan- health are included-is 100 percent higher in Beijing dards-for automobile and motorcycle emissions, the than its current price. Environmental taxes on coal and energy efficiency of buildings, and so on-it will achieve gasoline and on pollutants would use the market to major improvements in environmental quality. clean the environment. At the regional level, effective management of water * China must harness growth for the environment by basins and airsheds requires setting up regional author- pursuing investments with the highest environmental ities to overcome the paralysis afflicting current policy- benefits for future generations. Better pricing makes making. Similarly, regulation of sulfur emissions, like investments in clean technology economic and imposes that in the Air Pollution Prevention and Control Law of environmental discipline on firms. For example, 1995, must target areas suffering from acid rain to have Chinese industry today operates at 50-85 percent of the the maximum effect and to minimize control costs. energy efficiency of OECD countries. Pricing energy At the urban level, environmental master plans could correctly would create incentives for firms-state and help remove dirty industries from downtown areas and nonstate-to invest in more efficient technology and allow for effective urban transportation, two measures abatement. If emission taxes and coal transport charges that will reduce health damages and pollution loads in were correct, investment in coal washing-a priority to the years to come. By 2020 well-organized cities with curb particulate emissions-would be more economic. good public transit could have half as many cars clogging Beyond this, public investments in natural gas to their roads as poorly managed cities without public tran- replace home use of coal would increase energy effi- sit. Finally, environmental education, already under way, ciency by two to five times and reduce urban air pollu- will increase citizen demands for a cleaner environment. tion. Public investments in research and development These demands must find expression in wider commu- are critical for bringing new industrial technologies nity participation in environmental policymaking. (such as efficient industrial boilers and renewable Achieving these goals will require some sacrifices in energy) to the market. Public investment in wastewater the near term. Pollution control investments will have treatment is unavoidable, and would be more financially to double, to about 1 percent of GDP. Still, these costs viable if sewerage charges were universally introduced are small relative to China's annual investments, which and gradually raised to full cost recovery levels. total 35 percent of GDP. They are also small relative to Investments in public transit systems would help avoid the future costs of cleanup if action is delayed. Most the emergence of automobile-based urban transporta- important, today's sacrifices are small relative to the tion systems, which lead to congestion and heavy pollu- enormous improvements in the quality of life that will tion. Finally, public investments in wastewater systems, accrue to future generations. financed through increased cost recovery and better If China manages to grow by 6-7 percent a year for pricing, are crucial for conserving water resources and the next two decades or so, by 2020 its population will for cleaning China's rivers, lakes, and coastal waters. enjoy incomes roughly equivalent to those in Portugal * China must harness its administrative capabilities for today. New policies and careful investments made the environment. At the national level, better regula- today mean China's children and grandchildren would tions and policy coordination could replace direct also enjoy clear water and blue skies. investment controls. Some regulations, such as phasing out lead from gasoline by 2000, are essential for envi- Note ronmental improvement. As markets grow, regulations should spread to cover township and village industrial 1. Chinese researchers prefer to use the "human capitar> approach to mortality and health risk valuation, which produces a damage esti- enterprises, which are an increasingly large source of mate of about 3.5 percent of GDP (see chapter 2). Overview 3 Growth and China's Environment Eince 1978 China's economic reforms have pro- gressively unleashed market forces and dramat- ically improved the material well-being of most Chinese citizens. The transition from a command to a market economy has produced economic growth rates that put China among the world's five fastest growing economies. Over the past eighteen years rising incomes have eased poverty, reduced infant mortality, improved child and - t maternal health, and lengthened life expectancy. During the same period, however, China's environment has deteriorated significantly. Rapid urbanization and industrialization have generated enormous volumes of air and water pollutants, lowering air and water quality. Between 1980 and 1995 China's urban population soared $ from 191 million to 352 million people, moving more Chinese closer to industrial smokestacks and residential emissions and increasing the number of people exposed to polluted urban air and water. 5 Today most Chinese cities are covered by blankets of sive legal and administrative framework to protect the harmful airborne particulates. In maj or cities levels of environment (box 1.2). Moreover, increasing resources total suspended particulates and sulfur dioxide are two are being invested in environmental protection, with to five times World Health Organization (WHO) guide- record amounts planned during the Ninth Five-Year lines (figure 1.1). Since 1980 surface water and ground- Plan. Finally, and perhaps most important, economic water have grown increasingly polluted because of reforms have helped increase the allocative efficiency of increased emissions of industrial waste, municipal the economy. sewage, and agricultural runoff. Urbanization has tight- ened already short water supplies, particularly in north- _ ern China, and has strained urban sewage treatment Ambient concentrations of air poltutants capacity. In 1996 less than 7 percent of municipal far exceed international standards, 1995 wastewater was treated. Ambient water quality, espe- Total suspended particulates cially in urban areas, has suffered. And the government WHO standard recently reported that acid rain affects 29 percent of Beijing China's land area (Hao and Liu 1997). Shenyang Over the years high levels of pollution have prompted the government to take corrective actions Shanghai and expand environmental policies (box 1.1). Still, Chongqing much remains to be done. This report focuses on two Tiyuan of China's most pressing environmental concerns-air Jinan and water pollution-and their relation to economic Jinan* growth. Specifically, it addresses three questions: What Bangkok are the costs of pollution in China today? Will future Jakarta (1991) economic growth impair or improve air and water quality? And what policies are needed now to ensure _ that rising incomes translate into a higher environmen- Tokyo tal standard of living for current and future 0 100 200 300 400 500 600 venerations? ~~~~~~~~~~~~~~~~~~~~Micrograms per cubic meter generations? (annual mean concentration) Limited resources, better policies Sulfur dioxide WHO standard With 22 percent of the world's population living on just Beijing 7 percent of the world's arable land, China's per capita Shenyang resource base is unusually low. Agricultural land per Shanghai cap'ta 's 28 percent of the world average. Range lands. __ caita Is 28pecntootenoldaergeianelad per capita are less than half the world average. And Chongq ng forests and wilderness areas per capita are only 15 per- Taiyuan cent of the world average (World Bank 1992, p. 98). Jinan Similarly, water resources per capita are about one- Bangkok third the world average, and energy resources (particu- _ larly hydrocarbons) are low as well. Jakarta (1993) The Chinese government knows that these limited Los Angeles (1990) resources could eventually constrain economic growth Tokyo and improvements in welfare. It has recognized that 0 50 100 150 200 250 300 350 China must shift from an extensive and resource-inten- Micrograms per cubic meter sive development pattern to an efficient and sustainable (annual mean concentration) one. The government has implemented a comprehen- 6 Clear Water, Blue Skies: China's Environment in the New Century BOX 1.1 As identified by China's National Environmental addition, because of the extensive mode of eco- Protection Agency (NEPA 1993), several environmen- nomic growth and backward technological and tal priorities are likely to have long-term impacts on managerial levels, emissions of pollutants increase ecosystems and the economy: continuously. Environmental pollution in center * Water pollution cities is worsening and is extending into rural areas, * Water shortages in urban and northern China and the scope of ecological damage is increasing. * Urban air pollution (NEPA 1996b, p. 9) * Industrial toxic and hazardous wastes * Soil erosion Because air and water pollution are the most damag- * Forest and grassland degradation ing to human health, worker productivity, and agricul- * Habitat destruction and species loss. tural output, they are the focus of this report.1 The rest In a speech to the Fourth National Environmental of this chapter identifies the sources of pollutant emis- Conference in 1996, Premier Li Peng noted the envi- sions and their effects on ambient air and water quality. ronmental achievements that China had made, but admonished the nation that much remained to be done: Air pollution We clearly are aware that the situation of the envi- Many cities in China, especially large ones, have seen ronment in our country is still quite severe. Since ambient air quality improve thanks to industrial emis- China is now still at the stage of rapid industrial- sion control and residential fuel switching programs. ization and urbanization, the intensity of exploita- But ambient concentrations of suspended particulates tion of natural resources rises continuously. In are still extremely high in most cities, and ambient sul- Growth and China's Environment 7 furdioxideconcentrations and acidrainare alsohigh in coal and account for an even larger percentage of areas where high-sulfur coal is consumed. In general, ground-level air pollution. Although households northern cities have more serious particulate pollution account for just 15 percent of coal use, they typically because coal is used for space heating, whilte 30 percent of the ground-level air pollution cities have serious sulfur dioxide pollution. in Chinese cities. The average sulfur content of coal pro- duced and consumed in the southwestern provinces of Sources of air pollutants Sichuan, Guizhou, and Guangxi is about 4 percent. Over the past decade the number of trucks and auto- Rapid growth and rising incomes have increased mobiles in major cities has increased dramatically, cre- China's demand for energy. As a result coal use has ating a new source-though still relatively limited in more than doubled since 1980, reaching some 1.3 bil- most of the country-of urban air pollution. Motor liontonsinl995.Energyconsumpt cioomass, vehicles emit particulates, sulfur, carbon monoxide, petroleum products-is responsible for most particu- nitrogen oxides, and volatile organic compounds. late emissions. Coal combustion in industrial boilers and small household stoves accounts for a dispropor- Emissions and concentrations tionately large percentage of ambient levels of fine (less than 10 microns) and ultrafine (less than 2.5 microns) Particulate emissions have remained relatively flat since particles, which are the most damaging to human the earlyl1980s,oimplyingta substantial increase incon- health. Industrial boilers and household stoves are also trols given the near doubling of coal consumption (fig- responsible formost sulfur dioxide and nitrogen oxide ure 1.2). In contrast, sulfur dioxide emissions have emissions. Industrial boilers, manyarun inefficientlyeand roughly paralleled the increase in coal consumption with low smokestacks, consume 33 percent of China's because of inadequate sulfur control measures. 8 Clear Water, Blue Skies: China's Environment in the New Century _g n, gn dential gas use, expanded district heating, taller stacks Emissions of major pollutants have grown on industrial boilers, and urban planning policies that much slower than GDP, 1985-95 have moved some industries out of central city Index (1985 = 100) districts' Although ambient particulate concentrations in 300 large cities fell significantly between 1985 and 1991, medium-size and small cities experienced less dramatic 250 GDP declines, and have even seen a slight increase since the j 200 D early 1990s (figure 1.3). Despite the steady increase in SuLfur dioxide sulfur dioxide emissions, average ambient sulfur diox- 150 / ide concentrations have remained stable in medium-size _ _- ........................-.-.-.--- - . 250 0 X 20 20 150 200 100 ~~~~~~~~~~~~~~150 100 50Power and heat plants 0-iWH I ~~~~~~~~~~Large sources IS lpstandard 0 1995 2000 2010 2020 Largest Beijing Shanghai Chongqing Xian Other cities cities Source: World Bank staff estimates. average average Source: WorLd Bank staff estimates. even faster-from 66 jig/M3 in 1995 to 135 ,ug/m3 by 2020. Power plants will account for most of the increase in sulfur dioxide emissions, while small sources dominate Costs of business as usual the increase in particulate emissions. Higher emissions from power plants in or near large cities do not translate Estimating the current and future costs of air pollution into a large increase in ambient sulfur dioxide levels, is difficult. Reasonably reliable dose-response functions however, because of the tall stacks on the power plants in can be used to estimate the economic costs associated these cities.10 On the other hand, higher sulfur dioxide with damage to human health from exposure to various emissions from small sources (largely from burning huge pollutants (box 3.2). But reducing air pollution also has quantities of medium- or high-sulfur coal by households other, less tangible benefits. Surveys consistently find and in small boilers) will result in high ambient levels and that people are willing to pay some portion of their exposure to sulfur dioxide. income to ensure that they can enjoy cleaner air. The analysis here focuses exclusively on the costs air Regional pollution. The business as usual projections pollution imposes on human health. These costs are so indicate that sulfur dioxide and nitrogen oxide emis- high under the business as usual scenario that it is sions will more than double. The impact of such a jump hardly necessary to consider the amenity and ecosystem in acid depositions on crops, forests, and surface waters benefits of cleaner air to justify action. will depend on the location of new power plants as well The absolute value of pollution damages in a given as on the capacity of the soil to buffer acid depositions. city for a given year depends on the reference air quality The RAINS-Asia model was used to simulate the standard used in the calculations, since the gap between effects by 2020 of sulfur emissions and depositions. As that standard and current exposure determines the cost. map 2 shows, in more than 25 percent of the land area Here an annual standard of 60 gg/m3 has been used for sulfur depositions are expected to exceed the annual both fine particulates and sulfur dioxide because this carrying capacity of the ecosystems by at least 1,000 level corresponds to the Chinese class 2 standard and is milligrams per square meter; in about 5 percent of the near the upper range of WHO guidelines. land area annual depositions are expected to exceed Under the business as usual scenario the health costs carrying capacity by 5,000 milligrams per square meter of exposure to particulates (for urban residents only) or more. Most of the excess sulfur depositions are in the will rise from $32 billion (or $129 per resident exposed) rich agricultural lands in southern China. in 1995 to nearly $98 billion (or $197 per resident 36 Clear Water, Blue Skies: China's Environment in the New Century exposed) in 2020 (figure 3.13). When expected income Making a change: Alternative scenanos growth is also taken into account the costs in 2020 are some four times higher ($390 billion). Contrary to the assumptions underlying the business as Lead exposure creates additional health care costs. usual scenario, policies in China are unlikely to remain Infants and children who are exposed to excessive lead static over the next two decades. But how should suffer impairments in neurological development and a investments be altered to improve China's environ- consequential loss of intelligence, reduced earnings over mental future? If China began "growing differently," their lifetimes, and increased neurobehavioral problems investing in technologies less damaging to the environ- and infant mortality. Lead poisoning among Chinese ment and in a less resource-intensive economic struc- children has been estimated to cost about $1.6 billion in ture, emissions could fall. This section explores the 1995. Under the business as usual scenario these costs most effective potential investments and quantifies will rise to more than $13 billion in 2020. their effects on the environment and on human health. Acid rain will also become increasingly costly. If cur- Later chapters discuss the policies that would lead to rent trends persist, damage will occur to more than 25 their realization. percent of China's land, and forest and crop losses may Among the changes that will reap the greatest bene- reach $60-80 billion. Quantifying these effects, how- fits for China's environmental future are: ever, requires additional research. * Increasing substitution of cleaner fuels-especially Finally, if a "shadow price" of carbon of $20 a ton (a gas and district heating-for coal for household heating value currently used by the Global Environment and cooking than under the business as usual scenario Facility that corresponds to available estimates of mar- would reduce particulate and sulfur emissions as well as ginal damage) is attached to carbon dioxide emissions, greenhouse gases. the damage from these emissions totaled $4.4 billion in * Improving energy efficiency and conservation and 1995 and will rise to $13 billion in 2020. Although diversifying energy supplies into noncoal sources would small relative to other health care damages, these costs reduce ambient and solid waste emissions. are still significant. * Investing in industrial air pollution control could decrease emissions of key pollutants at least fivefold by BOX 3.2 2020, especially with strict controls on particulates. * a-X S S * Developing public transportation systems and dis- ~~~~ ~~ couraging automobile use would mitigate hydrocar- bon-related air pollution in urban areas. HeaLth care costs of exposure to particutates are certain to rise under the business as usuat scenario BiLlions of 1995 U.S. dollars 100 80 Ohrsmtm 60 ~~~~~~~ ~~~~~40 A~~~~~~~2 20 ~~~~~~~~Premature deaths 0 1995 2000 2010 2020 ~~~~'<~~~~~~~ ~~Source: World Bank staff estimates. Pollution, Health, and Productivity: Plotting Alternative Futures 37 * Raising the abatement rate for industrial water pol- High investment scenario lution and increasing the coverage and level of munici- pal wastewater treatment would improve water quality. In many settings the marginal cost of pollution abate- Shifting the structure of the economy in this direction ment rises sharply once emissions have been cut by is economically feasible. The speed at which the econ- 60-80 percent. The high investment scenario assumes omy would adjust depends on the environmentally that emission standards correspond to the concept of friendly investments China makes in the near term to best available techniques that has been adopted by the avoid social costs later. Two scenarios have been exam- European Union as the basis for its environmental poli- ined to analyze the implications of the alternative strate- cies.12 The scenario assumes that by 2020 policies gies that might be followed. would induce China's commercial sector-state and nonstate-to invest in and maintain abatement levels Medium-cost investment scenario close to what OECD countries have achieved today. Under this scenario cleaner combustion technologies A medium-cost investment scenario begins with the (sorbent injection, fluidized bed combustion) will assumption that China will adopt policies to achieve become widespread in the industrial sector. End-of-pipe emission standards by 2020 that are broadly equivalent particulate removal will increase to 97.5 percent for to those in the United States and Europe in the early large industries and to 99.8 percent for power plants. 1980s. Policy interventions (discussed in subsequent All new power plants will have flue gas desulfurization chapters) would elicit investments from both the state systems. Some type of particulate controls will be and nonstate sectors that would shift the economic installed on small industrial boilers, and smokeless coal structure along the lines suggested above. There would will be widely used by households and other small be more investment in cleaner fuels-including washing sources of pollution. coal, phasing out lead more quickly, and converting In the transport sector, in addition to catalytic con- from coal to gas or district heating in the residential and verters for all new cars, new trucks and buses are commercial sectors. There would also be improvements assumed to have lean-burn engines and particulate in process technologies, such as better utility and indus- traps. Furthermore, the scenario substantially increases trial boilers and the adoption of catalytic converters in public investments in infrastructure-notably gas and new vehicles. Finally, end-of-pipe technologies would district heating as well as sewage treatment-to deal be adopted, including 95 percent particulate removal with emissions from dispersed sources. The scenario from the emissions of large industries and 99.5 percent assumes that all urban sewage receives secondary treat- from power plants, and primary treatment of all urban ment and that 80 percent of rural sewage receives pri- sewage and industrial wastewater. mary treatment. Annual investment in pollution Under the business as usual scenario investments in abatement would rise to 2 percent of GDP, and the pollution abatement would average 0.5 percent of GDP. annualized cost would rise to 4-5 percent of GDP. Under the medium-cost investment scenario significant Because a larger portion of these costs would be borne environmental improvements could be obtained through by nonstate companies, the state's share of these costs investments averaging 1 percent of GDP. This is a 100 would be about 60 percent. percent increase in environmental investment relative to the business as usual scenario. China's Ninth Five-Year Choosing a strategy Plan calls for a 70 percent increase in environmental investment over the previous planning period.'" On an Air quality, as we have seen, has a significant impact on annualized cost basis-that is, annual operating costs health. Under both the medium-cost and the high plus the value of depreciated plants and equipment- investment scenarios, particulate emissions from small China would invest about 2 percent of GDP in environ- sources fall to less than half their 1995 level by 2020. mental protection. The state would shoulder only about Average exposure to fine particulates in urban areas 66 percent of these costs, compared with 84 percent falls to 79 R.g/m3 under the medium-cost investment under the business as usual scenario (see chapter 8). scenario and to 36 Rg/m3 under the high investment sce- 38 Clear Water, Blue Skies: China's Environment in the New Century nario (figure 3.14)-implying a dramatic reduction in RAINS-Asia model show that an untargeted strategy premature deaths and ill health relative to the business with low-cost technology would require $6 billion a as usual scenario. Health costs from urban air pollution year to stabilize sulfur dioxide emissions at the 1995 are also sharply curtailed under the two alternative sce- level by 2000 and beyond (map 3). This strategy would narios. By 2020 these costs fall nearly to zero in the high avoid damages of some $24 billion in agriculture and investment scenario (because China would achieve its forestry. However, the same benefits could be achieved own air quality standards) but exceed 10 percent of at about half the cost with a targeted application of low- GDP in the business as usual scenario (figure 3.15). cost controls only to those sources that cause the most Abating water pollution may require greater invest- damage and only in the regions with the most acid rain ment from both the commercial sector (state and non- (map 4). Such controls include limestone injection for state) and the public sector. Although China has managed new coal-fired power plants, flue gas desulfurization to reduce wastewater discharges from industrial sources, systems for large industrial boilers, and adoption of industrial emissions account for only 35 percent of bio- low-sulfur fuels for household and transport use. logical oxygen demand levels, and large industrial sources Although the untargeted strategy would almost elim- account for just one-quarter of industrial emissions. Real inate acid rain in China, the costs would be very high. progress in reducing water pollution will require large However, at a fraction of the cost the targeted acid rain investments in sewage collection and treatment. Progress control strategy described above would produce the under the medium-cost investment scenario will likely be same benefits as implied by the government's untar- sufficient to address the most pressing water pollution geted emission reduction goal. problems. Going beyond this program would require more careful comparison of costs and benefits. ConcLusion Controlling acid rain would avoid the enormous costs of acidification to Chinese agriculture and forestry The foregoing analysis suggests that there is good news projected under the business as usual scenario. for China's environment. An environmentally sustainable Untargeted application of the best available technology pattern of growth can both increase incomes and improve across the country would be very expensive ($18 billion environmental quality. And with a few crucial adjust- a year) and would have a low economic return.13 ments, this future is well within reach of China's current Current sulfur dioxide emissions total about 26 million policies and resources. Moreover, the rate of return to tons a year, and without controls will increase to as these investments is enormous. Each yuan invested in the much as 45 million tons by 2020. Simulations with the medium-cost investment scenario will yield 3 yuan in Particulate concentrations under three Health costs of urban air pollution under investment scenarios three investment scenarios Micrograms per cubic meter Percentage of GDP 350 15 * 1995 U 1995 300 2000 20000 * 2010 1 250 20202010 Source: World Bank staff estimates. Soulrce: World Bank staff estimates. l0 6io, Hl a P i X L 100~ ~ ~ ~~~~~ ~oluin Cealth 3n PrdctvtyalotngAtentieFuues3 reduced pollution damages.14 The returns are even higher Annex 3.1 Modeling industrial output, if the effects of growing income are considered. energy demand, and emissions There is a cautionary note in this chapter as well. The business as usual projections indicate that, unless poli- The projections made in this report were produced cies are changed, China will not achieve its objectives using a model that attempts to capture the impact of for air and water quality by 2000. Although its objec- economic reform and industrial restructuring on the tives for 2010 might be obtained for certain water pol- evolution of industrial output in transition economies. lutants, there are likely to be sharp increases in The model, originally constructed for use in Central pollutants before pollution loads return to today's lev- and Eastern Europe and the former Soviet Union, is not els. The outcomes of the business as usual scenario are a full general equilibrium model because it is based on sufficiently worrisome to give pause to environmental exogenous assumptions about macroeconomic perfor- policymakers who are tempted to rest on their laurels. mance. Still, it is possible to check the consistency of The challenge is to identify policies that will generate these assumptions against industry-level projections. the type of growth assumed in the medium-cost and The results of this cross-check are used to highlight high investment scenarios. The projections raise strate- some of the technical and economic difficulties involved gic questions for policymakers: in making medium- and long-term projections for * How can China reduce its reliance on coal, improve economies undergoing drastic structural changes. overall efficiency, and adopt cleaner technologies? Needed changes will require more than a gradual shift Basic assumptions based on relative costs, preferences for convenience, and changing patterns of fuel use (these effects are already The basic assumption driving the model is that over the taken into account under the business as usual scenario). next two decades transition economies will converge (at It will require nothing less than a determined, systematic varying speeds) toward economic performance and set of new policies for developing and using energy. industrial structures similar to those in today's middle- * What policies can induce enterprises to invest in pol- income countries. Differences in initial endowments of lution abatement? As a greater share of output origi- capital and natural resources and established patterns nates in the nonstate sector, creating incentives for of comparative advantage will affect how this process nonstate enterprises to invest in protecting the environ- works out. Convergence implies uniformity only to the ment is important. This includes incentives to use fewer extent that the legacy of central planning means these materials and less energy as well as to control pollution countries have similar characteristics that differentiate using end-of-pipe measures. Such measures will also them from comparable market economies. reduce the government's investment costs. The full model is based on an input-output framework * How can China develop environmentally friendly with separate matrices of coefficients for old capital and transport modes that reduce pollution and avoid the new capital. The coefficients for old capital change grad- mistakes made by other East Asian countries? The gov- ually over time. The standard input-output convention- ernment's recent decision to phase out lead is an impor- that the output of a sector is equal to the demand for tant step that will protect large numbers of Chinese, goods and services produced by that sector-is followed. particularly children, from exposure to lead. In the long As a result the model is (piecewise) linear as far as calcu- run China should implement comprehensive urban lating each year's output is concerned, though the under- transport planning that provides alternatives to private lying cost functions are not linear. This means that the automobiles, traffic jams, and smog. model can be solved sequentially by matrix techniques. * Finally, can China develop water policies that protect Various adjustment mechanisms have been incorporated precious clean water supplies by inducing enterprises to ensure conformity between the macroeconomic and municipalities to invest in abatement efforts as well assumptions about trade and the sectoral data and as conserve? assumptions about import and export dependence. These issues are the subject of the next four chapters, The model has been implemented with the aid of a gen- on energy, industry, urban transport, and water. eral matrix programming language, MATILDA (Hughes 40 Clear Water, Blue Skies: China's Environment in the New Century and Voss 1991), that was primarily designed for model- wise be used to generate heat within the enterprise. This ing based on an input-output framework. The model is unlikely to apply to new plants, while old plants will could easily be translated to a number of other matrix gradually want to control their own use of energy rather programming languages such as MATLAB or SAS-IML. than rely on external heat supplies. Thus it has been assumed that heat inputs are zero for new capital and Specifications for China projections that heat inputs per unit of output for old capital fall by 50 percent by the end of the forecast period. As with all linear models, there is a considerable The model contains a special submodel dealing with amount of special case detail designed to ensure that the the generation of electricity and heat-an important issue projections do not violate conventional bounds on vari- because of its effect on primary energy use and emissions. ables and to prevent various kinds of degeneracy. The The submodel rests on a simplification of a merit order China version of the model includes sectoral break- model for operating electricity plants. First, net electricity downs of twenty-four sectors, including twenty manu- demand is adjusted by a factor reflecting transmission facturing sectors and four energy sectors (coal, gas, oil losses and own use to give gross electricity demand. The products, power and heat), that can be matched with sum of primary electricity production and net imports is two- to three-digit International Standard Industrial deducted to yield the need for electricity from thermal Classification (ISIC) industries (with a few modifica- plants. The stock of thermal generating capacity available tions). China's input-output table for 1992 was used as in any period is used in proportions that reflect the rela- the base year for the model. tive advantages of relying on different fuels. New plants The model incorporates assumptions that can be have a higher thermal efficiency than old plants and are at grouped into four major categories: macroeconomic the top of the merit order. Old plants are brought on line growth (GDP in constant prices, GDP expenditure cat- in accordance with the merit order implied by the egories, and adjustment period), power sector develop- assumed utilization shares. The potential output from old ment, energy prices, and environmental policies capacity depreciates by 3 percent a year, while explicit (technological or emission standards, pollution fees). assumptions are made about investment in new capacity. By changing some of the assumptions, the model can test a number of growth scenarios and policy choices, Emission factors. There are five matrices representing including speed of adjustment, energy prices (for exam- the emission coefficients for output from old capital and ple, fuel taxes), fuel use patterns, emission standards for five for output from new capital. For each set, the first new technologies, and pollution fees. matrix represents process emissions per unit of output and thus is applied to total output. The next three matri- Energy coefficients. There are a number of special ces represent emissions per unit of fuel used in each sec- features concerning the treatment of energy inputs in the tor for three fuels-coal, gas, and oil. Power generation model. Over the past thirty years market economies is included as one of the sectors to which these matrices have had an increasing share of electricity in industrial are applied. The final matrix relates to emissions from energy despite increases in the price of electricity relative households and other sources whose volume is linked to to other fuels. Thus a trend in the share of electricity has population rather than output or inputs. The coefficients been incorporated in the model for all industrial sectors. represent emissions per 1 million people. In the main scenarios this trend includes a higher rate of The emission factors for new capital are much lower increase for new capital than for old, reflecting the than those for old capital because modern technology greater potential for automating Western technologies. embodies process improvements and better controls Heat also poses a problem. Institutional arrange- that drastically reduce most pollutant emissions. ments-which are reinforced by statistical conventions However, various environmental scenarios have been in the reporting of data-mean that enterprises purchase constructed by making alternative assumptions about (or are recorded as purchasing) heat from electricity util- the stringency of the environmental regulations that ities and other sources for process use or space heating must be satisfied by production from new capacity. The instead of purchasing primary energy that would other- base scenario assumes that these regulations reflect U.S. Pollution, Health, and Productivity: Plotting Alternative Futures 41 and EC emission standards that were in force during the sion coefficients for new investment faLL because of new technoLogy. early 1980s, which correspond to typical emission fac- Emissions from the post-1995 component of the capital stock in each sector correspond to those from modern technologies achievable tors for U.S. and Western European plants today. This through zero or low-cost environmentaL improvements. New machin- assumption captures the idea that current technologies ery typicaLLy is 25-50 percent more efficient than the existing capitaL have been fully adapted to these past emission stan- stock and has the kind of emissions performance typical of new invest- d s ta is ments carried out in industriaL countries in the earLy 1980s. dards, so that the cost of meeting these standards l 7. InevitabLy, the assumptions underpinning the business as usuaL small relative to the total cost of new capacity. Other scenario do rough justice to the complexities of technicaL change and scenarios are constructed by assuming that old capital environmental progress in different sectors. The most obvious con- cerns are has to be brought into the emission standards for new * The scenario makes no aLLowance for reductions in emission coef- capital by the end of the forecast. ficients for the pre-1995 capitaL stock. In the Long run this makes no Data on actual emission coefficients are difficult to difference, since such capitaL wiLL represent a negLigibLe portion of the total capitaL stock by 2010. In the short term it is not cLear whether the assumption of constant emission coefficients over- or understates air pollutants linked to energy use, but most of the emis- total emissions because improvements in environmentaL performance sion matrices used in the model have been compiled must be set against a general tendency for emissions to increase as from a wide variety of sources. pLants and equipment get older. * PresumabLy, future technicaL advances wiLL ensure that average emissions from new capital investments made in 2010 that incorpo- Notes rate zero or Low-cost controLs wiLL be Lower than that from new invest- ments made now. Thus the average emission coefficient for new capital 1. The main assumptions about economic growth are taken from should fall over time. Although this assumption is correct, it will be the generalequilibrium modeldevelopedfortheanalysisin World Bank partly or wholly offset by the gradual decline in the emissions perfor- (1997). Under the assumption that investment wiLL decLine from over mance of the pLants and equipment installed in the early part of the 40 percent of GDP today to about 34 percent by 2020, consumption post-1995 period. At worst the projections may slightly overstate the will increase from 58 percent of GDP in the mid-1990s to 66 percent LeveL of pollution Loads in 2020. These and other uncertainties impLy in 2020. The share of agricuLture in consumption wiLL decline, the that the projections shouLd be regarded as providing merely a generaL shares of industry and construction wiLL remain aLmost the same, and indication of the trends in totaL emissions of different pollutants. the share of services will rise. Within the industrial sector the share 8. The sample included all cities with an estimated population of of food, drink, and tobacco (currently 43 percent) will increase 3 million or more in 1995. sLightly, with offsetting declines in textiles and chemicaLs. 9. This is not to suggest that burning coaL in smaLLer towns and 2. Assumptions in the modeL about the fueL composition of new villages has no effect, which is clearly incorrect. The point is that the generating capacity are based on the analysis in Johnson and others number of people affected by the smoke generated by burning 1 ton (1996). of coaL is LikeLy to be significantLy Less in small towns and villages than 3. Energy prices can play an important roLe in determining both the in medium-size or Large urban areas. Of course, the distinction is rate and composition of growth in energy use. In general, Chinese blurred where rural areas are very densely populated, as around the energy prices forindustrial users in some parts of the country were close periphery of Shanghai, in which case it may be appropriate to treat to world market levels during the first haLf of the 1990s. Since there is the whole region as a singLe conurbation. no direct Link between border prices and domestic whoLesaLe prices, 10. Indeed, the main effect on urban air quaLity is LikeLy to be sharp movements in the exchange rate can Lead to short-term diver- through an increase in the leveL of fine particulates as a resuLt of the gences until domestic prices adjust. Thus in 1994 the wholesale prices conversion of sulfur dioxide into sulfates in the atmosphere. However, of both coal and dieseL oiL in coastaL cities such as Tianjin, Shanghai, this too is wideLy dispersed, so the typicaL impact on a particuLar urban and Guangzhou were below the equivalent import parity price at the area wiLL be small relative to the impact of changes in direct emissions current exchange rate (after adjusting for calorific value). The high cost of particulates from small sources. of transporting coal in China means that there are large differences 11. According to the National EnvironmentaL Protection Agency, between border parity prices for coaL in these coastaL cities and those China invested about 0.7 percent of GDP in environmental protection in more distant inLand cities. NonetheLess, reLative prices for steam coaL between 1991 and 1995, and pLans to invest about 1.2 percent of GDP in inland cities were often much lower than would be justified on a between 1996 and 2000. The investment shares estimated in this report simpLe netback basis using a reasonabLe (or even high) cost of freight. cannot be directly compared with the NationaL EnvironmentaL Protection 4. Demand for gasoLine and dieseL fueLs is quite ineLastic with respect Agency's figures because of differences in coverage. However, it is use- to price in the short run-short-run price eLasticities typicaLLy range fuL to compare the reLative increase in investment in both cases. from -0.1 to -0.2-but it is much more elastic in the Long run (eight 12. European Union LegisLation defines the goaL of such poLicies as to ten years)-long-run price elasticities range from -0.8 to -1.2. the attainment of a 'high overall levet of protection for the environ- 5. This estimate of final energy demand is sLightLy higher than the ment.' The concept of best avaiLable techniques is defined in the baseline scenario deveLoped for Johnson and others (1996), in part European Union's Directive on Integrated PoLLution Prevention and because of slower changes in the technical input-output coefficients. Control, formaLLy adopted in September 1996. Note that the concept For energy unit conversions, see chapter 4, note 1. of best avaiLable techniques is not identical to best avaiLabLe control 6. To allow for the improvements in environmental performance technology because it places much greater emphasis on waste preven- emanating from new capitaL investment and growth in totaL factor pro- tion, operational practices, and maintenance, and reLies Less on end- ductivity, the business as usual scenario assumes that average emis- of-pipe controls. As such, it is much more reLevant to industriaLizing 42 Clear Water, Blue Skies: China's Environment in the New Century countries that face severe constraints on capital resources and that Johnson, T.M., J.F. Li, Z.X. Jiang, and R.P. Taylor, eds. 1996. need to invest in training as weLL as cteaner production technoLogies China: Issues and Options in Greenhouse Gas Emissions in deveLoping cost-effective approaches to pollution management' Control. World Bank Discussion Paper 330. Washington, D.C. 13. Untargeted emission reduction policies are the same for all sec- Marer, P., J. Arvay, J. O'Connor, M. Schrenk, and D. Swanson. tors and a(L regions. 1992. Historically Planned Economies : A Guide to the Data. 14. These estimates are derived by calcutating the net present vaL- Washington, D.C.: World Bank. ues of annuatized costs and benefits of air polLution abatement for the NEPA (National Environmental Protection Agency), SPC (State medium-cost and high investment scenarios relative to the business Planning Commission), and SETC (State Economic and Trade as usuaL scenario, using a 12 percent discount rate. Commission). 1996. National Environmental Protection Ninth Five-year Plan and 2010 Long-term Goals. Beijing: China Environmental Science Press. References Steinberg, D. 1992. "Economies of the Former Soviet Union: An Input-Output Approach to the 1987 National Accounts." Hughes, G.A., and S. Voss. 1991. "MATILDA: Reference World Bank, Socioeconomic Data Division, Washington, D.C. Manual." University of Edinburgh, Department of World Bank. 1997. China 2020: Development Challenges in the Economics. New Century. Washington, D.C. Pollution, Health, and Productivity: Plotting Alternative Futures 43 V Wm Af1C# Energy: Colping with Coal -3 ; 4 o other major economy is as reliant on coal as China. Current consumption of more than 1.3 billion tons of coal a year is the main cause of China's air pollution and acid deposition. If current trends in energy consumption continue, much of the increase in energy demand over the next twenty-five years will be met by coal. Thus reducing emissions from coal burning is cru- cial to resolving much of China's air pollution problem. Mitigating the environmental effects of energy consump- 7 00 tion will require improving energy efficiency, diversifying 4: - energy supplies, and controlling emissions. Energy pricing and pollution regulation will be important since they affect incentives to pursue these goals. - > Trends in energy consumption Two distinct trends in China's energy consumption have developed over the past fifteen years: growth in demand for primary energy has been consistently lower than growth in 45 GDP (by as much as a factor of two) and final energy son, most internationally traded steam coal has 25 per- demand has been increasingly shifting toward high- cent more heating value per kilogram, 25-50 percent grade sources such as electricity and gaseous fuels (nat- less sulfur, and 50 percent less ash. ural gas, coal gas, liquefied petroleum gas). Sustaining High-grade, less-polluting energy sources, such as these trends over the next twenty-five years would go a electricity and gaseous fuels, account for a growing long way toward reducing China's energy-related pol- share of final energy demand. During 1990-95 solids lutant emissions. (coal and coke) accounted for one-third of the growth Even though China's GDP has quadrupled since in final energy demand, down from two-thirds during 1980, its primary commercial energy demand has only 1980-89. The share of solids in final demand fell from doubled, reaching 1,240 million tons of coal equivalent 65 percent in 1980 to 60 percent in 1995. in 1995, second in the world behind the United States.1 Compared with OECD countries, the sectoral pat- In addition, rural households burn 250 million tons of tern of China's energy demand is highly skewed, with a coal equivalent of biomass each year, including 173 mil- large industrial share and relatively small transport and lion tons of dry fuelwood and 298 million tons of dry commercial shares (figure 4.2). Over time, however, crop stalks (SETC and CERS 1996). China's sectoral pattern of energy use is expected to Increased power plant demand and constrained become more like that in OECD countries. domestic oil supply raised coal's share in primary com- Industry accounts for about two-thirds of China's mercial energy consumption from 74 percent in 1980 to final commercial energy demand. Boilers are the largest 78 percent in 1995.2 This high dependence on coal is industrial energy user, followed by kilns and furnaces. unique among the world's major economies (figure 4.1). Nonmetal minerals processing (cement, bricks and tiles, Coal is consumed in almost every part of China's and so on), metal smelting and processing (steel, alu- economic life. Besides power plants, about 410,000 minum, copper, and so on), and chemicals manufactur- industrial boilers and 180,000 furnaces and kilns burn ing (fertilizers, acids, soda ash, and so on) use the most coal. Power plants account for about 30 percent of coal energy, accounting for about 60 percent of industrial consumption, industrial boilers about 30 percent, and final coal consumption. Thus emission reduction efforts furnaces and kilns about 20 percent. Most Chinese should focus in these sectors. urban households use coal stoves for cooking or space Reducing household coal consumption will also be heating, often with poor ventilation. And most central- an important part of controlling urban air pollution. ized heating is provided by small coal-fired boilers Households account for 15 percent of China's final located in residential or business districts. commercial energy demand and for a larger share of The low quality of commercial coal complicates environmental management. Most coal reserves in f China have medium ash content and low to medium China consumes more coal for primary sulfur content. Because there are few incentives to pro- commercial energy than other Large duce and consume washed coal, most users rely on raw economies, 1995 coal. About 20 percent of mined coal is washed, but Millions of tons of coal equivalent most washed coal is used in metallurgy. Less than 10 3,000 ReNewabLe sources percent of steam coal is washed in China, compared 2,500 = Hydropower rrtl NaturaL gas with about 45 percent in the United States and more 2,000 Petroleumr than 75 percent in Europe. The average ash content of commercial coal has hovered around 20 percent for 1,500 decades.3 The high ash content contributes to the rela- 1,000 tively low heating value of Chinese steam coal, rated at 500 less than 21 megajoules per kilogram. The average sul- fur content of commercial coal is about 1.1 percent, Brazil China India Japan United although parts of southwestern China consume coal States ., , ., . ~~~~~~~~~~~~~~~~Source: SSB 1996 and ETA 1996. with a sulfur content as high as 4 percent. By compari- 46 Clear Water, Blue Skies: China's Environment in the New Century ambient air pollution. Although increasing gaseous fuel changing product mix-are believed to have been the consumption in households has greatly improved main force behind reduced industrial energy intensity, indoor and ambient air quality in large urban centers, in accounting for about two-thirds of the drop (World 1995 about two-thirds of urban households continued Bank 1993). Technical changes-that is, shifts in tech- to burn coal for cooking and space heating. More than nologies, processes, and management for producing 100 million rural households still rely on fuelwood or goods and services-have also been important in low- crop stalks for cooking and space heating, but coal use ering industrial energy intensity (World Bank 1994). rises with incomes. Commerce, transportation, and Government policies have played a crucial role in agriculture are minor contributors to coal-related air promoting these structural and technical changes. Three pollution. types of policies have been particularly important: * Economic reforms. Economic reforms since the late Improving energy efficiency 1970s have spurred investment in more efficient pro- duction technologies and processes, expanded high- Energy intensity, measured by primary commercial value economic activities, and increased competition. energy consumption per unit of GDP, is a nominal indi- These developments helped make the economy more cator of an economy's energy efficiency. Since 1980 energy efficient. China's energy intensity has fallen by 50 percent, or 4.5 * Energy pricing policies. Evidence strongly suggests percent a year (figure 4.3). Although a reduction of that rising real prices for coal, oil, and electricity have energy intensity over time is not unusual for mature improved resource use and increased conservation economies, the consistent and impressive drop in China's among energy consumers (see below). energy intensity is unprecedented for an industrializing * Energy conservation policies. China has imple- economy and has been the subject of several studies mented nationwide energy conservation programs since (World Bank 1993 and 1994; Lin 1996; Sinton 1996). the early 1980s. Although these programs were largely Efficiency gains in industry are the main reason technology-driven, they played a key role in reducing China's energy intensity has fallen. Slow residential industrial energy intensity during the 1980s (World energy growth also has contributed significantly. Bank 1993). Structural factors-that is, shifts in final as well as inter- Despite the dramatic fall in energy intensity, China's mediate demand for goods and services, driven by a economy is still among the world's most energy-inten- Industry uses the most energy in China, China is using energy more efficiently 1992 but stiLl has not achieved the U.S. Level, Percent 1980-95 100 -- Tons of coal equivalent consumed per $1,000 1.5 20 1.0 60 0.5 UntdSae BraziL China India Japan United 0.5 Statesa Japan *Industry -Transport 1980 1983 1986 1989 1992 1995 *AgricuLture - ResidentiaL and commerciaL Note: China's GDP is in 1995 prices. ALt others are in 1990 prices. 1995 a. Agricuttural energy use is included in industry. exchange rates are used. Source: LBNL 1996. Source: SSB 1996; LBNL 1996; and IMF 1996. Energy: Coping with Coal 47 sive economies. Acknowledging the pitfalls in cross- returns from saved energy costs and avoided emission country GDP comparison, China's energy intensity in control costs. 1995 was about four times that of the United States (see If the 1986 energy-efficient building standards for figure 4.3). Moreover, industry plays a larger role in heated residential buildings were implemented, new China's economy than in Japan and the United States residential buildings with central heating could cut (table 4.1) and still relies on inefficient and small-scale heating coal consumption by more than 30 percent. At production technologies. China is also much less tech- a construction speed of 1,456 million square meters a nically efficient than industrial countries, especially in year in 1995, China's building stock will double in energy-intensive industries and major energy-consum- about fifteen years. Thus improving the energy effi- ing equipment (table 4.2). If current trends continue, ciency of buildings is crucial to curbing future residen- China's energy intensity will reach 0.586 tons of coal tial and commercial energy demand. equivalent per $1,000 of GDP by 2020-three times less than in 1995 but still about 40 percent more than Diversifying away from coal the current U.S. level. Thus there is huge potential for reducing China's energy intensity. As China's economy enters the twenty-first century, the China can achieve energy savings through further environmental consequences of expanding the energy structural shifts toward high value-added and low system based on coal are prompting a search for alter- energy-intensity products and through industrial mod- natives. But China is an energy-scarce economy, with ernization. Over time China's economic structure is per capita energy endowments far below the world likely to become similar to that in Japan and the United average (table 4.3). Although future exploration will States, with an increasing role for services (see table increase energy reserves, especially for natural gas, 4.1). Services consume far less energy per unit of China may have limited scope to reduce its dependence output. on coal by relying solely on domestic energy resources. Technological progress will significantly improve Since 1980 China has increased its reliance on coal to industrial energy efficiency. The potential industrial fuel its rapid economic growth. A massive hydroelectric energy savings identified in table 4.2 could save 250 program has been sustained, yet hydropower's overall million tons of coal (at 1995 energy consumption lev- contribution to the energy supply has fallen. Limited els), or about 20 percent of current coal consumption- domestic oil resources have been used mainly for trans- a level that will rise over the next twenty-five years. portation and the petrochemical industry, with oil-fired Investing in these key technologies would generate high power plants converted to coal-fired during the 1980s and net oil exports ceasing in 1993. Natural gas has TABLE 4.1 played an insignificant role in China's economy, but Energy-consuming industries play a large role in new exploration may increase its contribution. Nuclear China's economy and renewable energy play a small role today but could (percentage of GDP) grow significantly in the future, depending on invest- United ment and research and development policies. Indicator China, Japan, States, China's energy diversification strategy should reflect Indicator ~~~1995 1992 1993 Total GDP 100 100 100 concerns about energy security and the costs of alter- AgricuLture 21 2 2 native energy supplies. Continued strong support for Industry 48 43 26 oil exploration and development is crucial for meeting Services 31 55 72 TotaL manufacturing vaLue added 10oa 100 100 future demand. The government also plans to develop Energy-intensive sectors 35.8 22.9 20.5 domestic natural gas reserves to increase supplies to Metals smelting and processing 14.2 6.0 4.1 NonmetL minraL poducts 9.4 43 2.6 cities. China will also develop its vast hydropower NonmetaL mineral products 9.4 4.3 2.6 Chemical materials and products 9.8 10.0 9.0 resources, bringing long-term benefits to hydro-rich Paper products 2.4 2.6 4.8 southwestern provinces (where large amounts of high- Rest of manufacturing 64.2 77.1 79.5 sulfur coal are used now). Efforts should be made to a. Based on data for enterprises with independent accounting status. Source: SSB 1996; World Bank 1995a; and UNIDO 1995. deal with dam-related environmental problems, how- 48 Clear Water, Blue Skies: China's Environment in the New Century TABLE 4.2 Adopting best-practice technology could reduce China's coal consumption by 20 percent Equipment or One-time energy production Share of China's Average efficiency High efficiency in savings at 1995 level process energy consumption in China OECD countries of energy use IndustriaL boiLers 30 percent of 65 percent > 80 percent 70 million tons of coaL coal consumption Coal-fired power plants 30 percent of 414 grams of coal < 350 grams of coat 60 million tons of coal coal consumption equivaLent per equivaLent per kiLowatt hour kilowatt hour Steel making 10 percent of 40 gigajoules per 20 gigajoules per 60 miLLion tons of coal totaL energy use ton of steeL ton of steeL Cement kilns 7 percent of 170 kiLograms of coaL 100 kilograms of coaL 30 million tons of coal coat consumption equivalent per ton equivalent per ton of cLinker of clinker Fans and pumps 30 percent of 75 percent > 85 percent 30 billion kiLowatt hours eLectricity use or 17 miLLion tons of coaL Electric motors 40 percent of 87 percenta 92 percent 18 billion kiLowatt hours or eLectricity use 10 million tons of coal TotaL savings 247 million tons of coaL a. Average efficiency of mean motor size. Source: Wang and others 1995; WorLd Bank staff estimates. TABLE 4.3 China has scarce energy reserves to support its large population, 1994 Country Raw coal Crude oiL NaturaL gas Hydropower China Total 115 billion tons 3.3 biLlion tons 1.7 triLLion cubic meters 1,923 biRlion kilowatt hours Per capita 95 tons 3 tons 1,416 cubic meters 1,603 kiLowatt hours a year United States TotaL 241 billion tons 3.8 biLLion tons 4.6 trillion cubic meters 376 biLLion kiLowatt hours Per capita 962 tons 15 tons 18,400 cubic meters 1,504 kilowatt hours a year World Total 1,044 bilLion tons 141.0 biLLion tons 142.0 trillion cubic meters 14,546 biLLion kiLowatt hours Per capita 209 tons 28 tons 28,400 cubic meters 2,909 kiLowatt hours a year Source: LBNL 1996; SETC and CERS 1996. ever. China's ambitious nuclear energy program must been a net oil importer since 1993 because of rising deal with high capital costs, inadequate domestic domestic demand for oil products. Chinese experts esti- expertise, a potential lack of indigenous uranium mate that domestic crude oil production will peak at 200 reserves, and the uncertain costs and safety of nuclear million tons by 2020. But between 1980 and 1995 oil waste disposal. China should also invest more to demand increased about 4 percent a year. If these trends develop its large renewable energy resources. Studies continue, total demand for oil will reach 415 million have shown that windfarms, solar home systems, and tons by 2020, implying that China will need to import bagasse cogeneration projects have the potential to more than 200 million tons of oil.4 This extrapolated become commercially viable on a large scale. Other growth in oil demand only partly factors in the poten- technologies, such as biogas power and geothermal tially huge demand from automobiles and excludes the power, need further research and development before possibility of using oil as a fuel source for base-load commercial development, but have substantial power plants, industrial boilers, and space heating. promise in the long term (World Bank 1996). China could use energy trade to the advantage of its International trade is another avenue of diversifica- economy and its environment. In 1995 China spent tion, especially in the short to medium term. China has about $5 billion on 35 million tons of oil and gas Energy: Coping with Coal 49 imports (SETC and CERS 1996). Net oil and gas Sulfur emissions control for industrial coal combus- imports totaled about 10 million tons, worth roughly tion would be expensive if only end-of-pipe measures $1.4 billion. China's rapidly increasing incomes and were applied. China has been experimenting with export revenues will enable it to import substantially scrubber technology for large industrial boilers and more oil and gas.5 Given the coastal provinces' wealth promoting the use of industrial briquettes. Controlling and easy access to imports, using imported oil and gas sulfur emissions with briquettes or with lime injection to reduce coal consumption is a realistic and possibly during combustion is relatively cheap and removes cost-effective option for coastal cities. Establishing a 30-50 percent of sulfur. In the long term, fluidized bed transparent pricing framework for crude oil, oil prod- combustion boilers, which remove 50-80 percent of ucts, and natural gas is essential to achieving effective sulfur, would be a cost-effective way to reduce sulfur and efficient management of the domestic oil and gas dioxide emissions. market. It is also vital for attracting foreign investment Because China's industrial users normally consume in developing domestic oil and gas resources as well as raw coal with an ash content of 25 percent or more, the infrastructure for imports. If China's oil and gas increasing the use of washed coal would substantially imports were to rise to 200 million tons by 2020, the lower dust emissions nationwide and sulfur dioxide cost would be only $28 billion at today's prices, a small emissions in regions using high-sulfur coal. portion of its anticipated $700 billion in export earn- ings in that year. Power Controlling emissions: The power sector consumes nearly one-third of China's Options and costs coal and is a major contributor to acid rain. Many of the thermal plants constructed before 1980 are located In addition to improving efficiency and developing near cities and have relatively low smokestacks, and alternatives to coal, controlling emissions is critical for therefore are large contributors to local air pollution. In an energy system that depends on coal. Abatement 1991 only 38 percent of China's power plant boilers should focus on industry, power, and residential and were equipped with electrostatic precipitators. Chinese commercial sources. power plants remove an average of 93 percent of the dust from the coal they consume-a low level by inter- Industry national standards. Few coal-fired power plants in China have flue gas Industrial boilers and furnaces consume almost half of desulfurization equipment. Faced with increasing sul- China's coal and are the largest source of urban air pol- fur dioxide emissions and acid rain in some regions, lution. Low-efficiency cyclones, the most common China has begun implementing various abatement emissions control equipment for Chinese industrial measures in existing and new coal-fired power plants boilers, remove only 65-85 percent of fly ash. Medium- (box 4.1). High-efficiency sulfur scrubbers can increase size and large industrial furnaces often have dust cap- the initial cost of new power plants by 15 percent or turing equipment such as bag houses and electrostatic more. In the United States retrofitting old plants for precipitators. But the massive number of small furnaces sulfur dioxide control is 20-50 percent more costly and kilns, especially those operated by township and than applying similar measures to new plants, implying village industrial enterprises, generally lack emissions the benefits of installing sulfur removal equipment at control. the outset in areas with serious sulfur deposition prob- As industry adopts larger and more efficient boilers, lems. such as spreader stokers, dust emissions could triple- The near-term strategy for controlling emissions or worse. Fluidized bed combustion boilers require from the power sector includes: stringent dust control, too. Thus the government * Speeding up the adoption of electrostatic precipita- should strengthen dust removal standards for all boilers tors in coal-fired power plants, especially those that are to keep dust emissions in check. located near cities. 50 Clear Water, Blue Skies: China's Environment in the New Century BOX 4.1 petroleum gas, natural gas, and coal gas in urban house- g WN ~~~~~~~~~holds has improved air quality in large cities across China. In addition, urban households using coal stoves to promote coal briquettes. But burning briquettes is not all that much healthier than using raw coal. Urban ~~~~~~~~ ~~~~~~~ household fuel policy should instead accelerate gasifica- tion programs. During the winter much of the population in north- emn regions still suffers from high exposure to particu- late matter, carbon monoxide, and sulfur dioxide because space heating-whether it is household stoves, small boilers, or district heating-is almost entirely dependent on coal. District heating facilities with strin- gent emission controls are an effective way of control- ling space-heating emissions. regions sfrgfmeoscrad ae, ostand~z ThReducing indoor air pollution remains a major chal- allwinglenge for China's rural households. The government's efficient stove program has succeeded in both reducing excess biomass consumption and improving rural eneindoor air quality (Smith and others 1993). Other cost- Reieta a ceffective strategies for rural households include pro- cosmoting the efficient use of biomass and coal briquettes. ~~~~ ~ ~ ~~~ ~~Educating rural families about indoor air quality is also 3~Iw~f~i4Wtg$~ important. The provision of low- or zero-emission alternatives such as biogas, liquefied petroleum gas, and small hydropower, solar, and wind energy will largely depend on regional access to these energy sources and Chieshushods,theincreasing useofliquefid venallocashould be encouraged by government research and ~ development policies. Tea boilers and large coal stoves used by cafeterias and restaurants also contribute to ambient air pollution ~~~~ ~~~~~ ~~in Chinese cities. A 1994 survey in Beijing found more than twice as many operating tea boilers and work-unit cafeteria stoves as industrial boilers. Switching to coal briquettes and eventually to gaseous fuels is the best way to reduce emissions from these sources. *Focusing sulfur dioxide emissions control efforts on regions suffering from serious acid rain damage, and The speciaL role of energy prices allowing power plants a choice of abatement measures. * Tightening emission controls for old plants whose Prices affect energy intensity and the choice of fuels. retirement has been postponed (box 4.2). Compared with the energy-rich United States, China's energy prices are low (table 4.4). Lower prices may be Residential and commercial sectors partly justified by China's relatively low production costs. Over the past decade energy pricing in China has While coal is still the dominant commercial fuel for moved from complete controls to a mix of market-dri- Chinese households, the increasing use of liquefied yen allocation and government interventions. Govern- Energy: Coping with Coal 51 ment control varies but is normally associated with the have created a special interest group within the oil scarcity of specific energy types. industry that keeps refinery margins high and distribu- Coal prices are largely decided by the market6 and tion margins low. var-y significantly depending on the destination of the The natural gas supply is fully controlled. The high- coal.7 Transportation costs for coal are high in China, est-priced gas usually goes to the commercial sector, accounting for up to 70 percent of the delivery price of while the lowest-priced gas goes to fertilizer plants coal, compared with 30-50 percent in the United States (which consume about one-third of China's natural (X. Wang 1996). Current coal prices are probably close gas). In 1995 natural gas prices in Sichuan ranged from to the direct economic costs of bringing the coal to local 470 yuan per 1,000 cubic meters for fertilizer plants to markets. The heating value of the coal-and thus, the 670 yuan per 1,000 cubic meters for the commercial ash content-is at least partly factored into current sector, and were lower in other regions (Q. Wangl1996). prices. Urban natural gas users are probably willing to pay Aboutt 70 prcent of the domestic crude oil supply is considerably more than prevailing prices. Deregulation controlled. As a result the average crude oil price is of the natural gas industry will speed up the develop- 13-24 percent below international prices. But domestic ment of domestic natural gas. 'i products are priced significantly higher than inter- In most coastal provinces, where new power capac- national spot market prices, giving refineries an unfair ity has expanded the fastest, electricity prices have been profit. As a relatively scarce energy source, domestic raised to levels approximating marginal costs. Average crude oil should be priced at least at intemational lev- consumer prices of power in Zhejiang Province at the els. The separation of crude oil production from oil end of 1994 were about 50 fen per kilowatt hour, com- refining and the favorable pricing policies for refineries pared with the long-run marginal cost of about 45 fen 52 Clear Water, Blue Skies: China's Environment in the New Century TABLE 4.4 * Cleaner coal and energy diversification. To make China's energy prices are Lower than those of the coal consumption cleaner and secure the reduced emis- resource-rich United States, 1995 sions of alternative energy sources, policies should (U.S. doLLars) encourage coal washing (using steam coal for industrial Energy type China, United Statesb Spot marketc boilers and anthracite for residential and commercial Steam coal (gigajouLe) 1.1-2.0 1.2-1.5 1.5 users), promote gaseous fuels for residential and com- Crude oit (ton) 103 126 118-135 mercial use, and support research and development in GasoLine (ton) 322-356 382 158 low- or zero-emission energy sources and technologies. Diesel (ton) 273-290 348 148 In the short to medium term, increasing the use of Natural gas (gigajoute) 1.4-2.1 1.8-5.5 ELectrcity (thousand imported gas and oil could reduce the growth in kilowatt hours) demand for coal and consequently overall emissions. IndustnaL users 26-72 47 ResidentiaL users 26-60 84 * Emissions control. Emissions would fall if high-effi- a. Prices include vaLue-added taxes. CalcuLated using 1995 average exchange rate ciency dust precipitators were installed in industrial (S1 = 8.4 yuan). Coal prices are for cities in nonmining areas, and the range roughly indicates different transport costs. Crude oil price is the weighted average boilers and furnaces, hlgh-efficlency electrostatic pre- of controtled prices and planned prices. Gasoline prices are #90 RON retaiL prices in cipitators were installed in power plants and large point different cities. Natural gas prces are for fertilizer plants (low) and househoLds (high) in Sichuan. Electricity prces are for Jinan, Shandong (low) and Shenzhen, sources, and sulfur dioxide emissions were controlled in Guangdong (high) in 1994. b. Coal prices are for power utiLities (low) and industry (high) and vary depending areas burning high-sulfur coal. on quality. Gasoline and diesel prices are the average retait prices of all grades. T Average natural gas pnces are for power plants (Low) and households (high). To realize these objectives i the least-cost way, the c. Coal price is for Australian exports. Crude oiL prce is for OPEC crude. Gasoline and government should develop market-based policies to diesel prices are Rotterdam product prces. Source: SETC and CERS 1996; EIA 1996. shift incentives, pursue institutional reforms, and intro- duce regulatory changes. per kilowatt hour (World Bank 1995a). In interior provinces, by contrast, a large portion of the electricity Market-based instruments: Energy pricing and taxation is produced by plants that were built before 1980. Because these plants effectively have no capital costs, Arguably the most important policy to encourage effi- since they were built with nonrepayable central govern- cient energy development is to ensure that energy prices ment funding, it has been difficult to raise power tariffs at least cover economic costs and then begin to reflect to marginal cost levels in these areas. environmental damages through taxes. The govern- ment should quickly lift all remaining price controls on Policies for reducing coal so that prices reflect its full market value. It is crit- environ mental impacts ically important for China to reform the coal allocation and distribution system, which distorts the market and To achieve their emissions and energy objectives, poli- obscures the pricing signal for coal quality. cies must create strong incentives for improving energy The case for levying a pollution tax on coal is strong. efficiency, diversifying energy sources, and reducing About two-thirds of China's coal is consumed in the emissions through economic instruments as well as reg- nonpower sectors, with a massive number of small ulations. Key issues include: users. Enforcing emissions control among these users is * Energy efficiency improvement. To improve energy an impossible task for regulatory agencies. As an initial efficiency, policies should promote industrial moderniza- approach, a tax based on the quality of coal (ash and tion (cleaner and more efficient production technologies sulfur content) should be introduced. Such a tax would and processes, economies of scale, and better enterprise not produce direct and immediate emission reductions, management), high-efficiency industrial equipment (boil- but over time it would lead to increased production and ers, electric motors, fans, and pumps), industrial energy use of better-quality coal as well as raise the demand for conservation (plant or equipment renovation, energy more efficient equipment or alternative fuels. Such taxes housekeeping, and demand-side management), and could be collected by local fuel companies that distrib- energy-efficient buildings (lighting systems, space condi- ute coal to small users at local markets and to larger tioning efficiency, and building standards). users at the mouth of mines. Energy: Coping with Coal 53 Eventually, the government should tax coal in a way similar problems. Expenses for environmental control that reflects its enormous social costs. If health costs will have to be factored into electricity prices. were included, the price of coal would increase by 100 Gaseous fuel prices are generally too low. Town gas percent in Beijing (box 4.3). A tax to mitigate the social is normally subsidized, and its prices often do not cover costs of coal use could be phased in over time, perhaps production costs.9 The same situation applies to cen- three to five years, so that current investment deci- tralized heating. Urban households with access to gas sions-in boilers, space heating, and so on-could antic- and centralized heating usually can afford the full costs ipate future prices and adjust technology accordingly. of these services. Subsidies not only drain local govern- China's "new plant, new price" policy has helped ment budgets but also impede the expansion of these raise much-needed capital for the country's power services through private investment. Subsidies for development. The overall grid price increased by about gaseous fuel supply and centralized heating should be 4.5 percent a year (in real terms) during 1990-94, with removed and tariffs increased to allow for full cost coastal provinces registering even higher growth.8 recovery of such projects, essential for improving urban Electricity pricing is rather chaotic but is moving in the air quality. right direction. The pricing authorities do not, however, Hydrocarbon prices also need to be adjusted. support the idea of increasing electricity prices to con- Despite its limited resource base, China prices petro- trol pollution. Because of the difficulties of getting leum products more like the resource-rich United States approval for a higher grid purchase price, Chongqing's than energy-scarce East Asia. Although gasoline prices Luohuang Power Plant often has opted not to run its cover the costs of production and importation, they cre- imported flue gas desulfurization facility. As the gov- ate incentives to expand vehicle use (see chapter 6). ernment moves to implement its acid rain control pro- For large point sources, such as power stations and gram, power plants in the control region will face large industrial boilers and furnaces, emissions can and 5earWr Bn t ie 54Clears Waster,Blu Skies: China'sii Environment~e~ic inm ttheet n New fientury should be taxed. A tax on emissions would discourage and more efficient coal use, the levy for dust emissions investment in small power plants (less than 100 should be adjusted to reflect the cost of abatement nec- megawatts), which have high emissions per unit of elec- essary to meet emission standards. tricity. Taxing emissions would send the right signals for China should implement its plans for sulfur dioxide future investment. and acid control regions as proposed in the revised 1995 National Air Pollution Prevention and Control Institutional reform: Making the right investment Law. The government should introduce market-based decisions regulations to reduce sulfur dioxide emissions from coal-fired power plants and large industrial sources, One of the main pitfalls of China's investment policy is especially in areas that have high ambient concentra- that it inadvertently encourages investment in small-scale tions and high sulfur deposition. Regulation should and often inefficient technologies. Examples of such allow emission sources to choose among least-cost investment pervade energy-intensive industries such as abatement measures. cement, steel, fertilizers, and power generation.'" This Energy efficiency standards for heated residential misguided investment orientation is as much a capital buildings are needed to curb long-term space-heating constraint problem as it is an institutional problem. The coal demand and should be implemented without fur- provision that any project costing more than 30 million ther delay. Introducing energy efficiency standards for yuan has to be approved by the State Planning major household appliances is also important for Commission overburdens the central government and China's consumer market. discourages investors from building large-scale plants. China is at an energy and environmental crossroads. Local and regional protectionism also undermine the The performance of its huge and growing energy system economic efficiency of investment. Reforming state lend- will have a tremendous effect on air quality. If it can ing institutions and the financial market and giving local harness the market, strengthen institutions, and regu- governments more autonomy in making investment deci- late more effectively, China can ensure that more effi- sions would facilitate investment in modern technologies cient and environmentally friendly technologies are and increase the economies of scale of new plants. adopted. The potential benefits for the future quality of The government should strengthen its financial sup- life are enormous. port to research and development for low- or zero-emis- sion energy alternatives, especially in promising Notes renewable energy sources and clean coal technologies. These new technologies would improve and preserve 1. The conversion factors are 1 ton coaL equivaLent = 29.310 giga- joules; 1 ton Chinese average raw coaL= 20.934 gigajoules; l ton Chinese China's environmental quality in the long run and put average crude oil = 41.868 gigajouLes; 1,000 cubic meters Chinese aver- China in a favorable position to deal with global envi- age naturaLgas= 38.98 gigajouLes; and 1 kilowatt-hour= 3.6 megajouLes. ronmental issues. 2. The share of coal cited here is higher than the official figure because a different conversion factor for eLectricity was used. 3. According to a user survey, the ash content of steam coaL is usu- Regulations and standards: Overcoming market failures aLLy more than 25 percent (NEPA 1996). 4. In 1995 the worLd oil trade (imports and exports) was 1,800 miL- Lion tons. U.S. net imports were 390 million tons, and Japan's were Left to themselves, markets will not necessarily make 280 mitlion tons (BP 1996). environmentally sound choices. Regulations and stan- 5. Importing 100 miLlion tons of crude oit wouLd have cost about dards, whether market-based or command-and-con- $14 bi"lion in 1995. TotaL imports that year were $132 biLLion (SSB dards, ~~~~~~~~~~~~~~~1996). trol, must be enforced to ensure that the economy 6. Steam coal used by power pLants is priced 20 yuan a ton Lower achieves its environmental goals. Air pollution control than the market price because electricity prices are kept retatively Low regulation and enforcement must be tightened to by the government (Q. Wang 1996). regulation and enforcement must be tlghtened to 7. For example, in June 1994 the mine-mouth price of Datong improve urban air quality. A high priority for regulation mixed coaL was 128 yuan a ton. The same coal retaiLed for 230 yuan is to introduce standards to control fine particulate a ton in Shanghai, 280 yuan a ton in Guangzhou, and 340 yuan a ton in Xiamen (LBNL 1996). emissions from space heaters, mdustnal boilers, kilns 8. Assessed based on the national average of power company sales and furnaces, and power plants. To promote cleaner prices adjusted by an implicit GDP deflator. Energy: Coping with Coal 55 9. In 1995 town gas (from coal gasification) prices ranged from Handbook of Industrial Pollutants Emission Factors. Beijing. 0.3-0.7 yuan a cubic meter in twelve of fifteen Chinese cities, whiLe SETC (State Economic and Trade Commission) and CERS (China the costs of gasification alone ranged from 0.6-1.0 yuan a cubic meter. Energy Research Society). 1996. China Energy 1996. Beijing. OnLy three cities charged more than 1.0 yuan a cubic meter for town Sinton, Jonathan. 1996. "Energy Efficiency in Chinese Industry: gas (Q. Wang 1996). Positive and Negative Influences of Economic System Reforms," 10. About 20 percent of newLy instaLLed thermaL power capacity in PhD dissertation. University of California at Berkeley. China between 1991 and 1995 was in 6-75 megawatt units (JiangLong Smith, Kirk, Shuhua Gu, Kun Huang, and Daxiong Qiu. 1993. 1997). Durng this period China's cement production increased by 235 "One Hundred Million Improved Cookstoves in China: How miLLion tons, more than 70 percent of which came from pLants with Was It Done?" World Development 21(6). average capacity of less than 50,000 tons a year, one-tenth the aver- SSB (State Statistical Bureau). 1996. China Statistical Yearbook age U.S. pLant size (Sinton 1996). 1996. Beijing: China Statistics Press. Stoll, Harry, and Douglas M. Todd. 1996. "Current IGCC Market Competitiveness." General Electric Company, Schenectady, References New York. UNIDO (United Nations Industrial Development Organization). BP (British Petroleum). 1996. BP Statistical Review of World 1995. International Yearbook of Industrial Statistics 1995. Energy. London. New York. ETA (Energy Information Agency). 1996. United States Energy Data, Wang, Qingyi. 1988. Zhong Guo Neng Yuan (Energy in China). International Energy Data. EIA Web site: http:/www.eia.doe.gov. Beijing: Metallurgical Industry Press. U.S. Department of Energy, Washington, D.C. . 1996. Personal communication. Ministry of Coal, Beijing. IMF (International Monetary Fund). 1996. International Wang, Qingyi,Jonathan Sinton, and Mark Levine. 1995. "China's Financial Statistics Yearbook. Washington, D.C. Energy Conservation Policies and Their Implementation, 1980 Jianglong, Zhou. 1997. Personal communication. Beijing to the Present, and Beyond." Lawrence Berkeley National Economic Research Institute of Water Resources. Laboratory, Berkeley, Calif. Johnson, TM., J.E Li, Z.X. Jiang, and R.P Taylor, eds. 1996. Wang, Xiaodong. 1996. "China's Coal Industry: Moving toward China: Issues and Options in Greenhouse Gas Emissions Market Economy." World Bank, Summer Internship Project, Control. World Bank Discussion Paper 330. Washington, D.C. Washington, D.C. LBNL (Lawrence Berkeley National Laboratory). 1996. China World Bank. 1993. China: Energy Conservation Study. Report Energy Data Book. Berkeley, Calif. 10813-CHA. Washington, D.C. Lin, Xiannuan. 1996. China's Energy Strategy: Economic . 1994. "Energy Efficiency in China Technical and Sectoral Structure, Technological Choices, and Energy Consumption, Analysis." Issues and Options in Greenhouse Gas Emissions Westport, Conn.: Praeger Publishers. Control. Washington, D.C. Liu, Feng. 1996. "Energy Use and Conservation in China's . 1995a. Investment Strategies for China's Coal and Residential and Commercial Sector." Report LBL-33867. Electricity Delivery System. Report 12687-CHA. Washington, Lawrence Berkeley National Laboratory, Berkeley, Calif. D.C. MOEP (Ministry of Electric Power). 1995. "China's Electric . 1995b. World Tables. Washington, D.C. Power Industry 1995." Beijing. . 1996. China: Renewable Energy for Electric Power. NEPA (National Environmental Protection Agency). 1996. Report 15592-CHA. Washington, D.C. 56 Clear Water, Blue Skies: China's Environment in the New Century MAP 1 SuLfur deposition in China, 1995 Source WdBankstaffstimateshanghai :. . f . >n~~~~~ow g Source: World Bank staff estimates. MAP 2 Sulfur deposition in China under the business as usual scenario, 2020 Source: World Bank staff estimates. Milligrams per square meter 0 100 500 1,000 2,000 5,000 10,000 20,000 gg,ggg MAP 3 Sulfur deposition in China with untargeted control efforts, 2020 I~~~~~~~~~~~~~~~~~~~~~ 2 Source: WorLd Bank staff estimates. MAP 4 Sulfur deposition in China with targeted control efforts, 2020 3 2; 3 hanghai 1~~~~~~~~~~~~~~~~~~~~~~~~~2 2 Source: World Bank staff estimates. Milligrams per square meter 0 100 500 1,000 2,000 5,000 10,000 20,000 99,999 11 12$m1 MAP 5 Water quatity in China's major water systems, 1981 Water ctassification - Class 1 - Class 4 Class 2 - Class 5 Class 3 - No data Source: China Ministry of Water Resources. MAP 6 Water quality in China's major water systems, 1995 Class/ 1 - 1 Ctass. N IJI Water classificationl Class 2 - Class 5 Class 3 No data Source: China Ministry of Water Resources. Industry: Creating Incentives to Abate 4 ndustry is the engine of growth for the Chinese econ- omy, accounting for 48 percent of GDP in 1995. In the 1990s the output of China's 10 million industrial enter- prises has increased by more than 15 percent a year. But this engine of growth is highly polluting. The National Environmental Protection Agency estimates that discharges from industry-including power plants- account for more than 70 percent of national pollutant emissions. Many polluting industries are located in densely populated metropolitan areas, exposing urban residents to serious health risks. The prospect of continued rapid industrial development creates the opportunity for cleaner industrial technologies to replace today's highly polluting ones. With growth - expected to average nearly 7 percent a year over the next twenty-five years, 80 percent of China's industrial pro- duction capacity remains to be built. To realize the poten- tial for cleaner production, China must revamp its 57 regulatory system to harness market forces and reorient The effectiveness of both mechanisms is limited new investment to safeguard the environment. because they focus on source-specific emission stan- dards. As a result, even if all new projects in a region Pollution control policies meet the standards, ambient air quality can deteriorate because no limit is placed on total pollutant discharges. Over the past decade the Chinese government has Another weakness is their strong bias toward end-of- enacted more than a dozen laws affecting the environ- pipe treatment. Both the assessments and the Three ment, and these now provide a comprehensive legal Synchronizations program focus on making projects framework for China's environmental management. meet emission standards through onsite hardware The pollution control system encompasses a wide range installation rather than by pursuing cost-effective of environmental regulations and standards and a strategies at the regional level. As a result broader, more nationwide enforcement network of local environmen- flexible approaches-such as resource pricing and tal protection bureaus working with sector agencies. incentive-based control-are precluded. The National China's pollution control policies are based on three Environmental Protection Agency has proposed chang- main principles administered through eight regulatory ing both mechanisms to facilitate its efforts to control programs.1 The three principles emphasize: the total quantity of pollutant emissions. * Prevention first, then prevention with control. * Polluters pay. Control i A strong regulatory framework. Pollution prevention focuses on new pollution Pollution levies, discharge permits, and mandatory pol- sources, which are regulated through environmental lution controls help contain pollution from existing impact assessments and the Three Synchronizations sources. Pollution levies were introduced to create an program.2 Pollution from existing sources is regulated economic incentive for industrial enterprises to comply through pollution levies, pollution discharge permits, with emission and effluent standards, to raise revenue and mandatory pollution controls. These five programs for investment in industrial pollution control, and to have played a major role in containing emissions from provide financial support for regulatory activities. regulated industrial enterprises. The levies combine two elements: noncompliance Prevention and control efforts have targeted mainly fees assessed on pollutant discharges that exceed emis- state-owned enterprises. However, rapidly growing sion and effluent standards, and fines and other charges township and village industrial enterprises have assessed on violations of the levy regulations. Of the fees emerged as an increasingly important source of pollu- collected, 80 percent are used for grants and low-inter- tion (table 5. 1). These enterprises' pollution is generally est loans to pollution control projects and 20 percent are unregulated. retained by local environmental protection bureaus to support administrative and monitoring activities. Prevention The pollution levy system has several design deficiencies: Environmental impact assessments and the Three * Pollution fees, established at the national level, are Synchronizations program are the main mechanisms often lower than the marginal cost of abatement required for ensuring that new industrial facilities invest in pol- to meet emission standards. As a result many industrial lution control equipment. The program mandates that enterprises choose to remain noncompliant and pay the new industrial enterprises and existing enterprises that levy on their excess pollution. In addition, since the early plan to expand or change their production process 1990s inflation has lowered the real value of the levies receive environmental impact assessment approval for because they are not indexed, and local governments are their plans from the National Environmental Protection not allowed to make their own adjustments. Agency or local environmental protection bureaus. In * Levies are based only on the pollutant that exceeds this way pollution control facilities are integrated with its standard by the greatest amount, rather than on all enterprises' development plans. the pollutants that exceed their standards. 58 Clear Water, Blue Skies: China's Environment in the New Century TABLE 5.1 Township and village industrial enterprises are becoming a major source of industrial pollution, 1989 and 1994 (tons) Chemical oxygen demand Smoke dust Processing dust Sulfur dioxide Type of enterprise 1989 1994 1989 1994 1989 1994 1q89 1994 ReguLated enterprises 6.8 6.8 8.5 8.1 7.6 5.8 10.5 13.4 Township and viLLage industria[ enterprises 1.8 5.3 5.4 8.0 4.7 5.8 3.6 5.5 Source: NEPA 1995 and 1996. * Levies are assessed only on above-standard emis- gies, so such forced investment for end-of-pipe control sions, so they provided no incentive for firms to abate has often wasted scarce capital by inducing pollution emissions below the standards. abatement at excessively high cost. * Levies are based on pollutant concentrations rather than on total discharges to the environment. Despite these problems, pollution levies, combined Monitoring and enforcement with subsidized loans from the levy fund and other subsidy programs, have created incentives to control National and local environmental regulations and stan- pollution. dards are enforced primarily by municipal and county Discharge permits were introduced in 1987 to environmental protection bureaus that report to local compensate for the lack of mechanisms to control governments. The bureaus' ability to monitor compli- total pollution loads. Two basic schemes have ance is seriously constrained by limited financial and emerged from trial implementation: capacity-based human resources. In general, medium-size and large permits allocate pollution loads to industrial enter- enterprises are monitored by the bureaus once or twice prises based on the assimilative capacities of the local a year. Small enterprises are monitored less often, and atmosphere and receiving waters, and goal-based per- continuous monitoring of wastewater flows and mits allocate pollution loads to industrial enterprises smokestack emissions occurs rarely, if ever. based on environmental goals not related to assimila- Although China's environmental standards are con- tive capacities. sistent with international standards, compliance with The government has experimented widely with per- these standards is greatly undermined by inadequate mits to control water pollution but has not used them enforcement. Weak monitoring, excessive local govern- much to control air pollution. The main problems with ment intervention (to protect enterprises), and insuffi- the water pollution discharge permits are: cient public involvement contribute to lenient * Conflicts between fixed quantity (mass-based) dis- enforcement. According to recent surveys, during charge permits and programs based on concentration 1993-94 only 36-49 percent of industries were in com- standards, such as the environmental impact assess- pliance with their environmental impact assessment ments, the Three Synchronizations program, and the and the Three Synchronizations program. The compli- pollution levies. ance rate for mandatory pollution controls is 80 per- * The inadequacy of monitoring and administrative cent. Among enterprises or work units that are required capacity for implementing the discharge permit system. to pay pollution levies, 60 percent pay in full and on As a result discharge permits have not realized their time. In general, compliance is higher among larger potential for controlling total pollution loads and enterprises (Millison 1997). inducing cost-effective abatement. Mandatory pollution controls under threat of clo- Determinants of industrial pollution sure have been used as a last resort to force highly pol- luting enterprises to adopt control measures. Many of The severity of pollution in different parts of China is these enterprises are old plants using obsolete technolo- largely determined by variations in the pollution inten- Industry: Creating Incentives to Abate 59 sity-pollution per unit of output-of industrial enter- prises. To identify potential mechanisms for reducing Pollution intensities have fallen, 1998 pollution, this section analyzes the determinants of pol- and 1993 lution intensity using data from regulated firms. Focusing on variations in five provinces-Liaoning, Chemical oxygen demand Beijing, Shanghai, Guangdong, and Sichuan-we trace Kilograms per 10,000 yuan 70 the effects of reforms and structural change since 1987, 1988 particularly trade reform. 60 Aside from variation among different types of indus- 50 tries, China's provinces have different levels of pollu- tion because the pollution intensity of plants in the same 40 1993 industry varies considerably. Since 1988, however, pol- 30 lution intensity has fallen substantially in all five provinces (figure 5.1). Particularly sharp reductions 20 have occurred in Guangdong and Sichuan. 10 Great variation persists across provinces, however. Holding the sectoral share of industry constant, facto- 0Siha undn ioig Biig Saga Sichuan 6uangdong Liaaning Beijing Shanghai ries are dirtiest in Sichuan and cleanest in Shanghai. Three basic differences across provinces explain such SuLfur dioxide Kilograms per 1O,0O0Oyuan variation: degree of regulation, pressure applied by 300 neighboring communities, and industrial characteristics. 1988 250 Regulation 200 Enforcement of pollution standards varies greatly 1993 across China's provinces. For example, actual collec- 150 tions of pollution levy assessments (or effective levies) 100 per unit of wastewater discharge above the legal stan- dard vary greatly because of variations in enforcement 50 * (figure 5.2). Effective levies per unit of air pollutant dis- charge above the standard also cover quite a range (fig- Sichuan Guangdong Beijing Liaoning Shanghai ure 5.3). Using the effective levy as a proxy for all the regula- Total suspended particulates Tons per 1 0 000 yuan tions applied to industrial enterprises, we studied the Tnp 100y relationship between regulatory strictness and pollu- 0.3 1988 tion intensity. Controlling for other factors, effective levies have had significant effects on the pollution inten- sity of production across China's provinces. Each 1 per- 0.2 cent increase in the effective water pollution levy yields 1993 an 0.8 percent decrease in chemical oxygen demand intensity per unit of output. It does not matter whether o ** the increase in the levy originates from increased penal- ties or tightened enforcement. Each 1 percent increase IL in the effective air pollution levy yields an 0.3 percent decrease in sulfur dioxide pollution intensity, an 0.8 0 , ~~~Sichuan Liaoning Guangdong Beijing Shanghai percent decrease in particulate pollution intensity from coal burning, and an 0.4 percent drop in particulate Source: World Bank data. 60 Clear Water, Blue Skies: China's Environment in the New Century Effective water pollution levies vary widely, Effective air polLution levies have fallen 1988 and 1993 in recent years, 1988 and 1993 Yuan per ton of chemical oxygen demond Yuon per ton 0.25 30 1988~~~~~~~~~~~~~~18 0.20 25 993 20 0.15 15 0.10 1;iM . i l -- 10 0.05 4 5R 0 0 Shanghai Beijing Liaoning Guangdong Sichuan Beijing Liaoning Guangdong Shanghai Sichuan Source: World Bank data. Source: World Bank data. pollution intensity from production processes. 5.4). Areas with high illiteracy are notably silent when Pollution intensities are significantly lower in provinces it comes to complaining about pollution; uneducated with higher effective levies, and since 1987 they have citizens are less likely to be aware of environmental fallen in provinces where levies are rising. Thus regula- problems and less willing to confront the authorities. As tion makes a significant difference in lowering pollution complaints rise, so do effective levies for both air and intensities. water pollution. As in other countries, citizen feedback China's provincial regulators have pursued very dif- is a powerful independent force for environmental ferent regulatory policies. Beijing, for example, has the improvement. highest effective levies and among the lowest pollution intensities; the converse is true for Sichuan. Notably, t however, Shanghai does not conform to the general pat- Citizens in richer provinces complain more tern: its effective air pollution levy seems entirely out of about the environment, 1988 and 1993 line, both with its effective water pollution levy and its Comploints per 100,000 residents status as the area with the lowest pollution intensity. 50 1988 Community influence 40 Whether pollution charges or fines are enforced partly 1993 depends on the extent of the damage and the commu- nity's capacity to influence the authorities. As local pol- 20 lution loads increase and the exposed population grows, the damage to human health increases. These factors, especially in wealthy provinces, trigger 10 increased enforcement. Educated citizens are also more ** likely to complain about pollution. 0 It is no accident that Shanghai, a highly developed Shanghai Beijing Guangdong Liaonng Sichuan province, registers the most citizen complaints (figure Source: WorId Bank data. Industry: Creating Incentives to Abate 61 Plant and industry characteristics U 5._ PolLution intensities are influenced by a range Three enterprise-related factors are also important of factors determinants of a province's pollution intensity. First, Chemical oxygen demand some industrial processes generate large volumes of harmful pollutants, so the composition of industries 0.8 Enterprise- SectoraL affects pollution. And because some sectors face higher 0.6 r abatement costs than others, cost-sensitive enterprises are more resistant to pollution control measures. 0.4 Second, because end-of-pipe pollution abatement has 0.2 significant economies of scale, large plants have lower 0 unit abatement costs and respond more readily to regu- o~ . . . m ~ - latory incentives. They also tend to be more technically -0.2 B . 'E E 0 ' - I? ~~E 6.- 5 E efficient, since their size allows them to spread overhead c, E 5_ costs for skilled personnel across many units of produc- -0.4 0 2 o tion. Finally, ownership makes a difference. China's -0.6 *a state-owned enterprises generate a lot more pollution than their nonstate counterparts. One reason is their Sulfur dioxide lower operating efficiency, which affects both abate- 0.4 Enterpnse- SectoraL ment costs and the generation of waste residuals in pro- reLated duction (Dasgupta and others 1996). In addition, state 0.2 enterprise equipment and technologies tend to be older. And state enterprises are less sensitive to price signals, 0 including pollution charges or fines, because they often 0 operate at the pleasure of government authorities and B E ~ have privileged access to finance. E When the effects of these three factors are analyzed v ) together, for both water pollution (chemical oxygen -0.4 u demand) and air pollution (sulfur dioxide) the share of 2 production in large plants is the most significant factor -0.6 in determining overall pollution intensity (figure 5.5). Note: The weight of each variabLe differs depending on the pollutant. Intensity factors are based on beta coefficients, which measure the direction The share of production in state-owned plants also car- and relative importance of expLanatory variabLes in a muLtivariate relationship. The sectors are identified by muLtivariate anaLysis, in which ries a lot of weight. Among industries the main contrib- exceptionaLLy clean or dirty sectors are those that depart significantly from average polLution intensities after the effects of ownsership, levy, and scaLe utors to higher intensiry vary by pollutant. are accounted for. The results for smoke and dust intensity are simiLar to those for suLfur dioxide. Source: World Bank staff estimates. Growth and the environment: Reforms and structural change since 1987 Shanghai (from 41 percent to 58 percent). Since larger China's economic reforms over the past decade have plants pollute less per unit of output, increasing scale increased the role of price signals in the economy, eased has brought environmental benefits. Second, the role of constraints on enterprise growth, and reduced barriers state enterprises has diminished, again with a particu- to competition from new domestic (often nonstate) lar'ly rapid change in Shanghai (from a share of state firms and foreign trade. These developments have had enterprises in total enterprises of 70 percent in 1988 to three positive effects on the environment. First, average 54 percent in 1994). Since nonstate firms tend to pollute plant scales have increased: the share of large plants in less per unit of output, the decline in state enterprises industrial production grew from 30 percent in 1988 to has been accompanied by a significant drop in pollution 37 percent in 1994, with a particularly rapid increase in intensity. Third, rapid growth has brought structural 62 Clear Water, Blue Skies: China's Environment in the New Century change in industry. The share of particulate-intensive indicator is the trend in net imports (imports minus industry has declined significantly, while the shares of exports) of products from these sectors. Trade liberal- chemical oxygen demand- and sulfur dioxide-intensive ization would accompany a shift toward net exports of industry have remained about constant. Reforms have these products if any specialization in pollution-inten- also had a notably clean effect in the five provinces cov- sive industries were emerging. In fact, real net imports ered earlier. The share of pollution-intensive sectors has of these products have increased considerably since dropped in all cases for water pollution and in all but 1987 (figure 5.7).4 one case (sulfur dioxide in Liaoning) for air pollution. Overall, trade liberalization has been accompanied The largest changes have occurred in Beijing for chem- by expanded output of goods that are less pollution- ical oxygen demand-intensive sectors and in intensive. Of course, all industries experienced rapid Guangdong and Shanghai for sulfur dioxide- and par- growth over the past ten years, including pollution- ticulate-intensive sectors. intensive ones. But cleaner industries have grown faster, Trade reform also has had a positive effect on both in domestic production and in China's interna- China's environment. Increased production efficiency tional trade. in export-oriented enterprises and more rapid absorp- Market-based regulation during this period failed to tion of newer, cleaner technologies from OECD sources reinforce the positive effects of economic reforms, have offset any tendency for China to specialize in pol- however. Despite damaging air pollution since 1987, lution-intensive industries because it has weaker envi- real effective air pollution levies have fallen in the five ronmental regulation and lower-cost heavy raw provinces covered earlier (see figure 5.3). The decline is materials than many of its trading partners.3 particularly striking in Beijing and Shanghai. Real Moreover, there is no evidence of any long-run shift effective water pollution levies have also fallen in both toward a pollution-intensive industry structure. The provinces, while they have risen sharply in Liaoning shares of the five most polluting industries-chemicals, and Guangdong (and more modestly in Sichuan). pulp and paper, nonferrous metals, ferrous metals, and Although they have affected plant-level pollution nonmetallic minerals (principally cement)-in total intensities, different levies have not influenced location industry have declined (figure 5.6; see Hettige and oth- decisions: there apparently has been no regulation- ers 1995 and Mani and Wheeler 1997). Another useful induced migration of dirty sectors within China (Lucas 1996). Output of the five dirtiest industrial sectors ; I-URES has been faLling, 1977-92 Net imports of polluting products have been Shore in industry increasing, 1987-94 (percent) Share of net imports 80 (percent) 25 70 20 15 60 10 1977 1982 1987 1992 5 Note: The five sectors are chemicals, puLp and paper, nonferrous metals, ferrous 1987 1988 1989 1990 1991 1992 1993 1994 metals, and nonmetatlic minerals (principally cement). Source: World Bank data. Source: World Bank data. Industry: Creating Incentives to Abate 63 Since 1987 declining real air and water pollution levies in Beijing and Shanghai have created incentives Pollutant emissions from regulated enterprses for increased pollution intensity. Thus the observed under three scenarios, 1988-2020 declines in intensity should be attributed to counter- Chemical oxygen demand vailing shifts in scale, ownership, and sectoral composi- Millions of tons tion induced by economic reforms as well as by other lo regulatory instruments. For air pollution intensity the same conclusion follows for Liaoning, Guangdong, and 8 r only Sichuan. For water pollution, on the other hand, there pc a s>DUbE 9E. ~~~5 percent a year has been a sharp drop in intensity in these three 6 poLLution levy increase provinces because higher levies and economic reforms have been mutually reinforcing. 10 percent a year Future pollution scenarios poLLution Levy increase 2 Assuming that economic reforms will continue, recent regulatory and industrial trends can be used to project 0 88_ 1994_ 2000_ 2010_2020 1988 1994 2000 2010 2020 their future effects. While several policies can increase pollution abatement, we have used the effective pollu- Millions of tons tion levy to illustrate the potential impact of policy 20 reforms under three scenarios for 1997-2020 for five important cities-Beijing, Shanghai, Shenyang, Guang- zhou, and Chongqing. The three scenarios are: Economic reform onLy * Economic reform and the regulatory status quo. 15 5 percent a year Economic reforms have accounted for much of the polLution levy increase decline in air and water pollution intensities since 1987. Even if regulations were not tightened, growth and eco- 10 10 percent a year nomic reform would still drive changes in sectoral com- polLution levy increase position, scale, and ownership. But will reform be sufficient to achieve China's objective of holding indus- trial pollution to 1995 levels? 5 * Tighter regulation: "Polluters pay some." Tight- 1988 1994 2000 2010 2020 ening regulations would create incentives to reduce pol- Total suspended particulates lution intensity and would complement the effects of Millions of tons 25 economic reform. Under this scenario air and water pollution levies would increase by 5 percent a year. Such growth is equivalent to the increase in Sichuan's effec- 20 Economic reform onLy tive water pollution levy over the past five years and is less than the increases in Guangdong and Liaoning. By 15 5 percent a year 2020 the real levy would be four times today's level. pollution Levy increase * Strict regulation: "Polluters pay more." Under a third 10 scenario levies would increase by 10 percent a year. By 10 percent a year 2020 levies would be thirteen times their current level. 5 poLLution levy increase Economic reform and the regulatory status quo would probably hold the chemical oxygen demand load from 0 regulated enterprises to a modest increase (figure 5.8). 1988 1994 2000 2010 2020 This is remarkable because the industrial base will have Source: World Bank staff estimates. 64 Clear Water, Blue Skies: China's Environment in the New Century nearly quintupled by 2020. For sulfur dioxide, in the increase in the pollution levy would prevent further reform-only scenario, continued decline in the air pollu- deterioration from the 1993 level in Shenyang and tion intensity of industrial production is not enough to Beijing, while Shanghai, Guangzhou, and Chongqing offset emission increases caused by industrial growth.5 would experience strong improvements in air quality. Increasing the pollution levy by 5 percent a year- Particulate loads behave similarly. For the 5 percent and that is, merely continuing recent trends in water pollu- 10 percent levy scenarios, the projected trends generally tion regulation-has a dramatic effect on chemical replicate the sharp drop in particulate loads projected at oxygen demand discharges. Projected emissions would the national level. The exception is Shenyang, which fall by more than half, from about 7.0 million tons in experiences only a modest decline. Experiences else- 1995 to 3.3 million tons in 2020. A 5 percent annual where indicate that such charges can be an effective way increase in the air pollution levy would cause sulfur of achieving pollution reduction targets (box 5.1). dioxide emissions to fall by a third and particulate emis- sions to fall by half. Were the levy to increase by 10 per- Is stricter regulation worthwhile? cent a year, sulfur dioxide and particulate emissions would each fall by three-quarters. Reducing pollution loads in China would save lives, All three scenarios suggest that the solutions to improve the health of China's people, and increase the China's industrial pollution problems are within reach. productivity of workers (see chapter 2). In the five cities If chemical oxygen demand regulations were tightened studied here, increasing the air pollution levy by 10 per- substantially, organic water pollution would fall cent a year rather than relying solely on economic sharply in regulated industries. Better regulation would reforms would save the lives of more than 4,000 people also lower sulfur dioxide emissions, significantly each year. Compared with the status quo scenario, pro- improving air quality in all five cities. A 10 percent jected deaths from sulfur dioxide pollution in 2020 BOX 5.1 Industry: Creating Incentives to Abate 65 TABLE 5.2 Projected annual deaths from industrial sulfur Incremental benefits and costs per 100 tons of dioxide pollution under three scenanos air potlution abatement in Beijing Sulfur dioxide 5 percent 10 percent SU.5. dollars a year a year US olr Economic polLution Levy poLLution levy 80,000 City reform only increase increase Beijing 4,500 3,200 2,400 Chongqing 3,200 2,600 2,200 60,000 Shenyang 1,200 900 600 Shanghai 1,100 700 700 Guangzhou 300 200 100 Source: World Bank staff estimates. 40,000 Small and medium-size pLants would be 67 percent lower in Guangzhou, 50 percent 20,000 Large pLants lower in Shenyang, 47 percent lower in Beijing, 36 per- cent lower in Shanghai, and 31 percent lower in - entaLbenefit Chongqing (table 5.2). 0 Although saving lives by reducing air pollution is a 15 25 35 45 55 65 75 85 laudable objective, expenditures on pollution abate- ment must be judged against other expenditures that u.s. dollars might also improve the quality of life. China remains a 800 poor country in which hundreds of millions of citizens Wage have many unmet basic needs. Public investment in health facilities and education can also yield major 600 health benefits, and direct investment in productive Small and capital can improve health by increasing incomes. Thus medium-size pLants/ any analysis of air pollution abatement must consider 400 its costs as well as its benefits. The analysis has to be undertaken at the margin. The cost of abating China's industrial pollution rises 200 steadily at the margin with the degree of abatement. At Large pLants some level of abatement further pollution reduction o may no longer be warranted because the same resources 15 25 35 45 55 65 75 85 could be used for other investments with greater life- Abatement (percent) saving potential. Using Beijing to illustrate our Source: WorLd Bank staff estimates. approach, we address this issue with a systematic assessment of abatement benefits and costs. are particularly interesting. The marginal abatement cost Because marginal abatement costs vary by pollutant, curve for 100 tons of sulfur dioxide abatement by large sector, plant size, ownership, and degree of abatement, it plants in Beijing ranges from $2,900 at 15 percent abate- makes little sense to talk about abatement costs in a gen- ment to $27,000 at 85 percent.7 The marginal abatement eral way. The question for Chinese regulators is: which cost curve for large plants crosses the $8,000 incremental facilities should be regulated, and how much abatement is benefit line at around 60 percent abatement; by implica- socially desirable? To reflect the overlap between particu- tion, the marginal abatement cost curve for nonstate large lates and sulfur dioxide as sources of fine particulates, plants would cross the incremental benefit line at a much abatement costs for both pollutants are shown in figure higher abatement level. The marginal abatement cost 5.9.6 Large plants are a major source of air pollution in schedule for smaller facilities crosses the incremental ben- Beijing so the marginal abatement costs for these facilities efit line at around 15 percent abatement.8 66 Clear Water, Blue Skies: China's Environment in the New Century For particulates the numbers are much more attrac- TABLE 5.3 tive. Marginal abatement costs scarcely rise above $500 Industial sulfur dioxide abatement in five cities, for each 100 tons abated, even at 85 percent abatement 1993 for smaller plants. Costs are even lower for large plants. (tons) Marginal abatement costs for our other four cities differ Sulfur dioxide SuLfur dioxide Abatement somewhat but have the same order of magnitude. city produced emitted (percent) A useful contrast is provided by the National Shenyang 196,100 144,700 26.2 Environmental Protection Agency's current estimates of Shanghai 393,700 356,700 9.4 actual abatement levels in the five cities bl 53) Chongqing 544,800 494,800 9.2 ataabtmnleesv (table s Guangzhou 165,100 151,500 8.2 According to the agency, Beijing's current abatement Beijing 208,900 203,700 2.5 rate for industrial sulfur dioxide is 2.5 percent. To derive Source: NEPA 1994. a conservative benefit-cost assessment, we adopted the lowest rate of abatement-15 percent-that is included become more comprehensive, the regulatory frame- in figurc 5.9. At 15 percent abatement, the incremental work still lacks enforcement capacity and design coher- cost of abating 100 tons of sulfur dioxide pollution is ence. The transitional state of the economy requires estimated to be $2,860. Taking this to be the incremen- China's environmental management agencies to deal tal cost of saving a life, we use our estimated incremen- with the lingering problems of the centrally planned tal lifesaving benefit ($8,000) to calculate a social rate of system as well as the new challenges of the emerging return to abatement of about 180 percent. market regime. It appears that the proposed sulfur dioxide levy of The National Environmental Protection Agency has $24 a ton will induce less than 15 percent abatement in set ambitious targets for controlling China's industrial large plants.9 To achieve a 60 percent abatement in pollution.10 Realizing those targets will require China's large plants, the levy has to be raised to $80 a ton in pollution control authorities to harness the market, Beijing. strengthen regulations, and reform institutions so that The estimated rate of return to abatement, while new investment will be channeled to cleaner production clearly attractive, is extremely conservative in terms of technologies and better pollution control. the lifesaving value of reducing air pollution in Beijing. For a large nonstate plant our econometric results imply Harnessing the market and strengthening regulations a marginal abatement cost of $332 for each 100 ton reduction in sulfur dioxide emissions when the abate- The increasing market orientation of the industrial sec- ment rate is 10 percent. If-as seems likely, given over- tor offers an opportunity to use market-based pollution all abatement rate of 2.5 percent-large nonstate plants controls more effectively. But changes and reforms in in Beijing are abating less than 10 percent of sulfur the existing regulatory system, if not properly intro- dioxide emissions, then the failure to enforce greater duced, could actually have an adverse effect on China's abatement is equivalent to valuing a Beijing citizen's life environmental management. Thus it may be necessary at less than $500 at the margin. Thus continued inac- to tighten existing controls at the same time market- tion means ignoring a public investment with a social based instruments are being introduced. Recognizing rate of return in excess of 1,500 percent. The opportu- that effective pollution control depends on local nities for such high returns may be quite rare in China's enforcement, the following recommendations are made urban health sector. with respect to national policies. Toward effective and efficient Redesign environmental impact assessments and industrial pollution control the Three Synchronizations program. New approaches are required, both to incorporate environmental China has made considerable efforts to solve its indus- impact assessments and the Three Synchronizations trial pollution problems, and these efforts have slowed program into China's overall pollution control strat- the growth of major pollutants. But even though it has egy and to increase their capacity to make the indus- Industry: Creating Incentives to Abate 67 trial sector adopt cleaner production technologies. the large investment required to achieve desired ambi- Both programs should be revised to reflect the assim- ent air quality in Chinese cities (box 5.2). ilative capacities of local and regional airsheds and Changing the design of the levy system would watersheds, rather than continuing the current focus increase its effectiveness. Because pollution levies are on source-specific discharge standards. Integrating assessed only on above-standard discharges, emissions both programs with a market-based discharge permit are "free" for polluters until the standards are reached. system would encourage enterprises to adopt least-cost Moreover, effluent charges are based on the pollutant abatement measures. that exceeds the standard by the greatest amount and do not reflect the relative risk of individual pollutants. For Reform the levy system. Achieving pollution control both air and water discharges it would be sensible to objectives will require increasing pollution charges. The consider adopting a complete charge system that would National Environmental Protection Agency has pro- target specific pollutants and be assessed on all types of posed a tenfold increase in the air pollution levy; such pollution. A volume-based levy system would also be an increase would go a long way toward reducing air easier to integrate with the discharge permit system. pollutant emissions (see figure 5.8). Higher levies are Reforming the management of the levy funds is also needed both to lower current emissions and to finance crucial to realizing the levy system's potential. Returning 68 Clear Water, Blue Skies: China's Environment in the New Century part of the levy to enterprises (in the form of low-inter- in market-based approaches. The government should est loans for pollution control) reduces the political dif- start experimenting with a regulatory system based on ficulty of levy enforcement. But financial oversight must full-cost pricing of natural resources and environmental ensure that the money is well spent. At a minimum, the taxes, while continuing to strengthen existing regula- funds should be pooled and allocated competitively tory measures. based on the highest marginal abatement per unit of expenditure. In addition, the funds should not be used to Continued economic reform is needed to preserve support local environmental protection bureaus, which past environmental gains. The impact of economic should be funded from general government revenues. reforms-and accompanying technical and structural change-on the air and water pollution intensity of Fast-increasing pollution loads from townsbip and Chinese industry has been powerful. Reform-induced village industrial enterprises deserve special attention. changes in sectoral composition, ownership, and scale of The recent closing of thousands of heavily polluting production have compensated for much of the increase township and village industrial enterprises probably in total output during the past decade. Continued could have been avoided if past regulation had covered reforms can have similar mitigating effects over the next these enterprises. In any case, the long-term solution to few decades. Rapid industrial growth that is not accom- regulating these myriad, price-sensitive enterprises lies panied by further changes in ownership and production BOX 5.3 Industry: Creating Incentives to Abate 69 scale, by contrast, would produce far greater pollution As its importance in global trade grows, China will loads than those contemplated in this report. be subjected to increasingly stringent international standards, including environmental performance and An incentive-based discharge permit system would production standards such as ISO 14000 (box 5.3). In reduce control costs while achieving local or regional response, China should establish an institutional frame- pollution goals. China should move quickly to adopt its work for incorporating ISO 14000 into its clean pro- overall pollution control strategy by implementing an duction strategy, starting with trial certifications in the incentive-based discharge permit program. The integra- short term and expanding to cover major industries in tion of such a program with existing pollution control the medium term. programs will be a major task for China's regulatory Local communities should have ways to voice their agencies. environmental concerns. In the long run community voice may be the most important way of controlling Enforcement should be targeted at low-cost sources. pollution. The strength of regulation in China's The cost analysis in this chapter shows why targeting is provinces is largely determined by each province's a good idea: large polluters are easier to monitor and social and economic development. Poor communities have far lower unit abatement costs. Thus the key to with low education levels are far less able to promote cost-effective pollution control in China's cities is tar- their environmental interests than their more developed geted enforcement of higher abatement standards for counterparts. Ultimately, China's environmental inter- large facilities. ests will be best served by rapid economic development, Adequate compliance monitoring is essential to coupled with concerted efforts to inform and empower achieving China's pollution control targets. Com- poor communities. Nongovernmental organizations pliance monitoring should be strengthened by increas- will also play an important role in future pollution con- ing financial support for equipment and skilled trol efforts. personnel. Random monitoring should increase and more enterprises should be monitored in order to raise Notes the pressure on polluters to abate. Continuous moni- toring of large point sources should become mandatory. 1. The eight programs form the core of China's environmentaL pro- tection activities: environmentaL impact assessments, the Three Synchronizations program, pollution Levies, pollution discharge per- Reforming institutions mits, mandatory poLLution controLs, centraLization of pollution con- trol, the goal-responsibility system of environmentaL protection, and Institutional obstacles have impeded the implementa- the quantitative appraisaL system of urban environment comprehen- sive control. tion of China's environmental programs. These obsta- 2. The Three Synchronizations program mandates that a project and cles have been particularly serious for programs its poLLution controL facitity be designed, buiLt, and operated in syn- requiring coordination between government agencies chronization. and between governments that share natural resources ing3. Martin, Huq, and WheeLer (1993) find that more open deveLop- ing economies absorb cLean technoLogies in metals and paper pro- (such as water) or face regional pollution problems duction much more rapidly than their less open counterparts. (such as acid rain). Limited public participation also 4. Finally, we have used the availabLe data to caLcuLate China's con- undermines environmental management. sumption-production ratio for the output of the five dirtiest sectors. If China's comparative advantage lies in 'dirty' production, then two Institutional responsibility for pollution enforcement things should be true. First, this ratio shoutd be Less than 1, since should be more clearly assigned. Local governments China shouLd be a net exporter of potLution-intensive goods. Second, need to have more control over managing local and the ratio shouLd faLL over time because production for export shouLd o increase faster than production for domestic consumption. The regional environmental quality. However, the National evidence is mixed but generaLLy is not consistent with the hypothesis Environmental Protection Agency should continue to that China's comparative advantage is in poLLution-intensive serve as the central agency for supervision and moni- production. ALthough China's consumption-production ratio has faLLen toring. This two-tier arrangement will prevent local since 1987, it has remained weLl above 1 throughout the period. This supports the story in figure 5.6: China has been and remains a net complacency about pollution control and ensure effec- importer of poLLution-intensive goods. tive management of cross-regional pollution issues. 5. We used projected polLution Levies and shares of Large pLants, 70 Clear Water, Blue Skies: China's Environment in the New Century state enterprises, and 'dirty' and "clean" sectors to project national although considerabLe losses are also associated with working days and provincial pollution intensities. We assumed that provincial inten- lost to nonfatal respiratory disease. sities are the same as the pollution intensities of our five cities (not 9. The National Environmental Protection Agency has been con- an unreasonable assumption since these cities are the main industraL ducting tral implementation of a sulfur dioxide Levy in selected cities. centers of their provinces and in two cases-Beijing and Shanghai- The 200 yuan per ton of sulfur dioxide levy is equivalent to $24 per are identical to their province). ton of sulfur dioxide (1995 exchange rate). To estimate city emissions, we multiplied projected provincial 10. The targets are contained in the State Environmental industrial output by the city's share of provincial industrial output in Protection Ninth Five-Year Plan and 2010 Long-Term Goals. 1993. Thus we assumed that the growth of industry in the province's main industrial city is identical to the growth of industry in the province. To obtain projected particulate and sulfur dioxide loads for References China and the five cities, we multiplied projected pollution intensities by projected industrial outputs. For sulfur dioxide the available infor- Dasgupta, Susmita, Mainul Huq, David Wheeler, and C.H. mation allowed us to go several steps further. We calculated sulfur Zhang. 1996. "Water Pollution Abatement by Chinese dioxide concentrations in each city's atmosphere by adjusting the pre- Industry: Cost Estimates and Policy Implications." Policy vious year's concentration at 0.51 times the rate of change in the esti- Research Working Paper 1630. World Bank, Washington, D.C. mated pollution load. This adjustment reflects the results of an Hettige, Hemamala, Paul Martin, Manjula Singh, and David econometric analysis of the relationship between emissions and Wheeler. 1995. "The Industrial Pollution Projection System." atmospheric concentrations in a large number of Chinese cities. Next Policy Research Working Paper 1431. World Bank, we estimated the changes in mortality rates that are induced by Washington, D.C. changes in atmospheric sulfur dioxide concentrations. For this exer- Lucas, Robert. 1996. "Environmental Regulation and the cise we relied on recent empirical studies in Beijing and Shenyang by Location of Polluting Industry in China." World Bank, Policy X. Xu and others (1994). Finally, we multiplied estimated concentra- Research Department, Washington, D.C. tions by projected city populations to project deaths from air poLlu- Mani, Muthukumara, and David Wheeler. 1997. "In Search of tion. Pollution Havens? Dirty Industry in the World Economy, 6. Marginal abatement costs for Beijing are estimated by combin- 1960-95." World Bank, Policy Research Department, ing the results of an econometric abatement cost study of Chinese Washington, D.C. industry with current sectoral and ownership data for that city. Martin, Paul, Mainul Huq, and David Wheeler. 1993. "Process 7. This calculation averages the distribution of production between Change, Economic Policy, and Industrial Pollution: Cross- state and nonstate enterprise plants in Beijing. Because nonstate Country Evidence from the Wood Pulp and Steel Industries." plants are less polluting than state plants, a targeted regulatory strat- Paper presented at the annual meetings of the American egy could exploit this difference to capture the largest returns from Economic Association, Anaheim, Calif., January. stricter enforcement for the least-cost plants. Millison, Dan. 1997. Personal communication. Ecology and 8. How should lifesaving be valued for comparison with abatement Environment, Inc., Lancaster, N.Y. costs? A useful benchmark is provided by the average wage of a worker NEPA (National Environmental Protection Agency). 1994. China in Beijing, which was about $800 (6,526 yuan) in 1995. A baseline Environmental Yearbook 1994. Beijing. estimate of the loss to society when one worker dies from respiratory . 1995. Environmental Pollution Protection Policies for disease is the presented discounted vaLue of the annual wage over a TVIEs. Beijing: China Environmental Science Press. working lifetime. For Beijing this is about $8,000 in present value . 1996. China Environmental Yearbook 1996. Beijing. terms at a 10 percent discount rate. We should stress that it is a very Xu, Xiping, J. Gao, D. Dockery, and Y. Chen. 1994. "Air partiat index of Loss, for two main reasons. First, it takes no account Pollution and Daily Mortality in Residential Areas of Beijing, of pain and suffering. SecondLy, it focuses exclusiveLy on mortality, China." Archives of Environmental Health 49(4): 216-22. Industry: Creating Incentives to Abate 71 Urban Transportation: Controlling Cars I hugh China's motor vehicle fleet is relatively A U small, these vehicles are a significant source of urban pollution. Ambient hydrocarbon, carbon monoxide, and ozone concentrations in major cities exceed Chinese standards and are approaching interna- tional levels. Mobile sources-especially automobiles- account for a large share of these emissions. Although the number of motor vehicles in Beijing is only about one- tenth of that in Los Angeles and Tokyo, vehicle emissions are about the same for all three cities (Walsh 1996). The automobile fleet, though small relative to both income and population, is growing rapidly. Since the late 1970s vehicle registrations have grown by 12-14 percent { t0: a year. If incomes continue to rise, urban densities fall, and public transit worsens, urban automobile ownership could reach 85-130 vehicles per 1,000 people by 2010, and possibly twice this range by 2020. --- >; 73 This pattern of growth would make traffic jams and accounted for 87 percent of carbon monoxide and 67 smog a way of life. In recent years the number of auto- percent of nitrogen dioxide concentrations in 1993. mobiles has grown nearly twice as fast as the growth in The national motor vehicle fleet grew from 3 million road construction, leading to increasing congestion and in 1985 to more than 10 million by the end of 1994. much lower average driving speeds. Lower driving Still, in 1994 there were only 8 motor vehicles per 1,000 speeds increase emissions per kilometer because motors people. Private automobile ownership is quite low- are less efficient at lower speeds and because they take less than 2 vehicles per 1,000 people-but has been longer to travel the same distance. growing by almost 50 percent a year. If rapid urbanization and motorization are not care- Despite rapid growth, China's motorization rate is fully managed, these trends could produce environmen- low for its level of income relative to other East Asian tal problems that would rival those of Bangkok, economies (figure 6.1). Two factors make China differ- Jakarta, Mexico City, and Sao Paulo. These cities are ent. Higher residential densities and more integrated shackled with high health costs associated with exorbi- land uses result in shorter work journeys, making walk- tant pollution loads, with reduced labor productivity ing and cycling possible. And until recently policies dis- because workers are caught in traffic jams, and with couraged individual vehicle ownership.1 insatiable demands for increased public investment in Cycling and walking were the dominant form of roads (Faiz 1990). transportation as late as 1992, the year of the most China can avoid this future. Its limited dependence recent survey of urban travel (table 6.2). Since then on automobiles, high urban densities, and extensive motorcycle use has increased dramatically, mostly at administrative capacity will enable it to shape its urban the expense of public transit and cycling. Increased environmental destiny. Doing so will require using both urban sprawl-with longer trips, increasing incomes, the conventional pollution control policies of other and falling residential densities-will increase the countries-emissions controls and the like-and the reliance on motorized transport unless the quality of full range of policies that shape the future of cities. public transit improves. Where is China now? Motor vehicles are a major source of emissions in large China is much Less motorized than its Chinese cites (table 6.1), and without new policies their neighbors, 1960-90 contribution wll increase. In Beijing, for example, Motor vehicles per 1,000 people (log scale) mobile sources accounted for 40-75 percent of carbon 1,000 monoxide, hydrocarbon, and nitrogen oxide emissions Japan in 1989. In Guangzhou traffic-related emissions ,.Singapore 100 TABLE 6.1 H0n o Motor vehicles account for a large share Hong Kong of pollutant emissions MaLaysia/ (percent) Carbon Hydro- Nitrogen ParticuLate 10 PhiLippines g IKorea, Rep. of Location, year monoxide carbons dioxide matter Beijing, 1989 39 75 46 Indonesia / China Guangzhou, 1993 87 67 Shanghai, 1994 37 85 15 European Union, 1990 72 40 62 Thailand Japan, 1989 40 39 1 Korea, Rep. of, 1991 99 96 81 18 100 1,000 10,000 100,000 United States, 1993 78 36 44 21a GOP per capita (log scale) a. PM-10. Source: Stares and Liu 1996. Source: Walsh 1996. 74 Clear Water, Blue Skies: China's Environment in the New Century TABLE 6.2 TABLE 6.3 Walking and cycling account for sizable shares of Different driving modes generate different urban transport emissions, United States, 1984 (percent) (parts per miLLion) Beijing Shanghai Guangzhou Carbon Nitrogen Mode (1986) (1986) (1992) Diving mode Hydrocarbons monoxide oxides WaLk 13.8 38.2 30.6 Idling 1.34 16.19 0.11 Bicycle 54.0 34.2 33.8 Cruising Motorcycle 0.0 0.2 6.4 15 mph 5.11 67.36 0.75 Taxi 0.3 0.2 6.1 30 mph 2.99 30.02 2.00 Bus and metro 24.3 24.0 21.7 45 mph 2.90 27.79 4.21 Car 4.4 2.2 0.0 Source: Faiz 1990. Other 3.2 1.0 1.4 Total 100.0 100.0 100.0 Note: Data are for format populations onLy. designs are at least ten years old. Current emission stan- Source: Li 1996. dards for gasoline-fueled engines are based on 1978 European and 1981 U.S. standards. Vehicles do not Congestion and vehicle speeds require catalytic converters to meet current standards. Emission standards for diesel-fueled engines are also The slow operating speeds of motor vehicles in major weak, covering only tailpipe smoke and not particulates Chinese cities result in high fuel consumption. Speeds on and nitrogen oxides. Beijing's third ring road average less than 20 kilometers While emission standards in industrial countries an hour (Walsh 1996). At these low speeds, fuel con- have become increasingly stringent, those in China have sumption is twice that on more freely flowing urban stagnated. Chinese standards for cars allow forty times highways. Even a small reduction in average speed-say, more carbon monoxide, six times as many hydrocar- from 20 kilometers an hour to 15 kilometers an hour- bons, and eight times as many nitrogen oxides than U.S. increases fuel consumption by 25 percent (Stares and Liu standards. Motorcycle standards are even more lax 1996). Stop-and-go driving also substantially increases than those for cars, and standards for two-stroke emissions (table 6.3). And congestion erodes the perfor- engines (mopeds and three-wheelers) are similar to mance of public transit, such as buses and mini-buses. those for trucks. But even these standards are weakly enforced. Air quaLity standards and vehicle emissions Emissions from in-use vehicles are ten to fifty times those of vehicles in the United States and Japan. Relative to The National Environmental Protection Agency has U.S. automobiles, domestically manufactured Chinese issued eight motor vehicle emission control standards. cars emit thirty to forty times as much carbon monox- Standards for light-duty vehicles, including cars, were ide, forty to sixty times as many hydrocarbons, and eight adopted in 1983 and are similar to European standards to fifteen times as many nitrogen oxides. from the same year. Environmental performance stan- dards for heavy-duty vehicles were adopted in 1989 and Fuels for motorcycles in 1993. Periodic inspections are required for all operational Gasoline supply is split about evenly between 70 MON vehicles and are conducted by local vehicle manage- (equivalent to 82 RON) and 90 RON and higher ment offices. The effectiveness of the tests varies signif- grades. The lower (70 MON) grade, mostly unleaded, icantly by jurisdiction. is used primarily in low-compression truck engines, The current vehicle fleet is highly polluting, in part while the higher grades are predominantly used in because of outdated vehicle designs and inadequate urban areas, where most higher-compression cars oper- emission standards for new vehicles (Fridley 1995). For ate. Chinese leaded gasoline contains about 0.12 grams example, truck engines are based on designs that are of lead per liter-less than the average of 0.15 grams per more than twenty years old, and most car engine liter for other Asian countries but more than the previ- Urban Transportation: Controlling Cars 75 ous international standard of 0.08 grams per liter, China's urban environmental future which is now considered high (World Bank 1995). Atmospheric lead levels in major cities such as Beijing Three sets of transportation-related factors will influence typically are 1.0-1.5 micrograms per cubic meter China's urban environmental future. The pace of income (pg/in3), more than twice the World Health growth and urbanization will dictate the demand for Organization (WHO) standard, and in some areas urban transportation. Urban planning and infrastructure reach 14-25 pg/m3 (Walsh 1996). development will influence urban layout and the distance Although about half the gasoline produced in China workers have to commute. And the supply options avail- is unleaded, most of this is low grade (70 MON) or able for transport-bicycles, cars, or public transit-will higher grades for export. The domestic supply of 90 provide competing choices. If demand exceeds supply, RON and higher-grade unleaded gasoline accounts for congestion will extend travel times, reduce average only about 20 percent of gasoline consumption, and speeds, and increase emissions per trip. much of it is contaminated by leaded fuel at storage ter- minals. Wider use of unleaded gasoline is hindered by Demand issues: Vehicle use and urban growth the lack of a dedicated storage and distribution system. Refineries are not responsible for distributing fuel, so China's rapid urbanization shows few signs of abating. most fuel is transported by truck or rail car rather than By the end of 1995 the formal urban population stood by pipeline. Since few of these vehicles transport only at more than 350 million people and had been growing unleaded fuel and refueling sites generally have only by 4 percent a year since 1980. The informal population one holding tank, unleaded gasoline is often contami- was estimated at about 50 million and has been grow- nated with lead (Wang 1995). Even small amounts of ing even faster. The urban share of the population is lead inactivate catalytic converters. expected to reach 42 percent by 2010 and 50 percent by The quality of China's diesel fuel is poor-with low 2020, more than doubling the total number of urban stability and a high aromatic content-resulting in high residents. vehicle emission of particulates and smoke. Although Since 1990 the number of cities has been growing by the sulfur content of nationally produced diesel is low almost 8 percent a year and the number of townships, by international standards, the average sulfur content of diesel fuel will increase in the future if the transport TABLE 6.4 sector relies more on imported diesel (much of the China's fuel prices are low by international standards, second quarter 1997 imported diesel, which has up to 2 percent sulfur con- (cents per Liter) tent, is currently used for power generation). Most East Asian countries limit the sulfur content of diesel to less Premium gasoline Economy (unLeaded where available) DieseL than 1.5 percent. Asia China 25 22 Fuel pricing Japan 97 65 Korea, Rep. of 94 41 Taiwan, Chinaa 60 41 The pump prices of gasoline and diesel are low by inter- Thailand 37 34 national standards (table 6.4). The current small price Vietnam 40 31 differential between 82 RON and 90 RON gasoline Europe France ill 77 does not justify the cost of upgrading refineries to pro- Germany 101 72 duce more high-quality fuel. Moreover, a shortage of ItaLy 113 84 liquefied petroleum gas is driving up its price, and refin- Spain 82 64 ers are diverting their feedstock to producing it rather Americas BraziL 83 45 than regular gasoline. In addition, since diesel is the Canada 48 40 main fuel for agricultural use, it remains underpriced Mexico 38 30 United States 36 31 relative to gasoline, reducing refinery incentives to pro- a. Data are for August 1996. duce diesel (Fridley 1995). Source: WorLd Bank data. 76 Clear Water, Blue Skies: China's Environment in the New Century by 13 percent a year. The government plans to establish r 6.2 about 400 new cities over the next fifteen years. Low-density urban populations require Although this would create an average of twenty-eight more roads per capita cities a year, it is a significant reduction in the rate of Length of roads per capita increase of the past five years. The numbers of town- (meters) ships will need to increase even faster to cope with pro- 16 jected urban population growth and to avoid having 14 ; large urban centers develop into megacities. The devel- opment of new cities and the expansion of smaller set- 12 tlements into townships provides more scope for 10 managing the transport impacts of urban growth than 8 4 would the unconstrained growth of larger cities. Until recently high population densities have helped 6 constrain the demand for motorized transport in China. 4 But the low quality of life resulting from these high den- 2 * * sities is propelling their reduction, which will reduce the o potential for nonmotorized travel and increase the need 0 0 5,000 10,000 15,000 20,000 25,000 30,000 for road infrastructure. The planned reduction in resi- Population density (people per square kilometer) dential densities in areas with densities of nearly 20,000 Note: Figure plots 137 observations for 65 world cities. people per square kilometer will not create excessive Source: Stares and Liu 1996. demand for urban road space, but in new residential areas with densities of about 10,000 people per square ger vehicles (table 6.5). This segment of the fleet has kilometer the need for road space will be much higher grown nearly twice as rapidly as trucks. While most of (figure 6.2). The demand for motorized travel will also these cars are owned by companies or government increase as land use becomes less integrated. The agencies (80 percent in 1995), privately owned cars are authorities plan to move people away from polluting the most rapidly growing segment of the automobile industries, which will increase the separation of land market. uses. Future car ownership in China, particularly house- The portion of built-up land area devoted to roads is hold car ownership, will depend on three main factors: low-less than 10 percent in major cities (Li and others * Affordability (the ratio of car price to per capita 1996). Right-of-way on these roads is shared by pedes- income). trians and nonmotorized and motorized vehicles. With * Need for car use. poor traffic management and little segregation of users, * Infrastructure available for car use. speeds are low and accident rates are high. The lack of Considering only affordability and the need for car road space will become a critical issue as car ownership use, and ignoring any effects of congestion or changes increases. To prevent traffic congestion from getting in public transit, a study sponsored by the State worse, road space should increase at about the same Planning Commission estimated that household car rate as the increase in the vehicle fleet. Achieving this ownership would surpass the benchmark level of 15 objective will be difficult because of cost, resettlement, cars per 1,000 people when the affordability ratio falls and space considerations, so congestion will probably to 2-3 (table 6.6). Based on a random survey of nearly only get worse. 10,000 high-income households, the study calculated the number of households that would be able to afford Supply options: Car ownership and be willing to own a private car and estimated car ownership, potential domestic car production, and fuel In the absence of good public transit options, the consumption. demand for private automobile ownership and use will Car ownership rates in urban areas are much higher rise. About one-third of China's vehicle fleet is passen- than the national average, with about 24 cars per 1,000 Urban Transportation: Controlling Cars 77 transit may have 20 percent more cars than the projected The registered civ6l vehicle fleet is growing quickly, average. But cities that organize themselves well, with 1985, 1990, and 1994 higher densities and good public transit, would have 20 (thousands) percent fewer cars than average (table 6.7). Average annuaL growth, Supply options: Public transit 1985-95 Type of vehicle/owner 1985 1990 1995 (percent) Efficient public transit is associated with high residential Passenger vehicles 795 1,622 4,179 18 densities and results in less dependence on automobiles. ProfessionaL transport 83 108 131 5 PrivateLy owned 19 241 786 45 So far, however, provision of good public transit has not Trucks 2,232 3,685 5,854 10 been a policy priority. Bus services have suffered from ProfessionaL transport 194 198 142 -3 PrivateLy owned 265 573 1,226 17 underinvestment, inefficient management, poor mainte- Other 616 411 1,227 7 nance, and a lack of user orientation, resulting in poorly Total 3,642 5,717 11,260 13 maintained vehicles and unreliable services. Congested Source: China Statistical Yearbook 1996. urban roads also result in unreliable services, with long people in Beijing, 15 per 1,000 in Shanghai, and 21 per delays between buses and unpredictable travel times. 1,000 in Guangzhou (Stares and Liu 1996). These rates Lower service levels could cause ridership to fall off and are low by international standards, even taking into increase the need to subsidize fares or further reduce ser- account China's low per capita income, so the potential vices. Few cities have built underground railways, none for growth is enormous. Most studies in other countries has a surface suburban railway, and light rapid transit of the factors that affect car ownership find a strong has yet to be used. Fixed-link public transit systems are correlation with personal income, and recent studies now so expensive that they can be justified only in excep- have found a close relationship between the quality of tional circumstances. Although the poor quality of pub- public transit and residential density (high densities lic transit did not contribute to air pollution when the being conducive to better bus and metro services). only alternative was to walk or travel by bicycle, the Car ownership rates in some urban areas are expected consequences are more significant now that average to grow by four to seven times over the next fifteen years urban incomes are high enough to afford cheap motor- and could double again in the following ten years. Actual cycles with heavily polluting two-stroke engines. growth rates will depend on how residential densities If China were to develop public transit options ahead change as existing cities grow and new cities are built and of urban transport demand, major cities would have 20 on the success of policies for improving mass transport. percent fewer automobiles and, based on experience Cities with lower population densities and poor public elsewhere, about 35 percent less car use. TABLE 6.6 National car ownership and production should rise considerably, 2000, 2005, and 2010 Projections Item 2000 2005 2010 Households able and wiLLing to buy a car (miLLions) 4.0-4.7 15.5-16.5 37.5-40.5 Demand for cars (mittions) 1.3-1.6 2.2-2.7 3.5-4.4 HousehoLd demand (miLLions) 0.4-0.6 1.2-1.6 2.3-3.0 Car ownership (millions) 6 12 22 Household car ownership (percent) 20 40 60 Cars per 1,000 peopLe 4.7 9 15.8 Car production capacity (millions) 1.2 2.2 3.5 Car production capacity for household use (miLLions) 0.4 1.2 2.3 Household car gasoline consumption (miLLions of tons) 0.8 2.8 6.5 Share of nationaL gasoLine consumption (percent) 2 6 11 Average gasoline consumption (tons per household car) 0.7 0.6 0.5 Source: TEI 1994. 78 Clear Water, Blue Skies: China's Environment in the New Century China's urban transportation future: would be possible to walk or cycle to the transport The strategic choice nodes. Commuters traveling further could transfer to the high-quality public transit services. Unlike many developing countries, China has a strate- Curitiba, Brazil, and Portland, Oregon (United gic choice before it that will shape its urban environ- States), are among the few cities that have successfully mental future. One option is to let market forces, rising implemented this model since the advent of high car incomes, and uncontrolled urban growth create cities. ownership and use, although it was the basic pattern of This option entails high social costs of lost worker pro- urban growth in the nineteenth century (box 6.1). For ductivity and damage to human health as well as rising maximum effect, the policy needs to be introduced demand for funds for road construction. before urban growth is too far advanced, so that the But there is a second option. China's unusually low land for public transit services and radial roads can be dependence on automobiles, the unusually high density made available without excessive relocation of resi- of its cities, and the strength of its administrative capac- dents and high land costs. China's current strategy of ity at both the national and municipal levels is unique creating new townships and cities and limiting the among developing countries. China can take advantage growth of existing large cities will support the applica- of these circumstances to create a new framework for tion of this strategy. urban transport and environmental management. In Because this strategy is not as easy to apply in exist- addition to developing and enforcing regulations and ing cities, a more dramatic solution, based on demand environmental standards, this option would require management coupled with excellent public transit and integrated actions in six areas: planning land use, sup- the development of regional centers, will minimize the plying transport infrastructure, managing demand, demand for radial travel and ease the pressure for more managing traffic, promoting car production as a pillar road construction. This second strategy can also reduce industry, and implementing technical standards for the demand for car ownership, as it has in Hong Kong vehicles and fuels. (China) and Singapore (see figure 6.1). Land use planning Public investments and the supply of infrastructure China can take advantage of its unique pattern of urban The demand for urban road construction will probably development (Li and others 1996). Instead of dispersing exceed the supply for some time. The experience of high-density populations, urban growth could be orga- other countries suggests that this demand will quickly nized along corridors with established public transit find its way into automobile purchases, but soon traffic services at the transport nodes along those corridors. jams will put pressure on the public sector to build more This approach would minimize automobile use since it roads (table 6.8). But if China relies on an automobile- TABLE 6.7 By 2010 urban car ownership will be considerably higher (cars per 1,000 people) Density and pubLic transit assumptions Beijing Shanghai Guangzhou Chengdu Jinan Current ownership rate 24 15 21 8 15 Basic projected ratea 96 105 116 55 70 Actual residentiaL densitya Better pubLic transit 77 84 92 50 58 Worse public transit 106 116 127 65 80 Reduced residentiaL densitya Better public transit 92 100 110 65 69 Worse pubLic transit 116 127 140 87 90 a.Data are projections. Source: World Bank staff estimates. Urban Transportation: Controlling Cars 79 based urban development strategy, public investments and associated lower projected levels of car ownership. in roads will never catch up with private investments in Both estimates are less than that projected for interur- automobiles. ban transport (highways, railways, ports, and airports) The costs of an automobile-based strategy are much and represent about 2 percent of GDP; the public tran- higher than those of a public transit strategy. The fol- sit option would be about 17 percent less costly than the lowing estimates show the total investment needed in automobile-oriented strategy. urban roads and public transit systems based on two In both strategies highway maintenance would be the assumptions-one of no change from current policies largest expenditure, accounting for 30-44 percent of the and the other of an emphasis on public transit corridors total. In the automobile-based strategy new ring roads would account for a further 30 percent, but this would only be 12 percent under the public transit strategy. Pubtic spending on roads witl eat up a large share Many Chinese cities plan to build ring roads to of investment in urban transport, 2000-10 expressway standards, sometimes with radial routes (biLlions of u.s. do[Lars) connecting them to the downtown business area. In Automobile-based PubLic transit cities in the rest of the world, however, the share of road strategy strategy space dedicated to ring roads is quite small and varies Annual Share AnnuaL Share within a narrow range.3 Current plans for expressway Investment investment of totaL investment of totaL construction go well beyond the standard in developed New roads 14.9 51.2 8.9 36.9 motorized cities around the world. Ring roads 8.5 29.2 3.0 12.4 ArteriaL roads 3.5 12.0 3.5 14.5 Why have motorized cities in other parts of the Other roads 2.9 10.0 2.4 10.0 world stopped short of such elaborate expressway Highway maintenance 128 440 94 300 plans? , b s o ths costr Buses 14 4.8 4.0 16 6 p Metros and Light rapid urban expressways, especially in city centers (where transit n.v c.h 1.8 7.5 land is costly). Because the intrusion of these roads dis- Total 29.1 100.0 24.1 100.0.. higher atha thons of a publictransitstrategy.Thefol- sorupts commuldbes and encounters local ressstance, few Source: Worn d Bank staff estiiates. new expressways have been built in Western city centers 80 Clear water, Blue Skies: China's Environment in the New Century in recent years. Moreover, the notion that it is possible Traffic management to build a way out of congestion is being increasingly questioned. Traffic management is designed to make the best use of Urban transport investment in China should average space to accommodate demand with minimal invest- about $25 a year billion over the next twenty years to ments in new infrastructure. Using traffic engineering, avoid further deterioration in travel speeds and conges- traffic control, and traffic enforcement to manage traf- tion-induced pollution. A substantial portion of the fic flow, traffic management gives priority to the move- total should be allocated to road maintenance and ment of people rather than vehicles. Street capacity in improvements to existing arterial roads, with a reduc- China can be increased by installing junction improve- tion in planned expenditure on ring roads. Investment ments and traffic signals, creating bus lanes, limiting in fixed-link public transit should be restricted to corri- and otherwise controlling on-street parking, and intro- dors with high demand and areas where it is cost-effec- ducing one-way streets and other traffic flow measures. tive to avoid building new highways. Investment in One of the most cost-effective traffic management buses should be aimed at improving service quality and measures is to time traffic signals according to the flow frequency so that commuters are not tempted to turn to of traffic or to the priority desired for high-occupancy cars. vehicles such as buses. Timed signals can increase total highway capacity by up to 20 percent. Although a few Demand management Chinese cities have invested in such systems, they are not as effective as they should be and are not designed Demand management should be aimed at making the to give priority to buses. best use of existing infrastructure, incorporating envi- In many parts of the world an initial response to ronmental costs, and responding to the demand for new urban traffic congestion has been to require downtown facilities. It can also be used to reduce the unit costs of offices to provide adequate off-street parking so that public transit by reducing peak demand and stimulating on-street parking controls can be enforced. Over time, off-peak use. The tools of demand management com- however, this move often induces additional car travel, bine pricing and regulatory measures designed to make ultimately causing both on-street and off-street parking people's travel choices take account of the economic to be severely restricted. Depending on the stage of consequences of their actions. They aim to manipulate development at which the change is made, its effective- demand to avoid both excess use and overloaded infra- ness is limited by the amount of available off-street structure on the one hand and unnecessary duplication parking. Thus municipalities in China should resist and underuse of capacity on the other. While fixed toll pressures to make off-street parking a condition of systems can be used effectively on some principal roads, approving a building license, and go straight to the sec- they are not an efficient way of managing urban trans- ond stage of making a low level of off-street parking a port demand. New technology will make electronic condition of approval. But this policy must be accom- charging for road use more feasible. Given that elec- panied by one that makes other modes of transport- tronic charging provides the opportunity for an accu- walking, cycling, and public transit-attractive rate and sensitive road pricing system and that China's alternatives; otherwise it will be impossible to impose cities are embarking on a major period of new road on-street parking controls. The use of bicycles in cities building, incorporating these technologies would not requires special traffic management techniques in order add excessively to the cost of road development. to protect their use and avoid conflicts with motorized Demand management will need to supplement traffic. investment to create an efficient urban transport sys- No traffic management system can function if it is tem. Large cities should introduce appropriate pricing not enforced. In China the responsibility for designing and regulatory measures to restrict car and motorcycle and implementing traffic management is shared by use on congested roads or in congested areas, minimize municipalities, the Ministry of Construction, and the the cost of public transit services, and reduce congestion Public Security Bureau, but the allocation of responsi- on main highways. bility among them is not always efficient. Given the Urban Transportation: Controlling Cars 81 importance of traffic management in adding to system better solution is to focus on developing various forms capacity and reducing congestion, these responsibilities of public transit (NEPA 1996). should be clarified and the various measures vigorously In the meantime, however, extending the "polluter applied. pays" principle to automobiles and other vehicles Area traffic management systems should be devel- would require companies and individuals using cars to oped and implemented to deal with the mix of motor- pay for the social costs of pollution. Thus motorcycle ized and nonmotorized traffic in Chinese cities. Where and car owners would be faced with the full costs of their advantages can be demonstrated, systems that give their choices, resulting in economically efficient out- priority to buses and other high-occupancy vehicles comes. The revenues from the charges could be used to should be designed and implemented. Planning stan- finance additional pollution and congestion mitigation dards for new commercial developments should include measures. reference to the development's provision of parking Policies in several Asian cities make car ownership spaces, and where adequate public transit is available, expensive. Singapore's example is well known, but the number of parking spaces should be strictly limited. Hong Kong (China) and Seoul (Korea) also have high Regulation of on-street parking and observation of traf- car purchase and ownership taxes. Korea is a particu- fic markings and signals should be better coordinated larly interesting case because price disincentives to between the ministry, the bureau, and municipal gov- operate cars are used in parallel with a successful policy ernments. of developing an export market for cars. This is a good Traffic accidents in urban areas, already high by example for China, where the potential domestic mar- international standards, are increasing at alarming rates ket would still be huge even with such taxes in place. throughout China. Congestion generates impatience Japan distinguishes between ownership and usage. and a deterioration in driver discipline and driving con- Despite high car ownership, many Japanese cities are ditions. Road networks in many cities were never relatively free of congestion because of low car usage. designed for current traffic volumes and speeds. The These cities have well-developed, efficient public transit push to provide more road space for motorized vehicles services and strict controls on parking. In addition, has resulted in inadequate facilities for pedestrians and parking is prohibitively expensive in downtown areas slow-moving vehicles. The government must improve and there are few off-street parking spaces. Nearly 90 road safety by raising road design standards, imposing percent of motorized trips in Tokyo are by rail-based road safety legislation and penalties, enforcing traffic public transit. laws, testing and inspecting vehicles, strengthening dri- ver training and testing, and educating children and Vehicle emissions and fuel standards adults in traffic safety. Three policies can be used to modify the air quality Car production as a pillar industry impact of increased motorization: imposing emission standards on new vehicles, affecting their design; con- Exercising control over automobile ownership and use trolling emissions from in-use vehicles; and setting the is not necessarily inconsistent with China's objectives of prices of the fuels that vehicles consume. A start has developing its automobile industry. The potential size been made on addressing vehicle-induced pollution at of China's domestic car market is so huge that it will not the national level through vehicle registrations and require artificial stimulus to promote an export indus- ownership regulations, but these are weakly enforced. try. Other Asian countries with successful car export Regulation of fuel quality is fragmented, with juris- industries, such as Japan and the Republic of Korea, diction over fuel quality shared among several agencies, have already implemented policies to invest in public including the China Petrochemical Corporation (indus- transit and contain the demand for car use. National try standards) and the National Technical Supervision environmental policy recognizes that the development Bureau (national standards on petroleum products and of cars will be controlled to a "proper extent and con- other products). While the bureau has final authority for sistent with the actual situation in China" and that a setting standards, the corporation, which produces 82 Clear Water, Blue Skies: China's Environment in the New Century about 87 percent of China's motor fuels, is responsible octane blending components, and using detergents to for proposing those standards. As with other standards control deposits in gasoline-fueled engines.4 Other low- in China, this approach has resulted in standards that polluting hydrocarbon fuels used for transport in other match industry needs more than environmental needs. countries include liquefied petroleum gas, liquefied nat- The National Environmental Protection Agency, which ural gas, methanol, ethanol, and biogas. However, the sets national standards for lead, sulfur dioxide, particu- feasibility of these alternatives usually depends on a lates, nitrogen oxides, carbon monoxide, and hydrocar- readily available supply, often as a byproduct of the bons, historically has had little input into the process. production of other hydrocarbon products. China will Pollution from motorized vehicles comes from the not have an excess supply of any of these fuels in the fuels they consume, so an appropriate system of pollu- near future, so they are unlikely to play a significant role tion charges would relate to fuel prices. In addition to a in reducing vehicle emissions. market price based on a sum of the opportunity cost of Widespread use of unleaded fuel will permit the the fuel (equal to its international market price), the cost introduction of new environmental standards that can of distribution, and ad valorem taxes on consumption only be met by requiring motor vehicles to be equipped (as for other products), the fuel price could include an with catalytic converters. Although the rest of the world infrastructure surcharge and a pollution charge. The uses vanadium and similar rare earths as the catalyst, pollution charge could be proportional to the energy China has an abundance of lower-priced alternative content of the fuel and its potential for pollution, minerals that could function almost as well, so the including its sulfur and lead content. increase in initial vehicle costs will be negligible. Given Emissions testing of new vehicle models should be the time it will take to develop a parallel distribution carried out by an agency that is independent of vehicle system for unleaded fuel, unleaded fuels should be manufacturers and is responsible for air quality, such as phased into use. They should first be made available in the National Environmental Protection Agency. those urban areas where lead contamination is greatest. Emission standards should be revised more frequently, Lowering lead emissions will have high and immedi- giving manufacturers incentives to improve the emis- ate payoffs to society by reducing the incidence of lead sions performance of their products. Once a system for poisoning among millions of Chinese children. Although distributing unleaded gasoline is in place, much stricter the complete phaseout of lead will be difficult and standards requiring the use of catalytic converters costly-requiring significant industry coordination and should be introduced. Testing of in-use vehicles needs to investment-it will be even more costly if it is left until be more stringent and uniform, at least in urban areas. vehicle use and fuel consumption are much higher. Some Similarly, fuel standards should not be left entirely to refineries are already producing higher-octane unleaded the petroleum industry and the China Petrochemical fuel (part of the output is exported), but the greater cost Corporation to determine, but should be the responsi- will be developing a parallel distribution system, essential bility of the National Environmental Protection so long as both leaded and unleaded fuel are on the mar- Agency. Transport fuels should include a surcharge ket. In the United States cooperation between the auto- according to their polluting capacity, to provide an mobile and oil industries resulted in nationwide incentive to use less damaging fuels and promote the availability of unleaded gasoline in four years, but it took more efficient use of all fuels. about ten years to completely eliminate lead from the fuel supply. Technical standards for transport fuels The market pricing of unleaded gasoline must be carefully controlled. If it is priced cheaper than leaded China plans to phase out lead by 2000. The experiences gasoline while its supplies are limited, there is a risk that of other countries suggest that this will be a challenging it will be used by vehicles that do not need it (that is, task. Other planned improvements in fuel quality those not equipped with catalytic converters), leaving include eliminating low-octane gasoline (70 MON pro- insufficient supply for those that cannot operate with- duction), raising the octane level by increasing the use out it. Owners of catalytic converter-equipped vehicles of reformate, oxygenates, alkylates, and other high- could then be tempted to use leaded gasoline, destroy- Urban Transportation: Controlling Cars 83 ing their catalytic converters and eliminating any air larly introducing unleaded gasoline and low-sulfur pollution reduction. But if unleaded gasoline is more diesel and implementing higher emission standards, will expensive than leaded gasoline, owners of cars be taken. Lead emissions will only fall to zero when all equipped with catalytic converters will be tempted to the vehicles that depend on leaded fuel have been with- use leaded gasoline, with the same final result. Thus, at drawn from the vehicle fleet and distribution of even least until adequate supplies of unleaded gasoline are low-leaded fuel has stopped. available, there are good reasons not to differentiate If there is no change in urban growth trends-that is, between the price of leaded and unleaded gasoline. if urban densities continue to fall, investment in public Since domestically produced diesel is already low in transit remains inadequate, demand and traffic manage- sulfur, it should not be difficult to control sulfur dioxide ment are avoided, and there is no improvement in vehicle emissions from diesel-fueled vehicles. But it will be dif- emission standards and their implementation-exhaust ficult and expensive to achieve the particulate emission emissions will be about twenty-five times higher by 2020 standards of some other countries because of the low (table 6.9). Implementing tougher emission standards and stability and high aromatic content of domestically pro- improving traffic management would hold the level of duced diesel. increase to about fifteen times. If a bus-based urban pub- It is difficult to justify an increase in the price of diesel lic transit system were promoted as well, vehicle emissions for transport purposes (to encourage more efficient use) would be only about five times higher. since more diesel is used in agricultural tractors than in A public transit strategy would also lower future oil road vehicles. There is a possibility of having two classes consumption by two-thirds. At current prices, in 2020 of diesel fuel, one for transport and the other for every- the public transit strategy would require only $30 bil- thing else, with the second retaining its low price. Such a lion in gasoline and diesel consumption, compared with policy would require strict enforcement to avoid trans- $87 billion under an automobile-based strategy. port users simply buying the cheaper alternative. This pol- In summary, if China wants to prevent skyrocketing oil icy is applied in the United Kingdom with some success. demand from automobile use and effectively control urban air pollution from automobile operation, it must Air quality effects of alternative take early and decisive action to plan cities around viable urban transport strategies public transit systems. Such actions will also free up petro- leum and capital for other purposes-for example, as a Three scenarios were developed to simulate the poten- substitute for coal in residential and commercial energy tial effects of different urban transport strategies on fuel use-thus creating ripples of environmental benefits. demand and pollutant emissions. The first scenario The larger task of creating a clean and healthy urban assumes that the current policy framework remains environment will require harnessing China's considerable unchanged. The second and third scenarios assume that administrative and coordinating capacity in transporta- all other measures to reduce vehicle emissions, particu- tion management. Emission controls and cleaner fuels are TABLE 6.9 A pubLic transit strategy would mitigate increasing fuel demand and worsening pollutant emissions AutomobiLe- Automobile- based strategy based strategy PubLic Base year, without improvement, with improvement, transit strategy, Fuel or polLutant 1993 2020 2020 2020 Gasoline (miLLions of tons) 29 789 473 144 Diesel (millions of tons) 8 144 86 49 Carbon monoxide (thousands of tons) 8,389 215,359 55,105 15,831 Lead (thousands of tons) 4.6 126 0 0 Nitrogen oxide (thousands of tons) 956 22,305 8,824 3,094 Volatile organic compounds (thousands of tons) 1,138 22,895 6,025 1,948 ParticuLate matter (thousands of tons) 80 1,838 868 362 Source: World Bank staff estimates. 84 Clear Water, Blue Skies: China's Environment in the New Century essential. Achieving them will require greater municipal China State Statistical Bureau. 1995. China Statistical Yearbook planning to shape land use patterns in economically effi- 1995. Beijing. Faiz, Asif. 1990. "Automotive Air Pollution: Issues and Options cient ways, greater investment in coordinating mass for Developing Countries." Policy Research Working Paper transport, and greater efforts to accommodate bicycles 492. World Bank, Washington, D.C. and other nonmotorized uses. The strategic choice is clear. Fridley, David. 1995. "China Fuel Quality Specifications." World Bank, Washington, D.C. Li, Yaming. 1996. "Annex: Urban Statistics and Transport Notes Characteristics." In Stephen Stares and Zhi Liu, eds., China's Urban Transport Development Strategy. Washington, D.C.: 1. In 1994 the government affirmed its poLicy of making automo- World Bank. biLe manufacturing a pillar industry and began encouraging private Li, Yaming, and others. 1996. "Land Use and Transport Planning ownership of cars. in China." In Stephen Stares and Zhi Liu, eds., China's Urban 2. Many of these new cities will be upgraded towns. Transport Development Strategy. Washington, D.C.: World 3. Several East Asian cities with high LeveLs of motorization have Bank. simiLar shares of road space dedicated to ring roads: 2.4 percent in NEPA (National Environmental Protection Agency). 1996. Tokyo (Japan), 2.6 percent in SeouL (Korea), and 3.4 percent in "Seclected Documents from the Fourth National Singapore. But an average of sixteen cities throughout the world has Environmental Conference." Beijing. an average of just 1.7 percent. Even U.S. cities have an average of less Stares, Stephen, and Zhi Liu. 1995. "Motorization in Chinese than 3 percent with a similarly small standard deviation, considering Cities: Issues and Actions." In Stephen Stares and Zhi Liu, eds., that the sampLe embraces a wide range of city types, from New York China's Urban Transport Development Strategy. Washington, to Los AngeLes. If Chinese cities foLlow this pattern, the entire express- D.C.: World Bank. way "allocation" for most cities might be taken up by just one ring TEI (Technical and Economic Institute of the State Planning road and one or two radial routes, with perhaps an additional ring in Commission). 1994. "The Development Strategy for Cars to the Largest cities (Stares and Liu 1996). be Used by Households in China." Economic Daily, October 4. The China PetrochemicaL Corporation, China's main motor fueL 24. producer, pLans to upgrade the quaLity of gasoLine using advanced Walsh, Michael P. 1996. "Motor Vehicle Pollution Control in refining technoLogy and alkyLates and oxygenates in order to reduce China: An Urban Challenge." In Stephen Stares and Zhi Liu, vehicle emissions (Wang 1995). eds., China's Urban Transport Development Strategy. Washington, D.C.: World Bank. Wang, Xichu. 1995. "The Features of Motor Fuels and Lubricants References in China and their Future Directions." Research Institute of Petroleum Processing, China. Cevero, Robert. 1995. "Creating a Linear City with a Surface World Bank. 1995. "Why Lead Should be Removed from Metro: The Story of Curitiba, Brazil." University of California Gasoline." Environment Department Dissemination Note 32. at Berkeley, National Transit Access Center. Washington, D.C. Urban Transportation: Controlling Cars 85 VWater: Preserving Scarce Resources hina has a long history of managing water resources to compensate for its uneven spatial and temporal distributions of water. In recent decades rapid economic growth and urbanization have brought new challenges to water management. Increasing soil ero- sion and reclamation of natural water reservoirs have - -- heightened pressures for flood control. Rising water demand has outpaced municipal water supply capacity. Widespread water pollution has become a prominent environmental problem. And investment and reform in the water sector have lagged behind the general economy. The underinvested and overburdened water system is taking its toll. Floods have become more frequent and more damaging. In 1996 floods caused 220 billion yuan in damages, compared with 160 billion yuan in 1994 (Chen 1996). More than 300 of China's 600 cities experience water shortages totaling about 6 billion cubic meters a year and causing 120 billion yuan a year in lost industrial 87 output (SPC 1995). China's rivers, lakes, and reservoirs average is just 10 percent of the world average. The lack are all polluted to some degree. Except for some inland of water is particularly acute in the Hai River Basin, rivers and large reservoirs, water pollution has wors- which covers all of Hebei Province and Beijing and ened, especially in waters adjacent to industrial cities Tianjin municipalities and parts of Shanxi, Henan, and towns (NEPA, China Environmental Yearbook Shandong, Jiangsu, and Anhui provinces. Groundwater 1995). Water pollution causes annual damages on the in the Hai River Basin is overextracted by as much as 30 order of 33 billion yuan (NEPA 1997). percent and in many areas groundwater tables have While floods cause enormous damage, water short- dropped by 100-300 meters. The depletion of indige- ages and water pollution are considered the two main nous water resources in the north is the primary reason water-related constraints to China's socioeconomic for China's south-north water transfer project. development, and are the focus of this chapter. The temporal disparity of rainfall aggravates water Resolving both problems will require large capital shortages and causes devastating floods and droughts in investment and, equally important, effective policies major river basins. For example, 70-80 percent of rain- and strong institutions. fall in the Hai River Basin occurs between June and August. Such a pattern requires extensive water storage Water quantity to ensure a stable supply. China is relatively poor in water resources.1 Among sev- Demand patterns and projections eral major nations, China has the second lowest per capita water resources (behind India)-less than one- In 1980 (the most recent year for which national data third the world average (table 7.1). Northern China, are available) irrigation was the main user of freshwa- however, has only one-fifth the per capita water ter (82 percent), followed by industry (10 percent), resources of southern China. rural activities (including household use, animal feed- China is divided into nine water resource regions, ing, and nonfarming activities; 6 percent), and munici- roughly based on the boundaries of major river basins pal use (2 percent; table 7.3). There is considerable (table 7.2). Southern China (regions 5, 6, 7, and 8) con- variation among regions, with irrigation's share as high tains 81 percent of China's water resources and 55 per- as 95 percent in the mostly rural northwest and as low cent of its population. Northern China (regions 1, 2, 3, as 69 percent in the highly industrial northeast. Over and 4) contains 14 percent of China's water resources the past fifteen years the demand for nonirrigation yet must support 43 percent of its population. Northern water has increased quickly. For example, in the Hai China's 750 cubic meters per capita water resource River Basin irrigation's share of the total dropped from 81 percent in 1980 to 74 percent in 1987 (SPC 1995). TABLE 7.1 Total water demand is projected to reach 765 billion China's water resources are limited-especiaLly cubic meters in 2000, an increase of 72 percent over in the north, 1995 1980. Nonirrigation uses will account for 56 percent of (cubic meters) the increase in demand, with industrial and municipal Water per demand expected to grow the fastest (see table 7.3). AnnuaL Land area About 62 percent of the increase in water demand will renewabLe (per square Water Country resources kilometer) per capita come from the south, 35 percent from the north, and 4 Canada 2,901 290,944 98,462 ~percent from the inland rivers region. Canada 2,901 290,944 98,462 BraziL 6,950 816,494 42,957 China's maximum freshwater withdrawal is esti- Russian Federation 4,498 263,426 30,599 mated at 1,100 billion cubic meters. At the national United States 2,478 264,659 9,413 China 2,812 292,917 2,292 level the balance between demand and supply could be Northern China 405 150,528 750 maintained. Striking this balance, however, will require Southern China 2,278 654,532 3,440 e investments in water supply and wastewater col- India 2,085 700,840 2,228 hug WorLd 41,022 301,988 7,176 lection and treatment facilities, as well as enormous Source: WRI 1996: SSB 1996. conservation efforts. Otherwise water shortages and 88 Clear Water, Blue Skies: China's Environment in the New Century TABLE 7.2 Southern China contains half the population but most water resources (percent) Water resources Per capita Region Share (cubic meters) CuLtivated Land Population TotaL 100.0 2,292 100.0 100.0 1. Northeastern rivers 6.9 1,625 19.8 9.8 2. Hai River 1.5 355 10.9 9.8 3. Huai/Shangdong rivers 3.4 515 14.9 15.4 4. YeLLow River 2.6 749 12.7 8.2 5. Yangtze River 34.2 2,280 24.0 34.8 6. Southern rivers 16.8 3,534 6.8 11.0 7. Southeastern rivers 9.2 2,892 3.4 7.4 8. Southwestern rivers 20.8 32,216 1.7 1.5 9. InLand rivers 4.6 5,126 5.8 2.1 Note: These data were compiled in the early 1980s. It is assumed that the patterns have not changed. The 1995 popuLation was used as the base for per capita water resource calcutations. Source: Wu 1989. pollution will hamper economic growth and impair the cation of these sources. A study of 270 cities with seri- quality of life. ous water shortages found that 136 have inadequate water resources, 110 have insufficient supply infra- Main causes of water shortages structure, and 74 are short of water because water pol- lution has contaminated sources of raw water (SPC Water shortages are a chronic problem in China. In 1995).2 1980 estimated national shortages were already nearly The rapid growth in demand is not entirely justified 39 billion cubic meters, assuming average annual rain- because water has not been allocated and used effi- fall (Wu 1989). A more recent estimate puts annual ciently. Agriculture, the main consumer of water, wastes shortages at about 60 billion cubic meters (Chen 1996). about 60 percent of the water passing through its old- Increased shortages are as much a supply-side problem fashioned ditch irrigation system. The expansion of rice as a demand-side one. planting in water-short northern regions has aggravated In much of northern China water extraction is near shortages (Lu 1993). Most industrial enterprises, many or exceeds sustainable levels. Underinvestment in water extracting their own water from rivers or the ground, supply infrastructure has caused water shortages in do not recycle water. (The national industrial water many urban areas that have adequate water resources. recycling rate is about 40 percent, compared with about Increasing pollution has rendered many raw water 70 percent in OECD countries.) Outdated production sources unsafe, requiring expensive and disruptive relo- technologies also contribute to excessive water con- TABLE 7.3 Water demand is rising sharply (biLlions of cubic meters) Municipal Industry Irrigation RuraL TotaL Region 1980 2000 1980 2000 1980 2000 1980 2000 1980 2000 TotaL 6.8 29.4 45.7 177.3 365.6 506.4 25.6 51.7 443.7 764.8 Northern China 3.2 11.1 17.9 69.3 132.2 171.7 9.5 22.0 162.8 274.1 Hai River Basin 1.1 3.0 4.9 19.0 30.9 36.2 1.5 3.7 38.4 61.9 Southern China 3.4 17.8 27.1 105.3 180.2 272.4 14.4 27.1 225.1 422.6 InLand rivers 0.2 0.5 0.7 2.7 53.2 62.3 1.7 2.6 55.8 68.1 Note: Data for 2000 are projections. Source: Wu 1989; World Bank staff estimates. Water: Preserving Scarce Resources 89 sumption. For example, coal-based ammonia manufac- prises and municipal sources have increased rapidly, turing consumes 500-1,000 tons of water per ton of underscoring the urgency of controlling these enterprises' ammonia, compared with 12 tons of water in the nat- pollution and treating municipal sewage. ural gas-based process. Chinese paper industries con- The relative pollution load is much greater in the sume 400-500 tons of water to produce one ton of water-short north because of its limited natural assimila- paper product, compared with 5-200 tons in OECD tive (dilution) capacity. In 1995 wastewater accounted countries (NEPA 1997). for about 4 percent of surface water runoff in the north Solving the problems of water supply and demand and 1 percent in the south, even though the south gener- will require concerted efforts in pricing, investment, ates 64 percent more wastewater. In the Hai River Basin regulation, and institutional reform. (water region 2) the wastewater-runoff ratio is a high 11 percent (figure 7.2). Overall, water pollution is much Water quality more severe in the north than in the south. Among regulated enterprises, in 1995 chemical oxy- Water quality is largely determined by pollutant dis- gen demand discharges were highest from paper (42 charges. As noted, most of China's bodies of water are percent of industrial discharges), food and beverage (28 becoming increasingly contaminated by these discharges. percent), and chemical (9 percent) industries. Petroleum pollutants were highest from chemical (29 percent of Pollutant discharges industrial discharges), metallurgical (21 percent), and machinery (13 percent) industries. The chemical indus- The main sources of China's water pollution are indus- try is also the largest source of mercury (42 percent of trial and municipal wastewater discharges, agricultural industrial discharges), arsenic (46 percent), cyanide (42 runoffs of chemical fertilizers, pesticides, and animal percent), and volatile phenol (28 percent) discharges. manure, and the leaching of solid waste. Water contamination from agricultural runoff is In 1995 regulated industries discharged 27 billion becoming more serious because of more intensive use of cubic meters of wastewater into open bodies of water chemical fertilizers and pesticides as well as a huge (figure 7.1). Municipal sources discharged 15 billion increase in livestock production. Over the past decade cubic meters. Although wastewater discharges from reg- chemical fertilizer applications doubled, reaching 36 ulated industries have stabilized since the early 1990s, million tons in 1995. Pesticide applications also dou- discharges from township and village industrial enter- bled, to 1 million tons. PWI&!E?4 I ~- - - Water poLLution is much more severe in Wastewater discharges are on the rise northern regions, 1995 Billions of cubic meters Wastewoter as a share of surface water runoff (percent) 50 Township and vilLage 12 industrial enterprises r 40 10 30 * 6 20 4 10 2 0 1981 1989 1995 0 1 2 3 4 5 6 7 8 9 Note: Wastewater discharges from township and village industriaL enterprises Woter region in 1981 are estimated based on the 1989-95 increase. Source: NEPA, China Environmental Yearbook 1996. Source: World Bank staff estimates. 90 Clear Water, Blue Skies: China's Environment in the New Century The leaching of solid waste, especially toxic waste, Urban sections of rivers are polluted mainly by also may be an important source of water contamina- organic matter, especially petroleum and perman- tion. China has accumulated an enormous amount of ganate. Other major pollution includes biological oxy- solid waste-industrial solid waste now totals more gen demand, ammonia nitrogen, volatile phenols, and than 6.6 billion tons, and is increasing by 180 million mercury (table 7.5). Grade 3 standards are the mini- tons a year. About 10 percent of industrial solid waste mum requirements for raw water sources for potable is hazardous or toxic. In 1995 regulated enterprises water systems. While most pollutant levels remained alone dumped 6.5 million tons of solid waste into water stable or fell slightly between 1991 and 1995, ammonia bodies (NEPA 1996). nitrogen increased by about 50 percent. This jump may Mobile sources such as barges and ships also con- be the result of increased discharges of untreated tribute to the contamination of rivers, lakes, and coastal municipal sewage, agricultural runoff of nitrogen fertil- waters through oil leaks and spills. Some 300,000 ves- izers, and discharges from fertilizer plants. sels discharge or leak more than 5,000 tons of oil into Major river systems in northern China are severely the Yangtze River each year. Wastewater discharges polluted, while those in the south (Yangtze and Pearl from these vessels into the Yangtze are estimated at 90 rivers) are relatively clean. Half of the cross-section million tons a year. Solid waste discharges are estimated water samples drawn from the Hai and Luan rivers do at 80,000 tons a year (MOT 1997). not meet grade 5 standards (figure 7.3). About 94 per- cent of the Daliao River is unsuitable as a raw water Ambient water quality source for potable water. By 1995 industrial water pol- lution in the Huai River Basin was nearly disaster level, The government has defined five categories of ambient prompting the central government to adopt drastic freshwater quality standards. Grades 1, 2, and 3 permit measures to control wastewater discharges along the direct human contact and use as raw water for potable river. water systems. Grade 4 is restricted to industrial use Lakes and reservoirs generally suffer from eutrophica- and recreational use other than swimming. Grade 5 is tion (abnormal growth of aquatic plant life caused by restricted to irrigation. Each grade specifies an acidity adverse biological enrichment) caused by increasing con- level (pH) and maximum concentrations for twenty- centrations of nitrogen and phosphorus. Among China's eight major pollutants. Exceeding the pH or any of the large freshwater lakes, Taihu, Chaohu, and Dianchi are concentration standards for a given grade disqualifies the most polluted. Five-year (1991-95) average nitrogen the measured water body from being designated as that levels in the three lakes were 2.5, 3.8, and 2.3 milligrams grade. a liter compared with the grade 5 standard of 2.0 mil- Urban bodies of water are among the most polluted ligrams a liter. Mercury concentrations are also high in because they receive large amounts of untreated indus- the three lakes. The five-year average mercury levels of trial and municipal wastewater. National monitoring of Chaohu and Dianchi exceed the grade 3 standard of 13S urban river sections found that 34 of 66 urban river 0.0001 milligrams a liter (NEPA 1996). sections in the north and 18 of 69 in the south are pol- Groundwater quality has been declining, especially luted beyond grade 5 standards, rendering them waste in the north, where groundwater is used intensively to sinks (table 7.4). None of the sections was rated grade 1. compensate for the lack of surface water. Pollution indi- TABLE 7.4 Many urban river sections do not even meet grade 5 standards, 1995 (percent) BeLow Region Grade 2 Grade 3 Grade 4 Grade 5 grade 5 North (66 observations) 4.6 3.0 18.2 22.7 51.5 South (69 observations) 17.4 18.8 29.0 8.7 26.1 NationaL (135 observations) 11.1 11.1 23.7 15.6 38.5 Source: NEPA 1997. Water: Preserving Scarce Resources 91 TABLE 7.5 In summary, the waters in China, with few exceptions, Urban river sections contain a variety of have seen much of their assimilative capacity exhausted pollutants, 1995 by growing pollution. Water quality in major water sys- tems has deteriorated since the early 1980s, with a sig- Urban river sections nificant portion falling below grade 3 (maps 5 and 6). Grade 3 with annual average standard concentrations Because China has managed to provide safe drinking (miLligrams exceeding grade 3 water to its large population, it has been able to avoid PoLLutant per Liter) standard (percent) an epidemic of waterborne diseases. But unless pollu- PetroLeum 0.05 705 anep Permanganate 6.0 51.1 tion control efforts are stepped up, the quality of Biological oxygen demand 4.0 44.7 China's rivers, lakes, groundwater, and coastal waters Ammonia nitrogen 1.0 44.4 will continue to deteriorate-with potentially serious VolatiLe phenoLs 0.005 37.3 Dissolved oxygen 5.0 31.9 long-term effects. Mercury 0.0001 18.8 The government recognizes the potentially dire con- Cadmium 0.005 7.7 sequence of inaction. Regulation has improved Source: NEPA 1997. markedly since the late 1980s and in recent years has stabilized pollution levels in some major rivers. A large- cators such as total hardness, degree of mineralization, scale cleanup effort for the Huai River Basin started in and nitrate concentration have increased. Pollutants 1995, and similar programs are being implemented or such as volatile phenols, cyanide, and nitrate are found planned for other heavily polluted major rivers and in groundwater, indicating the seepage of polluted sur- lakes. Through these and similar efforts, China hopes to face water. reverse the trend of deteriorating water quality by early Coastal waters have seen a rapid decline in quality. in the next century. Inorganic nitrogen pollution is serious and widespread, with half of 839 monitored samples exceeding the maxi- Water resource management mum limits (NEPA 1996).3 Major estuaries, bays, har- and pollution control regulation bors, and waters near medium-size and large cities are the most polluted. For example, in the Yangtze River Estuary, Both national and local institutions are responsible for Hangzhou Bay, and Zhoushan fishing ground areas inor- water resources and pollution control management. ganic nitrogen exceeds the maximum limit by 100 percent The Water Law and the Water Pollution Prevention and and phosphorus, by 87 percent (NEPA 1996). Control Law assign these responsibilities and provide the legislative underpinnings of China's water manage- _____ _ ment regulations. The water quaLity of China's seven main rivers varies considerably, 1995 National agendes Yangtze The Ministry of Water Resources is responsible for Pearl national water resources management, including improv- ing and developing ma'or rivers, planning water resources Yellow for urban water supplies, constructing basic rural irriga- Huai tion facilities, implementing soil and water conservation Songhua _ programs, supplying rural hydropower, and building and ~~U 1 E EtS1I ~~~~~managing medium-size and large reservoirs for flood con- Hai and Luan _ trol, irrigation, water supply, and rural hydropower. The Daiao _ ministry oversees seven river basin commissions that 0 20 40 60 80 100 coordinate regional water resource management activi- Percent ties. Provincial, municipal, and county governments Source: NEPA, China Environmental Yearbook 1996. maintain relatively autonomous water resource bureaus. 92 Clear Water, Blue Skies: China's Environment in the New Century The National Environmental Protection Agency is and managing irrigation, drainage, flood control charged with developing water pollution regulations to works, and rural hydropower. Bureaus at the municipal protect national water quality. These regulations are and county levels are responsible for constructing and enforced primarily by local environmental protection maintaining most canals, associated irrigation and bureaus. flood control structures, and medium-size reservoirs. The Ministry of Construction and its local counter- Townships and villages share responsibility for con- parts play a key role in planning and constructing structing and maintaining branch canals, ancillary municipal water systems, including sewage collection works, and small reservoirs. Staff of municipal and and treatment facilities. county water resource bureaus are organized into irri- Because of its large hydropower operations, the gation districts responsible for operating and maintain- Ministry of Electric Power is also involved in managing ing projects, planning and distributing water, and water resources. As with the other ministries, it also levying water charges. At the township and village level draws on its regional and local agencies. water users elect members to canal committees. These A few other national agencies and their local coun- committees handle on-farm water management under terparts are also involved with managing, developing, the direction of irrigation district staff. or protecting water resources. The Ministry of Water pollution control is essentially undertaken by Transportation develops and manages inland rivers and the provinces through municipal and county govern- coastal waters for navigational activities. The Ministry ments. The environmental protection bureaus at each of Geology explores groundwater resources. The level are responsible for implementing national and local Ministry of Public Health monitors drinking water water pollution regulations. Water pollution control quality and waterborne diseases. along the borders of a river basin has not been dealt with The National Coordination Group on Water effectively, however. Boundary-area water quality is mon- Resources was established to unify the management of itored by the water protection institutes of river basin water resources, enhance information exchange, and commissions. But the institutes are often underfunded facilitate coordination among agencies. The group is and do not have enforcement authority. The interim headed by the minister of water resources and has as arrangements for Huai River Basin are the first attempt to members the ministers of all the concerned ministries, as control water pollution on a basinwide level (box 7.1). well as representatives from the National Environmental Protection Agency, the State Planning Commission, and Urban water supply and wastewater treatment the Academy of Sciences. Several provinces and munici- palities have established similar water resource The Ministry of Construction regulates investment in committees. municipal water supply and wastewater treatment; major investments require ministry approval. River basin management Municipal water supply responsibilities are usually shared by city governments and enterprises. Enterprise The river basin commission is the principal administra- self-extraction of water, both for production and for tive, advisory, and consulting agency within a river employees, accounted for about half of the urban water basin. The commissions' focus is on flood, sediment, and supply in the early 1990s. drought control. In water-short basins the commissions Urban water supply has long been considered a basic often must resolve interprovincial water conflicts within government service. Water quotas have been the norm the basin and monitor water quality in coordination for demand management. Prices traditionally have not with relevant ministries and environmental protection reflected resource value and cost recovery. Self-extracted agencies. The commissions tend to be well staffed. For water charges are even lower (World Bank 1994). example, the Yellow River Conservancy Commission Reforms have been introduced to raise water prices and employs about 29,000 people throughout the basin. self-extraction fees and reduce the reliance on quotas. Provincial water resource bureaus are responsible for But subsidized water supply, even for commercial users, planning, surveying, designing, constructing, operating, is still common in Chinese cities. Cheap water has led to Water: Preserving Scarce Resources 93 widepred ieffciecy n wterutiizaion enourged mainly been targeted at state-owned enterprises, often industries to adopt water-intensive technologies, and the main sources of local pollution .4 The rapid growth generated inadequate funds for water investment. of township and village industrial enterprises has spread In the late 1980s 57 percent of municipal sewage was what used to be a relatively concentrated urban problem collected. The situation is unlikely to have improved to a much wider area. Many of the small tributaries of much given the explosive growth of cities and towns in main rivers are now heavily polluted by effluents from the 1990s. Municipal wastewater treatment is even these enterprises, wbich are largely unregulated. lower because of a lack of investment funds. In 1992 only 4.5 percent of municipal wastewater received any Problems with the current framework kind of treatment. Including treated industrial waste- water, the amount of treated urban wastewater rises to Although the water management system is elaborate, a about 17 percent (World Bank 1994). number of weaknesses must be addressed. The National Environmental Protection Agency and First, there is no legal framework for managing local environmental protection bureaus regulate and water resources along river basin boundaries. The enforce industrial water pollution control, which has Ministry of Water Resources has drafted a directive to 94 Clear Water, Blue Skies: China's Environment in the New Century address this shortcoming. This draft regulation should which should be corporatized and should have the be promulgated as soon as possible. authority for water abstraction, flood control, Second, except for flood control, there is no real-time drainage, effluent discharge into any part of the river management of water resources in the seven major river system, water quality maintenance (which requires a basins. Real-time management must be implemented basinwide water quality monitoring system), naviga- for catchments and subcatchments, especially in tion, coastal pollution, and water flow management. provinces where water is in short supply. These entities should also be responsible for collecting Third, there is little agency coordination on water water abstracting charges (similar to China's water projects in the seven major river basins.5 resource fee), including monitoring charges; flood con- Fourth, within provinces water resource planning is trol and drainage charges; and effluent charges and fines designed to maximize provincial benefits. In some cases for discharges into river waters. this results in suboptimal basin benefits. River basin * All cities and towns should have an integrated sew- commissions should have more authority in examining erage system for municipal and industrial wastewater. the provincial plans and fitting the plans into the over- Industries should have inplant treatment to remove all basin plan. toxic materials and heavy metals before discharging Fifth, water resource charges are extremely low. The into the municipal sewer system. No discharge to open river basin commissions cannot meet their operating watercourses from industry should be allowed. costs from these low charges. The commissions are not * Charges for water abstraction, water supply, sewage allowed to charge for regulating dams or for flood con- treatment, flood control, and drainage should be set trol or sediment control. Large sums of central govern- high enough to recover the full costs of these operations. ment money are used to subsidize the commissions' operations, and this is not financially sustainable. Costs and benefits of a clean Finally, the water pollution control responsibilities of and adequate water suppLy the river basin commissions only cover boundary areas. The commissions'water protection institutes have very lit- Limited water resources can be managed in ways that tle funding to monitor pollution even in the river sections ensure a safe and sufficient supply without imposing that they are authorized to monitor. The commissions enormous costs on the government. Two mechanisms should monitor all parts of the river basin, including the that can achieve this goal are higher water prices and tributaries. They also should collect and collate water wastewater treatment efforts. quality data from provincial, municipal, and county envi- ronmental protection bureaus to obtain a comprehensive Raising water prices understanding of river basin water quality. The separation of water resource management and Many cities in northern China are using pricing and pollution control and the fragmentation of national and technical assistance programs to reduce water shortages, local agencies are the main institutional problems of the manage demand, and reduce losses in water systems. water sector. The government is adopting policies to Although water prices have been low for all users, ameliorate these problems. provincial and state governments are encouraging price increases that reflect both cost recovery and shortage Water resource management and pollution control costs. In Taiyuan (Shanxi Province) the Price Bureau has in other countries announced that water prices will increase from an aver- age of 1.24 yuan a cubic meter to 4.94 yuan a cubic Most industrial countries have addressed water meter over the next five years in order to recover supply resource management and pollution control at the same costs. Many cities in Hebei Province have proposed an time. Several lessons can be learned from these coun- increase in the water tariff to recover supply costs. Water tries' experience: tariffs in these cities range from 0.5-0.9 yuan a cubic * Water resource management and water pollution meter (table 7.6), while the marginal cost of new water control should be vested in river basin authorities, projects is generally above 1.20 yuan a cubic meter Water: Preserving Scarce Resources 95 TABLE 7.6 Water tariffs are low in selected cities of Hebei Province, 1996 (yuan per cubic meter) User Handan Hengshui Langfang Qinhuangdao Shijiazhuang Tangshan ResidentiaL 0.50 0.45 0.40 0.40 0.65 0.50 Government 0.50 0.75 0.80 0.60 0.60 0.50 IndustraLa 0.80 1.00 1.00 0.80 1.20 0.70 Commercial 1.25 - 1.50 2.50 1.40 1.20 Average 0.63 0.85 0.76 0.73 0.90 0.56 a. The charge for seLf-extracted water is much lower. Source: World Bank staff estimates. The willingness to pay for urban water is estimated 1994). Raising wastewater treatment prices toward full to be about 1.8 yuan a cubic meter in some coastal cities cost recovery would generate badly needed funds for and about 4.3 yuan a cubic meter in the extremely expanding urban wastewater treatment facilities. In water-short city of Taiyuan, which is representative of water-short cities wastewater treatment would provide water-short cities in the Hai River Basin. The economic a cheaper water supply alternative to some industrial value of water across industries in Shanxi and through- users (box 7.3). out the Hai River Basin is about 24 yuan a cubic meter. Since irrigated agriculture is the main user of pol- Water shortages in Shanxi, China's coal mining base, luted water, uncontrolled wastewater discharges into are so severe that they threaten the growth of local rivers and lakes have significant consequences for agri- industries (box 7.2). culture. In general, agriculture cannot use irrigation water below grade 5 standards because it contains large Increasing wastewater treatment amounts of heavy metals and toxins. In 1993 about 8 percent of China's irrigated areas received water below Many urban areas will face increasing shortages of grade 5 standards, resulting in an estimated 1 million grades 1, 2, and 3 water if the quality and quantity of municipal and industrial wastewater treatment do not rise. Safe drinking water extraction is already a serious ~ problem along the major rivers in northern China. i Large water transfer projects require huge investments and take years to complete. In cities and towns where water shortages are caused primarily by water pollu i t tion, wastewater treatment provides basic health bene- ~ ~ ~ ~ ~ fits and contributes to industrial and agricultural l l m productivity. Increased water supply and water con- sumption will only lead to greater wastewater emis- ~waSiI sions if effluent treatment does not catch up. World Bank studies suggest that primar-y treatment ~bi ~ (which typically removes about 30 percent of biological -- ~ ~t~i iew oxygen demand and most heavy metals in wastewater) - i- would require a tariff of 0.50 yuan per cubic meter of < l water (1994 yuan) to recover costs. Adding secondary treatment (which removes 85-95 percent of biological oxygen demand) boosts the tariff to 0.77 yuan per cubic meter. Imposing this treatment charge on users would K g - increase the cost of using water by 50 percent or more N Ct but could be easily absorbed by most users (World Bank 96 Clear Water, Blue Skies: China's Environment in the New Century tons of lost grain production (NEPA 1997). Since irri- Policies for sustainable use gation peaks during the dry season, when natural dilu- of water resources tion capacity is at a minimum, industrial and municipal wastewater generally should be treated up to grade 5 China faces enormous challenges in resolving chronic quality for irrigation purposes, especially in northern water shortages in the north and controlling wide- regions. Current treatment fails to meet this require- spread water pollution. Policies to speed up investment ment by a substantial margin, with the chemical oxygen in water supply and wastewater treatment are a top pri- demand concentration of industrial discharges exceed- ority. Prices for freshwater supply and charges for efflu- ing the grade 5 standard by thirteen times. Lost grain ent treatment are increasing but much more needs to be production could increase significantly if treatment of done to achieve an economically sound and socially effi- industrial and municipal wastewater does not improve, cient tariff structure. National and local water institu- affecting China's food supply. tions are the key to successful water policies. A The effect of wastewater treatment on China's future basin-oriented management system with strong central grain production has been evaluated with a water and regional leadership and clearly defined local demand model covering China's nine major river responsibilities will be essential for integrated water basins. Treated wastewater is assumed to account for resource and pollution control management. about 30 percent of the total effluent volume by 2000, from less than 20 percent today. Thus the model Managing demand by raising tariffs and treatment fees allowed for projected treatment levels to vary from 30 to 75 percent. Net grain production under different Despite recent water pricing and management reforms, treatment levels are shown in figure 7.4. Increasing China's water supply and wastewater treatment ser- wastewater treatment from 30 to 50 percent would vices are generally underpriced, leading to excess increase grain production by about 24 million tons by demand, high pollution, and inadequate funds to meet 2020-enough to support 65 million people (at 1996 investment needs. International experience has shown per capita gross grain consumption levels). The addi- that water users are sensitive to water prices. Among tional gain is much smaller if the treatment level is fur- households the price elasticity of water demand varies ther increased from 50 to 75 percent-about 7 million between -0.3 and -0.6, meaning that a 1 percent tons. increase in water prices reduces demand by 0.3 to 0.6 percent. In the industrial sector the range is -0.45 to BOX 7.3 Grain output wilt rise aLong with wastewater treatment Mlillions of tons Output with 75 percent Output with 50tramn -~~~~~~~~ ~~~percent treatment ~~~ ~~~ 4 5~~~~~00 ! Ž#_Output with 30 percent 4 ~~~~~~~~~treatment 400 2000 2005 2010 2015 2020 Source: World Bank staff estimates. Water: Preserving Scarce Resources 97 -1.37. And for irrigation the elasticities fall between in China, and should be raised substantially to induce -0.37 and -1.50 (World Bank 1995). Higher prices greater abatement. Controlling water pollution from would encourage large water consumers in industry small industrial enterprises will be difficult. In the short and agriculture to adopt more efficient water use prac- term it will be necessary to close highly polluting small tices and technologies. factories. In the long term, however, collective treat- Water must be priced to reflect its scarcity and eco- ment of these enterprises' discharges and municipal or nomic costs. The Ministry of Water Resources recently small-town wastewater is a viable solution. recommended freeing water prices, starting with all The absence of adequate planning undermines water new water projects. More aggressive local governments resources management. Most Chinese cities do not have have already started to allow fully self-financed water watershed management master plans that integrate projects to set their own prices. Economic water pricing water supply, demand management, and pollution pre- will enhance demand management and provide the vention and control. Water supply investment is gener- financial resources water companies need to increase ally based on a needs approach, without much maintenance and service quality and expand system consideration of the role of water prices and their effect coverage. on consumption. China's cities and regions must Groundwater and surface water must be protected improve their planning capacities by adopting new from overexploitation. Since half of the urban water methods and taking a comprehensive approach to supply is used by enterprises, fees for raw water extrac- watershed management. tion should be increased to a level that equates self-sup- Improving irrigation efficiency should be the top pri- ply costs with municipal supply costs. Water demand ority of demand management for agricultural water management that uses economic pricing of water use, and could be accelerated with government techni- extraction and supply would reduce investment needs, cal assistance programs that disseminate water-saving free enterprises from water quotas, and allow cities to irrigation technologies. reallocate much of the urban infrastructure budget that currently finances water investments. Ensuring supply by increasing investment To prevent further deterioration in water quality, cities and towns must increase municipal wastewater Only by increasing investment can China ensure a reli- treatment levels at a pace at least equal to the growth in able water supply and improve water quality. To relieve effluent discharges. Wastewater treatment plants are the the severe water shortages in northern China, it may be only effective means of dealing with the growing necessary to invest in south-north water transfer pro- domestic and commercial wastewater loads in urban jects. But such projects are no substitute for using water areas. General government revenues will not be nearly resources as efficiently as possible, through conserva- enough to meet the required investments in treatment. tion, recycling, and wastewater treatment. All cities will Cities must raise sewerage fees for domestic, commer- need capital to strengthen water supply and sanitation cial, and enterprise discharges to levels that recover the services. These investments will reduce the economic costs of collection and treatment. While imposing user losses due to water shortages and lower the social costs fees may be politically difficult, city leaders must recog- of water pollution. The government cannot shoulder all nize that the costs ultimately will be paid directly or of the investment costs. Proper pricing policies and indirectly, and that relying on indirect payments leads environmental regulation can help realize the potential to excess effluent discharges and makes it impossible to for private investment in the sector. finance treatment needs. The result is more pollution A major effort must be made to install sewerage in all and higher social costs. cities to ensure that all waste (municipal and industrial) Controlling discharges at their source is crucial. is collected. Treatment plants should also be built. Enterprises will not have an incentive to reduce pollu- Financing for collection and treatment may have to be tion unless it becomes an internal cost through effluent obtained by issuing bonds or by attracting private or levies, violation fines, and enforcement monitoring. public investments. Cities and towns in Britain and Levies and fines for water pollution are universally low France initially received loans from the central govern- 98 Clear Water, Blue Skies: China's Environment in the New Century ment for such undertakings; over time the companies The river basin commissions should establish a water generated enough cash to continue the programs. In the quality monitoring system for the entire basin (includ- end these water and sewerage investments became ing the tributaries) for daily, weekly, and monthly mon- financially attractive to private companies. itoring. For regulatory purposes, the National China's central government should ensure that Environmental Protection Agency and local environ- within ten years all medium-size and large cities provide mental protection bureaus should set up an indepen- primary treatment (with provisions to expand to sec- dent primary network for monthly or random ondary) for any discharge that lowers water quality monitoring to verify the measurements undertaken by below grade 5 standards. All cities should be required the river basin commissions. to develop sewerage systems that facilitate the later addition of treatment works and that provide immedi- Local governments. Cities and towns should inte- ate treatment if water does not meet standards for irri- grate wastewater collection and treatment systems for gation within 3 kilometers of wastewater discharge municipal and industrial waste. In the long term dis- points or standards for domestic raw water at the near- charges by any point-source polluter into any open body est downstream community extraction point. The costs of water should not be permitted. All point-source dis- of investing in urban wastewater collection and treat- charges should be collected through municipal sewerage ment will be offset by a decrease in water supply invest- and treated. The unit cost of treatment for industries ment resulting from better water demand management using an integrated system will drop to 1-5 percent of (World Bank 1994). the cost of self-treatment because of the system's huge economies of scale. Pretreatment for industrial waste- Reforming institutions by integrating resource water should be required to remove toxins and heavy management and pollution control metals before the water is discharged into sewers. Sewer discharge standards should be developed and imple- Institutional reform should aim to facilitate the integra- mented. Wastewater charges for industry discharging tion of water resource management and pollution con- into sewers should be based on volumetric charges for trol on a basinwide basis. This in turn will require primary and secondary treatment, chemical oxygen stronger institutions for basin management. demand and biological oxygen demand levels and loads, and suspended solids and the cost of sludge disposal. River basin commissions. The seven river basin com- Wastewater collection and treatment should be the missions should be corporatized and become legally responsibility of one agency in the city government. responsible for the following functions in the basin: This sewerage agency should be corporatized and made * Water abstraction. financially autonomous. Sewerage charges should be * Flood control. included in water bills and transferred to the sewerage * Drainage. agency. * Navigation. * Hydropower discharges. The National Environmental Protection Agency and * Water flow maintenance. local environmental protection bureaus. The roles of * Water quality maintenance of all main and tributary the National Environmental Protection Agency and the rivers. environmental protection bureaus at different levels of * Coastal pollution. government should be expanded to regulate and The commissions should be able to set water tariffs enforce all environmental standards. Both entities for each function so that they can recover their opera- should: tional costs and develop new projects to control water * Elaborate and supplement the regulatory framework flows in the river basin. A portion of the charges for through legislation that establishes standards for water effluent control and water abstraction should be chan- supply and sewerage services, sets out criteria for classi- neled to cities and industry for water pollution fying river water quality, and imposes requirements to control. protect against pollution. Water: Preserving Scarce Resources 99 * Approve codes in various aspects of conservation, issues will improve the efficiency and effectiveness of recreation, ecology, and so on. water management. * Ensure that water and sewerage companies under- take work to the standards required and, if these stan- N otes dards are continuously violated, prosecute any water and sewerage company. 1. Water resources can be divided into surface water and ground- water. But except for deep deposits (sometimes called fossiL water), * Appoint technical assessors of water quality in river groundwater occurs only as a result of seepage of surface water runoff. or coastal areas. 2. These number add up to more than 270 because some cities suf- * Oversee waste disposal authorities, especially for fer from multipLe probLems. 3. The National Environmental Protection Agency classifies three toxic waste. grades of seawater quality. Marine nature reserves must obtain grade * Provide independent advice at different levels on pol- 1 quality, grade 2 seawater permits swimming, and grade 3 permits lution control practices. industrial uses. 4. The National EnvironmentaL Protection Agency regulates waste- * Approve, inspect, and oversee potentially polluting water discharges through three cLasses of discharge standards. Class processes and those that endanger the safety of workers. 1 standards apply to discharges into key protected water bodies, including drinking water sources, general fishery areas, and important scenic areas. Class 2 standards apply to discharges into generally pro- Ministry of Water Resources. The Ministry of Water tected water bodies, incLuding general industrial water sources and Resources's role should be expanded to: irrigation water sources. Class 3 standards appLy to discharges receiv- * Oversee river basin developments by the basin ing secondary wastewater treatment. Despite the reported increase in treatment, chemicaL oxygen demand concentrations in wastewater dis- authorities. charged by reguLated enterprises rose from 250 miLLigrams a Liter in * Approve all water abstraction charges. 1986 to about 350 milligrams a liter in 1995, compared with the class * Prepare water dispatching systems for all states of 2 standard of 100 milLigrams a liter. Wastewater discharged by town- ship and viLlage industrial enterprises is believed to be significantly river water (flood, ice flood, drought, sediment) and more poLLuted because of the near-absence of treatment. have complete authority over all river regulation 5. Projects on the main stem of the river basin are operated by (including discharges from major hydropower stations). individuaL provinces or the relevant ministries. The operation of a major power dam follows the load dispatch requirements of the * Develop water protection zones and ensure that regional electric grid. Although some arrangements have been made these zones receive minimum supplies. to ensure that flows are maintained in certain months of the year, these cannot be changed. There are no real-time operating rules, which are under the control of the river basin commissions. For example, the Ministry of Construction. The Ministry of Yellow River Conservancy Commission has an explicit water allocation Construction's role should be expanded to: for each province, but there is no controL over the abstraction rates * Carry out technical audits of water and sewerage by the provinces. Hence the YeLLow River has been drying up for as in cities. long as 130 days of the year for as much as 600 kilometers of the companies ln ahes. lower-reach sections. The basin commission's power has been Limited * Investigate incidents that adversely affect drinking to flood and sediment controt for the lower reach of the basin. It is water. not even authorized to develop a water dispatching system for the * Provide technical and scientific advice on drinking whole basin. water policy. References * Identify hazards relating to drinking water and initi- ate research. Chen, Xiaojun. 1996. Personal communication. Senior * Provide guidance on analytical methods used in Economist, Ministry of Water Resources, Beijing. monitoring drinking water. Lu, Dadao. 1993. "An Important Solution to the Problem of Water Shortage in North China." Chinese Environment and * Review all major plans for water supples and assess Development 4(3). the chemicals and materials used in connection with MOT (Ministry of Transportation). 1997. "Mobile Pollution these supplies. Sources on Chinese Rivers." Background paper submitted to the World Bank. Beijing. NEPA (National Environmental Protection Agency). 1996. A role for the public. Water management and pollu- Report on the State of the Environment of China 1995. tion control are public services that require public sup- Beijing. .1997. "China's Water Quantiry and Quality Issues." port and public participation. Public involvement in the Background paper submitted to the World Bank. Beijing. legislative and regulatory processes affecting water . Various years. China Environmental Yearbook. Beijing. 100 Clear Water, Blue Skies: China's Environment in the New Century Rui, Haifeng. 1997. Personal communication. China Academy of Regional Office, Washington, D.C. Sciences, Beijing. . 1995. "Water Conservation and Reallocation: Best Practice SPC (State Planning Commission). 1995. Report on China's Cases in Improving Economic Efficiency and Environmental Population, Resources and Environment. Beijing: China Quality." In Water and Sanitation Currents. UNDP-World Bank Environmental Sciences Press. Water and Sanitation Program. Washington, D.C. SSB (State Statistical Bureau). 1996. China Statistical Yearbook .1997. "ChinaWanjiazhaiWaterTransfer Project." Report 1996. Beijing. 15999-CHA. Washington, D.C. World Bank. 1993. "China Yellow River Basin Investment WRI (World Resources Institute). 1996. World Resources, Planning Study." Report 11146-CHA. East Asia and Pacific 1996-97. Washington, D.C. Regional Office, Washington, DC. Wu, Yiao, ed. 1989. Water Resources Utilization in China. 1994. "China Urban Environmental Service Beijing: Ministry of Water Utilization and Power Management." Report 13073-CHA. East Asia and Pacific Generation. Water: Preserving Scarce Resources 101 Policies: Securing 7 Higher Environmental Living Standards he spread of markets in China has driven economic growth, leading to higher incomes, lower poverty, and improvements in nearly all aspects of Chinese life. But growth has also increased the pressures on China's environment. Awareness of these problems triggered new environ- mental protection efforts starting in the late 1970s. Trickles of policy change have since become a steady stream of new initiatives, policies, and regulations. China has enacted more than a dozen significant pieces of legis- lation to safeguard the environment, and each year the government has invested more resources to protect the environment. These efforts, together with economic reforms, have reduced the pollution intensity of Chinese production. Air and water quality, though still far below Chinese aspirations, have been held in check despite the unrelenting pressures of an expanding economy. 001- a E 5 - 0 ;t ~~~~~~~~~~~~~~~~~~~~~~103 But as Premier Li Peng noted in his speech to the Addressing these challenges will require a new strat- Fourth National Environmental Conference in 1996, egy for environmental protection that reflects China's much remains to be done. Air and water pollution lev- increased market orientation, dynamic growth pat- els in China are among the highest in the world and, terns, and extensive administrative capacity. These new according to World Bank estimates, cause $54 billion a policies must: year-about 8 percent of GDP-in damages to human * Harness the market to work for the environment, health and lost agricultural productivity.1 Yet the same not against it. This will require adjusting prices to cover rapid growth that has added to China's environmental economic costs and incorporating social costs through woes in the past provides the opportunity to boost envi- pollution taxes. ronmental living standards in the future. With a bit * Harness growth for the environment. This will more investment (see chapter 3), China can "grow require creating incentives to elicit investments-from greener." What should be the priorities, and what poli- both the commercial state and nonstate sectors and cies will elicit the required investments? from the public sector-with the largest environmental benefits for future generations. Establishing priorities for policy . Harness the government's administrative capabilities to the cause of the environment. This will require pro- Estimates of pollution-related damages to health, viding better regulations but with fewer investment worker productivity, and agriculture (presented in controls at the national level as well as ensuring better chapter 2 and projected as future scenarios in chapter 3) planning and pollution enforcement in urban airsheds point to several environmental priorities: and regional water basins. * Among the various types of pollution, urban air pol- lution causes the most damage-$33 billion a year, Harnessing the market: mostly through its effects on human health. Without Making polluters pay assertive policies, future emission reductions from large point sources, such as power plants, could be offset by Unregulated market forces are not much better than a worsening emissions from small point sources. command economy in protecting the environment. In Increasing automobile use will also have an adverse its legislation the government has recognized that pol- effect on urban environmental quality. luters, rather than victims, should pay for pollution. * Severe indoor air pollution from burning coal and Yet the full potential of this principle has not been real- biomass causes about $10 billion a year in health and ized. mortality damages. * The costs of water pollution, difficult to quantify and The prerequisite: Economic reform probably underestimated in this report, are at least $4 billion a year. These costs will grow as water shortages Harnessing the market requires, first, accelerating eco- become more acute, municipal waste increases with nomic reform of state enterprises, the pricing system, urbanization, and agriculture practices (particularly and international trade. Government efforts to increase fertilizer and pesticide use) continue to generate runoff competition (especially from nonstate firms), improve pollution. price signals, and expand international trade have made * Acid rain, responsible for $5 billion a year in dam- major contributions to lower pollution intensities over ages, is also likely to worsen because of China's depen- the past decade (chapter 5). Yet other, related reforms dence on coal. remain: * The government's decision to phase out lead from * Reforming state enterprises would make them more gasoline is important. Now it must be swiftly imple- responsive to market signals, including pollution taxes mented to prevent irreversible damage to the intelli- and regulatory penalties; it is nearly impossible to make gence and neurological development of Chinese polluters pay when enterprises can fund their pollution children and save costs of neonatal care, medical treat- taxes or levies through implicit subsidies from the trea- ment, compensatory education, and lower productivity. sury or financial system. 104 Clear Water, Blue Skies: China's Environment in the New Century * Expanding the realm of competitively determined China also allocates its domestic crude oil below prices, including the price of investment capital, would international prices. To develop alternatives to coal, the channel resources to efficient firms; firms that have priv- government should establish a transparent pricing ileged, noncompetitive access to capital waste resources framework for oil and gas and ease entry to all parts of at a high cost to the environment. the oil and gas industry for domestic and foreign * Extending trade reform would end pockets of pro- investors alike. tection for industries and put pressure on inefficient Pricing to cover the economic costs of production will industries, many of which are pollution-intensive. reinforce current efforts to encourage energy conserva- * Deepening domestic capital markets and establishing tion. Efficient pricing will induce more cost-effective a framework for private participation in infrastructure conservation in several activities: cogenerating steam would open up new ways for municipalities to finance and electricity, renovating furnaces and kilns, managing their investments in water supply and sanitation. These energy systems, and recovering waste heat, combustible measures would also facilitate investment in energy-effi- gas, and materials from industrial processes. cient equipment that embodies abatement technology. Water pricing will soon become even more of a Since these reforms touch every aspect of Chinese major policy issue. Although one of its most precious economic life, they will take time to complete. resources, China wastes a lot of water by failing to Nonetheless, accelerating the pace of reform will reduce charge full value for water supply and wastewater treat- the cost of cleanup and rapidly improve China's envi- ment services. China also lacks the frequent monitoring ronmental living standards. and substantially higher fines and other controls that are needed to enforce industrial wastewater discharge Pricing to cover costs standards. Although not always possible for political and practical reasons, China should continue adjusting Despite the fact that China is resource-poor, it prices its sewerage user fees toward full cost recovery. Targeted energy and water like the resource-rich United States. subsidies can be carefully designed and provided to Over the past three years the government has raised and low-income users. partly deregulated coal prices, and in most areas coal prices now cover economic costs. In many places, how- Taxing environmental externalities ever, market prices do not fully reflect the sulfur and ash content of coal. Markets are distorted because the plan- Pollution taxes and charges are another way to harness ning system continues to allocate a sizable portion of the market to protect the environment (box 8.1). The coal to certain activities and firms; because the coal government should consider taxing coal in a way that transport system is overburdened, antiquated, and sad- reflects its enormous social costs. If health damages dled with anticompetitive regulations; and because were included in its price, coal in Beijing would cost 100 many small, unregulated mines, unburdened by the percent more (see chapter 4). A tax based on sulfur and costs of safety and environmental regulations and ash content would deter the use of poor-quality coal worker benefits, produce low-quality coal that under- and make competing fuels more economic. Though it cuts the price of quality coal. Pricing reform and reform might be preferable to tax emissions rather than inputs, of the production and distribution system must go hand the enormous number of small polluters makes collec- in hand. tion difficult. A quality-based coal tax, levied at mines Natural gas remains heavily regulated. This is done for large producers and distribution points for small to provide supplies to the fertilizer industry at below- producers, would create incentives for users to use market prices. Low prices do not, however, provide cleaner or washed coal and for producers to improve incentives for state-owned, much less private, gas sup- coal quality. Such a tax could be announced and phased pliers to enter the market. Moreover, households are in over time so that current investment decisions-in willing to pay more for this clean heating and cooking boilers, space heating, and other coal-consuming equip- fuel. Deregulation and market-based pricing are needed ment-can anticipate future prices and invest in clean to substitute for household uses of coal. technology accordingly. Policies: Securing Higher Environmental Living Standards 105 China does have pollution levies, but they are poorly the pollutant among their emissions that exceeds the designed and inadequately enforced. In fact, levies are discharge standard by the greatest amount, and then so low they do not even encourage firms to make cost- only for the amount over the standard. For both air and effective investments in abatement. As a result the over- water emissions the government should consider modi- all abatement rate is far below the optimal level. Data fying the levy to impose charges on all emissions of a for Zhengzhou indicate that reducing sulfur dioxide few harmful pollutants (such as particulates and sulfur emissions by 100 tons costs about $170 and produces dioxide for air and chemical oxygen demand and bio- benefits (measured in avoided mortality) of about logical oxygen demand for water). To increase effec- $5,000-an implicit social rate of return to abatement tiveness, the central government should give local of about 2,800 percent. At such a low abatement cost governments the authority to raise pollution levies to level, failure to enforce control implicitly values a citi- achieve local pollution control goals. Local govern- zen's life at less than $300 at the margin (see chapter 5). ments should also be able to decide how to use the levy Still, even today's low levies are encouraging some funds in the context of local conditions. The central firms to abate. This responsiveness suggests that by government should shift its attention to monitoring and 2020 higher levies could reduce particulate emissions ensuring local compliance with national environmental and chemical oxygen demand pollution from regulated management requirements. Levies on coal-related air industries to less than 20 percent of current levels. pollution should be coordinated with any externality The government's recent proposal for a tenfold tax to avoid double taxation. increase in the air pollution levy is especially important The power industry is one large point source whose for controlling emissions from medium-size and large emissions can and should be taxed. A fully enforced air industrial sources. Such a levy would significantly pollution levy would create an incentive for power com- improve air and water quality in China's cities. panies to invest in larger (more than 200 megawatts), Changing the levy system's design also would more efficient plants. Some 40 percent of the new increase its effectiveness. Today firms are taxed only for capacity added to the power grid in the past five years 106 Clear Water, Blue Skies: China's Environment in the New Century was in small plants (less than 200 megawatts), which Harnessing growth: Investments for a have high emissions per unit of electricity. Since these brighter future plants will be in operation for at least two more decades, they lock China into a high-pollution growth Economic growth also should be harnessed to work for path. Taxing emissions up to the value of damages the environment, primarily through the cleaner invest- would send the right signal for future investment. These ments that better pricing brings about. taxes would be especially welcome in cities such as Correct pricing creates incentives for nonstate and Chongqing, where sulfur dioxide emissions are so high commercial state firms to invest in more energy-efficient they are having measurable effects on surrounding agri- technology and abatement. China's industrial boilers culture. are only 80 percent as efficient as those in OECD coun- Although China's gasoline prices cover production tries, its steelmaking consumes twice as much energy and import costs, they are low relative to most East per unit of output as in.OECD countries, its fans and Asian and European countries, which use gasoline taxes pumps are only 85 percent as efficient as advanced to pay for roads and reduce environmental damage. international equipment, and its electric motors con- China's low gasoline prices damage the environment in sume 5-10 percent more electricity to generate the same two ways. First, automobile-based urban transport power (chapter 4). Raising China's industry to interna- consumes more fuel per person-kilometer than alterna- tional standards will create the opportunity for envi- tive travel modes. Second, traffic congestion drives up ronmentally friendly investment. emissions because road construction cannot keep up Public investments are also important for harnessing with the number of automobiles. Gasoline prices growth for the environment. Small point-source emis- should be set at levels that, in conjunction with other sions impose the highest costs on human health. About traffic regulations, discourage car use for urban trans- two-thirds of China's urban population still relies on portation and encourage the use of public transporta- coal for cooking. Gas fuels are two to five times more tion. Wider use of less-polluting travel modes would energy efficient than coal and can drastically reduce reduce fuel consumption and smog and take pressure emissions. Thus rapid gasification of household fuel off crowded roadways, allowing everyone to travel consumption is a high-priority environmental policy. faster. Similarly, sales taxes and annual licensing fees on Residential consumers prefer gas, so investment in automobiles should reflect the cost of the huge public urban gas supply could be quite profitable. This is an investments in roads and traffic management needed to activity where public investments could be supple- support automobiles. mented with private and even foreign resources. Harnessing market forces has two important addi- Finally, to combat rural indoor pollution, the gov- tional advantages. First, it better allocates financial ernment should invest in education campaigns, increase responsibilities between consumers and commercial access to efficient stoves, and supply cleaner coal and producers on the one hand and the government on the coal substitutes for cooking and heating. other. By using prices, environmental taxes, and levies, Several investments require government coordina- the government ensures that polluters and their cus- tion; others require the government to absorb risks that tomers pay for environmental maintenance. If the gov- private investors will not accept. A top priority is devel- ernment were to raise the levy on a redesigned tax base oping a state-of-the-art, clean coal-burning industrial by tenfold and enforce it, tax revenues could reach 37 boiler. Since current technology has not yet been billion yuan a year ($4.5 billion), or 0.6 percent of GDP adapted to Chinese materials and scales, the government in 1995. Second, market-based instruments allow the should play an active role in supporting the boiler's government to concentrate on monitoring and enforce- development. Other investments are riskier but might ment rather than on deciding the best abatement invest- have high payoffs. Some renewable energy technologies ment for a given plant or industry. Thus the fall into this category. For example, photovoltaics have government's administrative resources are focused on the potential to become cost-effective, superior substi- tax policy and enforcement rather than on the invest- tutes for coal. Because they are risky, the private sector ment decisions of businesses. rarely invests in renewable energy sources, even if prices Policies: Securing Higher Environmental Living Standards 107 internalize all environmental externalities. Thus the gov- cent of GDP through 2020 would reduce air and water ernment should consider investing in pilot projects to damages to nearly 2 percent of GDP, an environmental ensure experimentation and adaptation to Chinese cir- standard of living comparable to that in the United cumstances. Renewable energy sources may become States today. important-and eventually profitable-as global con- These investments have an economic rate of return cerns about greenhouse gas emissions heat up. that surpasses any conceivable threshold for public In transportation, the government must elicit invest- investment. Investing 100 yuan in pollution abatement ments in public transit to ease congestion and smog. The under the medium-cost investment scenario saves 300 government does not need to actually finance and make yuan in avoided pollution damages relative to the busi- the investments, but it must create a regulatory frame- ness as usual scenario (see chapter 3). If the effects of work that ensures nonstate investments are made. Prices future income growth are considered, the return on pol- must incorporate externalities (through automobile and lution control investments is even higher. gasoline taxes) and be accompanied by expanded public One of the advantages of shifting to a market-based transit alternatives to cars. Otherwise the pricing mea- environmental strategy is that the government would sures will simply shackle Chinese consumers with the not bear the full cost of these investments. Under the worst of both worlds-traffic jams and high costs. By business as usual scenario the government (mainly 2010 the costs of a public transit-based system are pro- municipalities) would shoulder 84 percent of invest- jected to be 17 percent less than an automobile-based ment costs. The rest would come from the nonstate sec- system-not even counting environmental benefits. tor and, to a lesser extent, the state commercial sector Public investments in water will be among China's (for example, state industrial enterprises). But with most important and most costly. Investing in pollution reforms that widen the scope for nonstate investment in abatement-whether for industrial or municipal waste infrastructure and policies that encourage investment in treatment-is much cheaper than investing in huge industrial pollution abatement, as in the medium-cost water transfer projects. Even so, projections suggest investment scenario, the government's share of environ- that even if China creates incentives for firms to abate mental investment would be about 66 percent. Under cost-effectively, water shortages will be so severe that it the high investment scenario the government's share will have to invest in large-scale south-north water would be 59 percent (table 8.1). transfer projects (chapter 7). Given the rapidly increasing pollution effects of Harnessing administrative capabilities: municipal wastewater discharges and the near-absence Improving oversight, enforcing of treatment, Chinese cities should move fast to invest standards in wastewater collection and treatment facilities. Pricing wastewater discharge and treatment to allow China's administrative and organizational capabilities for full cost recovery would attract private investment can be used to improve environmental living standards. and free public funds for other urban investment needs. Even if markets are harnessed for the environment, and The investments needed to achieve major improve- even if the government elicits a steady stream of envi- ments in environmental quality are not enormous. ronmentally friendly private and public investments, Increasing the amount of pollution control investment the government still must regulate and plan with an eye from the 0.5 percent of GDP assumed in the business as to the environmental future. At the national level this usual scenario to about 1 percent of GDP (the medium- often means fewer investment controls but better regu- cost investment scenario) would lower projected lations and standards. At the local level it means better health-related pollution costs from 13 percent of GDP urban planning and better enforcement of regulations to 4 percent in 2020. About 40 percent of these invest- and standards. ments, mainly in power and industry, would protect air- Environmental management at all levels of govern- sheds. Investments in water, some 60 percent of the ment should be strengthened. This will require coordi- total, would mostly be for municipal wastewater and nating decisionmaking at the national level to industrial discharge abatement. Investments of 2 per- implement, monitor, and ensure policy consistency 108 Clear Water, Blue Skies: China's Environment in the New Century ical frontier of cleanliness are essential for reducing these TABLEnvironmentaLinvestmentshaveenormousemissions. Similarly, prohibitions on two-stroke motor- EnvironmentaL investments have enormouscylsmao returns, 1995-2000 cycles, major sources of pollution in southern cities, are a priority. Energy efficiency standards should be set for Investment scenario products that are likely to become major drains on Business as usua[ energy, such as automobile engines, air conditioners, Cost (percentage of GDP) 0.5 State share (percent) 84 refrigerators, and other major consumer appliances. Medium-cost investment Standards introduced today can markedly lower Cost (percentage of GDP) 1.0 future energy consumption in residential and commer- State share (percent) 66 Economic returna 3 to 1 cial buildings. Given the massive building program High investment planned over the next twenty-five years, China has a Cost (percentage of GDP) 2.0 State share (percent) 59 unique opportunity to improve the energy efficiency of a. Present value of accumulated benefits (damage avoided) relative to present value its buildings. Priority should be given to efficient light- of annualized pollution controL costs. Source: World Bank staff estimates. ing, improved centralized heating, and implementation and enforcement of energy-efficient building standards. among different levels of government. It will require Better regulation, combined with market-based committing more tax resources at all levels-in strategy, instruments, may obviate the need for direct investment policymaking, and scientific research at the national controls at the center. In the near term investment con- level and in monitoring and enforcement at the regional trols may be needed to maintain macroeconomic stabil- and local levels. All levels must help disseminate best ity, but the current investment system inadvertently practices and environmental education and publicize encourages the building of suboptimal-scale power information about environmental quality. plants. The investment approval process allows provinces to invest up to $30 million without securing National policies, regulations, and standards central government approval. Since getting approval often entails delays, power-starved provinces find it eas- One of the government's most important recent deci- ier to install small units than large ones. Phasing out the sions is to phase out leaded gasoline by 2000. In investment approval system and strictly enforcing emis- Shanghai, for example, more than half the children are sion taxes would discourage the construction of small estimated to suffer from blood-lead levels in excess of power plants and create incentives to build more effi- 10 micrograms per deciliter, the definition of blood poi- cient and less polluting plants. soning. It takes about ten years to completely eliminate lead from the fuel supply system. Thus rapid imple- Regional regulation mentation must be a top priority. Another priority is incorporating township and vil- River basin management is a pressing concern. As lage industrial enterprises into the regulatory frame- things stand, divided jurisdictions across municipalities work. Most of these enterprises are ignored in and provinces have not worked to the environment's environmental regulation, and in certain industries- advantage. An integrated river basin management sys- coking, small metallurgy, coal mining-they have tem under strong leadership is needed to implement become a major source of pollution. Pollution could be water policies ranging from extraction rights to pollu- better controlled if local zoning restricted these enter- tion abatement. prises to rural industrial parks where monitoring and Controlling sulfur emissions is also an important control are feasible. regional issue. The National Air Pollution Prevention The government could also set standards that incor- and Control Law of 1995 includes abatement plans for porate pollution abatement and energy savings. At pre- regions with high levels of sulfur dioxide and acid rain. sent cars operating in Beijing are about ten times as Sulfur removal can be costly. It is important that regu- polluting as cars in the United States. Tighter standards lation allow plants to choose among abatement mea- that push the automobile industry toward the technolog- sures within the limits of regional control targets. Policies: Securing Higher Environmental Living Standards 109 An alternative to installing sulfur control equipment the automobile with high urban densities and low levels in all of China's power plants is to concentrate on area of car ownership. These two features create the oppor- sources in regions with high acid rain. A medium-cost tunity to develop cities in ways that incorporate efficient investment plan could achieve similar environmental and environmentally sustainable transportation. Well- goals-protecting human health, forests, and agricul- organized cities with good public transit can have half as ture-at much lower cost, even while allowing greater many automobiles clogging their streets as poorly man- emissions than the current target. This strategy would aged cities with weak public transit. To achieve this goal, focus on cleaning coal and applying medium-cost tech- transportation planning will have to avail itself of the nology to new power plants and industrial boilers and, full range of available tools-from time-of-day tolls to where feasible, using low-sulfur fuels. This targeted, restricted access to downtown areas, from well-con- medium-technology strategy promises the largest ceived parking requirements to better land use planning. return to investments. Since the number of automobiles is growing at twice the rate of urban road systems and average driving Urban planning speeds are slowing, only better planning can channel urban transportation into efficient growth patterns. New regulations at the national and regional levels will Planning should be linked to planned relocation of only be fully effective if they are accompanied by urban industries from downtown areas to industrial changes in municipal planning. Urban land use planning parks, away from population concentrations. This is one of China's greatest long-term opportunities. move would do much to reduce the exposure of Chinese China today is unique in beginning its relationship with people to damaging air pollution. Curitiba, Brazil, for 110 Clear water, Blue Skies China's Environment in the New Century example, began effective urban planning two decades FIGE - -- ago, and today gasoline consumption is 30 percent less C p thanin cmpaableBrazlia cte. China's particulate emissions do not have than in comparable Brazilian cities. to nise as incomes grow The odds of successful environmental planning and regulation increase with greater community participa- Micrograms per cubic meter tion in environmental matters. In China community 350 participation is closely correlated with enforcement of 300 business as pollution levies. In other countries basic information 250 about ambient pollutant concentrations and plants' 200 0 2010 020 emissions performance have been instrumental in China unde .. . . ...........150