CCICED Annual Policy Report

(English Edition)

Harmonious Development Through Innovation 2008

China Council for International Cooperation on Environment and Development 图书在版编目（ CIP）数据

机制创新与和谐发展：中国环境与发展国际合作委员 会年度政策报告： 2008：英文 /中国环境与发展国际合作 委员会编著 . —北京：中国环境科学出版社， 2009.4 ISBN 978-7-80209-977-7

Ⅰ．机… Ⅱ．中… Ⅲ．①自然资源—资源利用— 研究报告—中国— 2008—英文 ②环境保护—研究报告— 中国—2008—英文 Ⅳ．F124.5 X-12

中国版本图书馆 CIP 数据核字（2009）第 044548 号

责任编辑 李 力 Patrick Ewing（美） 封面设计 龙文视觉

出版发行 中国环境科学出版社 （100062 北京崇文区广渠门内大街 16 号） 网 址：http://www.cesp.cn 联系电话：010-67112765（总编室） 发行热线：010-67125803 印 刷 经 销 各地新华书店 版 次 2009 年 4 月第 1 版 印 次 2009 年 4 月第 1 次印刷 开 本 787×1092 1/16 印 张 20.5 字 数 375 千字 定 价 58.00 元 【版权所有。未经许可请勿翻印、转载，侵权必究】 如有缺页、破损、倒装等印装质量问题，请寄回本社更换

Editorial Board

Zhu Guangyao

Shen Guofang

Arthur J. Hanson (Canada)

Guo Jing

Ren Yong

Chris Dagg (Canada)

Zhang Jianyu

Preface i

Preface

The China Council for International Cooperation on Environment and Development (CCICED) was established with the approval of the Chinese government in 1992. Consisting of senior Chinese and international officials and experts and chaired by China’s Vice-Premier, it serves as a high-level advisory body with a mandate to conduct research and to provide policy recommendations to the Government of China on China’s environment and development. The Council reports to the State Council and each year meets with a senior leader to discuss its recommendations. Over the past 17 years, CCICED has witnessed significant change and marked progress in China in the field of environment and development policy. Over the Council’s tenure, issues have evolved in number, complexity and significance from those discussed at the 1992 Rio UN Conference on Environment and Development to those environmental challenges, such as cli- mate change, that have become mainstream economic and political concerns throughout the world. CCICED continues to be a unique body, highly relevant to China’s domestic needs and to fostering a better international understanding of China’s contributions to global environment and development. With ongoing support from the Chinese government, the governments of many other countries, and international agencies, CCICED has completed three phases. Phase I (1992-1996) carried out initial policy studies and research on key issues in the field of environment and de- velopment and disseminated and exchanged international experiences and information on suc- cessful policies. Phase II (1997-2001) shifted the focus from policy research to policy and project demonstrations. Phase III (2002-2006) was established with broader priorities and a number of major policy studies were conducted. Based on the successful experience of pre- vious phases, Phase IV (2007-2011) has drawn support from a larger number of donors and is focused concerted attention on issues that will determine China’s success in becoming regarded as an environmentally friendly society. Indeed, China has entered into a new era, and CCICED will play a major role in promoting China’s strategic transformation in environment and devel- opment. 2008 was an eventful year for China: it hosted the very successful Beijing Olympics; coped with major disasters including unprecedented snowstorms and the Sichuan earthquake; stayed the course of economic development despite high oil prices and rapid increases in food and other commodity prices; sought stabilization and reform in the global financial sector; and ad- dressed several cases of product contamination, including melamine in milk. Globally, the fi- nancial crisis that originated in the United States interrupted the pace of development in most ii Harmonious Development through Innovation regions, threatened progress towards sustainable development, and created widespread uncer- tainty. Nonetheless, Chinese Premier Wen Jiabao reiterated China’s commitment to progress in environmental protection and sustainable development when he met Council members during the 2008 Annual General Meeting. 2008 was also important year in the development of CCICED. The Council established a number of task forces to examine various aspects of environment and energy. In addition, the Council, along with WWF, published the first Report on Ecological Footprint in China, which aroused considerable interest. Two Task Forces completed their work on important themes, “Environment and Health” and “Building Environmentally Friendly Society through Innova- tion”. This volume, Annual Policy Report 2008, contains documents presented to, and the policy recommendations approved by, the CCICED’s Annual General Meeting in November, 2008, for which the theme was “Harmonious Society through Innovation”. This book includes: the final text of the Council 2008 Recommendations; which has since been forwarded to the State Council and other governmental agencies; the text of the Issues Paper, prepared as a discussion document addressing current issues related to China’s environmental policies; and final and in- terim reports submitted by task forces to the 2008 Annual General Meeting. The task force re- ports represent the views of the individual teams and not necessarily those of the Council as a whole, while the Recommendations reflect a consensus among CCICED members attending the 2008 Annual General Meeting. The materials in this volume offer a great many options for China to consider as it contin- ues to strengthen its governance of environment and development. We wish to share them within and outside of China in the hope that they will lead to a better understanding of the en- vironment and development challenges facing China and China’s contribution to resolving en- vironmental issues domestically and internationally. We extend our thanks to those who support CCICED’s work and China’s environmental undertakings. We appreciate the financial and other support from the Government of China and generous donors, and the contributions of the many experts who conducted the research reflected in this volume. The invaluable assistance of the Chinese and International Chief Ad- visors and their group of experts, who provided guidance to the research work, the assistance of the International Secretariat Support Office at Simon Fraser University in Vancouver, and the role of Council members, who volunteered their time and expertise in support of this un- dertaking, are all gratefully acknowledged.

CCICED Secretariat March, 2009 Acknowledgments iii

Acknowledgments

The contributions of those who prepared the CCICED Task Force reports presented at the 2008 Council Annual General Meeting and who wrote this Report’s introductory chapters are gratefully acknowledged. Their names appear below.

Chapter 1 Prepared by the Chief Advisors and their supporting team based on the policy recommendations submitted by Task Forces. Chapter 2 Contributors to this Chapter include: Arthur Hanson, Shen Guofang, Ren Yong, Zhang Jianyu, Zhou Guomei, Wang Xiaowen, Yu Hai, Qin Hu, and Chen Gang. Chapter 3 Written by Feng Zhijun, David Strangway, Liu Xielin, Wang Chunfa, Meng Wei, Wang Kaijun, Xue Lan, Granger Morgan, Kelly Gallagher, Tom Preststulen, Zhou Yun, Song Xiujie, and Zhu Chaowei. Chapter 4 Written by Guo Xinbiao, Seiji Ikkatai, Feng Dongfang,Wang Canfan, Xu Shufan, Wang Xuening, Imura Hidefumi, Linda Greer, Carlos Dora, and Kristin Aunan. Chapter5 Written by Liu Shijin, Gordon Conway, Björn Stigson, Feng Fei, Hu Angang, Xia Guang, Pan Jiahua, Jiang Kejun, Tomas Kaberger, Knut Alfsen, Lim Haw Kuang, Mattia Romani/Melinda Robson, Wang Jinzhao, Zhuang Guiyang, and Guan Qingyou. Chapter 6 Written by Jiang Yi, Zhou Wei, Laurence Tubiana, Mao Qizhi, Li Qiang, Qi Ye, Jiang Yulin, Jiang Kejun, Bertrand Château, Albert Bressand, Shobhakar Dhakal, Nick Eyre, Lucienne Krosse, and Partha Mukhopadhyay. Chapter 7 Written by Ye Ruqiu, Ernst Ulrich von Weizsäcker, Jia Kang, Zhou Daoxu, Ye Yanfei, Zhu Baoliang, Yang Hongwei, Ren Yong, Motoko Aizawa, Mikael Skou Andersen, Rae Kwon Chung, Jean-Philippe Barde, Jota Shohtoku, and Kai Schlegelmilch.

We also would like to express our thanks to the relevant ministries and departments of the Chinese Government and to the Council’s international partners, whose support for the Coun- cil’s work had made this policy research possible. International partners include: Canada, Nor- way, Sweden, Germany, Great Britain, Japan, The Netherlands, Italy, Australia, France, Denmark, EU, UNEP, UNDP, WWF, The Shell Company, Environmental Defense Fund, and Rockefeller Brothers Fund. Among those who have made special contributions to the editing and publication of this iv Harmonious Development through Innovation report are Wang Kezhong, Li Yong, Lu Xueyun, Zhang Ou, Yichun Dai and Li Li, to whom we express our thanks. Last but not least, we would like to express our sincere gratitude to the Chinese and Inter- national Council Members for their invaluable comments on and contributions to the policy studies. Table of Contents v

Table of Contents

Chapter Ⅰ CCICED Policy Recommendations to Decision Makers ...... 1 1.1 Overview ...... 1 1.2 Recommendations ...... 3

Chapter Ⅱ Environment and Development for a Harmonious Society ...... 14 2.1 Introduction ...... 14 2.2 Harmonious Society Explained ...... 16 2.3 International Experience ...... 19 2.4 China’s Challenges ...... 30 2.5 Environmental Protection and Harmonious Society ...... 37 2.6 Conclusion ...... 42

Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices ...... 45 3.1 Introduction ...... 47 3.2 Current State of China’s Environmental Innovation ...... 54 3.3 Technology Innovation for Environment and Sustainable Development ...... 58 3.4 Environmental Innovation System of China ...... 71 3.5 Regulation, Standards, and Enforcement ...... 77 3.6 Public Participation and Environmental Innovation ...... 84 3.7 Conclusions and Recommendations ...... 89 Appendix ...... 97

Chapter Ⅳ Environment and Health Management System and Policy Framework ...... 156 4.1 Status Quo of Chinese Environment and Health Problems ...... 156 4.2 Analysis of the Problems and Requirements of Chinese Environment and Health Management ...... 162 4.3. International Experiences and Lessons in Establishing an Environment and Health Management System ...... 168 4.4 Construction of China’s Environment and Health Management System ...... 181 4.5. Policy and Legislation Framework of Environment and Health ...... 192 vi Harmonious Development through Innovation

4.6 Report on Recommendations for Policies on Strengthening the Environment and Health Management ...... 203

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China ...... 211 5.1 The Concept and Connotation of a Low Carbon Economy and its Relations with Some Key Concepts ...... 211 5.2 The International Development and Trend of Low Carbon Economy ...... 212 5.3 Necessity and Urgency to Develop a Low Carbon Economy in China ...... 218 5.4 Difficulties and Obstacles in the Development of a Low Carbon Economy in China 225 5.5 Policy Suggestions ...... 236

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development ...... 237 6.1 Energy Efficiency and Urbanization: Concepts and Methodology ...... 237 6.2 Review of Situations and Trends of Energy Consumption and Energy Efficiency in Urban Areas in China and Worldwide ...... 243 6.3 Conclusions ...... 267

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency ...... 271 7.1 Energy Productivity as a National Goal ...... 271 7.2 A Surprise Lesson from History: Resource Prices Have Been Falling ...... 273 7.3 International Experiences in Raising Energy Prices: Introducing Environment-Related Taxes ...... 275 7.4 Increasing Energy Prices in Parallel with Energy Productivity Gains ...... 278 7.5 Is There a Problem for the Poor, Industry, or Inflation? ...... 278 7.6 The Paradigm of a Twenty-Fold Increase of Labor Productivity ...... 279 7.7 A Revenue-Neutral Ecological Tax Reform ...... 281 7.8 Long Term Price Elasticity is High ...... 281 7.9 Conclusions and Strategic Recommendations ...... 282 Appendix ...... 285

Annex Ⅰ CCICED Membership ...... 314

Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 1

Chapter Ⅰ

CCICED Policy Recommendations to Decision Makers1

Civilization should guide China’s social values 1.1 Overview and progress. Now, a year after this historic meeting, there is growing evidence that The Second Annual General Meeting of transformative action is taking place towards Phase IV of the China Council for Interna- building a resource conserving and environ- tional Cooperation on Environment and mentally friendly society in China. Development (CCICED 2008 AGM) was It is particularly significant that progress held in Beijing from 12-14 November 2008 is being made on the 11th Five-Year Plan with the theme of “Harmonious Develop- program for energy conservation and pollu- ment through Innovation”. This meeting tion reduction, that China leads the world in occurred at a time of great turmoil in the achieving many of the Millennium Devel- world’s financial markets with the threat of opment Goals, and that many of China’s severe global recession but also with a call science and technology innovation goals are for ‘re-regulation’. This year was also a time for sustainable development. Moreover, ne- of celebration of tremendous achievement cessary institutional strengthening, including in China – 30 years after the Reform and the formation of the Ministry of Environ- Opening Up and after the very successful mental Protection (MEP), is taking place. Beijing Olympics. CCICED applauds this evidence of domestic These events, along with China’s re- progress and also China’s expanding role on markable efforts during the snowstorm and international environment and development. earthquake disasters and in response to the Despite these praiseworthy efforts and melamine contamination and other public achievements, China’s domestic program for health incidents, have focused our discus- environment and development still faces sions on how environment and development many challenges, and much corrective action can play a stronger role in China’s future is necessary before its full contribution to a harmonious relationships. Harmonious Society can be realized. The ac- The 17th Party Congress of the CPC tion taken at the 3rd Plenary Session (Octo- specified that scientific development, Har- ber 2008) of the 17th CPC Party Congress to monious Society, and promoting an Ecological reduce the imbalances between urban and

1 This Chapter is based on CCICED Policy Recommendation to the Chinese Government adopted by the Annual General Meeting of CCICED held in Beijing from Nov.12-14, 2008 and it was drafted by Chief Advisors and Support Team of CCICED. 2 Harmonious Development through Innovation rural development is an important opportu- level of awareness around the world of Chi- nity where increased environmental efforts na’s environmental problems and its capacity will lead to a more harmonious society. The to address them. How China chooses to go CCICED members are aware that public about its efforts to promote an Ecological Civi- health problems induced directly or indirectly lization at a global level is therefore a signifi- by pollution remain a serious factor for social cant matter, with implications for trade, advancement in China. This has been a market supply chains, and action on pressing priority area for CCICED research on har- concerns such as climate change. But China’s monious development. domestic and international environment and CCICED believes that an appropriate development efforts could be threatened if mix of incremental and transformative the credit and financial crisis turns into a changes is needed to build a new relationship worse situation of recession. of environment and development in China The worsening global economic situation and globally. That China is well positioned threatens social, economic and environmen- for carrying out these changes is fortunate. tal progress of all nations, including China. Environmental progress should intensify This topic received special attention from over time, first through incremental im- both Chinese and international members. provements and later by leaps and bounds, as The CCICED AGM occurred just as China the investments now being made in sustaina- announced its substantial economic recovery ble development innovation produce better package. Therefore there was a substantive technical solutions. CCICED has examined basis for considering how China can turn the how environment and sustainable develop- economic crisis into an opportunity for ment innovations could be fast tracked, since strengthening economic growth. it is unlikely that incremental change alone In the period of global crisis ahead there will satisfy China’s ambitious environmental will be many opportunities where China and targets and longer term needs. a few other major developing countries have Nowhere is this need for innovation advantages not found in more established greater than in addressing environment and industrial economies. This is particularly the energy relationships and the global need to case for sunrise industries and for green address reductions in greenhouse gases. products, which will become of increasing CCICED has started several task forces and significance in the second decade of this new other activities on these topics. While the century. In fact there may be a historic shift main results will not be reported until the in leadership on environment and sustainable 2009 AGM, a few preliminary recommenda- development from Europe and North tions are provided in this document. America towards Asia. Trade and investment The global environmental situation con- will be drivers for this to happen. Real solu- tinues to decline, with direct effects on China tions for global sustainable development are through trade, climate change and in other now as likely to arise from action in China as ways. The Beijing Olympics has created a in other parts of the world. Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 3

Council members appreciated the Chi- again underscore the need for effective im- nese position that the global economic plementation and enforcement of strong en- slowdown therefore must not be allowed to vironmental legislation, greater use of credi- stand in the way of environmental progress ble economic instruments, and a more scien- and that the economic stimulus package de- tific approach to the development and dis- veloped by China has incorporated environ- semination of reliable environment and de- mental aspects. During this time of rebuild- velopment information as means to build ing the world’s financial system and new confidence and public trust in China’s envi- economic growth paths, China could benefit ronmental decision making. Of these points, by positioning its investments towards activi- the first and last deserve particular attention. ties that will allow it to shape the nature of Enforcement of regulations at a level that future world growth, for example as a sup- will change behavior is absolutely essential in plier of renewable energy products and ser- order to foster innovative technologies and vices. These are examples of what to improve environmental health conditions. CCICED’s Chairman, Vice Premier Li Ke- But it is also vital to stress the need for pub- qiang, noted are actions that “promote de- lic data that can be trusted by citizens and velopment of the economy while taking can become benchmarks for positive change good care of the earth that we share.” via good standards. At the 2008 AGM CCICED reviewed final recommendations from Task Forces on 1.2 Recommendations Innovation and an Environmentally Friendly Society, and on Environment and Health. In The following major recommendations addition, the Council received interim re- to the Government of China are based on ports with some recommendations from the deliberations and agreement at the three energy and environment Task Forces CCICED AGM 2008. In addition, more that will submit final recommendations in recommendations concluded in the re- 2009, “Pathway toward a Low Carbon searching from task forces of CCICED will Economy”, “Economic Instruments for be forwarded for reference. Energy Efficiency and Environment”, and “Energy Efficiency and Urban Develop- 1.2.1 Transformation challenges into op- ment”. In addition, the CCICED Issues Pa- portunities for further implementation of per prepared for the 2008 AGM identified a a scientific development approach number of urgent challenges facing China, in part the result of the international economic 2008 will surely be viewed as an excep- and environmental situation. Our three key tional year for China because of the devas- recommendation topics draw upon these re- tating natural disasters, international financial ports as well as on the views of Council turbulence, food safety incidents, successful members. Olympic and Paralympics Games and the The Council’s reports and discussions 30th anniversary of the introduction of 4 Harmonious Development through Innovation

Reform and Opening Up. The year, on one ronment in the implementation of the pack- hand, gave rise to a number of new prob- age. Second, take a systems perspective that lems and challenges for China in the field of will identify positive relationships for the en- the environment and development, while on vironment and the economy. Third, highlight the other hand, the great success and joy of labor-intensive activities operating at an ap- the year left a precious legacy for China, as propriate scale to help poor people while well. As the year of 2008 draws to its end, it protecting local environmental conditions, is now important for the Chinese govern- especially in the countryside. And fourth, ment to face up to the problems and chal- seek co-benefits, especially for improving lenges, identify opportunities and potentials, health and ecological restoration, as a con- review experiences and lessons, take positive sequence of energy improvements, disaster actions, and look into the future. relief and reconstruction, and pollution re- Therefore we recommend that China: duction. (1) Seek Opportunities in the Wake of It is recommended that the Chinese the Financial Crisis and Advance “Sound and government should fully be aware of risks Rapid” Environment and Development In- and opportunities and take the following ac- itiatives. tions: To find a remedy for the financial market 1) Strengthen supervision and environ- and achieve stable economic growth are un- mental management in the execution of the doubtedly the top priorities for the world domestic stimulus plan, so as to prevent re- right now. However, we must remain alert to gions from boosting economic growth at the prevent the environment from becoming the expense of environment in their response to next victim of the financial crisis, as may the financial crisis. occur in some parts of the world. Once it 2) Consider not only environmental pro- becomes a trend to neglect environmental tection as one of the investment priorities of factors, the world’s sustainable development the stimulus package, but also carry out ex- will take a significant step backward. Thus, amination of supply chain environmental China must work with unwavering determi- consequences and strengthen green pro- nation to reduce emissions, improve energy curement policies. These steps will boost the efficiency, and fight climate change. The development of environmental protection Chinese government has recognized the risk industries and convey the strong determina- from the current crisis and has integrated en- tion of the government that environmental vironmental protection in the domestic sti- protection can be maintained even in the mulus package. It must now transform these wake of the financial crisis. challenges to opportunities for sound and 3) Take advantage of the opportunities rapid sustainable development. arising from the financial crisis in order to The stimulus package should follow four advance transformation of the development principles with respect to environment and mode for the domestic economy. This can be development. First, do no harm to the envi- done by boosting the development of clean Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 5 energy and technical innovation, low carbon The world financial crisis and the infant economy and by strengthening capacities in formula incident have shown that excessive the area of environmental protection and reliance on market forces without effective climate change in the remaining years of the regulation will create huge risks. In fact, 11th Five-Year Plan, and particularly during the market failures such as environmental exter- 12th Five-Year development period. nalities are often hard to control. The gov- 4) Advance energy price reform and ernment thus should strengthen its supervi- further internalize environmental externali- sion while adopting market-based instru- ties with the plunge of oil and commodities ments. China is at the initial stage of a so- prices. It is advisable for China to adopt a cialist market economy where both market long term “escalator” approach to gradually function and government regulation await raise energy prices. It means small, but peri- improvement. Therefore the government odic and predictable rising prices or the in- should step up its supervision while giving troduction of additional environment or full play to market-based instruments suitable energy taxes, with information transparency for environmental protection. to fully prepare the general public and reduce Some of the most important market possible resistance. based approaches will require significant le- 5) For the longer-term, develop a Low vels of capacity building for adequate man- Carbon Economy. agement and supervision, including im- The Chinese government should attach proved emissions monitoring, consolidating great importance to the development of a and standardizing emissions data, designating Low Carbon Economy (LCE) and get pre- a legal registry for emissions reductions, and pared for action, particularly in terms of enforcing non-compliance with much stiffer technology options and feasibility analysis. penalties. The development of a low carbon economy It is important for the Chinese govern- will benefit China both internally, in terms of ment to maintain the balance between inno- addressing resources and environmental vation and stability. Stability is a prerequisite problems, and externally by contributing to for a harmonious society while innovation the fight against climate change and raising often entails reform to avoid unreasonable international competitiveness. China should benefit distribution. Imbalance between the consider specifying low carbon economy re- two will give rise to conflicts. But, if innova- lated targets in the 12th Five-Year Plan for eco- tion helps encourage public engagement, nomic and social development and incorpo- promotes fairer benefit distribution and bet- rate a low carbon economy in current strate- terment of social welfare, it will help pro- gies and actions. mote the development of a harmonious so- (2) Create a Better Mix of Government ciety. For instance, environmental innovation Regulation and Market-Based Mechanisms could help to optimize the relations between Between Factors Favoring Innovation and the environment and economy, resolve Those Favoring Stability. problems in the field of the environment and 6 Harmonious Development through Innovation health, encourage wider public involvement, building of a harmonious society. The cen- and give full play to the role of women in tral government of China is committed to building a harmonious society. the integrated development of urban and (3) Increase Speed Infrastructure Con- rural areas. In addition to the strategic goal struction and Quality for Optimized Devel- of building a new socialist countryside, a opment and Harmonious Society. comprehensive rural reform scheme was In the face of such natural disasters as passed during the 3rd Plenary Session of the the snow storm and earthquake in 2008, the 17th Party Congress. Against this backdrop, foundation for optimized development and China should create a bigger role for envi- harmonious society has proven fairly weak. ronmental protection as part of the overall Such weakness can be found in the relevant strategic goal of building a new socialist mechanisms, urban development patterns, countryside. The environmental priorities of the layout and quality of infrastructure, social rural areas should include greater attention to security and emergency response. The weak- rural environmental management systems nesses demonstrate that it is urgent for China and capacity building, environmental infra- to shift its growth pattern from quantitative structure, drinking water safety, soil conta- expansion to quality development, and to mination, indoor air quality management, ex- achieve harmony between people and nature. ploration of an integrated urban-rural envi- The infant formula incident served notice ronmental management mechanism, and that corporate social responsibility should be eco-compensation. The eco-compensation further stressed. A massive and systematic policies should be expanded to include cli- program is needed to achieve a more ba- mate change mitigation and adaptation needs lanced development among various social and damages cost by air pollution. Efforts on and economic aspects. The foundations for these priorities will improve overall environ- harmonious society should be strengthened, mental protection throughout China. including the moral and cultural basis for (5) Develop Innovative Environmental scientific development. If environmental Management Systems and Mechanisms factors are built into this more advanced ap- Based on the Successful Experiences of proach to development, the chances for sus- Green Olympic Games. tainability will be enhanced. The successful Green Olympic Games (4) Strengthen Rural Environmental has left China with valuable environmental Management and Help Improve Overall En- legacies, including hardware such as demon- vironmental Protection in China. stration projects and infrastructure that help The rural areas of China not only lag be- to improve the environment and serve the hind the cities in terms of economic and so- public, as well as software such as the con- cial development but also bear the brunt of cept of ecological civilization, improved en- environmental pollution and ecological vironmental management, environmental in- damage. The countryside is thus a weak formation disclosure and wider public par- point in environmental protection and the ticipation. All these may help to bring about Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 7 deep changes in economic and social devel- (6) Review the Experiences of the Past opment patterns. Three Decades and Continuously Improve In its effort to host a Green Olympic the Environmental Management System. Games, the Chinese government adopted Over the past 30 years, China has tried to successful measures to promote pollution keep pace with the international community prevention and control planning, environ- when dealing with the field of environment mentally friendly buildings and infrastructure, and development. In light of its realities, and environmental information disclosure, public drawing upon international experiences and participation, commercialization of the in- expertise, China has developed its own ap- novative technologies employed in the Green proach with Chinese characteristics to ad- Olympics, control of trans-boundary emis- dress environmental problems and has made sions through the establishment of a regional significant progress in creating its environ- environmental management system, vehicle mental management system and, in some lo- exhaust pollution control, and phase out cations, in improving environmental quality. heavily polluting enterprises. China should Three decades on, China is now in an review these successful experiences and de- important period for strategic transformation velop standardized and long-term mechan- of its environment and development rela- isms of environmental management to im- tionship. It is now necessary to systematically prove the environmental quality of Beijing review the strategic ideas, theories, policies, and other parts of the country on a continu- and managerial practices in the field of en- ing basis. vironmental protection over the past 30 years. The 2010 Shanghai Expo offers a new Such a review will not only help to consoli- opportunity for the implementation of the date successes achieved so far and further ‘Green Olympics’ experience and the gov- improve the environmental management ernment of China should integrate more system of China, but also will contribute to green measures in the planning and imple- the international community by sharing the mentation of a “Better City; Better Life” Chinese experience. Expo. The establishment of the Ministry of Also, China urgently needs to control Environmental Protection in 2008 was a transboundary emissions via regional envi- major step forward for the Chinese envi- ronmental management systems operating on ronmental management system and reflects total emissions control, emissions trading, the commitment of the Chinese government and with appropriate institutions such as to historical transformation in the environ- coordinating groups comprised of the rele- mental field. However, we note that envi- vant provincial governors. The experience of ronmental management system reform, per- the Olympics in reducing the inflow of pol- haps leading to a super environment ministry, lutants from provinces surrounding Beijing likely will be a gradual process. The next step sets a remarkable precedent of cooperation should be further integration of environ- that deserves to be emulated. mental responsibilities of different ministries, 8 Harmonious Development through Innovation which will optimize the central government thened cooperation between China and other organization and help raise capacity and effi- developing countries. ciency. For the new environmental ministry, current attention should be focused on ca- 1.2.2 Introduce a national action plan or pacity building and financial resources. Re- program for environmental innovation, sponsibility, power, capacity, and efficiency 2010-2020 should be integrated into this super ministry, which can put people first and better serve China’s complicated and unprecedented the general public. challenges as it works towards becoming an (7) Make New Contributions to Global environmentally friendly society open the Sustainable Development and the Building door to unprecedented innovation oppor- of a Harmonious World. tunities. Yet environmental innovation in China and the world are mutually de- China remains at a low level, lags behind in- pendent. Given the large population and novations in other fields, and falls well short economic output as well as the important of the needs. There are several reasons for role of China in the global environment, the this situation: international community has higher expecta- (1) Pollution clean-up rather than pollu- tions for China on issues like climate change tion prevention still dominates, and the in- and the financial crisis. China has made tre- stitutions and mechanisms under which en- mendous progress in development and now vironmental protection and economic proposes concepts such as ecological civiliza- growth reinforce each other are yet to be es- tion and harmonious society. These efforts tablished. should make the world more interested in (2) Incentives and enforcement actions China’s ideas and experiences. are still too weak and the command and con- Therefore, now is the right time for Chi- trol approaches still predominate. There is na to make a more substantive contribution not a mechanism or policy system in place towards global sustainable development and that encourages enterprises to invest sponta- a harmonious world. Stabilizing the financial neously in environmental innovation. system, sustaining rapid economic growth, (3) A disconnect exists between research and resolving environmental problems in on environmental science and technology China are in themselves great contributions and the commercialization of research to the world. Meanwhile, based upon the achievements due to the absence of tech- principle of common but differentiated re- nological application research institutes and sponsibility, China should make new contri- supporting coordinating mechanisms. butions to the global fight against climate (4) Poorly developed technology and a change and sustainable development; China limited system for collecting and publicizing should also expand its existing environmental environmental information accounts for low international cooperation into cooperation participation by the general public in envi- for sustainable development with streng- ronmental innovation and decision making. Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 9

China identified innovation as a core na- logical restoration, and clean production. tional strategy and mapped out the “National This Special Program would introduce Clean Innovation Strategy” and the Technology as a major research platform in “Mid-to-long-term Plan for Development of the same way as other fields such as nano- Science and Technology in China technology have been fostered. It should be 2006-2020”. While this strategy and plan can developed at a level equivalent to China’s produce some of the necessary indigenous space program with expectations that it will research and technological applications for become an important part of China’s future key environmental problems, there is a need economic growth and exports as well as a for a specific environmental innovation ap- key component of better environmental proach that can ensure the sustained and in- protection. tegrated effort necessary to fully capture The Government of China should col- benefits and opportunities. laborate with relevant parties and jointly es- Therefore we recommend that China: tablish a number of high-level National Re- Introduce a National Action Plan for En- search Centers for Environmental Innovation in vironmental Innovation 2010-2020 for China. universities and research institutes. These The action plan should define the strategic Centers will bridge the gap between basic goals, targets, and measures of environ- research institutes and market needs and help mental innovation of China and address introduce, absorb and utilize foreign tech- the technological, institutional, social and nology. They should link research-intensive organizational aspects of innovation. The industries and China’s most renowned re- Action Plan/Program should be supported search bodies to establish China as a major by key projects and increased investment player for environmental innovation. and consideration should be given as fol- Common environmental problems with- lows: in specific industrial sectors necessitate the (1) Strengthen Indigenous Innovation establishment of research institutes for spe- Capacity by Setting Up a Special Program for cific energy intensive and heavily polluting Clean Technology Innovation, National Re- industries on a cooperative basis among the search Centers for Environmental Innova- government, the industries, and the industry tion, Sectoral Industrial Environment Re- associations. search Institutes, and a System of Considering the ecological and environ- Cross-disciplinary Sustainability Innovation mental features of different regions in China, Laboratories. the State should collaborate with local gov- A Special Program for Clean Technology Inno- ernments, business and civil society to estab- vation needs to be introduced and this Pro- lish cross-disciplinary Sustainability Innovation gram could cover technologies relating to Laboratories designed to demonstrate how to vehicle pollution treatment, clean coal, solar live at a high standard with minimum waste power, wind power, nuclear power, carbon in both rural and urban settings. Their focus sequestration, energy efficient building, eco- should be on practical demonstration of 10 Harmonious Development through Innovation what can be done within the context of local ties, Environmental Innovation Funds should be social and economic circumstances and en- established with a focus on a Special Pro- vironmental conditions. gram for Clean Technology and other com- (2) Adopt an Integrated Approach to ponents important for enhancing indigenous Address Mechanisms, Institutions and Ca- environmental and sustainable development pacity Development Required for Full Ap- technology innovation. The State should de- plication of Environmental Innovation. vise a financial supporting plan for environ- The following requirements need must mental innovation and adopt financial meas- be met: First, in the field of environmental ures including venture capital investment, innovation, the environmental protection preferential listing policies, green credit, and authorities should lead the coordination preferential loans, to support environmental among relevant parties and give full play to innovation activities. the bridging role of industry associations Fourth, China needs to strengthen IPR connecting government and industry. protection and international environmental Stronger regulatory rules and standards, in- cooperation and to establish an International centives, and supportive policies should be Study Network on Environmental Technology to introduced to help build innovation capaci- facilitate learning from abroad and through ties of the enterprises, especially small and joint efforts. medium sized enterprises. Fifth, drawing upon the experiences of Second, to foster a market for environ- OECD countries, China should establish an mental products, several measures could be evaluation system for environmental innova- taken: Tighten environmental enforcement in tion covering the whole process from R&D order to create a potential demand market; to commercialization as well as such aspects and, where appropriate and for a limited time, as environmental, safety, health and life cycle subsidize environmental products used by impacts. enterprises and consumers so as to foster (3) Set Up an Improved National Infor- dissemination and application of environ- mation System for Environmental Quality, mental technology. More effective Green Pub- Environmental Pollution, and Environmental lic Procurement Regulations which require gov- Science and Technology Knowledge with an ernment agencies to procure a certain per- Expanded Scope for Information Disclosure centage of environmentally friendly products in order to Encourage Wider Public In- will be particularly helpful in creating a siza- volvement in Environmental Innovation Ac- ble market for environmental products. Ac- tivities. tion should be taken to raise resource and While China has made progress in envi- energy prices to expand the demand for en- ronmental monitoring and public informa- vironmental products that increase use effi- tion disclosure, much work remains to be ciency. done before a full national environmental Third, to considerably increase financial information system is in place and function- support for environmental innovation activi- ing. This is a vital component for decision Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 11 making of government, business, communi- within the near future, environmental pollu- ties and the general public. The system must tion will remain a serious problem for a rela- operate in a very transparent fashion, with tively long period of time and this may give regular reporting on key environmental rise to more substantial health risks. Fourth, problems and environmental performance. as the living standard increases, the general Knowledge access should be as direct as public will have higher expectations for a possible and at low cost so that people and good and safe environment. Fifth, China has institutions throughout China can access the recently issued the National Action Plan for information. Information needs to be pack- the Environment and Health 2007-2015, but aged in ways that permit comparisons and concrete work under the action plan is yet to easy understanding. be carried out. Improved information access will pro- International experience illustrates that mote innovation in several ways: knowledge the mishandling of environmental and health about environmental options will improve issues could generate complicated social and sustainable consumption, better public ac- political problems that result in harm to pub- ceptance of new environmental technologies lic health, impaired government credibility, and environmental measures, place pressure and heavy social and economic costs. China on firms and local governments to improve is currently in a critical period of building a environmental performance, and provide in- harmonious society and consequently the is- formation helpful to environmental innova- sue of the environment and health should be tors, including SMEs. given highest attention. Therefore, we suggest: 1.2.3 Expedite the establishment of a na- On the basis of the National Action Plan tional management system for environ- for the Environment and Health 2007-2015, ment and health that the Government of China should acce- lerate the development of a national man- China is faced with enormous challenges agement system for the environment and in the field of the environment and human health as well as an environmental manage- health. First, a large number of its people are ment system based on “putting people first”. exposed to seriously polluted air, water, and In order to achieve this goal, efforts should soil, which pose huge health risks. Second, be made in the following six areas: because of the absence of systematic re- (1) Stick to Prevention as the Main Ap- search, monitoring and statistics, there is not proach and Take Effective Measures to Re- yet a clear picture of the full magnitude and duce Environment and Health Risks. range of public health risks posed by pollu- A risk prevention system can be estab- tion. Hence it is extremely difficult to identi- lished by improving the environmental stan- fy targeted measures to address the problem. dards system, introducing a list of priority Third, whether or not the economic growth pollutants, and enforcing stricter control of pattern of China changes fundamentally environmental access by harmful substances. 12 Harmonious Development through Innovation

The monitoring network for the environ- ministrative settlement, arbitration, and liti- ment and health should be strengthened, es- gation. The government also should gradual- pecially in the field of health impact moni- ly introduce a compensation system for hu- toring relevant to human exposure. The gov- man health damage by pollution so as to ernment also should gradually set up an early protect the environmental rights of the gen- warning system for environment and health eral public. that will help to predict potential environ- Improved coordination is needed be- ment and health risks and will eradicate or tween central and local authorities so that reduce health damage by pollution. environmental health issues can be reported (2) The Government Must Bear the Main and assessed in a timely manner, with more Responsibility of Environment and Health effective action taken. Issues. The Government Therefore Should (4) Increase Financial Investment in Strengthen its Leadership in the Management Capacity Building for Environment and System while Encouraging Extensive Public Health Management, Research, and Com- Participation. pensation. Coordination mechanism between the The central and local governments relevant ministries should be strengthened. should increase their financial support for This could be realized through establishment capacity building and basic research in the of a national environment and health admin- field of the environment and health. An En- istrative coordination mechanism that is un- vironment and Health Fund could be established der the leadership of the State Council with for to help compensate victims of historical participation by different ministries. Assess- environmental problems, for when the re- ing government performance to ensure laws sponsible party has no civil compensation and regulations are properly implemented is capability, and for when it is hard to identify also necessary. Based on their respective re- who should be responsible. The Fund could sponsibilities, the environment and health help victims during their recovery and sup- authorities should allocate sufficient staff port education and communications activities. and resources to establish specialized admin- Multi-sourced funding should be sought. istrative system for managing environment (5) Improve Disclosure and Access to and health issues. Environment and Health Information and (3) Establish and Strengthen Legislation Encourage Public Participation. for Environment and Health Based on the The government should make public en- Polluter Pays Principle. vironment and health information available Legislation should address prevention, through accessible and comprehensible tools, enforcement and environmental rights of the such as government websites and the mass Chinese public. A dispute settlement me- media. Prevention requires information on chanism should be created to help concerned risks to be effective. The Government of parties reach reconciliation over environment China should launch a public access data and health disputes through mediation, ad- base of pollutants and health risks. The gov- Chapter Ⅰ CCICED Policy Recommendations to Decision Makers 13 ernment also should improve the public Where pollution has already caused harm complaint mechanism and public an- to human health or induced diseases, action nouncement system, and create smooth to reduce harm and risk needs to occur channels for the public to participate in en- quickly and health intervention or medical vironment and health management. Supervi- care should be provided routinely to the vic- sion by the general public, social organiza- tims. For the pollutants proved potentially tions, and the mass media should be streng- dangerous to human health, the government thened and the reporting of environment should issue a catalogue of such pollutants as and health violations should be encouraged. well as a relevant risk evaluation system, en- Various kinds of hearings and consultation vironmental access standards, and identifica- meetings should be held to hear the voices tion criteria. Such pre-intervention measures of the public and relevant stakeholders on and health impact monitoring will help era- environment and health issues. dicate or reduce health risks caused by pollu- (6) Undertake Targeted Intervention tion. For other environmental factors with Measures to Address Prominent Problems in unclear health impact, China should increase the Field of the Environment and Health. research and adopt preventative measures.

14 Harmonious Development through Innovation

Chapter Ⅱ

Environment and Development for a Harmonious Society1

2.1 Introduction 2.1.1 Harmonious society

China seeks a transformative approach to At the October 2007 17th CPC Congress2, environment and development that will pro- people-centered scientific development was vide lasting social, economic, and environ- adopted as a constitutional amendment of mental benefits for its own society and, ulti- the Communist Party, along with an amend- mately, for the world. It seeks an Ecological ment to pursue a “socialist harmonious so- Civilization where conservation, in the broad- ciety.” These amendments focus attention on est sense of the word, is a strong driving the role of values and reason in addressing force influencing all elements of society. developmental issues, including the protec- China wishes to accomplish these goals tion of the environment. China’s new ap- through fundamental shifts in the complex proach has global relevance, with the poten- relationships between environment and tial for contributing to a “harmonious world” economy, including in the use of an ex- based on a path of “peaceful development.” panded range of market and regulatory in- Premier Wen Jiabao has stated that: struments, specific implementation targets “As China’s development has shown and and timetables, and action consistent with will continue to show, a prosperous, demo- scientific development and innovation. A cratic, harmonious, civilized and modernized successful transformative approach to envi- China will make even greater contributions ronment and development will depend upon to maintaining world peace and promoting broad-based public support and participation human progress”3. and on international cooperation. The need These lofty ideals and welcome direc- is great for international leadership and ac- tions raise the issue of how Environment tion from a number of large countries, in- and Development action by China, other na- cluding China. tions and the international community can contribute to a Harmonious Society within

1 This is the Issues Paper prepared for AGM2008 by the CCICED Chief Advisors, Professor Shen Guofang and Dr. Arthur J. Han- son with the assistance of others in the Chief Advisors Group. 2 17th National Congress of the Communist Party of China. 3 Speech at the 2007 Summer World Economic Forum Meeting in Dalian.

Chapter Ⅱ Environment and Development for a Harmonious Society 15

China and globally. This is the subject of the Issues Papers. 2008 CCICED Issues Paper1. The link between a harmonious society and innovation is an interesting and poten- 2.1.2 Global threats tially a quite difficult one. On the one hand, both concepts share characteristics such as The 2008 AGM comes at a time of un- promoting creativity, public information precedented global financial market turmoil access, and participation in decisions. On the and the threat of severe global recession. Yet other hand, a fundamental issue is how to a large and growing ecological debt also reconcile the inherent interest in creating threatens humanity. This coming year will stability within a society while still providing test the commitment and capacity of all great room for the inherent instabilities asso- governments towards effective environmen- ciated with new ways of doing tal action. It is vital that promising pathways things—innovation. This may require a so- towards sustainable development in China phisticated recognition that rapid economic and globally not fall victim to tough eco- development and innovation will create the nomic times. It is via these pathways that fu- appearance of turbulence, but ultimately can ture prosperity and stability will be secured. lead to stability if conditions such as rea- The paper examines key challenges and op- sonably equal access to benefits and aware- tions. ness raising accompanies change.

2.1.3 Innovation 2.1.4 2008

This year’s AGM theme builds on dis- 2008 has been a very eventful year for cussions and recommendations concerning China: holding the very successful Beijing innovation from last year’s AGM, a CCICED Olympics; coping with major disasters in- Round Table Meeting held in April 2008, cluding unprecedented snowstorms and the and task forces providing interim or final Sichuan earthquake; staying the course of reports at the 2008 AGM2,3. CCICED be- economic development despite high oil pric- lieves that major commitments to innova- es, rapid increases in food and other com- tion via science and technology and through modity prices, seeking stabilization and institutional and behavioral change are es- reform to the global financial sector; and ad- sential to meet China’s commitment to dressing several crises of product contamina- create an environmentally-friendly society. tion, including melamine in milk. Therefore, we will continue to focus on in- It is also an important anniversary—30 novation as an organizing approach in our years after the Reform and Opening Up of

1 This paper has been prepared by the Chief Advisors to the CCICED, Dr. Arthur Hanson and Professor Shen Guofang , with inputs from the Chief Advisors Group. 2 CCICED Annual Policy Report 2007 Innovation for an Environmentally-Friendly Society; and Report of CCICED Roundtable Meeting 23-24 April 2008. 3 Task Forces on Innovation for Sustainable Development, Environment & Health presenting Final Reports; plus three Energy and Environment Interim Task Force Reports.

16 Harmonious Development through Innovation

China to modernization and globalization as during this year marking 20 years since the a consequence of Deng Xiaoping’s trans- world began to respond to recommendations formative policy shift. This Opening Up has in the Brundtland Commission’s report, Our led to profound social change and poverty Common Future3. reduction, massive economic growth, initial action to correct severe pollution and other 2.2 Harmonious Society Explained environmental problems, and international relations based around goals of trade, peace Harmonious Society is not a phrase and regional stability. widely used in western industrial countries, It is also almost 30 years since China even though all the OECD countries, among formulated its National Environmental Pro- others, strive to build a functional level of tection Law1. In March 2008 China formed social cohesion and agreement on pathways the new Ministry of Environmental Protec- that will lead to good quality of life and to tion (MEP), with Mr. Zhou Shengxian serv- happiness. Part of China’s challenge in ing as the first minister having full cabinet communicating with the rest of the world is status. China is now completing the third to provide a persuasive view that its vision of year of the 11th Five-Year Plan. There has Harmonious Society is one that is truly bene- been better progress this year towards ficial and in line with democratization and achieving the Plan’s environment and devel- efforts for improving social equity. opment objectives, but not enough2. Without further transformative changes in approach, 2.2.1 Definition it is likely that environmental improvements in China will continue along a linear pathway Harmonious Society, as described in while factors creating environmental degra- Chinese society from ancient times to today’s dation occur in an exponential fashion. That approach, is holistic and balanced in ap- is also the worry about climate change. proach. President Hu Jintao provides the Internationally, there has been consider- following description: able introspection about the limited progress “The harmonious socialist society that of sustainable development implementation we are trying to build features democracy,

1 This law came into effect on 26 December 1989, see MEP http://english.mep.gov.cn/ ; http://www.chinaenvironmentallaw.com/ ; http://www.greenlaw.org.cn/enblog/ 2 MEP The National Eleventh Five-year Plan for Environmental Protection (2005-2010) http://english.mep.gov.cn/Plans_Reports/ 11th_five_year_plan 3 These reviews and scenarios generally suggest future disharmony globally and the need for early action to avoid systematic environ- mental and societal breakdown. All call for transformative action at a societal level. These perspectives include the following reports and books: UNEP. November 2007. GEO 4 Global Environment Outlook. Environment for Development. UNEP, Nairobi. 539 pp.; OECD. March 2008. OECD Environmental Outlook to 2030. Summary and full report OECD, Paris.; Shell International. April 2008. Shell Energy Scenarios to 2050. 48 pp.; Gus Speth. 2008. The Bridge at the Edge of the World. Capitalism, the Environment and Crossing from Crisis to Sustainability. Yale University Press, New Haven. 295 pp.; Lord Nicholas Stern. April 2008. Key Elements of a Global Climate Change Deal. London School of Economics and Political Science. 56 pp.; Fred Krupp and Miriam Horn. March, 2008. Earth: The Sequel: The Race to Reinvent Energy and Stop Global Warming. W.W. Norton and Company. 279 pp.

Chapter Ⅱ Environment and Development for a Harmonious Society 17 rule of law, fairness, justice, honesty, frater- ment); (2) in regional development (assistance nity, dynamism, stability, orderliness, and to poorer areas); (3) between economic and harmony between man and nature. Democ- social development (health, education, em- racy and rule of law means that socialist de- ployment opportunities); (4) between eco- mocracy is brought into full play, the basic nomic development and environment (re- policy of rule of law is implemented, and the source use and environmental protection); (5) positive elements of various sides are fully between domestic development and open- mobilized. Fairness and justice means that ing-up policy (domestic market growth and the interests of various social sectors are ap- international trade). Since these elements are propriately coordinated, civil conflicts and linked, it is necessary to address environment other social conflicts are correctly handled, and development with respect to all five. and social fairness and justice is defended and realized. Honesty and fraternity means 2.2.3 Measuring progress that everyone helps one another, honesty prevails in the society, and the people live Measurement of progress on achieving a next to each other in harmony with equality harmonious society will be difficult. In China as and fraternity. Dynamism means that every elsewhere, there is recognition that various creative wish that is conducive to social de- standard measures of progress such as GDP velopment will be respected, creative activi- increase are inadequate2. Indeed, China’s efforts ties will be supported, creative talents will be to construct a Green GDP index reveal that a given free rein, and creative accomplishments substantial portion of China’s phenomenal will be acknowledged. Stability and order- economic growth is offset by environmental liness means sound social organization me- damage. China’s policies are intended to take chanisms, social management, and social or- “People as a First Priority”. The emphasis on der: people live and work in peace and con- people’s well-being can be translated into a tentment; social stability and unity are main- substantial number of concerns related to en- tained. Harmony between man and nature vironment, including: poverty reduction, pollu- means economic development, wealthy life tion reduction, ecosystem stability and services, and balanced ecology1”. health and environment, disaster management, and improved welfare and quality of life. The 2.2.2 Five harmonization elements UN Human Development Index is a helpful measure for some of these concerns. Progress The following harmonization elements are on achieving the Millennium Development emphasized in current government policy: Goals within China is a remarkable achieve- (1) in the development of urban and rural ment3. Yet all of the measures cited are still in- areas (greater priority for rural develop- sufficient to cover the range of aspirations set

1 Bo Guili. 2005. The Role of Chinese Government in Building a Harmonious Society. China National School of Administration. 7 pp. Quote by President Hu on p 2. 2 OECD’s project on Global Progress on Measuring the Progress of Societies provides many examples of research on alternative measures. 3 MDGs: China’s Progress towards the Millennium Development Goals 2008. China and UNDP.

18 Harmonious Development through Innovation out by China. The implications for monitoring their speeches. It needs to be transformed environment and development in the context into tangible measures that will change the of a harmonious society need further research. way our economy develops. But it is never enough for the concept to 2.2.4 Ecological civilization be understood as environmental protection only and neither is it adequate for it to be The broadest Harmonious Society comprehended as a supporting tool only for thinking has been statements concerning balanced economic development. With its transformations within China and globally definition containing a much broader mean- towards an Ecological Civilization1. An ar- ing, the concept emphasizes the cultural di- ticle in the China Daily just after the 17th mension of development. CPC reflected on the need for changed In this dimension, we need to put our perspectives: relationship with nature into a new perspec- “This concept reflects an important tive: We need to consider nature as part of change in the Party’s understanding of de- our life rather than something we can exploit velopment. Rather than emphasizing eco- without restraint. nomic construction as the core of develop- Also in this dimension, social justice and ment as it did in the past, the Party authori- fairness must be of great concern in develop- ties have come to realize that development, ment. We cannot expect to maintain ecological if sustainable, must entail a list of elements balance in a political sense unless we can make including the right relationship between man sure that disadvantaged social groups can fairly and nature. enjoy the benefits of development. This concept is proposed at a time when From the Outlook on Scientific Devel- 62% of the country’s major rivers are se- opment to harmonious development and riously polluted, 90 percent of waterways ecological civilization, we can see where the flowing through urban areas are contami- Party is trying to orientate the country’s nated, more than 300 million residents are economic development and social yet to have clean water to drink, and quite a progress2”. number of localities fail to fulfill the required This notion of an Ecological Civilization quotas for pollutant emission reduction and is in line with China’s domestic efforts to energy saving. build a resource-efficient, environmental- Facing such a reality, the construction of ly-friendly society, a Circular Economy3, a ecological civilization was absolutely not Low Carbon Economy, and to become a rhetoric for chest thumping by officials in Xiaokang Society. These approaches reflect

1 Pan Yue. 2005. Ecological Civilization; and 17th Party Congress statements. 2 China Daily 24 October 2007. Ecological Civilization. 3 The Law on Promotion of a Circular Economy was passed on 29 August 2008 by the NPC Standing Committee and will take effect at the beginning of 2009.

Chapter Ⅱ Environment and Development for a Harmonious Society 19 the reality of China’s situation and needs. It for it to be seen as a secondary participant or is impossible for China to achieve its devel- as an observer. China has demonstrated that opment along the wasteful lines followed it is an innovator on economic development over the last few hundred years by western and it will demonstrate that it is an innovator societies. The planet will not bear the envi- on environment and development. ronmental burden and it is a pattern of de- velopment inconsistent with Chinese cultural 2.3 International Experience ways1. For example the USA and China are believed to be the two nations with the larg- Some scientists argue that we have en- est ecological footprints, although the USA tered the Anthropocene, a period where human population is less than a quarter the size of intervention has become a dominant factor China’s2. affecting the Earth’s ecology and natural cycles. This underscores China’s concern for 2.2.5 Leading by doing widespread action to create an Ecological Ci- vilization. At the October 2008 IUCN World The path taken by 1.3 billion people Congress, members of this global voice for cannot fail to have an impact on the world. environment and development debated their This is a key point of China’s potential im- vision for a new global transition for sustai- portance in persuading other countries to nability3. In the words of IUCN’s Director follow a path toward an Ecological Civiliza- General, Julia Marton-Lefevre “We need a tion. Perhaps this concept proposed by Chi- new era of conservation that creates a social na—and the actions that follow from movement for change and relates to the na- it—could become the embodiment of Our ture of everyday living – one that embraces Common Future for today’s and tomorrow’s sustainable lifestyles and livelihoods as well generations worldwide. as endangered species and spaces.” The Internationally, China has taken a rela- IUCN document provides at least a partial tively low profile over these past decades as it roadmap towards the vision of an Ecological began its ascent towards its full position of Civilization. China’s efforts could help realize influence in global society. It has participated this vision for one-fifth of the world’s popu- in many multilateral arrangements for envi- lation and influence others’ efforts. ronment and development and has engaged The desire for a conservation philosophy in scientific, business and developmental re- has been with humanity for many thousands lations with countries and people throughout of years. Yet it has been exceptionally diffi- the world. Now perhaps, it is impossible for cult to implement in modern affluent socie- China not to be in a leadership role. The ties and in situations of significant poverty. It country’s actions are simply too important

1 The CCICED-WWF report on China’s Ecological Footprint shows the low per capita ecological footprint of China, but also the implications of a rise in consumption levels in a world already stressed beyond its long-term capacity to meet human and ecological resource and environmental needs. 2 “The USA and China have the largest national footprints, each in total about 21% of global biocapacity, but US citizens each require an average of 9.4 global ha (or nearly 4.5 Planet Earths if the global population had US consumption patterns) while Chinese citizens use on average 2.1 global ha per person” Source: WWF. October, 2008. Living Planet Report. http://www.panda.org/index.cfm?uNewsID=148922

3 IUCN. September 2008. Transition to Sustainability: Towards a Humane and Diverse World. Gland, Switzerland. 107 pp. 20 Harmonious Development through Innovation is apparent that the impacts of high con- “Unity in Diversity”, including urban and sumption affect ecological conditions global- rural views, at least four major cultural ly and that gross over-consumption can set groups, and a strong, diversified economic off unintended financial consequences such base. A good environment, especially rural as the current credit and economic crisis now landscapes, is considered a key national and affecting the entire world. Furthermore, al- local asset that needs to be well protected though the global environmental agreements for millennia. contribute to harmony among nations and Norway is a nation that appears to have across boundaries of culture, religion, etc., developed a harmonious society through a they are progressing far too slowly in their combination of factors that includes: (1) re- implementation at national levels. Despite spect for stable land ownership, including this gloomy picture, there are lessons to be systems that discourage consolidation or ex- learned from various positive experiences in cessive subdivision of family farms; (2) both rich nations and poor. Here, we have co-management and planning locally for sus- space to cover only a very limited number of tainable natural resource use; (3) maintaining examples. equity between rural and urban lifestyles and among different occupations; (4) proactive 2.3.1 Positive national experiences environmental planning and incentive-setting to address environmental concerns before Nations that lead in the UNDP Human they get out of hand; (5) concern for future Development Index, the Yale-Davos Envi- generations through the creation of sove- ronmental Sustainability Index, and other in- reign wealth funds; and (6) investment in dices of well being, are of special interest technology innovation for sustainable devel- also from the perspective of how they seek opment. Norway, with other Nordic nations, harmony in their development1. All those has played important roles in seeking global listed among the top 10 to 20 nations em- harmonious development, as well, through phasize environmental quality within a their high profile on international environ- broader quest for high quality of life. ment and development matters and through In Europe, the efforts to create harmo- the attention and funding they bring to in- nious societies appear to be particularly suc- ternational development cooperation. cessful in some smaller countries, such as the Canada is quite a relevant example, given Scandinavian countries and Switzerland. its geographic size and range of ecosystems, Given its position at a cultural and linguistic administrative complexity, and emphasis on crossroads, Switzerland is particularly inter- multicultural harmony. Box 1 identifies sev- esting. It has developed a democratic gover- eral examples of institutions, management

1 Other indices and research efforts include the Global Peace Index http://www.visionof humanity.org ; GNH Gross National Happiness; Well-being of Nations Index; Happy Planet Index of the New Economics Foundation. nance system that operates at the local approaches, and mechanisms intended to ‘canton’ level upwards. There is genuine build cooperation around environment and

Chapter Ⅱ Environment and Development for a Harmonious Society 21 development. A substantial amount of Can- oped relevant experience. One of the most ada’s efforts are directed towards feder- dramatic examples in recent decades has al-provincial harmonization and to address- been the efforts of Costa Rica to build an ing Canada-US issues in a cooperative fa- economy focused on ecological restoration shion. Canada has tried comprehensive ap- of its forest lands and on the value of its bi- proaches such as the Projet de Société, initiated ological diversity for ecotourism and other in 1992 to develop a broad societal consen- direct benefits2. The effort has been suc- sus around environment and development, cessful because of the country’s social in- but these have not thrived. vestments, especially for health and educa- Japan, especially in its post-war efforts to tion. Also, Costa Rica has developed a parti- build a resource-efficient society, protect its cipatory governance system and invested in forests, and construct environmentally science and technology for sustainable use of friendly cities and towns, has created models its ecosystems. for a harmonious society. These strengths in- clude unique government-industrial rela- Box 2-1 Canadian Environment and tionships that sometimes foster remarkable Development Approaches for progress on environmental innovation, for Harmonization example, Toyota’s leadership in automobile Canada faces some of the same innovation and Keidanren corporate social types of challenges as China in terms responsibility1. Yet in past decades Japan’s of the range of development con- progress was sometimes at the expense of a cerns in its various regions, income complex ecological footprint such as the disparities and rural-urban divides, the damage created through tropical forest need for ecological stewardship, an supply chains. Furthermore, despite the per- export-driven economy, concern for ception of being a relatively homogenous harmonious relations with neighbor- and harmonious society, the people of Japan ing countries, and various security is- hold strong and differentiated views. An sues, especially in marine and coastal example is the prolonged land use and en- areas and those related to climate vironmental disputes that surrounded the change. Canada is a federation of construction of Narita Airport. Japan’s provinces and territories that hold harmonious relationship with nature stems, significant natural resource manage- in part, from religious belief, especially ment and other responsibilities. There Shintō where “nature is whole; it is clean is a high level of public participation and inherently good.”

1 http://www.keidanren.or.jp/english/policy/csr.html 2 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/COSTARICAEXTN/0,,contentMDK:20232979~ pagePK:141137~piPK:141127~theSitePK:295413,00.html ; Honey, M. 1999. Ecotourism and Sustainable Development. Who owns Paradise? Island Press, Washington D.C. Several developing countries have devel- in governmental decision-making and

22 Harmonious Development through Innovation

a variety of channels exists to ensure tal concerns in border regions. The this happens. While often there ap- IJC has been particularly effective on pears to be disagreement, impasses, complex concerns related to the Great etc., there are many examples of how Lakes. It operates via government the mechanisms in place for environ- references and provides for stake- ment and development do help to holder and government inputs. improve social harmony, justice and CEC – The Commission on En- quality of life—all factors in why vironmental Cooperation operates Canada has ranked among the top within the framework of the NAFTA countries on indices such as the Free Trade Agreement between Can- UNDP Development Index and the ada, Mexico, and the US. It develops Yale-Davos ESI. common strategies for the continent Example Institutions on management of biodiversity, pro- CCME – The Canadian Council duces a State of the Environment re- of Ministers of the Environment has port for North America, and produc- been in existence for more than 40 es other reports such as release or years. It is “the principal forum for toxic substances by various states and members to develop national strate- provinces. CEC has a formal citizen gies, norms, and guidelines that each complaint process to investigate situa- environment ministry across the tions where a country may not be en- country can use”, operating by con- forcing its environmental laws ade- sensus. It has produced harmonized quately for a specific issue. guidelines that enhance efficiency and Example Management Ap- certainty across the country, especially proaches for business endeavors. Co-management Agreements – A NRTEE – The National Round growing number of formal agree- Table on the Environment and ments between the federal govern- Economy was established 20 years ment and resource users have been ago to seek common ground among developed to share responsibility on industry, government and civil society specific natural resource management on specific environment and devel- situations. Most of these have been opment concerns and transmits this worked out with the First Nations and advice to members of the federal the Inuit. The creation of Nunavut, a cabinet. It builds its views with consi- new territorial government in the derable input from the public. eastern Arctic, is an example where IJC – The International Joint co-management is enshrined and cov- Commission is comprised of an equal ers fish and wildlife among other top- number of US and Canadian Com- ics. Another prominent agreement is missioners who address environmen- for the management of the Gwaii

Chapter Ⅱ Environment and Development for a Harmonious Society 23

Haanas National Park Reserve on the several major studies. These have led BC coast, with responsibility shared to the arms-length Nuclear Waste between the Haida First Nation and Management Organization. Nuclear Canada. power plants are putting substantial LRMP – British Columbia faced funding into a trust fund until there is acrimony bordering on violence and agreement on location for a perma- loss of some export markets over its nent waste storage site. This site will forest management practices during the be selected only from one or more 1980s and early 1990s. An integrated communities that express interest in Land and Resource Management Plan having such a site and with inputs for each forest region was developed by from many stakeholders. This is in- the Provincial Government in a highly tended to avoid NIMBY (“Not In My structured, participatory fashion to Back Yard”) debates. achieve agreement among stakeholders. Intervenor Funding for Envi- This approach has been coupled with ronmental Assessment and Monitor- the development of a major system of ing – A persistent concern has been protected areas in BC. Versions of providing sufficient funding so that LRMP now exist elsewhere. key stakeholders can participate in FCM-Green Municipal Fund – environmental hearings on an equal The Federation of Canadian Munici- footing with business and govern- palities is an independent body ment. These funds are generally built representing all Canadian cities and into major environmental assess- towns—large and small. Through the ments, for example, in the Mackenzie Green Municipal Fund the Federal Valley pipeline project, one of Cana- government entrusts FCM with sub- da’s biggest projects proposed at stantial funding for environment and present. sustainable development projects, in- cluding water treatment, air pollution An example of regional effort is in the control, brownfield restoration, and Amazon Basin of South America. There is a other initiatives of interest to the mu- need to protect the rights and economic nicipalities. This approach ensures needs of indigenous tribes, provide oppor- that interests and priorities of the tunities for poor farmers and others, and to municipalities can be addressed, while adequately protect the biodiversity and eco- ensuring a transparent and competi- logical integrity of this vast region. The Re- tive process. publics of Bolivia, Brazil, Colombia, Ecua- Environmental Justice dor, Guyana, Peru, Suriname, and Venezuela NWMO – Long-term manage- must cooperate on the Amazon. They signed ment of Canada’s nuclear wastes has a 1978 Treaty for “harmonious develop- been a contentious concern subject to ment” of the Amazon, and in 1995 the

24 Harmonious Development through Innovation

ACTO, the Amazon Cooperation Treaty Or- specific groups for co-management or com- ganization was established to conduct work munity-based management of environmental in support of biodiversity conservation and resources, including habitat, fisheries, and other needs. This body is an adjunct to the forests. In some cases land and resource national efforts of countries such as Brazil. ownership is ceded to local interests. Such mechanisms have the potential for improving 2.3.2 Community-based initiatives stewardship of the environment, while also leading to greater harmony and innovative Harmony within societies at local levels institutions for managing, for example, bio- depends upon relationships involving envi- diversity and water resources. ronmental impacts, social justice issues such as exposure to pollution or lack of basic 2.3.3 Corporate policies needs such as clean drinking water, and eco- nomic factors such as employment oppor- Some of the most interesting and signif- tunities associated with local resource devel- icant environmental efforts for societal har- opment. Problems often are traced to situa- mony happen through the interplay of gov- tions of gender inequality, discrimination ernment, industry and civil society, either at against minorities or poorer people who live the level of individual enterprises, or at a and/or work in more dangerous and unheal- sectoral level through industry associations, thy situations. Both the World Conservation or sometimes via cooperative efforts involv- Organization (IUCN) through its Conservation ing government, non-governmental, or for Poverty Reduction Initiative1 and the UNDP community organizations. The government’s though its Equator Initiative Prize2, have do- role is to set standards and to create an cumented hundreds of situations where en- enabling situation where industries can meet vironmental objectives are being met by challenges in an efficient fashion. Industry communities fostering harmonious relations efforts are driven by various motives, includ- locally and with national governments. ing: the desire to avoid excessive regulation, Throughout the world there has been a the right to operate in communities, corpo- move towards decentralization of environ- rate social responsibility (CSR)3, access to fi- mental and natural resource management. nancing and insurance, risk reduction, and Sometimes, such as the case of Indonesia, the Responsible Care Program of the chem- this has been to move stewardship responsi- ical industry (and now many other sectors); bilities directly from national to local kabupa- many gas, oil, and mining initiatives; and the ten (county) level. In some countries, nego- move towards socially and environmentally tiated arrangements have been made with responsible forestry throughout the world.

1 http://www.iucn.org/about/work/initiatives/sp_cprihome/index.cfm 2 http://www.equatorinitiative.org/ 3 For overview on China, see Geoffrey See. 2008. Mapping the Harmonious Society and CSR Link1. Wharton Research Scholars Journal. U of Pennsylvania. http://repository.upenn.edu/cgi/viewcontent.cgi?article=1047&context=wharton_research_scholars

Chapter Ⅱ Environment and Development for a Harmonious Society 25

There are many local, national, and interna- part of environmental management and sus- tional organizations that help to make these tainable development. This is a means of cooperative sectoral efforts credible and ef- improving power sharing and therefore in- fective. They include CSR advocates and creasing the potential for greater harmony in monitoring bodies, standard-setting and certi- social relationships. fication organizations such as the Forest Ste- The UN Fourth World Conference on wardship Council (FSC), and ethical banking Women was held in Beijing in 1995 and set for project financing1,2. Major environmental the basis for many of today’s considerations organizations such as the WWF, the World on the role of women in sustainable devel- Resources Institute, and international bodies opment. China’s equality provisions in its such as UNEP play important roles through constitution and laws and its adhesion to the their convening power, research, and ability to International Convention for the Elimination provide credible, independent views. of Discrimination Against Women (CEDAW) provide a good basis for further action on 2.3.4 Gender and environment gender and environment. China is well-positioned to promote this element in In recent times greater attention is being seeking a harmonious society3. given to gender and environment relation- ships, especially in rural areas where women 2.3.5 Three key issues facing the global and children may be severely affected by community poor indoor air quality, or by issues such as pesticide use that may affect reproductive (1) Addressing Imbalances in Globaliza- health, or from natural resource and other tion Benefits and Costs. development projects that fail to provide suf- At the March 2008 China Development ficient benefits oriented towards women. The Forum, Angel Gurria, OECD Secre- UN Millennium Development Goals high- tary-General noted that while globalization light the need for gender sensitivity; this has reduced poverty, especially within China, theme is important for all international de- some 40% of global assets are now in the velopment agencies. Access to social benefits, hands of only 1% of the world’s adults4. including good health care and equality in Even within many of the world’s richest na- education opportunities, are essential if all tions, including 17 of 24 OECD nations, citizens are to be informed and capable of child poverty has increased during the past contributing to environmental improvement. decade. His conclusion is that “Globalization Gender mainstreaming is becoming an essential is inevitable, but it is intrinsically neither

1 WBCSD, Global Reporting Initiative, UN Global Compact, CSRChina.net, etc. 2 Equator Principles http://www.equator-principles.com/index.shtml 3 CCICED has prepared a Gender Equality Strategy to guide its own work. CCICED Secretariat and Secretariat Int’l Support Office. July 2008. pp. 15; The Tenth National Women’s Congress was held in October 2008, pledging measures to narrow female-male in- come gaps and to improve women’s ability to participate in science and technology innovation, and to enhance participation in deci- sion-making bodies. 4 Working in Partnership for a Harmonious Globalisation. Speech by Angel Gurria. March 2008. Beijing. http://www.oecd.org/ document/38/0,3343,en_2649_201185_40333606_1_1_1_1,00.html

26 Harmonious Development through Innovation good nor bad. It is our policy responses that itself. make the difference.” (2) Renewed Attention to Regulation. Mr. Gurria focused on several important Over the past 25 years the power of matters where the responses of both devel- markets has been celebrated—not only for oped and developing countries needs to be unleashing creativity leading to high eco- well-coordinated if we are to have a more nomic growth, but also as an opportunity for harmonious form of globalization: stabiliz- improving competitiveness and for decreas- ing and improving the factors of economic ing the need for command and control regu- growth worldwide; tackling climate change lation. In particular, if macroeconomic con- with a viable cost-sharing formula between ditions can be properly set and if macropoli- the richer and poorer nations; restoring the cies are in place to meet some of the con- ethical dimension of economics so that po- cerns related to social and environmental ex- verty can be firmly addressed in the context ternalities, then market-based instruments of producing more harmonious societies; should be successful supplements to breaking the deadlock of the Doha Devel- slimmed-down regulatory frameworks. Over opment Agenda (DDA) of trade reform1; time market-based approaches have pro- and addressing internal migration in the duced dazzling results in the rapid growth of context of aging populations and other fac- economies. They have led to concepts such tors. as “smart regulation” that rely upon The imbalances of globalization created self-regulation and limited governmental within a country such as China are seen as checks and balances, and upon the opening interlocked challenges that now urgently of markets to new influences and purposes need to be addressed including: income in- beyond their originally intended purpose, for equality and regional disparities; the right example, commodity markets as a place for balance between rural and urban develop- speculative trading beyond the purpose of ment; high consumption of natural resources spreading risk for producers. and great need for cleaner energy; and im- The powerful message arising from the proved environmental quality2. Certainly financial meltdown that has occurred this fall other developing countries face similar chal- is that self-interest of even the richest and lenges. Gurria notes that the list is in fact most powerful financial institutions can be similar to the challenges faced by OECD na- misdirected. Recent years have demonstrated tions. Therefore it is desirable to find solu- other important flaws in some fundamental tions that reinforce the overall strength of decisions related to market-based approaches. global society. He indicates that the concept Specifically, on environmental externalities, of “harmonious development” of China is market failure is common and not easy to very close to the “core mandate” of OECD overcome. Second, as the recent turmoil in

1 http://www.wto.org/english/tratop_e/dda_e/dda_e.htm 2 Angel Gurria. 2008.

Chapter Ⅱ Environment and Development for a Harmonious Society 27 world markets has demonstrated, when fun- new balance for regulatory systems. It is at- damental safeguards on the financial sector tractive to consider this possibility for several are ignored or removed, the systemic effects reasons. First, a great deal of theoretical ef- will be widespread to the point where these fort and some good practical experience ex- effects are a threat to both development and ists on how a balance can be found between environment worldwide. The havoc wreaked market-based and other regulatory ap- by high oil prices, for example, compromised proaches. Much of the work relates to pric- the ability of governments to move towards ing and incentives, where necessary standards a systemic approach towards pricing carbon. and understanding of potential environmen- Third, when regulatory breakdown occurs tal benefits are already available. either at the producing or distribution end, The second reason is the urgency of ad- consumers pay a price in terms of environ- dressing environmental matters in the con- mental health with backlash felt on trade. text of the new economic realities facing the This has been demonstrated repeatedly over world. Past economic downturns have led to this past year as China faced problems with increased environmental disruptions such as heavy metal contaminants in toys and mela- the effects on forest land-use and small-scale mine, first in pet foods and then in the milk mining in the aftermath of the Asian Melt- scandal. These contamination problems are down of 1997. Climate change mitigation viewed as not only inadequacies within the and adaptation should be incorporated into Chinese regulatory systems1, but also of the priorities associated with national and in- those countries and companies that are in- ternational financial restructuring. These will adequately regulating and monitoring quality be among the world’s largest financing needs of products before they reach consumers. over the coming decades. Climate change will We can expect a renewed focus on regu- require continued building of new markets lation of all types. This focus will not reject such as the sale of carbon credits. market-based regulation, hopefully, but it will A third reason is the comprehensive na- emphasize the need for much stronger and ture of sustainable development. From its more effective regulatory frameworks in start, sustainable development has focused which markets should function better. The on the interlocked nature of economic and implication is that monitoring needs to be a environmental concerns and on how treating more prominent component so that impro- the environment responsibly will provide per behaviour can be caught and dealt with at substantial social benefits, including greater an earlier stage. Ultimately there must be equity. As regulatory regimes get reviewed, it sanctions that operate at a level sufficient to is important that they be based on sustaina- deter such behavior. ble development principles and support in- An important question is whether envi- tegrative objectives, for example, those sup- ronment and sustainable development con- porting environment and public health, and siderations can lead the way in developing a that they promote preventive action on pol-

1 Willy Lam. October 2008. Milk Powder Scandal Exposes China’s Worsening Administrative Malaise. China Brief. Jamestown Foun- dation. Vol. 8, Issue 19.

28 Harmonious Development through Innovation lution and excessive resource consumption. action was quite possible. Now, during this China is in a relatively strong position for period of economic recovery and greater this renewed attention to regulation. It has hardship for many, there is a serious need to made a point of developing a “socialist mar- increase momentum, and use these goals as ket economy” with opportunities to adjust building blocks for more sustainable ap- raw market forces. China also is still in the proaches to development. design stage of its approach to “rule of law” The key selling point certainly can start and to the opening up of its financial sector. with the contribution each accord could China has the buffer of substantial financial make toward improved investment results. reserves and a population oriented towards Should rich countries reduce their high level savings rather than excessive consumption. of agricultural subsidies, including new ones, Hopefully these attributes can be used not and generally ill-conceived subsidies for bio- only to minimize some of the damage being fuels from corn and grain1? How can trade created elsewhere by the current turmoil, but barriers reducing and international develop- also to ensure that China’s own financial ment assistance be targeted even more di- commitment both to environment and to the rectly towards meeting the MDG goals, in- innovation required for implementation of cluding transfer of experience from the most scientific development can be sustained. successful country of all, China? And how China likely will be of great help to other na- can innovative financing for climate change tions and the world community in the critical action be increased in a way that contributes months and year ahead. to renewed economic growth? Such ques- (3) Effective Action on Global Agree- tions are not really new to any of us, but they ments for Environment, Economy and De- take on new meaning in a time of severe velopment. global downturn. Achieving agreement on steps to be tak- If we need to be reminded about how en and actual progress under several global serious the overall environment and devel- accords—particularly those on climate opment situation is, or could become, it is change and on biodiversity, on the Millen- only necessary to see how quickly the ga- nium Development Goals, and on full ac- thering storm of climate change effects has ceptance of the Doha Development Agen- become apparent and how missing the 2015 da—has been on the most important “to do” targets of the MDGs will expose the world list for environment and development of the to further disharmony and human misery world community for several years. The li- arising from poverty.

1 This topic is explored in specific countries, including the USA and China in a series of reports produced by the Global Subsidies In- itiative. The report on China, Biofuels - At What Cost? Government Support for Ethanol and Biodiesel in China. Is available at http://www.iisd.org mited success has been disappointing, espe- cially since many countries have passed through a period of great prosperity when

Chapter Ⅱ Environment and Development for a Harmonious Society 29

2.3.6 Addressing convergent crises social unrest. Environmental degradation is sometimes the serious consequence of pro- A significant international debate has longed crisis cycles, for example civil strife emerged concerning the potential for the and war in many developing nations, gradual collapse of societies and even civilizations loss in ecosystem productivity and services from environmental crises1. This debate cov- arising from repeated droughts, or systemic ers the far end of the spectrum of dishar- pollution such as acid rain. mony associated with environmental change Over the past decade China appears to and impacts. There are other possibilities se- have developed a considerable level of resi- riously discussed, for example, concern ex- lience in addressing convergent crises. It was pressed by senior EU officials about climate able to avoid the worst consequences of the change refugees flooding Europe, or Japan’s “Asian Financial Meltdown” in the late 1990s plan to repatriate all its citizens living abroad and at the same time turned the major crisis in the event of a global pandemic2,3. Addi- of severe flooding arising from El Niño into tionally and of a more immediate nature are an opportunity for ecological restoration of the major short-term dislocations of millions damaged uplands. In 2008, China has once of people that now routinely happen in the again been put to the severe test of several USA, China and elsewhere as a consequence major natural disasters while at the same time of severe weather events such as hurricanes, having to deal with serious inflation and in- typhoons and cyclones. Such efforts to pro- ternational energy, food, and financial market tect populations at risk promote social har- crises. It is clear that China has strengthened mony. China should be applauded for its ef- its capacity to respond quickly and definitively, forts to improve weather monitoring, early although problems remain (Box 2-2). warning systems, and planning to achieve rapid evacuation when weather or other natu- Box 2-2 Some Lessons from the 2008 ral threats occur. The two environmental Wenchuan Earthquake monitoring satellites launched in September The economic growth and devel- 2008 will help these efforts4. opment modes need to be improved. Societies no longer can deal with indi- During the development process, vidual crises in isolation. There is a tendency science and objective rules should be for convergent crises to develop. Effects of respected and the development direc- an international financial crisis may affect tion, sectoral and industrial distribu- food supply, at a time of serious drought tion, urban construction and devel- within a country or region, which may lead to

1 Jared M. Diamond. 2005. Collapse: How Societies Choose to Fail or Succeed; T. Homer-Dixon. 2006. The Upside of Down. Ca- tastrophe, Creativity and the Renewal of Civilization. Random House of Canada; James Lovelock. 2006. The Revenge of Gaia: Why the Earth Is Fighting Back - and How We Can Still Save Humanity. Allen Lane. 2 Ian Traynor. 10 March 2008. EU Told to Prepare for Flood of Climate Change Migrants. The Guardian. 3 Asahi Shimbun. 11 April 2008. SDF to Retrieve Japanese if New Flu Hits Abroad. 4 8 Sept 2008. Chinese Vice Premier Hails Launching of Disaster-monitoring Satellites. http://news.xinhuanet.com/english/2008-09/06/content_9810515.htm

30 Harmonious Development through Innovation

opment layout, etc., need to be scien- ties and villages built under the prin- tifically proven and planned. It is ne- ciples of sustainable development cessary to set up an effective social su- from the planning stage through to pervision system and mechanisms to the management and administration guide the whole society and ensure that of the completed infrastructure. the economy develops along a good, (Extracted from a longer report sequential, and sustainable track: prepared for this Issues paper by Yu The social mechanism to respond Hai of the PRCEE in MEP) to natural disasters must be improved and regulated. This includes the estab- The way forward should include a clearer lishment of warning the emergency approach for turning crisis responses towards response system against natural disas- sustainable development. This will become ters, the improvement of information more urgent as climate change effects become transparency to promote wider public more prevalent throughout China. Climate participation, the establishment of ef- change adaptation needs to be directed not fective disaster insurance systems, and only towards crisis avoidance, but also to formal control and supervision me- creating sustainable development strategies in chanisms on modern social charity. key sectors based on the presumption of se- Awareness and strengthen capacity rious “surprises” that are characteristic of building must be improved. It is espe- complex interactions among crises. Many of cially necessary to popularize the educa- the effects of severe natural disasters are really tion and knowledge on natural disasters the effects of poor planning, corruption, to improve awareness and safety know- management, and supervision decisions, ledge, thus to enable people to protect which together make populations vulnerable. themselves and rescue others when dis- asters take place. At the same time, the 2.4 China’s Challenges technology and capacity to tackle natu- ral disasters need to be strengthened, in- cluding research and development of 2.4.1 Economic growth model, volatile rescue technology and equipments and markets and recession training of rescue professionals. Guiding the disaster-hit region Others have pointed out China’s difficul- reconstruction with the concept of ties associated with the current economic scientific development is necessary. growth model. There is growing inequality as Post-disaster reconstruction should measured by the internationally-recognized not simply restore the original status. Gini Coefficient, which has grown from 0.29 This false goal will not lead to scien- to 0.411. Joseph Stiglitz calls for distributive tific, rational and harmonized new ci- impacts being a part of every policy decision,

1 Joseph Stiglitz. 2008. Towards a More Sustainable Growth Strategy for China. Presentation at CCER, Peking University.

Chapter Ⅱ Environment and Development for a Harmonious Society 31 focusing on a good balance between the including its large and growing domestic market and government regulatory system, market, budget surplus, and huge financial an improved property rights legal framework, reserves. Premier Wen has suggested recently and a broader tax system that places less that “If a large country of 1.3 billion people emphasis on value-added tax. He points out can keep up stable and relatively fast eco- that, based on the experience of the US and nomic growth, that is a big contribution to elsewhere, weakening social protections goes the world.” (Xinhua) counter to a Harmonious Society and may The environment and development chal- interfere with future productivity. Specifically, lenge is to avoid responding to the economic Prof. Stiglitz cites the low investment in downturn by sacrificing existing environmen- education and schooling (e.g., in the period tal gains or by cutting back on future sustaina- 2002-2005, China spent about 1.9% of GDP ble development. There are three specific mat- on education and about 5% on health; Brazil, ters for consideration: (1) how to accelerate by comparison spent 4.4% and 8.8%); and employment and revenue opportunities asso- the lack of access to health insurance for ciated with environmental protection initia- many families. He calls for a new economic tives and innovation, especially in water and model where innovation can help provide a air pollution, solid waste, and energy and focus on saving resources, not saving labor. climate change problems; (2) how to increase Such a model, in the opinion of Stiglitz, will the flow of funding to China’s rural country- lead to a more harmonious society while side through environmental protection initia- providing for the long-term, robust growth tives of direct benefit to local people and to that will give China a competitive edge inter- support ecological services for the nation; nationally. and (3) how to increase the contribution and China’s Vice Minister of Finance believes efficiency of private sector efforts and financing sustainable economic development therefore relieve some of the burden on will provide the “material foundation for a government. harmonious society.” The Government in its At this time of very tight credit abroad, budgets will give top priority to key factors which will affect start-up environmental contributing to this objective including: “suf- technology companies around the world and ficient supplies of qualified workers and cap- therefore the rate at which environmental ital, technological innovation, and the capa- innovations will become commercially viable, bility of resources and environment to sus- Chinese financing and access to Chinese tain rapid economic development”1. markets might prove valuable. Joint ventures China appears to be uniquely positioned could be encouraged, potentially under high- among all nations during the current world ly favorable conditions for China. It may also financial crisis and recession. While not im- be a good time for China to invest in mune to negative impacts, it also has buffers well-established environmental companies

1 Xinhua News Agency. 29 June, 2008. Govt’s Budget Targets Education, Innovation, Environment. www.china.org.cn

32 Harmonious Development through Innovation abroad in anticipation of future opportuni- ing the experience gained in the advanced ties in fields such as water sanitation and re- measures for environmental protection, in- newable energy. cluding vehicle controls, advanced building This is also a time when China might design, and Circular Economy applications. work with other nations to ensure that banks People throughout China and throughout the and other elements of the financial sector world now have a better appreciation of the further develop environmental safeguards in magnitude of China’s environment and de- their lending practices, insurance policies, velopment situation and the efforts and the and “green investing.” This is a new topic for large expenditures involved in environmental China, but an exceedingly important one. It cleanup. The challenge remains as to how also relates to Corporate Social Responsibili- Beijing can continue to experience the clean- ty implementation for companies operating er air exhibited in August 2008—and better, within China and Chinese firms operating and how the environmental benefits seen in abroad. Beijing can spread to other locations throughout China, given the great financial 2.4.2 Olympic games “green experience” effort required for one major city. How can other nations learn from these undertakings? The 2008 Beijing Olympics and Para- The Olympics were really a celebration lympics have left a lasting impression domes- of the 30 years of Opening Up and Reform tically and internationally of China’s efforts that made China a candidate to host the to come to grips with its environmental pro- Olympic Games and other forthcoming tection needs. Beijing’s air quality rose to the events such as the 2010 Shanghai Expo, highest levels seen in a decade, among other which has a theme of “Better City, Better environmental achievements1. In the after- Life” and a focus on how to create an math of the Games, Mr. Ban Ki Moon, the eco-friendly society and maintain sustainable UN Secretary General, said that, “The Bei- development3. Through these events China jing Games is a…success of the practice of has created a tremendous “green marketing “green Olympics, a High-tech Olympics and effort” that may have more influence with the People’s Olympics…The Games was also citizens than other, more technical ap- an important chance for the international proaches towards sustainable development. community to promote world peace and harmony through enhancing dialogue and 2.4.3 Environmental supervision and en- mutual trust”2. forcement The challenge is to maximize the lasting benefits to come from these Games, includ- This past year has seen an unprecedented

1 Greenpeace China has provided a thoughtful and detailed analysis of China’s Olympic environmental effort: After the Olympics: Lessons from Beijing. 45 pp. 2 www.chinaview.org 17 September 2008. 3 http://en.expo2010china.com/expo/expoenglish

Chapter Ⅱ Environment and Development for a Harmonious Society 33 effort to strengthen environmental supervi- based on 2008 levels; eliminate absolute po- sion and enforcement, especially via the new verty, now at 15 million according to official MEP1. Even so, the efforts are still not estimates; “establish a mechanism to inte- enough to turn the tide of environmental grate rural and urban areas in terms of eco- degradation and illegal activities. Some exist- nomic growth and social development”; ing laws and regulations provide for stiffer protect farmers rights; position agriculture as penalties than in the past, but this does not the foundation of the national economy and necessarily deter polluters and others who put food security as the top priority via agri- damage the environment. Local governments cultural modernization and supervision of often do not strictly enforce environmental product quality; and develop public utilities protection measures. This problem continues in rural regions. to be a key challenge for the central govern- This approach is meant to promote ment. There also is a major problem of the greater equity and social harmony. The list quality and continuity of environmental does not explicitly address environment and monitoring. These and other issues have development matters, but there are several. been addressed in detail by past CCICED Already China is the world’s largest consum- task forces and in OECD’s China Environ- er of fertilizers, which often are over-applied. mental Performance Review2,3. With a renewed focus on food security, there is a need to work out improved means to ad- 2.4.4 Rural environment and development dress severe agricultural pollution of China’s reform waterways and groundwater. Treatment of manure and utilization of agricultural resi- Rural people still comprise 56% of Chi- dues for biofuels, biogas and chemicals are na’s 1.3 billion population, with income levels important topics where many more envi- of only about 30% of city-dwellers. In 2007 ronmental advances can be expected through the income gap was the largest ever. This in- eco-innovation efforts. The call for increased equality and other disparities, especially in public utilities in rural areas should open new access to education and health, are matters employment and wealth creation in the of great concern. At the October 2008 countryside through investment in water meeting of the CPC Central Committee ma- supply and sewage, and through more efforts jor decisions were taken to address this per- on rural sustainable energy such as wind sistent and deeply troubling disparity4. These farms and solar electrical generation sites. decisions included commitments to: double Product quality concerns will demand much disposable income of rural residents by 2020 more attention to pollutants entering into

1 See the 2008 Policy Report by the CCICED Chief Advisors Group, which documents China’s efforts to strengthen environmental policies over the past 12 months. 2 CCICED. 2006. Environmental Governance Task Force Report; CCICED. 2007. Task Force Report on Achieving 11th Five Year Plan Environmental Objectives. 3 http://www.oecd.org/document/47/0,3343,en_2649_34307_37809647_1_1_1_1,00.html 4 3rd Plenary Session of the 17th CPC Central Committee 9-12 October 2008.

34 Harmonious Development through Innovation food chains and issues such as organic certi- long-term results. This is especially important fication. for insidious environmental change with the potential to affect large areas and major pop- 2.4.5 Stability ulations. The prime example in the past has been desertification, especially in the Loess China values stability in its political sys- Plateau. In the future, water supply and qual- tem, in its economic growth pattern, and as ity problems are likely to become major en- an important prerequisite for its develop- vironmental justice issues. ment. China has been able to absorb the im- The poor suffer the most serious conse- pacts of many internal and external pertur- quences of natural disasters and the effects bations over this past decade and undoub- of long-term environmental degradation. In tedly will have to deal with more in the future. China this raises important questions about The challenge is how to keep a steady course environmental justice and equity issues re- in a world with many destabilizing influences. lated to pollution, health and environment. A Environmental degradation is one of the prime example is the indoor air pollution as- major such influences locally and, now with sociated with substandard housing in rural climate change, also regionally and globally. households. Badly ventilated stoves, often Another part of the stability challenge is the burning coal, contribute to respiratory dis- country’s ability to turn serious crisis situa- eases and death among the poorest people tions into opportunities to foster sustainable and particularly affect women, who must development; this already appears to be a spend long periods of time cooking and significant element of China’s efforts to build doing other indoor tasks. a harmonious society. The substantial number of protests each Environment and security provides a year concerning pollution incidents provides framework for examining relationships be- evidence of discontent over crisis on the part tween environmental degradation and social of some people directly affected by these stability1. Another approach is to examine problems. But many others suffer silently how environmental justice concepts are ap- because they have little choice, for example, plied to reduce social friction and to redress those living and working in many of China’s harm done to particular groups or members coal mining communities. In some other of society. parts of the world, the situation of pervasive, In particular, achieving the necessary lev- health-threatening air, water, and soil pollu- el of ecological services will require substan- tion would be unacceptable from a social or tially more investment in eco-compensation environmental justice perspective. As part of programs and effective ecological construc- China’s drive towards a harmonious society, tion efforts with a better guarantee of this will also become the case within China,

1 See the Woodrow Wilson Center Environmental Change and Security Program publications on China. http://www.wilsoncenter.org/ index.cfm?topic_id=1413&fuseaction=topics.publications

Chapter Ⅱ Environment and Development for a Harmonious Society 35 likely in the coming decade. Environmental outsourcing of employment to China and justice has major reform implications for the other Asian countries. These are matters re- justice system and rule of law. lated to globalization trends more generally, but China is seen as the key country. 2.4.6 International cooperation Market supply chains for food, energy, and other commodities and goods imported China has made it quite clear over the into or exported from China are central to past several years that it wishes to contribute the debate. Through careful research, the en- substantively to global environment and de- vironmental costs and benefits are just be- velopment, but not through overt leadership. ginning to be understood. The two key as- On the other hand, there is a growing inter- pects are: how to maintain access to re- national view that China is a vital player on sources while contributing to international almost all environmental matters. China can good relations and prosperity elsewhere; and demonstrate by its domestic actions how to how to avoid being caught in international achieve a more harmonious society globally squeezes such as food availability and price including environmental actions,. China also increases that will reduce domestic Chinese can directly assist other countries by sharing security and harmony. its environment experience and can be an The volatility of pricing in commodities, important contributor by its enhanced par- such as metals, oil, and gas, has meant wind- ticipation through international cooperation fall profits for some companies and countries and agreements. A major challenge for China and great hardship for others. There are is to seek what it considers “fair and just” strong suspicions of market manipulation international rules, whether for the environ- that exacerbate the situation. This is certainly ment, climate change, trade, the transfer of not the path towards a globally harmonious technology, or for other objectives. society. This also compromises governmental (1) World Trade and a Harmonious So- capacity to make shifts as the introduction of ciety carbon taxes and alterations in resource China owes much of its rise in economic pricing that would promote the proper cost prominence to its careful entry into the internalization of environmental externali- World Trade Organization and its skillful use ties. of comparative advantages to build markets China is in a difficult position, since it abroad. It also has benefited other countries depends so much on imported raw materials through its demand for raw materials, which and also is deeply concerned with higher come from a growing number of sources, in- rates of inflation that can influence not only cluding developing nations in Latin America, social stability but also its economic growth Africa and Asia. Yet there are voices abroad rate. The substantial government support that worry about China’s growing impact on provided to maintain gasoline and diesel fuel resource and environmental sustainability in prices below world levels is an example of other countries and on job losses through the serious situation.

36 Harmonious Development through Innovation

The World Trade Organization has ar- establish smooth and efficient implementation gued from the start of its existence that trade mechanisms for international environmental agreements are a route for enhancing global conventions and treaties, all of which even- harmony and sustainable development. tually will lead to a more harmonious world. There is a danger, however, that the current These ideals tend to become stumbling impasse of World Trade negotiations, espe- blocks once they are translated into specific cially on the issue of agricultural market agreements and implementation strategies. access, will lead to further bilateral and re- They may lead to disappointment and fru- gional trading arrangements and to a move- stration on the part of China and others in ment away from globalized trade. There the quest for real progress on matters such as could be serious implications for China and, climate change, movement of hazardous indeed, for many of its key trading partners. wastes, and agreement on the inclusion of Furthermore, there is still much to be environmental matters in trade agreements1. done before the world’s trading system, en- How can this situation be improved for the vironment, and sustainable development are mutual benefit not only of large developing made compatible. Whether by the wide- countries such as China, Brazil and India, but spread adoption of international standards also smaller and poorer nations and the OECD for the environmentally sound production of nations? Certainly one part of the solution is goods, and further development and accep- related to the role of the US under a new Pres- tance of meaningful environmental certifica- ident. The announced position on climate tion, or through binding rules negotiated as change of both parties is stronger than those part of trade agreements, the existing situa- of the current administration and with a greater tion needs to change dramatically if it is to support for multilateral solutions. be compatible with the concept of an “Eco- But the US is not the only player with a logical Civilization.” What should China’s major role in proposing and agreeing to en- position be on the strengthening of envi- vironmental rules. If China is to satisfy its ronment in trade agreements? So far, China own needs for improved international envi- has been engaged, but does not hold a lea- ronmental frameworks, it will have to build dership role. coalitions that cut across many interests. It (2) Fair and Just International Environ- also will need to build its image of both re- mental Rules sponsible international cooperation and of a The international community should set nation genuinely committed to environmen- up fair and just international environmental tal improvement domestically and globally. rules, abide by the principle of “common but (3) Millennium Development Goals differentiated responsibility”, shoulder global (MDGs) environmental obligations together, step up The Millennium Development Goals are international environmental treatment, and an essential part of the global move towards

1 On 29 October 2008 China issued a White Paper on China's Policies and Actions for Addressing Climate Change http://www.china.org.cn/ government/news/2008-10/29/content_16681689.htm

Chapter Ⅱ Environment and Development for a Harmonious Society 37 sustainable development, but in many coun- cheaper and perhaps more effective for the tries progress on meeting 2015 targets has needs of poor populations. Moreover, China been limited1. China has been an important is building a substantial body of experience exception. In the words of UNDP’s China on how to protect environmental services, representative, Mr. Khalid Malik, “China is including ecological reconstruction, and on leading the way.” It will achieve its MDGs by financial systems for eco-compensation. This 2015. Yet key challenges remain. In Malik’s experience will be of value for many other view, they are environment, equity, and countries that face similar problems con- gender equality2. cerning water basin, forest, agricultural, and At his speech at the UN session on coastal sustainability. China’s disease control MDGs held in New York in September 2008, experience and growing efforts to address Premier Wen focused attention on the need environmental and health issues link well to for greater cooperation with other nations in MDG needs abroad as well as in China. order to meet the global MDG objectives3. He also noted China’s direct efforts with 2.5 Environmental Protection and poorer developing nations, including debt Harmonious Society forgiveness, direct financial assistance, capac- ity building and technology sharing. Included The fundamental premise of this Issues is a new five-year commitment to 100 Paper is that environmental protection is an small-scale clean energy projects for devel- intrinsic part of, and a contributor to, a oping countries, including small hydropower, Harmonious Society in China. In this section solar power, and bio-gas initiatives. we will examine several breakthroughs China should be able to deploy more of needed for this premise to be fully realized4. its domestic environmental protection expe- rience in support of developing countries in 2.5.1 Roles and principles the years ahead. The commitment it has made for innovative technology development The role of environmental protection in in water use, renewable energy, and pollution building a harmonious society/world is illu- treatment will produce an array of new tools. strated below, focusing on five elements Very likely the Chinese technologies will be (Figure 2-1).

1 Jeffrey D. Sachs. 2008. Common Wealth. Economics for a Crowded Planet. Penguin Press. New York. 386 pp. 2 Khalid Malik. 2007. A Contribution to the Achievement of a Harmonious Society. Statement at International Conference on CSR in China, 29 June 2007, Kunlun Hotel; and MDGs: China's Progress towards the Millennium Development Goals 2008. China and UNDP. 3 Wen Jiabao. 26 September 2008. Speech at High Level Meeting on MDGs. United Nations, New York http://news.xinhuanet.com/ english/2008-09/26/content_10116246.htm 4 The first part of this section is based on a longer report prepared for this Issues Paper by Zhou Guomei, from the Policy Research Center of MEP.

38 Harmonious Development through Innovation

Environment & Politics Environment & Glob alization (Ecological Civilization) (Harmonious World) Ecological System

Harmony of Man and Nature Society

Harmony of Man and Man Man

Inside Harmony of Man

Environment & Health Environment & Society (Putting People First --- (Equity and Justice) Peoples’ Livelihoods)

Environment & Economy (Integration and Optimal Development)

Figure 2-1 Roles of environmental protection in building a harmonious society.

Several principles that are consistent with statements of current Chinese leaders are 2.5.2 Approaches to sound environment noted below: and a harmonious society (1) The Concept of Ecological Civili- zation is a basic tenet for a harmonious In order to materialize a “socialist har- society. monious society”, the scientific outlook of (2) Putting People First is key to a sound development should be adopted where the environment and harmonious society rela- harmonious development between people tionship. and nature is an important idea. The imme- (3) The harmony of humans and na- diate priorities should be to: (1) solve envi- ture requires the integration of environ- ronmental problems that threaten people’s ment and economy for optimizing devel- health and sustainable development; (2) sa- opment. feguard ecosystems; and (3) reform envi- (4) Social equity and justice should be ronmental management systems. Much at- sought through environmental protection. tention already has been given to these prior- (5) China must promote international ities, including within the 11th Five-Year Plan environmental equity and contribute to and in various Chinese and international re- building a Harmonious World. views, including past CCICED reports and

Chapter Ⅱ Environment and Development for a Harmonious Society 39 recommendations. Therefore, detailed ac- omy development. counts are not given here. Instead, we focus (2) Trade, investment, and financial sec- on the breakthroughs needed during the tor reform must be consistent with sustaina- coming five years if China is to achieve its ble development. long-term vision of an environmentally While China has benefited tremendously friendly society domestically and contribute from its membership in the World Trade to an Ecological Civilization globally. Organization (WTO) and from the immense We believe eight breakthroughs are es- inward flow of foreign capital, by no means sential. has this been without major problems. These (1) A radical adjustment of the relation- problems include environmental degradation ship between the environment and economy. associated with manufacturing for export, This fundamental shift has been called impacts associated with market supply chains for in Premier Wen’s Three Transformations domestically and internationally, and difficul- and in the efforts of the 11th Five-Year Plan to ty in accessing the best technology for envi- meet pollution reduction and energy efficient ronmental protection. By supplying cheap targets. But the adjustments will have to be goods to world markets and buying raw ma- much more radical in the years ahead. These terials, China has provided benefits to some adjustments should include reaching effi- developing countries, but most of the pro- ciency levels in resource utilization that the duced goods have gone to richer countries, world has not yet achieved and campaigns exacerbating overconsumption in these mar- with Chinese consumers, municipalities, kets. businesses and government bodies to ensure China has only limited capability to ad- that “awareness of conservation will be dress trade and investment issues on its own. firmly established in the whole of society”. But it is very clear that bodies such as the The necessary adjustments will require WTO, national regulatory bodies and central relentless attention to achieving more strin- banks, and the financial markets that operate gent environmental protection targets, great- internationally have failed to create a system er investment in the means to do so, and that respects the dictates of either environ- monitoring the benefits. It will require more mental protection or sustainable develop- attention to environmental protection and ment. This realization of failure is quite ap- standards over the full life cycle of goods parent and in particular the political talk and produced, distributed, and consumed in action accompanying current bailouts of the China. The result for China should be a financial sector suggests a re-making of the high level of competitiveness in the sunrise system. It would be a shame if this did not economy of sustainable development global- include greater attention to sustainable de- ly and nationally. It will mean a very discern- velopment. This is also true with respect to ing type of consumerism, especially in de- the current efforts to breath life into WTO mand for high quality products and services. negotiations. Finally it will be fostered by Circular Econ- China will have considerable credibility in

40 Harmonious Development through Innovation global negotiations over the coming years ideally during the planning for the 12th and could help to move the international Five-Year Plan. agenda of trade and investment and of fi- (4) An environment and health action nancial sector reform towards consideration consistent with the alarming range and level for environment and sustainable develop- of toxic impacts, potential for pandemic dis- ment. These aspects would also require addi- ease, and other environmental risks. tional attention to domestically within Chi- It is laudable that China now has an Ac- nese banks, insurance companies, stock mar- tion Plan on Environment and Health1. kets, and trade and investment regulatory However, as will be reported by the bodies. CCICED Task Force on Environment and (3) A long-term transition for China to Health, this is only the start of what will become a Low Carbon Economy. need to be a very significant effort to reduce China’s energy and environment rela- the mortality and ill health associated with tionship is currently heading into difficult chronic pollution, workplace and home territory with significant increases in im- health hazards, casualties related to disasters, ported oil and gas and high projections for and the threat of pandemics. Environmental the use of coal. Conventional energy effi- health in China also includes the substantial ciency solutions are needed in many sectors, number of deaths and injuries associated including major industries, transportation, with transportation now that private autos agriculture, and municipal infrastructure, but are so prevalent, lifestyle matters, such as the will not be enough. Energy conservation in rise in the number of smokers and other daily living by people is also essential. How- factors that will lead to increased cancer, ever, a Low Carbon Economy solution will heart disease, diabetes, and other health go much further: It will be comprehensive in problems associated with affluence. Many of the sense that it will account for capture and these problems are interactive and solutions reduction of greenhouse gases; and it will are not straight-forward. provide for economic valuation of carbon, (5) New ecosystem protection approach- including carbon storage in nature. A Low es that provide substantial and lasting eco- Carbon Economy will be opportunity-driven, nomic, environmental, and social benefits to making it attractive to innovators and entre- rural people. preneurs in Chinese society. It will be based The investment by China in forest and in part on the substantial financial opportun- grassland restoration, protection of water ities associated with international and do- supplies, and the ecological services asso- mestic carbon trading and special funds such ciated with wetlands, nature reserves, de- as the Clean Development Mechanism graded agricultural areas, watersheds and (CDM).While the transition may be coastal deltas is already substantial. But it is long-term, the directions need to be set soon, not optimal, since national systems for

1 Ministry of Health. 12 November 2007. Action Plan on Environment and Health (2007-2015). Available on http://english.mep.gov.cn

Chapter Ⅱ Environment and Development for a Harmonious Society 41

eco-compensation are not refined fully, nor is biorefineries, and other advanced approaches the effectiveness of existing approaches very associated with biotechnology and informa- great. There is a need to act on the reality tion technology. that most of these efforts should become At present there is no well defined na- permanent and provide a greater level of tional innovation system for environmental benefits to rural residents. Also, to recognize protection, even though there are many initi- that pollution remediation is now an impor- atives and some important platforms. tant part of ecological restoration, including (7) The orientation and strengthening of industrial, agricultural, mining and energy, the existing environmental management system municipal clean-ups, and preventative action. to take full advantage of public participation Integrative solutions must combine econom- and to respect public environmental rights. ic, fiscal, ecological, technological, and insti- The increased information transparency1 tutional innovation. and steps taken to provide for public inputs (6) Great acceleration of the pace of the to environmental decision-making and the development and commercialization of handling of environmental complaints from technological innovations for environment the public have been successful. In the years and sustainable development. ahead the public needs to have a more sub- China should become the leading nation stantial role in decision-making and also to in the world in applying innovative environ- have the awareness and capacity to do so ef- mental technologies. This may not happen fectively. In some settings it should be possi- until the next decade, but the groundwork is ble for individuals and community-based or- being laid through the tremendous science ganizations to become co-managers with the and technology research investment and government in addressing resource and en- through the emerging demand that will guar- vironmental concerns. For example, this antee large domestic markets. China also offers should be the case in areas surrounding ma- huge advantages for low cost production and jor nature reserves. to bring production on line quickly. Wind Public environmental rights can be ex- energy is an excellent example of this advan- panded to include the right of environmental tage. supervision, the right of being informed, the The range of environment and sustaina- right of environmental compensation, and bility products and their associated services the right to participate in development of will define the 21st Century economy to a environmental policies and decisions affect- considerable extent, including advanced ing projects. All citizens, rich and poor, rural transportation modes, smart power grids, and urban, male and female, should enjoy lighting, renewable energy sources, advanced equal access to these environmental rights. water use such as capture of value of waste Clearly, the existing environmental man- products such as heat from urban sewage, agement system still suffers from the limited

1 For example, the MEP Guidelines for Release of Information, National Catalogue of Hazardous Wastes, Blacklist of Polluted Cities, State of the Environment Report, and Semi-Annual Report on Indicators of Major Pollutant Discharges of All Provinces, Autonom- ous Regions and Municipalities.

42 Harmonious Development through Innovation quality of information available to detect (1) New economic opportunities and li- problems in a timely and definitive way and velihoods with less negative impacts. to verify progress. There is a need for a much (2) Better access by businesses and stronger monitoring system—a system that communities to cost-effective environmental should operate with due consideration of solutions. public input and information sharing. (3) Improved corporate social responsi- (8) Shifting international environmental bility on the part of Chinese companies. cooperation towards integrated, sustainable (4) Opportunities for people to be heard development solutions. and to contribute to decisions affecting local International environmental cooperation and national development. should expand from pure environmental (5) Safer environmental conditions, in- considerations to include sustainable devel- cluding reduced risk of injury or loss arising opment. We should combine environmental from natural disasters and pollutants. cooperation with development cooperation (6) Improved quality of life and health, and resolve many, if not most, environmen- with other benefits such as improved trans- tal problems through development. While we portation. have witnessed progress for some global en- (7) Improved trust from people towards vironment and development problems, the decision-makers. majority of problems continue to worsen. We have noted the growing prominence of 2.6 Conclusion regional environmental problems and trans-boundary environmental conflicts and Environment and development is a key that these problems have had more impact component in China’s efforts to build a on political, economic, and social develop- harmonious society. The existing efforts at ment. In addition, there are always new en- improving environmental management vironmental problems emerging and becom- within China should pay good future divi- ing international in scope. These challenges dends in terms of social and economic make strengthened international cooperation well-being for the people of China through a must. Sustainable development is a con- improvement in the quality of life and satis- sensus of the international community. We faction. Still much more progress is needed. should overcome cultural and ideological In fact, the entire foundation for building a differences by taking coordinated action to harmonious society in China requires consi- establish the smooth and efficient imple- derable strengthening. mentation of mechanisms for international Experience elsewhere in the world has environmental conventions and treaties. shown that environmental improvement is a The benefits from successfully address- shared concern within societies, around ing these breakthroughs will directly contri- which conciliation and consensus for action bute to a more harmonious society within can occur. Environmental matters also can China. These benefits include: lead to measurable progress that can be

Chapter Ⅱ Environment and Development for a Harmonious Society 43 communicated and provide a good entry sue that is likely to become a source of point for public awareness-raising and re- greater social disharmony within China un- sponsible civic action. less it is addressed more vigorously and China is taking a robust overall ap- quickly. It is an issue for citizens in all parts proach to environmental problem solving of the country and in both cities and the through scientific development, transforma- countryside. Transparency of information tive rather than incremental change on en- remains a concern, along with full definition vironment and development, and attention of the extent of specific problems and to the application of a broader range of in- equitable solutions. Increasingly, failure to struments to bring about desirable envi- deal effectively with environment and health ronmental improvements. However, the makes China vulnerable in its external rela- challenges are still massive, as noted in the tionships—trade, environment and public eight breakthroughs described in the pre- health. vious section. Implementation challenges China’s commitment to becoming an in- continue to hinder progress on building a novation society is, of course, tied to its ef- new relationship between environment and forts to build a harmonious society. It will be development, and therefore, on creating a helpful to consider environment and devel- harmonious society. opment as an important bridge in this China faces the prospect of additional process. China’s efforts to build a new crises, given the risk of natural hazards such economy around a better balance of domes- as earthquakes, floods and droughts; the ef- tic and international consumer demand based fects of existing environmental degradation on products and services requiring less ener- and unsustainable patterns of development; gy and material will open many new oppor- and global factors such as climate change. tunities for the country to increase its com- The tendency in the world today is for crises petitiveness. We believe this shift should be to converge into “Perfect Storms” involving taken even further in certain sectors, such as environmental, food, energy, financial, or renewable energy, where China can demon- other crises. Globally, we are likely in such a strate world leadership and make full use of situation at present. Fortunately, China in re- its comparative advantages. A shift towards cent times has demonstrated both resilience being a country known for its commitment and responsiveness to such circumstances. to a Low Carbon Economy and also firmly Importantly, it has recognized that crises, no embracing advanced approaches to becom- matter how complex, come opportunities to ing a Circular Economy are practical ways innovate and seek new sustainable develop- this can be done. ment pathways. As the severe tests of Wen- China’s great goal of promoting an Eco- chuan and other disasters this year have logical Civilization needs to be introduced to shown, there is still considerable room for the world in a highly skillful way and backed improvement. by significant action both domestically and Environment and health is a pressing is- internationally. Domestic action is well un-

44 Harmonious Development through Innovation derway with the 11th Five-Year Plan’s envi- immune from the longer-term impacts. Thus, ronmental goals. But, China’s reputation as a an important element of seeking a harmo- nation committed to building international nious society will be innovative polices to cooperation on the basis of peaceful devel- keep the global and national goals for envi- opment and improving the global environ- ronment and development alive with dem- ment still needs to be strengthened. China’s onstrated progress, no matter how difficult commitment to achieving the Millennium the economic environment becomes during Development Goals domestically and to use the coming year. It is a crucial time for cli- this experience with others internationally is a mate change matters, in particular, and on good example where progress is clear. this topic, China can demonstrate considera- The global community is seeking clear ble resolve, hopefully in concert with the signals of leadership from China on a num- new political regime in the USA, others in ber of matters including environmental con- Europe, and elsewhere. cerns. The present global financial crisis has The worst situation would be to revert to highlighted how China has positioned itself the old economic model of “pollute first, to reduce the impacts faced by others. Yet, it clean up later.” should also be apparent that no country is

Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 45

Chapter Ⅲ

Building an Environmentally Friendly Society through Innovation:

Challenges and Choices1

are exposed. Reduction targets of pollutants Overview: To Enforce A National on an absolute basis must be established. If Environmental Innovation Action these are to be reduced from today’s levels to Plan a healthy level, a new transformation will be needed in which the creative and innovative China has had dramatic and sustained in- potential of the people and institutions is dustrial, economic, and social development further developed. over the past 30 years. Prompt and forceful re- This report reviews the science and sponse to the devastating Sichuan earthquake technology system of China and examines and the spectacular staging of the 2008 Sum- the many steps under way to improve its mer Olympics are clear illustrations of the re- ability to support innovative and cost effec- markable transformation that is taking place. tive environmental clean up. The report re- However, economic development has views what drives innovation and the condi- come at a cost. Pollution to air, water, and tions necessary to develop an innovative so- land is having a very serious impact on the ciety. The continuum from basic research in health and well-being of the people of China science and engineering, to applied research, and on the ecosystems of China. The need to pre-competitive research and new com- for China to reduce its emissions is abun- pany creation, to demonstration, to deploy- dantly clear. Many steps are being taken and ment, and the interaction between these ele- the problem is fully recognized by China’s ments is moving at a dramatic pace. This can leadership. Targets on reducing intensity of be described as an Innovation Ecosystem emissions on a per GDP basis have been set. since all elements interact. The opportunity However, what ultimately matters is not per for technology innovation has never been GDP (or per capita) emission, but the levels greater, as this report discusses. of pollution to which people and ecosystems Science and technology are progressing

1 This Chapter is based on the research analysis of the Task Force on Innovation and Environmentally Friendly Society. Task Force Co-chairs: Feng Zhijun, David Strangway; Task Force Members: Liu Xinlin, Wang Chunfa, Meng Wei, Wang Kaijun, Xue Lan, Gran- ger Morgan, Kelly Gallagher, Tom Preststulen. And the report is mainly drafted by David Strangway, Liu Xielin, Zhou Yun, Song Xi- ujie, Zhu Chaowei. 46 Harmonious Development through Innovation globally at dramatic pace, creating unique to develop a globally competitive capacity in opportunities for solving environmental the rapidly developing area of clean tech- problems. nology (CT). There are many dimensions We recommend the establishment of a identified in this report under the three National Environmental Innovation Action themes: Plan. The elements of this plan are discussed (1) Technology Innovation for environ- in this report and cover the elements of the mental protection and sustainable develop- innovation process from research and de- ment; velopment (R&D) to deployment. The Min- (2) Regulations, Standards, and En- istry of Environmental Protection (MEP) forcement; needs to be strengthened to support this (3) Public Participation. plan. Technology Innovation proposes a We know that innovation requires a firm number of approaches. There is a need to market demand. In the environmental area, strengthen the various elements of the inno- such demand will not develop or persist vation process as it relates to environment; without strong regulatory frameworks. Clear continue to strengthen basic research; create standards and enforced regulations created competence centers; develop industry sector equitably by governments are what create the research institutes; create Environmental In- market for environmental innovation. novation Support Networks to assist small- Without strong, clear, stable, and uniformly to medium-sized enterprises (SMEs); develop enforced regulations and standards, there is no incentives to meet energy efficiency stan- market and hence no incentive for investment dards; secure funds for international cooper- in the development or the wide deployment of ation; support academic-industry linkages; innovative environmental technologies. institute internationally recognized prizes; To achieve a more effective nationwide and develop the circular economy. regulatory environment and to bolster public Regulations, Standards, and Enforcement participation, this task force urges the crea- are central to innovation. Within the context tion of a National Environment Information of the NEIS, the cost of compliance must System (NEIS). NEIS would be managed by become less than the cost of the new MEP, who would be responsible for non-compliance. National and international collecting, processing, and reporting pollu- standards need to be set and enforced. tion in an open format accessible to all. Public Participation of citizens and local It will, of course, be necessary for gov- non-governmental organizations (NGOs) is ernment to fund the appropriate elements of vital in addressing the immediate impacts of the National Environmental Innovation Ac- pollution, which is widely understood as oc- tion Plan. In addition to creating and sup- curring most critically at the local and re- porting the NEIS, there are a number of gional levels. While steps are being taken to steps that can be taken to strengthen China’s strengthen such local involvement, much environmental capacity. China is in a position more needs to be done. China needs to sti- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 47 mulate, empower and mobilize citizens at the health of ecosystems. local and regional levels to act in the interest Though many governments, internation- of resolving the environmental problems of al organizations and non-government organ- their communities. This can be reinforced in izations have expended major effort to re- many ways, including education and public verse the decline, incremental environmental awareness campaigns. The power of the citi- improvements are no longer good enough to zens to act will be greatly strengthened by deal with the ecological, health, and devel- access to the independent National Envi- opment challenges of rapidly rising con- ronment Information System. sumption and population growth. Much has been done. Much remains to Technological, institutional, and social be done to release the innovation capacity of innovation is the only way to reconcile con- China to provide an example of sustainable tinued rapid economic development with en- development that can be a model to the vironmental sustainability. This means inno- world. Continuing to grow the GDP, while vation will require much faster and more decreasing pollution through innovations in widespread adoption of currently available technology, in institutions, and in society, cleaner and more efficient technologies. As must be the objective. well, it means development and deployment of sustainable technologies globally on a 3.1 Introduction scale and over a time frame never before ex- perienced in the world. China, as a fast rising country, has expe- 3.1.1 Innovation, environment and devel- rienced a period of rapid economic growth opment: challenge and opportunities from 1978 onwards. China has created many outstanding economic and social advances Today, it seems that there is still no glo- over this 30-year period. However, these bally recognized strategy for economic achievements have come at a high price to growth leading to sustainable development. resources and the environment. The conflict The global resource and environmental situa- between economic growth on the one hand tion is already beyond Earth’s long-term car- and resources and environment on the other rying capacity. Industrial nations struggle to is becoming increasingly acute. It is very un- reduce effects of high per capita consump- likely that problems can be solved without tion levels. Many developing countries face transformative change in regulation and en- the challenge of conquering poverty while forcement, supportive institutions, and addressing declining environmental condi- stronger management within both govern- tions. Others, including China, face the dual ment and enterprises. There is also a pressing challenge of rapid growth, export-led, while need to apply environmental science and tech- modernizing and eliminating poverty. Envi- nology at an unprecedented level—perhaps at a ronment suffers and with declining condi- scale and time frame never before experienced tions, so also does people’s health and the by any other nation. China could lead the world 48 Harmonious Development through Innovation in environmentally friendly technologies, pro- is promoted on the basis of the carrying vided it seizes the opportunity. capacity of the environment and resources, The unique Chinese growth pattern, its under the guidance of natural law, and by crises, and its new opportunities have their means of sustainable economic, technolo- roots. First, China is a world manufacturing gical, and cultural policies. The aim of such base and produces a lot of goods for the a society is to create an efficient production world, while much of the pollution remains system, a moderate consumption and living within the country. Second, China is entering system, sustainable and recycling resource its heavy-chemical stage of industrializa- environmental systems, a stable, efficient tion—a stage often associated with heavy economic system, an innovative technologi- pollution elsewhere. Third, for a long time, cal system, open, orderly trade and financial there has been mismatched strategy: gov- systems, a fair distribution system, and an ernment-emphasized economic growth while enlightened, progressive socialist democratic neglecting the magnitude of the challenge system. associated with the equally important subject Furthermore, Premier Wen Jiabao has of sustainable development. The opportunity pointed out the need to give equal weight to for change comes from the growing wealth environment and to economy, to treat envi- of the nation, the desire of government and ronmental concerns at the same time and not the people for action on environment, and to wait until after economic development certain advantages of China. proceeds, and to employ a variety of envi- These advantages include the existing ronmental measures including economic and low per capita level of consumption, adap- voluntary approaches, not just command and tive people and communities, low manufac- control regulations. These imperatives should turing costs which allow China to produce help to move environmental action beyond and distribute sustainability products like so- the costly, but necessary, compliance-driven lar panels worldwide, and a commitment to approach in China today. scientific development, including the 15 year Action will need to move towards a situ- science and technology strategy intended to ation of innovation where policies and in- make China a science-oriented and innova- centives exist to explore redesign within in- tive society. Additionally, China’s access to dustries and communities. Also, where inno- knowledge, capital, and technologies via for- vative technologies are available, either ex- eign direct investment exceeds almost all ternally or through indigenous development, other nations. a concerted effort will be needed to broaden The Chinese government has decided to deployment. New approaches can then build an environmentally friendly society by emerge, leading to new levels of prosperity 2020. Introduced into China in 2005 as a while improving resource efficiency and development concept, an environ- creating better environmental conditions. ment-friendly society is one where harmony Often during this journey towards sus- between man and nature and among people tainable development there is a stage where Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 49 risk management becomes important. An action to risk management action and to example is in the chemical industry which proactive sustainable development. At depends on the right to operate in particular present, China is at a stage where most atten- settings and to gain continuous access to in- tion is focused on compliance and enforce- surance and financing. In the US, Canada and ment concerns. But for a significant number the EU countries during the 1980s and 1990s, of sectors and especially for large-scale heavy the chemical industry realized that it would industry there will be a rapid transition be necessary to undertake innovative ap- beyond this stage, as has happened already in proaches, not only to clean up the environ- the modern steel mills, for example. Many ment, but also to substantially reduce or SMEs are not at a point where environmen- eliminate harmful substances in manufactur- tal compliance occurs. Conversely, there are ing processes. Individual companies faced substantial numbers of both large enterprises drastic action on the part of communities, and SMEs engaged in the environmental banks, and insurers as well as heavy pressures protection fields such as recycling and re- from regulators. The Responsible Care Pro- newable energy that depend on innovation gram was introduced through industry asso- for their future. Thus, China’s environmen- ciations and quickly led to reductions in tal innovation situation is complex, with a harmful emissions. It was driven by risk need to focus on compliance, risk manage- management but led to substantial environ- ment, and sustainable development solu- mental improvement. Responsible Care Pro- tions simultaneously—for the foreseeable grams are voluntary and have been intro- future. duced into other sectors and countries, in- Currently, a conspicuous problem that cluding China. China faces is that it has accessed or devel- Now, however, there has to be to be a oped some advanced environmental protec- level of action that moves into the creation tion and energy-saving technologies, but of new technology platforms and more ef- without strict technical controls that would fective deployment of existing ones intended guide their application and performance. Nor to address such issues as tapping energy are they sufficiently deployed. Some highly from renewable resources and replacing fos- relevant technologies from the developed sil fuel use for chemicals with biological world have yet to be introduced to business- sources such as agriculture and wood fiber. es and households. While China’s stated goals These are demanding tasks that can be con- regarding development of indigenous tech- sidered as sustainable development technolo- nology include a strong focus on environ- gies with the potential for profitable returns ment and sustainable development, how this as well as contributing to environmental is to be done is unclear since there is no problem-solving. overall strategy for environmental and sus- Environmental protection innovation tainable development innovation. needs will increase and grow more complex It is imperative for the nation’s environ- with the transition from compliance-driven mental sector to accelerate the entry of en- 50 Harmonious Development through Innovation vironmental and sustainable development (2) Harm caused by new pollutants and technologies into economic activities and to persistent organic pollutants (POPs) is in- put them to the best possible use. In re- creasing dramatically. Some new pollutants, sponse, this study aims to find a workable such as antibiotics, endocrine disrupting solution from the perspective of the national chemicals, algae, toxins, pesticides, and oxi- innovation system (NIS) and from the pers- dation byproducts pose larger and long- pective of environmental and sustainable er-lasting threats to the ecosystem, to food development management, in order to help safety, and to human health. China transform into an environ- (3) Ecological and environmental prob- ment-friendly society by 2020 with ramifica- lems have become more complex with more tions for patterns of innovation well into the risks. Social stability and the environment are period of 2030 and beyond. severely imperiled by such problems as: eu- trophication of lakes and inshore waters; re- 3.1.2 China at a transformative point on gional acid deposition; combined air pollu- environment and development tion, soil pollution, and distributed-source pollution; toxic and hazardous pollutants; re- The rapid economic growth of the na- gional, river basin ecosystem degradation; tion has brought unprecedented pressure on biodiversity reduction; alien species invasion; its resources and its environment, thereby genetic resource loss; and environmental giving rise to a host of social problems. Rela- emergencies. Ecological restoration and eco- tive to the 1980s, profound changes have logical construction have become expensive taken place in the nation’s ecology and envi- additions to national and local budgets. ronment in terms of type, scale, composition, (4) Rapid increases in energy consumption, technique and influence. heavy reliance on coal, and rapid increase in This growth of problems has included a the use of other fossil fuels are creating new number of very disturbing characteristics: concerns related to localized smog, regional (1) The discharge of major pollutants has air pollution and global climate change. exceeded the carrying capacity of the envi- (5) Environment has become a hot topic in ronment. Worse still, pollution and damage China’s foreign policy. As globalization and caused by pollution has spread from land to market integration advance, international trade offshore, from surface to underground, and disputes and friction regarding resources and from single environmental sources to com- the environment have become more serious. plex multiple sources. Industrial pollution is The delivery of national environmental obliga- rapidly increasing and spreading widely. tions, the improvement of global environmen- Many key economic regions and river basins tal quality, the guarantee of natural resource suffer from major pollution. Industrial pro- supply, and breakthroughs in green trade bar- duction augments domestic pollution; new riers have emerged as new topics and as a basic and old pollutants mix; pollution of water, part of China’s foreign policy. air, and soil mutually interact. While China is faced with an extremely Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 51 grave situation in pursuing its sustainable Vice-Premier Zeng Peiyan recently pointed development agenda, it has been taking many out that “China faces an extremely grim situ- actions in terms of its legal frameworks and ation in its sustainable economic and social in reducing emissions on per unit of GDP development.” basis. These steps represent a genuine com- CCICED in 2007 declared that China is mitment. For the 11th Five-Year Plan period, at a transformative point where action on China has set the goals of reducing energy environment will accelerate. The evidence for consumption per unit of GDP by 20% and this includes significant increases in total in- cutting down the total discharge of major vestment for pollution control. In 2007, pollutants by about 10%. While these are government spent about RMB 338.76 billion, laudable targets, the proposed intensity re- 1.36% of GDP, for pollution control, about ductions are inadequate. As GDP grows, 2.5 times the level of 2002. pollution must decrease even faster on a total The Chinese leadership has identified emission basis. To achieve these goals, it is several key considerations. First, in terms of necessary to uphold the scientific develop- the economic growth pattern, there should ment outlook, develop a recycling-based be increased emphasis on consumption and Circular Economy by using advanced tech- domestic demand while continuing invest- nologies, and accelerate the building of a re- ment and exports. Second, from the perspec- source-efficient and environmentally-friendly tive of its industrial structure, China should society through innovation. These efforts are give increasing weight to the knowledge in- also fundamental to realizing better and fast- tensive sector and to cleaner manufacturing. er socioeconomic development. Third, the basis for development should be The results so far have been mixed. For shifted from natural resource intensive en- example, the total discharge of wastewater in deavors to human resources and technical 2006 was only up 2.3% from the previous progress. Fourth, with respect to resource year. The volume of soot emission fell by utilization, the uni-directional linear process 7.9% from the previous year. However, the of resources to products to waste should be quality of 26% of the nation’s major rivers replaced with the Circular Economy process was still below acceptable standards. 75% of resources to products to waste to re- of the lakes have become eutrophic to va- sources. The purposes are to enable China to rying degrees. Among the rural population, base its economic growth on better econom- 360 million people had no access to ic structure, higher technical content, im- up-to-standard drinking water. It is estimated proved quality of life for its population, and that China’s current emission of major pol- enhanced quality and efficiency of its econ- lutants, like SO2, CO2 and chemical oxygen omy, and to develop a growth pattern cha- demand (COD) far exceeds the environmen- racterized by low inputs and consumption, tal capacity for absorption. In light of the high yields, little discharge, recycling, and current environmental situation and devel- sustainability. opment trends, the former Chinese China plans that its GDP should grow by 52 Harmonious Development through Innovation a factor of four by 2020 in order to provide 3.1.3 How an environmental innovation an improved quality of life for its people. In strategy can help the process: (1) Emissions must be dramatically re- During the transformations over the duced in absolute terms from their present coming 10 to 15 years to build a society that levels for the benefit of the people of China is well off, environmentally friendly, and and, potentially, for the wider world; harmonious, and to realize sustainable eco- (2) The current industrial strategy of nomic development, it is essential to: manufacturer to the world must evolve to (1) Enforce the evolving legal framework being more knowledge-intensive and lead to for environmental protection; cleaner businesses; (2) Establish a better incentive frame- (3) Chinese people have to be resource work for companies, individuals and others conserving and environmentally friendly. to innovate; It has been noted that technology innova- (3) Create a strategy to give full play to tion has been incremental to date and largely business as major players in innovation; imported. But, increasingly, it needs to become (4) Create markets for environment and more indigenous, more demand driven, and the sustainable development innovation; deployment time needs to be reduced. (5) Develop an environmental innovation It is difficult to know whether China or system that enables effective interaction and any other nation will be able to fully make participation of governments, businesses, such major transformations within such a research bodies, colleges and universities, and short period of time between now and 2020 citizens; and in the process to fully reconcile the rela- (6) Put in place an open innovation sys- tionship between environment and economy. tem whereby both China and developed na- From environmental, inflationary, and per- tions can work together on innovation ef- haps other perspectives, there may be a se- forts; rious conflict of goals and strategies by being (7) Stimulate, support, and be responsive in the middle of a heavy chemical industry to public participation on environmental is- and infrastructure development that is still sues and technology innovation; highly dependent on obsolete coal technolo- (8) Strengthen the Ecological Civilization gies for the massive growth of electrical mindset. supply. Environmental degradation may still In the process of transformation, tech- continue to rise and not be contained, even nological innovation is the source; institutional with the promise of massive investment in innovation provides the guarantee; social in- science and technology. It is a great challenge, novation serves as the basis; and promotion but one that must be undertaken. of the development of and the application of energy-saving and environmentally-friendly technologies represents the core. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 53

3.1.4 Innovation challenges innovator to realize the market potential. Smart government procurement is a key Innovation comes from the bottom up, element of market creation. not from the top down. China needs to de- (2) Effective institutions. To be effective, velop incentives to stimulate innovative ideas. institutions must be given the tools to create In the longer run, it is clear that many ideas and enforce incentives. Enforcement of reg- need to be supported, as only very few inno- ulations and standards are key to creating vations will become commercially relevant in demand for environmental technology inno- the short term. Basic and applied research in vation. This means the creation of a moni- platform fields such as ① information and toring and reporting system for environmen- communication technology, ② nano-material tal conditions relative to standards and regu- technologies, ③ bioscience and biotechnol- lations that is firm, fair, and available on a ogies, as well as the rapidly developing field completely open basis. Reporting must be of ④ clean technology, need to be fostered directly to a central body and dependable in- within China at globally competitive levels. formation must be readily available on a na- Some of these will lead to short term im- tionwide basis. plementation while others will provide the (3) Public Empowerment. The public basis for ensuring the longer range flow of must have full and open access to credible innovations. Innovation is a continuous information on the pollution situation at a process. local and regional basis. Individuals, groups, Notwithstanding the significant com- and local and national NGOs need to have mitment and progress made by China in access to information and need to be en- dealing with its environmental pollution, couraged to present their views and to be much needs to be done to ensure that total listened to without fear or favor. emissions are reduced from their present lev- (4) Technology Innovation. If the above el. This is a dramatic challenge given the processes are firmly in place and with an in- commitment to grow the GDP significantly dependent data acquisition center in place, in the coming decades. many technological innovations, whether We have identified a number of key gaps domestic or international, will be adopted. which should be addressed if innovation The innovation process includes a number adoption is to be a major part of the solu- of interacting elements: basic research, ap- tions for a better environment and develop- plied research, new company creation and ment relationship in China: pre-competitive research, demonstration and (1) Lack of effective incentives to create niche deployment, and widespread deploy- the necessary markets. Innovation is driven ment and diffusion. Sponsoring innovative to a large extent by the opportunity created SMEs can lead to new technologies that by market potential. In the case of environ- may be adopted. China must be strong in all mental technology innovation, government parts of this interactive process with all of must create the conditions that will allow the the various feedback mechanisms from one 54 Harmonious Development through Innovation part to the other. Some innovations may be 3.1.5 Conclusion ready for adoption now. Strong basic re- search must be at the highest international China has both the capacity and the need standards to ensure that China will play a to become a global leader in sustainable de- key role in creating the next generation of velopment and environmental technology technologies. innovation. In the process it can successfully 5) Financing. Funding for the various address its own pressing environmental crucial steps must be in place through fund- problems while continuing to meet its do- ing basic and applied research, funding mestic goals for economic growth and social pre-competitive research and new company development. creation, funding demonstration projects, and funding a comprehensive center for col- 3.2 Current State of China’s Envi- lection and dissemination of credible and ronmental Innovation open pollution information. Smart procure- ment of new technologies and the creation of markets by regulation and standards and 3.2.1 Brief history of accomplishments by proper pricing will allow China to meet its and failures related to innovation own urgent needs. These steps will also lead to potential export markets as China takes It was not until the 1970s that China in- the initiative and the global lead. itiated environmental protection. In the One of the key elements of a successful 1980s, China carried out assessments and innovation system is a cultural setting that studies on environmental background values, allows entrepreneurs to try a new idea, fail environmental capacities, and environmental without being disgraced, and be given the impacts, laying a foundation for environ- resources and opportunity to try again. mental management. In the 1990s, there were Creativity and innovation, while having studies on acid rain control; on control of somewhat different meanings, to a very large eutrophic lakes; on cleaner production and degree are one and the same. China, along new pollution control technologies based en- with many other countries, has focused much vironmental management in key basins, areas, of its education system on developing highly cities, and waters; and on industrial pollution specialized skills. These are important in to- control. In the new century, basic studies on day’s global world. But it is important also in persistent organic pollutants (POPs) and on today’s world to release the creative potential pollutants’ movements and transformation of individuals and groups. The culture of demonstrated the environmental behavior of breaking down discipline boundaries is es- some pollutants. With the development of a sential for innovation in science and tech- number of key technologies such as desulfu- nology, in institutions, and in societies. rization, dust removal, removal of organic pollutants, and ecological restoration of wa- ter, China made progress. Studies on key Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 55 supporting technologies for national envi- search programs, such as Research on Eutrophic ronmental management made positive con- Process of Lakes and on Mechanism of Blue Algae tributions to the improvement of China’s Bloom, as well as 863 special research into the laws and standards, the strengthening of ma- hi-tech field, such as Water Pollution Control cro environmental management, and the en- Technology and Treatment Project. These pro- hancement of international environmental grams led to better pollution control and en- cooperation. vironmental quality in some areas (river ba- Overall, the introduction of new tech- sins) and made significant contributions to nology and innovation was mainly based on boosting the ability of China to control pol- technology imports and to a lesser extent on lution in key areas and basins. local R&D efforts. The general picture is: In the 11th breakthrough program, R&D China has reduced its technological gap in for applied environmental technologies was many fields; some have already reached the selected for some industries. The most im- stage of being at the technological frontier. portant one is the new generation of re- University research programs at institutions cycled steel processing technology. This such as Tsinghua University are competitive project will cost about RMB 1 billion. It is with international universities. However, the hoped that this technology can be diffused strength of the existing Chinese environ- throughout China in the future. One important mental technology approach is in cleaning R&D project is “the monitoring and recovering emitted pollutants; the weakness is in the of ecology in rural areas.” It will establish a development and deployment of clean system of wireless communications for moni- technology to reduce the emissions of pol- toring the water, earth, and air in rural areas. lutants in the first place and the use of var- A host of new municipal wastewater ious approaches to make recycling more ef- treatment processes and technologies that are fective. suitable to China’s conditions have been de- veloped in the field of water pollution con- 3.2.2 Achievements of governmental trol, particularly in the fields of intensified programs and projects biological treatment, catalytic oxidation and membrane bioreactor treatment of refractory Technological innovation serves as a ba- wastewater, and high-efficiency inorganic sis for environmental protection and polymer flocculants. Application of these progress towards an environmental-friendly technologies has helped to effectively control and harmonious society. The emergence of a water pollution in the key river basins na- series of key technological breakthroughs as tionwide. In the basins of the three rivers, the result of government programs has Huaihe, Liaohe, and Haihe, and three lakes, solved numerous environmental problems. Taihu, Dianchi, and Chaohu, 416 wastewater During the 10th Five-Year Plan, as part treatment plants have been completed or are of its efforts to control pollution of lakes under construction, with a combined daily and rivers, China launched 973 key basic re- treatment capacity of 21 million tons. More 56 Harmonious Development through Innovation than 80% of the over 5,000 heavy polluters vanced technologies in air pollution control in these basins have met the standard dis- and helped control pollution in SO2 and acid charge level. As a result, water pollutants rain pollution in control areas. Two control there have been substantially reduced. Water zones have been established. In these zones, quality deterioration has been contained, and acid rain and SO2 have already exceeded ac- the quality of water in some parts of the riv- ceptable limits. These two zones cover about ers and lakes has notably improved. 10% of China’s landmass. In these areas, the Statistics show that adoption of new en- state controls the energy structure by pro- vironmental technologies and strengthening moting clean fuels and low-sulfur coal and by of pollution control from 2002-2006 led to prohibiting the household use of coal and reductions in the intensity of China’s COD adopting technologies for controlling emissions in the period. The absolute level coal-fired boilers in large and medium sized of total COD increased slightly from a level cities. of 13.7 million tons to 14.3 million tons in There was development of environmental 2006. Thus, the intensity level of the emis- protection technology, including research on sion of COD per unit of GDP has de- processing technology of municipal sewage, on creased from 11.36 (1000 tons/billion RMB) polluted sources of drinking water, on organic in 2002 to 6.8 in 2006. industrial effluents, on clean coal technology, Following the 1992 UN Conference on and on localization of waste incineration facili- Environment and Development, China ties. This provided a number of key technolo- drafted China’s Agenda 21 and made positive gies and equipment for the control of air pollu- headway in environmental protection by way tion, municipal sewage, and solid waste. Flue of legal and economic means. The country’s gas desulfurization saw great progress in tech- energy policies began to feature reduction of nology but a slow rate of deployment. and some level of control of environmental Adjustment of industrial pollution control damage and pollution caused during the strategies, combined with progress in envi- course of energy development and utilization. ronmental technology, has resulted in substan- The 10th Five-Year Plan period wit- tial achievement in pollution control in Chi- nessed breakthroughs in technologies and na’s key industries. Take the case of waste- facilities for desulfurization of flue gas from water discharge as an example. The level of coal-fired power plants and from large and waste water discharge in 2002 is about 43.9 medium industrial boilers, in technologies billion tons, in 2006, it was about 53.7 bil- and in facilities for the effective control of lion tons. But as GDP has doubled in that the particulates of gas discharged by period, the intensity per GDP has de- coal-fired power plants and boilers, and in creased. the key technologies for purifying nitrogen China’s total energy consumption in 2006 oxide from diesel engines and for diesel was about 1.62 times as much as it was in 2002. trapping particulates. These breakthroughs As GDP almost doubled, the energy consump- provided a basis for the application of ad- tion per GDP has decreased gradually. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 57

3.2.3 Diffusion of innovative technology year 2000, about 320,000 companies adapted has boosted the level of environmental practical technology in China with a total in- protection vestment of RMB 18.1 billion and generated RMB 14.5 billion in economic returns, in- In a bid to facilitate technological inno- cluding in resource recovery, and water and vation and apply more technological results energy saving1. in production, the State Environmental Pro- The 11th Five-Year Plan is a golden pe- tection Administration, now the MEP, riod of development for the environmental created the Best Practical Technology Evalu- protection industry of China. The imple- ation Committee and the Best Practical En- mentation and popularization of National vironmental Technology Extension Office in Key Environmental Protection Practical 1991, and carried out the selection, appraisal, Technology plays an important role in fulfil- and extension of best practical environmen- ling national pollution reduction by way of tal technologies throughout China. The ex- environmental industry development of Chi- tension work was originally the responsibility na. of the Department of Science, Technology, and Standards and began to be overseen by 3.2.4 Case histories the China Association of Environmental Protection Industry after 2000. Environmental improvements and sus- In 1999, SEPA launched a program tainable development are all at different called “National Key Environmental Protec- stages of development in different parts of tion Practical Technology Program” China. Case histories for Baoding, Ningbo (NKEPPTP). It aims to diffuse information and Wuhai are presented in Appendixes 2, 3 about the best practical technology. Chinese and 4. These examples are based on very companies can apply to have their technolo- different stages. Baoding is a city that has gies listed in the National Key Environmen- undergone dramatic transformation and is tal Practical Technology file. After evaluation, developing as a high technology city based they are included. The MEP then has the re- on materials sciences affecting products such sponsibility to diffuse the technology list as photovoltaics. It is at a relatively advanced throughout China. Different regional gov- stage of environmental awareness. Ningbo is ernments must adopt the technology as their a manufacturing city but one in which envi- first priority. They can give the deploying ronmental action and public involvement is company or government subsidies. In 2008, high. Wuhai, in Inner Mongolia is a heavy about 49 technologies were selected by the industrial city based on coal and in which MEP. The number one technology is the pollution emissions are very high. There is identification technology for 600MW power little public participation. plants. The owner of the technology is China Da Tang Group. Based on incomplete statistics, by the

1 Source: http://www.caepi.org.cn/query-answer/2739.shtml 58 Harmonious Development through Innovation

3.2.5 Conclusion protection and competitiveness. As they point out succinctly, the view that there is a China has been active in environmental struggle between ecology and economy is protection and has had made many steps based on a static view of environmental reg- forward since the 1970s. It has developed a ulation. But, this is a dynamic and changing strong science and technology strategy that world. incorporates environmental technology in- In the case of environmental innovation, novation. Much remains to be done. Desul- the capacity for innovation is then to a large phurization technologies, for example, al- degree driven by the establishment of prop- though mature, are only now being deployed. erly designed regulations and standards. Chi- As illustrated by the case histories of Baod- na has established regulations and standards, ing, Ningbo and Wuhai, developments in en- but these have not been effectively applied in vironmental innovations are at very different order to meet Porter’s paradigm of the rela- stages in different parts of China. tionship between competitiveness and envi- ronment. Currently in China, it is frequently 3.3 Technology Innovation for En- possible to ignore or bypass the standards. vironment and Sustainable De- Penalties for violating the standards are mi- velopment nimal, to violate and pay is commonly cheaper than to meet the standard. This means that China is not able to capitalize on 3.3.1 Environment and competitiveness the challenge “that properly designed envi- ronmental standards can trigger innovation Today the need for technology innova- that may partially or more than fully offset tion is dramatic and increasing. At the same the costs of complying with them.” (Porter time the opportunities for transformative and van der Linde) changes have never been higher. The oppor- tunities shown in Appendix 1, Grand Chal- 3.3.2 Environment and economic growth lenges of Engineering, for example, document a view presented by the National Academy of Grossman and Krueger (1991) wrote on Engineering of the US Many of the grand the reduction of trade barriers and the ef- challenges and opportunities are well known. fect this would have on environment. They Many of them relate directly to environment create a framework to categorize the poten- and sustainable development. There is much tial environmental impact of the resulting to be done, but there is much that can and economic growth. Their framework is rele- must be done. New research is constantly vant for China as its economy is growing opening new doors and opportunities. rapidly. In 1995, Michael Porter and Claas van (1) Scale – in this category they talk der Linde presented a compelling view of about increasing the volume of what is pre- the direct relationship between environment sently being done. In the case of China, Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 59 where much of the present economic activity 3.3.3 The innovation process is massively polluting, more of the same would simply mean massive further increases In a treatise on industrial innovation and in pollution. environmental regulation Kemp states the (2) Composition – in this category they following: talk about changing the mix of the existing “In most countries, environmental and industries. For China, this would mean more innovation policies are not fully or adequately growth of less polluting industries and less integrated. Yet, it is widely accepted that growth or even shrinkage of the more pol- there is constant interplay between innova- luting industries. tion, environmental protection, and further (3) Technique – in this category one can innovation. Given that numerous countries, place innovations that will lead to improved particularly in the north, have at least a for- environmental performance in the processes mal environmental policy and an innovation of the current, heavily polluting activities and policy, it is only the next logical step to at- the evolution of newer cleaner businesses. tempt to integrate the objectives of the two As China must reduce its total emissions policies. Innovation policy can be more ex- from present levels, the focus for China must plicitly directed toward environmental pro- be on innovations that reduce total emissions tection by providing support for R&D in the dramatically. By requiring that standards be development of environmental technolo- met, much innovation will follow. gies.” Parto and Herbert-Copley (2007) Contradiction between its ever more se- Gallagher et al (2006) have written com- vere environmental problems and the slow prehensively in a literature review on Energy transition of its growth pattern makes it dif- – Technology Innovation (ETI). Although ficult for China to harmonize the relations the article focuses on energy, their descrip- between its economy and its environment. tion of the innovation process is useful for Contradiction between the pressing demands all aspects of innovation: of its people to improve the environment “ETI is the set of processes by which and the long time needed for environmental improvements in energy technology, which controls to take effect is a “focus” problem, may take the form of refinements of pre- triggering social conflicts. Contradiction ex- viously existing technologies or their re- ists between the increasingly grim pollution placement by substantially different ones, are in the nation and the ever higher demands of conceived, studied, built, demonstrated, and domestic and international environmental refined in environments from the laboratory standards. to the commercial marketplace; and propa- The contradiction among these impera- gated into widespread use. Innovation, then, tives is not whether they can be resolved, but does not consist of research and develop- how fast the necessary changes can be made. ment alone; it is not complete unless it in- cludes the further steps through which the new technologies or improvements attain 60 Harmonious Development through Innovation widespread application”. mentation of new technologies can open the They describe the elements of innova- mind to new and better approaches in ways tion, but are careful to point out that these that may be unpredictable. Gallagher et al are not in a linear sequence as often is por- (2006) document the work by Margolis and trayed. Each stage of innovation interacts show a chart that shows a typical set of stages with each of the other stages. New technolo- and the dynamic feedback between them. gies can lead to new basic research. Imple-

(a) Supply-Push Policies Demand-Push Policies

National Lab Direct/Cost-Shared Government R&D & R&D Funding & Direct Tax Incentives, Regulatory Changes, Testing Tax Incentives Purchases Subsidies Technical Standards

Financiers, Consumers/ Other Actors University R&D Parent Companies Users

R&D, Prototype, Pilot Plant Production Sales & Marketing Firms

Firm 1

Firm N

Financial Flows Knowledge/Information Flows

Widespread Basic Applied Precommercial Research Demonstration & (b) Deployment & Research Research Niche Deployment New Company Creation Diffusion

Figure 3-1 The innovation process.

Figure 3-1(a) divides the innovation is these new ideas and techniques that then process into supply side and demand side on create the demand. the one hand, and into various performers: The elements of the innovation process government, others (universities and acade- can also be shown in Figure 3-1(b) while re- mies), and firms. This is a useful description cognizing that each element is fully interac- of the various actors involved. New research tive. New research can lead to new technol- ideas and new technologies may come from ogy and new technology can lead to new re- the research or supply side. But frequently it search breakthroughs. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 61

3.3.4 Basic research velop as science continues to evolve pre- senting new opportunities. Basic research is typically pursued in Biofuels: There is a great deal of empha- universities and research institutes. It is typi- sis on biofuels and on cellulosic biofuels in cally publicly funded and is most commonly particular. The opportunities are remarkable on a peer reviewed, competitive basis. There and are directly connected to the revolution are many dimensions to basic research and a taking place today in the life sciences from wide range of activities need to be supported. functional genomics, to enzyme creation, to Today it is common to emphasize the plat- mutagenesis, to synthetic biology. This has form sciences and technologies. Traditionally been well documented in a report of the In- these are: teracademy Council. The venture capital (1) Information and communication going into these new companies is dramatic technology (ICT) Krupp and Horn (2008). (2) Nanoscience and Technology (NT) Photovoltaics: Appendix 5 describes (3) Bioscience and Technology (BT) the status of the photovoltaic industry in Today, the focus on meeting environ- China. Fast developing strategies to im- mental necessity also requires: prove the functioning of photovoltaic so- Green Science and Clean Technology lar cells depends on breakthroughs in na- (CT) notechnology. These techniques have It is common to use the Gross Ex- evolved from the concepts of solid state penditures on Research and Development physics. Today nanotechnology promises (GERD) as a percentage of GDP as an in- to dramatically improve the conversion rate dicator of innovation potential in a coun- of solar energy by creating energy trapping try. surface films. Suntech power based in Wuxi, The highest GERD/GDP ratios are in China, was created by Shi Zhengrong and the Scandinavian countries Finland and is now one of the largest producers of so- Sweden and are as high as 4%. It is common lar-cell modules in the world. He was a to think of 3% as the aim for most devel- student in the 1980s in Australia. He oped countries (US 2.7%; Germany 2.5%; moved to a university spin-off company Japan 3%). In China’s “Medium- to and was one of the first to grow crystalline Long-Term Plan for the Development of silicon on glass at low temperatures. In Science and Technology”, published in 2006, 2001 he returned to China with his patents a target of moving from 1.34% in 2005 to and the result has been dramatic (New 2.5% by 2020 will ensure that China is fully Scientist, 2007, Nov.10). competitive with the EU, the US, and Japan (Cao et al., 2006). 3.3.5 Applied research It is useful to point to a few examples in which basic science is a known key driver of The boundary between basic and applied the innovation process. Many others will de- research is not sharp, but rather is a conti- 62 Harmonious Development through Innovation nuum. For example, medical research on a dominated by CEO-level industry leaders to particular disease is applied research, but to- define the problems that most need to be day draws heavily on basic genomic and pro- tackled. teomic research. Funding for applied re- These could be located in association search in engineering and agriculture is with universities and research parks and be a oriented to practical problem solving. key element in reinforcing clusters. Examples It is in this environment that the focus in other places that address this need include: on industry partnerships develops most ef- Australia – Australia has created a series fectively. Industry-university partnerships of Collaborative Research Center (CRCs) should flourish. Patents are likely to be de- that are funded by industry and by govern- veloped in this environment. These may lead ment. They are created as consortia of uni- to the creation of new spin-off companies versities and industries to carry out research or to processes that may be adopted or that is directly relevant to that industry’s adapted by larger organizations. needs. Research parks typically associated with Germany – Germany has created two universities become a hotbed for entrepre- sets of research institutions. The first are the neurial innovative activity. China has been ac- better known Max Planck Institutes that fo- tively creating such research parks associated cus on basic research. Less well known but with its major universities across the country. equally important are the set of applied re- search institutions known as the Fraunhofer 3.3.6 Pre-commercial research and new Institutes. These are institutions that work company creation collaboratively with consortia of industries to develop training and research that is sector China is lacking pre-commercial research specific. centers to support industry sector needs. Canada – Some examples in Canada are These would support research on industry funded jointly by the federal government, the wide problems that are common to particular provincial governments, and the industry industries such as pulp and paper or forestry sector. Their applied research is directly on and to many others. The existing institutions problems of the industry sector and corpo- in China have moved to form profit centers rate presidents are on the board. The Pulp and typically address company-specific prob- and Paper Research Institute of Canada and lems rather than industry-wide needs. This the Forest Industry Technology Institute are structure of the innovation process is not examples. well met in China. A series of such centers In Canada there is an organization called should be created within MEP to address the Sustainable Development Technology Cana- environmental issues faced sector-by-sector. da (SDTC). This organization was estab- These could be established on a non-profit lished by the Government of Canada in or- basis, funded jointly by government, groups der to assist in filling the needs between re- and companies. The governance should be search and full commercialization. It is an Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 63

‘arms length’ body from the government and na has many such projects at this stage. For receives proposals from groups that regard example, in SO2 flue gas reduction (Appen- pre-commercial needs, assistance with dix 6) that there are many demonstrations in start-up needs, and demonstration projects. place or under way. Many of these should be To be eligible to compete for funding for and are being funded by the relevant industry sustainable development and for biofuels, as they determine how best to meet the reg- projects must have a strong private sector fo- ulations and standards most cost effectively. cus and they typically partner with a research Hundreds of excellent examples were dem- institution. This shared funding mechanism onstrated during the Beijing Olympics. Many provides significant incentive to private com- lessons can be learned from these demon- panies, both small and large, in taking projects stration projects. through to the commercialization stage. Selection of projects is based on expert 3.3.8 Widespread deployment/diffusion advice. The governance structure has a pre- dominance of private sector members. This There are a number of widespread dep- model has been examined by many jurisdic- loyments of environmental technologies in tions as serving a critical need. A comparable place: the regulation and response of the au- body in Canada – The Canada Foundation tomobile industry (Appendix 7), the wide for Innovation (CFI), was established by the range of activities documented at Ningbo federal government with USD 3.5 billion to (Appendix 4), and others. Many, such as be sure that equipment and facilities were photovoltaics or wind power systems, are in accessible to researchers in Canada. Again widespread use. Sulphur dioxide flue gas de- this is a shared funding model supporting sulfurization had been installed in 12% of universities and hospitals along with their power plants by 2007 (Appendix 6). China partners from other levels of government has committed to the Green Gen Project and the private sector. Proposals must be which by 2015 will be the world’s first full submitted by institutions and they must find scale coal-fired thermal power plant with ze- 60% of the funds from other sources. Insti- ro emissions. tutions must show the benefit to Canada, in- cluding potential linkages to industry or the 3.3.9 Innovation ecosystem: another look potential for creating spin-offs. This model at the innovation process has been widely examined by other countries. Judy Estrin (2009) has published an in- 3.3.7 Demonstration and niche deploy- teresting treatise on her view of innovation ment in a new book called Closing the Innovation Gap. She was the chief technology officer at Cisco This is a very important part of the in- and has created several successful startup novation chain that starts to move projects companies in Silicon Valley. through to the actual deployment level. Chi- She interviewed hundreds of successful 64 Harmonious Development through Innovation entrepreneurs as well as built on her own USD 18.6 billion overseas. Given China’s experience. She describes the innovation dramatic need in environment and sustaina- process as an Innovation Ecosystem. This is ble development, this is a process that will a useful description, as it emphasizes that all serve China well as people move around the of the elements must be present and they world. Just as today’s problems must move must interact with each other. The core val- beyond discipline boundaries, so do today’s ues that underlie innovation must all be met ideas know no geographic boundaries. and they must be in the right balance with each other. These core values are: (1) Ques- 3.3.11 Venture capital in the field of clean tioning, (2) Risk Taking, (3) Openness, (4) technology Patience, and (5) Trust. Venture capital is a type of private equity 3.3.10 Global learning networks capital typically provided to immature, high-potential, growing companies in the in- Globalization is having a dramatic impact terest of generating a return through an on innovation. Innovation can take place eventual realization or event such as an initial anywhere. It can happen in developed or in public offering (IPO) or sale of the company. developing countries. India and China are Venture capital investments are generally remarkable examples that are moving fast to made as cash in exchange for shares in the becoming developed states. invested company. Venture capital typically China has rapidly become a center to comes from institutional investors and high which research and innovation is outsourced net worth individuals and is pooled together as it has developed its pool of highly skilled by dedicated investment firms. Venture capi- and educated people and has created globally tal is very important in promoting the indu- competitive research focuses. strialization of various advanced technolo- But what is now starting to happen and gies and economic development, including in needs to be encouraged is that China’s indus- the field of clean technology. tries are moving to be partners in global Recently, China’s venture capital market learning networks. China is now creating re- has been developing rapidly. In the year 2001, search facilities in developed countries such as the overall amount of venture capital in the EU or the US where particular expertises China was only USD 518 million; however, are concentrated. This is documented in a by the end of the second season of 2008, 2008 OECD report. In a sense, China is this figure has raised to USD 3.845 billion, joining “clusters of innovation” in other nearly 8 times that of 2001. Especially in the parts of the world and other parts of the last two years, the number and the amount world are joining “clusters of innovation” in of venture capital both maintained a high China. A recent report in China Daily (Sept growth rate, reaching an average rate of 25, 2008) states that in 2007, China invested more than 50% per year (Table 3-1). Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 65

Table 3-1 Annual amount of venture capital in China, 2001 to August 2008.

VC amount Year Number of cases Growth rate Growth rate (million USD) 2001 216 — 518.00 — 2002 226 4.6％ 418.00 −19.3% 2003 177 −21.7% 992.00 137.3% 2004 253 42.9% 1,269.00 27.9% 2005 228 −9.9% 1,173.00 −7.6% 2006 324 42.1% 1,777.42 51.5% 2007 440 35.8% 3247.05 82.7% 2008 198 — 3845.04 — (up to August） Data source: zero2ipo research center, www.zero2ipo.com.

Worth mentioning is the rapid increase in few investments in this field, the clean tech- the demand of clean technology and new nology industry in China is witnessing stable renewable energy. Recently, with the conti- progress and the field is rapidly emerging. nuous rise of traditional resources’ prices, the In China, there are more and more de- business value of clean energy resources, mands and investments in the fields of clean such as solar energy and wind energy, has technology and new energy resources. 9% of grown continuously. Additionally, the policy the world's energy resource investments are direction has promoted the market demand in China (Zero2IPO, 2008). According to the of clean technology. Along with many long report of Zero2IPO, in 2007, the capital term capitalists, venture capitalists are mak- funds put into solar energy industry, from ing this investment in the fields of solar silicon chips and silicon cells to the whole energy, wind energy, and other sustainable solar energy system and relevant products, energies. achieved more than RMB 10 billion. The In the year 2007, the clean technology passion for new energy resources could cer- market in China has undergone drastic devel- tainly be seen by the senior managers of in- opment. According to Zero2IPO, a leading ternational investment banks. For example, in Chinese VC management and consulting the year 2007, investment by Goldman Sachs company in the field of clean technologies, in clean energy resources worldwide, from in 2007 alone, venture capital related to clean wind power to ethanol manufacturers, technology and new renewable resources has reached USD one billion. JP Morgan Chase amounted to 100 million dollars. What is more, & Co has invested in 17 wind power gene- in a single month, August 2008, Venture capi- rating stations and is on its way to solar and tal in the field of clean technology reached geothermal generating investments. Operated 700 million dollars, accounting for 19.2% of by ‘stock god’ Warren Buffet, Berkshire Ha- the total investment for the month. Despite thaway has invested USD 385 million in the 66 Harmonious Development through Innovation construction of wind power generating sta- the skilled labor force is developing very fast tions worldwide. through education and training and through Venture capital and regional government sending large numbers of people abroad for support have given great support for those educational opportunities; it is committed to clean-tech companies in China. For example, the concept of the circular economy; it has the development of Wuxi Suntech, set up in and is establishing a number of well-focused 2001, has come at a very high speed: In 2004 clusters or learning networks where universi- alone, its achievements were 20 times that of ties, academies, businesses, and supply chains the previous year. In 2006, Suntech gained can learn from each other. China is commit- access into NYSE and became the company ted to the idea of the Innovation Society in- in solar photovoltaic industry with the high- cluding basic science, technology, national est market value. The president and CEO of institutions and to building the public capac- Suntech, Dr Shi Zhengrong, thus has be- ity for understanding science. come the richest man in China. Both go- In transportation and in the home elec- vernmental support in form of government tronic appliance industry, companies such as venture capital and commercial venture capi- Haier, Huawei, Lenovo take advantage of the tal helped Suntech in its startup stages. After big domestic market and become a global Suntech, China witnessed high investment in leader in those industries. This task force be- solar photovoltaic industry. Some companies lieves that in the environmental sector, Chi- in the industry, such as LDKsolar in Jiangxi na’s comparative advantage can also give province, YingLi solar in Hebei province, Chinese companies the power to become and China Sunergy in Nanjing, are involved highly innovative global companies. in IPO Financing. 3.3.13 Creative mindset 3.3.12 China’s environmental and sus- tainable development paradigm – the “China has yet to establish a research “China Advantage Model” tradition that is both conducive to creative achievements and tolerant of creative fail- China, in addition to its profound need ures.” for emissions reductions, has a number of “Research is too often derivative in na- advantages: It has a global manufacturing ture, which wastes resources and discourages advantage recognized universally; it has a creativity and independent thinking.” large domestic market that is growing fast; it These quotes Cao et al (2006) reflect on has an export advantage in terms of price, the need to engender a creative mindset in skilled workers, flexibility, and speed; it has China’s S&T community if the objectives of made significant investments in the research the MLP are to be realized. at its universities and academies; it is building The idea of creative mindset at the indi- international competitiveness and recogni- vidual level, at the corporate level, and at the tion and is attracting many of the best minds; government level is increasingly seen as a Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 67 necessary condition for innovation. As Da- absolute size of R&D will be much larger niel Dudek said at the Enterprise Forum than it is now. “there is a need to create broader-based in- Environmental innovation is also a part centive programs here. The challenge for in- of the 15 years S&T plan. It covers ecology, novation is empowering and harnessing Chi- energy, and environmental science and tech- na’s vast entrepreneurial talent. Innovators nology innovation. To reach this ambitious are highly creative people and are not and goal, China will increase funding environ- should not be constrained in their thinking mental technology and innovation. China by traditional approaches to problem solv- must find solutions for new energy and for ing”, or even by the prospect of failure. other kinds of needs. At the same time, Chi- Innovations in today’s increasingly spe- na needs to achieve a way of clean manufac- cialized world require that individuals and turing that will allow the goal of fast and organizations must be able to get beyond this sustainable economic growth. All of this will specialization and not be constrained by var- lead to China fast becoming a global leader in ious boundaries, including boundaries be- the clean tech revolution already under way. tween disciplines, boundaries between gov- At present one of the most important ernment ministries, and boundaries between science and technology projects for envi- different jurisdictions, both within and be- ronmental protection is water pollution con- tween countries. This may mean a need to trol. This is the first key science and tech- rethink the objectives of the education sys- nology project administered and managed by tem at all levels. Can creativity, imagination, the Ministry of Environmental Protection. and entrepreneurship become a significant The estimated budget for water projects is part of educational curricula? Can individuals RMB 14.168 billion from the central gov- be empowered and given incentives? Can ernment and RMB 21.483 billion from local they be encouraged to be risk takers? Judy financing and enterprises. With a total budget Estrin (2009) describes the need for of RMB 35.651 billion, the plan will be im- “T-shaped people”. plemented in the 13 years from 2007 to 2020. Automobile Pollution: Starting in the 3.3.14 Selected needs and technology for 1990s, China improved its level of vehicle the future exhaust treatment by improving its own technological capabilities and, most impor- In January 2006, China initiated a 15-year tantly, by implementing vehicle emission Medium to Long-term Plan for the devel- standards in stages. By imposing a require- opment of science and technology. China ment for tailpipe emissions control through aims to become an “Innovative Country” by policy, foreign and Chinese auto makers alike 2020. The plan commits China to developing had the incentive to transfer and/or develop capabilities of “indigenous innovation”. vehicle emissions control technologies and China will invest 2.5% of GDP by 2020 to install them in every new vehicle (Gallagher R&D; as the GDP is growing rapidly, the 2006) (Appendix 7). 68 Harmonious Development through Innovation

Clean Coal Technology: Zhou and Gal- tricity, is potentially more cost effective than lagher (2008) document the move to cleaner PV to generate bulk power in desert regions. coal using coal gasification and polygenera- Furthermore, this, heat can be stored in in- tion technology in China. China has com- sulated vessels and then used to generate mitted to a zero-emission coal-fired demon- power when there are clouds or during peak stration power plant by 2015. This is now demand in the early evening when the sun under development as GreenGen, which is has set. While there are a number of solar led by Huaneng, one of China’s leading thermal plants now operating, development power companies. This integrated gasifica- challenges include reducing the cost of col- tion combined cycle (IGCC) coal plant will lectors, For example with flat plate Fresnel capture and store carbon dioxide under- zone lenses and developing thermal storage ground and hydrogen that will be used to systems. In addition to meeting domestic power fuel cells, resulting in a highly efficient energy needs, China could also develop a polygeneration plant. substantial export market for such technolo- Krupp and Horn’s book documents ex- gy. China is addressing many of these topics. citing developments and progress in a See PVs, Appendix 5. number of areas. They give examples of Enhanced Geothermal Systems do not science and technology, which are necessary need naturally occurring pockets of steam to conditions for innovation. They show many turn a conventional turbine. The advantage examples of the elements of the innovation of EGS is essentially targeting heat rather process, from basic research to demonstra- than other specific geological conditions. tion and the large-scale investment of ven- Priority targets are the most geothermally ture capital in promising technologies. rich resources with the highest temperatures Based on a consideration of supply and closest to the surface. With further technolo- needs, below are a number of areas they gical improvements, the scope of EGS will highlight that are important to the future of grow to include even relatively low tempera- China. tures. (1) Solar Cells, Photovoltaics (PVs), Solar (2) Wind Power and New Nuclear Power Thermal Technology (STT) and Enhanced Systems Now in Advanced Stages of Devel- Geothermal Systems (EGS). opment. While China enjoys a large and growing China lags behind advanced countries export market for solar PV, this technology in renewable energy use. Hydro, wind, and remains very expensive for bulk power ap- nuclear energy in total only had a 7% share. plications. Ongoing global research will, As China has much land and many regions however, probably deliver cost competitive have good resources, wind power has a solutions throughout the value chain in the good potential for a future in China. In near future (Appendix 5). Solar thermal fact, China has become a leader in manu- technology, which heats a working fluid that facturing and installing wind power. Chi- is then used to make steam to generate elec- na’s installed capacity of wind power was Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 69 number 3 in the world in 2007 with about has been a great deal of discussion of ad- 6.05GW. vanced coal technology and deep geological New generation of nuclear power is al- sequestration in the industrialized world, ac- so one of the important potential sources tual progress has been slow. Indeed, today it of energy. China will establish about 30 new appears that China may be as far or further nuclear plants amounting to 6% of the total along in the actual development and the electricity supply by 2020. China lags far demonstration of these technologies as any behind other countries in nuclear and radia- other country. With a serious push, China tion safety; this is reflected in the following could become a world leader in this area, not aspects: Nuclear power plants lack risk con- only contributing to reducing its own con- trol technology, as well as measures and tributions to local and global environmental means to prevent and mitigate serious acci- impacts, but also to become a major interna- dents; since most of the nuclear safety tional supplier of advanced clean coal tech- software is from overseas, much research is nology. Gallagher documents the move to still needed to assimilate and apply such using an cleaner coal using IGCC in China. software; efforts are lacking on nuclear risk China has committed to a zero-emission, assessments, radioactive waste pollution coal-fired ok demonstration power plant by control, optimal management of nuclear 2015. This is now under development as radiation, and electromagnetic radiation and Green Gen which is operated by a consortium environmental safety; the study of nuclear of the leading power companies. This power facility decommissioning technology is still plant will use IGCC super critical technology, at a low level; the study on the disposal of CO2 will be captured and stored under- high-level radioactive waste, including spent ground, the produced hydrogen will be used fuel is at an early stage and much research is to operate fuel cells, and the output will be needed realizing a final disposal method; combined heat and power (CPH) as a highly security studies, especially fast discrimina- efficient polygeceation plant. tion and probing technologies, of nuclear (4) Desalination of Saline Water. materials trail far behind those in other China faces serious and growing problems countries; the study of technologies and with its fresh water supply. The same is true in measures to counter nuclear and radioactive many other parts of the world and as climate terrorist attacks is still in its infancy. change becomes more serious, the number of (3) Carbon Capture and Sequestration regions around the world that face fresh water and Integrated Gasification Combined Cycle shortages will grow. Today, reverse osmosis is (IGCC). the leading technology for the desalination of Coal fired utilities in China provide more sea water and other saline waters. This tech- than 70% of the electricity demand. Over nology is expensive, but costs have fallen suf- the coming decades it will simply not be ficiently such that the technology is seeing possible to reduce dramatically the use of more numbers applications, especially in coal while meeting energy needs. While there wealthier parts of the world. There are a va- 70 Harmonious Development through Innovation riety of other technologies that hold potential uctivity and building of a resource-efficient for allowing desalination at a lower cost. If and environment friendly society. This China is able to develop such technologies, represents the long-term and future-oriented they could both meet a growing domestic direction for technological development. To need and also supply an important and grow- achieve such development, it is necessary for ing export market. China to develop platform technologies for (5) High Efficiency Buildings and Infra- the recycling economy at the earliest possible structure: Buildings consume about one-third date. In terms of pollution control and en- of China’s total energy. Efficiency in build- vironmental management, the first step is to ings and infrastructure can thus save much develop environmental pollution assessment, energy in a big country like China. In this control technologies for waste reclamation, area, new technologies will find many appli- and create well-functioning national policies cations. Appendix 7 gives a review of what is and systems regarding reclamation. The and can be done in regard to reducing pollu- second step is to develop technology for ef- tion with well-designed and regulated trans- fective and clean utilization of resources, portation systems. namely cleaner production technology, and (6) Ecological Conservation, Reforesta- to enhance the capability for independent tion, and Grassland Development: innovation. Furthermore, it is imperative to Eco-environmental damage in China is select typical cities and key industries for showing some new features: First, the dam- demonstration activities, and to develop age has expanded from small local areas to technologies that will propel the develop- large regions; second, damage caused by a ment of other technologies, ultimately serv- single factor has become functional damage ing as alternatives to the traditional technolo- in regions or areas, resulting in badly de- gies in the heavy polluting industries. The graded or even the loss of ecological func- third is to develop a business coexistence tions in many important ecological zones. It network, ecological industrial integration is necessary to attach strategic importance to systems, ecological industry, eco-agricultural studying the carrying capacity of the technology, and to explore modes for the eco-environment, strengthening develop- construction of ecologically friendly cities ment of ecosystem health management and countries. technology systems, and carrying out the monitoring, the assessment, and the study 3.3.15 Conclusions of typical regional eco-environments. Key Technological Aspects in the De- Technology Innovation for Environment velopment of the Recycling Economy: As and Sustainable Development is a process one of the important strategic objectives that involves many dimensions and many of China’s sustainable development, the elements. These range from basic research to recycling economy has an enormous bear- deployment. Now is a time sometimes re- ing on the improvement of resource prod- ferred to as the New Industrial Revolution Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 71 where new ideas and new deployments are 3.4.1 University and government research needed urgently to ensure that China and, institutes indeed, the broader world must be commit- ted to the care of our environment. Innova- In China, there are numerous research tion has a major role. Emissions, not just on institutions related to environmental protec- a per GDP basis but also in total, must be tion. An environmental science and technol- reduced on an absolute basis. ogy system has been created in China. It is Perhaps the framework for innovation composed of four parts, including the Chi- can best be described as an Innovation Eco- nese Academy of Sciences system, the higher system in which the various elements must education system, the industrial department work together to ensure that new ideas are system, and the Ministry of Environmental quickly adapted to restore polluted sites and Protection. The most important knowledge to reduce pollutant emissions. There are creators are university and government re- many actors involved in this process, ranging search institutes. from government, to universities, to enter- There are more than 230 scientific insti- prises. These must work together to meet tutions at the country, province, and district both supply and demand. But, in the world level and nearly 10,000 scientific researchers of innovation, the development of new re- and administrative personnel in the environ- search or supply may also be the source of mental protection system. Research direc- demand. This report describes various ap- tions of the scientific institutions under the proaches that can be used to bridge the gap MEP are greatly different from those of the linking research to defined needs, such as Chinese Academy of Sciences, the higher those in the industry sector. educational institutions, and the industrial China is a large country with various departments. They primarily aim at national parts at very different stages of development. and global environmental problems and ad- In some cases incremental improvements are dress the needs of national environmental needed, in others there are leapfrogging op- management. They provide technology sup- portunities and in yet others there are major port for the strategic policy of national en- opportunities for China to lead with radically vironmental protection. disruptive technologies. Their role in environmental innovation system can be seen from Table 3-2. As most 3.4 Environmental Innovation of their budget comes from the government, System of China their performance in a national project called the 863 program. The areas of biology, new Describing the innovation system is a materials, and advanced manufacturing are good approach to see the interaction of dif- the top three in journal publications; Infor- ferent actors in terms of knowledge creation, mation, new materials, and advanced manu- refinement, and diffusion. facturing are the top three in patenting. The attention given to environment is relatively 72 Harmonious Development through Innovation small compared to other innovation areas.

Table 3-2 Programs funded by the 863 project in 2004.

Number of trained Number of pub- Number of ap- Number of in- Field graduate students lished articles plied patents vention patents Information 3777 2818 1022 590 Biology and modern agriculture 2787 6871 2115 1479 New materials 2852 5244 1557 1102 Advanced manufacturing 4452 7833 718 190 Energy 561 1169 380 270 Resources and environment 1117 1951 632 476 Total 15,546 25,885 6424 4107 Source: Database Online, The Ministry of Science and Technology of China.

A major gap in the R&D system here is less true for the environmental innovation that research done by many government re- system. With the lack of strongly enforced search institutes as well as in universities and environmental regulations for an extended funded by the Ministry of Science and period of time, companies have not had a Technology does not fit the needs of indus- strong incentive to innovate. try well. Many research results remain locked Now, the government has introduced in at the laboratory stage and are not being tougher measures of environmental protec- applied to industry. tion. Large scale, state-owned enterprises At the same time, many applied research have higher pressure and have taken more institutes have been transformed into private responsibility for environmental innovation companies, leaving a gap between basic re- problems as part of their business practice. search done by the Chinese Academy of They are taking appropriate actions to solve Science and universities and the consulting the environmental problems they are facing. services done by the applied research insti- Multinationals from developed coun- tutes. Little real research is done in areas of tries often have a greater commitment to general technological problems for industrial environmental protection because the regu- sectors, such as standard setting and demon- lations and business practices in their home stration research. A system based on public jurisdictions require this. They pay attention and private partnership, targeting industrial to energy saving, as well as environmental and regional level problem, is badly needed. conservation, so they actively participate in clean production and technology research 3.4.2 Domestic enterprises and in the development of pollution con- trols as an element of good business prac- Overall, companies are important actors tice. in the innovation system of China, but this is There are two groups of small and me- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 73

dium enterprises (SMEs): Some are the lead- no SO2 or soot when burned. In the wind ers in introducing innovation in their indus- power sector, Goldwind has captured 33% try; others SMEs lag behind and make some of sales in China. In 2006, Goldwind in- investment in environmental protection, but stalled 442MW of wind capacity. only under the pressure of local government Although the domestic environmental officials. engineering corporations have had a period Another set of important actors are the of fast growth, their core technical skills new environmental protection enterprises. and key equipment still must imported Through years of practice, an environmental from abroad. In addition, a majority of protection industry of different enterprise consumers are reluctant to buy domestic types and sizes has formed in China. By the made equipment and instead purchase end of 2004, there were 11,623 units with a overseas equipment. This results in low total income of more than RMB two mil- adoption of domestic technology and lion in annual sales and 1,595,000 employees. equipment. Annual revenue of this industry has reached At present, investment in environmental RMB 457.21 billion with profit of RMB protection is hindered by the high cost of 39.39 billion. (National 96-05 white book obeying the law and the low cost of it; en- on environmental protection by MEP). terprises have little incentive for environ- In China, large private companies are mental innovation. Major steps must be tak- becoming dominant players in environ- en to raise the cost of breaking the law and mental innovation. Of China’s top 500 to continuously reduce the cost of adopting companies, 98 are private. Some of them new innovative technologies. are leaders in environmental innovation. For example, Wuxi Suntech Power Co., Ltd. 3.4.3 Industry-academic linkage has reached an output of 364MW of in- stalled capacity with sales revenue of over Industry-academic linking is one of the RMB 10 billion. It came third among pho- bridges for knowledge transfer from acade- tovoltaic cell manufacturers in the world. my to industry. Though government has Following is Baoding Tianwei Yingli New pushed hard to encourage this linkage, more Energy Sources Company, Ltd. The ENN effort is needed in China. In Chinese Acad- group is a major power company located in emy of Science system, there were about Hebei Province of China. This company is 1265 patent applications before 2007, but one of the largest providers of clean ener- only 20 of them are joint patent applications gy, in 2007, it earned revenues of RMB 12 with industry: This is also true for Tsinghua billion and employed 20,000 people. The University. In the department of environ- company invented a clean coal process to mental science and engineering, there are turn coal into dimethyl ether for power about 155 invention patent applications, but plants, household and vehicle use. of this only 15 of these are joint applications with technology’s advantages is that it generates industry. 74 Harmonious Development through Innovation

One of big challenge is that the former losophy. End treatment of pollution is still applied research institutes have been trans- the focus for pollution control. Implemen- formed into profit-seeking companies. Their tation is the big challenge as regional gov- technology capabilities gradually degenerated ernments cannot independently operate in and can no longer respond to the needs of some regions. the market. For example, in Wuhai, some Funds for environmental science are al- large energy related companies cannot get located through a variety of national S&T the needed technology from these new programs controlled by the Ministry of companies; they have to rely on imported Science and Technology of China. First, technology and to improve by themselves. funds for operating grants of research insti- Global industrial-academic linkage can play tutions refers to an allowance for the expe- a role here. In the photovoltaic industry, for rimental manufacturing of new products, the example, the leading scientists in China have expenses for pilot-plant test and the subven- learned the latest knowledge from a university tion for major scientific research projects es- in Australia. Those companies still maintain tablished by the state. Second, funds come good connections with the university. from national science and technology pro- China needs to increase incentives grams controlled by MOST. They are the through R&D funds to encourage increased principal funding source for research in Chi- industry-academic linkages. na. The largest and most recent project is water treatment, which is about 30 billion 3.4.4 Role of government RMB. Third, part of the pollution charge can also be used for research purposes. Part of Government plays a very important role this is used for pollution abatement and ca- in developing the environmental innovation pacity building of environmental protection system. Led by the Ministry of Environ- organizations; part is used for technological mental Protection, there are many govern- activities of enterprises and scientific estab- mental bodies responsible for the environ- lishments, especially local scientific institu- mental innovation system in China. These tions. include the National Development and The big challenge here is lack of coor- Reform Committee (NDRC), Ministry of dination in the environmental innovation Science and Technology (MOST) and others. system of China. China has a good tradition MEP and NDRC are responsible for the of coordination, as it has Five-Year Plans regulation of environmental issues. China and different forms of specialized commit- has made great progress in terms of law tees. But, the environmental problem is a making and standard setting and implemen- horizontal issue. The specialized function tation. Institutional change in China is in of each ministry means cross boundary transition. The environmental protection problems remain an issue. The National law and policy of China in this period basi- Environment Information System proposed cally follows a ‘command and control’ phi- later in this report would cut across all as- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 75 pects of government, as well as businesses cies. At the same time, government pro- and public institutions. curement of clean technology products is Water pollution presents a very impor- still inadequate. Nobody is responsible for tant example. The distribution, dispatch, the pilot stage of innovation. protection, supervision, and administration of fresh water resources (the seawater re- 3.4.5 Global linkages source is under the administration of the State Oceanic Administration) are within the Since opening to the world, the World purview of the Ministry of Water Resources. Bank and many developed countries have The utilization quota of water resources and helped China very much in terms of regula- the use of water by industry, construction, tion, standard setting, and the transfer of and production are determined and super- best practices. vised by other departments, including the The Clean Development Mechanisms NDRC and the Ministry of Construction, (CDM) for example, is one of the mechan- the Ministry of Communications. Sewage isms established according to the Kyoto Proto- disposal facilities are administrated by the col (1997). CDM is deemed to be a Construction Administration Department, double-win mechanism, for it provides more but not by the MEP. However, sewage flexibility for developed countries to reduce drained to the surface water – lakes and riv- performance cost and it provides the CDM ers – is administered by the MEP. The water project countries with new capital and ad- drained to the sea is under the administration vanced technology. of the State Oceanic Administration. The The World Bank has supported China drainage process of motor vessels is out of with nine carbon-purchasing agreements the administration of the Ministry of Envi- beginning with three proposals in Septem- ronmental Protection but within the admin- ber 2003. The agreements relate to energy istration of the Department of Transporta- sources, including coal mine methane, hy- tion. dropower stations in river channels and Money for research and development wind farms, energy efficiency, such as ex- and for diffusion of technology is an in- haust gas reclamation during steel produc- teresting example. The distribution, dis- tion, carbon sequestration via forestry, and patch, protection, supervision, and admin- industrial gas destruction, for example, of istration of environment are in the pur- HFC-23. China is the largest HFC-23 emis- view of the MEP. The Ministry knows sion source in the world. In December 2005, what kinds of innovations are required for the World Bank and two project units sup- the problems, but does not have the funds ported by the Chinese government signed a to support these innovations. The MOST CDM trade purchasing agreement for the controls most of the funds for environ- largest amount registered thus far, including mental R&D, but it does not have the abil- two HFC-23 reduction and emission ity to allocate the funds to the right agen- projects with reduction or emission 76 Harmonious Development through Innovation amounts exceeding 129 million tons. Due to can use poor technology in China with huge the support of the World Bank, China in- pollution as a result. But, many multination- creased its share in the global CDM credit als stand out as models of environmental market, acquiring 60% of the global amount. protection in a number of regions. This task Up to now, the World Bank has signed nine force expects that through green purchasing purchasing agreements in China, with a total of local suppliers, they can help local com- value of USD 1.1 billion, reducing 170 mil- panies to acquire related knowledge. China lion tons of exhaust gas emissions. This Daily reports that in 2007 China received kind of global tool not only brings benefits 82.6 billion dollars in FDI and this is rising to China, but also strengthens the local ca- further in 2008 (China Daily Sept 25, 2008). pability of China’s energy industry (China Government has started to curb investment and World Bank: the Fellowship of Pro- in energy-consuming and environ- moting Innovation, 2007). But whether ment-polluting industries, instead encourag- CDM is leading to innovation and diffusion ing investors to go into hi-tech, modern of technology is an important question. agriculture, and service industries. The effectiveness of CDM as a driver of innovation must be examined carefully as 3.4.6 Conclusion there are conflicting views. This proposed study should be completed in time for the The system of environmental innova- Copenhagen 2009 meeting. tion is inadequately developed in China. FDI is another important factor for Domestic companies do not have enough knowledge transfer. Many multinational incentive to do research and development companies from developed countries have duce a lack of necessary regulations and good environmental consciousness and a their implementation to make innovation a sense of social responsibility, because they competitive, enhancing force. Most univer- are driven at home by, tough standards that sity and government research institutes are must be met. However, with its lower pollu- inclined to do basic research that is far from tion standards and lack of enforcement, being ready to commercialize or transfer. China has selectively attracted more heavily The link between R&D and commercializa- polluting industries. Research done by Jing tion of technology is missing, as there are Zhang and Xiao Lan Fu found that FDI not enough capable, applied research insti- prefers to locate in regions with relatively tutes. The coordination and funding system weak environmental regulations1. They sug- needs to be improved to strengthen the pi- gest some evidence of a pollution haven lot and test elements of innovation. FDI within China. They also found that in terms and other kinds of global linkages help of environmental protection, multinationals China to access the latest technology. Mul- from developed countries do better than tinationals can play an important role by those from Hong Kong, Macao and Taiwan green purchasing from local suppliers and regions. Enterprises with polluting industries can help local companies to acquire related Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 77 knowledge. standards are enforced to achieve these re- sults. This is impossible now, since decisions 3.5 Regulation, Standards, and must be supported by information on pollu- Enforcement tion levels established relative to standards. Obtaining such information entails huge costs and difficulties. Governments have 3.5.1 Need for enforcement of regula- adopted a series of regulations, policies and tions and standards to drive innovation incentives and carried out promotion and education activities with the aim of encour- Environmental technologies are ma- aging technology flow and application to im- naged centrally. Government implements prove the situation. related regulations and standards approved Only by providing corresponding orga- by the National People’s Congress and re- nizational guarantees and pushing forward quires businesses and other entities to fol- system reform can the obstacles to building low. Under the socialist market economy, the environmental portion of the National the involvement of the market diversifies Innovation System (NIS) be addressed. The interests. The interests of local and central existing organizational systems must be re- governments often do not agree. Local formed and a system must be created that governments base their decisions on their allows environmental technologies to flow understanding of their maximum interests. among the developers, the disseminators and The current environmental legal system and the users. Governments, businesses, universi- the status of law enforcement do not moti- ties, and colleges all research institutes, in- vate businesses to meet environmental reg- termediaries and individuals, need to be in- ulations. volved in the process. Businesses are the In the ideal situation, environmental reg- main force in the operation of NIS, while ulations and standards would be stringent governments are responsible for implement- and would be strictly enforced. Businesses ing and enforcing the regulatory environ- would pay far more for causing pollution in ment for creating markets and for correcting violation of the law than they would for act- market failures. ing within the regulations and standards; they There are a large number of regulations would get far more benefit from operating and standards. These are regularly reviewed within the regulations than from avoiding the and updated. Over time they are increasingly controls. In this scenario, businesses would meeting international standards. It is clear be motivated to seek every technology possi- that China has an effective set of regulations ble to lower their pollution control costs. The and policies, but these are not uniformly, ri- strong market demand would then push for- gorously, or fairly applied from jurisdiction to ward needed innovation. This, in turn, would jurisdiction. One only has to read the three generate returns from the market. The prob- case histories of Baoding, Ningbo and Wu- lem is how to ensure that regulations and hai to understand the dramatic differences in 78 Harmonious Development through Innovation different jurisdictions in China. It is also clear with levels that are technically and econom- that many SMEs have been able to escape ically achievable and continue to get more these regulations – sometimes by simply restrictive over time as progress is made. shutting down and reopening elsewhere. The Incorporation of environmental exter- task force is explicit in making the following nalities into the pricing of resources like coal statement: and water, usually done with some form of “Without strong and uniformly enforced taxation. regulations and standards, there is no market We have found from the Baoding visit and hence no incentive for investment in or that the Spring Wind program from Na- deployment of innovation environmental tional Development and Reform Commis- technologies.” sion has helped the wind power industry in A big incentive to create a market for China. The high price for wind power elec- clean technology is good regulation, consis- tricity and the allowance of wind power tent standards, and tough enforcement at all electricity to integrate with the national grid levels. system stimulated this new industry in Chi- na. Many local regions and local power 3.5.2 Creating a market for clean tech- companies have taken active steps to im- nology plement wind power stations in their re- gions following this government financial China has seen enormous economic program. growth in areas that have a clear domestic or There are cases where voluntary stan- international market that demands products dards have led to improvement, but for the and services. However, until there is a clear most part, voluntary standards have not been market demand for clean technology, includ- effective in driving innovation in the devel- ing both pollution control for existing oped world. On the other hand, once strict processes and newer clean and efficient standards have been put in place, markets technologies, growth of markets in this area and associated innovations to reduce costs will be slow. Looking internationally at how have grown rapidly in developed countries. industrialized countries have made the transi- For example, in the United States, innovation tion to cleaner and somewhat more sustaina- in SO2 pollution-control technologies largely ble economies, several factors have been es- occurred after strict well enforced emission sential. These include: control regulations were put in place. Also, (1) Strong public demand for clean and innovation to reduce emissions from motor efficient products and processes based on vehicles largely occurred after strict well en- good access to information and effective or- forced emission control regulations were im- ganizations to support regulation and the con- plemented. Evidence of this phenomenon tinued adoption of best practices. also is in China where, once pollu- (2) Good environmental standards, ac- tion-control standards were established for tively and uniformly enforced, which start motor vehicles, emission-control technolo- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 79 gies were transferred, developed, and dep- veloping countries. Leapfrogging to modern loyed in China (Gallagher 2006). (Gallagher approaches has been practiced in China and 2006, Appendix 7) is included in China’s medium to long term Increasing costs associated with bad science and technology plan. But the process practices can also be powerful signals to the is highly dependent on having in place a market. Sometimes this happens naturally supportive and functioning regulatory system. through normal market process, but some- Each leapfrogging activity needs to be con- times the government must intervene and sidered on its own merits. impose externality taxes. For example, China There are many opportunities for leap- is beginning to use coal more efficiently than frogging in China. Below are a few repre- it once did, in part because prices have risen. sentative examples that have both domestic Similarly, US consumers are demanding and export potential. smaller, more fuel efficient and thus cleaner (1) Energy Storage Technology: As cars because gasoline prices have recently greater use is made of intermittent renewable doubled. energy sources, such as wind, and as more Public support, strong, well-enforced effort is placed on reducing emissions from regulations, and correct pricing are essential vehicles fueled by petroleum products, the to creating a market for clean and efficient need will grow rapidly for efficient, cost ef- technology. Two other factors can also play fective energy storage technologies that can an important role in making progress in im- be cycled (filled and depleted) many times. proving environmental quality and promot- Today, the leading candidate is advanced bat- ing clean and sustainable processes and tery technology. Other technologies include technology: ultra capacitors, kinetic energy storage such (1) The growth of a culture within cor- as flywheels, and electrochemical systems porations, especially among industry leaders, such as bi-directional fuel cells. If China can that takes pride in being a “best actor” and develop effective new products in this area, it thus applies pressure on poorer actors in the should enjoy both a large domestic and a same sector; large international market while also making (2) Direct (e.g. subsidy) and indirect a large contribution to improving environ- (e.g. tax breaks) support from governments mental quality. to cover the incremental costs of demon- (2) Advanced Materials Separation: strating advanced technologies that have China produces large amounts of solid not yet become cost effective but hold waste and also imports large volumes of great potential. waste material and products such as used electronics from elsewhere around the 3.5.3 Leapfrogging and standards world. At the moment, technology for se- parating valuable materials for recycling and Leapfrogging to current and modern making use of the embedded energy in technologies is a very strong option for de- these wastes is still at a fairly primitive stage, 80 Harmonious Development through Innovation both in China and in much of the rest of slow. Indeed, today it appears that China may be the world. Research and innovation that as far or further along in actual development and develops and commercializes advanced me- demonstration of these technologies as any oth- thods of separation could both help dra- er country. With a serious push, China could matically to improve China’s environmental become a world leader in this area, not only to quality and might also become a very lucra- contribute to reducing its own contributions to tive export market, since most developed local and global environmental burdens, but also and developing countries face very similar to become a major international supplier of ad- problems and needs. vanced clean coal technology. (3) Low Cost Solid State Power Elec- (5) Solar Thermal Technology: While tronics: In addition to intermittence factors, China enjoys a large and growing export as capacity factors typically are less than or market for solar PV, this technology remains equal to 20%, one of the things that makes very expensive for bulk power applications. photovoltaic electric power very expensive Solar thermal technology, which heats a is the “balance of system” costs, that is, working fluid that is then used to make the power electronics needed to convert steam to generate electricity, is potentially DC into AC. Power electronics also play more cost effective than PV to generate bulk key role in many other advanced applica- power in desert regions. Furthermore, heat tions such as wind, motor control, and can be stored in insulated vessels and then power system control. Both the domestic used to generate electricity when there are and international markets would be very clouds or during peak demand in early even- large if China could develop low cost ing when the sun has set. While there are a ‘package units’ that can perform simple number of solar thermal plants now operat- tasks such as DC to AC conversion, syn- ing, development challenges include reducing thesis of varying frequency three phase AC the cost of collectors, for example with flat power for motor control, and similar plate Fresnel zone lenses, and developing products that would enable greater energy thermal storage systems. In addition to efficiency at low cost. meeting domestic energy needs, China could (4) Carbon Capture and Deep Geological also develop a substantial export market for Sequestration: Coal is central to the energy such technology. economy of China and of many other nations (6) Desalination of Saline Water: China including the United States and much of Europe. faces serious and growing problems with its Over the coming decades, it will simply not be fresh water supply. The same is true in many possible to reduce dramatically global CO2 emis- other parts of the world and as climate sions while meeting energy needs without con- change becomes more serious the number of tinuing to make use of coal. While there has regions around the world that face fresh wa- been a great deal of discussion of advanced coal ter shortages will grow. Today, reverse osmo- technology and deep geological sequestration in sis is the leading technology for desalination the industrialized world, actual progress has been of seawater and other saline waters. This Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 81 technology is expensive, but costs have fallen challenge for China. As history shows, a sufficiently such that the technology is seeing strong system is necessary to trigger innova- growing applications, especially in wealthier tion. The supply side based on new technol- parts of the world. There are a variety of ogies alone is not enough. The demand side other technologies that hold potential for al- must also be stimulated. This is where en- lowing desalination at lower cost. If China is forcement of regulations and standards are able to develop such technologies they could necessary at all levels of government. If a both meet a growing domestic need and also company knows it must meet standards, it supply an important and growing export will seek the most innovative and cost effec- market. tive way to do so. As Stigson (2008) pointed These are a few examples in which out at the April 2008, CCICED Enterprise China can bypass various stages of tech- Forum, this means, among other things, en- nological development as it reaches to meet suring the security of the IP used in meeting present standards or to establish new stan- these standards. dards and the needed technologies to meet It is worth noting that the World Busi- environmental and sustainable development ness Council on Sustainable Development needs. There are many others. Higher, (WBCSD) is creating a system in which strongly enforced standards will create the member companies make IP openly available markets that will lead innovators to pursue where it relates to environmental protection such avenues. At the same time, govern- technologies. This IP commons is designed ment policies and funding can accelerate to increase diffusion of information around leapfrogging development. As the case his- the world. tories of Baoding, Ningbo and Wuhai show, SO2 pollution control in thermal power there are very interesting opportunities for plants (Appendix 6) shows that enforcing the less developed parts of China to leap- standards is beginning to pay dividends, as frog based on the experience of the more the technology of flue gas reduction is in- developed parts of China. The MEP should creasingly being deployed. consider running an intensive workshop on But, at this stage, China seems to lack an this topic as it develops opportunities for effective monitoring system. Environmental joint funding of projects with private sector protection bureaus (EPB) typically report to partners. local governments. This means that are available date may or may not be reliable. 3.5.4 Enforcement There is no independent monitoring. What is available is often so aggregated that it is The lack of strong, uniform enforcement bears little or no relation to whether the of standards and regulations is a phenome- standards are being met or not. non well known and frequently commented In the US, one of the earliest policies on previously by CCICED and by various that was established was the Toxic Release task forces. Enforcement remains a serious Inventory (TRI). Over time this inventory 82 Harmonious Development through Innovation has developed effectively as a tool for moni- program went forward and the data have toring and it is managed independently. The been important in inducing reductions in results are company-by-company and are emissions. This has happened in two ways. publicly available. As a result, the culture has Some firms have been embarrassed to have changed and organizations seek to be good to publish data that make them look bad and performers. so have taken steps to reduce their emissions (1) The US Toxic Release Inventory: A and improve their public profile. Perhaps strategy to promote citizen involvement. more importantly, these data have been In 1986 the US Congress passed the widely used by environmental and commu- Emergency Planning and Community nity groups to bring pressure to improve lo- Right-to-Know Act (EPCRA), as explained cal environmental quality. on the EPA website (www.epa.gov/tri/): Anyone can log onto the scorecard web- Sections 311 and 312 of EPCRA require site and summary maps of emission data, in- businesses to report the locations and quan- cluding toxicity-weighted data, nationwide. tities of chemicals stored on-site to both Users can also input their local postal zip state and local governments in order to help code and get data on emissions sources in communities prepare to respond to chemical their local region. spills and similar emergencies. EPCRA Sec- tion 313 requires the EPA and States to an- 3.5.5 International standards nually collect data on releases and transfers of certain toxic chemicals from industrial fa- There are thousands of standards in cilities and make the data available to the place around the world in different jurisdic- public in the Toxic Release Inventory (TRI). tions. In some cases these are in a form that In 1990 Congress passed the Pollution Pre- could be adopted by any given jurisdiction. vention Act, which required that additional Examples include forest practice codes, bio- data on waste management and source re- containment codes, biodiversity codes, and duction activities be reported under TRI. many others. Adoption of these can be a The goal of TRI is to empower citizens major stimulus to innovation in developing through information in order to hold com- new approaches to meet these standards. panies and local governments accountable Perhaps best known is the Montreal Protocol in terms of how toxic chemicals are ma- on HFCs. naged. The first standard introduced in China When this requirement was first pro- was in 1973 for three wastes: waste water, air posed, arguments were advanced by some in and solids. Now, in China, there are about industry and academic circles that the data 1000 standards in environmental protection. would not be accurate and that simply re- Standards can be a driver for environmental porting the total mass of emissions without innovation. It sets a goal for companies to some estimate of actual exposure and toxici- realize. Therefore, it pushes companies to ty would not be useful. Nevertheless the find new solutions to match the standard. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 83

Innovation can then follow from that action. mation System. For this to be successful the For example, the standard of ISO14000 is a environmental protection bureaus (EPB) of big impetus for movement of clean produc- the various jurisdictions need to be sepa- tion in China. Many large companies are rated from the local governments and need leaders in introducing the standards. This to report their information directly to the standard is the driver of managerial innova- central system of MEP. This system would tions in the case of environmental protection. build on and substantially extend the func- For example, Bao Steel took a timely action tionality of the 3000 stations under the to diffuse the ISO14001 standard in the China National Monitoring Station system whole company system, from design, to that produces annual reports. Individual production, to the supply chain. This pro- governments will not necessarily welcome duced positive effects in energy saving and in this separation, but it would put MEP in the pollution control. At the same time, the MEP position of being a third party monitoring diffused the idea to regional levels, especially and auditing agency. Results put together in to many high-tech zones and economic de- their Control and Information Center (CIC) velopment zones. would then be openly published and availa- Standard setting is very important in ble widely. This availability would ensure some industries. For example, in vehicle and that all information of the nationwide sys- power plant industries standard setting is key tem could be reviewed in real time by any to environmental innovation. Since the 1980s, organization, any local, national, or interna- China has been introducing vehicle emission tional NGO, or the public at large at any standards. Modification of the old standard time. began in 1993, when the limit of emission This will take time, money, and people to was still very low. Several phases were devel- implement, but would go a long way to en- oped following the EU standards over time. suring standards were being met as standards Now, the emission limit of HC, CO and would be published along with the informa-

NOx for gas vehicles at China Phase IV is tion. Violations could then be identified and less than 10% of that before China Phase I. enforced, and suitable penalties established As for heavy duty vehicles, the emission limit and implemented. This independent “audit- of NOx and particulates is about 10% of ing” would have a big impact on driving in- that before China Phase I and meets current novation, whether imported or indigenous. EU standards. This innovation would, in turn, provide cre- dibility for China as it seeks to export envi- 3.5.6 National environment information ronmental technology. MEP would establish system advisory committees to assist in imple- mentation and ensuring that the best tech- We urge that the Ministry of Environ- nologies were in place for the monitoring mental Protection (MEP) be empowered to and open reporting. establish a National Environmental Infor- By making this commitment, China 84 Harmonious Development through Innovation would have a strong key to drive not only 3.5.7 Conclusion technological innovation, but also institu- tional innovation as agencies and businesses Good regulations, high standards, and determined how best to deal with this open the tough but fair enforcement of them are and independent reporting of pollution in- absolutely necessary if markets for environ- formation. It would also provide an evalua- mental technology innovation are to be de- tion system that could monitor the results of veloped. China’s enforcement is known to be deployment and adoption of new technolo- inadequate. It is proposed that a National gies. This evaluation could, for example, be Environment Information System be devel- used to document the actual effectiveness of oped and implemented. This system must be the various CDM projects that have been and open and accessible and provide accurate and are being implemented. In turn new regula- dependable information for all interested tions and new standards could be developed parties to use. Such an open system could from this information base. provide confidence in knowing what is hap- The development and operation of a pening in a form of third party audit by the major environmental information data base MEP. This is a massive undertaking and is truly a massive undertaking that involves could anchor a cluster of innovation in its the uniform gathering of information of own right. Given such a system, there are al- much critical data. This needs to be routinely so many opportunities to set the global stan- updated and of course new techniques in dard and to aggressively develop leapfrog- both hardware and software need to be de- ging opportunities. veloped and implemented. Production of information nationwide on a real time basis, 3.6 Public Participation and Envi- uniformly, and without opportunity for in- ronmental Innovation tervention at any level will require many in- novations. A new cluster of innovative activ- In recent years public participation has ity could be developed in support of and in been developing in China in respect of en- relation to this new center. Activities in rela- vironmental issues and the related envi- tion to this center could be thought of as ronmental innovation needed to deal with creating a central core for the new clean tech these pressing issues. This chapter consid- research platform. Today, information ga- ers the role of the public and community thering can be done by wireless techniques organization in achieving sustained envi- and satellite collection to a central location. ronmentally friendly economic and social This type of center would in itself provide a development. For the public to be able steady flow of further innovation in support play their role in the government – busi- of the clean tech platform. One might even ness – civil society triangle there is need think of this center as being something like a for maximum transparency in information typical space agency control center. about existing pollution, about pollution associated with new developments, about Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 85 mitigation possibilities in this pollution, economically successful and help to create a and about the potential health and quality harmonious society. An informed public that of life impacts. Much has been done, but a is listened to is a key to the harmonious so- great deal remains to be done to fully em- ciety. What this means is that in the context power the public. of “it is glorious to be rich”, it is necessary to be environmentally friendly if the objective 3.6.1 Why public participation is needed of being rich is to be sustained. The devasta- tion of pollution continues to rise in China Public participation is a necessary condi- and to cause dramatic health impacts on its tion for understanding the impact of envi- people; the economy, in turn will, suffer. ronmental pollution on communities and the environmental innovation needed to deal 3.6.2 Public can play a role with the pollution. First, the public is the end user of industrial products. The complexity The development of environmental pro- of environmental problems and the univer- tection activities in western countries is inse- sality of their impact create problems that parable from the active participation of the cannot be addressed by government or the public. Many environmental issues have been market alone. It is necessary to ensure that resolved by the public, especially those who are the public is empowered to play its key role the victims of environmental hazards. Groups by recognizing the impact of today’s pollu- who suffer from environmental hazards often tion, as well as the potential impact of future launch environmental protection campaigns. projects. Second, the essence of a harmo- These activities frequently lead government to nious society is in how people can share in create environmental legislation, to take man- the benefits of regional economic develop- agement measures, and to create environmental ment. There can be conflict between compa- assessment processes. But these results must be nies and local people or between govern- available to the public. ments and local companies. The company China’s environmental protection has can take the profits of the project and leave been dominated by government. It is worth the environmental degradation to the public. examining how to include people’s views in The involvement of the public can bring the process of environmental protection and stakeholders into the development process slated technological innovation. The most and thus reduce the conflict between the typical and effective approach can be seen company and the local communities. Thirdly, from an example. In April 2005, the State En- economic development can only be done vironmental Protection Administration (SEPA) with public input in an environmentally sen- held the first public hearing on Yuanmin- sitive way. Is it possible for regional levels of gyuan’s anti-seepage project. In February 2006, government to take the lead in competing the Provisional Measures for Public Participa- with each other to be the best environmental tion in Environmental Impact Assessment jurisdiction? In this way they can also be (EIA) were issued. Meanwhile, the higher spe- 86 Harmonious Development through Innovation cification and broader coverage of Measures damage the environment. They should have for Public Participation in Environmental the right and the channels to obtain informa- Protection have also been legislated. Public tion about ecological technology. Public su- participation in environmental protection is pervisory systems include public announce- important in creating the environmental poli- ments, hearing systems, mass reporting sys- cies that affect people’s daily lives. The rapid tems, police and citizen joint supervision development of environmental NGOs has also systems under (EIA), as well as public opi- been important in this regard. NGOs may help nion systems for civil society green organiza- to focus public opinion and thus to form poli- tions and public media. cies and to hold decision makers accountable. A good example of public impact is the The public, through individual action, Sudbury area in Canada. This is a case where through community organizations, and mining, forestry, and smelting over nearly a through NGOs, has a big impact on dealing century had devastated thousands of square with local environmental issues, impacting kilometers around the city. Active citizens both governments and businesses. The reso- and many local groups started to force lution of many of these issues is through en- change. Eventually the companies, the local vironmental innovation and again the public government, the provincial government, and can both press for these innovation and as- the federal government joined the effort to sess their effectiveness. Today, through the rehabilitate this devastated site. Today, this is incredible power of various communication considered one of the world’s most success- media including the internet, much can be ful restoration projects and demonstrates done to keep the public engaged. that even the most polluted sites can be Attention should be paid, for example, to ‘re-greened’ through public participation. the Blue Planet Prize, established in 1992 by There are increasing examples in China of the Asahi Glass Foundation and awarded to active public participation. Consider the recent support action for the protection of the public pressure in Xiamen that caused the re- global environment and its beauty. The list location of a seriously polluting chemical fac- of winners is a remarkable list of distin- tory. According to existing laws, the govern- guished citizens. It would be interesting for ment’s decision to build the large chemical China to create national environmental prizes project in the region cannot be rejected. But to be recognized and internationally admi- public pressure changed the government’s de- nistered by the MEP for best environmental cision. (Xing Jing Bao (Daily), December 8, citizen or citizen’s group and for best tech- 2007). The Ningbo case gives an example of nological innovation. These prizes would public participation that is particularly effec- complement the ones presently awarded and tive. The case of Wuhai on the other hand give global recognition. As for public partic- documents the severe pollution from dirty ipation in the system of technological inno- industries in an area where there are few active vation, the public should have the right to be community organizations, few active NGOs, informed and even to supervise projects that and little public participation. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 87

3.6.3 How the public can participate 3.6.3.2 Public hearing and supervision At present, the hearing system as defined 3.6.3.1 Public accessing information in environmental legislation, environmental Before public involvement, the key issue project assessment, environmental science is how the public community can get access and technology policy exists only to a limited to information. The proposed National En- extent. On environmental legislation, the vironmental Information System can provide State Environmental Protection Administra- a solution to this. The government and tion held a hearing on “Regulations of Pol- companies would have the responsibility to lutant Discharge License” for the first time disclose the relevant information. on Aug. 6, 2004. This marked the establish- The previous section on standards, regula- ment of an environmental legislative hearing tions and enforcement recommends that the system. Since then, consultative activities on MEP be empowered to institute a full Center environmental legislation have been held. for Information and Control that could not be Public supervision of the environmental manipulated by any local, regional or national technology innovation process is reflected in interests. Technical independent advisory two types of activities: One is individual re- committees would advise on this system. Such porting on enterprises violating the law or a system would be an essential element in em- regulations; the other is various measures powering the public to hold governments and adopted by the relevant environmental pro- enterprises accountable for their actions in the tection organizations or non-governmental release of pollutants. organizations. As far as individual reports In view of the dramatic health impacts and supervision activity is concerned, the on the population, it would be useful to start approaches mainly include the constant compiling and making public impacts on ‘complaint mailbox’, the ‘12369’ environ- health available in the data center. This could mental report hotline of the environmental include WHO monitored data. There is con- protection institution, or its website. Personal cern that by focusing on emission intensity representation to the relevant institution is targets, rather than total emission, that the also available. The modes of environmental government may be creating a false sense of technology innovation supervision of rele- security as total emissions continue to rise vant environmental protection organizations rapidly. By presenting authenticated results and non-government organizations include openly and publicly, and by presenting these approaches such as public meetings, public together with the relevant standards, the protests, the establishment of green citizen public, community organizations, local organizations, citizens voting in political elec- NGOs, and international NGOs, can deter- tions, and boycott action1. The supervision mine if standards both local and internation- of these activities on environmental tech- al are being met. nology innovation not only ensures the ac-

1 Zhuang Xiaochun, Li Changyi: On Public Participation in Environmental Problem, published on Journal of the Party School of Province-Level Organs of Sichuan Province Committee of CCP February 2003. 88 Harmonious Development through Innovation tual application of environmental technology, phasis on the concept of the community but also makes important contributions to organization and on the social supervision creating a system favorable for public policy function of grassroots communities. Now, input on environment and can assess the ef- the community has become a network for fectiveness of these measures, including the social management, for public service, and risks. Public supervision directly highlights for social support. In the implementation the social benefit of environmental protec- of social welfare, social relief, social charity, tion. Public benefit is managed and assessed occupational support, public security, family by the public, which can then effectively planning, health services, judicial correction, solve the problems of ‘market failure’ or environmental protection, grassroots medi- ‘government failure’ at several levels or both. ation of social disputes, and life services, The public are also consumers of many the community organizations must play an products. Where they have a choice, they will active role. choose environmentally friendly products. Throughout the world, NGOs play an Developing green products such as solar wa- important role in environmental protection ter heaters is a strength in China. The city of and innovation. Up to 2005, China had Rizhao in Shandong province is a city known only 2,768 environmental protection as sunshine city and is a model for the use of NGOs, including 1,382 environmental solar hot water healing (New Scientist, Nov 10, protection NGOs initiated by the govern- 2007). Appliances can be more or less ment. Environmental protection NGOs friendly to the environment. There is consi- have 224,000 members, including 69,000 derable innovation needed to drive up envi- full-time staff, and 155,000 part-time staff. ronmental standards, while maintaining the The average full-time staff of each organ- price. ization is about 25 people; about 30% of 3.6.3.3 Give full play to social communities, spontaneous environmental NGOs have NGOs and volunteers only part-time staff, but no full-time staff. As environmental problems are usually Though China’s environmental NGOs very complex, relying on government and have developed quickly, the number is still business alone cannot resolve the whole limited and the scale is not large. Their role issue. Community organizations and in environmental protection activities is non-government organizations need to fill obviously smaller than that of government the gap that the government and business environmental protection organizations. leave. Environmental protection NGOs should The community organization is a basic be given a greater role in the innovation unit of society. To construct a re- system. They can effectively assess the lo- source-efficient and environment-friendly cal needs and the pollution impact already society, it is required to build the communi- happening, as well as the potential impact ty into an environmentally friendly commu- of future developments. The need of in- nity. Traditionally, China has laid less em- novation then is driven by addressing these Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 89 local needs. NGOs can evaluate the effec- manifested. In order to play the key role of tiveness if given open and transparent civil society in the triangle between govern- access to all information and can press for ment, business and civil society there must the needed improvements. be full transparency of information. The Volunteers prove to be another impor- public needs to be empowered through tant force in driving environmental innova- access to information through the proposed tion. They can fill the gap left by govern- National Environment Information System. ments and NGOs. Many volunteers can pick The public should be in a position to hold the best practice and diffuse them into their governments and businesses accountable. community. For example, in Beijing, one vo- The creation of community organizations lunteer proposed to control room tempera- needs to be stimulated. There needs to be ture using air conditioning at 26℃ as a low widespread education available to ensure cap in order to save energy. This kind of ef- there is an informed public. fort later on became the practice of the gov- ernment. 3.7 Conclusions and Recommen- dations 3.6.4 Education, training and publicity of the public This report has reviewed a number of aspects of innovation and the environment China should, through public education, friendly society. China has made many ma- training, and publicity, mobilize and empow- jor steps towards dealing with emissions of er the public to carry out direct and gras- pollutants. Targets have been set to reduce sroots-orientated supervision, so as to pro- emissions on a per GDP basis and steps mote the development of innovation for have been taken. Significant projects, such ecology. It is important for the public to un- as Green Gen, are under way to develop derstand and to be prepared to accept inno- power plants that will have zero emission, vation in science and technology for sus- including carbon capture and storage (CCS). tainable development and environmental At the same time, the plan is to continue to protection. This means strong outreach to increase the GDP at a rate very much faster the citizens of China and increased aware- than the planned emission “reduction”. ness and education. Given that the pollution levels are already well beyond the ability to support the envi- 3.6.5 Conclusion ronmentally friendly society envisioned, much remains to be done. Reduction targets The public, through individuals, through of pollutants on an absolute level must be community organizations, and through more established. Given the enormous level of formal NGOs, has a major role to play in pollution and damage to the ecology of environmental issues. It is through this land, rivers, lakes, air, and oceans, there is a channel that the need for innovation can be massive job of remediation to be done as 90 Harmonious Development through Innovation well. This chapter have examined the need (CT). It builds on new energy, NT, BT and for innovation in support of environmental ICT, focusing on saving energy, clean energy, protection and sustainable development and and clean manufacturing. what needs to be done to stimulate that in- China is confronted with a complicated novation. situation in which it is simultaneously suffer- China has not escaped the pattern of ing from the double pollution of production many developed countries: pollution first, and of daily life; from co-existing pollution control of pollution later. Environmental from point, line, and area sources; from the protection is not always a precondition for interaction among old and new pollutants; economic development. China favors more and from the international pollution of water, direct control by command, over rather than air, and earth. China must support science by regulation based on law. There are no ef- and technology for environmental protection. fective market signals to stimulate environ- It must move to strengthen its indigenous mental innovation. There is a gap between innovation capacity and to realize that inte- the work of university and research institutes grated innovation is needed for problem and companies needs. Applied research in- solving. While continuing to import ad- stitutes that function to test and diffuse new vanced technology is necessary, this will be technology are lacking in China. China lacks substantially reduced over time as China a national environmental information system moves to become a leader in innovation for providing accurate and reliable information an environmentally friendly society. China needed to create markets and incentives. must launch a National Environmental In- Opening this system to the public will send novation Program. The program will include this signal by creating confidence. the following key elements: Facing the big challenge of heavy pollu- tion and shortages of resources, China is in a 3.7.1 Technology innovation for environ- position to lead a clean technology revolu- mental protection and sustainable devel- tion. Without a clean technology revolution, opment the environmentally friendly society in China will not be possible. In addition to dependa- The nature of the innovation process can ble market signals, this will require careful be thought of as a constant flow process in investments. The development efforts of en- which each element influences every other vironmental protection lie in the improve- element in other words, an innovation eco- ment of existing technologies, in the devel- system. Some innovations are ready for opment of new breakthrough technologies, adoption and deployment. Others depend on and in institutional innovation. New mate- having an innovation culture and mindset rials (NT), biotechnologies (BT), and infor- that ensures that it is ready to lead and to mation and communication technology (ICT) adopt new innovations as the research and are all seen as basic research platforms. To development elements evolve along many this must now be added clean technology fronts. China must be strong in all elements Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 91 of the innovation process that focus on sus- ‘competence’ centers for research focused on tainable development. innovation with a high international scientific Innovation is already an important part quality. China has already done much of the national science and technology through research parks affiliated with univer- strategy (see China’s scientific and technolo- sities to build university business partner- gical actions on climate changes, 2007), the ships. However, the emphasis here should be National Innovation Strategy (see OECD to focus more on cooperation between re- Reviews of Innovation Policy China, 2007), search-intensive companies and renowned and the Medium to Long Term Science and research institutions to foster technology Technology Plan (2006-2020). All elements transfer. This will increase the effectiveness of the innovation process need to function of technology introduction. Major invest- well to deal with short-term needs, as well as ment to establish China as a major player in be ready to develop and exploit future chal- ICT, BT, and NT must continue. China has lenges and opportunities. the opportunity to establish clean technology 3.7.1.1 Strengthen China’s basic research as a major research platform and this should capacity be done. The existing foreign technology and in- 3.7.1.2 Create industry sector research in- tegrated incremental innovation are not suf- stitutes ficient for the goal of environmentally- A number of academies have been moved friendly society building. China needs radical to become for-profit institutions. This means and original innovation to deal with the en- that they are less likely to take on industry-wide vironmental challenge. problem solving, as these are less likely to be China needs more investment in basic profitable. Specialized research institutes are research. China is doing much in this area needed in specific industry sectors, such as but must continue this development to be chemical, steel-making. sure it is globally competitive in attracting Industry sector research institutes serv- and retaining the best researchers. There is a ing the needs of industry sectors need to be need to further strengthen China’s basic re- created and funded. These would serve the search capacity, as it is the base for the next need of pre-commercial research within the generation of innovation and for China’s innovation process and be the locus for move to a more knowledge intensive econo- demonstration projects. These would be my. By funding competitive research, intro- funded and managed jointly by government ducing prizes and scholarships, and broa- (MEP) and industry consortia. These new dening the base support to universities industry sector research institutes also serve beyond the key universities, China will in- the needs of regional SMEs and help SMEs crease its role in global learning networks. to adopt new technologies. Another incentive that will increase Chi- 3.7.1.3 Public procurement na’s international research and development In China, the public procurement system capacity is the establishment of a number of is expanding to include special support for 92 Harmonious Development through Innovation indigenous innovation. In 2006, the govern- 3.7.1.5 Innovation financing must be ment gave green products some priority in available procurement. There has been no special ap- China needs to improve its venture capi- proach to promoting environmental innova- tal mechanism. Venture capital is increasingly tion. In European countries, public pro- available and must continue to substantially curement is about 14% of GDP, of which grow if China is to develop and fully exploit 19% is for green procurement. In Sweden, it “the new industrial revolution”. Good exam- is as high as 50%. ples exist, in particular where investors see By requiring that a minimum percentage the opportunity for export markets. The long of government funds be invested in clean term potential of environmentally friendly technology through budget transfers, central companies and the likelihood of their busi- governments can create incentives for re- ness success, given the right market mechan- gional and local governments to invest in isms, need to be recognized. green public procurement. Public procure- 3.7.1.6 International cooperation/global ment can help companies gain more market learning networks share for their innovative technology and China has a lot to learn from the interna- help build competitive capacity within enter- tional society, but there is also a lot that Chi- prises. na can teach the world. There are a number 3.7.1.4 Greatly upgrading SMEs’ innova- of opportunities for international partner- tion capability ships such as CCS, biorefineries, and clean One gap in China’s environmental inno- coal. China is beginning to position itself to vation system is SMEs. The current ways of be a leader of such consortia as China seeks regulating and supporting the system leave to meet its own needs. A number of Chinese the SMEs untouched. In future, tough meas- institutions and companies have been devel- ures are needed to help SMEs to get infor- oping global learning networks. This means mation on clean technology, to implement sending students and employees abroad to new technology, and acquire knowledge. Se- study or work in teams, or inviting interna- cure financial support to introduce the latest tional experts to participate in China based technology is required. Where these smaller centers or clusters. This is already common companies are part of the supply chain to practice among universities. China is the larger corporations, high standards should be largest developing country recipient of for- required by the larger corporations. Regula- eign direct investment (FDI). Increasingly tions and standards should be enforced the focus of FDI is towards investment fo- throughout the supply chain. At the same cusing on less polluting industries and in in- time, the proposed industrial sector research dustries that draw on China’s rapidly in- institutes should help local SMEs to upgrade creasing pool of skilled talent. A study their innovation capacity. should be made of the effectiveness of the CDM process in driving innovation. Chinese enterprises are starting to invest in interna- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 93 tional businesses or in setting up research fa- ate technologies owned by foreign compa- cilities in selected jurisdictions in order to be nies. part of the global network. Additionally, Investments in advanced and clean China cooperates with several international technology owned by foreign firms are partners in the creation of various eco-cities comparable to investments in raw materials in China aimed at creating ecologically in foreign countries. Both are one-time in- healthy cities that balance social, economic, vestments, both aim at meeting China’s and environmental factors to achieve sus- priority demands, and both contribute to fu- tainable development. Some portion of the ture returns. funds in the environmental innovation pro- In addition, this will open China to sig- gram needs to be earmarked to support in- nificant export markets in both developed ternational cooperation. China should con- and developing countries. Investments in tinue to actively participate in international advanced and clean technology will enable environmental cooperation, both through China to leapfrog to a more advanced tech- public and private initiatives, as this will nological base, which in turn will create com- strengthen the country as it becomes an en- petitive incentives for further research and vironmentally friendly society. development in the invested technologies. 3.7.1.7 Intellectual property rights and Leapfrogging can and has played a sig- leapfrogging nificant role in China. MEP should organize China needs to change its viewpoint to- an intensive workshop of national and inter- wards intellectual property rights (IPR). Even national active participants in the environ- though IPR are standardized and regulated mental innovation process to identify leap- by law in China, they are inadequately moni- frogging opportunities that will directly im- tored and enforced, making multi-national pact environmental technology and thus be corporations reluctant to invest and transfer the object of investment. This would be an advanced and green technology to China. In in-depth sequel to the Enterprise Forum of spite of China’s various measures to deal 2008. with these challenges, the changes needed in 3.7.1.8 Create experimental innovation la- order to attract foreign technology will not boratories happen quickly enough to meet China’s goal One approach to creating an environ- of becoming an environmentally friendly so- mentally friendly society in China is through ciety. With a complementary, rapid deploy- establishing cross-disciplinary and ment approach, China can turn these chal- cross-cultural collaborative projects. These lenges into advantages. projects would play the role of indigenous It is quite likely that the cost of restoring think tanks and should encourage and attract the environment by using outdated technol- Chinese and international scientists, re- ogy will far exceed the cost of acquiring and searchers, designers, architects, artists, philo- investing in new clean technology. Therefore, sophers, politicians, and business people, to China must to acquire some of the appropri- meet, work, and study how to approach sus- 94 Harmonious Development through Innovation tainable development. The aim of these natural resources, such as water and energy, projects involving government, business, and tax incentives, subsidies, and procurement. civil society should be to show how to re- The government gives some subsidies to en- duce the use of non-renewable resources, as vironmentally friendly products, but the re- well as to show the world that it is possible ward is far below the cost. to live with a high standard of living and yet 3.7.2.2 Create a national environment in- have no waste since everything is utilized. formation system (NEIS) China provides ecological conditions with The MEP should be funded and autho- enormous diversity; hence it would be bene- rized to develop a nationwide environment ficial to create such projects in different parts information system (NEIS) that has inde- of China as global pilot demonstrations. pendence from all levels of government and that is demonstrably a source of credible in- 3.7.2 Regulations, standards and en- formation. This information would be col- forcement lected nationally and reported directly to the MEP. The MEP would then have the role of In addition to the investments described independent third party auditor of data at all in the previous section, it is only through levels of government. The information firm and fairly enforced standards that China should be openly available and show the in- can both bring international innovation to formation by company and by local region. China to further develop China’s own capac- This data base, openly accessible and with ity to meet domestic need and to further de- data assurance in place, will then become the velop export potential. China has developed basis for widespread and uniform enforce- a set of standards and laws; nevertheless, ment. NEIS should also have basic analytical these standards and laws are not adequately resources, for example, enabling ben- enforced. China needs to develop a strong chmarking of information with emission focus on enforcement and to create a better regulations or suggesting corrective actions. monitoring system to detect environmental With this in place, innovation can be ex- violations. The cost of non-compliance must pected to flourish as it has elsewhere. As become greater than the cost of compliance. Chinese enterprises will have the needed in- 3.7.2.1 Create the market centive to innovate. They also will have the Enterprises are the main source of envi- incentive to force the same standards on ronmental technology. They are thus one of their supply chains. This would involve sig- the most important actors in the creation of nificant funding and a change in institutions. an environmentally friendly society. For Chi- This could be operated by a MEP Control na to develop and deploy cleaner and more and Information Center (CIC). The public efficient technologies, the market for envi- and local NGOs would have access to the ronmental technologies must be created by a National Environmental Information System comprehensive system of incentives. These so they can assess for themselves, with the include enforced regulations, real pricing of help of experts, the impact on health and on Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 95 quality of life. This center would be the core ernments incentives to compete with each of a cluster of innovation, building on the other to improve their environmental man- technologies required for implementation agement and, in addition, it gives them a and continuing improvements. It might even chance to evaluate their own practices. This be analogous to a space centre. Manpower to should also give the public means to demand develop and operate this system needs to be more from their local authorities and become developed through skill training programs. more involved in environmental conserva- 3.7.2.3 Improve policy coordination be- tion and innovation. The ranking of the local tween various departments and institutions governments can be constructed as a system In the process of technological innova- that is based on internal reporting from the tion and practice, policy makers often focus local government, benchmarked towards only on their own departments and units, NEMS, and with external evaluations from rather than on the overall needs of nation. the MEP, as well as surveys of how the pub- The MEP must be recognized as a crosscut- lic perceives the performance of their local ting agency for environmental innovation government. holding other agencies accountable for their environmental practices. More effective 3.7.3 Public participation coordination of policies and actions on en- vironmental innovation across all agencies We know that involvement of the public would result. is the key to innovation in environmental is- 3.7.2.4 Give local governments incentives sues. In the end, it is the citizens that will to become best performers benefit from a successful model of sustaina- Local governments should be given in- ble development leading to both jobs and centives to become the best performers in prosperity through economic growth and environmental management and leadership. doing this in a way that increases the quality The MEP should evaluate and rate each local of life. government based on data from the pro- A start has been made on empowering posed National Environment Monitoring citizens and NGOs to be highly active in System (NEMS) and disclose the results to ensuring that they can increase their quality the public through media channels. The rat- of life without fear of punishment or envi- ing can be done, similarly to the GreenWatch ronmental disaster. This must be developed program, by giving the local governments much further. These organizations must be colors based on their ranked performance, kept independent from the government if with two (black, red) denoting inferior per- they are to hold officials accountable in the formance; one (yellow) denoting compliance three-way relationship between government, with minimum emission regulations, but fail- business, and civil society. ure to comply with stricter requirements; and 3.7.3.1 Increase public awareness two ratings (blue, green) denoting superior The public needs to be educated, gain performance. This would give the local gov- awareness, and receive credible information 96 Harmonious Development through Innovation so that they can develop their own actions. pate in the protection of their local envi- By making full use of local and civil society ronment. Additionally, it will increase the ef- organizations to actively launch green civili- fectiveness of the National Environmental zation activities, such as green districts, green Information System. communities, green schools, green parks, 3.7.3.3 Make civil society a key actor in the green cities, and green units, China can environmental innovation system gradually encourage all people to participate The public, as consumers and users of in green action. To trigger these actions, environmental products, can be potential in- China could establish local and regional novation drivers. If the public is involved in competitions for citizens and citizen groups the innovation ecosystem, they will help to for best environmental practice to be cov- build the environmentally friendly society. It ered, for example, by regular television pro- is best to have some competition for envi- grams. This could also be extended to in- ronmental ideas in the media, such as in clude businesses on best technological inno- CCTV. The ability for informed criticism is vation and environmental practices, including one element of the harmonious society. international cooperation. The Chinese 3.7.3.4 More emphasis on innovation in the Government also should play the redistribu- education system tive role of directing funds towards less de- China has been a remarkably creative so- veloped areas of the country in order to ciety in the past. This is rapidly developing empower and create higher public awareness again in these transformative times. The among the citizens in these areas. This might Chinese education system needs to focus be done by creating separate programs in more on creativity and less on textbook these areas, grass root campaigns, and more learning. Today’s problems in topics such as funding and human resources to enhance re- sustainable development do not relate well to levant education. Green public actions and the traditional single discipline focus that awareness will enable Chinese citizens to take dominates the education system of so many pride in helping China to become an envi- countries. Creativity also demands tolerance ronmentally friendly society. for failure and repeated effort. In China, 3.7.3.2 Public involvement in local envi- mistakes can often lead to punishment. The ronmental protection opportunities and challenges that face China With increased public education and know no boundaries. Boundaries between awareness towards building an environmen- disciplines, between government ministries, and tally friendly society, the public should be between different levels of government need to able to inquire about and supervise projects be reduced and made more transparent. that could potentially damage the local envi- China has both the capacity and the need ronment. By creating public reporting and to become the global leader in sustainable opinion channels, the public will have the development and innovation in environmen- opportunity to actively and directly partici- tal technology. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 97

Appendix 1 Introduction to the Grand Challenges for Engineering

Grand challenges await engineering solu- ly every aspect of human life. Find out more tions in four broad realms of human con- about the great engineering achievements of cern. the 20th century from a separate National Throughout human history, engineering Academy of Engineering (NAE) website. has driven the advance of civilization. For all of these advances, though, the From the metallurgists who ended the century ahead poses challenges as formidable Stone Age to the shipbuilders who united the as any from millennia past. As the population world’s peoples through travel and trade, the grows and its needs and desires expand, the past witnessed many marvels of engineering problem of sustaining civilization’s continu- prowess. As civilization grew, it was nou- ing advancement, while still improving the rished and enhanced with the help of increa- quality of life, looms more immediate. Old singly sophisticated tools for agriculture, and new threats to personal and public technologies for producing textiles, and in- health demand more effective and more rea- ventions transforming human interaction and dily available treatments. Vulnerabilities to communication. Inventions such as the me- pandemic diseases, terrorist violence, and chanical clock and the printing press irre- natural disasters require serious searches for vocably changed civilization. new methods of protection and prevention. In the modern era, the Industrial Revolu- Products and processes that enhance the joy tion brought engineering’s influence to every of living remain a top priority of engineering niche of life, as machines supplemented and innovation, as they have been since the tam- replaced human labor for countless tasks, ing of fire and the invention of the wheel. improved systems for sanitation enhanced In each of these broad realms of human health, and the steam engine facilitated min- concern — sustainability, health, vulnerability, ing, powered trains and ships, and provided and joy of living — specific grand challenges energy for factories. await engineering solutions. The world’s ca- In the century just ended, engineering dre of engineers will seek ways to put know- recorded its grandest accomplishments. The ledge into practice to meet these grand chal- widespread development and distribution of lenges. Applying the rules of reason, the electricity and clean water, automobiles and findings of science, the aesthetics of art, and airplanes, radio and television, spacecraft and the spark of creative imagination, engineers lasers, antibiotics and medical imaging, and will continue the tradition of forging a better computers and the Internet are just some of future. the highlights from a century in which engi- Foremost among the challenges are those neering revolutionized and improved virtual- that must be met to ensure the future itself. 98 Harmonious Development through Innovation

Earth is a planet of finite resources, and its burning and sequestering it underground. growing population currently consumes A further but less publicized environ- them at a rate that cannot be sustained. mental concern involves the atmosphere’s Widely reported warnings have emphasized dominant component, the element nitrogen. the need to develop new sources of energy The biogeochemical cycle that extracts ni- and simultaneously prevent or reverse the trogen from the air for its incorporation into degradation of the environment. plants — and hence food — has become al- Sunshine has long offered a tantalizing tered by human activity. With widespread use source of environmentally friendly power, of fertilizers and high-temperature industrial bathing Earth with more energy each hour combustion, humans have doubled the rate than the planet’s population consumes in a at which nitrogen is removed from the air year. But capturing that power, converting it relative to pre-industrial times, contributing into useful forms, and especially storing it for to smog and acid rain, polluting drinking wa- a rainy day, poses provocative engineering ter, and even worsening global warming. En- challenges. gineers must design countermeasures for ni- Another popular proposal for long-term trogen cycle problems while maintaining the energy supplies is nuclear fusion, the artificial ability of agriculture to produce adequate re-creation of the sun’s source of power on food supplies. Earth. The quest for fusion has stretched the Chief among concerns in this regard is limits of engineering ingenuity, but hopeful the quality and quantity of water, which is in developments suggest the goal of practical seriously short supply in many regions of the fusion power may yet be attainable. world. Both for personal use — drinking, Engineering solutions for both solar cleaning, cooking, and removal of waste — power and nuclear fusion must be feasible and large-scale use such as irrigation for not only technologically but also economi- agriculture, water must be available and sus- cally when compared with the ongoing use tainably provided to maintain quality of life. of fossil fuels. Even with success, however, it New technologies for desalinating sea water remains unlikely that fossil fuels will be may be helpful, but small-scale technologies eliminated from the planet’s energy-source for local water purification may be even budget anytime soon, leaving their environ- more effective for personal needs. ment-associated issues for engineers to ad- Naturally, water quality and many other dress. Most notoriously, evidence is mount- environmental concerns are closely related to ing that the carbon dioxide pumped into the questions of human health. While many of air by the burning of fossil fuels is increasing the health scourges of the past have been the planet’s temperature and threatens dis- controlled and even eliminated by modern ruptive effects on climate. Anticipating the medicine, other old ones such as malaria re- continued use of fossil fuels, engineers have main deadly and newer problems have re- explored technological methods of capturing mained resistant to medical advances, re- the carbon dioxide produced from fuel quiring new medical technologies and me- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 99 thods. systems are designed to counteract. One goal of biomedical engineering to- As a consequence, vulnerability to bio- day is fulfilling the promise of personalized logical disaster ranks high on the list of un- medicine. Doctors have long recognized that met challenges for biomedical engineers — just individuals differ in their susceptibility to as engineering solutions are badly needed to disease and their response to treatments, but counter the violence of terrorists and the medical technologies have generally been of- destructiveness of earthquakes, hurricanes, fered as ‘one size fits all’. Recent cataloging and other natural dangers. Technologies for of the human genetic endowment and dee- early detection of such threats and rapid per understanding of the body’s complement deployment of countermeasures, such as of proteins and their biochemical interac- vaccines and antiviral drugs rank among the tions offer the prospect of identifying the most urgent of today’s engineering chal- specific factors that determine sickness and lenges. wellness in any individual. Even as terrorist attacks, medical epi- An important way of exploiting such in- demics, and natural disasters represent acute formation would be the development of threats to the quality of life, more general methods that allow doctors to forecast the concerns pose challenges for the continued benefits and side effects of potential treat- enhancement of living. Engineers face the ments or cures. ‘Reverse-engineering’ the grand challenge of renewing and sustaining brain to determine how it performs its magic the aging infrastructures of cities and servic- should offer the dual benefits of helping es, while preserving ecological balances and treat diseases while providing clues for new enhancing the aesthetic appeal of living approaches to computerized artificial intelli- spaces. gence. Advanced computer intelligence, in The external world is not the only place turn, should enable automated diagnosis and where engineering matters; the inner world prescriptions for treatment. And compute- of the mind should benefit from improved rized catalogs of health information should methods of instruction and learning, includ- enhance the medical system’s ability to track ing ways to tailor the mind’s growth to its the spread of disease and analyze the com- owner’s propensities and abilities. Some new parative effectiveness of different approach- methods of instruction, such as comput- es to prevention and therapy. er-created virtual realities, will no doubt also Another reason to develop new medi- be adopted for entertainment and leisure, cines is the growing danger of attacks from furthering engineering’s contributions to the novel disease-causing agents. Certain deadly joy of living. bacteria, for instance, have repeatedly The spirit of curiosity in individual evolved new properties, conferring resistance minds and in society as a whole can be fur- against even the most powerful antibiotics. ther promoted through engineering endea- New viruses arise with the power to kill and vors enhancing exploration at the frontiers spread more rapidly than disease-prevention of reality and knowledge, by providing new 100 Harmonious Development through Innovation tools for investigating the vastness of the proved science, technology, engineering, and cosmos or the inner intricacy of life and math (STEM) education in the schools and atoms. enhance the flow of technical information to All of these examples merely scratch the the public at large — conveying not just the surface of the challenges that engineers will facts of science and engineering, but also an face in the 21st century. The problems de- appreciation of the ways that scientists and scribed here merely illustrate the magnitude engineers acquire the knowledge and tools and complexity of the tasks that must be required to meet society’s needs. mastered to ensure the sustainability of civi- Public understanding of engineering and lization and the health of its citizens, while its underlying science will be important to reducing individual and societal vulnerabili- support the calls for funding and to enhance ties and enhancing the joy of living in the the prospect for successful adoption of new modern world. technologies. The ultimate users of engi- None of these challenges will be met, neering’s products are people with individual however, without finding ways to overcome and personal concerns and in many cases, re- the barriers that block their accomplishment. sistance to new ways of doing things will Most obviously, engineering solutions must have to be overcome. Teachers must revamp always be designed with economic considera- their curricula and teaching styles to benefit tions in mind — for instance, despite envi- from electronic methods of personalized ronmental regulations; cheaper polluting learning. Doctors and hospital personnel will technologies often remain preferred over have to alter their methods to make use of more expensive, clean technologies. health informatics systems and implement Engineers must also face formidable po- personalized medicine. New systems for drug litical obstacles. In many parts of the world, regulation and approval will be needed when entrenched groups benefiting from old sys- medicines are designed for small numbers of tems wield political power that blocks new individuals rather than patient populations as enterprises. Even where no one group stands a whole. in the way of progress, the expense of new A prime example where such a barrier engineering projects can deter action and exists is in the challenge of reducing vulne- meeting many of the century’s challenges will rability to assaults on cyberspace, such as require unprecedented levels of public fund- identity theft and computer viruses designed ing. For example, current government budg- to disrupt Internet traffic. Systems for keep- ets for U.S. infrastructure improvement alone ing cyberspace secure must be designed to be falls hundreds of billions of dollars short of compatible with human users — cumber- estimated needs. Securing the funds neces- some methods that have to be rigorously sary to meet all the great challenges will re- observed don’t work because people find quire both popular and political support. En- them inconvenient. Part of the engineering gineers must join with scientists, educators, task will be discovering which approaches and others to encourage and promote im- work best at ensuring user cooperation with Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 101 new technologies. food, water, and energy; protection from In sum, governmental and institutional, human violence, natural disaster, and disease; political and economic, and personal and so- full access to the joys of learning, explora- cial barriers will repeatedly arise to impede tion, communication, and entertainment — the pursuit of solutions to problems. As they these are goals for all of the world’s people. have throughout history, engineers will have So in pursuing the century’s great chal- to integrate their methods and solutions with lenges, engineers must frame their work with the goals and desires of all society’s mem- the ultimate goal of universal accessibility in bers. mind. Just as Abraham Lincoln noted that a And ‘all society’s members’ must be in- house divided against itself cannot stand, a terpreted literally. Perhaps the most difficult world divided by wealth and poverty, health challenge of all will be to disperse the fruits and sickness, food and hunger, cannot long of engineering widely around the globe, to remain a stable place for civilization to thrive. rich and poor alike. Through the engineering accomplish- In the world today, many of engineer- ments of the past, the world has become ing’s gifts to civilization are distributed un- smaller, more inclusive, and more connected. evenly. At least a billion people do not have The challenges facing engineering today are access to adequate supplies of clean water. not those of isolated locales, but of the pla- Countless millions have virtually no medical net as a whole and of all the planet’s people. care available, let alone personalized diagno- Meeting all those challenges must make the sis and treatment. Solving computer security world not only a more technologically ad- problems has little meaning for the majority vanced and connected place, but also a more of the world’s population on the wrong side sustainable, safe, healthy, and joyous — in of the digital divide. Sustainable supplies of other words, better — place. 102 Harmonious Development through Innovation

Appendix 2 Innovation and Environment‐Friendly Society Construction – New Energy Development in Baoding: China’s Power Valley By Hongyi Dai and Xielin Liu

Human beings cannot survive or develop covers districts and counties with a total area without energy. Every day we consume a large of 22,100 square kilometers and a population amount of non-renewable resources. Conven- of over 10 million. It is the largest city in tional sources of energy one day will be ex- Hebei and is in a key position in China’s Bo- hausted. What do we need to do to protect hai economic zone. the interests of later generations and our pla- Since reform and opening-up in the late net as the real crisis takes place? Baoding, in 1970s, Baoding has reported significant eco- China’s Hebei Province, is developing a new nomic and social development with rising model, linking the city’s economic future with living standards and the city has gradually new energy development. Baoding is not developed an industrial production system among the richest cities in China, but is a pio- involving key sectors such as car manufac- neer in developing new approaches and ex- turing, mechanical and electrical products, amples of new energy industries. textiles, food, construction materials, and in- formation products. The infrastructure of A.2.1 Urban and economic development Baoding, including energy, transportation, in Baoding and communications has improved markedly with the booming development of science Baoding is a well-known historical city and technology, education, and other social and a regional cultural center in China. The undertakings. In 2007, the city’s GDP city is open to foreign business and invest- amounted to RMB 137.34 billion, ranking it ment. Located in central Hebei, the city is in 5th in Hebei, following Tangshan, Shijiaz- the belt of Beijing, Tianjin and Shijiazhuang huang, Handan and Cangzhou, and 51st in known as ‘Capital Land’ and ‘South Gate of China. Its fiscal revenue exceeded RMB 10 Beijing’. As an administrative zone, Baoding billion (Figure A2-1). Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 103

1 400

1 200

1 000

800

600

400

200

0 2002 2003 2004 2005 2006 2007

GDP(100million RMB) Fiscal Revenue(100million RMB)

Figure A2-1 Baoding GDP and fiscal revenue growth in recent years. Source: Online

helped the development of Yingli and made A.2.2 New energy industry development Baoding China’s new solar photovoltaic in- in Baoding dustry center. Following the National Bright Project, Baoding-based new energy firms led Baoding identified new energy industries a new round of rapid growth, led by Yingli as one of its pillar sectors partly by accident. Solar (Figure A2-2). Thanks to German sub- In 1999, the Baoding-based Yingli Company sidies on solar energy cell use, Yingli has took over the poly-silicon solar battery and achieved significant growth. By the end of application project that was approved by 2006, the Phase II project was launched with former State Planning Commission. The a complete process chain of ingot, slicing, project was included in the National Hi-Tech batteries, and components with a total capac- Industrialization Program and is part of ity of 100 megawatts. In April 2006, the China’s National Bright Project that was de- Phase III to reach 500-megawatt was started. signed to provide electricity to 23 million This cements Yingli’s position as China’s residents in remote areas. The project has largest solar photovoltaic manufacturer. The filled the needs of polycrystalline silicon so- success of Yingli has inspired the Baoding lar cells in China. The polycrystalline silicon government to develop the new energy in- solar wafers, batteries and components pro- dustry as a key local cluster. The Baoding duction line built by Yingli were the first in government assessed the situation and de- China that met international advanced levels. cided to support the global trend of clean As China’s western development program energy development by embracing the sus- continues, the demand for polycrystalline sil- tainable development approach highlighted icon solar cells is increasing significantly. This by China’s top leaders. It decided to take ad- 104 Harmonious Development through Innovation vantage of the resources of leading firms like pillar industry for the local economy with Yingli to promote the new energy sector as a fiscal, land and facilities policies.

Yingli Green established on Aug. 28, 1998

Undertake the state poly-silicon solar battery project in 1999 Phase III of 500 mw started in Dec 2006

Launch of first production in May 2002 Phase II expansion started in Dec. 2005

Yingli Green established in June, 2002 Phase II start in Dec. 2004

Phrase I Project Approved in Dec. 2003 Yingli Tibet Green established in Feb.2004

Figure A2-2 Milestones of Yingli.

After years of development, Baoding has February 2006, the Baoding government created a set of new energy industries - wind, drafted a strategic goal of creating China solar, and efficiency technologies. In the field Power Valley based on the new energy de- of solar photovoltaic equipment, Yingli has velopments in the Baoding High-tech Zone. become the fourth-largest manufacturer in In December 2006, the state-level Baoding the world and the only solar cell manufactur- High-tech Zone was designated by the Min- er in China with whole-process coverage. In istry of Commerce and the Ministry of wind power, the Baoding-based Zhonghang Science and Technology as one of the first Huiteng Wind Power Equipment Co., Ltd. is batch of 18 “Technology-driven Trade Ex- one of China’s major blade producers with port Innovation Bases”. In 2007 and 2008, six products ranging from 600kW to 1.5MW. Baoding won many other recognitions by the In the field of power efficiency, Baoding has state including the State Hi-tech Industriali- carried out six independent innovation re- zation Base for Renewable Energy approved search projects, including grid stabilization by the National Development and Reform technology and low-voltage power distribu- Commission, as well as by the State Renewa- tion automation technology, to address low ble Energy Commercialization Base, the In- efficiency and waste in power generation, ternational Technology Cooperation Base, transmission, and distribution. This is help- and the State New Energy and Energy ing the nation to deal with the power short- Equipment Industry Base approved by the age problem. State Ministry of Science and Technology. In April 2003, the Baoding New Energy “China Power Valley” has now become a Equipment Industry Park was officially ap- strategic platform for renewable energy proved by the Ministry of Science and business innovation and development in Technology and is the only state-level new China. The efforts made by Baoding in re- energy industry cluster in China to date. In newable energy and solar power have re- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 105 ceived recognition from the World Wide more than 160 new energy firms with busi- Fund for Nature (WWF), the world’s biggest ness growth rate exceeding 50% for the past environmental NGO. In January 2008, the three years ( Table A2-1); Industrial sales WWF listed Shanghai and Baoding as revenue of this base amounted to RMB 16 low-carbon developing cities. Baoding is an billion in 2007 with exports at USD 430 mil- example of renewable energy and lion. The new energy business has become a low-carbon city development in China. At powerful engine empowering sustainable, present, China Power Valley is the home of rapid economic development in Baoding.

Table A2-1 Renewable energy business growth in China power valley in recent years.

Year 2005 2006 2007 Average Growth Rate Item Number of companies 64 140 165 68.50% Industrial Sales (RMB 100 million) 60 100 160 54.95% Export for earning foreign currency (USD100 million) 0.58 2.8 4.3 239.25% Source: http://www.bdgxq.cn/.

in both infrastructure and ideas. This creates A.2.3 Key factors underlying Baoding a favorable environment for developing new new energy industry development energy. Second, the government has adjusted A.2.3.1 Government support and optimized its functions to support the Government support has been an im- industry. In order to provide better support portant guarantee for new energy industry for the new energy base development, the development in Baoding: Baoding government has set up a unified First, the government has attached stra- administration center in the high-tech zone. tegic importance to the industry. The Baod- The High-Tech Zone Management Commit- ing government has unified mindsets and tee performs government functions to per- agreed to develop new energy sectors and to suade services and support for the new systematically build up China Power Valley energy industries. Specific measures include relentlessly. The Baoding mayor calls himself promotion of an innovation system in the the Mayor of New Energy and has strongly zone to help develop leading firms in the promoted the development of new energy new energy industry. On one hand, the gov- equipment. The Baoding government has ernment has provided funding and policy in- put three ‘never’ policies in developing China centives to encourage local new energy firms Power Valley: never neglect its importance; to become national industry leaders. Firms never forget to publicize it; and never take that conform with industrial development insufficient measures to develop it. The guidelines and with development potential, Baoding government’s support from the new particularly those that address national stra- energy industry is part of the city’s upgrading tegic demand are supported. The Baoding 106 Harmonious Development through Innovation

High-Tech Zone has actively cooperated by the government in promoting solar pho- with the Ministry of Science and Technology tovoltaic products is in line with the imple- and the National Development and Reform mentation of the green procurement policy. Commission to provide policy and funding Today, Baoding has decided to become a support to empower the development of city powered by solar energy. This provides a small and medium-sized hi-tech firms. The huge green order to the local solar photovol- growth of Yingli and Huiteng can be attri- taic industry. In fact, many cities around buted to the protection and support of the Baoding, including Beijing, are buying Yingli Baoding High-Tech Zone. On the other hand, products for solar energy street lighting and a three-level incubator system of “business for heating equipment. The state is also en- center-Torch Park-and special base” was de- couraging the use of renewable energy. In veloped to provide entrepreneurs with inno- overseas markets, Yingli has started to coo- vation and entrepreneurship support. An effi- perate with Germany, Spain, Portugal and cient, professional, service-oriented govern- other countries to take advantage of Euro- ment is an important condition for the devel- pean supportive policies for photovoltaic so- opment of new energy firms in the park. lar energy. The government’s green pro- Last but not least, incentive policy has curement policy is the most effective and also played an important role. Policy incen- forceful in promoting solar energy industry tives were provided: All hi-tech firms were development. Fiscal support by the govern- entitled to tax breaks, including corporate ment in its annual budget supports projects income tax, business tax, value-added tax, in China Power Valley. This motivates key and import and export duties; basic infra- technology research, expert recruitment, in- structure services were provided, namely frastructure improvement, as well as rewards water, steam, electricity, communications, for units and individuals who have made drainage, gas and roads were allotted to new outstanding contributions. energy firms; government procurement gave In terms of technology innovation, all preferential treatment to solar photovoltaic expenses incurred from patent application, as equipment manufacturing enterprises and well as all expenses incurred from applying projects, and the government helped local state technology standards, are reimbursed. firms in applying for national and provincial For companies with outstanding innovation funding support, treasury funds and interest achievement in China Power Valley, exclud- payment subsidies. Priority was given to solar ing state or provincial technology centers photovoltaic equipment and products in mu- there are one-off financial rewards. In 2006, nicipal construction and to energy saving the government granted RMB 800,000 to projects in the city. At present, traffic lights four firms in the zone. This greatly encour- at key intersections in Baoding use solar aged innovative activities of firms in the energy. Solar cells now light 79% of garden zone. The zone also has launched a venture areas, 41% of living communities and 50% capital system to provide financial support in of scenic spots in Baoding. The effort made a flexible manner to small and medium sized Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 107 enterprises. This includes govern- cluster effect that attracts a wide range of ment-sponsored equity investment, venture companies. At present, the Baoding capital firm incorporation, the SME Devel- High-tech Zone is the home of over 100 opment Fund with the China Development companies, of which more than 10 are en- Bank for equity investment in small and me- gaged in photovoltaic solar energy. Large dium enterprises, debt issuance to a Small to state-owned enterprises like China South Medium Enterprise (SME) consortia as well Industries Group Corporation and China as microfinance firms. The Baoding Hi-tech Guodian Corp have joined the development Zone has cooperated with the Hebei Eco- of China Power Valley. In addition to the nomic and Technology Guarantee Company cluster effect, scale effect is also achieved. to provide guarantee jointly for SMEs to help This, in turn, brings down the cost. The re- them get bank loans. About 40% of the search team has learned from Yingli that the guarantee firm’s capital has been invested in company has the lowest cost in the industry Baoding. The zone has incubated 50 startups. excluding for the price of silicon materials Of these firms, 36 later entered the Torch Park, (Appendix 5). The low cost is another big a group of firms with their own intellectual advantage of Baoding in developing the solar property rights and competitive advantages. photovoltaic industry. In terms of wind A.2.3.2 Improvement of the industrial power, there are over 50 firms in the China chain Power Valley engaged in development, man- Baoding has advantages in developing ufacture and testing of wind power blades, photovoltaic solar energy and other new machines and controlling equipment. There energy industries; one notable advantage is is now a complete wind power industrial the comprehensive industrial chain. Yingli chain and is the highest level of concentra- has formed a complete industrial chain from tion and innovation in China. Zhonghang ingot, slicing, batteries, and components to Huiteng, the key blade producers in China, application systems. The research team has are supplying blades to 30 wind power firms learned from discussions with the city gov- in China with a market share of over 90%. ernment and with Yingli executives that the Huiteng Wind Power, Guodian United Pow- biggest advantage of the Baoding solar pho- er and Tianwei Wind Power are in the tovoltaic industry is its industrial chain, process of construction. which makes it possible to control product A.2.3.3 Drivers of technology innovation quality from beginning to end. As a result, Technological innovation is the driving Yingli products rival competing products force for industrial development. The new made by Sharp and by Kyocera in terms of energy industry is no exception. Baoding has quality. For instance, the silicon solar cell a good foundation in technological innova- thickness made in Yingli can be cut to 180 tion. Baoding has 5 state-level, 19 provin- microns with a silicon cutting yield ratio of cial-level and 25 municipal hi-tech research 96%. This is among the best in the world. and development centers, more than 140 re- This complete industrial chain brings a search institutes, as well as 80 state industry 108 Harmonious Development through Innovation standards, more than 300 scientific research ever, China is still underdeveloped in results and, 450 patents in the new energy high-purity silicon purification technology sector. Some technological achievements (Appendix 5). This makes it difficult for have reached international and domestic complete home development and calls for leading levels. Baoding is the site of 12 col- cooperation with overseas partners. Al- leges, including the North China Electric though the high-purity silicon purification Power University, the Hebei University, and technology is not available, Yingli has devel- the Hebei Agricultural University, as well as oped unique technological capabilities, such as China’s first Renewable Energy Academy and cutting silicon wafers with the thickness of 180 the New Energy Vocational Training Group. microns. In addition, the Yingli BIPV, a The city has also invited a group of experts home-developed hi-tech product, has com- led by 15 academicians. It has signed tech- bined with construction and architecture to nology partnership deals with China South make it possible for independent power gener- Industries Group Corporation, the State ation systems and grid-consolidation power Knowledge Transfer Center of the Chinese systems. Academy of Sciences, the Beijing Science and Huiteng has strong technological abilities Technology Collaboration Center, and the In- in large-scale wind turbine blades and an ex- cubation Center of the Chinese Academy of pert team. The team includes experts and Sciences for its China Power Valley project. In professionals from fields like aerodynamic technology, Baoding is taking a leading role in blade design, structural mechanics of blades, fields such as LED application technology, li- composite material development and thium battery energy storage technology, and processing as well as blade module design. automatic control techniques. The team has undertaken many state-level As for technological innovation, Yingli projects in the State 863 Program, the 9th and has mastered the know-how to produce 10th Five-Year Plan to promote corporate crystalline silicon solar cells with indepen- business through technological innovation. dent intellectual property rights. Through At present, the Baoding-China Power continuous technological innovation, Yingli Valley has developed a great innovation at- Green solar energy cell products have im- mosphere, providing a guarantee for the fu- proved continuously in performance and ture development of Baoding as a new ener- quality and have obtained certifications from gy industry center. international organizations like the Interna- A.2.3.4 Comprehensive cooperation with tional Electrochemical Commission (IEC), schools and academies Underwriters Laboratories (UL), and Tech- Baoding has taken advantage of its nischer Überwachungs-Verin (TUV). In addi- closeness to Beijing and Tianjin as well as tion, Yingli has set up a crystal silicon solar to local schools and research institutions to cell engineering center, a photovoltaic system form various partnerships to promote the R&D center, and a training center to streng- development of new energy industries. For then its R&D and innovation abilities. How- instance, the China Power Valley has formed Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 109 strategic partnership with the North China motivation system, the company is trying to Electric Power University and the school has spot and develop talent in the process of set up the only renewable energy and wind improving the company. Among the execu- energy college in China. With support from tives, Seok Jin Lee is from Korea. He spent the 15 academicians, the China Power Valley 20 years with Korea’s Hyundai Corporation. has built up the Huayi Wind Power Blade Yingli hired him for his rich management R&D Center, the only wind power blade re- experience. Yingli believes that while Lee search center in China. It has also created may have little future in big corporations, he China’s first renewable energy information can make great contribution, to businesses like center with the Energy Research Centre of Yingli. Yingli highlights manpower develop- the Netherlands (ECN) and the Thermal ment; the company will recruit post-graduate Physics Engineering Institute of the Chinese students from the University of Science and Academy of Sciences. It has built a relation- Technology of China and from the North ship with the United States Renewable Jiaotong University to increase talent pool. Energy Lab, the World Wind Energy Associ- In addition, Baoding is home to the Re- ation and the European Wind Energy Asso- newable Energy and Wind Power College of ciation. Baoding is also building wind power North China Electric Power University, the engine, blade, controlling system and photo- only wind power college in China. The col- voltaic technology R&D centers. It also has lege aims to train professionals to meet the built three state-level testing platforms for rising demand from the new energy indus- wind power engines, blades and controlling tries, including talents with multi-discipline systems with experts from the Chinese Acad- knowledge, for instance, wind power re- emy of Sciences and from the United States, search relates to air flow mechanics and ma- the Netherlands, Germany, and the United terials science. Few Chinese schools are able Kingdom. Huiteng has formed a long-term to train across those subjects. New energy partnership with the vibration testing center of professional training also provides techni- Beijing University of Aeronautics and Astro- cians to the new energy industry and makes nautics, the China Helicopter Design Institute, it possible to develop new energy industries. and the China Classification Society Research Center. A.2.4 New pollution problems in new A.2.3.5 Brain power development energy industry Human capital is the basis of and key factor for industry development and Baoding The problem of ‘process pollution’ is a has done a good job in this aspect. The re- new concern in new energy industry devel- search team learned from Yingli that the opment. The solar energy development in company has attached great importance Baoding has many advantages. For instance, people, encouraging them to be innovative solar photovoltaic cell can not only generate and to reward chief technicians with annual power, but also reduce greenhouse gas emis- salaries above RMB 100,000. Through the sions, create jobs, and promote energy secu- 110 Harmonious Development through Innovation rity in remote rural areas compared to tradi- for surface water is 1mg to 1.5mg per liter. tional energy sources. According to Solar The water quality of Baiyangdian has deteri- Energy Planning, the Solar City project can orated, as inorganic fluoride does not degene- save 430GWh electricity per year, save rate in the natural environment. Processing of 118,000 tons of standard coal, reduce emis- silicon waste material requires much hydroch- sions of SO2 by 12,900 tons, and reduce loric acid and nitric acid, thus generating lots discharge of ash by 38,500 tons. The final of acid emissions that lead to poor air quality products have economic, environmental, and and to acid rain. There are also organic pollu- social benefits, but the process of producing tants and non-degradable solid waste from these products creates pollution. wind power blade production. Flammable and The research team has learned that both explosive products from silicon material pro- Baoding government and the companies have duction require attention. gradually recognized the problem and have The development of the new energy in- taken corresponding measures in the process dustries has numberous uncertainties and un- of developing the solar cell industry and known factors. In addition to unknown tech- blades. Initially, the general view was that since nology and markets, there are also uncertain it was the “new energy industry” and it was factors such as pollution sources. Development encouraged by the government, the degree of of the new energy industries is in itself ‘learn- pollution from the new energy industry must ing by doing’. It is sometimes necessary to pay. be limited to simple pollutants and little emis- In recent years, the city government and sions. In the past, when the production size of enterprises have gradually developed a clear Yingli was in range of 1.5MW to 80MW, the understanding on the issue. Although the company reported its own environment products of the new energy industries are, statements to the Environmental Administra- themselves, environmentally friendly, the se- tion. However, when Yingli started produc- rious pollution of the production process re- tion, it was discovered that the production of quires immediate action. The city government solar cells creates not only conventional pol- and the business community have worked to- lutants like wastewater and waste gas, but also gether to search for environmental solutions. fluoride and acids. For example, the produc- Yingli has put priority on environmental pro- tion of solar photovoltaic cells and silicon tection in both its strategy and its business batteries consumes much polyethylene glycol operations. It has become the world’s third in cutting silicon wafers. The chemical oxygen company to adopt a demand (COD) in waste water is not biode- third-generation-technology, closed-loop gradable. Silicon processing requires lots of process to significantly reduce waste emissions hydrofluoric acid, which resulted in a surge in and reuse water. The by-products of silica fluoride content in waste water. The have been used directly by fertilizer plants. In above-ground water of Baoding was already addition, it has cooperated with Beijing-based polluted with excessive fluoride – the dis- environmental protection enterprises and has charge was 20 mg per liter, while the standard solved the problem of hydrofluoric acid pol- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 111 lution; it has built an online monitoring system must not be neglected. Pollution of new in- for gas emissions Phase III of the project to dustries is complicated because some are control pollution in the production process. known and some are unknown. For the Zhonghang Huiteng also changed the tradi- known sources and types of pollution, it is tional practices of burning waste by introduc- necessary to take measures and adopt rele- ing equipment for comprehensive waste recy- vant environmental technologies to address cling. them; for unknown pollution, it is necessary Environmental problems in the develop- to enhance research to search for and find ment of new industries can be attributed to a right solutions. This includes improvement in lack of understanding. Environmental issues techniques and in the use of raw materials. have always been inseparable from economic Every company, whether in the new development and it takes time to curb pollu- energy industry or not, should be treated tion. When the enterprise is in the develop- equally in terms of environmental supervi- ment phase with limited capital, it is difficult sion and control. When companies fail to to require the firm to spend money on envi- meet environmental standards, even if they ronmental protection. This has left a pollution are in new energy business, there should be legacy. The solar photovoltaic industry is in timely notification and measures. Firms like rapid expansion with booming market de- Yingli and Huiteng realize the importance of mand. Many firms have focused on produc- clean production and have started to take ac- tion instead of environmental protection. At tion. Most small and medium-sized firms still present, with the maturing of leading players under-perform in meeting environmental stan- like Yingli and Huiteng, as well as stabilizing dards. The government may need to enhance market conditions, an increasing number of guidance and technical support for them. firms are starting to highlight environmental The development of new industries and issues and are beginning to use advanced en- environmental protection is a process of vironmental technologies. Thus the new “learning by doing.” Certain fees may have to energy industry in Baoding is becoming be paid, but there should be a clear attempt cleaner. to minimize the fees paid and to maximize The development of new industries re- the environmental and financial efficiency. quires a set of new and stronger environ- mental protection concepts and measures. A.2.5 Conclusions and discussions On one hand, it is important to vigorously promote the development of energy-efficient The analysis above shows the general and environmental-friendly industries to model of new energy industry development achieve low-carbon economic development; in Baoding. on the other hand, it is important to pay full First, companies have to explore and grow attention to environmental problems in the by themselves. This is the foundation of the production process and to take actions to new energy industry in Baoding. Companies address them. The two sides of the coin are basic units of industry and innovation. At 112 Harmonious Development through Innovation the initial stages of corporate development, a presence, while the government offers strong firm may be weak in terms of brand recogni- support. This relationship has promoted new tion and market share. But, companies can industry growth effectively. grow with relentless entrepreneurship and Ultimately, the development of an indus- sharp market sense. In terms of regional try relies on the development of enterprises. economic development in Baoding, govern- In order to create a brand of new energy and ment support at the initial stages was limited. unique recognition, companies must explore For instance, the growth of Yingli is partly and grow to become bigger and stronger. due to the National Bright Project and to They have to make efforts in technological overseas sales. The key factor is Yingli’s suc- innovation, management, marketing, and per- cess is the consistent effort and hard work of sonnel training to constantly improve and Yingli people, as well as their strategic views. build a brand name，Yingli did that in terms Yingli has correctly selected the sector and of highlighting research and development and unlocked market potential. innovation, establishing an engineering R&D Second, when corporate business size center, seeking extensive cooperation, person- reaches a certain level, the government starts al training, and the overseas listing; Huiteng to see chances to develop a new industry and expended unrelenting efforts in improving to form industry clusters, and starts to offer materials, structure, and dynamics and con- funding, policy, and infrastructure support. tinued to expand into new markets and to Government efforts have provided a good prepare for listing. All these measures have chance for further development of existing enhanced the competitiveness of these enter- companies and establishment of new firms. prises and built up their brand names. This Corporate organic growth is the precondition strengthened the new energy industry do- and government support is a further push. minance of Baoding. “Made in Baoding”, in The government then started to provide terms of new energy products, has become a comprehensive support and services for the well-known and widely recognized label. industry. The Baoding government has As a non-coastal, second-tier city in Chi- launched the strategic program of China na, Baoding is not among the most competi- Power Valley and Solar City. They provided tive cities in China in terms of economic de- incentives, including green procurement and velopment level and industry bases, but the tax breaks, assistance to apply for resources local new energy industry is in a leading posi- from the state and province. The govern- tion with competitive players like Yingli and ment also helped in customer invitation and Huiteng holding international reputations. human capital training. The government role The development of the new energy industry changed gradually in the process to become a in Baoding has rich implications for other ci- professional service provider rather than a ties around the Bohai Area to position sponsor. A constructive relationship between themselves in economic development and for the government and business has formed in national and even international new energy which companies are expanding market industry development. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 113

rials, and thanks Jian Mingjue and Bian Songbao Thanks Jian Mingjue for collecting all the mate- for their valuable suggestions and ideas. 114 Harmonious Development through Innovation

Appendix 3 Innovative and Environmentally Friendly Regional Development: Lessons from Ningbo

ernment regulation and public involvement is A.3.1 Background the driver of environmental innovation in this city. In 1995, Michael Porter and Class van der Linde pointed out that competitiveness is A.3.2 Ningbo social and economic high- driven by innovation rather than by lower lights costs. The capacity for innovation is then, to a large degree, driven by the establishment of Ningbo is located on the eastern coast of regulations and standards. Art Hanson has China on the south branch of the Yangtze proposed that there are three stages for an River Delta. It is in the eastern part of Zhe- economy to tackle environmental protection. jiang province and is an independent plan- The first stage is compliance, that is, envi- ning city. It is a deputy-provincial-level city as ronmental efforts of the companies are a well as a large “municipal” city with the right reaction to governmental regulations. Regula- to draft local regulations. Ningbo covers an tion is the key to environmental innovation. area of over 9,000 square kilometers with a The second stage is risk management. This population of 5.6 million, including 2.2 mil- means that the company will mitigate the risk lion in the downtown areas. Ningbo is one of losing the right to produce through public of the 14 coastal cities that were opened to demand and projected governmental regula- foreign trade and investment, and Ningbo tion. This will cause the company to deal port is an important adjunct to Shanghai as with environmental issues at a basic strategy well as a key port along China’s east coast. level in order to succeed. The third stage is Since reform and opening-up, Ningbo has one in which sustainable development be- witnessed rapid economic development. comes a way of improving the business itself Ningbo is now the fastest growing area in through innovation. At this stage, sustaina- China. In 1997, the gross domestic product bility leads to new ways of doing business. of Ningbo was RMB 89.7 billion, but the Regulation and risk drive environmental in- GDP of Ningbo, including the six districts, novation. In this third stage, environmental three cities and two counties, jumped to innovation can help to make the company RMB 343.3 billion by 2007. The per capita more competitive. From this perspective, the GDP stood at USD 8,026. Within a decade, Ningbo case fits the second stage of this the regional GDP has tripled with an average development-environmental paradigm. Risk annual growth rate of 14%. Ningbo ranks management based on probable future gov- fifth of the 16 cities in the Yangtze River Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 115

Delta in terms of economy, following gion to protect its environment. Ningbo has Shanghai, Suzhou, Hangzhou and Wuxi. generally managed to maintain environment quality along with rapid economic growth. A.3.3 Development and its impact on en- In China’s score board of key cities, vironment Ningbo was ranked as the top performer in Zhejiang province for five years in a row It is expected that regional economic (Figure A3-1). development will drive the effort of the re-

GDP (RMB 0.1 billion) GDP per capita (USD) 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Figure A3-1 The development of Ningbo from 1997-2007.

Ningbo has won the award of National material and smoke, as well as the economic Example City in Environment Protection, development levels from the Ningbo Statis- the top honor for a Chinese city. In analyzing tics Yearbook, the Ningbo Environment the impacts on environment from economic Quality Report, the Ningbo Economic and development in Ningbo, Figures A3-2 and Social Development Statistics Report and the A3-3 display total emissions by year. They emission statistics website1 from 1996 to contain emission and discharge figures, in- 2006. Figure A3-2 and Figure A3-3 below cluding waste water, gas, SO2, powder, waste show the emission and discharge in Ningbo.

1 http://www.sdinfo.net.cn/hjinfo/ hjinfo/default.htm 116 Harmonious Development through Innovation

350 000 Industrial SO (tons) 300 000 2

250 000 Industrial soot (tons) 200 000

Emissions 150 000 Industrial dust (tons) 100 000

50 000 Industrial waste water 0 (thousand tons)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Figure A3-2 Emission and discharge of waste water, gas, SO2, smoke and powder. Data Sources: Figures of 1996 from the environment statistics information website, figures from 1997 to 2000 from the Ningbo Statistics Yearbook, figures of 2001-2006 from the Ningbo Environment Quality Report

7 000

6 000 Industrial solid waste 5 000 (thousand tons)

4 000

3 000 Industrial waste gas emissions (billion cubic meters) 2 000

1 000

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Figure A3-3 Waste material and gas emissions of Ningbo in 1996-2006. Data Sources: Figures of 1996 from the environment statistics information website, figures from 1997 to 2000 from the Ningbo Statistics Yearbook, figures of 2001-2006 from the Ningbo Environment Quality Report

According to figure A3-2, the emission 2006. of SO2 has continuously risen from 1998 to According to figure A3-3, industrial solid 2006. The industrial smoke discharged gen- waste emissions have been increasing, but erally showed a sharp rise followed by a industrial discharge of gas has been con- sharp drop and then remained at a low level trolled very well in the last ten years. from 2000. Industrial dust emissions have The figures show that except for indus- been controlled at a low level for a long trial SO2 and industrial solid waste, the other time. Industrial waste water discharge re- indicators of pollution, have been controlled mains stable but there was a rapid growth in at a stable and low level. This is a relatively Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 117 good record considering that the economic requiring them to complete environmental growth in Ningbo has been so fast. It means protection tasks. Interim measurement and that Ningbo has made significant efforts in annual inspection are also arranged to en- protecting the environment and has achieved hance supervision and guidance and to make impressive results. However, much more environment protection an important per- needs to be done to control total emissions. formance indicator for local governments. This grassroots activity strengthens the en- A.3.4 Ningbo – open environment inno- vironmental consciousness of governments. vation system After years of efforts, with leadership by the Communist Party and by the government, In order to summarize the city’s expe- with implementation by different govern- riences in economic development and envi- ment agencies, and with participation by the ronmental protection, the research team of public and with supervision from environ- Innovative and Environmental Friendly De- ment authorities, an open environment velopment carried out a four-day study in management system has been developed. Ningbo in March 2008. The team members Environment legislation is an important carried out extensive talks with the Ningbo aspect of governmental leadership. Ningbo environmental authorities, local environmen- has great autonomy in making its own regu- tal research institutions, societies and busi- lations. In the 10th Five-Year Plan, Ningbo ness executives to gain valuable information. accelerated legislation of local rules on envi- Ningbo impressed the research team mem- ronment protection and launched a dozen bers with its open attitude to environmental local rules, including the Management on innovation and protection and the open atti- Discharge Fee Collection in Ningbo, the tude of Ningbo has helped the city to create Discharge License Management in Ningbo, an environment innovation system leveraging the Regulation on Drinking Water Source external resources and benefiting all stake- Protection and Pollution Prevention in holders. Ningbo, and the Regulations on Poultry (1) The government is the leader and Feeding Pollution in Ningbo. supervisor in environment protection. Ningbo has formulated many environ- Ningbo has a symposium on population mental protection regulations. Most local resources and environment and sets envi- rules are not innovations, but rather are arti- ronmental protection goals during the annual culations of state policies, such as ‘green cre- people’s congress. The mayor of Ningbo dits’. National environmental rules may fit signs letter of commitment in environment the overall situation, but do not fit into every protection to urge local government agencies local area. Ningbo has taken advantage of its and various departments to meet environ- legislative autonomy to launch local envi- ment protection targets. Starting in 2004, the ronmental protection regulations with local municipal government signed commitment characteristics. For example, Ningbo imple- letters with district and county authorities mented a water pricing system for its resi- 118 Harmonious Development through Innovation dents. The system was discarded in the re- put the number and mailbox in the public cent national recycling economy law draft, media repeatedly. In the 10th Five-Year because the system was hard to implement Plan, the Ningbo bureau received 1,196 on a nationwide level. But, Ningbo is able to letters, 679 petition and 24.965 incoming save 20,000 tons of water with the system. calls regarding environment issues. All the The effect is very impressive and is without reported cases have been solved with the sa- any technical problems. Ningbo can take full tisfaction ratio at 98.2%, according to a gov- advantage of its relative legislation autonomy ernment official. to put forward bold new ideas and to devel- Channel 2: Local communities have op innovative environmental incentives, es- played an important role in reducing viola- pecially financial and positive incentives, to tions of environmental protection by com- encourage environmental protection and to panies. Large enterprises are surrounded by stimulate innovation activities. communities providing living, work, enter- (2) Public participation in environmental tainment, education, and healthcare facilities. protection and innovation activities is an This not only makes the living and working important guarantee. of workers easier, but it also helps in the Generally speaking, the Ningbo public is day-to-day supervision of environmental very active in environmental protection pro- protection by residents. At the same time, grams and Ningbo has achieved impressive feedback from residents goes directly to results compared with other cities. This can business leaders without the intervention of be attributed to local residents’ strong con- government departments. This is favorable sciousness in protecting their own interests, for timely and efficient solutions. as well as to a smooth feedback systems in- Channel 3: The public, the media, and volving environment policy decision-making enterprises joined efforts to deepen partici- process. People in Ningbo can participate in pation in the decision-making process and to environment protection via the following enhance supervision on violations. Ningbo channels: has put forward the “environment as a prior- Channel 1: The public can report any en- ity” concept from an early date and has vironment irregularities to the local authori- created platforms allowing enterprises, envi- ties through petitioning and a hotline. On ronmental protection agencies, and the pub- one hand, the public is very sensitive to mu- lic to engage in environmental protection nicipal environment change; on the other and innovation activities. In 2007, Ningbo hand, the Ningbo Environment Protection held the third program of public participa- Bureau has developed a very sophisticated tion in environmental protection, during system to receive feedback and to encourage which local media and relevant newspapers the public to participate in environmental gave full coverage of the activities; local protection and monitoring activities. The companies and public groups participated in government has provided a 24-hour hotline an active manner. At the same time, the en- number 12369 to take complaints and it has vironmental authorities have launched a ‘red Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 119 card, black card and green card’ system for 90 staff members, but only two of its 40 polluters and disclosed discharge information frontline employees are researchers. To fill of key firms to the public through the internet. the gap, Ningbo governments and companies Channel 4: Relevant departments pro- have redoubled their efforts in introducing mote knowledge of environmental protec- environmental technologies, including tion in forms of popular science education through domestic cooperation programs and campaigns to increase public environ- with Chinese universities and institutions as mental awareness. Ningbo government and well as through international cooperation le- relevant non-governmental organizations veraging policies and overseas resources. For have carried out various programs and activi- example, the World Bank has provided a ties on an irregular basis to enhance public USD 98 million loan to environmental infra- environmental awareness. It is worth noting structure construction in Ningbo and Zhen- that these activities often involve many topics hai Petrochemical has imported KTI from and are not limited to environmental protec- Italy, as well as BB technology from the tion. For example, the local environmental Netherlands and the United States. society, the electronics society, and the phys- In the era of globalization, environmen- ics association often hold regular popular tal protection and innovation activities science programs with local communities, in should adopt an open attitude. Developing which environmental protection knowledge and exploiting indigenous sources should be is promoted. According to the local science complemented with external sources to fill and technology society statistics, Ningbo has knowledge gaps. Imported external technol- built up more than 100 popular science galle- ogy should be digested and used for ries in local communities in recent years with self-development. Technical assessment investments of millions of RMB. should be enhanced to avoid blind imports.

A.3.5 Introduction of international A.3.6 Companies are the key players in know-how and environmental technolo- environmental protection and innovation gies are important external support for environmental protection and innovation If government is the leader in environ- mental protection and innovation activities Ningbo is weak in the field of environ- and the public is the supervisor and research mental protection scientific research. It has institutions are the supporters, then compa- only three colleges, Ningbo University, nies should be the main players in imple- Ningbo Institute of Technology of Zhejiang menting environment protection. The ulti- University, and Ningbo University of Tech- mate goal is to promote environmental pro- nology. The scientific research capabilities of tection and innovation activities by compa- the three schools are not among the top in nies. China. In terms of institutions, the Ningbo In terms of environmental protection, it Academy of Environmental Protection has is generally felt that the most important issue 120 Harmonious Development through Innovation in environmental protection is the cost for dards, may suffer from ‘green losses’. The small firms; the cost may be less of a prob- firms have suffered losses because they have lem for big firms. For example, the pesticide had to purchase expensive environmental plant in Ningbo had to relocate to other protection equipment to comply with state areas because it could not bear the cost of laws. Zhenhai Petrochemical, due to industry environmental protection. Environment profitability changes and pollution control protection can require significant investments. costs, reported a RMB 1.6 billion loss in For instance, a coal desulfurization unit may January and February 2008. cost more than RMB 10 million a year. In recent years, Ningbo has set up a number of A.3.7 Summary chemical industry parks to accommodate highly polluting small businesses and to im- With the guidance of an open attitude, prove the recycling of raw materials and Ningbo has achieved great success in eco- waste. The development of the recycling nomic development and environmental pro- economy ecological park is one solution to tection to realize a win-win result. The open address pollution by small businesses. Large environment innovative system is the key to enterprises, although they may not be able to the Ningbo success (Figure A3-4). meet some of the basic environmental stan-

Government Institution Culture

Technology import Enter- prises University and research institutes Public

Technology cooperation

Figure A3-4 Environmental innovation system in Ningbo.

In this system, the government is the means, it encourages corporate environmen- leader and supervisor in environmental pro- tal protection and innovation activities. tection and innovation activities. Through Through extensive environmental protection macro-leadership, supervision and control, publicity and education programs and cam- and legislation, as well as through other paigns, it raises public environmental aware- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 121 ness and input. centives from the government, research in- The public is another important force in stitutions and pressure from the public. The environmental protection and innovation. administrative control and policy incentive Public participation is an important part of mechanism by the government, the pressure mobilizing social power to encourage corpo- of public opinion, the technology supply rate environmental protection and innovation from scientific research institutions, as well performance. Public participation of civil so- as their interaction, create the enthusiasm ciety is essential for monitoring and influen- and final results of corporate environmental cing government policies and actions and protection and innovation. corporate performance. Opening up is always the key. From the Scientific research institutions and col- advocacy of ‘small government, big society’ leges are important technical support forces to the open management system of ‘division in environmental protection and innovation of labor and joint efforts’, from the govern- activities. As Ningbo is weak in environmen- ment stimulating and encouraging public tal research, in addition to strengthening its participation in environmental affairs to the own research in environment, the city must international vision of actively seeking ex- introduce knowledge from the outside to ternal cooperation, all the processes have compensate for its research weakness and to supported the opening mindset. Economic provide technical support for environmental development alone cannot guarantee envi- innovation. ronmental innovation in a region. For inno- Enterprises are the principal players in vation and environment-friendly socie- environmental protection and innovation ac- ty-building, the biggest implication from tivities and they engage in environmental Ningbo is that an open mindset is the key to protection and innovation activities with in- environmental innovation. 122 Harmonious Development through Innovation

Appendix 4 Innovative and Environmentally Friendly Development: Implications from Wuhai

zation process. Through the economic devel- A.4.1 Wuhai social and economic high- opment zone and key projects, Wuhai has up- lights graded its four pillar industries, namely energy, chemical, construction materials, and metal- Wuhai, in Inner Mongolia, is a city based a lurgy. In 2007, Wuhai had 150 firms, up from single product: coal. Its administrative area 83 in 2003. Forty-five of these companies had covers 1,754 square kilometers with a popula- realized an annual value output above RMB tion at 477,000. Wuhai has rich reserves of re- 100 million. Wuhai has reported a double-digit sources that are easy to exploit and there are economic growth rate for five years in a row. supporting industries to use the resources. Wuhai has achieved impressive economic de- However, the natural conditions of Wuhai are velopment (Figure A4-1, A4-2, A4-3). The tough. Wuhai is in the middle of the Gobi GDP of Wuhai in 2007 reached RMB 19 bil- desert with surrounding deserts and scarce lion with per capita income at RMB 40,130 rainfall. (USD 5,494), fiscal revenue reached RMB 3.9 Since reform and opening-up, Wuhai has billion, and Wuhai has invested about RMB 29 taken advantage of its resources to improve billion in fixed-asset investment projects in the the investment environment and to deepen last four years1. According to the development the opening with robust economic develop- level and stage standards set by Prof. Chenery, ment. With the launch of the Western Devel- Wuhai has entered the senior stage of indu- opment strategy, Wuhai has developed its own strialization. industries and lept forward in the industriali-

Amounts (100 million RMB) Growth rate

200 31.70% 190.04 35.00% 180 26.30% 30.00% 160 152.39 140 120.1 25.00% 18.40% 120 93.57 20.00% 100 21.90% 80 67.63 18.10% 15.00% 60 10.00% 40 5.00% 20 0 0.00% 2003 2004 2005 2006 2007

Figure A4-1 Wuhai GDP and growth in recent years: 2003-2007.

1 Note: the national average per capita GDP in 2007 was USD 2280, and the average in Inner Mongolia was USD 3310. Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 123

Fiscal revenue (100 million RMB) Growth rates

45 62.75% 70.00% 39.29 40 60.00% 35 48.80% 60.19% 50.00% 30 37.66% 26.36 25 40.00% 18.66 41.18% 20 30.00% 15 11.65 20.00% 10 7.16 10.00% 5 0 0.00% 2003 2004 2005 2006 2007

Figure A4-2 Wuhai fiscal revenue and growth in recent years.

Industrial output(100 million RMB） Growth rates 60.86% 120 107.82 70.00% 100 60.00% 80.21 50.00% 80 39.60% 62.00 40.00% 60 47.33 23.20% 30.00% 40 31.11 28.30% 25.00% 20.00% 20 10.00% 0 0.00% 2003 2004 2005 2006 2007

Figure A4-3 Wuhai industrial output and growth in recent years.

ernment has attached great importance to A.4.2 Wuhai environment protection environmental protection, especially after the central Chinese government set the goal of Due to its rich natural resources, Wuhai building up an environmentally-friendly so- has put priority on developing energy, chem- ciety, Wuhai has responded to the call from ical, construction materials and metallurgy Beijing and the autonomous region govern- industries, all of which are highly polluting ment has invested effort, money and mate- and energy-intensive. In addition, the natural rials in environmental protection. Thanks to environment of Wuhai is harsh, so environ- years of efforts, the air quality of Wuhai has mental protection has become a key topic improved a bit. Air quality in 2007 was better along with development. The Wuhai gov- than that in 2006 and in 2007, Wuhai rec- 124 Harmonious Development through Innovation orded 265 days of clean air, which was 50 of reducing energy consumption by per unit days more than in 2006. The environment GDP 30% by 2010. Wuhai has a long way and air pollution index was 3.39, down 0.27 to go to realize these goals. points from 2006. In terms of ground water, the Yellow River from Ningxia in Wuhai was A.4.3 Innovation, development and envi- highly polluted, but the Wuhai part of the ronmental protection: Implications from Yellow River reported fairly good water qual- Wuhai ity. This also showcased that Wuhai has achieved some results in environmental pro- From June 11-14, 2008, the Innovative tection. and Environmentally-friendly Social Devel- The urban sewage treatment rate has opment research team talked with Wuhai reached 54%, and the urban waste treatment Environmental Protection Bureau officials rate has reached 79%. Wuhai completed the and visited three local companies: the North forestation of an area of 1,164 hectares in United Power Wuhai Thermal Power Plant, 2007, an increase of 71ha compared with the Shenhua Group Wuda Minerals Compa- the previous year; the forestation coverage ny, and the Shenhua Wuhai Coking Xilaifeng ratio has reached 31%, an increase of 1.35 Coking Plant. The research was aimed to de- percentage points higher than 2006. Per ca- termine what the government and companies pita park area was 9.64 square meters, an had done in environmental protection and increase of 0.9 square meters from 2006. what the results were. The discussion cov- Despite these achievements, the environ- ered environmental protection input, the mental situation remains serious in Wuhai. motivation system, technology and capital Although air quality has improved, it is sources, government control as well as re- worse than the Chinese Level III standards. gional economic development. The team Wuhai is still on the list as a “heavily pol- further realized the importance of compa- luted city” in China; the water pollution in- nies in environmental protection. The team dex is still high in absolute terms and water also felt that the poor results in environmen- quality needs to be improved; in emissions tal protection and innovation could be attri- reduction, according to the Letter of Com- buted to a number of factors, including poli- mitment of Cutting Emissions of Key Pol- cies, motivation mechanisms, technology in- lutants in the 11th Five-Year Plan between novation and regional economic develop- Wuhai and the autonomous region govern- ment. The problems raised great concern ment, Wuhai will cut: COD emissions to among the team members. 8,000 tons in 2010, down 23% from the A.4.3.1 Regulatory control and environ- level in 2005. SO2 emissions to 86,000t in mental protection

2010 or down 29% from 2005, and SO2 The basic conclusion is, regulatory control emissions from the power industry will be is an important way to promote environmen- less than 45,000 tons. In terms of ener- tal protection, but it is not the only way. gy-saving, Wuhai has set an ambitious target The research found that most of the Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 125 companies were “forced” to implement en- state-owned firms. To some extent, small vironmental measures under heavy pressure private firms are largely immune to the poli- from government. This is related to Art cies. If there is no link between environmen- Hansen’s classification of early stage envi- tal protection and personal gain, many pri- ronmental development. In this early stages, vate business owners are reluctant to spend response to regulation is the main driver of money on environmental issues. For them, pollution reduction. Ningbo (Appendix 3) is investment in environment has no return. at a middle stage and Baoding (Appendix 2) Why bother to invest? is a more advanced stage. Administrative The Wuhai municipal government rea- measures have had a major effect in encour- lized the problem in recent years and has aging companies to save energy, to reduce started to clean up the small firm sector. In emissions, and to promote corporate activi- 2007, the government launched a crackdown ties in environmental technology innovation. campaign on small chemical plants and con- These measures have been particularly effec- struction material producers and shut down tive for state-owned enterprises. As more than 100 small firms. If temporary state-owned enterprises are inextricably production suspension and fines proved in- linked to the administration system, the state effective, permanent closure of some pollu- firm leaders, for their own political agendas ters will be absolutely necessary to clean the and economic interests, have not the courage environment. China should recognize that to break environmental protection orders le- small firms have their own unique contribu- vied by the central and local governments. As tion to make to the local economy – some environmental protection is now a veto issue are important suppliers for the local pillar in deciding the future of a state company industries and their closures could have a manager, state-owned enterprise leaders are negative impact on the entire value chain. now willing to sacrifice financial interests to The local pillar industry can also become a meet environmental standards and to reach part of the solution by requiring supplies to the targets set by the government. be environmentally responsible. Small firms State-owned enterprises have played an im- have proven hard to shut down completely. portant role in driving local economic de- If one plant is shut down, the owner can eas- velopment and administrative measures have ily open another small plant at a different lo- proved very effective in urging state firms to cation; the net effect on the environment can be greener. In Wuhai, some heavily-polluting be zero or even negative. Wuhai, thanks to its and energy-intensive state-owned firms have rich underground resources, is finding diffi- aggressively launched technology upgrading culties in dealing with small chemical plants, policies to save energy and cut emissions and construction materials workshops, and small the companies have made contributions to coal mines and administrative measures can’t the overall environmental improvement. solve the problem. More effective measures However, these administrative measures need to be found. seem to only have effect on large The different performances of small 126 Harmonious Development through Innovation private firms and large state firms in envi- lation, many ideas turn out to be completely ronmental protection can be attributed not infeasible as environment protection re- only to the incentive mechanism, but also to quires investment. The Wuda Minerals consciousness. The administrative restraint Company revealed that a wet issue is related to ownership. Private business de-sulfurization facility could cost more owners naturally pursue maximum return on than RMB 13 million with wages, electricity their investment and financial gain is the top and maintenance costs, beyond the afforda- priority for the investors. Therefore, a possi- bility of small firms. ble solution is to encourage state companies We have considered two ways to address to take over small private plants, especially in the problem: (a) a company is highly profita- polluting and energy-intensive sectors like ble and has sufficient surplus funds to be coal, construction materials, and chemicals, used in environmental protection; and (b) the or to impose standards on their suppliers. A cost of environmental protection can be re- specific movement to take SMEs into the duced. Thus rise another two issues: first, the greening process is badly needed. In the relationship between economic development long-term, the monopoly and low efficiency and environmental protection; second, the created by mergers would be unfavorable for development of affordable environmental the national economy. As for the issue of protection technology. These two issues will consciousness, environmental knowledge be discussed in the following two sections. promotion and education should be provided A.4.3.2 Economic development and envi- to the SMEs in the region. Probably the most ronmental protection effective solution is to require the small firms Economic development can effectively to function within a firm set of rules that promote environmental protection and en- must be met in order to be allowed to con- vironmental protection would be empty talk duct business. The rules must be firm and without economic development. But given must be implemented vigorously. It should China’s environmental crisis, the economy be noted that many of today’s private busi- cannot thrive without reducing the footprint ness owners have great environmental con- of the economy. The only way to do this is sciousness, unlike their predecessors. Many through coordinated environmental and private firms also attach great importance to economic development. It is a must, among their public image and some have done well other things, to develop the circular economy in the environmental sector. Public participa- for sustainable development, for both tion and stimulating local NGOs can be a economy and environment. The team visiting major tool. the Wuda Minerals Company was amazed to So, how to solve the environmental see the wonderful gardening and environ- problems of small firms? The research team ment facilities in the plant. According to felt and heard some voices in the study: company officials, the company was able to sometimes companies do want to protect invest heavily in environmental protection the environment, but after a financial calcu- because its profitability was strong in recent Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 127 years due to rising coal prices. The Xilaifeng nomic development has a positive correlation coking plant of the Shenhua Group had sim- with environmental protection. Economic ilar stories. Shenhua Group has now listed its development is the foundation of environ- Xilaifeng plant as an example in sustainable mental protection and environmental protec- development and has invested money in ad- tion is necessary for economic development vanced equipment in the plant. With im- to be sustainable. proved productivity and profitability, the The Wuhai thermal power plant reported companies are empowered to improve envi- good environmental performance, but finan- ronmental protection and to gradually realize cial losses; small polluting firms pursued fi- the balance between economic development nancial gains at the expenses of environment; and environmental protection and with im- and Wuda Minerals Company and the Xilai- proved environmental protection, they can feng coking plant realized a desired win-win improve productivity and profitability. economic and environmental relationship. Small firms often cannot recover invest- But again, there were differences between ments in environmental protection equip- Wuda Minerals and Xilaifeng plant in terms ment, let alone profit from the investment. of detailed approaches. Wuda Minerals re- Since small businesses cannot survive with ported strong profitability with soaring coal such heavy investments, few owners are will- prices before it invested heavily in technolo- ing to invest in environmental protection. gy upgrading to gradually reduce the envi- The desulfurization system at the North ronmental damage. But the approach is not Power Wuhai thermal power plant cost RMB sustainable because decades of mining have several million a year. If a big state-owned been depleting the coal mines. This will be firm cannot cover the losses, how can a small the company bottleneck. Moreover, coal private firm break even? The thermal power prices are subject to macro-economic poli- plant has met environmental protection cies and the profitability is uncertain. Simply standards, but it also created heavy financial relying on the resources is not a sustainable burdens for the government. It looks clean, model. The Xilaifeng coking plant, on the but it cannot make money in the form of contrary, has followed the new sustainable ‘policy losses’. It is important to protect the economic development model relying on environment, but it is not a sustainable envi- technological innovation and effective re- ronmental protection move if it causes fi- source use to achieve both economic and en- nancial losses. vironmental performance. In the plant, there Wuda Minerals and the Xilaifeng Coking is no concept of so-called “waste” because Plant performed well in environment be- all solid wastes, waste water and emissions cause of their profitability. When people feel are recycled. The Xilaifeng approach is the they can afford environmental protection, it future, because its recycling economy model is natural for them to carry out environmen- represents a necessary path to achieve envi- tal protection measures – financial power will ronmental protection and economic devel- be the key. This is why the team believe eco- opment. 128 Harmonious Development through Innovation

A.4.3.3 Technology innovation and envi- projects for chemical, petroleum, metallurgy, ronmental protection and coking industries with heavy pollution. The lack of low-cost and general- Research on facilities, materials, and tech- ly-applicable environmental equipment and nologies should also be improved to provide technology has restricted environment pro- technical support for clean production and tection. Poor regulation of state institutions environmental protection. has made them poor in environment tech- A.4.3.4 Incentives and environmental pro- nology innovation. tection The high cost of environmental protec- As for incentives and environmental tion facilities has gone beyond the affordabil- protection, this study shows that pure puni- ity of many firms, and the lack of low-cost, tive measures are necessary but insufficient generally-applicable environmental equip- to encourage corporate environmental pro- ment and technology is an important reason tection and innovation and a lack of positive for the poor environment performance of encouragement leads to insufficient dynam- small businesses. The fundamental way to ism in corporate environmental protection. address the problem is increased government This study found that local governments input in environmental technology and are inclined to adopt punitive measures with equipment development and innovation, es- insufficient positive incentives regarding en- pecially development of effective and vironmental protection. If companies that low-cost general environmental technology invested heavily in environmental protection and equipment. China’s research institutions report losses, but companies without envi- and universities have developed many envi- ronmental protection facilities report hand- ronmental technologies, but most of them some profits, enthusiasm for environment remained in the labs. An important reason is protection will diminish. The Wuhai thermal lack of applicability that has been described power plant is an example. The research in previous reports. The problem can be at- group suggests that the government should tributed to technology reasons as well as to launch positive incentive measures as quickly institutional factors. Most state institutions as possible to give preferential policy treat- and academies are unable or unwilling to de- ment and subsidies to the companies with velop high-quality, low-cost, applicable tech- environmental protection facilities and good nologies. Chemical, oil, and metallurgical environmental performance. The govern- academies are largely resting on past research ment has raised the price of power generated results, as there is no competition. The state from de-sulfurization plants so that power think-tanks have no plans to improve and plants with desulfurization facilities can re- innovate. A design drawing is often used ceive certain subsidies. But, to be effective, without consideration of flaws or customer these subsidies and incentives need to be needs. The Xilaifeng plant had encountered firmly monitored and enforced (Appendix 6). such a case. At present, support should be Subsidies should also be provided to power enhanced, especially in demonstration generation by neutralized water to encourage Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 129 companies to use neutralized water and to does not only exist in Wuhai, but also takes save water resources. In addition, the gov- place between Wuhai and neighboring zones ernment should create preferential policy and provinces – the problem is very severe treatment for clean producers and ener- on the border between Ningxia and Inner gy-efficient companies. Mongolia. The borders at the junction of the A.4.3.5 Administration division and envi- administrative zones generally become “blind ronmental protection spots” with serious environmental pollution. Fragmented administration divisions People’s Congress delegates talk about the have led to disordered competition for re- problems every year, but the problems re- sources and loopholes in environmental pro- main. Environmental issues are highly related tection. Centralized management is needed with regional economic development and the to address the problem. Many environmental local political landscape. The government problems are not simply environmental tech- should launch centralized management cov- nical issues, but also depend on regional, po- ering different zones to promote regional litical and social contexts. Administration di- economic integration. The upper level of vision, for instance, can cause many envi- government should play a coordinator role if ronmental problems. For instance, the over- conflicts arise between different administra- lap of three administrative layers in Wuhai tion areas. For instance, the Inner Mongolia has caused redundancies in institutions, Development and Reform Commission which in turn caused resource misallocation should organize resource exploitation, eco- and competition for scarce resources and nomic development, and environmental pro- chaotic market conditions. Governments and tection in the whole region and deal with po- companies scrambled to grab everything litical disputes. According to the current sit- from projects to policies and from capital to uation, the upper level government must be resources, which led to nasty struggles and more decisive, otherwise, chaotic situations even bloody conflicts. will be inevitable. The problem of administration division 130 Harmonious Development through Innovation

Appendix 5 The Status of China’s Photovoltaic Industry

The solar photovoltaic industry is an technologies by which solar energy is trans- emerging industry. Solar photovoltaic tech- formed into electric power. The most com- nologies are used to convert solar energy into monly used semiconductor material is silicon, electrical energy. From the 1990s onward has an abundant element. Solar photovoltaic cells been a period of rapid development with have two layers of semiconductors, the rapid technological change. Solar photovol- anode and the cathode. As sunlight shines on taic technologies provide a great opportunity the semiconductor, electric currents are pro- for China to be a leader. The world’s first so- duced at the junction of the two electrodes. lar cell was developed in 1954. China began The stronger the sunlight, the stronger the research on photovoltaic cells in 1958 and electric current. The solar photovoltaic sys- used the cells on the DFH-2 satellite in 1971. tem cannot only operate in strong sunlight, In recent years, the development of the but it can also generate power on cloudy days. photovoltaic industry has maintained strong Photovoltaic power generation systems oc- momentum. Moreover, as the global energy cupy a small area of land. They are especially situation becomes tenser and tenser, solar applicable in remote areas with much sun- photovoltaic power generation with further light, such as Xinjiang, Tibet, and Qinghai. technological advances may become a signif- The development of the photovoltaic indus- icant form of energy utilization by 2030. It try will have great significance in improving has incalculable potential for development energy, protecting the environment, reducing with technological advances and the gradual space occupation, solving the problem of limits to utilization of other forms of energy. power supply in remote areas, and increasing In addition, solar energy, as a sustainable employment. form of clean energy, meets the require- To fully understand the solar photovol- ments of sustainable development to a great taic industry, this study analyzed it from the degree. The development of the solar pho- industrial chain. Cells are the most important tovoltaic industry has important potential in the solar photovoltaic system. At present, strategic significance for China. the crystalline silicon photovoltaic cell still dominates the industry. The focus here is on A.5.1 The status of photovoltaics in China the analysis of the industrial chain dominated by the crystalline silicon photovoltaic cell. Solar photovoltaic technologies are (Figure A5-1) Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 131

Metallurgical silicon High-purity Silicon rod/metallurgical Silicon mine (Industrial silicon) polysilicon/ silicon/silicon ingot SOG silicon Polysilicon ingot

Photovoltaic power Photovoltaic Single crystal cell generation system Photovoltaic array Module polysilica cell

Figure A5-1 Power generation industrial chain of the crystalline silicon photovoltaic cell. Source: The Report on the Photovoltaic Industry in China, 2007, China Environmental Science Press

We divide the industrial chain into several solar photovoltaic industrial chain shows links. The link ‘silicon mine - metallurgical that it is the first phase of the industrial silicon - high-purity polysilicon/SOG silicon’ chain that occupies the largest share of the is the first part of the industrial chain. The industry (Figure A5-2). The production of link ‘silicon rod/silicon/silicon ingot – single crystalline silicon is critical in the solar crystal cell/polysilica cell - PV module’ is the photovoltaic industrial chain. There is the middle part of the industrial chain. The es- saying, the ‘Domination of Silicon Owners’, tablishment of the photovoltaic array and the in the photovoltaic industry. Many of Chi- construction of the photovoltaic power gen- na’s photovoltaic cell producers regard eration system is the last part of the industri- looking for crystalline silicon raw materials al chain. as the most important part of the industrial A.5.1.1 The status of the first part of the chain. photovoltaic industrial chain in China The cost calculation of the value of the

Components 16.40%

Cells 15.10% Silic on Material 56.20%

Silic on plates 12.30%

Figure A5-2 Price ratio of various links of the production of solar cells. Source: Report on China’s Solar Photovoltaic Industry, 2007, China Environmental Science Press

The reason for this is, that more than line silicon. Because of the early stage of the 98% of the photovoltaic cells in the world industry, the growth of the output of poly- market are made of high purity polycrystal- crystalline silicon raw materials lags far be- 132 Harmonious Development through Innovation hind the demand of the photovoltaic indus- reached, advanced world levels. In 2007, the try; there is a polysilicon shortage. In general, output of domestic solar cells was about the photovoltaic industry requires 6N 1180MW, almost three times great than the (99.9999%) purity of the polycrystalline sili- 300MW of the previous year; in 2007, the con. But, this technology in China is not fully world's output of solar cells was only about developed. The purification method is based 4000MW. China has become a large producer on the modified Siemens method. The ener- of solar cells, and the output in 2007 was gy consumption is 1.5 to 2 times that of the more than one fourth that of the whole advanced world level and the purity is far world. Wuxi Suntech Power Co., Ltd reached from adequate. Moreover, the production the output of 364MW with a sales revenue scale of the silicon raw material is inadequate. of over RMB 10 billion. It came third among Polycrystalline silicon production is an in- photovoltaic cell manufacturers in the world. dustry that requires scale. The critical size is On the other hand, the total domestic de- generally believed to be two thousand tons mand for solar cells was only 20MW, which each year and enterprises with annual output means the export of about 1160MW of solar of less than one thousand tons per year are cells. Most businesses have little capacity for not considered to be economically viable. In independent research and development and 2007, the whole of China produced only they mainly digest and absorb international about one thousand tons of polysilicon. Raw technologies. They lack technological innova- material for the industry relies heavily on tion and market responsiveness. imports. At present, China’s photovoltaic cells Recently, the situation has been chang- packaging industry is the most mature part ing to some degree, because of the high of the whole photovoltaic industrial chain. profit margins in the short term – the pro- A.5.1.3 The status of the last parts of Chi- duction cost is about USD 20 to USD 60 na’s solar photovoltaic industry per kilogram, while the spot price is up to Foreign markets dominate the present USD 300 per kilogram, there is the possibil- consumption of photovoltaic products pro- ity of high speed growth in domestic enter- duced in the early stages of the photovoltaic prises. industry. The domestic market remains very A.5.1.2 The status of the middle part of limited. This means that the construction of China’s solar photovoltaic industry photovoltaic power generation systems in The middle phases are the strongest link China is still local and pilot-based. of China’s photovoltaic industry. China’s Large-scale application of the technologies is manufacturing technologies of crystalline not yet mature. At present, China’s photo- silicon ingots are mature, even though the voltaic power generation projects are divided raw material of polysilicon depends on for- into two groups. one is the integration of eign imports. photovoltaic systems and buildings. This is China’s manufacturing technologies of distributed generation, where the power photovoltaic cells are close to, or have source is arranged at a terminal of the power Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 133 grid. The distributed generation is thus suita- markets, government support, access to ex- ble for development in urban areas. An ex- ternal resources, and the capacities of enter- ample is the 100kW grid-connected photo- prises. voltaic power generating system of the Na- A.5.2.1 Technical factors tional Stadium. The other is large-scale pho- The present technical factors are impor- tovoltaic power stations, mainly built in the tant factors that restrict the development of Gobi desert area. For example, the project of China’s photovoltaic industry. This is re- ‘power supply to xiang’ was completed at the flected in the polysilicon link that is the most end of 2005 to supply power to xiangs (an important in the industrial chain. China’s po- administrative unit between county and vil- lysilicon purification technologies are still lage in the western provinces and regions). In relatively underdeveloped. There is room for this project, 721 photovoltaic power stations improvement for China’s production tech- and wind and solar energy, mutual- nologies. ly-complementing power stations were built However, because of skilled operations in seven provinces in western China: Tibet, and relatively low costs and because photo- Xinjiang, Qinghai, Gansu, Inner Mongolia, voltaic manufacturing technologies are close Shanxi, and Sichuan. This allowed daily to or have reached advanced world levels, the access to electricity for hundreds of thou- industry has a comparative advantage. sands of people. A.5.2.2 Market factors The businesses of the Baoding Tianwei Since China’s photovoltaic industry is Yingli New Energy Sources Company, Ltd. aimed at the export market, the industry is involve the early phases of the industrial subject to consumption needs abroad. The chain, as well as manufacturing in the middle domestic PV market is far from being fully stages. The photovoltaic power generation developed, so there is a great opportunity for system of the Kaiserslautern stadium in domestic growth. If the domestic market Germany for the 2006 World Cup was con- share can be gradually expanded, the diversi- structed by the corporation. In addition, ty of the domestic market will contribute to Baoding succeeded in the bid for a photo- the improvement and the maturity of pho- voltaic project in Spain. tovoltaic technologies. The domestic market will strengthen the adaptability and the com- A.5.2 Analyzing the opportunities and the petitiveness of the photovoltaic power gen- challenges of China’s photovoltaic in- eration system. dustry from the perspective of industrial A.5.2.3 Government support catching up Historical facts show that government support plays a vital role in the development Can China’s photovoltaic industry lead of such emerging industries. The effect of the world? Can China occupy a dominant government support on enterprises is signif- position in the world photovoltaic industry? icant: in the development history of the en- The following analysis considers technologies, terprises that rank top in the industry, such as 134 Harmonious Development through Innovation the Wuxi Suntech Power Co., Ltd., the Considerable opportunities exist for im- Baoding Tianwei Yingli New Energy Sources proving PV for example using nanotechnol- Company Ltd., and others, government ogy and various bases. Converting the DC of support plays an important role. In addition, solar cell output to feed into the grid need domestic photovoltaic projects are basically major development. Solar cells work only in relying on the government for promotion. sunlight, so improvements in storage tech- Yet, the support from the government nology would greatly enhance the application still needs constant improvement. For exam- of PV. ple, some local governments still mainly A.5.2.5 The capabilities of the enterprises support the technology-dependent industries At present, China’s enterprises in the in pursuit of short-term interests. In addition, photovoltaic industry show prosperous there is still much room for the development growth. These are distributed in various parts of policies to promote areas including tech- of the industrial chain: the Jiangxi LDK So- nological research and development, market lar Hi-tech Co., Ltd., in the later stages of the development, and personnel training. industrial chain; the Wuxi Suntech Power Co., A.5.2.4 Utilization of external resources Ltd., in the middle stages of the industrial For emerging industries such as the chain; and the Baoding Tianwei Yingli New photovoltaic industry, leading designs have Energy Sources Company Ltd. proliferates in not yet been defined and advanced countries the whole of the industrial chain. will not transfer the core technologies such On the other hand, the high yield of the as the purification methods of polysilicon, so photovoltaic industry drives many enterprises some manufacturing techniques and equip- to pursue short-term profits. The high risks ment have to be imported. Therefore, China of the industry compel enterprises to take should strengthen the full absorption of such relatively conservative attitudes when their technologies and strive for further technolo- technologies need to be upgraded. The chal- gical innovation. It is obvious that more and lenge facing the enterprises is to have more more overseas investment is being made in flexible, upgraded production capability. The the photovoltaic industry as the Wuxi Sun- comprehensive capabilities of the enterprises tech Power Co., Ltd., the Baoding Tianwei can determine whether they will eventually Yingli New Energy Sources Company Ltd., survive. and the later emerging Jiangxi LDK Solar China’s photovoltaic industry shows the Hi-tech Co., Ltd. all have successively listed ‘two-foreign’ posture. That is, the key tech- in the U.S. stock market. nologies are led by foreign countries and the In China, enormous intellectual re- main market is foreign countries. The pho- sources are far from being fully utilized. A tovoltaic industry depends on the coopera- small number of universities and research in- tion of main bodies the industry – govern- stitutions are involved in the photovoltaic ments, enterprises, universities and research industry and the personnel training of related institutes – to improve the technical capacity, specialties is also inadequate. develop the domestic market for, and pro- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 135 mote the management abilities of the enter- and the market demands of terminal con- prises themselves. sumer goods, such as solar water heaters Enterprises need to be aware of the im- and solar electrical machinery. Enterprises in portance of training of their own technical this industry should have the courage to ac- people and, to emphasize the improvement tively participate in international market of their own unique technical capacities, competitions. need to increase research and development Enterprises in all parts of the industrial inputs. chain should strengthen mutual cooperation, Enterprises should pay attention to the thus contributing to enhancing the capabili- market development of multiple applications. ties of industrial clusters. This could include integration of the design 136 Harmonious Development through Innovation

Appendix 6 Control Over Sulfur Dioxide Pollution from Thermal Power Plants

China. A.6.1 The current status of sulfur dioxide During the 10th Five-Year Plan, there was emission in China a strong demand for electric power due to rapid national economic growth. Table A6-1 China has determined that there will be a shows the installed capacity of thermal pow-

10% reduction in total SO2 emission during er, coal consumption of thermal power units the 11th Five-Year Plan. The power industry (in standard coal equivalent unit, SCE) and is the main source of SO2, accounting for SO2 emissions from the year 2000 to the year approximately 60% of total SO2 emissions in 2005.

Table A6-1 Installed capacity of thermal power and SO2 emission during the 10th Five-Year Plan.

Year 2000 2001 2002 2003 2004 2005 Installed Capacity of Thermal Power 214 253 266 290 325 385 Unit: Million Kilowatts Coal Consumption of Thermal Power Units 4.7 4.9 4.7 5.5 9.0 10.8 Unit: 100 Million Tons (SCE) Sulfur Dioxide Emission in China 19.95 19.48 19.27 21.59 22.55 26.80 Unit: Million tons (1) Sulfur Dioxide Emission in Power Industry 8.00 8.10 8.30 10.00 12.00 16.08 Unit: Million tons (2) Note: (1) Data from Environment Communique; (2) Data from power industry.

Table A6-1 shows that the total installed year 2005. Total thermal power generation capacity of thermal power plants has in- amounted to 2.018 million GWh in year creased from 214GW in year 2000 to 2005, about 81.5% of China’s total power 385GW in year 2005; the coal consumption generation. The thermal power industry is of thermal power units has increased from by far the largest producer of electricity and 470 million tons in year 2000 to 1.08 billion by far the largest consumer of coal in Chi- tons in year 2005. Coal consumption by na. thermal power units in China as a propor- SO2 emissions in China declined from tion of overall coal consumption has in- 1997-2000. However, since the start of the st creased from 39% in year 2000 to 58% in 21 century total SO2 emissions in China Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 137 rose to 26.8 million tons in 2005. The objec- from 0.592g/kWh in year 2000, to tive of 10% reduction nationwide and 20% 0.797g/kWh in year 2005. reduction in two controlled zones during the (3) Most of the established desulfuriza- 10th Five-Year Plan was not met. There was tion facilities are new and the construction an increase of 34.4% in total SO2 emissions of desulfurization units is proceeding slowly from 2000. and on a small scale. Recent introduction has

Table A6-1 also shows that thermal not yet significantly reduced SO2 emissions. power plants are the major source of SO2 (4) Desulfurization units in construction emissions in China. Total SO2 emission in- or in operation have mainly been applied to creased from 8 million tons in year 2000 to low-sulfur coals. A survey of 44 thermal

16.08 million tons in year 2005. SO2 emis- power plants shows, the average sulfur con- sions from thermal power plants increased tent of coals in 36 of these plants is 0.92％. from 40% of the total in year 2000 to 60% Eight of the plants use coal with sulfur con- of the total in year 2005. Sulfur dioxide tent more than 2%. They are in Guangan of emission from thermal power plants doubled Sichuan, Jiulong of Chongqing, Yaxi and between 2000 and 2005. The principal rea- Guiyang of Guizhou, and Heshan of Gua- sons for SO2 pollution emission being out of ngxi, in the west and south of China. control in the thermal power industry are: (1) Since 2001, there has been a serious A.6.2 Regulations, policies and standard power shortage in China, resulting in the de- systems for control over sulfur dioxide velopment of electric power significantly pollution in China beyond the objective of the 10th Five-Year Plan. 2000 to 2005 saw a net increase of By 2005, relevant ministries in the Chi- 171GW in the installed capacity of thermal nese government had established over 30 power units. In addition, the operating hours regulations, policies and standard systems of the existing units have increased signifi- relating to the control of SO2 emissions. cantly. Small thermal power plants could not During the 10th Five-Year Plan, on the basis be closed down on schedule. of revision of the Atmospheric Pollution (2) The elastic coefficient of energy de- Prevention Law, there were more than ten mand during the 10th Five-Year Plan was additional supporting regulations, policies, planned to be around 0.4. However, the ac- and standards, laying a solid foundation for tual coefficient achieved was 1.6. State regu- law-based control of SO2 emission in Chi- lations and policies failed to restrict use of na. low-quality, high-sulfur coal. As well as an Following the National People’s Con- increase in coal demand, the quality of coal gress‘s revision on Air Pollution Prevention used has significantly deteriorated. The coal Law in 2000, the State Council promulgated heating value decreased, while the sulfur and in January 2002 Regulation of Effluent Fees’ ash content per unit increased. SO2 emissions Collection, Usage and Management, creating from thermal power generation increased a substantial increase in the SO2 emission 138 Harmonious Development through Innovation

charge. It also regulated collection of charges duce SO2 emission. New or expanding for the emission of nitrogen oxides starting coal-fired power plants were strictly con- in July 2004. The price mechanism is pro- trolled and required to develop cogeneration moting the construction of desulfurization of heat and electricity in large and me- facilities at thermal power plants: Promulga- dium-sized cities and their suburbs. In May tion and implementation of the Environ- 2007, the National Development and Reform mental Impact Assessment Law in Septem- Commission and the State Environmental ber 2003 provided legal protection for Protection Administration issued the Desul- ‘Three-Simultaneity’ desulfurization facilities. furization Price of Coal-fired Power Gene- This propelled the establishment of flue gas rating Units and Operation and Management desulfurization facilities in compliance with Approaches for Desulfurization Facilities environmental impact assessment require- (Trial), setting the electricity price for power ments. plants equipped with desulfurization facilities. The State Environmental Protection Those plants were give price increases for Administration, now the Ministry of Envi- desulphurization. Access to the electricity ronmental Protection, and other ministries grid is RMB 1.5 more per kilowatt-hour. jointly issued the 10th Five-Year Plan of The State Environmental Protection Acid Rain and Sulfur Dioxide Pollution Administration, the National Development Control in “Two Controlled Zones”, specifi- and Reform Commission, the Ministry of cally requesting that addition, expansion, or Finance, the Ministry of Science and Tech- alteration of the thermal power units in the nology, and other departments concerned “Two Controlled Zones” construct desulfu- have successively drawn up Control Tech- rization facilities or other measures to nologies and Policies for Coal-fired Sulfur achieve the SO2 emission standard. More Dioxide Pollution, Notice on Strengthening than 260 existing units required treatment Sulfur Dioxide Pollution Control at within a prescribed time limit. The “Scheme Coal-fired Power Plants, and Provisions of to Key Cities for the Control of Air Pollu- Classifying High-pollution Fuels, specifying tion”, approved by the State Council, speci- the technical and economic policy for flue fied 113 key cities for the controls of air gas desulfurization and desulfurization in- pollution. In December 2005, the Decision dustrial development at the power plants. on Implementing the Scientific Concept of The State Environmental Protection Development and Stepping up Environmen- Administration and the General Administra- tal Protection by the State Council required tion of Quality Supervision, Inspection and air pollution controls to reduce SO2 emission. Quarantine jointly revised and promulgated Except for pit-mouth power plants utilizing two mandatory standards, Emission Standard extra-low sulfur coals, new or expanding of Air Pollutants for Thermal Power Plants, coal-fired power plants must carry out si- and Emission Standards of Air Pollutants for multaneous construction of desulfurization Boilers, and supporting technical standards facilities or must take other measures to re- such as Technical Specifications for De- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 139 signing FGD in Thermal Power Plants, nions about Expediting Development of Limestone/Gypsum Desulfurization FGD in Thermal Power Plants, which Project Technical Specification for Ther- brought forward instructions for desulfuriza- mal Power Plants, CFB Desulfurization tion technology industrialization. They sup- Project Technical Specifications for Ther- ported construction of desulfurization mal Power Plants, providing both man- projects and strengthened desulfurization agement and technical bases for SO2 con- technology demonstration projects, by using trol and for construction of facilities at treasury bond funds. Environmental protec- thermal power plants. tion funds from the central government were provided to support desulfurization engi- A.6.3 Efforts of China on sulfur dioxide neering on existing units in the two con- emission reduction trolled zones. The Ministry of Finance and the State Environmental Protection Admin- Implementation of the 10th Five-Year istration of China provided financial support Plan environmental projects, in particular the from ministries of finance in all local regions. Acid Rain and Sulfur Dioxide Pollution Con- Under the theme “Control Technologies for trol in Two Controlled Zones was a big sti- Environmental Pollution in the area of Re- mulus for comprehensive implementation of sources and Environment” as part of the

SO2 pollution prevention and control in “863 Project”, the Ministry of Science and China. There were nevertheless disastrous Technology demonstrated desulfurization aftereffects from the out-of-control emis- and denitrification of flue gases by pulsed sions of SO2 resulting from the supernormal corona induced plasma, controlled sulfur growth of coal consumption and the explo- dioxide and fine particle emissions in large sive development of thermal power generat- coal-fired power plants, flue gas desulfuriza- ing units. ‘Three-Simultaneity’ for new units tion in industrial boilers in large and me- and the overall construction of desulfuriza- dium-sized coal-fired power plants. tion facilities at thermal power plants of Two Regulations using economic levers, such

Controlled Zones created a favorable basis as raising the charge for SO2 emission and for implementing SO2 control targets as spe- adding the desulfurization cost to the price cified in the 11th Five-Year Plan. of electricity put into the grid, accelerated A.6.3.1 Effective implementation on poli- the enthusiasm of enterprises to install de- cies and measures established by relevant sulfurization facilities. The new desulfuriza- ministries tion projects enjoy the priority of price of The National Development and Reform electricity provided to the grid. The Price Commission, formerly the Economic and Bureau in Zhejiang Province provided the Trade Commission, formulated in 2000 Key subsidy of RMB 1.5 to RMB 2 per kilowatt FGD Technologies and Planning Essentials hour. An appropriate reduction of the sub- for Equipment Localization in Thermal sidy is applied when the efficiency of the Power Plants (2000-2010), and in 2005, Opi- desulfurization and the operating rate do 140 Harmonious Development through Innovation not meet the requirement. meetings, organizing flue gas desulfurization A.6.3.2 Active measures are taken to treatment within a prescribed time limit in strengthen supervision of construction of coal-fired power plants throughout the desulfurization facilities province. In order to implement the 10th Five-Year (2) The Provincial Ministry of Finance Plan of Acid Rain and Sulfur Dioxide Pollu- provided environmental protection subsidies tion Control in Two Controlled Zones, to support key desulfurization projects. twenty seven provinces in the two control There were a total of 25 projects from 2004 zones have formulated and implemented SO2 to 2005 with subsidies of RMB 150 million. control plans in compliance with the 10th In addition, the Ministry actively sought en- Five-Year Plan. They have initiated a number vironmental protection funds from the cen- of desulfurization projects, carried out su- tral government. pervision and coordination of key thermal (3) To ensure effective operation of de- power desulfurization projects, and have sulfurization facilities after installation, the given support through local environmental Provincial Environmental Protection Bureau protection subsidies. Some local govern- held several negotiations with the Provincial ments even stopped production of the ther- Price Bureau, enabling desulfurization facili- mal power plants still generating excessive ties to enjoy the priority of price of access to pollution. the electric grid. Shanxi Province: after the enactment of Currently, among 72 thermal power units requirements specified in the 10th Five-Year of 100MW and above 100MW, with a total Plan for pollution control in the two control installed capacity of 18,540MW, put into op- zones, the Shanxi provincial government re- eration throughout the province, 17 units to- quired those thermal power plants without taling 5,300MW have been completed for desulfurization facilities to install them in flue gas desulfurization facilities, while 19 three phases and within a prescribed time units totaling 3,410MW are under construc- limit. This involved 305 units and an installed tion. Most of the thermal power units below capacity of 15,637MW. The Provincial En- 100MW use circulating fluidized bed boilers. vironmental Protection Bureau issued a Some of the smaller ones apply the ap- “Notice for Further Strengthening Supervi- proach of wet dusting but are still fulfilling sion and Management on the Project of Flue desulfurization by adding alkali to Gas Desulfurization Treatment within a Pre- dust-removing water. Among thirteen key scribed Limit of Time in Coal-Fired Power thermal power desulfurization projects in Plants” and took the following measures to Two Controlled Zones, according to the 10th promote the construction of desulfurization Five-Year Plan, six are completed, six are facilities in thermal power plants: under construction, and the last one is still (1) The Provincial Environmental Pro- under consideration. tection Bureau for four consecutive years Zhejiang Province: In order to control held power plant desulfurization promotion SO2 emission, Zhejiang province established Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 141

approaches for SO2 pollution control ac- stimulate the construction of desulfuriza- cording to the 10th Five-Year Plan at Two tion facilities in new projects, but also to ac- Controlled Zones. The Provincial Environ- tively develop desulfurization plans for ex- mental Protection Bureau in 2004 issued isting thermal power units. Power grid construction plans for desulfurization groups are implementing key desulfuriza- projects in coal-fired power plants of tion projects in the two controlled zones 125MW or above throughout Zhejiang according to the 10th Five-Year Plan. They Province jointly with the Provincial Devel- collect funds for technical development and opment and Reform Commission. The fol- actively supervise and guide the construc- lowing measures were taken: tion of desulfurization projects in power (1) New construction projects are not plants. approved for enterprises with substandard The Huadian Group, for example, by

SO2 emission in existing plants. Any project November 2005, had put eight desulfuriza- resulting in pollution is not approved if there tion facilities into operation in a total of 12 is no reduction in pollution. thermal power units with installed capacity (2) The Price Bureau is responsible for of 1,650MW. This has led to an annual re- the establishment of a price discount on duction of SO2 emissions of 224,000 tons; power generation that is environmentally there are 13 desulfurization projects under protective. Desulfurization units have access construction in a total of 25 thermal power to power grids at a preferred price. units with installed capacity of 5,690MW. (3) The Environmental Protection Bu- After completion of these desulfurization reau and the Ministry of Finance coordi- projects, SO2 emissions will decline by nate closely. They strengthen the collection 410,000 tons annually. and management of charges for SO2 emis- The total investment by Huadian Group sion and ensure the full collection of on desulfurization projects in 2005 was charges. planned up to RMB 2.2 billion. In order to By November 2005, among fifteen ensure the scheduled launch of the desulfu- projects in the Two Controlled Zones in rization project, Huadian Group started fi- Zhejiang Province, ten are completed, ac- nancing by a number of means: In 2005, it counting for a total of 700MW. Three are invested RMB 117 million as funds for tech- under construction, and the remaining two nological reform of desulfurization; treasury are under going review. In addition, Zhejiang bond funds of RMB 85.5 million, special Province has initiated a number of provincial funds for local environmental protection of key desulfurization projects that are signifi- RMB 81.5 million, and a loan of RMB 450 cant to ecological development. million were also available. A.6.3.3 Power grid groups have increased the enthusiasm of desulfurization Increase of enthusiasm for desulfuriza- tion enables power grid groups not only to 142 Harmonious Development through Innovation

A.6.4 Sulfur dioxide pollution treatment ly 100GW. technology of thermal power plants and (1)Localization rate of desulfurization development of desulfurization industry equipment has exceeded 90%. in China The dominant power plant desulfuriza- tion technologies used in China are mature A.6.4.1 Development of new technologies of ones introduced from abroad. According to control over sulfur dioxide pollution incomplete statistics at the end of 2005, In recent years, through independent re- there are more than 20 environmental pro- search and development, digestion and ab- tection enterprises in China, introduced suc- sorption, and innovation, China has made cessively from Japan, Germany, the United significant progress in flue gas desulfuriza- States, Norway, Italy, Austria, Denmark, and tion industrialization. Localization of flue gas other countries. Meanwhile, some enterprises desulfurization in thermal power plants is started their pioneering process by means of expected to meet the requirements of SO2 technical digestion and absorption. A num- emission reduction during the 11th Five-Year ber of technologies with independent intel- Plan. lectual property rights are under way for de- Currently, there are more than ten varie- sulfurization applications. China has had the ties of flue gas desulfurization technologies capabilities of research and development of in application, including limestone-gypsum and production of critical equipment as ap- flue gas desulfurization, desulfurization plied in limestone - gypsum wet flue gas de- through flue gas circulating fluidized bed, sulfurization technology. seawater desulfurization, integrated desulfu- Beijing Guodian Longyuan Environ- rization and dust-moving, semi-dry desulfu- mental Engineering Co., Ltd., as an example, rization, desulfurization via spray dryer ab- has acquired the design of limestone - gyp- sorption, desulfurization via humidifying tail sum wet flue gas desulfurization technology gas by spraying calcium inside furnace, de- for 300MW coal-fired power units. Jiangsu sulfurization via active coke absorption, and Suyuan Environmental Engineering Co., Ltd. desulfurization via electron beam. Among has independently developed and applied the various desulfurization technologies, li- accurate and integrated limestone - gypsum mestone-gypsum flue gas desulfurization is wet flue gas desulfurization technology. This the most common. Over 90% of plants was proven qualified in the “Appraisal of make use of limestone - gypsum wet flue gas Scientific and Technological Achievements in desulfurization technology. There also has 2003” jointly organized by the Office of been significant improvement on project Science and Technology in Jiangsu Province construction capability. The flue gas desulfu- and the Economic and Trade Commission. rization industry in China now has the capa- Specifically, it has been put into operation on bilities for design, equipment manufacturing 300MW and 600MW power units in Jiangsu and general contracting for desulfurization Taicang City Harbor Environmental Electric engineering of the installed capacity of near- Power Co., Ltd., and worked well. The tech- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 143 nology has now been developed for the ap- tion equipment, market competition, and plication of selective catalytic reduction to other factors. For example, the cost per ki- flue gas desulfurization. lowatt on new thermal power units 300MW (2) FGD dominant technology with in- and above for flue gas desulfurization project dependent intellectual property rights. has dropped from about RMB 1,000 to the Through independent research and de- current RMB 200. The cost per kilowatt on velopment, digestion and absorption, and existing thermal power units up to 200MW innovation, China has already acquired flue for flue gas desulfurization projects has gas desulfurization technology for 300MW dropped to below RMB 250. thermal power units. There are independent By 2002, China had basically completed intellectual property rights and a year or the introduction, assimilation, and demon- more of practical engineering tests. Jiangsu stration of desulfurization technology in Suyuan Environmental Engineering Co., Ltd. thermal power plants and gradually built a has independently developed and applied li- team of professionals for desulfurization mestone/gypsum wet flue gas desulfuriza- project construction. This has laid the foun- tion technology. This has been successfully dation for large-scale construction of desul- applied by Jiangsu Taicang City Harbor En- furization projects in thermal power plants in vironmental Electric Power Co., Ltd. and China now under way. Beijing Guodian Longyuan Environmental According to incomplete statistics, in Engineering Co., Ltd., after digestion, ab- 2003 there were about 10 companies capable sorption, and innovation of the adopted of general contracting for desulfurization German technology. They acquired limes- projects for over 50MW plants. The cumula- tone/gypsum wet flue gas desulfurization tive contract amount of flue gas desulfuriza- technology with independent intellectual tion projects in thermal power plants was property rights and successfully applied the around RMB 4 billion. In 2004, about 30 technology to in a gas desulfurization project companies capable of general contracting. of Jiangyin Sulong Electric Power Co., Ltd. Cumulative contract amounts of flue gas The two projects qualified after inspection desulfurization projects in thermal power based on more than a year of actual opera- plants was around RMB 31 billion. In 2005, tion and are authorized to proceed to over 60 companies were capable of general post-project assessment. contracting. The cumulative contract amount (3) Drastic reduction on desulfurization of flue gas desulfurization projects in ther- engineering costs. mal power plants rose to about RMB 55 bil- There has been a drastic reduction inde- lion. Table A6-2 shows the status of major sulfurization project costs due to the greatly enterprises engaged in desulfurization increased adoption of flue gas desulfuriza- projects at the end of 2005. 144 Harmonious Development through Innovation

Table A 6-2 The status of major enterprises engaged in desulfurization undertaking desulfurization projects and technical sources by the end of 2005.

Installed Capacity of Desul- furization Projects（MW） Name of Enterprises Engaged in Desulfurization Technical Item No. Under Desulfurization In Op- Technology Source Total Construc- eration tion Wuhan Kaidi Electric Power & Dry Desulfurization, 1 27,800 7,870 19,930 USA, Germany Environment Co., Ltd. Wet Desulfurization Environmental Engineering Sub- 2 sidiary of Guodian Technology & 18,850 5,680 13,170 Wet Desulfurization Germany Environment Group Co., Ltd. Beijing Boqi Electric Power Science 3 18,460 3,060 15,400 Wet Desulfurization Japan & Technology Co., Ltd. Shandong Sanrong Environmental 4 17,740 1,970 14,870 Wet Desulfurization Germany Engineering Co., Ltd. China Power Investment Corpora- 5 tion Yuanda Environmental Engi- 17,270 1,620 15,650 Wet Desulfurization Austria, Japan neering Co., Ltd. Jiangsu Suyuan Environmental En- 6 14,950 3,610 11,340 Wet Desulfurization China gineering Co., Ltd. Wangxin Mechanical Engineering Italy, 7 14,720 1,980 12,740 Wet Desulfurization Co., Ltd. of Zhejiang University France Zhejiang Tiandi Environmental 8 12,655 1,585 11,070 Wet Desulfurization USA Engineering Co., Ltd. 9 China Huadian (Group) Co., Ltd. 10,077 1,257 8,820 Wet Desulfurization USA, Japan Guohua Renyuan Environmental Germany, 10 9,545 600 8,945 Wet Desulfurization Engineering Co., Ltd. Japan

These enterprises have engaged in de- struction, some outstanding companies are sulfurization engineering only recently. At the capable of undertaking general contracting time of their creation, some of them were of the desulfurization engineering for ther- connected with and relied on universities and mal power units in China. On the basis of research institutes. Some were supported by domestic technology, they are able to inde- listed companies engaged in equipment pendently fulfill engineering construction manufacture for flue gas pollution control. from engineering design, equipment match- Over the past few years, by means of tech- ing, processing, installation, and commis- nology transfer, staff training abroad, foreign sioning. Guodian Technology & Environ- experts visiting China for advice, and the ment Group Co., Ltd. is an example. This is practice of desulfurization engineering con- the oldest company engaged in desulfuriza- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 145 tion in China. It has on the basis of tech- ing. Thousands of professionals are now the nology transfer, independently innovated and backbone of desulfurization engineering at developed limestone-gypsum flue gas wet China’s thermal power plants. desulfurization, and is undertaking the con- A.6.4.3 Construction of desulfurization fa- struction of 90 thermal power units. 76 flue cilities gas desulfurization facilities are included with From 2003 to 2005, construction of de- a total installed capacity of 30.27GW. By the sulfurization facilities in thermal power end of 2005, 23 thermal power units and 17 plants has been developing rapidly. Table flue gas desulfurization facilities with in- A6-3 shows China’s cumulative installed ca- stalled capacity of 6.08GW had been put in- pacity of thermal power plants and cumula- to operation. Technical and economic per- tive installed capacity of flue gas desulfuriza- formance were in compliance with the design tion facilities completed or under construc- requirements. tion from 2001 to 2005 (incomplete statis- A.6.4.2 Development of the desulfurization tics). industry Figure A6-1 shows distribution of the Key enterprises in China engaged in de- total flue gas desulfurization facilities in sulfurization now command relevant tech- thermal power plants during 10th Five-Year nology from process design to commission- Plan.

Table A6-3 Distribution of the annual total flue gas desulfurization facilities in thermal power plants during 10th Five-Year Plan. Year 2001 2002 2003 2004 2005 Total Installed Capacity of Thermal Power Plants, MW 253,000 265,547 289,771 325,000 385,000 Total Installed Capacity of Desulfurization Facilities Completed and under Construction, MW, 252,208 Wherein, “Three-Simultaneity” Projects 2,500 8,240 15,740 118,092 198,108 Projects Requested for Treatment within a Prescribed 54,100 Limit of Time Total Installed Capacity of Desulfurization Facilities Completed, MW, 46,103 Wherein, “Three-Simultaneity” Projects 525 1,385 2,100 16,065 26,456 Projects Requested for Treatment within a Prescribed 19,647 Limit of Time Total Installed Capacity of Desulfurization Facilities un- der Construction, MW, 206,105 Wherein, “Three-Simultaneity” Projects 1,975 6,855 13,540 102,027 171,652 Projects Requested for Treatment within a Prescribed 34,453 Limit of Time Expected Sulfur Dioxide Removal Capacity after the Completion of Facilities 2,034,041 Ten Thousand t / a

146 Harmonious Development through Innovation

40

35

30

) 25 4 20

(MW×10 15

10

5

0 2001 2002 2003 2004 2005 year Total installed capacity of thermal power plants Capacity of desulfurization units under construction Capacity of completed desulfurization units

Figure A6-1 Distribution of the total flue gas desulfurization facilities in thermal power plants during 10th Five-Year Plan.

Table A6-3 and Figure A6-1 indicate that plants. By the end of December 2005, the early in the 10th Five-Year Plan, desulfuriza- total installed capacity of flue gas desulfuri- tion development for thermal power plants zation facilities in thermal power plants in China was slow. Tremendous development completed and under construction in China was concentrated in 2004 and 2005. Accord- was 252,208MW. The total installed capacity ing to incomplete statistics, in 2003 total in- of flue gas desulfurization facilities com- stalled capacity of flue gas desulfurization pleted was 46,103MW accounting 12% of facilities in thermal power plants completed the total installed capacity of thermal power and under construction in China was plants that year. 15,740MW, accounting for 5.4% of the total By the end of 2005, projects completed installed capacity of thermal power plants and under construction had an installed ca- that year. By the end of 2004, total installed pacity of total limestone/gypsum flue gas capacity of flue gas desulfurization facilities desulfurization of 237,650MW. This ac- in thermal power plants completed and un- counted for about 94% of total installed ca- der construction in China was 118,092MW, pacity of desulfurization projects. Other accounting for 36.3% of the total installed technologies include desulfurization through capacity of thermal power plants. The total flue gas circulating fluidized bed, magnesium installed capacity of flue gas desulfurization oxide desulfurization, ammonia desulfuriza- facilities completed and put into operation tion, seawater desulfurization. Large and me- was 16,065MW, accounting for 4.9% of the dium-sized industrial boilers and auxiliary total installed capacity of thermal power power plants mainly adopt simplified wet Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 147 desulfurization or integration of desulfuriza- sulfurization facilities was at high speed with tion and dust-moving. over-extended capacity. This led to hidden Completed desulfurization facilities dangers in project quality. It is likely that played a substantial role. For example, in during the next two to three years these 2005, total coal-fired quantity of thermal problems will be realized. power plants in China increased 2.3 times (1) Construction for desulfurization fa- over 2000. The installed capacity of thermal cilities in most of the thermal power plants is power plants increased 1.79 times. Yet, as the too fast. Desulfurization engineering for sulfur content in coal is generally increasing, every 2 × 300MW thermal power unit in de-

SO2 emission from thermal power plants in- veloped countries usually takes 20 to 30 creased by 34%. months. In China, the majority of new ther- mal power units take 16 months or less. A.6.5 Critical issues on construction, op- Some of them take just 8 to 10 months to eration and management of flue gas meet the owners’ needs. Construction rushes desulfurization facilities in thermal power the progress of the project is rushed, which plants cuts short the construction duration. This can result in accidents due to unsatisfactory This report shows that during the 10th quality resulting from unfavorable construc- Five-Year Plan, China promulgated a series tion and management. of laws, regulations, policies and standards (2) Desulfurization engineering is com- for expediting SO2 control in thermal power plex and systematic. Many companies en- plants. This accelerated the construction of gaged in desulfurization spend a lot of cap- flue gas desulfurization facilities in thermal ital on desulfurization technology transfer, power plants and provided China with im- focusing on purchasing advanced engineer- proved SO2 control. But, SO2 emissions con- ing experience and design skills from de- tinued to rise, due to hidden, deep-seated veloped countries. However, many other problems. The successes veiled the problems companies engaged in desulfurization have associated with desulfurization engineering. not yet acquired the technology of desulfu- Problems included market, construction, rization. management, and quality. (3) Performance and reliability of do- A.6.5.1 Excessive growth of construction of mestic equipment is far from satisfactory. desulfurization facilities, and uncovered Currently, absorber blenders, booster fans, hidden danger to project quality mist eliminators, and GHH frequently fail. There was a massive growth in the con- A.6.5.2 Few operation unit and improper struction of thermal power plants during the environmental supervision 10th Five-Year Plan. Construction of desul- At the end of 2005, there were furization facilities reached 252GWs within 46,100MW flue gas desulfurization projects just two to three years. This rate was unique that had been completed or put into opera- throughout the world. Construction of de- tion, accounting for 18% of the flue gas de- 148 Harmonious Development through Innovation sulfurization projects in thermal power plants. (3) The desulfurization facilities that This accounted for 12% of the total installed have been put into operation are not in con- capacity of thermal power plants. The in- tinuous operation; units stop from time to stalled capacity that meets the following re- time. quirements is less than 20,000MW. After the grid price for the newly built (1) Environmental supervision values units is determined, some power plants stop environment assessment but downplays using their desulfurization facilities. This is processes and follow-up supervision. due to the inadequate environmental super- Desulfurization facilities, meeting the vision measures and the wish to reduce elec- requirements for newly-built units and tricity costs. Some power plants do not use ‘Three-Simultaneity’ requirements, in practice qualified desulfurization agents according to do not realize the required simultaneous de- the design requirements, yet still enjoy de- sign, construction and operation. The facili- sulfurization price support. Some power ties may not achieve the requirements of en- plants do not develop the necessary opera- vironment assessment and design after being tion and maintenance management specifica- put into operation. They may not be able to tions for the desulfurization facilities in ac- carry out continuous and stable operation. cordance with regulations. Some local envi- Furthermore, the flue gas desulfurization fa- ronmental protection departments do not cilities required by some projects to meet a conduct the supervision, inspection, and deadline are not constructed in accordance monitoring of the pollution treatment facili- with regulations. ties and pollution discharge in accordance (2) The projects that have been com- with the regulations. Inadequate operation of pleted are not accepted and put into use in power plants is common. accordance with the regulations. A.6.5.3 The lack of effective policy meas- For some power plants, the desulfuriza- ures and means of the environmental su- tion facilities that have been used for gene- pervision rating electricity for several months and up to (1) Imperfect policy and standard systems. two years have yet not been certified under Although policies and standards on su- environmental protection standards; some pervision and management have been is- power plants, even when their desulfurization sued or are being developed by the central facilities are completed and are in normal government and local government, they are operation, do not immediately apply for this still inadequate. Supervision and manage- certification. The length of trial operations is ment policies on desulfurization facilities extended in order to avoid normal supervi- that have been put into operation are not sion and management procedures. Local en- carried out. There is a lack of construction vironmental protection departments may not standards, product standards, facility per- conduct the standards tests, resulting in de- formance evaluation, and operation stan- sulfurization projects that cannot be imme- dards. diately put into operation. (2) The on-line smoke monitoring devic- Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 149 es fail to perform and the monitoring of de- both energy saving and desulfurization. This sulfurization facilities has been improper. even lowers the incentive for desulfurization The on-line smoke monitoring devices to a certain extent. now have been included in desulfurization According to surveys, the grid price of facilities of many power plants. The failure desulfurization facilities is usually approved rate of desulfurization facilities is high and by the provincial departments of commodity the data display of some instruments, such as price and paid for by the power grid compa- smoke and dust devices, is inaccurate. Some nies. This reflects the policy of subsidy to even do not display at all. They do not show desulfurization power price. The units with the actual operation of the desulfurization desulfurization facilities, regardless of their facilities in cities where surveys have been operation and no matter whether they are conducted, with the exception of Taiyuan, operated, enjoy the desulfurization price sub- Jinan, Yangzhou and a few other cities. Im- sidies. Due to the poor supervision on the plementing real-time monitoring on the run- running of desulfurization facilities, the local ning and the running effectiveness of the environmental protection departments basi- desulfurization facilities is difficult. cally have no ability to intervene on price (3) Access to grid priority for the desul- subsidies. Thus, they do not enforce the pol- furization price subsidy mechanisms still icy of desulfurization electricity price subsidy. need improvement and implementation. This directly impacts on the initiative of the After separating the factory from the power plant on operating desulfurization fa- power system grid, the power grid of each cilities. area usually works in the following two ways. First, the principle of fair treatment to load A.6.6 Recommendations rate, that is, the load rates of each power plant are basically the same. The power grid The control objective that total sulfur of each area usually selects the lowest-cost dioxide emissions until 2010 should be re- electricity. For the units with desulfurization duced by 10%, in accordance with the re- facilities, newly built large-capacity units, quirements of the 11th Five-Year Plan, re- feature lower coal consumption per unit quires coordination between energy supply power generation. Units without desulfuriza- and environmental protection. This requires tion facilities have a lower electricity price. comprehensive supervision of the laws and Therefore, the desulfurization units that regulations. It requires strengthening super- consume less coal actually have a lower vision and control to ensure that economic priority of access to the grid. Existing units policies, market mechanisms, and technolo- without desulfurization are used for generat- gical and industrial development take place. ing power at full capacity. Units with desulfu- Control plans on SO2 and acid rain for rization facilities only account for 60%-70% old or new thermal power plants need to of the load and become the peak-load units. recognize that acid rain pollution crosses re- Power grid dispatching is unfavorable to gional boundaries. The target is to reduce 150 Harmonious Development through Innovation processes and products that are high-energy facilities of thermal power plants. consumption and create high levels of pollu- (2) Establishing a system on the supervi- tion. sion and monitoring by environmental pro- The existing legal system needs to be tection departments for the construction and strengthened so as to increase the cost of running of the desulfurization facilities of behavior that violates the laws. Strong super- thermal power plants. vision over the construction and the opera- (3) Establishing an information disclo- tion of desulfurization facilities needs to be sure system for construction and operation implemented. The ways to do this are by: of desulfurization facilities of thermal power (1) Establishing a system of regular re- plants. porting for the running of desulfurization

150 Harmonious Development through Innovation

Appendix 7 Vehicle Pollution Control

Since the 1990s, the number of vehicles (1) City and Traffic Planning in China has increased dramatically: In 2006, In city planning, the traffic produced or China’s vehicle population was nearly 40 mil- attracted by land use varies widely. Places of lion. Newly produced vehicles in China were residential sub-districts, schools, departments up to 7.28 million, an increase of 27.5% over and business centers, etc. are important traf- that in 2005. In 2007, a further 8.5 million fic nodes with relatively heavy traffic. The new vehicles were produced. China has be- spatial co-location of these functional come the third largest vehicle producing and sub-districts determines the communication the second biggest vehicle consuming coun- demand of urban residents. For example, the try in the world. China is the largest potential city distribution in Beijing is of one-centered vehicle market in the world. type, centralized by the four districts of Though China is strengthening vehicle Dongcheng, Xicheng, Xuanwu and Chong- emission standards to be stricter, approach- wen. Around these districts are many go- ing that of developed countries, vehicle pro- vernmental authorities, schools, and huge ducing technology in China is less advanced. business centers. However, large areas of There are lower vehicle fuel quality and residential sub-districts have been con- shorter lifetimes of emission control devices. structed around the 3rd Ring, the 4th Ring, The emission of vehicle pollutants are and even the 5th Ring. In this case, pendu- growing rapidly, because of rapid growth in lum-like traffic flow between the center and the number of vehicles and inadequate su- the periphery is caused by daily commuting. pervision of emissions. Research shows that This results in an overload of road traffic the average proportion of CO, NOx, hydro- connecting the center area and the periphery, carbons, and particulate matter released from with problems of frequent traffic jams. vehicles in big cities such as Beijing, Shanghai, Rational planning of the transportation and Guangzhou is the source of 80%, 75%, system is important for a city with huge and 68% of the total atmospheric pollutants amounts of daily traffic. The transport ca- due to human activities. pacity and the running velocity of each traf- Since 1999, China has been strengthen- fic pattern differs greatly. The transport ca- ing vehicle pollution control continuously. pacity of metro and of other public trans- This includes city and traffic planning, in-use portation is 48 times and 20 times as much as vehicle emission control, new vehicle emis- that of a car. The emissions per capita is less sion control, the improvement of vehicle than 1/20 of that from cars. In 2000, public fuel quality, clean automobile technology, and transportation carried 27% of Beijing’s daily economic measures. commuters. Subway and light rail carried 7%

Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 151 of this amount. The proportion of public controls on frequently used cars are also ef- transportation in Tokyo, New York and Paris fective methods for controlling in-use vehicle are 64%, 44% and 35% respectively. The emissions. The particulate emission from an current traffic commuting structure is aging bus built before China Phase I was in- putting great pressure on Beijing’s land troduced is 8 times more than that from a transportation. Serious traffic jams force ve- China Phase III bus; the NOx emission is 3.5 hicles into idling most of the time. This in times more. Emissions from a taxi might be turn increases the emission of pollutants. 9.5 times those from a similar private car. Besides inner city subway and light rail Before the 2008 Olympic Games, almost all transit, China is developing inter-city railway of the aging buses and taxis were eliminated transportation. The Jing-Jin High-speed and updated ones introduced. These new ve- Railway has just opened. The construction hicles met the emission standards of China of the Jing-Hu High-speed Railway is un- Phase III and of China Phase IV. Some nat- derway, as are the regional fast railway net- ural gas, hybrid, pure electric vehicles with works of the Pearl Delta and the Yangtze extremely low emission levels were also in- Delta. Track traffic and railway transporta- troduced. In order to reduce vehicle emission tion are playing, and will play, a major role in pollution, some aging buses were eliminated China’s future traffic patterns. The traffic ahead of schedule in Tianjin, Guangzhou, pattern chosen by China will reduce resi- and other cities. dents’ dependence on cars in the future. This Another measure is the transformation is one of the most significant ways to reduce of in-use vehicles. Around 1999, transforma- vehicle energy consumption and pollution tion was conducted on a number of carbu- emission. retor cars, adding electronic controlled air (2) Emission Control of In-use Vehicles supply and three-way catalytic converters The Inspection/Maintenance Program (TWC). Emissions after this transformation (I/M Program) is an effective method to re- were improved, but durability was low. These duce in-use vehicle emissions. From 1999, systems are now largely non-functioning. the Two-speed Idle Test was implemented in One of the active areas now is the transfor- Beijing. Conducting annual emissions inspec- mation of diesel vehicles. The main tech- tions of in-use vehicles has helped to control nology is the installation of diesel oxidation CO and hydrocarbon emissions from in-use catalysts or diesel particle filters. Volunteer vehicles. Since 2003, the annual emissions transformation of diesel vehicles is being inspection of in-use vehicles adopted the promoted in the United States. A pilot Acceleration Simulation Mode Test (ASM), project has started for the transformation of which does a better job of reflecting real school buses. The cost of adding the diesel running status than the Idle Test. It helps to oxidation catalyst is about USD 600~2,000. exert stricter control on NOx emissions. The requirement for sulfur content in diesel Accelerating the elimination of aging is less than 500 ppm, reducing particulates by automobiles and placing stricter emissions about 20%, reducing hydrocarbons by 50%,

152 Harmonious Development through Innovation and reducing CO by 40%. The cost of add- and Gas Fuelled Positive Ignition Engines of Ve- ing diesel particle filters is about USD hicles (China Phase Ⅲ、Ⅳ、Ⅴ), was issued. 5,000~10,000. The requirement for sulfur China’s Phase III standard, implemented in content in diesel will become less than 15 2007, is the same as the 2000 vehicle emis- ppm, further reducing particulates, hydro- sions control standard in Europe. carbons and CO by about 60% to 90%. A Comparing limits in emission standards pilot project is now being carried out in Bei- at each stage, it is found that, whether gaso- jing to transform diesel vehicles. line cars or heavy duty vehicles, the emission (3) New Vehicle Emission Control of each regular pollutant has been reduced The main method of controlling emis- substantially since the implementation of the sions from new vehicles is to impose much China Phase I standard. The emission limits stricter emission standards. of hydrocarbons, CO, and NOx for gas ve- Vehicle exhaust pollution control in hicles at China Phase IV are less than 10% China relies mainly on administrative rules of that before China Phase I. As for implemented through governmental control. heavy-duty vehicles, the emission limits of

Since the 1980s, China has been introducing NOx and of particulates are about 10% of vehicle emission standards. Modification of that before China Phase I. the old standard began in 1993, when the Gradually, the development of stricter limit of emissions was still very high. In 1999, vehicle emission standards has pushed for- GB 14761-1999, Limits and Measurement Me- ward progress on applying engine technology thods for Vehicle Exhaust Pollutants, was issued and exhaust cleaning technology. In order to by China, followed by GB 17691-2001, Limits meet the China Phase I and II emission and Measurement Method of Exhaust Emissions standards, producers of light duty vehicles from Compression-Ignited (C.I.) Engines for Ve- had to adapt closed-loop electronic fuel in- hicles. This series of new standards for vehicle jection systems (EFI) into engines and had to emissions fundamentally adapted the Euro- add TWC on-off gas pipes; the emission pean Emission Control System. In 2000, the concentrations of hydrocarbons, CO, and

China Phase I vehicle emissions standard was NOx all have been reduced. Producers of implemented. This was equivalent to older heavy-duty vehicles needed to apply EFI and vehicle emission control levels in Europe. In boost pressure and inter-cooling technology 2004, the China Phase II vehicle emission to the engines. To meet emission standards standard was introduced. This was com- following China Phase III, producers of light mensurate with the 1996 vehicle emission duty vehicles needed to equip vehicles with control level of Europe. In 2005, two stan- on-board diagnosis devices (OBD). Some dards of GB 18352.3-2005, Limits and Mea- had to adopt double-stage TWC. Emission surement Methods for Emissions from Light-duty standards following China Phase IV will Vehicles(China Phase ⅢⅣ , ), and GB force producers of heavy duty engines to

17691-2005, Limits and Measurement Methods adopt NOx selective catalytic reduction for Exhaust Pollutants from Compression Ignition (SCR), DPF, and OBD.

Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 153

Moreover, the requirement of durability damage to human health, especially children’s of these technologies has increased. The re- health. According to a news report, the con- quirement for durability in Phase I and II tent of lead in children’s blood in Shanghai was 80,000 km, while that in Phase IV is has been reduced by 90% since the elimina- 100,000 km. Extensive application of these tion of leaded gasoline. technologies as well as improvement of se- (5) Clean Automobile Technology curity and durability is a basic guarantee to Clean automobiles not only meet current reduce unit vehicle emissions. emission standards, but will meet stricter (4) Improvement of Fuel Quality ones as they use different fuels.

The purpose of improving fuel quality The emissions of particulates and NOx was not only to reduce the pollutants directly from natural gas vehicles is sharply reduced produced in the process of combustion, but compared to diesel vehicles. There is also less also in ensuring the regular functioning of emission of hazardous material and ozone after-treatment technology. While imposing precursors. Since 2000, natural gas vehicles China Phase I vehicle emission standards, the have been promoted actively in many parts Chinese government promulgated two stan- of China. Beijing and Sichuan are most active. dards of GB17930－1999, Unleaded Gasoline In Beijing, natural gas vehicles have mainly for Vehicles and GB252－2000 Light Diesel been introduced in public traffic vehicles, re- Fuel. The limit of sulfur content in gas was placing aging diesel ones. Most natural gas reduced from 1,500 ppm in the years before public transportation vehicles use com- 2000 to 800 ppm. The limit of sulfur con- pressed natural gas technology (CNG). A tent in diesel was reduced from 10,000 ppm number of them use liquefied natural gas to 2000 ppm. Implementation of China technology (LNG). Beijing already has more Phase II and III vehicle emission standards than 3000 natural gas public buses in opera- saw limits of sulfur content in gasoline tion, more than any other city in the world. gradually reduced to 500 ppm and then to This greatly reduces exhaust particulate 150 ppm. The limit of sulfur content in di- emission from public buses. In Sichuan, the esel was reduced to 500 ppm and then to wide use of natural gas vehicles is not only 350 ppm. The content of elements like ole- due to local promotion by governmental fin and aromatics in gasoline was also re- policy, but also because of the cheap price of duced. natural gas there. Even some private vehicle China also enhanced the control of ha- owners have their vehicles transformed from zardous matters in vehicle fuel, requiring gasoline operation to natural gas. poisonous and harmful elements to be re- Liquefied petroleum gas is a commonly duced to lessen their impact on human used alternative fuel for vehicles. Before the health. Within less than 5 years, China suc- emission control of gasoline vehicles was cessfully introduced unleaded gasoline nation made stricter, liquefied petroleum gas ve- wide. China’s lead emission into the air was hicles were more effective in reducing pollu- reduced by 1,500 tons annually, reducing tion emission. However, as the technology

154 Harmonious Development through Innovation controlling gasoline vehicle emissions has RMB 400,000 higher. Further assessment improved, liquefied petroleum gas vehicles needs to be conducted to determine its ser- and gasoline vehicles of the same technolo- vice life. gical level have similar emissions. In hybrid vehicles, the battery Blending of a small amount of ethanol charge/discharge system is added to the in- in gasoline does not have any influence on ternal-combustion engine. The energy con- the engine and retures transformation of the sumed by braking is stored and reused, re- engine is required to use small amounts of ducing net energy consumption and emis- ethanol. However, once the proportion of sions. The fuel cell vehicle is also a zero ethanol is more than 20%, adjustments to the emission vehicle at the end of the process. engine are needed. Many new vehicles in the This is still in the future, as the cost is still United States are designed to be flexible fuel too high. In Beijing, there are a number of vehicles in the manufacturing process. They fuel cell buses in pilot operation. are able to deal with ethanol gasoline in The cost of clean vehicle technology is proportions ranging from 0% to 85%. Cur- generally higher than the technologies widely rently, in China, ethanol in gasoline up to applied throughout the market. In this case, 10% can be used directly in present gasoline it is difficult to compete economically. Envi- vehicles. Under some conditions, it is also ronmental and social benefit based policy by helpful for combustion within the engine and the government is needed to promote the becomes a better choice. development of cleaner vehicle technology. Considering the end emission standard, The most direct way is to provide subsidies, pure electric vehicles are considered zero such as reduction of excise tax for clean ve- emission vehicles. Yet, the problem of bat- hicles and reimbursement to public trans- tery capacity does not have a good solution portation companies purchasing clean ve- and their application is rather limited. At hicles. These have been already applied in present, electric vehicles are mostly used in China. The indirect way is to provide certain low-speed transportation vehicles over short convenience for operation, such as dedicated distances, such as campus shuttle buses, golf lanes and parking spaces for clean vehicles, carts. Development of pure electric vehicles etc. These may be considered as auxiliary will depend on break-throughs in battery measures in the future. technology. During the 2008 Olympic (6) Economic Measures Games, Beijing launched 50 pure electric During the whole process from the pur- buses equipped with Li-ion batteries into chase of a new vehicle to the scrapping of an the public transportation system. Compared old vehicle, the active role of economic in- with the former technology of lead-acid centive measures can be influential. In 2000, batteries, this is a great improvement. Op- the Ministry of Finance of the PRC and the erational range reaches 200 km. This is able State Administration of Taxation promul- to meet a public bus’s demand of one day’s gated a document requiring that 30% of continuous operation. However, the cost is excise tax be exempted for those buying light

Chapter Ⅲ Building an Environmentally Friendly Society through Innovation: Challenges and Choices 155 duty vehicles meeting the China Phase II vehicles. The use of yellow and green vehicle standards before 2003, when the China stickers in Beijing has been effective. This is Phase I standards were in force. The 30% now starting to be used in other cities like excise tax reduction equals 5% of the general Shenzhen. price of such vehicles. This measure greatly Generally speaking, since the end of the advanced the sales of Phase II cars, becom- 1990s, China has made notable progress in ing a very successful case of an economic the field of vehicle pollution control. Some incentive measure. efforts came from independent innovation Regarding in-use vehicles, transformation specifically adapted to China’s situation. For subsidies could be established. In order to example, there is a policy that enables some alleviate traffic pressure in busy areas and to work units to construct staff buildings near reduce vehicle emission, local parking fees the work place. This type of city planning could be elevated or congestion fees could be can greatly reduce traffic flow from daily adopted. Such measures have already had commuting. This is helpful for energy saving good effect in big cities like Tokyo, New and for emission reduction. At the same time, York, London, and Singapore. Now, Beijing China is developing inner-city public trans- is considering adopting them. portation and inter-city railway transporta- As for aging vehicles with high emission tion. This important approach will be re- levels, government might also provide finan- flected in the future, in rationally guiding the cial subsidies to encourage earlier elimination. development of China’s traffic patterns. We The subsidy in Beijing for advanced elimina- believe that with ten more years of effort tion of high emission vehicles is RMB 15,000 and development, China’s work in vehicle for freight trucks and RMB 25,000 for pas- pollution control can achieve more indepen- senger cars. Environmental vehicle stickers dent, innovative approaches that would be could also be utilized to enhance manage- suitable for developing countries and would ment of high emission vehicles and to en- empower China to have more international courage the operation of ultra-low emission influence.

156 Harmonious Development through Innovation

Chapter Ⅳ

Environment and Health Management System and Policy

Framework1

forward a proposal for establishing an effec- Preface tive environment and health management system and a policy framework to the Chi- Environmental and health problems are nese government in light of domestic and linked and complex, with two sides, broad foreign experience and the Task Force results. and narrow. The latter is the major focus of The chapter contains five parts: analysis of this study. It is mainly about studying and the status quo, international experience, policy probing the interrelationship between the framework and legal systems, management impact of the new environmental factors systems, and policy proposals. produced by human activities and changes of such factors on health. It is studying the rules 4.1 Status Quo of Chinese Envi- and problems existing between health and ronment and Health Problems environment, while probing ways and meas- ures to reduce or eliminate the adverse im- Since the 1980s, when China imple- pact of changes in environmental factors on mented the reform and opening-up policy, human health. China’s social economy has developed with The main aim of this chapter is to define high momentum. Nevertheless, China’s en- ways to build up China’s environment and vironmental and resource issues are increa- health management system and policy singly prominent. The environmental pollu- framework, to identify a policy system for tion issue in China is serious, is of broad China to establish an environment pollution concern, and has been getting worse during compensation system according to China’s the first part of the new century. But, with actual needs in implementing effective envi- the effort of governments at various levels ronment and health management, and to and the relevant departments, the growth provide examples of relevant international rate of the pollution is slowing, and at least experience. Finally, the Task Force will put for some targeted pollutants, is lower than

1 This Chaper is based on the research analysis of the Task Force on Environment and Health. Task Force Co-chairs: Guo Xinbiao, Kenji Ikkatai; Task Force Members: Feng Dongfang, Wang Canfa, Xu Shufan, Wang Xuening, Imura Hidefumi, Linda Greer, Carlos Dora, Kristin Aunan.

Chapter Ⅳ Environment and Health Management System and Policy Framework 157 that of the economic growth rate. In some some big cities. areas, the pollution level has even stabilized. At present, indoor air pollution caused by decoration and furnishing has become 4.1.1 The situation of the environmental common in cities and relatively developed pollution in China towns. Additionally, much attention has been drawn to the sanitation and safety of central 4.1.1.1 Air pollution remains serious, air-conditioning system in the cities. threatening human health In the rural area of China, 80% of the According to the 2006 Report on the rural households use solid fuels as the ma- State of Environment in China, only 24 cities jor supply of energy. These fuels may lead have reached Grade I Air Quality Standard, to serious indoor air pollution. Coal burn- accounting for 4.3% of the total; 159 cities ing contributes much SO2 pollution and met Grade III Air Quality Standard, ac- the incomplete combustion of biomass fu- counting for 28.5%; 51 cities remained lower els releases particulate matter, carbon mo- than Grade III Air Quality Standard, ac- noxide, polycyclic aromatic hydrocarbons, counting for 9.1%. It deserves considerable sulphur dioxide, nitrogen oxides, aldehyde attention that as much as 37.6% of the cities and ketone compounds, and other hazard- under air quality monitoring failed to meet ous substances. the national Grade II Air Quality Standard, 4.1.1.2 The drinking water situation is se- and some cities are still plagued with serious rious and pollution accidents frequently air pollution. occur, both of which jeopardize human At this moment, the air pollution in China health has the following characteristics: (1) It is shown in the 2006 Report of State Coal-burning air pollution prevails in prov- of Environment in China that, among 408 inces abundant in coal and in northern areas, monitoring sections of 197 rivers in seven oil-burning air pollution is commonly seen systems, the monitoring sections which are at in developed areas and in southern cities, Grade I-III Water Quality Standard, Grade and compound air pollution with both IV Water Quality Standard, and Grade V coal-burning and oil-burning sources has Water Quality Standard or worse accounted emerged in many large and middle sized ci- for 46%, 28%, and 26% of monitoring sec- ties. In different seasons of different areas, tions, respectively. Among 27 lakes or reser- the pollution sources vary. (2) Air pollution voirs under the key national monitoring, the in mega-cities and super large-scale cities, is lakes or reservoirs which met Grade I-III significantly worse than that in middle- and Water Quality Standard, Grade IV Water smaller-sized cities. especially in mega-cities Quality Standard, and Grade V Water Quality with populations of more than 1 million. Standard or worse constituted 29%, 23%, (3) Particulates in the atmosphere are the and 48%, respectively. main pollutant, followed by sulphur dioxide. In rural areas of China, people use

The NOx pollution level is on the rise in ground water as the main water supply. A na-

158 Harmonious Development through Innovation tionwide survey on rural drinking water and factors for soil pollution and largely accounts environmental sanitation was conducted dur- for the adverse effect of soil pollution on ing August 2006 to November 2007 and the health. Irrigation with urban domestic results showed that 44.36% of samples failed wastewater may cause pollution through the to meet basic hygienic safety standards. The spread of pathogenic microorganisms in the surface water failure rate was 40.44%, the soil. Organic wastewater from industries such groundwater failure rate was 45.94%, and the as metallic ore mining and dressing, metal centralized water supply claimed a failure rate smelting and processing, petrochemical of 40.83%. For the past three years, the water processing, printing and dyeing, pharma- plants financed by the Central Government ceuticals, and chemical manufacturing are have claimed a failure rate of 38.99% and the most dangerous to the soil polluted by in- decentralized water supply has a failure rate of dustrial wastewater irrigation. The pollution 47.73%. The main factor for the failure rate is mainly located in irrigated farmland areas, of rural drinking water is the over standard of with cadmium and lead contained in the irri- the microorganism index; the low disinfection gation water injuring the health of nearby rate of the rural drinking water is the main dwellers. Irrigation with water contaminated reason for these high values.1 by petroleum wastes results in the accumula- 4.1.1.3 The soil environmental pollution tion of polycyclic aromatic hydrocarbon cannot be neglected and the potential harm (PAH) carcinogens such as BaP, which also is huge pollutes the ground water. Furthermore, im- According to the incomplete statistics, at proper treatment of industrial solid wastes the end of 2006, polluted, cultivated land na- and the abuse of pesticides and chemical fer- tionwide totals about 1 million ha, the culti- tilizers are two main factors responsible for vated land polluted by waste water irrigation the heavy pollution of the soil, sometimes in is about 2.17 million ha, and the cultivated combination with heavy metals such as land that is occupied or damaged by solid cadmium, mercury, lead, chromium, and waste is 133,000 ha, in all, more than thallium. This problem deserves much atten- one-tenth of all cultivated land. The majority tion. of this polluted, cultivated land is located in economically developed areas. It is estimated 4.1.2 Health damage induced by present that grain polluted by heavy metals in China Chinese environmental pollution reaches as much as 12 million tons each year, triggering direct economic losses that sur- 4.1.2.1 Health damage induced by air pol- passed RMB 20 billion.2 lution Wastewater irrigation is one of the key Among the many air pollutants, the big-

1 Data source: Website of the Ministry of Health of PRC http://www.moh.gov.cn/sofpro/cms/previewjspfile/mohbgt/ cms_0000000000000000144_tpl.jsp?requestCode=27879&CategoryID=4811 2 Data source: Website of the Ministry of Environmental Protection of PRC http://www.zhb.gov.cn/natu/yjsp/qgtrxzdc/ 200612/t20061231_99195.htm

Chapter Ⅳ Environment and Health Management System and Policy Framework 159 gest threat to health damage comes from the indoor air pollution caused by decora- particulate matter, SO2, and NOx. A survey tions in offices and its health effects, office on urban air pollution and resident mortality decoration with bad materials may produce in 26 cities was conducted1 and the results some adverse effects on the health of the show that: (1) Coal-smoke pollution caused working staffs, and the degree of the adverse by coal burning is the leading factor of urban effect is positively correlated with the con- air pollution in China; (2) Malignant tumors, centration of formaldehyde, ammonia and especially lung cancer, is the main cause of benzene in the office.3 The indoor air pollu- death for urban residents; (3) The distribu- tion created by the combustion of fuels in tion of lung cancer mortality is correlated rural areas has some major effects on human with the degree of air pollution in 26 cities; health, especially on the respiratory system. (4) The severity of air pollution resulting The air pollution is closely related to the ail- from industrialization and urbanization cor- ments of respiratory systems and the lower- relates with the distribution of lung cancer ing of pulmonary function of dwellers. mortality. 4.1.2.2 Health damage induced by polluted The meta-analysis of the relationship drinking water between the airborne fine particulate pollu- At present, there still remain waterborne tion and the daily mortality rate in recent diseases caused by biotic pollution. However, years shows that every increase of 100ìg/m3 water biological pollution remains one of the of the air PM2.5 fine particulate concentra- main factors that affect human health at tion is coupled with a mortality increase of present and for quite a long time in the fu- 12.07%2. The research work in Beijing, ture, especially in the extensive central and Taiyuan and Shanghai also indicates that the western rural areas where infectious diseases air pollution, in particular the suspended par- remain one of the main factors leading to the ticulate pollution, is linked with the incidence death of children under age 5. and mortality rate of cardiovascular diseases. Due to the discharge of industrial, agri- Moreover, it should not be ignored that even cultural, and domestic wastewater, the total low concentration of air pollutants can have nitrogen and total phosphorus have exceeded a chronic health influence on human bodies. water’s environmental capacity, leading to The health damage created by the air lake eutrophication in China, especially in pollution of formaldehyde- and ben- Taihu Lake, Chaohu Lake and Dianchi Lake. zene-series pollutants, including benzene, to- Besides affecting the urban water supply, eu- luene and xylene, which is related to indoor trophication also results in algal blooms, decorations such as paints and furniture fi- leading to the release of algae toxins. When nishes, has drawn increasing levels of con- water in such lakes is withdrawn as drinking cern from people. According to a survey on water, after chlorination the algae organic

1 Review and Prospect of Environment and Health, edited by Geng Jingzhong 2 Journal of Environment and Health, Issue No 4 of 2005 3 Journal of Environment and Health, Issue No 5 of 2006

160 Harmonious Development through Innovation

matter may react with the chlorine elements areas are far higher than that in control areas. to produce potentially carcinogenic and mu- The health damage posed by heavy metal tagenic disinfection byproducts. This poses a pollution in a soil is also formidable. Ac- potential danger for those people drinking cording to the survey on the growth and de- the water. velopment of children that are exposed to In recent years, people have paid more the cadmium pollution, in respects of height, attention to the influences of chronic water weight, chest circumference, vital capacity pollutants on physical health. Taking persis- and other indexes, the growth and the de- tent organic pollutants (POPs) as example, velopment of children in the polluted areas because they are slow to degrade, their effect lags behind that of the control area, indicat- on human health has become a major study ing the adverse effect of environmental subject in the global environmental sanitation cadmium pollution1. According to the survey safety and food sanitation safety systems. on the reproductive health of reproductive Dioxin and furan discharged from produc- aged women exposed to cadmium pollution, tion processes and domestic burning widely among the reproductive aged women in the exist. Research shows that many POPs can polluted areas, the rate of sterility in married act as endocrine disrupters, producing vari- women is significantly higher than those in ous toxic effects by affecting the structure the non-polluted area and the rate of early and function of the body’s endocrine system. birth and stillbirth in married women is also The number of chemicals that have been significantly higher than those in the proved or suspected as environmental endo- non-polluted area2. The standardized mortal- crine disruptors exceeds 150 types. China ity of the group that suffered from malignant started relatively late in researching on this tumors, respiratory disease, digestive disease topic and still lacks big samples and thorough and neonatal diseases in the polluted areas is epidemiology research data. Health damage higher than that in the non-polluted area. related to POPs represents one of the pend- ing environment and health issues for China. 4.1.3 Characteristics of environmental 4.1.2.3 Health damage induced by polluted pollution and health damage in China soil The soil pollution caused by urban The imbalance of regional economic wastewater irrigation may produce various development and geographic diversity results pathogens, that cause a number of digestive in the current conditions in which both tradi- symptoms that affect human health. The tional and modern environment and health salmonella and ascarid infection rate, and in- problems coexist. The unfavorable impact of fant acute diarrhea incidence and its mortality environmental pollution on residents’ health rate among residents in wastewater irrigation is gradually becoming known. In some re-

1 Journal of Environment and Health, Issue No 1 of 1995 2 Chinese Journal of Epidemiology, Issue No. 10 of 2004

Chapter Ⅳ Environment and Health Management System and Policy Framework 161 gions, environmental pollution has led to se- point source pollution and the area source vere health damage. pollution coexist, domestic pollution and in- As the government departments at all dustrial discharge overlap, and traditional and levels attach more importance to the envi- newly emerged pollution sources interact. ronmental pollution problems, an increasing This environmental pollution is more com- investment is being made in the control of plex than ever before and various environ- environmental pollution. In terms of the lo- mental media are polluted. All this makes cal environment, some polluted regions have people more vulnerable to the pollutants via witnessed an improved environment and these various environmental media, leading controlled the undesirable impacts of envi- to diversification of damage to human ronmental pollution on physical health. As health. environmental pollutants have various ways (3) Notable urban-rural differences exist. of access to human bodies and have a In urban areas, air pollution causes great long-term influence, and as there are serious damage to human health; in rural areas, interactive effects between pollution types in drinking water pollution and insufficient wa- peoples’ bodies, populations face compli- ter treatment causes more damage to human cated health effects related to environmental health and also triggers soil pollution. Intes- pollution. This complexity results in much tinal infectious diseases and tumors are two difficulty for research and management work. health problems induced by water pollution Generally speaking, the environment and with incidence being on the rise. In recent health issues in China have the following years, the high incidence of the digestive characteristics: system tumors in some areas is, to some ex- (1) A high degree of contamination. The tent, correlated to some extent with the air and water environment in some areas of drinking water pollution. China are seriously polluted: At this moment, (4) Both traditional pollution and the the quality of air and water generally has not newly emerged pollution are severe. Since the reached the national Grade II standard. Fur- 1990s, China not only has failed to bring the thermore, the national environmental stan- problems of environmental pollution under dards in China are far lower than in some effective control, but also has reported a de- other countries and regions. teriorating trend. The status of environmen- (2) A large population is exposed to a tal pollution is quite serious. The emergence broad range of pollutants. Preliminary esti- of new products and new industries also mates suggest that more than 150 million leads to the appearance of new compounds, people living in cities at the prefecture level and the newly emerged pollution produced and above in China are living in seriously by the production and use of new chemicals polluted air environments.1 Environmental intertwines with traditional pollution to form pollution has formed a situation where the compounded pollution, which further con-

1 In 2006, the total population of the cities at prefecture level nationwide was 368 million with the mobile population exclusive. And if the population at county level cities and the mobile population are counted in, it is estimated that nearly a population of 200 million are exposed to the heavily polluted air environment.

162 Harmonious Development through Innovation founds environment and health issues. Now, sanitation. At this time, the Ministry of we are confronted with more complicated Health, the disease prevention and control health issues. centers at different levels, and hospitals have developed a set of public health and disease 4.2 Analysis of the Problems and prevention and control systems so as to Requirements of Chinese Envi- monitor and deal with the health problems ronment and Health Management connected to environmental pollution. The environment and health work of the Ministry of Environmental Protection also is 4.2.1 Status quo of Chinese environment developing rapidly. In January 2005, the for- and health management mer State Environmental Protection Admin- istration established the special Environment At present, the environment and health and Health Monitoring Office in the De- issue in China is quite outstanding. In recent partment of Science, Technology, and Stan- years, the health damage caused by environ- dards to take charge of the administration mental pollution has shown an annual in- and guidance of the environment and health crease and has adversely affected the social work in China. Currently, it places emphasis stability, development, and construction of a on carrying out basic surveys of environ- harmonious society. Currently, the environ- ment and health, on the construction of a mental problem is well-recognized as serious basic legal system, on the management and by Chinese government departments. Chi- assessment of technical specifications, and nese environment and health management is on the study and establishment of standards, being reinforced gradually based on previous as well as other projects. Yet, the environ- work. Yet, its foundation is still rather weak mental protection departments at the pro- and the related scientific research and tech- vincial level or below have not had corres- nical support systems are less than well es- ponding agencies in charge of environment tablished. Thus, environment and health and health management. management, as a whole, remains at a low Presently, China’s environmental moni- level. toring ground network system centering on 4.2.1.1 Systems and mechanisms of Chinese the state control network monitoring station environment and health management is at a preliminary stage. In addition, thanks work to the continuous development for over The Health Supervision Bureau and the three decades, China has created a Disease Control and Prevention Bureau are well-established, urban air quality automatic in charge of the environment and health monitoring system and a surface water au- management of the Ministry of Health. tomatic monitoring system. As such, the au- They focus on drinking water sanitation in tomatic monitoring capacity of pollution urban and rural areas, the administration of sources has experienced rapid growth. products related to water, and public place Environment and health management

Chapter Ⅳ Environment and Health Management System and Policy Framework 163 involves many other departments. To solve laying a sound foundation for environment this complicated issue and complete various and health management work. arduous tasks, China must strengthen com- With regard to scientific research munication and cooperation among various achievements, the health and epidemic pre- departments. vention stations, scientific research institutes, To this end, the State Environmental and colleges and universities in various re- Protection Administration (SEPA) and the gions have conducted many investigations Ministry of Health jointly established the into the relationship between environment Cooperation Mechanism of the State Envi- and health. For example, since 2000, the ronmental Protection Administration and the quantitative study of the effect of Ministry of Health on Environment and coal-smoke pollution on human health, ur- Health Work in 2006 to study those mi- ban air pollution, and residents’ health, the cro-administrative policies on environment study on the living environment monitoring and health to be formulated or required to be and its effect on human health, research on adjusted significantly, as well as to direct en- the technology for controlling the damage of vironment and health work. indoor air pollutant on human health, and 4.2.1.2 Scientific & Technical support con- other studies all have been conducted, at- ditions of Chinese environment and health taining substantial achievements. management work The function of colleges or universities Since the 1980s, based on the scientific cannot be neglected in China’s environment research of institutions such as the Chinese and health management. They are a senior Research Academy of Environmental professional base for carrying out environ- Sciences (CRAES) and State Key Laboratory mental science and health research. They of Environmental Protection and Environ- have a high level of environmental science ment and Health, China has organized and expertise, a wealth of young, talented re- developed a series of field investigations and sources, and they are one of the important basic research to gain a preliminary under- powers in the Chinese team of environment standing of the state the health damage re- and health. sulting from some regional environmental 4.2.1.3 Policies and regulations related to pollution situations and to gain an under- China’s environmental and health man- standing about the emission conditions and agement work pollution routes of the pollutants capable of Environment and health work involves health damage. China has organized moni- many disciplines and departments, and yet, toring over the key areas with possible public the existing environmental management nuisance diseases, conducted follow-up in- standards, policies, laws and regulations show vestigations of health conditions of those a lack of convergence with most health permanent residents living in pollution areas, problems. In addition, compared with envi- and strengthened the supervision and man- ronmental pollution work for pollution pre- agement of environment and health, thus vention and treatment, environment and

164 Harmonious Development through Innovation health work in China started late. Moreover, health become the weak point of manage- the existing environment system has not yet ment. Studies on the risks of environmental defined the requirements in the work of en- health damage require many samples, a long vironment and health. There is a lack of time frame, and a huge amount of money. standards, laws and regulations related to en- But, over a long period of time, develop- vironment and health. mental studies have been stressed in China’s In order to effectively promote environ- scientific research. The money allocated for ment and health work in China and using the investments in scientific research is not experience of other countries for reference, enough in such public fields as environment on November 6, 2007, 18 ministries and and health that are related to public interests commissions, including the Ministry of and the system for investments in scientific Health and the State Environmental Protec- research has not been rational. tion Administration, jointly promulgated the Before the 1980s, relying on the disease National Environment and Health Action prevention and control system of the health Plan for 2007 to 2015. This plan aims at system and the management monitoring sys- those outstanding problems in the field of tem of the environmental protection sectors, environment and health in China. As the first China established teams and networks at the programming document in China’s environ- four levels of city, county or district, town, mental and health field, the Action Plan fully and village and effectively launched various demonstrates the Chinese government’s atti- environment and health works. tude and determination to carry out a basic national policy of environmental protection 4.2.2 Problems existing in current envi- for people. The Action Plan indicates the ronment and health management work development direction and the main tasks of China’s environment and health undertakings 4.2.2.1 Environment and health work in the future, defines the jobs and responsi- management is loose, lacking a long-term bilities of relevant departments, and creates a mechanism new situation where concerted efforts are Nowadays, the environment and health made to promote and develop this new cause. work in China has two centralized units–the The plan is of practical guiding significance Ministry of Health and the Ministry of En- for advancing the development of China’s vironmental Protection. China established environment and health cause in a scientific the “Mechanism between the Ministry of manner. Health and the State Environmental Protec- 4.2.1.4 Funding mechanisms related to tion Administration for Cooperation in En- China’s environment and health manage- vironment and Health Work” in 2006, re- ment work leased the “National Environment and Environment and health work has long Health Action Plan (2007-2015)” in 2007, been presided over by different sectors, so defined the responsibilities of 18 relevant the associated links of the environment and departments for the supervision and man-

Chapter Ⅳ Environment and Health Management System and Policy Framework 165 agement of environment and health accord- all are limited, leading to gaps among the ing to their administrative authority, and practical working needs. The requirement of proposed to establish a work mechanism for professional team structuring and of staff cooperation between the state, localities, and capacity development for environment and departments. In 2008, the national environ- health work is imperative. This should be ment and health work leading team was es- done as soon as possible, including tablished in line with the requirements of the on-the-job capacity development enabling Action Plan. However, owing to the fact that the accumulation of work experience and the these mechanisms and leading teams are in raising of technical levels of expertise. their primary stage, their effectiveness still 4.2.2.3 The basic study of environment and needs further observation. After all, the health is weak and the investigation, study, problems existing in the environment and and monitoring of human health is imper- health work of China cannot be solved ative merely through coordination and a definite, Currently, in China, the base number of centralized management department is ne- health damage cases caused by environmen- cessary. tal pollution is not clear and the basic data 4.2.2.2 The environment and health man- are deficient; therefore it is difficult to tackle agement professional team construction the health damage problem. and the technical force are insufficient For this reason, investigation into human The environment and health problems health damage caused by environmental pol- belong to the new sphere under environ- lution should be carried out. There is a need mental management and the construction of to conduct environment and health investi- local environment and health management gations in key areas to find the pollution teams must be strengthened. The environ- source that affects human health and a need mental protection sectors at all levels should to conduct environment and health investi- actively cooperate with the Ministry of En- gations in typical areas to gradually grasp the vironmental Protection on environment and basic data, so as to understand the health health investigations to discover the envi- status of the group related to environmental ronment and health damages within their re- pollution. China still needs to launch cut- spective jurisdictions. Special monitoring ting-edge scientific research in the environ- personnel should be designated and corres- ment and health work field, such as: con- ponding law enforcement teams should be ducting research on the damage caused by established in key areas. Additionally, the en- the main environmental pollutants at the vironment and health issue, which features present stage of China’s development to cross-disciplinary and cross-sector coopera- human health; conducting health-based risk tion, requires strong specialization and policies. assessments on the main pollutants; studying However, the professional technical reserve, the damaging effect of environmental pollu- the scientific research ability, and the existing tants to health; and establishing facilities of the environment and health work health-monitoring networks.

166 Harmonious Development through Innovation

4.2.2.4 Early warnings against environ- meeting the necessary requirements. In ment and health risks and the ability to comparison with developed countries, there deal with emergencies need to be streng- is still a large gap in terms of the research thened investment. It is necessary to warn against serious environmental pollution and damage to 4.2.3 Policy requirements for strengthen- health that may happen in environment and ing China’s environment and health health management and analyze, forecast, management and take countermeasures early so as to pre- vent the occurrence of serious environmen- Since the foundation of the Chinese en- tal pollution and damage to health. Consi- vironment and health management work is dering that damage to human health is often weak, the Chinese environment and health caused by emergent environmental pollution management currently remains at a low level. in China, measures for rapid responses to As far as the policy is concerned, at least the emergencies should also be taken imme- following several aspects should be en- diately against emergent impairment to hanced. health caused by environmental pollution. 4.2.3.1 The administrative system for the The work of environment and health is environment and health administration an important part of environmental protec- needs to be established and perfected tion work in China. At this moment, the en- The Chinese government has not yet es- vironmental monitoring data and the human tablished a set of administrative systems that health monitoring data are in separate systems can effectively and completely solve the is- and cannot be shared. Besides that, environ- sues in environment and health. The Minis- mental monitoring data cannot meet the de- try of Environmental Protection and the mand of human health monitoring. Viewed Ministry of Health are two major sectors re- from a long-term development perspective, lated to environment and health management, establishing the information database and but they do not have the functions relevant work network on environment and health and to environment and health affairs in their realizing information-sharing is one of the ba- State Council-designated governmental sic conditions for conducting environment management functions. At the same time, the and health work. National Environment and Health Action 4.2.2.5 The environment and health man- Plan should be implemented with close agement work lacks guaranteed funding cross-sector cooperation. Though it divides and more investment is needed the functions for relevant governmental de- Although China is paying more atten- partments, its own authority and public trust tion to environment and health work and are questionable. The lack of clarity in go- the Chinese government invests more than vernmental functions on the environment ever before, funding for environment and and health management fundamentally has health management work is still far from not been solved. Meanwhile, the effective-

Chapter Ⅳ Environment and Health Management System and Policy Framework 167 ness of the existing coordination mechanism forward to formulate the basic standards ur- for environment and health work remains to gently needed in important areas of envi- be determined. Therefore, the first task for ronment and health, so as to guarantee the Chinese government in forming a good smooth progress of environment and health environment and health management system work. is to clearly divide the functions of relevant 4.2.3.3 The prevention, early warning, and government departments based on the prin- emergency mechanisms of environment ciple of “prevention first and combination and health risk management need to be of prevention and treatment”, according to established needs identified from environment and Currently, the environment and health health management work, and to set up spe- risk management system is imperfect. In or- cial agencies in important departments to der to enhance the capabilities of prediction, fulfill the environment and health manage- management, and decision-making on con- ment functions. trollable, harmful environmental factors and 4.2.3.2 A complete laws and regulations their health damage, the system must carry system and policy needs to be formulated out the assessment on environment and The existing laws and regulations system health risks in accordance with the condi- is yet to be perfected and cannot well meet tions of environmental pollution, environ- the demands of the present environment and mental impacts on health, and the existing health management work. For example, the management policies. The relevant organiza- existing process of environmental impact tions should, on the basis of scientific as- assessment tends to lay more emphasis on sessment, give early warning on the possibil- pollution’s effects on air, water, and soil, ity of severe environmental pollution and while overlooking the impacts of the envi- health damage and realize the targets of early ronment on health. Therefore, in view of the analysis, early forecast, and early intervention problems existing in practical work, the ex- to prevent the occurrence of significant en- isting environment and health laws and regu- vironmental pollution and health damage. lations need to be improved on the whole to Moreover, the department concerned should form a complete system. As the management strengthen the development of the handling work on environment and health has been capability of rapid response to emergency mandated through different departments for cases involving environmental pollution and a long time, the existing standards system health damage and establish and improve the and technical norms, cannot satisfy the de- emergency mechanism. When the emergen- mands of environment and health manage- cies happen, the departments of health and ment work. It is required that the managing of environmental protection should act as institutions, after taking the specific, Chinese the main entities to carry out the emergency national conditions into account, plan and treatment work, guarantee the smooth coordinate the revision of standards to a progress of emergency handling, give effec- whole, better, standard system and press tive treatment to the health damage cases

168 Harmonious Development through Innovation caused by environmental pollution punctually, tion standards. prevent the damage from developing, alle- viate the burden of the damage, and earnest- 4.3 International Experiences and ly safeguard the rights and interest of the Lessons in Establishing an Envi- victims’ lives and health. ronment and Health Management 4.2.3.4 The compensation mechanism and System legal system for handling compensation for environment and health damage needs to be established 4.3.1 The Environment and Health Nowadays, people’s consciousness of sa- Management System in the United States feguarding legitimate rights has been streng- thened much more than before. However, 4.3.1.1 Experiences and lessons in response after the events of health damage resulted to health damage caused by pollution in from environmental pollution happen, the the united states masses still lack the evidence and means to Although environmental health regula- safeguard their rights. Therefore, restricting tions ultimately are all aimed at improving and supervising the polluters substantially is environmental quality and thereby reducing difficult. Moreover, the identification tech- environmentally-linked diseases, the terms of nology and the systematization of health each specific regulation are founded on me- damage caused by environmental pollution thodologies that have different starting have yet to be established. As a consequence, points, depending on the law that serves as a it is difficult to define the cause-effect rela- basis for the rule. Some statutes, such as tionship between environmental pollution “risk based statutes”, provide protection with and health damage. Even though there is health standards, directing that controls be clear evidence which can prove that health established that take into account only what damage has resulted from environmental is required to protect health and not by ex- pollution, there are no unified regulations on amining other issues that might be germane the compensation standards and procedures. to setting a standard, such as cost to achieve Therefore, it is urgent to carry out the re- that level of control or whether technology search of laws and regulations for compen- exists to do so. Other statutes, including sation for health damage induced by envi- “technology based statutes”, tie the ultimate ronmental pollution, to further codify the regulatory standard to the capability of legal responsibilities of environmental pollu- technology. These might be viewed as the tion, to perfect the legal evidence needed to opposite of health-based standards because set compensation for health damage induced instead of asking what is needed to protect by environmental pollution, and to research health, they ask what is possible to do from and formulate the detailed compensation an engineering perspective. Resulting stan- methods and procedures such as the identi- dards are based on the best available pollu- fication of health damage degree, compensa- tion control technology. Some US statutes

Chapter Ⅳ Environment and Health Management System and Policy Framework 169 require the Environmental Protection Agency Community Right-to-Know Act, which were (EPA) to protect against “unreasonable risks” enacted in 1986 with CERCLA, requires by balancing the environmental and health businesses to report all their emissions of effects of chemicals against the economic hazardous substances to EPA, which, in turn, consequences of regulation. Finally, some discloses the information to the public. The statutes rely upon “economic incentive” ap- resulting Toxic Release Inventory is pub- proaches to control, with the most notable lished each year and is widely accessible over examples being: cap-and-trade approaches the internet. Citizens can, among other under the Clean Air Act that create a system things, review pollution problems in their lo- of tradable allowances to emit certain pollu- cale, check on the environmental perfor- tants and taxing each ton of emissions. mance of certain companies across the Of these approaches, history has shown country, and investigate the nature and extent that technology-based standards are by far of emissions of certain chemicals into the air the easiest to undertake and lead to the most or water. expeditious results in reducing environmental With a similar motivation, the Safe pollutants. This is because determining the Drinking Water Act, as amended in 1996, best technology available to control pollution requires public water suppliers to state the is a far easier task than reviewing the toxi- nature and level of contaminants in drinking cology literature to establish a safe standard water; they send this information to custom- of exposure. ers along with their water bill. 4.3.1.2 Information disclosure and public The government is required to involve involvement the public when developing policies for en- A critical component of the US system is vironmental health protection under the the Right-To-Know requirements found in the Administrative Procedures Act. This lit- major US environmental laws and in the tle-known but important Act establishes spe- broadly applicable Freedom of Information cific citizen rights to access government in- Act. These laws require the EPA and other formation of relevance and participate in federal agencies to make environmental hazard government decisions affecting them. Laws information available to the public. Environ- not written in compliance with the Adminis- mental NGOs and community groups in the trative Procedures Act can and have been li- United States have a long history of using this tigated in federal courts. information to pressure government into tak- 4.3.1.3 Citizen suit enforcement in courts ing action to improve environmental quality. of law Environmental monitoring data collected Access to the courts has been an impor- by the government is available to the public tant method to prevent environmental harm in the United States, much of it over the in- in the United States. Congress includes an ternet. Similarly, permit conditions and viola- unusual enforcement mechanism in almost tions are public information. Most compre- all federal pollution control statutes: the en- hensively, the Emergency Planning and vironmental citizen suit. In general, citizen

170 Harmonious Development through Innovation suit provisions allow individual litigants to pollution through European Commission (EC) bring two kinds of lawsuits to ensure imple- legislation, through work at the international mentation of pollution statutes: (1) suits level to reduce cross-border pollution, against the relevant federal agency for failure through cooperation with sectors responsible to perform duties, and (2) suits against indi- for pollution, through national and regional vidual polluting factories and to facilities to authorities and NGOs, and through research. force compliance and to assess civil penalties. An important tool for priority setting in EU These provisions do not require proof of environmental policy is the “Thematic Strate- damages to health or property in the case; gies”, among which is the “EU Strategy on instead, citizens are allowed to sue over reg- Environment and Health”, adopted in 2003. ulatory violations that put the public health This Strategy takes a medium-term perspec- at risk even if no specific individual has yet tive to around 2020, is founded on thorough to experience signs or symptoms of disease. research and science, and follows an in-depth Citizen suit authorities, combined with review of existing policy and of wide-ranging governmental enforcement decisions, ex- stakeholder consultation. The Strategy on En- tends the reach of environmental laws vironment and Health was followed up by the enacted by Congress in a very productive way, European Environment and Health Action creating a channel for social judgments about Plan 2004-2010, which proposes an Integrated the dangers that matter and helping to for- Information System on Environment and mulate the balance between the costs and the Health as well as a coordinated approach to benefits of environmental regulation by ar- Human Biomonitoring. Some useful tools for ticulating the public values at stake in envi- identifying the relative burden or severity of a ronmental laws. The combination of EPA given environmental health problem and in oversight of state agencies, easy access to prioritizing environmental health issues based information, media and public attention, and on the degree of health impact and related the availability of citizen suits creates consi- costs and/or burden to the EU are the “Bur- derable transparency and motivation for state den of Disease Analysis and Environmental officials to enforce environmental require- Burden of Disease (EBoD)”, cost of environ- ments. mental degradation analysis, and Health Impact Assessments. 4.3.2 Environment and health manage- 4.3.2.1 Experiences and lessons in response ment system in the european union to health damage caused by pollution in EU The EU is a cooperation among its Ambient urban air pollution is the main member states and thus European policy is a environmental contributor to ill health in mix of country specific and EU-wide meas- Europe at present (WHO, 20051). However, ures. The EU is acting to reduce exposure to the levels of air pollutants have been sub-

1 Chinese Journal of Oncology, Issue No. 2 of 2001

Chapter Ⅳ Environment and Health Management System and Policy Framework 171 stantially reduced since around 1985 – 1990. damage to the wider environment. Personal The reductions are a result of the combined injury and damage to goods and property still merits of international treaties on air pollu- are dealt with under national civil liability leg- tion, for example, the multi-component Go- islation. Its aim is to hold operators whose ac- thenburg Protocol under the ECE Conven- tivities have caused environmental damage fi- tion on Long-range Transboundary Air Pol- nancially liable for remedying the damage and lution (LRTAP), EU legislation, national im- for taking preventive actions. ‘Diffuse pollu- plementation schemes for complying with tion’, as general air pollution and nitrate pollu- EU and international treaties, and a range of tion in water bodies, is not covered by this local measure. The main policies are formu- Directive because there are large obstacles to lated in EU Directives, which are turned into damage attribution on an individual level. Ma- national law in the member states. Most di- ritime oil disasters and nuclear accidents are rectives targeting environmental pollution also exempted from the Directive because with potential health consequences prescribe they are covered by other international envi- command-and-control policies such as Best ronmental liability arrangements. Available Technology (BAT) and emission 4.3.2.2 Laws, regulations, standards, and limit values and standards. The exception is other mechanisms related to environmental the National Emissions Ceiling (NEC) direc- health management tive, which gives member states the freedom A main instrument for safeguarding the of choice in how to meet national emission environment in the EU is the EU Directives ceilings. The role of economic instruments on the Environment that requires EU states in EHM is discussed in Appendix 3 in the to implement measures to achieve environ- Technical Report. A lesson from an assess- mental standards. “Framework Directives” ment of European air quality policies and on air quality, water quality, drinking water, measures is that a mix of instruments, in- waste, landfills, and soil (suggested), define cluding command-and-control approaches and establish objectives for environmental and economic instruments, should be applied. quality and are supplemented by “Daughter Whatever policy instruments are used, a large Directives”. The EU also has legislation to apparatus of monitoring and surveillance are control emissions from different industrial instrumental to ensuring emissions are re- sources, such as the “Large Combustion ported correctly1. Plant Directive” and the “Integrated Pollu- All EU member states have national civil tion Prevention and Control Directive”. In- liability regimes that cover damages to persons dustrial accidents and emergency responses and property. The EU “Environmental Liabil- are addressed in the ‘Seveso Directives’, the ity Directive” became effective in April 2007 “Council Directive on the Major-Accident and is the first EU law specifically based on Hazards of Certain Industrial Activities” and the ‘polluter pays principle’. It only deals with the “Directive on the Control of Ma-

1 http://www2.dmu.dk/atmosphericEnvironment/expost/

172 Harmonious Development through Innovation jor-Accident Hazards Involving Dangerous and by national research councils. The Eu- Substances”. The directives lay out proce- ropean Commission’s Directorate General of dures for assessing the environmental quality Health and Consumer Protection also direct- on the basis of common methods and crite- ly support a range of research activities, in- ria, such as “guidance values” that typically cluding the Air Pollution and Health: A Eu- are based on WHO guidelines, and prescribe ropean Information System (APHEIS), how information on environmental quality is which, among other things, carries out HIAs. obtained and made available to the public. The European Commission co-funds the Health surveillance is part of a national health European Environment and Health Infor- system. Coordination is ensured via the “Eu- mation System (ENHIS) with the WHO and ropean Environment and Health Action Plan the EU. Extensive funding from national and 2004-2010”. The Environmental Health EU sources have been instrumental in estab- Committee in the EU oversees coordination lishing the current knowledge base related to and follow-up and involves a range of go- environmental health issues in Europe. vernmental and non-governmental stakehold- The Environmental Directives set moni- ers. toring provisions and require a commission The member countries’ governments are to conduct “mandatory reviews of the direc- responsible for implementing the EU Direc- tives”. This commission involves stakehold- tives, the monitoring of environmental quali- ers, including experts from member states, ty, and for health surveillance. The European acceding countries, industry, NGOs, the EC, Environment Agency (EEA) works closely and research bodies in reviewing directives with the WHO and is a major information and giving recommendations on possible source for those involved in developing, im- amendments. These initiatives, related to plementing, and evaluating environmental monitoring and reviewing, are core elements policy, as well as for the general public. EEA in ensuring and improving the quality of en- coordinates the European Environment In- vironmental health management in the EU. formation and Observation Network (Eio- Legislation requiring health impact as- net), which is co-funded by its member and sessments and/or environmental impact as- cooperating countries. The close coordina- sessments and litigation are examples of spe- tion between national and EU bodies for cific legal instruments used to control pollu- monitoring and reporting environmental tion through specific media and/or specific quality statistics and the supranational level settings and sectors; not all forms of envi- of the EEA have ensured that robust and ronment and health damage can be remedied independent information on the environ- through liability. ment is made available. The UN Economic Commission for Eu- Research funds for environmental health rope (ECE) Convention on Access to Infor- research and monitoring are provided, inter mation, Public Participation in Deci- alia, by the “EU Framework Programme for sion-making, and “Access to Justice in Envi- Research and Technological Development” ronmental Matters”, adopted on June 25, 1998

Chapter Ⅳ Environment and Health Management System and Policy Framework 173 at the Aarhus Convention, is the first interna- to compensate the surviving victims and to tional legal instrument which bases the access retrieve the environment from its serious to information, public participation and access state of pollution. The vast amount that Ja- to justice rights provided by the convention on pan invested to overcome environmental “the right of every person of present and fu- pollution, however, is known to have had no ture generations to live in an environment ade- significant negative impact on the subsequent quate to his or her health and well-being.” It state of the economy. Moreover, the strict also includes a general obligation for the par- environmental regulations against vehicle ties “to guarantee access to information, emission that were introduced in the 1970s public participation in decision-making and motivated the automobile manufacturers to access to justice in environmental matters”. develop innovative technology, which then In the EU, the EC set rules that ensure the stimulated the succeeding economic growth freedom of access to, and the dissemination in Japan. of, information on the environment held by The lessons derived from Japanese expe- public authorities, and sets basic terms and rience demonstrate that while environmental conditions under which such information health damage led to huge cost, early envi- should be made available in Directive ronmental investments and preventive meas- 2003/4/EC. All results from the monitoring ures also were rational in economic terms. of environmental quality carried out by mem- Through such experience, the environment ber countries are, in principal, disclosed to the and health management system in Japan has public inter-alia via national web sites and the been established on the basis of prompt and EEA’s web pages. Concerning the private data fair compensation and relief, as well as pre- disclosure of emissions data from industries, ventive measures against environmental pol- the EU decided in July 2000 to establish a lution and health damages. mandatory European Pollutant Emission 4.3.3.2 Legal systems and standards related Register (EPER 2000), to be operated by the to environment and health management EEA. These data are accessible through the system in Japan web. Having experienced the tragic pollu- tion-related health damage incidents, a na- 4.3.3 Environment and health manage- tion-wide consensus has been built on pre- ment system in Japan vention as the most important measure for environmental protection. 4.3.3.1 Background analysis Currently, the Basic Environmental Law Japan’s serious environmental pollution is the underlying law in environmental policy during the rapid economic growth after and prevention is one of its most important World War II led to the outbreak of a large objectives. Article 16 clearly states environ- number of victims whose health had been mental standards-setting as the objective of severely damaged. Many lives were lost and environmental policy: “With regard to the an enormous amount of money was needed environmental conditions related to air pollu-

174 Harmonious Development through Innovation tion, water pollution, soil contamination, and the relevant institutions and the overall envi- noise, the Government shall respectively es- ronmental administration capacity are tablish environmental quality standards, the strengthened through provisions such as maintenance of which is desirable for the personnel exchanges with the Ministry of protection of human health and the conser- Health, Labor and Welfare and other minis- vation of the living environment.” tries, as well as with local governments. Also, Emission and effluent standards for pol- training for environmental monitoring and lutants released from factories and other fa- other measures for capacity building is pro- cilities are stipulated in the Air Pollution vided by the national government. Informa- Control Law and the Water Pollution Control tion on the environment is widely disclosed Law as specific measures for achieving the to the public and a public comment system is environmental quality standards. Nation-wide, in place to invite the opinions of the public. uniform emission and effluent standards are 4.3.3.3 Other mechanisms for environ- set by the central government, while local mental health management in Japan governments can impose more stringent, In Japan, public health centers under the supplementary standards if necessary. Penal- Ministry of Health, Labor and Welfare have ties are imposed for non-compliance. been playing an important role in the preven- Nation-wide environmental monitoring tion of environmental health damage and in is indispensable for maintaining environ- issues related to sudden occurrences of re- mental quality standards. In principle, local gional health problems. In addition, aside governments are in charge of carrying out from the provision of laws and regulations monitoring and for disclosing the results to related to pollution and judicial settlement, the public in real-time or on a regular basis an environmental disputes settlement system every year. Moreover, companies are also re- for prompt and adequate settlement with less sponsible to monitor pollutants emitted from rigid procedures has been developed. Citi- their facilities. In the health monitoring sys- zens can consult with environmental sections tem, various surveys are carried out regularly in municipality and public health centers at and when needed, at both national and local the local level and if the problem cannot be levels, to check any occurrence of significant solved, the case is handled by the Prefectural or abnormal health issues. Pollution Examination Commission at the In addition, legal systems for chemicals prefectural level. Cases that involve serious and pesticide management and the Envi- environmental pollution, concern wide areas, ronmental Impact Assessment Law have require compensation for damage, and in- been established to check the impacts of volve research to determine pollution on the environment. cause-and-effects, are handled by the Envi- The Ministry of the Environment plays ronmental Dispute Coordination Commis- the central role in conducting such preven- sion at the national level. tive measures against environmental pollu- Moreover, government and companies, tion. At the same time, cooperation among as well as the media and environmental or-

Chapter Ⅳ Environment and Health Management System and Policy Framework 175 ganizations, have contributed significantly in Based on the medical certificates, Prefectural the prevention of environmental health ha- Pollution Examination Commissions, estab- zards through information disclosure. lished in designated areas, examine whether 4.3.3.4 Experiences and lessons from legal the applicants are subject to certification. compensation procedures for health dam- The governor or the mayor of the designated age caused by pollution in Japan area then issues the certification at the final In addition to a judicial and administra- stage. tive resolution stipulated by the civil law, a set When an individual is dissatisfied with of legal systems specifically focused on en- the certification assessment, the first option vironmental pollution control have been es- is to bring a formal challenge against the tablished. Due to the substantial number of prefectural governor or designated city pollution-related health damaged cases that mayor who made the assessment. When occurred in Japan, many victims were unable there is an objection to the governor or to receive compensation and relief through mayor’s decision regarding the challenge, or individual civil lawsuits, which required each when two months have passed since the victim with the time and efforts for the set- challenge was brought and no decision had tlement. This drew a serious social attention been made, an application for review can be and led to the establishment of two related requested to the Pollution-Related Health laws: The Law Concerning the Settlement of Damage Compensation Grievance Board, Environmental Pollution Disputes was estab- which is under the jurisdiction of the Minis- lished in 1970 and the Compensation Law ter of the Environment. If there is a further was established in 1973. Together, these two objection to the ruling of the Board, the laws act as a compensation and relief me- courts can be asked to void the board’s deci- chanism based on civil liability. Through this sion. establishment of legal systems, prompt and fair compensation and relief measures for 4.3.4 Comparison on environment and the victims were provided and a certain de- health management system and imple- gree of resolution was realized. As im- mentation mechanisms: a comparison provements were observed in air quality, in between China and other countries 1987, this law was amended with the cancel- lation of designated regions and it was also 4.3.4.1 Government’s role and coordina- decided that no further pollution patients tion mechanism would be certified. The US, EU countries, and Japan all have 4.3.3.5 Judgment methods and standards government departments specializing in in providing relief for pollution-related matters related to environmental pollution health damage in Japan and its effect on people’s health. For years, The judgment methods and standards departments responsible for national medical for relief for pollution-related health damage care, health and public hygiene, safety of are stipulated in the Compensation Law. drinking water, and the control of hazardous

176 Harmonious Development through Innovation chemical substances have been established limited. In local governments, each province and in some countries, these departments and city has its Environmental Protection handle environment and health problems, as Bureau with assigned personnel, but a system well. There is also a department in each to carry out sophisticated environmental country dealing exclusively with occupational monitoring and health surveys for local resi- health. The interrelation among these de- dents is yet to be established. partments is quite complex and various sys- In the US, environmental protection tems have been formed in order to improve agencies or departments are established at mutual cooperation and coordination. the federal and state levels and are financed The situation is similar in China: The through tax revenues. Budget is provided Ministry of Health is responsible for pro- from the federal government to the states to viding medical service, managing public hy- cover the cost of enforcing federal laws. giene and related matters; and the Ministry The US does not have special financial re- of Environmental Protection is responsible sources for the compensation of health for the control of environmental pollution damage. Polluters are fined for violations, likely to have an adverse effect on human but the collected fines do not always reach health, but does not have the function to to the environmental agencies and in some carry out a national health survey in relation cases are funneled into the general revenue to environmental pollution. Cooperation and source. concerted efforts, particularly between the In the EU, national agencies and re- Ministry of Health and the Ministry of En- search institutions are mainly responsible vironmental Protection, are indispensable. for the execution of EU laws, environmen- Better integration of environmental poli- tal monitoring, and health surveillance. The cies with other policies is a common issue EU has its own European Environment among the international community. Agency (EEA), which collaborates closely 4.3.4.2 Financial and human resources with the (WHO). The EEA coordinates the In China, the Ministry of Environmental European Environment Information and Protection is established as part of the cen- Observation Network (Eionet), which is tral government and whose service primarily co-funded by the EU countries and coope- covers the establishment of standards for rating countries. Expenses for research and environmental pollutants and the collection monitoring investigations on environmental and analysis of data from monitoring and health are financed by the “EU Framework investigations. A system to carry out a na- Program for Research and Technological tionwide health survey with respect to envi- Development” and the research councils of ronmental pollution and examining the the respective central governments. The health status of residents in contaminated EC’s “Directorate General of Health and areas is yet to be developed. Budget allocated Consumer Protection” provides financial for environmental and health management support for a number of environ- and officers specialized in this field are very ment-related activities.

Chapter Ⅳ Environment and Health Management System and Policy Framework 177

In Japan, the Ministry of the Environ- of environmental health. This Strategy cov- ment conducts environmental monitoring ers political outlooks over the years up to and investigations on chemical substances about 2020, compiled based on consultations and other various studies and research. Each with interested parties, and describes the prefecture and city is responsible for local important areas of environmental health and environmental monitoring. Public health the countermeasures to be taken. centers are established at each prefecture and In Japan, the prevention of health dam- government designated city, and whenever age is prominent in environmental policy, health problems in local residents arise, they since the environmental administration has immediately are reported to the center. The been developed in response to the emer- victims of pollution-related diseases are cer- gence of pollution-related health problems. tified by the examining commissions estab- Therefore, environmental monitoring is em- lished in each prefecture and each govern- phasized and if pollution levels that could ment-designated city. The collection of levies seriously threaten the health of the local res- from polluters, the payment of compensa- idents are detected, a health survey is carried tion to victims, and other enforcement are out immediately. administered by the Environment Restora- The WHO has developed a program tion and Conservation Agency of Japan called the “Burden of Disease” and the (ERCA). World Bank has developed an analysis me- 4.3.4.3 Priority areas thodology on the “Cost of Degradation”, Even though China already has enacted both of which have helped to define priority such control laws as the Water Pollution Pre- areas on environmental health issues. vention Law and the Air Pollution Prevention 4.3.4.4 Compensation and relief mechan- Law, pollution-related health damage is evi- isms dent. Particularly, the states of health damage China is experiencing an increasing attributable to air pollution in urban areas and number of court cases involving health of water pollution in rural districts are serious, damage caused by environmental pollution. yet no sufficient investigation has been con- Since laws and regulations to deal with these ducted to examine the actual situation. issues are inadequate and there are no estab- In the US, the EPA prepares lists of lished criteria for the court’s decisions, the priority industries, contaminants, and health plaintiffs rarely win their case. In addition to effects to be addressed. Priority items are the difficulty in proving health damage, there also determined by the review of EPA of is also no compensation mechanism. pollutant emissions and discharges, the re- In Japan, the Law Concerning Compen- sults of environmental monitoring, and sation and Prevention of Pollution-related other data. Health Damage was established in 1973. The In the EU, the “EU Strategy on Envi- law incorporates the concept of liability ronment and Health” is an important tool without fault, or strict liability, for compensa- for deciding on priority problems in the area tion. Diseases subject to the law are specific

178 Harmonious Development through Innovation diseases, which have a definite causal rela- there are some examples of the apportion- tionship between polluters and victims, such ment of liability and the consequent repara- as Minamata disease, and nonspecific diseas- tion measures for environmental damages in es, which have no clear causal relationship, these countries. such as bronchial asthma attributable to air 4.3.4.5 Information disclosure and public pollutions. For specific diseases, polluting access to information companies are required to pay compensation In China, the Ministry of Environmental fees. For nonspecific diseases, polluters Protection collects data through nationwide throughout the country bear the cost at cer- monitoring of environmental quality and tain rates: The pollution levy collected from pollution sources, while the Ministry of factories and the like is 80%; the automobile Health collects statistical data on disease, but weight tax is 20%. The Environmental Dis- there are no systems to link the two. Moreo- pute Coordination Commission has been es- ver, attempts to study the relationship be- tablished as an institution for environmen- tween pollution levels and the health condi- tal dispute settlements based on the Pollu- tion of the people living in the regions and tion Dispute Settlement Law. The Prefec- education and public awareness on the envi- tural Pollution Examination Commission ronment and health are all limited. also has been established at the prefectural In the US and in the EU, all information level. Environmental disputes can be set- acquired by the respective governments on tled without court proceedings through the environmental pollution and violating enter- Commission by approving requests to prises is disclosed under the laws concerning submit documents and on-the-spot inspec- information disclosure and such information tion. is easily accessible through websites. The US does not have special laws re- The Japanese government prepares a garding compensation for pollution-related yearly White Paper on the Environment and health damage. When a problem arises, indi- local governments also publish annual re- vidual or groups of individuals need to bring ports on the results of environmental moni- the causal company to court. toring and the degree of achievements to Member states of EU have their own na- comply with the environmental standards. tional civil liability regimes that cover dam- The amounts of hazardous chemical sub- ages to persons or property. The EU Envi- stances released are reported and disclosed ronmental Liability Directive, enforced in through the Pollutant Release and Transfer 2007, is based on the Polluter Pays Principle, Register (PRTR) system based on the Law but it concerns compensation for collective Concerning Reporting…. of the Release to damage; individual damage is dealt with un- the Environment of Specific Chemical Sub- der the national civil law. stances and Promoting Improvements in As for developing countries, compensa- Their Management. Moreover, enterprises tion system for pollution-related health are active in publishing environmental re- damage, per se, has not been identified, but ports that include the situation of pollutant

Chapter Ⅳ Environment and Health Management System and Policy Framework 179 emissions and reduction measures. ments. Local governments are directly re- In India, the government established the sponsible for environment and health ad- Environmental Information System (ENVIS) ministration at the site and if any health dis- in 1982, providing information to decision order is found, it is reported to the local pub- maker, policy planners, scientists, and engi- lic health center and an investigation is con- neers, research workers. The ENVIS network ducted immediately. In addition, mass media consists of 81 partner nodes including gov- and NGOs observe and monitor the per- ernment organizations, research institutes, formances of government and of enterpris- and NGOs and provides online information es. dissemination. In Brazil, there is a unique system of Common among many countries, the prosecution to protect the rights of the voice of the citizens and support from the people and to question government institu- public play a vital role in effectively moni- tions in charge about non-enforcement toring pollution and promoting enterprises to problems. The Ministério Público is a body take necessary measures. This also requires of autonomous magistrates formed of pub- the provision of valid information via vari- lic prosecutors working both at the federal ous media, for example, television and and at the state level protecting the rights of newspapers, and also the role of environ- the people, including those affected by envi- mental educational activities by NGOs. ronmental health damage. 4.3.4.6 Performance evaluations 4.3.4.7 Measures that have worked China has established the National En- In China, the National Environment and vironment and Health Work Leading Team Health Action Plan (2007–2015) was an- composed of members from 18 ministries. nounced. In the US, technology based stan- The leading team is responsible for formu- dards for all major categories of pollution lating environment and health management sources proved to be effective in reducing policies and reviewing the development of pollutant discharges. The EU took various scientific studies and research on environ- measures to reduce emissions and achieved ment and health issues. However, practical remarkable results through a com- issues such as ways to implement policies mand-and-control approach. and ways to assess and to evaluate the roles In Japan, the Compensation Law was of local governments and relevant authori- enacted as a remedial response to the out- ties still remain. The US and the EU have break of pollution-induced health damages mechanisms for investigating and reviewing caused by inadequate legislation and admin- how the measures and laws concerned are istrative systems. Currently, the priority of being enforced. Japanese environmental policy has shifted to In Japan, based on the Government Pol- pollution prevention. icy Evaluation Act, the ministries and agen- The above-mentioned countries all cies prepare policy evaluation reports each started with systematic environmental moni- year, which are open to the public for com- toring and steadily lowered the concentration

180 Harmonious Development through Innovation of pollutants in the environment, resulting in posed to toxins from a nocturnal gas leak in the successful prevention of health damage. a pesticide plant. This case showed how lack Also, environmental health information sys- of information disclosure exacerbated the tems have been developed in some develop- scale of damage. Enacting the Right to In- ing countries. For example, Brazil has devel- formation Law in India took twenty years. oped an effective environmental health in- formation system built on the experience 4.3.5 Recommendations for improving from other countries such as the USA. A environmental health management sys- number of topic-specific hubs collect infor- tems in China mation, including of water, public health, and chemicals, which is utilized for policy Based on the environmental health and decision-making. In India, progress has problems faced in China and international been made in accessing the judiciary system experiences on environment and health is- to address environmental pollution issues. sues, the following statements provide rec- An Indian NGO executed campaigns using ommendations to improving environmental quantitative information on health damage health management systems in China. effects and estimated mortality rates, raising Recommendation 1: Government public awareness, which resulted in the Su- functions and coordination mechanisms preme Court issuing the first comprehensive Strengthen government functions and mandate for tackling air pollution. put in place a management and coordina- 4.3.4.8 Measures that did not work tion mechanism with clearly defined re- China needs to improve the administra- sponsibilities at the central, provincial and tive level of government agencies related to local levels. In particular, the functions of environment and health management. Ca- environment and health departments should pacity development of expert officials, estab- be enhanced. An effective coordination lishment of prevention systems for health mechanism should be in place, data should damage, and formulation of related laws and be shared, and a prevention, early warning, regulations are necessary. and relief mechanism for environmental In every country, whether developed or health should be built. developing, disclosure of information on en- Recommendation 2: Financial and vironmental health risks is very important. human resources Numerous experiences in countries around Increase financial and human resources the world have demonstrated that a lack of for environmental health, priority areas in- scientific information can unnecessarily clude surveys of environmental health prob- spread damage on health. There are many in- lems, research and development of compre- cidents where people who are uninformed hensive and basic technologies, capacity have been placed at higher risks. For example, building for monitoring, and capacity build- the tragic accident in Bhopal India in 1984 ing for legal enforcement. Increased financial took many lives of the people who were ex- resources can be provided, at least in part,

Chapter Ⅳ Environment and Health Management System and Policy Framework 181 from pollution fees collected from regulated NGOs should also play as “watchdogs” to polluters and other funding channels such as monitor and report the environmental pollu- funds and donations. tion and health incidents. Recommendation 3: Identification of Recommendation 6: Performance as- priorities sessment Identify key problems and gaps in envi- Build a performance assessment me- ronmental health management, including chanism for environmental health manage- gaps in laws, information, and the imple- ment by the government, especially for local mentation of systems, and then set priorities government. It should provide the necessary for effective environmental health manage- incentives to encourage enforcement of en- ment such as pollution control and the estab- vironmental laws, along with other matters. It lishment of monitoring and evaluation sys- is also important to strengthen the justice tems. For example, integrate environment system in its ability to deal with environment and health information systems and the and health issues. For example, strengthen Health Impact Assessments that are included liability for environmental pollution to ensure in the current Environmental Impact As- that the polluter pays and to ensure the sessment (EIA) and Strategic Environmental truthfulness of the data submitted. Also, it is Assessment (SEA) systems. recommended to establish an accountability Recommendation 4: Compensation office for assessing the performance of in- and relief mechanism dustries and enterprises from the perspective Build compensation mechanisms for en- of the environment and health management. vironmental health in accordance with the ‘polluter pays’ principle. The financing me- 4.4 Construction of China’s Envi- chanism for compensation should be ad- ronment and Health Management dressed to include health damage that its System polluters are difficult to identify. At the same time, a dispute settlement mechanism for before victims resort to court should be put 4.4.1 Main bodies, objects and goals of in place to protect people’s interests. China’s environment and health man- Recommendation 5: Information dis- agement closure & public access to information Enhance information disclosure for en- To conduct effective environmental and vironmental health and facilitate environ- health management, government depart- mental performance through various chan- ments’ responsibilities should be made clear. nels such as the media, NGOs, research in- First, an effective communication and coor- stitutions, and other stakeholders. Govern- dination mechanism should be set up be- ment should play a proactive role in provid- tween departments. Second, there should be ing information on environment and health a clear management system and performance risks to the public. The public, media, and measures. Third, the state should have a spe-

182 Harmonious Development through Innovation cific strategy and objective. Fourth, there medical treatment. The stakeholders are in- should be a work plan. Fifth, work highlights volved in many aspects; for example, all le- for implementation should be identified vels of government, enterprises and institu- step-by-step. These five aspects are also the tions, ordinary people, scientific research in- issues we give priority to in studying China’s stitutions, social groups, and organizations environment and health management system. are stakeholders. 4.4.1.1 Main bodies for governmental 4.4.1.3 Working thoughts and basic prin- management ciples of environment and health manage- The environment and health issue in- ment volves various aspects of the society, econo- According to international experience, my, and environment and there are many early prevention is the fundamental working departments that are connected with envi- concept and starting point for environment ronmental and health management. There- and health management work, and the active fore, that there will be problems of overlap- follow-up relief is the basic demand for pro- ping in functions, management conflicts tecting the rights and benefits of victims. among different departments, and the wea- The status quo and future trend of the Chi- kening in environment and health manage- nese environment and health problems have ment efficiency is highly likely, especially shown that the basic starting point and work without a sound inter-departmental coordi- focus for environment and health work are nation mechanism and a clear division of to prevent the environment and health prob- government duties. Considering the charac- lems from worsening and to guard against teristics and management basis of Chinese more serious health damage from environ- environment and health issues, the govern- mental pollution. Meanwhile, some compre- ment agencies serve as the core departments hensive treatment and relief measures should closely related to management include the be taken to resolve the health damage in- Ministry of Environmental Protection, the curred by environmental pollution. Ministry of Health, the National Develop- Thus, the environment and health man- ment and Reform Commission, the Ministry agement work of China should adopt the of Finance, and the Ministry of Science and working thoughts of “focusing on preven- Technology. tion and combining prevention with control”. 4.4.1.2 Stakeholders of the environment The construction of the environment and and health management health management system should not mere- Major stakeholders of the Chinese envi- ly aim to resolve the current environment ronment and health management and the and health problems, but should also prevent functions they exert are described in the fol- any possible environment and health risks in lowing four aspects: the pollution producers, the future by improving the policies, systems, the pollution preventers, the stakeholders of technologies, and methods and by enhancing pollution-induced health damage, and the management capacities. Meanwhile, the Chi- parties responsible for health prevention and nese environment and health management

Chapter Ⅳ Environment and Health Management System and Policy Framework 183 work should also comply with the principles the basis and precondition for the govern- regarding the dominant status of govern- ments to conduct effective environment and ment and social participation, making overall health management work. In addition, broad plans and conducting inter-departmental social participation also serves as a significant coordination, prevention, early warning, and guarantee for supervising and encouraging active treatment of problems. the environment and health management 4.4.1.4 Management goals work of government departments. The final goal of establishing the envi- 4.4.2.1 Responsibility and division of work ronment and health management system is to for environmental and health management strengthen the government’s public service, Environmental protection departments to safeguard the public’s environmental and should set up a work philosophy of protect- health rights, and to prevent, control, and ing human health as its goal and gradually mitigate health damage done by environ- establish a management style whose core is mental pollution. Establishing the environ- health risk control in order to change from ment and health system is involved with the passive management to active prevention and following seven parts: establishing a man- control. At the same time, these departments agement system and coordination mechan- must strengthen the enforcement of laws, ism in which work is clearly divided; estab- carry out studies of environmental manage- lishing a monitoring and information ex- ment, environmental quality, and human change system and mechanism for environ- health, and comprehensively reduce and ment and health; establishing a prevention, monitor environmental risks. It is also im- early warning, and salvage mechanism for portant for them to lay stress on the preven- environment and health; establishing a scien- tion of the damage to human health done by tific and technical research and development environmental pollution and control links, mechanism for environment and health; es- particularly in pollution prevention and con- tablishing a financial and funding guarantee trol areas, to more effectively fulfill the mechanism for environment and health; es- commitment of government functions. They tablishing a legal, regulation and policy sys- should develop the prevention, early warning, tem for environment and health; and estab- and intervention systems for environment lishing a compensation mechanism for envi- and health and make sure the tasks on envi- ronment and health. ronment and health enter into the main- stream of environmental protection. At the 4.4.2 Arrangement of China’s environ- same time, the environmental protection de- ment and health management system partments should conduct comprehensive studies to determine the effects of different As far as the environment and health pollutants on human health. Furthermore, management work is concerned, the gov- the environmental protection departments ernment must play a dominant role. The should strengthen baseline research and im- well-defined management responsibilities are plement environment and health manage-

184 Harmonious Development through Innovation ment based on “risk prevention”. support for all work concerned, and set up a The Ministry of Health should: focus on financial support mechanism for the work of assuming and performing the government environment and health. functions of discovery, response, and treat- The Ministry of Science and Technology ment of damage from environmental pollu- should play an important role in organizing tion, and perform other needs; bring the and strengthening environment- and prevention and control tasks on disease health-related basic research and develop- caused by environmental pollution into the ment. Its main governmental functions are to mainstream of national disease control and organize significant scientific and technical health work; and provide support for the research in the environment and health field, development of environment and health identify research needs for benefiting the re- prevention and pre-warning work through lationship between environment and health, research on and oversight of the serious and to ensure that the priority lists of pollu- health damage possibly induced by environ- tants to be controlled are designated as im- mental pollution. portant national projects for scientific and In addition, the National Development technical research and give them support for and Reform Commission (NDRC) should technology, finance, and human resources. play an important role in coordinating envi- 4.4.2.2 Coordination mechanisms for envi- ronmental protection, public health, eco- ronment and health management nomic development, and other aspects. Its To better coordinate related departments main responsibilities are to bring the envi- in promoting environment and health works, ronment and health work plans and the mid- a national environment and health adminis- and long-term programs of the Ministry of trative coordination mechanism, which is Environmental Protection and the Ministry widely participated in by all departments, is of Health into the program; to plan for na- proposed to be established on the basis of tional economic development and support it the current coordination mechanism for en- with policies, projects and funds; and to in- vironment and health work between the corporate environmental protection and Ministry of Environmental Protection and prevention from health damage into the the Ministry of Health. It is suggested that a formulation and implementation of local leading group responsible for promoting en- development planning so as to guard against vironmental protection and health work the occurrence of environment and health should be established under the State Coun- problems. cil. This group is charged with: discussing The Ministry of Finance should ensure and handling significant topics related to en- the government’s financial support for envi- vironment and health management such as ronment and health management and inter- strategies and planning; coordinating work vention. It should identify funds needed for between different departments and estab- environment and health management on the lishing a platform for the exchange of views routine budget list, give necessary funding and communication; coordinating and set-

Chapter Ⅳ Environment and Health Management System and Policy Framework 185 tling departmental disputes and conflicts; to some major pollution-caused health harms tackling difficulties and problems in their on behalf of the public to safeguard their work; and advancing the implementation of interest. As for the difficulties for vulnerable various tasks so that the national strategy, social groups in defending their rights to en- tasks, and administrative duties with regard to vironment and health, the state should offer environment and health can be implemented. legal assistance and help them defend their This leading group should be headed by rights. At the same time, hearings on envi- a related leader of the State Council with the ronment and health should be added to the Minister of Environmental Protection and examination and approval of major devel- the Minister of Health as its vice-heads and opment plans, projects, and other administra- other major leaders of key departments as its tive examination so that public opinion can members. Meanwhile, the leading group must be heard. In addition, it will be prudent to have its own office in which to handle rou- approve the plans and projects that the pub- tine organization and coordination. lic universally supports. 4.4.2.3 Mechanism of public participation in environment and health management 4.4.3 Establish a prevention system for The establishment of a public participa- environment and health management tion mechanism mainly contains the follow- ing two aspects. One is to establish an in- The establishment of a prevention sys- formation-communication mechanism. The tem for environment and health management government should release timely informa- is the core of establishing an environment tion of public concern about environment and health management system. Effective and health on the governmental website and environment and health management is not through other news media in ways that are just for solving the environmental and health readily accessible to the public, allowing the problems now present, but, importantly, is public be able to acquire timely, accurate in- also for preventing new problems from aris- formation on environment and health. The ing. government should also open a special 4.4.3.1 Establish a standard system guard- channel to listen to the information of envi- ing against the environment and health ronment and health reflected by the general risks public and especially should establish a pro- Environmental and health standards cedure and approach for the public to appeal constitute an important basis for identifying to the government on potential solutions of the environmental health risks and conduct- environment- and health-related problems. ing environmental intervention. The second aspect is to study and discuss China should, in accordance with the the establishment of public interest litigation, requirements of environment and health legal assistance, and hearing systems in the work and in consideration of the actual na- environment and health field. The state and tional conditions of China, plan, coordinate, other groups may lodge a lawsuit with regard and intensify the formulation and revision of

186 Harmonious Development through Innovation standards, improve standard systems, work health risks in light of the actual conditions hard to design the fundamental standards of their local environmental protection and urgently needed in key environment and health work. health fields, solve the continuity of current 4.4.3.3 Establish a stringent environmental standards in the shortest possible time, and access system support the smooth progress of environ- An important part of effectively pre- ment and health work. At present, we should venting pollution-caused damages to public make more efforts to strengthen the con- health is establishing a stringent environ- struction of the following standard systems mental access system. Those pollutants that based on health impacts: (1) revise pollu- may severely endanger human health should tants’ emissions control standards; (2) revise be banned or restricted in their production, evaluation standards for environmental qual- use, and discharge. A directory of chemicals ity; (3) revise environmental monitoring stan- that are banned in production, use, and dis- dards; (4) revise evaluation standards for en- charge should be established with a view of vironmental impacts; (5) undertake health safeguarding human health. For these chem- impact monitoring and risk assessments for icals, China should establish a stringent environmental pollution; (6) develop control access standard in order to stop the possibil- standards and other standards, including ity of environmental pollution and health those for soil pollution and those for elec- damages from their presence. As a result, tromagnetic radiation pollution; and (7) im- while formulating its industrial development prove assessment and identification stan- policy, the state necessarily must prohibit the dards of the health and environmental dam- domestic production of those chemicals for age caused by environmental pollution. which production and sales are banned else- 4.4.3.2 Establish a directory of priori- where and should apply active measures such ty-controlled pollutants as evaluation of environmental impact, In order to prevent damage to health by real-time monitoring, and conducting track- environmental pollution, priority should be ing surveys of health effects for those re- given to the study and establishment of na- stricted chemicals in order to prevent serious tional and local directories of priority pol- harm to public health. lutants so as to carry out the prevention from damage to environment and public 4.4.4 Establish an environment and health with clear aims and emphases. Envi- health monitoring system ronmental protection and public health au- thorities should strengthen their coopera- The top priority of establishing on envi- tion to allow their quick appearance. ronment and health monitoring system is to Meanwhile, local governments at all levels transform these existing monitoring net- should study and establish their own direc- works and forces of the Ministry of Envi- tories of priority-controlled pollutants and ronmental Protection and the Ministry of take effective measures to prevent severe Health: to build an environment-monitoring

Chapter Ⅳ Environment and Health Management System and Policy Framework 187 and disease-monitoring system and an in- and collecting the health information of the formation platform that supports environ- residents. ment and health prevention; to monitor over 4.4.4.3 Establish a monitoring network for the long term key pollution sources and pol- soil environment and people’s health lutants; and to grasp the dynamic changes of Based on investigation of the current and between China’s major pollutants and state of the soil environmental and the as- human health. These steps will provide im- sessment of the soil environment health risks, portant data for the state’s preventative ac- China should integrate and strengthen the tions and interventions by establishing a existing monitoring resources and capability good environment and health monitoring to form a national soil environment and database. health monitoring network according to the 4.4.4.1 Establish a water environment and needs of the monitoring work. health monitoring network 4.4.4.4 Establish a monitoring network to On the basis of existing monitoring fa- monitor extreme weather events and cilities, such as the water environment moni- people’s health toring system and the drinking water moni- Provinces should be regarded as mon- toring system, China should intensify the itoring units with monitoring stations and monitoring of water pollution and health posts established at the municipal and damage, especially the monitoring of the county levels to monitor, analyze and as- water quality of drinking water sources and sess the effects of extreme weather condi- rural water environment and health, with the tions and the harm they cause to people’s overall requirements of national water pollu- health. The existing weather and health tion prevention work and the related re- monitoring resources and capability in the quirements of urban and rural drinking water national meteorological departments and safety taken into consideration. health departments should be consolidated 4.4.4.2 Establish a monitoring network for and reinforced to set up a national extreme air pollution and health climate event and health monitoring net- Monitoring air pollution means moni- work. toring and tracking the major pollutants in 4.4.4.5 Establish a monitoring network for the air to be controlled that will directly or the health and biological safety of public indirectly affect, through various channels, places the health of the residents. This means, in Based on the Hygienic Management of particular, the effective monitoring and con- Public Places, it is necessary to set up moni- trolling of priority pollutants. At the same toring areas in important locations, to moni- time, it means the monitoring of the health tor the hygienic conditions and biological conditions of different groups of people, the safety, and to form a national monitoring establishment of a health monitoring station network for hygiene in public places and for in each social community, and the formula- biological safety in specially designated plac- tion of the relevant indexes for monitoring es.

188 Harmonious Development through Innovation

4.4.5 Early warning mechanisms for en- and health risks; provide advance warning of vironment and health management possible serious environmental pollution and damages to health; suggest management and Where the prevention system needs im- technical responsive measures to realize provement or has not been established, and scientific decision-making and prevention on where the pollutants producing grave conse- the basis of environment and health moni- quences to people’s health cannot effectively toring and risk assessment; create early be controlled, to establish an early warning warning mechanisms for environment and system is necessary to allow people to avoid health risks, reporting systems for environ- the health hazards they face. Other unex- mental pollution, and health damages and pected events, extreme weather, and accu- early warning release systems; improve early mulated effects may still bring about signifi- warning and prevention policies, measures cant environmental threats to people’s health. and means; strive to prevent serious envi- Therefore, even where there is a pollution ronmental pollution and health damaging prevention system, to establish an early events from happening through early analysis, warning system still is necessary to allow early prediction, and early intervention; study people to reduce environmental health risks. the relationship between environmental pol- 4.4.5.1 Establish the assessment mechan- lution and health damages with the purpose ism for environment and health risks of addressing and decreasing environmental China should establish an assessment pollution and health damages; make reasona- mechanism for environment and health risks. ble early-warning, prevention, and treatment Environmental protection and health de- plans for different risk grades; and increase partments and other relevant departments the level of guarding against grave environ- should build close cooperation to set up and ment and health risks. improve an environmental and health risk assessment system. This system should: es- 4.4.6 Improve the emergency handling tablish necessary research; perfect risk as- mechanisms for environment and health sessment procedures and constitute related management guidance, techniques, and methods; deter- mine the acceptable level of danger; scientif- It is necessary to further improve the en- ically determine levels of national environ- vironment and health management mechan- ment and health risks; and gradually bring ism against emergencies and to formulate the the costs of environment and health risks work rules to deal with the outbreak of un- under control. expected events, the report system of emer- 4.4.5.2 Strengthen the early warning ability gent and major events, and the regulations to for environment and health risks handle unanticipated environment and health Departments of environmental protec- events. The environmental protection and tion and health in all regions jointly should: health departments need to cooperate with conduct early warning work on environment each other closely to deal with emerging

Chapter Ⅳ Environment and Health Management System and Policy Framework 189 events in connection with environment and vironment; determine the types, the degrees, health and to improve their capacity to deal the nature, and the distribution of health with such events. It is necessary to realize damages caused by the environmental pollu- unified decision making, command, and al- tion in China; and keep abreast of the spec- location of resources and to deal with emer- trum of diseases caused by environmental gency cases, striving to swiftly and effectively pollution. These actions will provide a control the pollution, mitigate the health scientific basis for the implementation of the harm, and provide prompt medical treatment environment and health actions. The investi- to the victims. gation of environment and health problems mainly covers the following two areas: inves- 4.4.7 Reinforce the construction of tech- tigations on the status quo of major envi- nical support systems for environment ronmental pollutants; and investigations on and health management health impact caused by environmental pol- lution. 4.4.7.1 Strengthen the construction of tech- 4.4.7.3 Launch urgent environment and nical capabilities and professional teams health research projects Strengthening the technical support ca- According to the development situations pacity for the environment and health is cru- and actual requirements of international and cial to enhance the support level with science domestic environment and health work, and technology. What urgently needs streng- some basic application research efforts thening is the basic research capability of en- should be started in the shortest possible vironment and health, the monitoring capa- time, such as studying assessment technology bility, laboratory facilities and equipment, the of health damages caused by environmental standard system development capability, and pollution and studying the load assessment capacity building for human resources train- system for the diseases caused by environ- ing. mental pollution. 4.4.7.2 Strengthen investigations on the current conditions of the environment and 4.4.8 Complementary mechanisms of en- health impacts vironment and health management in The inadequate investigation of the en- China vironment and health problems has directly affected not only the objective and accurate 4.4.8.1 Financial assurance mechanism judgment of the environment and health A financial assurance mechanism should problems in China, but also the effective de- be established that aims to meet the require- velopment of environment and health man- ments of government departments, such as agement. Therefore, it is necessary to: carry environmental protection and health, to out investigations in a timely way on the ma- conduct environment and health surveys and jor environmental factors and damages to monitoring and system maintenance, and to health caused nationwide by the polluted en- complete the environment and health pre-

190 Harmonious Development through Innovation vention, warning, and emergency work. The publication mechanism will contribute to environmental protection department and the creation of a national environment and the health department at all levels shall for- health information platform and an envi- mulate medium- and long-term plans and ronment and health information service annual plans on environment and health mechanism. The Government of China management, specify work content, apply for periodically should release environment reasonable financial budgets, and submit and health news and publish environmental them to the financial department for approv- pollution data and health damage for the al. Meanwhile, the financial allocation of public so as to accept public supervision central government and local governments at and help the public to evade and avoid different levels should arrange the funds in health risks. The Government also should their annual budgets to ensure that adminis- establish the national and local dynamic trative fees and major project costs are met. monitoring databases of environmental The State is advised to develop an environ- pollution and health effects, should create mental pollution responsibility insurance effective information sources for monitor- system and to create a compensation fund ing data to provide the scientific basis for for environmental health damages. The State national and local environment and health should implement an environmental pollu- decision-making, and should offer the ba- tion responsibility insurance system and use sic data for environment and health re- part of the premium for this compensation search. fund. The financial departments should make 4.4.8.3 Supporting policies and regulations financial contributions to the compensation It is necessary to assess the implementa- fund on an annual basis. In the meantime, a tion outcomes of current laws and regula- certain amount of pollution discharge fees tions in a comprehensive manner and to collected on an annual basis should be con- suggest a general plan for improving the re- tributed to this fund. Social donations can lated environment and health laws and regu- also be a source of compensation funds. The lations in order to dissolve the outstanding compensation fund should be used in the contradictions in the present work. China following situations: first, as compensation should gradually create a complete set of le- for the victims of health damages caused by gal systems, including the laws and regula- historical environmental problems; second, tions on environmental health risk and im- as compensation for the victims if the re- pact assessments, the prevention of envi- sponsible parties lack the civil compensation ronmental health problems, the compensa- capacities; and third, as compensation for the tion for environmental health damages, the victims if the responsible offenders cannot emergency treatment of environmental be identified. health events, and the relief of environmen- 4.4.8.2 Information support system tal health damages so that each link of the The establishment of an environment environmental health system can act upon and health information management and the laws and regulations accordingly. China

Chapter Ⅳ Environment and Health Management System and Policy Framework 191 should study the legal systems on compensa- exchange activities, absorb advanced expe- tion for damages caused by environmental rience in environment and health work, learn pollution, further consolidate the legal re- new technologies and methods, and increase sponsibilities for environmental pollution, continuously the capacity and level of envi- improve the legal basis of compensation for ronment and health work in China. damages caused by environmental pollution, and study and design specific compensation 4.4.9 Key fields of China’s environment measures, including the identification of and health management damages caused by environmental pollution, the compensation procedure and scope, and China’s environment and health inter- legal aid methods for those suffering from vention work should focus on the prevention pollution. China should improve the con- and treatment of the health damages and struction of laws and regulations on envi- risks induced by air pollution in urban areas ronmental impact assessments, treat the en- and highly urbanized rural areas and in big vironmental health impacts as an integral cities in particular. Since there is a lack of component of environmental impact as- drinking water and increasing pollution of sessment, and strengthen the prevention and water bodies in the vast rural areas of our control of environmental health damages. country, priority intervention should be given 4.4.8.4 Other supporting policies and to the prevention and treatment of health measures damages and risks caused by water pollution The related departments should intensify or biological pollution of the water envi- the organization of environment and health ronment there. Great attention should be work, earnestly carry out the tasks, goals and paid not only to modern environment and requirements, guarantee the transparency of health problems, but also to the traditional government affairs, tighten the responsibility environment and health problems in those checkup, welcome social supervision, and locations. Strategically, China should inter- ensure the successful and effective develop- vene without delay to address the environ- ment of environment and health work. mental risks that have led to diseases or defi- Meanwhile, it is necessary to spare no effort nite damages and create the remedy and to launch the publicity of environment and compensation mechanism for environmental health knowledge and the public education, health damages. Though we have some defi- to enhance the people’s consciousness of nite knowledge of environmental health environmental protection and health protec- damages and influence approaches, the most tion, to boost the development of sound in- serious damages are yet to come. This being dividual and social conducts, and create a the case, China should focus its efforts on positive atmosphere in which the whole so- monitoring and prevention, strengthening ciety protects the environment and maintains capacity for early intervention, and avoiding health. In addition, this task force shall ac- and decreasing the health damages caused by tively conduct domestic and international environmental pollution. We should intensify

192 Harmonious Development through Innovation monitoring and impose a rigorous access re- tainable Development in China in the Early quirement on those environmental factors 21st Century”, embody the policy of pro- with uncertain health influences. tecting the environment and human health via planning. 4.5 Policy and Legislation Next, China lays emphasis on the as- Framework of Environment and sessment of the impact of environment on Health health and prevents the adverse impact of production and construction on human health through the environmental assessment 4.5.1 Basic framework of China’s envi- of planning and construction projects. “The ronment and health management poli- Assessment of the Impact of Environmental cies and legislation Pollution on Health” (in trial), released by the Ministry of Health in 2001, and the “Na- 4.5.1.1 Basic framework of China’s envi- tional Environment and Health Action Plan ronment and health management policies (2007 to 2015)”, jointly issued by many min- China’s environment and health policies istries and commissions, both have concen- consist of health policies in connection with trated attention on this topic. The Action environmental protection and environmental Plan puts forwards the requirements for rea- policies in connection with health protection sonably determining the acceptable risk level, involving environmental factors. Specifically, for mapping out the national environment they include: and health risk grade division, for improving (1) Policies for preventing environment the prediction and management deci- health-related damage. The prevention policy sion-making on the controllable environ- remains one of the basic policies for the en- mental harmful factors and health hazard, for vironment and health protection. Policies for gradually realizing the environment and preventing environmental health-related health risk cost control, and other require- damage are mainly realized by rational plan- ments. ning, the assessment of health impacts, and Also, China formulates a series of poli- the development of clean production and cies for eliminating backward productivity recycling economy. and for developing a clean production and First, China, through rational develop- recycling economy. These policies are par- ment planning, tries to protect the environ- tially reflected in the “Decision of the State ment, to prevent and control pollution, and Council on Several Issues Concerning Envi- to avoid to the utmost the adverse impact of ronmental Protection”, released in 1996, and production and construction activities on the “Several Opinions of the State Council on living environment and health of people. Speeding up the Development of Recycling Certain documents, such as the “Outlines of Economy” and the “Decision of the State the National Economy and Social Develop- Council on Implementing Scientific Con- ment” and the “Program of Action for Sus- cept of Development and Strengthening

Chapter Ⅳ Environment and Health Management System and Policy Framework 193

Environmental Protection”, both issued in ronmental pollution emergencies and has 2005. These policies also are best reflected established the National Inter-Ministry in the documents of various competent Joint Conference System for Environment administrative departments, such as the Protection as the top integrated coordina- “Catalogue of Backward Productivity, tion institution for the outbreaks of envi- Process and Products to Be Eliminated” ronmental pollution emergencies. This and the “Technical Guiding Catalog of emergency system certainly covers the Clean Production of National Key Indus- rapid response to environment and tries”. health-related accidents. (2) Policies for restoring and relieving the The “National Environment and Health effects of environment and health-related Action Plan” is a policy document that, for damage. This includes three aspects: first, the first time, stipulates early warning against restoring environments that do harm to hu- environment and health risks and rapid re- man health; second, restoring human health; sponse to emergencies. The document: re- and third, relieving and remedying damage quires the establishment of a rapid response done by environment to health. Regarding system to such emergencies and the report- the restoration of environments that cause ing mechanism for emergencies and major damages to human health, the policies and events; clarifies that environmental protec- stipulations in China are mainly reflected in tion departments and health departments the policy of “whoever pollutes shall con- should take the main responsibility for deal- trol” and the substitutive execution system. ing with emergency public accidents caused In terms of the restoration of human health, by environmental pollution and other rele- special and definite policies are yet to be es- vant departments should participate as tablished. As to the damage to the human needed; integrates relevant institutions and body caused by the environment and posts in the environmental protection and health-related damage accidents, temporary the health sectors; gives full play to the envi- measures are normally taken after accidents, ronment and health monitoring network and when polluting enterprises and the govern- the risk assessment measures; carries out ment together provide funds for treatment. post-incident, on-the-spot environmental in- Finally, in respect of relieving the environ- vestigation, health impact tracing and moni- ment and health-related damage, China cur- toring and emergency disposal effect assess- rently has no special policy and relief is gen- ments; directs the on-the-spot environmental erally administered through administrative or remediation and health damage treatment judicial channels. after the outbreak of an emergency; timely (3) Emergency policies for environ- and effectively treats the damage to health ment and health-related accidents. Since caused by the environmental pollution in line 2003, the Chinese Government has gradu- with the existing medical security system and ally constructed and perfected the prepara- the medical assistance system in urban and tion system for rapid responses to envi- rural areas; prevents the aggravation of

194 Harmonious Development through Innovation damage; and reduces the damage burden to, health laws. At present, China has published and feasibly safeguards the lives and health of, 9 health laws and over 20 heath regulations. the victims. However, the health administration regula- 4.5.1.2 Basic framework of China’s envi- tions relating to the environment and health ronment and health management legisla- management are only prescribed in public tion health legal norms, such as the Law of the China has preliminarily established the PRC on the Prevention and Treatment of environment and health law guarantee sys- Infectious Diseases, the Food Hygiene Law, tem including the constitution, civil laws, the Law of the PRC on the Prevention and criminal laws, administrative laws, and envi- Treatment of Occupational Diseases, and ronmental laws, which are described as fol- Regulations on Preparedness for and Re- lows: sponse to Public Health Emergencies. (1) Constitution. The state has the re- (5) Environmental law. One of the ob- sponsibility for protecting citizens’ health jectives of the environment legislation in and the Chinese Constitution contains many China is to safeguard human health. It pre- such provisions. Article 21 of the Constitu- scribes the relief for the damages to human tion (1982) stipulates the state should devel- health caused by the environment problems. op the medical and health cause, develop First, on the basis of establishing “safe- public health activities, and protect people’s guarding human health” as one of the objec- health. Section 2, Article 36, Article 42 and tives of the environmental legislation, the Article 45 of the Constitution stipulate that existing Environmental Protection Law pre- the state has the responsibility of protecting scribes, in the first article, that the law is citizens’ health in different aspects. formulated for the purpose of protecting (2) Civil law. The General Principles of and improving people’s living and ecological Civil Law gives detailed stipulation of the environments, preventing and controlling health right, one of the important personal pollution and other public nuisances, safe- rights of citizens. Article 98 of the law sti- guarding human health, and facilitating the pulates citizens have life and health rights. development of socialist modernization. The Article 106 prescribes the civil liability for in- subsequently promulgated laws and regula- fringing on others’ life and health rights and tions, such as the Law of the PRC on the for the liability principle. Prevention and Control of Atmospheric (3) Criminal law. The criminal liability Pollution, the Law of the PRC on the Pre- and criminal punishment induced by in- vention and Control of Environmental fringements upon citizens’ lives and health Noise Pollution, the Law of the PRC on the rights that constitute crimes is an important Prevention and Control of Environmental component of the Criminal Law, which ef- Pollution Caused by Solid Waste, the Law of fectively guarantee citizens’ rights to health. the PRC on the Prevention and Control of (4) Health law. The administrative laws Radioactive Pollution, the Regulations on the that protect citizens’ health rights are mainly Administration of Agriculture Genetically

Chapter Ⅳ Environment and Health Management System and Policy Framework 195

Modified Organism Safety and the Regula- duction, the Decision of the State Council tions of the Safety and Protection of Ra- on Strengthening Control on Dust-proof dioisotopes and Radiation Apparatus all list and Toxicant Prevention, Regulations for the “safeguarding human health” as one of their Implementation of the Law of the PRC on legislation objectives without exception. Safety in Mines, Regulations on Labor Pro- Second, with regards to the relief for dam- tection in Workplaces Where Toxic Sub- ages to human health caused by environ- stances Are Used, and Measures for Admin- mental problems, Article 41 of the Envi- istration of the Occupational Health Moni- ronmental Protection Law stipulates that any toring and Protection. These normative unit that has caused an environmental pollu- documents have played a very important role tion hazard shall have the obligation to elim- in protecting the safety and health of labors inate it and make compensation to the unit in China. or individual that suffered direct losses. A (7) Judicial interpretation. The Supreme dispute over the liability to make compensa- People’s Court has made several judicial in- tion or the amount of compensation may, terpretations that favor the environment and upon the request of the parties concerned, health protection. For example, Article 4 of be settled by the competent administrative the Several Provisions of the Supreme department of environmental protection or People’s Court on Evidence in Civil Pro- another department vested by law with pow- ceedings clearly stipulated that adopting the er to conduct environmental supervision and inversion in the burden of proof for envi- management. If a party refuses to accept the ronmental tort litigation cases, which veils decision on the settlement, it may bring a suit the victims by safeguarding their rights and before a people’s court. The party may also interests. The Interpretation of the Supreme directly bring a suit before the people’s People’s Court on Several Issues Regarding court.” Article 42 stipulates that the limita- the Ascertainment of Compensation Liability tion period for prosecution with respect to for Mental Damages in Civil Torts feasibly compensation for environmental pollution solves the operability of the life and health losses shall be three years, counted from the right protection in the judicatories, thus al- time when the party became aware of or lowing the victims of pollution to obtain the should have become aware of the pollution compensation for mental damages. losses. Other environmental protection laws (8) Environmental standards. China has all have the similar stipulations. established many environmental standards (6) Labor law. So far, China has success- that closely relate to environment and health. fully set down a series of laws, regulations First is the establishment of environmental and rules relating to the environment, health, quality standards to protect the environment and safety of labors, such as the Mine Safety and safeguard human health. Second is the Laws, the Labor Law, the Law of the PRC on establishment of standards for pollutant the Prevention and Control of Occupational discharge to prevent and restrain the envi- Diseases, the Law of the PRC on Safe Pro- ronmental pollution from damaging human

196 Harmonious Development through Innovation health, such as the “Integrated Emission lenges. These challenges are caused by many Standard of Air Pollutants” and the “Stan- factors such as economy, history, science and dard for Pollution Control on the Landfill technology. Site of Municipal Solid Waste”. Third is the 4.5.2.1 Challenges arising from the Chinese establishment of health protection zone environment and health management poli- standards to prevent toxic and harmful sub- cies and legislation stances of factories and of mining corpora- The environment and health manage- tions from affecting the normal living envi- ment policy and legislation system in China ronment and health of residents, such as the has defects with respects to the environment “Health Protection Zone Standard for Oil and health management policy, the laws, reg- Refineries” and the “Health Protection Zone ulations, and normative documents on the Standard for Cement Plants”. Fourth is the environment and health management, and establishment of standards for the toxic and the environment and health management harmful substances to prevent the environ- system. They also have many shortcomings ment and health-related damage caused by in respect to the execution of policy and leg- using such substances, such as the “Hazardous islation that are mainly reflected as follows: Materials Control Standard for Motor Vehicle First is the shortage of comprehensive Gasoline” and the “Guidelines for the Hazard and systematic environment and health Evaluation of New Chemical Substances”. management policies. Currently, the envi- Fifth is the establishment of discrimination ronment and health policies lack aspects like and identification standards for environment environmental health recovery and insurance and health-related damage to solve environ- for environment and health-related damage, ment and health disputes, such as the “Dis- nor are there the environment and health crimination Standard for Health Hazard Areas supervision policies that could be supported Caused by Environmental Cadmium Pollu- mainly by facilitating the disclosure of envi- tion” and the “Standard for Identification of ronment and health information and by Areas of Chronic Arsenic Poisoning Caused promoting public participation. by Environmental Arsenic Pollution”. Second is a shortage of sound legal sys- tems on environment and health manage- 4.5.2 Analysis of the problems of the ment. China lacks special legislation on envi- Chinese environment and health ronment and health problems; the related management policies and legislation laws and regulations can be found in a variety of legal departments, so judicial practice is Despite the fact that China has made impossible without the coordination of sev- remarkable progress in the construction of eral related laws and regulations. At present, laws and policies on environment and health, the legal guarantee system on environment we have to say the policies and legislation on and health consists of related entities like the the environment and health management in civil law, administrative law, criminal law, en- China are still confronted with severe chal- vironment law, civil procedure law, adminis-

Chapter Ⅳ Environment and Health Management System and Policy Framework 197 trative procedure law and criminal procedure gree. However, these systems are not being law, and the specific provisions of procedural implemented effectively. The criteria on hu- laws, all of which appear to be rather disor- man health protection, in particular, have not derly and can hardly form a complete and been given proper attention. For example, systematic legal system. These disorderly en- the environmental impact assessment system vironment and health laws and norms can inherently contains an assessment on human hardly effectively protect human health and health impact. However, in the concrete op- prevent the frequent occurrence of envi- eration, the relevant assessment standards are ronment and health accidents. absent. Moreover, the personnel for approv- Third is shortage of a necessary legal ing environment assessment documents sel- system for action on environment and health dom consider the influence of the projects management. A multitude of environment on human health and some environment as- and health legislation cases are limited to the sessment units even practice fraud intention- abstract prescription in the objectives of the ally just to pass the environment assessment legislation. They lack any detailed provisions report smoothly. In another example, the en- concerning the measures for safeguarding vironmental damage compensation system human health, criteria for assessing the includes compensation for human health health damage, and relief approaches and damage; however, the institutions, proce- methods for health damage, resulting in fail- dures and standards on the identification of ure to satisfy the needs for environment and damage to human health caused by pollution health protection. Meanwhile, some specific are absent. As a result, many victims of the environment and health management sys- environmental pollution cannot be identified tems must be established, such as an envi- and compensated. ronment and health risk assessment system; a 4.5.2.2 Analysis of the reasons for the ab- reporting system, a monitoring system, an sence of Chinese environment and health early warning system, an authentication and management policies and legislation evaluation system, a compensation system, The various problems in environment an insurance system, and a disclosure system and health policies and legislation as stated for environment and health-related damage above not only have historical origins, but information; and an emergency system for also have certain economic and technical environment and health-related accidents. causes. They can be attributed to limited Last is the ineffective implementation of awareness of government leaders and insuf- the present environmental management sys- ficient public consciousness of environment tems and measures. China lacks a special en- and health and are related to the manage- vironment and health management system, ment mechanisms and judicial practices. but, if some of the existing environment Concretely speaking: management systems can be implemented (1) Environment and health management well, it should still be possible to solve the started late in China. The history of envi- environment and health issues to some de- ronmental protection is just 30 years in

198 Harmonious Development through Innovation

modern China and less than 30 years in economic development and have little time terms of environmental protection legisla- or an unwillingness to pay attention to envi- tion. And at this stage, it is difficult for the ronment and health, special and concrete state to pay proper attention to health dam- legislation on environment and health man- ages that are not visible or are of long dura- agement cannot be put on the agenda. tion or potentiality. Therefore, the legislation (3) The technological capacity of envi- may state general provisions on “protecting ronment and health management is weak. In the human health”, but the specific man- respect to technical factors, it still remains agement and protection measures are rarely uncertain on how to identify the cause-effect available. Besides, due to the lack of envi- relations for environment and health-related ronment and health cases and the environ- damage. The diseases related to environment ment and health management experience, the and health often cannot be identified because drafting and establishment of environment of the absence of technical authentication. and health policy and legislation surely can- As a result, some facts on environmental not be emphasized and conducted. health hazards are concealed. Furthermore, (2) Environment and health management the environmental medical researches in is restricted to the economic development. In China both have a late start and are con- the past 30 years, China has always taken de- fronted with technical weaknesses. The re- velopment as the overriding principle and search expenditures are in short supply and some local leaders even interpret “develop- the restricted site investigations render mas- ment is the most important principle” as tering the comprehensive data of environ- “economic development is the most impor- ment and health difficult. Because the envi- tant principle”. This has resulted in an av- ronment and health problems are not based erage annual growth rate of 10% or over for on scientific research and comprehensive the GDP, but with little investment in envi- survey data, they cannot draw enough atten- ronmental protection. During the 8th tion from the government and administrative Five-Year Plan, the ratio of environmental departments or be put on the agenda of na- protection investment to GDP was only tional legislation work. 0.69%, nearly 1% during the 9th Five-Year (4) Leaders do not emphasize environ- Plan, and 1.32% during the 10th Five-Year ment and health management. Some local Plan. This is registered as dramatic increase. government leaders do not recognize the The investment in environmental protection significant impact of the environment health in developed nations generally accounts for hazards on the state and blindly think that 1.5% of GDP.1 With such a low proportion environmental pollution hazards, including of environmental protection investment, environment and health hazards, are inevita- China’s environmental situation surely will ble in the course of economic development, deteriorate, which then will affect human and even view that a certain level of envi- health. When the general public, especially ronment and health hazard is the cost China leaders at various levels, are absorbed in the must pay for its economic climb. Under such

1 Analysis on the Chinese Environmental Protection Investment at http://www.paper800.com/paper8/39151403/, Time of Latest Browse: 18：00. .August 20, 2007. Chapter Ⅳ Environment and Health Management System and Policy Framework 199 mentality, it is impossible for them to highly ronment and health and to accumulate vari- value environment and health issues. In addi- ous environment and health cases necessary tion to this mindset, due to the mentality of for legislation work. Hence, people have a “holding back the unpleasant information” false impression that the legislation is both that prevails through the whole country, the unnecessary and ungrounded. environment and health damage that will af- fect the political achievement and image is 4.5.3 Perfection and improvement of not reported actively. Chinese environment and health man- (5) Environment and health manage- agement policies and legislation ment is deficient in public basis. For a long time, China has lacked propaganda and As stated, the environment and health education in environment and health, lead- management policy and legislation system is ing to the low environment and health con- perplexed by many problems with manifold sciousness of the Chinese citizens. Citizens causes. With the establishment of a scientific are accustomed to and cannot recognize the concept of development, the Chinese gov- environment and health damage they suffer, ernment pays more attention to people’s live- even when they are seriously jeopardized, lihood, pursues social harmony, and increa- and do not actively complain and press for singly shows concern for the environment solving the problems. Some residents that and health issues that relate to the funda- have suffered damage from the environ- mental interests of the majority of the mental pollution give up their complaints people in China. Meanwhile, with rapid eco- after obtaining some economic compensa- nomic development and scientific and tech- tion from the polluter, which also affects nological progress, China possesses the abili- the recognition of decision making depart- ty to solve environment and health issues, ments on the seriousness of environment and the People’s governments at all levels and health problems and the urgency for and the general public are all realizing gradu- solving these problems, while further in- ally the importance of environment and fluencing the legislation on environment health management. In addition, along with and health. the improvement of the environmental law (6) Environment and health management system of China, people are beginning to no- lacks judiciary support. Various courts are tice the defects of China’s environment and normally reluctant to accept the environment health policy and legislation and are willing and health hazard cases. Thus, few environ- to continue to improve and to perfect it with ment and health damage cases are success- effective measures. fully brought to court and even fewer are The environment and health policy and won by the victims. Since courts have wit- legislation should be improved and perfected nessed few lawsuits concerning environment mainly in the following aspects. and health problems, it is difficult to reflect the judicial demands for legislation of envi-

200 Harmonious Development through Innovation

4.5.3.1 Formulation of comprehensive and environment and health management and for systematic environment and health man- identifying and compensating for environ- agement policies ment and health-related damage. On the ba- Comprehensive and systematic envi- sis of this topic, through the cooperation of ronment and health management policies various departments, clauses that relate to should include preventive policies for envi- the environment and health can be added ronment and health-related damage that properly in the process of drafting and es- focus on: rational planning and environ- tablishing relevant environmental protection ment and health risk assessment; industrial laws and regulations. For example, the con- policies favorable for environment and tent of human health impact assessments health and dominated by clean production can be included in the Technical Guideline and environmental friendliness; policies on of Environment Impact Assessment. The the treatment of environmental pollution related clauses of Civil Procedure Law, Ad- sources, which focus on the elimination of ministrative Procedure Law, and Criminal backward production process and equip- Procedure Law could be modified to specify ment; relief policies for environment and the procedures concerning the lawsuits health-related damage, mainly including the against environment and health-related development of insurance for environment damage, including the plaintiff’s procedural and health-related damage, administrative competence, the collection of evidence, the relief and the judicial relief; and environ- burden of proof, the determination of ment and health supervision policies mainly cause-effect relationships, and the time limit supported by facilitating the disclosure of for litigation. On the basis of the supple- environment and health information and mentation to and the perfection of relevant promoting public participation. laws and regulations, it also would be possi- 4.5.3.2 Gradual improvement in the legal ble to draft and establish special laws and systems for environment and health regulations on environment and health, such Since China’s environment and health as the Law of Compensation for Environ- work was just initiated, developing compre- ment and Health-Related Damage and the hensive environment and health legislation Regulations for the Management of Envi- still is premature. During the 10th Five-Year ronment and Health, to work out a series of Plan, the former State Environmental Pro- standards and technical specifications to tection Administration organized the nation- support the implementation of these laws al science and technology development topic, and regulations, and finally, to form a har- entitled “Research into Human Health monious and unified environment and health Damage Caused by Environmental Pollution law system constituted by a series of laws, and Compensation Mechanisms”, that pre- regulations, rules and standards. sented a legal framework for a health damage rating and compensation mechanism, and provided a technical platform for conducting

Chapter Ⅳ Environment and Health Management System and Policy Framework 201

4.5.3.3 Establishment of a whole set of in- system, the early warning system for envi- ter-linked and coordinated environment ronment and health-related damage; and and health management systems other related tasks. At this moment, it is Sound environment and health systems possible to conduct monitoring work relying should include: an environment and health on the environment-monitoring network that planning system; a disclosure system for en- is relatively sound. As for the monitoring of vironment and health-related damage infor- the status quo of the human health, the mation; a monitoring system, a public par- Ministry of Health can organize the disease ticipation system, an early warning system, a control center and the relevant medical insti- reporting system, a treatment system, an tutions to conduct monitoring. The moni- identification and assessment system, a toring data of various departments and units compensation system, a funding system, and should be disclosed and shared and consulta- an insurance system for environment and tion should be conducted for major prob- health-related damage; and an emergency lems found in the monitoring. system for environment and health-related (2) An identification and assessment sys- accidents. These systems should be in- tem for environment and health-related ter-linked and coordinated to create a whole damage. The compound character of envi- set of well-established systems. At present, ronmental problems in China brings about the several systems that urgently need to be the complexity and diversity of the environ- established are listed as follows: ment and health issues. Since the identifica- (1) An environment and health-related tion of the cause, nature, size, degree, and damage monitoring system. At this moment, impact scope of environment and the biggest challenges we face in our envi- health-related damage requires considerable ronment and health management are that the professional and technical capacities, it is ne- quantity and degree of the environment and cessary to establish special identification and health-related damages are not clear and the assessment institutions for environment and relevant data is deficient, so it is necessary to health-related damage in order to support the establish the environment and health-related parties concerned with damage identification damage monitoring system as soon as possi- and assessment services. The environmental ble. The environment and health-related protection administrative department of the damage monitoring system should include: State Council should establish an environ- comprehensively and dynamically investigat- ment and health-related damage assessment ing the environment and health-related system to identify the assessment qualifica- damage situation over all the country, espe- tions of environment and health-related cially in areas that have long been afflicted by damage evaluation institutions and to frame pollution; opportunely integrating environ- and release relevant identification standards mental pollutant monitoring and the epi- and technical specifications for environment demic monitoring; realizing the connection and health-related damage. The conclusive with the environment and health planning assessments, which are to be made by statu-

202 Harmonious Development through Innovation tory assessment institutions according to re- for environment and health accidents; setting levant assessment norms, should have legal up a reporting system for environment and validity and constitute a major basis for de- health accidents; making clear the source of termining the damages related to environ- emergency funds for environment and health ment and health. accidents and establishing corresponding ac- (3) An environmental liability insurance cident restoration funds; and creating strin- system. Environment and health hazard gent emergency responsibility investigation events always involve a large number of systems for environment and health acci- people and huge compensation amounts, and dents. generally the pollutant discharging enterpris- 4.5.3.4 Creating a robust law enforcement es can not bear the charges independently. mechanism of environment and health Thus, the environmental liability insurance management system should spread the risk in a socialized The environment and health manage- way. ment work in China started late and is cha- (4) The emergency system for environ- racterized by insufficient investment and by a ment and health accidents. At present, the small, weak public participation base, causing environment and health accidents in China administrative law enforcement to remain the are mainly managed in line with policy doc- main means and the inevitable path for im- uments, such as the “National Environmen- plementing environment and health policies, tal and Health Action Plan”, and lack an ef- laws, and regulations. First, the government fective basis for laws and regulations. A feas- should strengthen the construction of envi- ible emergency system for environment and ronment and health institutions and define health accidents is yet to be established. their corresponding responsibilities. It espe- Based on the specific characteristics of envi- cially should clarify the status and responsi- ronment and health accidents, it is required bilities of administrative departments such as that environment and health accident emer- environmental protection departments and gency system pay more attention to the health departments in enforcement of pre-accident prevention and early warning the environment and health management, and to post-accident long-term relief. This should furnish necessary professionals and environment and health accident emergency funds for the departments, and should im- system should accomplish the following prove their ability to conduct administrative goals: establishing special environment and enforcement on environment and health health accident emergency management leg- management. Second, China should enhance islation on the administrative regulations lev- the communication and coordination of el, as well as relevant matching department various departments on the government level rules; defining leading bodies and participat- and should establish and perfect the en- ing departments for environment and health forcement cooperation mechanism of envi- accident emergency treatment; establishing ronment and health management among an emergency management planning system various departments. Finally, China should

Chapter Ⅳ Environment and Health Management System and Policy Framework 203 provide ways for the public to participate in measures of environment and health man- and supervise the enforcement of environ- agement should be initiated with two aspects. ment and health management through a dis- On one hand, we need to firmly carry out closure system for environment and various systems and measures to facilitate the health-related damage information and rapid development of environment and through a public participation system for en- health management. On the other hand, we vironment and health management, should need to make overall arrangements using ex- strengthen the acceptance of, and the trial by, isting systems and measures to promptly and the judicatory system for civil cases, adminis- properly regulate, in advance, the issues that trative cases, and criminal cases concerning are scheduled to be governed by policies, environment and health, and enhance ad- systems, and measures that have not yet been ministrative enforcement of environment mapped out, but can be regulated by the ex- and health management by social and judicial isting systems and measures, so as to make supervision. up for lagging system construction. For ex- 4.5.3.5 Implementation of various applica- ample, before the promulgation of the spe- ble systems and measures on environment cial Law of Compensation for Environmen- and health management tal Damage, we can flexibly use the existing Promotion of the implementation of environmental damage compensation system various systems and measures on environ- to solve issues on compensation from envi- ment and health management is the realistic ronment and health-related damage. choice to solve the issues concerning envi- ronment and health management policy and 4.6 Report on Recommendations legislation and also is the implication for for Policies on Strengthening the perfecting environment and health manage- Environment and Health Man- ment policy and legislation. The environ- agement mental planning system, the environmental impact assessment system, the environmental According to international experience, damage compensation system, and other environment and health problems that are systems are all proven environmental man- handled improperly may develop into com- agement systems supported by relevant, plex social and political problems that gravely sound policies, legislation, and concrete jeopardize public health, affect the credibility measures. Because we have not yet compre- of the government, and cause the nation to hensively and clearly recognized the rela- pay a heavy economic cost. Therefore, dif- tionship between environment and health ferent countries all over the world currently management and these systems, these sys- pay much attention to environment and tems and measures fail to meet the practical health management and strengthen manage- need of environment and health manage- ment and intervention, with good results. ment in the implementation process. The The main experience and practices are: first, implementation of various systems and to intensify prevention and make active in-

204 Harmonious Development through Innovation tervention so as to avoid harm from envi- ronment and health management by making ronmental pollution to human health; second, clear responsibility and intensifying leader- to improve legislation, strengthen the admin- ship, supervision, and other measures for the istration of justice, and establish an envi- purpose of establishing an environment and ronment and health-related dispute settle- health management system where the gov- ment mechanism and a health compensation ernment plays a dominant role and the public mechanism. participates extensively. Considering the increasingly grievous en- The government should first set up an vironment and health situation at present and administrative system with a clear division of the possibility of more environment and work. The major governmental departments health risks in the future in China, the Task for environment and health management, Force recommends that the Chinese gov- such as environment and health departments, ernment should raise more concern for en- should set up special agencies based on their vironment and health problems, further en- respective functions and equip themselves hance environment and health management, with sufficient human and financial resources and set up an environment and health man- to ensure the implementation of government agement system in which the government functions. plays a dominant role and the public partici- The environmental protection depart- pates extensively. The focus should be on ments should bear and fulfill more govern- reinforcing environment and health preven- mental functions in the prevention and con- tion work, on eliminating or reducing harm trol links of guarding against damage from from environmental pollution to human environmental pollution to human health, health, and on averting environment and and should further make clear the guiding health risks. Priority should be given to solv- ideology that safeguarding human health is ing hot issues in environment and health that the basic starting point of, and the funda- receive much attention from the people in mental purpose for, pollution prevention and order to maintain their environment and control, thus raising the importance of envi- health rights and interests. ronment and health work in environmental protection work. 4.6.1 Strengthening the responsibility of The health departments should focus on the government and building an envi- assuming and performing governmental ronment and health management system functions in preventing, monitoring, and where the government plays a dominant treating disease from environmental pollu- role and the public participates exten- tion and should bring the prevention and sively control task on disease owing to environ- mental pollution into the mainstream of na- The main body responsible for environ- tional disease control and health work, pro- ment and health management is the govern- viding technical support for the development ment, which should further enhance envi- of environment and health prevention and

Chapter Ⅳ Environment and Health Management System and Policy Framework 205

pre-warning work. At the same time, the de- understanding among people engaged in en- partments should specify governmental du- vironment and health management and to ties for development and reform, finance, boost the coordination and mutual support science and technology, social security and among departments and between central and other related areas to support environment local governments. and health work. Fourth, there should be an emphasis on the Third, a national environment and health building of local environment and health administrative coordination mechanism that management systems. Local governments at all is actively coordinated by departments such levels should set up their respective environ- as environmental protection and health de- ment and health management systems, clarify partments and is widely participated in by all the duties of relevant departments, form agen- departments under the leadership of the cies, and furnish personnel by referring to the State Council is proposed to be established. one established by the Central Government, so This should be done on the basis of the cur- as to identify and solve local environment and rent coordination mechanism for environ- health problems and report major environment ment and health work between the Ministry and health problems in time. of Environmental Protection and the Minis- Fifth, it is necessary to establish a gov- try of Health for the purpose of: discussing ernment performance assessment and ac- and dealing with the difficulties and prob- countability mechanism for environment and lems arising in environment and health health work in order to supervise and urge management; coordinating the workflow governments and departments at all levels to among different departments; and urging the fulfill their environment and health manage- implementation of various tasks to ensure ment duties. Responsibility of governments China’s environmental and health strategies, and leaders at all levels should be clarified in tasks, and government duties are imple- respect of environmental protection and mented. To this end, a State Council Working public health safeguarding, and supervision Group for Environment and Health Work and restriction should be strengthened over may be established that is headed by a leader the government’s fulfillment of its environ- in charge of the State Council and deputy ment and health management function by heads should be leaders of the General Of- improving the government and cadre per- fice of the State Council, the Ministry of formance assessment and accountability Environmental Protection, and the Ministry mechanism in order to increase the effec- of Health, with members from the other 16 tiveness of environment and health law en- departments concerned.1 forcement. At the same time, criminal and It is suggested to employ civil servant civil penalties should be given to government exchanges and a shift-rotating system be- officials, enterprise legal persons, individuals, tween different governmental departments and others who cause major environment and between central and local departments to and health hazards by perfecting relevant facilitate staff exchange, communication, and laws and regulations.

1 The sixteen departments including the finance, development and reform, water conservancy, construction, agriculture, and meteor- ology which participated in signing and formulating the National Environment and Health Action Plan. 206 Harmonious Development through Innovation

4.6.2 Improve environment and health ment system, amending the Environmental laws, regulations, and policy systems and Impact Assessment Law, establishing and form an effective environment and health implementing an environment and health management system impact assessment system, assessing the en- vironment and health impacts of construc- First, it is imperative to strengthen the tion projects, plans, and strategies gradually, construction of legislation in environment and fulfilling an environment and health and health management. This must begin management access system. with paying attention to the public health Fourth, an environment and health dis- rights and interests and to amend, supple- pute settlement mechanism should be ment, and perfect the existing laws, regula- created to protect the rights and interests of tions, and policy systems related to environ- the public environment and health. The gov- ment and health. Such systems should be es- ernment can gradually form and improve an tablished through improvement in legislation environment and health dispute settlement as an environment and health planning sys- mechanism through environmental dispute tem, an environment and health impact as- handling legislation, providing parties to en- sessment system, an environment and health vironment and health disputes with media- monitoring system, an environment and tion, administrative treatment, arbitration, health prevention, early warning and emer- litigation and many other means for dispute gency system, an environment and health settlement. Additionally, establishing public information disclosure system, a public par- interest litigation, legal aid and hearing sys- ticipation system of environment and health tems is necessary. To combat the problem of management, an environment and health difficulties of vulnerable groups in safe- damage dispute handling system, an envi- guarding their environment and health rights, ronment and health damage compensation the state should consider provisions for legal system, and so on. aid and the establishment of a public interest Second, the focus should be on intensi- litigation system. fying the legislation and law enforcement Fifth, a compensation system for human building for environment and health preven- health damage from environmental pollu- tion. It is necessary to proceed from main- tion gradually should be set up and imple- taining human health and avoiding health mented to maintain the rights and interests risks, to further revise and improve the cur- of the public by further improving relevant rent environment and health standards, to laws and regulations, enhancing related judi- access standards and emission standards, and cial capacity construction, furnishing legal to create a strict legal system of environ- aid, launching public interest litigation, mental access management. forming a compensation fund, and other Third, suggestions include strengthening means and measures according to China’s requirements for health impact assessments national condition and to the characteristics in the existing environmental impact assess- of health damage compensation issues from

Chapter Ⅳ Environment and Health Management System and Policy Framework 207 pollution. The foregoing compensation sys- pre-warning mechanism of environment and tem should be established in line with the health step by step, to conduct the forecast principle of “polluters pay expenses”, and and the pre-warning of the environment and the compensation responsibility of the main health risks, and to take the prompt measures body in charge should be specified in the to avoid or reduce environmental pollution’s legal system. At the same time, public inter- jeopardizing of people’s health. est compensation should be given to victims Third, according to the current problem of health damage from pollution through of frequent environmental pollution emer- the establishment of an environment and gencies in China, it is necessary to further health fund and through other means. enhance and perfect environment and health emergency handling and the handling me- 4.6.3 Adhere to the principle of focusing chanism and to develop an emergency dis- on prevention and take effective posal work system, an emergency and major measures to avert environment and incident notification mechanism, and envi- health risks ronment and health emergency disposal norms for the purpose of upgrading China’s First, a prevention system of environ- emergency disposal ability. The environmen- ment and health management should be tal protection and health departments should created by improving the environmental cooperate with each other closely to realize standards system, by preparing a directory of unified decision making, command, alloca- preferentially controlled pollutants, by form- tion of resources, and to deal with emerging ing and implementing a strict environment cases, striving to swiftly and effectively con- access system, and by other policy means and trol pollution, mitigate the health harm, and measures in order to carry out source control, provide prompt medical treatment to victims. especially rigorous control over pollutants that do great harm to human health and en- 4.6.4 Increase financial input and rein- ter the environment via production, flow, and force the environment and health man- consumption in order to guard against envi- agement capacity building ronment and health risks. Second, it is a must to continue to First, it is necessary to strengthen the strengthen and improve the building of the government’s responsibilities and increase its environment and health monitoring network, financial input. Meanwhile, the financial al- especially to increase environmental moni- location of the central government and of toring, including pollution source monitoring, local governments at different levels should related to crowd exposure level and relevant arrange the funds in their annual budgets to disease monitoring. On the basis of intensi- ensure the administrative fees and major fying the risk evaluation and analysis of project costs are funded properly. According monitoring data in relation to environment to the actual demand of China’s environment and health, it is required to carry out a and health management, the main focus of

208 Harmonious Development through Innovation the government investment comprises of the and health damage rehabilitation. The state following three aspects: first is to strengthen may formulate relevant provisions for envi- environment and health monitoring capacity ronment and health fund raising, operation, building and to improve gradually the and use. Local governments at the provincial processing capability for relevant environ- and municipal levels should establish local ment and health monitoring information, environment and health funds in accordance providing services for development of envi- with the relevant provisions of the state, ronment and health risk prevention and early specifically in forming and operating the warnings; second is to increase investment in funds, in implementing relevant compensa- scientific research in environment and health, tion, and in organizing development of re- to organize and launch large-scale surveys of lated activities. The state can support local environment and health problems and stu- governments by furnishing special capital dies of the environment and health base and from national finance. application, and to conduct in-depth studies Third, efforts should be made to estab- of relationships between environmental pol- lish social multi-channel financing channels, lution and health damage so as to determine to raise environment and health funds, and the basic condition of China’s environment to support the development of public inter- and health problems and to provide scientific est compensation due to human health and technical support for the government’s damage for reasons of the environment. The scientific decision-making and for the devel- channels of environment and health fun- opment of effective environment and health draising include: first, that the state raises management; third is to enhance the gov- capital by forming an environmental respon- ernment’s capacity building of environment sibility insurance system by taking a certain and health management, especially the ca- proportion of potential polluters’ capital as pacity building of local governments, the premiums for addition to a compensation public, and the judicial system and to incor- fund; second is that a certain amount of the porate relevant expenditures into the finan- pollution discharge fees collected annually cial budgets of the local governments at the shall be contributed to this fund; third is to same level. accept donations from all sectors of society; Second, the state may consider the estab- fourth is that a certain proportion of capital lishment of an environment and health fund should also be injected from government mechanism where public interest compensa- revenue into the fund to ensure capital needs tion can be made for health damage from of the fund for developing relevant com- historical environmental problems, for a lack pensation and activities; fifth is that the of civil compensation capacity on the re- compensation fund can be managed under sponsible part, and for victims for whom a the oversight of the Chinese government principal polluter is hard to define; the state according to the limited market operation may also support the development of envi- model so as to maintain the fund’s safety and ronmentally-caused health damage education to promote its value increase through in-

Chapter Ⅳ Environment and Health Management System and Policy Framework 209 vestment or operation in the capital market. departments should establish specialized agencies or provide special personnel to lis- 4.6.5 Focus on environment and health ten to the views of the public, opportunely information disclosure and encourage respond to and deal with environment and public participation health problems reported by the public, and supply the public with approaches to partici- First, the government should intensify pating in politics, discussing government af- environment and health education through fairs, and reporting issues. regular and irregular education channels and Fourth, it is necessary to strengthen su- through various media and other information pervision by the public, social groups and networks in order to deepen public under- media over the environment and health work, standing of environment and health issues to encourage the public to inform against and to upgrade their capacity of participating and report violations of environment and in environment and health management. health regulations, and to listen fully to Second, the government should oppor- comments from the public on environment tunely release environment and health in- and health work by holding meetings of ex- formation on the government’s websites and perts, demonstration meetings, hearings, and various news media in a way that allows easy other avenues of public-government dialo- access and understanding by the public. En- gue. vironment and health information that should be released to the public punctually 4.6.6 With regard to features and promi- includes: air, water, and other important en- nent problems of environment and vironmental quality information; environ- health in China, it is recommended to ment and health risk warning information; conduct the environment and health health risk pre-warning information on ma- work with focus and take targeted inter- jor environmental pollution incidents; im- vention measures portant monitoring information on disease due to environmental pollution; and major First, the government should apply dif- incidents of health damage owing to envi- ferent countermeasures for different envi- ronmental pollution; the procedures and ronment and health problems, focus on means through which the public may request problems of health damage incurred by en- the government to address environment and vironmental pollution, and prevent environ- health problems. mental pollution with high risk to human Third, the government should set up health. The government should intervene channels for the public to participate in en- without delay where environmental pollution vironment and health management, further has led to disease or definite damage, and improving complaint handling via letters and provide the victims with treatment and visits, public notification, and other systems. compensation. For the pollutants that have The environmental protection and health been proven to cause serious health damage,

210 Harmonious Development through Innovation the state must create a directory of preferen- are two severe threats to human health, to tially controlled pollutants, rigidly enforce strengthen the management and intervention access to the pollutants, and intensify early of environment and health is imperative. In intervention, so as to prevent and reduce the urban areas, more importance should be at- harm of environmental pollution to health. tached to the prevention, precaution, emer- Meanwhile, to those environmental factors gency management, and medical treatment with clear effect on health not yet identified, for environment and health events closely research efforts should be enhanced and related to air pollution, by establishing and positive prevention measures taken. The perfecting relevant monitoring, information emphasis of work on environmental pollu- sharing, intervention, and treatment systems. tion prevention and the control should In rural areas, the focus should be on the gradually expand from control of traditional prevention and medical treatment of envi- pollutants to include contaminants such as ronment and health problems because of organics and PM2.5, which are more harmful water pollution and on the establishment of to human health. an environment and health monitoring, pre- Second, in China, as air pollution in ur- vention, and intervention system. ban areas and water pollution in rural areas

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 211

Chapter Ⅴ

Research on the Pathway to Low Carbon Economy for China1

sions; it transforms society into a model in 5.1 The Concept and Connotation which the economy is being shaped by of a Low Carbon Economy and its high energy efficiency, low energy con- Relations with Some Key Con- sumption, and low carbon emission.” cepts Then what does LCE mean and what is its connotation? The Chinese and foreign Since the publication of IPCC’s Fourth experts of the task force agree that the fol- Assessment Report entitled Climate Change lowing elements have substantial meaning: 2007 and The Stern Review on the Economics (1) High levels of industrial production of Climate Change, the idea of a Low Car- efficiency – low carbon (C) emission per unit bon Economy (LCE) is receiving more and of output more international attention. Some coun- (2) High levels of energy efficiency from tries have published initiatives and action fossil fuels – low C per unit of electricity or plans on the development of a LCE. transport mileage However, there is yet to be a universally (3) A very high proportion of energy from accepted definition for LCE. At present renewable and nuclear sources the most widely cited definition is the de- (4) Predominance of fuel efficient, low C scription by the British environmental ex- emitting forms of transportation pert Paul Robbins: “A LCE is an economic (5) High levels of energy conservation in model on the rise, its core is built on the offices, other workplaces, and the home basis of market mechanism; it is formu- (6) Reduction in exports of products lated and innovated through the system with high energy consumption and high framework and policy measurements; it emission in their manufacture motivates and enhances high efficiency (7) A shift to public from private trans- technology, energy saving technology, as portation and greater use of bicycles and well as the development and application of walking the technology of recycled energy and the (8) The core element is to stimulate the reduction of greenhouse gas (GHG) emis- innovation and application of high energy

1 This Chapter is based on the research analysis of the Task Force on Pathway to Low Carbon Economy for China. Task Force Co-chairs: Liu Shijin, Gordon Conway, Björn Stigson; Task Force Members: Feng Fei, Hu Angang, Xia Guang, Pan Jiahua, Jiang Ke- jun, Tomas Kaberger, Knut Alfsen, Lim Haw Kuang, Mattia Romani/Melinda Robson.

212 Harmonious Development through Innovation efficiency and low emission technologies by preset targets. However, reduction of total means of systemic and institutional adjust- emissions is not a precondition for the de- ment for the purpose of raising the level of velopment of a LCE. LCE is a new con- global energy efficiency and reducing GHG cept of development proposed by human- emissions. ity in the face of increasing pressure of For China, the development of a LCE is global warming. It is a mode of economic consistent with the existing efforts being growth that attempts to replace the con- put into energy saving and environmental sumption of fossil fuels by technological protection. It is a continuation and expan- innovations and applications. Because their sion of the country’s key strategies and pol- historic and per capita emissions are lower icies such as a scientific outlook of devel- and they have strong demand for economic opment, the construction of re- growth, developing countries could not source-saving, environmentally friendly so- and should not share the same reduction ciety, and the transformation of the mode obligations with those of the developed of economic growth. In practice, the de- countries. However, by developing LCE, velopment of a LCE has the following applying high efficiency and low emission meaning for the country: technologies in the process of develop- (1) controlling the development of those ment and adopting conserving consump- industries with high energy consumption and tion patterns and behavior, developing the export of high energy consumption countries can find a development philoso- products phy and mode distinguished from the tra- (2) raising the physical energy efficien- ditional concept of paying a higher price cy to an advanced international level by for higher energy consumption and higher 2025 pollution. Developing a LCE has to give (3) rapid development of renewable equal attention to two considerations: “low energy - wind power, hydro power, large carbon” and “economy.” scale photo-thermal, and commercial use of photovoltaic power 5.2 The International Development (4) rapid development of nuclear power and Trend of Low Carbon Econo- with emphasis on the 3rd and the 4th genera- my tions (5) the promotion of public awareness by extensive coverage and eventually turning the 5.2.1 Reducing GHG emissions is grow- low carbon way of life into ordinary, every- ing from a scientific consensus into a day behavior global act, forming a powerful force It needs to be emphasized that the driving the development of LCE concept of LCE was first proposed by de- veloped countries as an important way to Scientific evidence indicates that our reduce emissions in a bid to honor the planet is warming at a rate that is unprece-

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 213 dented. The global temperature has risen at industrial revolution. Since pre-industrial about 0.15℃ per decade since the 1970s – times beginning around 1750, carbon dioxide the 17 warmest years on record have all oc- concentrations have increased from 280 parts curred in the last 20 years.1 The global tem- per million (ppm) to 380ppm today. Taking perature has risen by about 0.7℃ since 1900 all the greenhouse gases into account, the

(Figure 5-1). Most scientists now agree that current level is around 430ppm of CO2 the warming is anthropogenic – the result of equivalent (CO2eq) and it is rising at around rapidly increasing GHG emissions since the 2.3ppm per year.2

1.0

0.8

0.6

0.4

0.2

0

−0.2 Temperature difference (deg C) difference Temperature −0.4 with respect to the end of the 19th century

−0.6

1860 1880 1900 1920 1940 1960 1980 2000 Figure 5-1 Global temperature change since industrial revolution.

There is now a fairly widespread con- if not irreversible, change.3 To achieve the sensus that we must keep the temperature above targets, the concentration of GHG in increase to just 2 ℃ to 3 ℃ above the atmosphere must be limited to about pre-industrial levels. This is partly because it 450 ppm to 550 ppm CO2eq. Correspon- is believed that deleterious effects increase dingly, global CO2 emissions must peak by rapidly in frequency and scale above that 2020 and fall by somewhere between 30% temperature and particularly because there and 85% by 2050 relative to the level in exists a number of potential ‘tipping points’ 2000. CO2 emissions will need to fall by which, if exceeded, will result in run-away, over 50% by 2050 (Table 5-1).

1 2007 and 2008 are relatively cool years (below the trend) because of the influence of the La Niňa phenomenon in the Pacific Ocean. 2 The total CO2 eq is responsible for the greenhouse effect and hence for the global warming. 3 DEFRA 2006 Avoiding Dangerous Climate Change. Met Office, Exeter, UK; Lenton, T.M. et al 2008 Tipping elements in the Earth’s climate system. PNAS, 105, 1786-1793 (http://www.pnas.org/content/105/6/1786.full.pdf)

214 Harmonious Development through Innovation

Table 5-1 IPCC analysis of CO2 concentration, temperature and emission reduction in different scenarios.

Global average T at Change of global Radiative CO2 Equivalent the pre-industrial Level of CO2 Peak year of CO2 emission in Grade forcing level balance status by (ppm) CO2 emission 2050 (W/m2) (ppm) “optimum estimate (% of 2000) Sensitivity” (℃) Ⅰ 2.5 to 3.0 350 to 400 445 to 490 2.0 to 2.4 2000 to 2015 -85 to –50 Ⅱ 3.0 to 3.5 400 to 440 490 to 535 2.4 to 2.8 2000 to 2020 -60 to -30 Ⅲ 3.5 to 4.0 440 to 485 535 to 590 2.8 to 3.2 2010 to 2030 -30 to +5 Ⅳ 4.0 to 5.0 485 to 570 590 to 710 3.2 to 4.0 2020 to 2060 +10 to +60 Ⅴ 5.0 to 6.0 570 to 660 710 to 855 4.0 to 4.9 2050 to 2080 +25 to +85 Ⅵ 6.0 to 7.5 660 to 790 855 to 1130 4.9 to 6.1 2060 to 2090 +90 to +140

The scientific consensus on climate equivalent amount sequestered or offset. change is transforming into global action. At During the Bush administration, the US the 2008 summit, G8 leaders have agreed to Federal Government has not set any target cut the GHG emissions by 50% by 2050, for emission reduction. On the level of state representing emission reductions of 75% to governments, however, the governor of Cal- 95% by developed countries, which is ap- ifornia declared in 2005 that California must proaching a “zero emission” society. Ger- stabilize greenhouse gas emissions at the many proposes an ambitious target that is 2000 level before 2010, reduce the emissions twice the current EU target, to cut the emis- to 1990 level within 2020, and reduce the sions by 40% by 2020 from 1990 level. De- emissions by 80% below 1990 level before spite the previous reduction target of 60% 2050. An action plan to that purpose was publicized in 2006, the UK has committed published in March 2006. Some other state itself to cut its overall GHG emissions by governments, including Texas and those in 80% by the mid of this century in the new New England, have made similar proposals. publication in October 2008. France promis- As for developing countries, South Afri- es to cut its emissions by 75% to 80% by ca plans to halt its growth of greenhouse gas 2050 if other countries take concerted ac- emissions at the latest by 2020 to 2025 and to tions. Japan plans to deliver a low carbon so- adopt various economic and policy measures ciety and sets the target to reduce the energy so that emissions will eventually stabilize and consumption per unit GDP by 30% by 2030. decline. In India, the country’s first National Norway further sets the target to realize car- Action Plan on Climate Change, released in bon neutrality by 2030, aiming to achieve net June 2008, describes the vision in which its zero carbon emissions by balancing a meas- economic activities shift from high con- ured amount of carbon released with an sumption of fossil fuels to non-fossil fuels

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 215 and proposes measures on eight aspects such trade is also being campaigned for. Barack as developing solar energy, increasing energy Obama proposed a scheme that would efficiency, forestation, and environmental auction up to 100% of emissions permits protection. and direct USD15 billion per year into re- The global action on GHG emission re- newable energy, energy efficiency and clean ductions has accelerated the pace worldwide vehicles. New Carbon Finance suggested to improve energy efficiency, to develop re- that the value of the US carbon market newable energies, and to subscribe to LCE. could be in the order of USD1 trillion per In addition, the need for energy security, for year by 2020, which would be around protecting national and local environment, double that of the EU ETS. and for sustainable development, highlighted New Zealand’s emissions trading scheme by the upsurge of the international oil price will be introduced for 2008 to 2013, bringing and volatility of the oil market, is also fuel- in sectors in phases. The transport sector will ling the development of LCEs. join the scheme in 2009. This is linked to New Zealand’s goal of reducing per capita 5.2.2 Some developed countries have emissions from the transport sector by half made substantial socio-economic policy by 2040. adjustments to subscribe to the devel- South Korea issued framework legisla- opment of LCE tion in 2008 that will establish a mandatory domestic emission trading scheme. Other First, some developed countries have countries considering similar schemes in- implemented emissions trading to account clude Australia, Japan and South Africa. for the price for carbon. By way of the cap Second, some countries have applied a and trade systems, emission trading can re- carbon tax to establish green tax revenue duce the emission costs, reveal the price for system. At present, EU members such as carbon emissions, and create incentives to Norway, Sweden, Netherlands, Denmark, improve energy efficiency and develop re- Germany and UK have introduced carbon newable energies. At present, the first phase taxes. Norway has had a carbon tax of ap- of the EU Emissions Trading Scheme (ETS) proximately USD50 per ton of CO2 covering has ended. The second phase, From 2008 to about 60% of national emissions since 1991. 2012 will exercise a tighter cap on emissions. Some EU countries, particularly the Nordic In 2007, the European market was worth countries, have introduced environmental about USD50 billion, trading around 2 Mt taxes, taxing all the links related to environ-

CO2eq. The EU ETS continues to grow in ment from resource exploration, transporta- scale and ambition. From 2013, emission tion, transformation, and utilization of emis- trading will be expanded EU-wide to all the sions. At the same time, they have adjusted members. the entire taxation system to cut in- In the United States, voluntary trade in come-related taxes. The adjustment of taxa- emissions is practiced, while the mandatory tion policies in the above countries not only

216 Harmonious Development through Innovation facilitates the improvement of energy effi- three fold increase from current renewable ciency, the development of renewable ener- energy levels so that 20% of the EU’s en- gies and the reduction of emissions, but also ergy comes from renewable sources by 2020. drives economic growth. A recent study con- In 2007, new investment by the EU in re- cluded that the introduction of energy or en- newable energies reached USD55. In the US, vironmental taxes and the subsequent ad- 37 states have taken actions to create spe- justment of the taxation system had a posi- cific targets for the use of renewable energy, tive effect on GDP compared with the for example, in Florida, the state utility is counterfactual reference case of no envi- required to produce 7.5% of its electricity ronmental tax reform having a neutral effect from renewable energy sources by 2015; in in the United Kingdom.1 The EU, the US Massachusetts, all electricity retailers must States, Canada, New Zealand and South produce 4% of their electricity from re- Africa are also discussing and studying the newable sources by 2010. At the federal related taxes. level, the US provides fiscal subsidies and Third, some countries have raised the tax credits for improving energy efficiency standards of energy efficiency and environ- and the development of renewable energies, mental regulation. A 2007 US law requires such as tax breaks for hybrid vehicles. the average fuel economy of the combined Fifth, countries have increased invest- fleet of all passenger cars and light trucks ment in research and development. Gov- sold by 2020 to be at least 31% above the ernment research and development from the 2007 new car fleet average. The latest EU G7 countries decreased by around 30% in plans would reduce the average CO2 emis- real terms over the last two decades, but pub- sions of new passenger cars to 120 grams lic investments in clean energy are now on per kilometer by 2012. In terms of energy the rise. Japan’s Ministry of Economy, Trade efficiency regulation, Japan uses a ‘Top Run- and Industry will request JNY 717.3 billion ner’ program for many products to set the (nearly USD 6.6 billion) in its budget for the highest energy efficiency level currently on 2009 fiscal year to finance low-carbon in- the market as the minimum regulation stan- vestments. Australia Prime Minister Kevin dard for the next period to encourage the Rudd announced that his government will set improvement of energy efficiency. up a AUD 100 million (USD 81 million) Fourth, some countries encourage im- global institute to promote technology that provements in energy efficiency and the captures and stores carbon emissions. Aus- development of renewable energies. The tralia’s Green Car Innovation Fund will be EU proposes to improve the energy effi- doubled to AUD 1 billion (USD 864 million) ciency by a further 20% before 2020 and during its planned five years. introduces a target calling for a more than Through the substantial policy adjust-

1 Barker, T., S. Junankar, H. Pollitt and P. Summerton (forthcoming) “The macroeconomic effects of unilateral environmental tax re- forms in Europe, 1995-2012” in Innovation, Technology and Employment: Impacts of Environmental Fiscal Reforms and Other Market-Based Instruments, edited volume of “Critical Issues in Environmental Taxation VOL VI”, Oxford University Press.

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 217 ments described above, some developed lent to nearly 1% of the global GDP. Heavy countries have embarked on the LCE path- investments will necessarily stimulate the de- way. The old trend of economic growth ac- velopment of low carbon technologies and companied by increase of energy consump- products. tion and GHG emissions has started to Second, the impact on international trade change, decoupling the economic growth rules must be considered. Many developed from GHG emissions. Take Sweden as an countries have initiated emission trading and example: from 1990 to 2006, its economy some countries have applied a carbon tax. grew by 44% while its CO2 emissions fell by Concerns about the loss of competitiveness 9%. of internationally traded carbon-intensive industries (e.g. steel, aluminum and basic 5.2.3 Reducing GHG emissions is pro- chemicals) have prompted policy makers to ducing a profound impact on the inter- consider the use of a “border tax adjust- national economic pattern and trade ment”. When carbon intensive products are rules introduced to countries conducting emission trading, a certain amount of emission quota First, the growth of low-carbon-related is required to be purchased; when such new industries should be encouraged. Ac- products are introduced to countries apply- cording to IEA analysis, if the GHG emis- ing carbon tax, a border tax is applied. sions of 2050 are to be controlled at the level Third, the impact on consumption be- of 2005, additional investment needs in the havior must be considered. Following the energy sector are estimated at USD 17 tril- widespread attention to climate issues, con- lion between now and 2050. This is on aver- sumers start to be concerned over the GHG age around USD 400 billion per year, roughly emissions caused by products. The UK equivalent to the gross domestic product government and the Carbon Trust are de- (GDP) of the Netherlands or 0.4% of global veloping a methodology for evaluating the GDP each year. If the carbon emissions are carbon impact of products, working to- to be reduced to the level of half of that of wards common standards and the develop- 2005, additional investment needs are USD45 ment of carbon reduction labels. These la- trillion. This amounts to about USD1.1 tril- bels will display the grams of carbon per lion per year, roughly equivalent to the cur- kilogram of produced during the entire li- rent GDP of Italy and represents an average fecycle of the product, taking into account: of some 1.1% of global GDP each year1. product shelf life, country of origin, coun- The Stern Review also concludes that if the try of origin infrastructure, and how far the

CO2 concentrations in the atmosphere are to product must travel. The food retailer Tesco be limited to about 500ppm to 550ppm, the has been working with Carbon Trust to upper limit of the investment will be equiva- pioneer this scheme. Some form of carbon

1 IEA: Energy Technology Perspectives 2008

218 Harmonious Development through Innovation accounting increasingly has been experi- total energy consumption of 990 million mented with in supply chain management, tons of standard coal in 1990 and 2.65 bil- not just for European companies but also lion tons in 2007. China’s energy consump- those from the US, including Wal-Mart. tion has exceeded its energy production since 1992, and consequently, energy secu- 5.3 Necessity and Urgency to rity as defined by a steady supply, particu- Develop a Low Carbon Economy larly petroleum availability, is becoming in- in China creasingly a bottleneck of China’s economic development in the backdrop of the rapid growth of its economy. China has been an 5.3.1 Developing a low carbon economy importer of petroleum since 1993 and an is an inherent requirement for China to importer of crude petroleum since 1996. address energy, resources, and environ- China is now the second largest petroleum mental problems consumer, behind only the US, and one of the largest petroleum importers in the world China has made great achievements in with an import dependence of 46.6% in economic growth since its reform and open- 2007. However, the price of crude petro- ing-up 30 years ago. The Chinese GDP has leum has been rising in the international been growing at an average rate of 9.8% market since 2003 and reached USD 147 from 1978 to 2007, and reached USD 2,460 per barrel in June 2008. Despite its empha- per capita in 2007, making it the fourth larg- sis on a clean energy infrastructure, China est economy in the world. However, China is will not be able to change its taking a path of compressed industrialization, coal-dominated energy infrastructure in a and is meeting various energy and environ- long time because of the limited alternatives. ment problems that have plagued developed Considering the overdue sensitivity of the countries in different stages of industrializa- international community to China’s petro- tion in a century. In the new century, China leum import and the lessons learned from has shown a trend of accelerated growth of western countries in the first and second oil heavy industries and chemical industries. The crises, China must place emphasis on energy extensive growth mode, which causes re- supply and security; energy conservation, source dissipation and environmental dam- emission reduction, and a LCE will help age, has made resource and environment China achieve its energy security. problems the constraints of China’s eco- The second step is to overcome re- nomic and social development. sources shortages. At a stage of accelerated The first step is to ensure energy secu- growth of heavy and chemical industries, rity. Energy is the engine of economic China has a higher demand of energy and growth and the rapid growth of Chinese raw materials and the extensive growth mode economy has caused a rapidly increasing has made even scarcer those important fun- energy demand, which has translated into damental and strategic resources of petro-

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 219 leum, water, and power. Statistics show that that China’s environmental cost used 2.68% China contributed 5.5% to the global GDP, to 5.78% of GDP in 20034. According to the but consumed 15%, 30%, and 54% of the data issued by the State Environmental Pro- global energy, steel, and cement in 20061. It is tection Administration and National Bureau predicted that among the 45 mineral re- of Statistics in 2006, the cost caused by pol- sources needed for China’s economic devel- lution in 2004 equaled to 3.05% of the GDP opment, China can ensure full supply of 24, in the same year5. China has 13% of the ensure a nearly full supply of 2, fall short of global coal reserve but only 1% of the global 10, and fall seriously short of 9 in 20202. petroleum and natural gas reserves. There- China will have an import dependence of fore, 70% of energy demand is satisfied by 58%, 52%, 38%, 82%, 52% and 69% respec- coal in China and consequently. A high pro- tively on petroleum, iron, manganese, copper, portion of air pollutants, such as CO2, SO2, 3 lead, and zinc in 2020 . With China’s eco- and NOx, is caused by burning coal in China. nomic growth and production scale, it is un- Among these, SO2 is of highest polluter and realistic to support extensive growth with the caused a direct cost of USD 60 billion in enormous importing of resources because 20056. World Bank data for 2001 shows that China cannot make limitless use of interna- 16 of the 20 cities with highest air pollution tional market. Therefore, China should, in in the world were in China. According to addition to enhancing domestic resources World Health Organization (WHO), 30% of exploitation and international resources uti- the area in China suffers from serious acid lization, focus more on changing the eco- rain and only 31% of Chinese cities met the nomic growth mode and reducing resources WHO air quality standard in 2004. consumption. The fourth step is to reduce natural dis- The third step is to protect the environ- asters caused by climate change. Poor climate, ment. Together with the apparent bottleneck heavy natural disasters, and fragile ecology of resources, there is high pressure on the are basic circumstances of China. As a big environment with the discharge of waste country with complicated ecology and the water, of solid waste, and the emission of largest population in the world, China is also waste gas growing at a rapid rate and incur- one of the biggest victims of climate change ring an increasing social cost. Research shows in the world. China’s National Climate

1 Jie, Han & Yu, Wang, Full participation in energy conservation & emission reductions with binding targets as support, www.gov.cn, 27th November 2007. 2 Yong, Ren, China steps into a turning period of environment and development strategy, Proceedings of the fourth China Economic Forum by Chinese Academy of Social Sciences, May 2008. 3 Zhongyuan, Lu, The prominent problems, basic tasks, outlook, and policy orientations of China’s economic and social development in the 11th Five-Year Period to 2020, internal report of State Council Development Research Center, 2005. 4 State Environmental Protection Administration & World Bank, Cost of pollution in China, international workshop on cost of pollu- tion in China, 2007. 5 State Environmental Protection Administration & National Bureau of Statistics, Study Report 2004 for Green National Economic Accounting, http://www.zhb.gov.cn/xcjy/zwhb/200609/t20060907_92529.htm.2008-05-30. 6 Daniel H. Rosen, Trevor Houser. “China Energy: A Guide for the Perplexed”, A Joint Project by the Center for Strategic and Inter- national Studies and the Peterson Institute for International Economics, May 2007.

220 Harmonious Development through Innovation

Change Program points out that China’s an- and other ecological systems. Despite the nual average temperature increased by 0.5℃ positive effects of climate change on agri- to 0.8℃ in the recent 100 years, slightly culture in some areas, such as longer growth higher than the global average, and the period for some plants and shorter frost pe- warming is particularly apparent in the recent riod, climate change has more negative im- 50 years. Second, there is no apparent trend pacts than positive ones on agriculture and of change in the annual average precipitation obviously impacts other fields in China. in the recent 100 years, but there is high re- gional variation and more uneven temporal 5.3.2 Developing a low carbon economy and spatial distribution. Precipitation in the is an important measure for China to ad- most areas of North China, in the eastern dress climate change part of Northwest China, and in Northeast China, which are usually dry, has decreased As mentioned above, to reduce green- by 20mm to 40mm per 10 years. In contrast, house gas emissions and control temperate at the precipitation in South China and South- a reasonable level has become a scientific west China has increased by 20mm to 60mm consensus. At the political level, major de- per 10 years. Third, there are also changes in veloped countries have committed to reduc- the frequency and intensity of extreme ing CO2 emissions by 50% by 2050. China weather events in China in the recently 50 will play a key role to realize the goal. In the years. There is heavier drought in North 13 years from 1990 to 2003, China accounted China and Northeast China and heavier for 25% of the global energy consumption flooding in Southeast China and the middle increase and 34% of greenhouse gas emis- and lower reaches of Yantze River. Since sion increase (Table 5-2)1. According to the

1990, the average precipitation in China has IEA, the global CO2 emissions will keep in- been higher than usual for most years, cha- creasing unless new policies and measures racterized by floods in the south and drought are taken. Under this scenario, global CO2 in the north, with drought and floods occur- emissions will increase to 69% above 2000 ring frequently. Fourth, China experienced an level by 2030. Non-OECD countries will annual average rise in sea level of 2.5mm, account for the rapidest growth by doubling slightly higher than the global average, over their 2000 level. The share of OECD coun- the last 50 years. Fifth, there is rapid shrink- tries in global CO2 emissions will decrease ing of mountain ice caps, which has a trend from 54% in 2000 to 42% in 2030, while that of acceleration, in China. Climate change has of non-OECD countries will increase from impacted China in agriculture, animal hus- 46% to 58%, among which the share of bandry, forestry, water resources, sea coasts, China will increase from 13% to 17%2. As a

1 EIA (Energy Information Administration). 2006. International Energy Outlook 2006, Official Energy Statistics from the U.S. Gov- ernment. 2 International Energy Agency (IEA), 30 Key Energy Trends in the IEA & Worldwide, 30th Anniversary of the International Energy Agency, IEA, 2005.

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 221 responsible country, China must improve move to a new path of low carbon develop- energy efficiency, create a clean energy ment, slow down the rapid increase of GHG structure, and shift its lifestyle and consump- emissions, and play an active role in the glob- tion patterns through technological innova- al efforts in emission reductions. In this way tion, institutional innovation and changes in China could signal its attitude and resolution the view of development, so as to abandon to address climate change and help improve its traditional way of high dissipation and its international image and status.

Table 5-2 CO2 emissions in some countries and regions from 1990-2030.

(Unit: million tons CO2)

History Prediction Countries/Regions 1990 2003 2015 2030 US 4,978 5,796 6,718 8,115 EU 15 4,089 4,264 4,623 5,123 Japan 1,011 1,206 1,228 1,219 China 2,241 3,541 7,000 10,716 India 578 1,023 1,592 2,205 World 21,223 25,028 33,663 43,676 Data source: IEA (2006)

Furthermore, in addition to developed China mitigate and adapt to those impacts. countries that are setting national targets for mandatory emission reductions, there are in- 5.3.3 Developing a low carbon economy creasingly more voices calling for a global will help promote the development of re- carbon price. Developed countries, in addition levant industries and form new competi- to implementing a carbon tax internally, are tive advantages also trying to relate carbon pricing to interna- tional trade through a border adjust tax im- Reducing GHG emissions causes cost posed on imports and exports with emissions. on one hand, but brings new business op- Therefore, carbon pricing could be spread in- portunities on the other hand, in particular to developing countries through international by stimulating the development of relevant trade and the border adjust tax and thus help industries in energy conservation and emis- the forming of a global carbon price and con- sion reduction. Although China has not tribute to global emission reductions. The mastered some key technologies in energy Chinese economy has been integrated into the conservation, new energies, and emission global economy to the extent of a foreign reduction, such as advanced nuclear and trade dependence of 70% in 2006. If the carbon capture and storage technologies, the above call turns into action, it will hugely im- new change will possibly bring new oppor- pact China’s foreign trade and economic tunities to the Chinese economy. The reasons growth; while developing a LCE will help are as follows:

222 Harmonious Development through Innovation

First, changes will help make technolo- example, per unit investment of IGCC, Chi- gical breakthroughs and form technological na has a much lower cost than the interna- advantages. Compared with developed tional level (Figure 5-2). Currently, China is countries, China lags behind less in new beginning large-scale exports to the EU and energy technologies than in traditional the US in solar photovoltaic power and wind energy technologies and other traditional power. China has good industrial foundation technologies. Particularly, China leads the and a high quality labor force that are absent world in the commercialization of some in other developing countries, most of which important new energies, such as solar ener- cannot make efficient energy equipment. gy and wind energy. China is also doing well With the development in the above fields, in the research of electric motors in a global China is very likely to form cost advantages pattern of tri-party competition between over developed countries and technological EU, US, and Japan. Therefore, China is advantages against developing countries, and likely to achieve breakthroughs in the above thus can enjoy a unique competitive force. areas and form its own technological ad- Furthermore, the global efforts in emission vantages. reductions create a huge market space for Second, the changes will help form a this unique competitive advanage. This also country’s competitive advantage. Compared will help change the pattern of China com- with developed countries, China has a large peting intensively with developing countries and rapidly growing market and enjoys a in lower end manufacturing while having no huge cost advantage with cheap labor, espe- access to high value-added industries and will cially in the fields of processing, manufac- thus improve the overall competitive ability turing, and installing new technologies. For of China.

3,000 1995 2,500 2000 2,000 2005

1,500 2010 USD/kW 1,000 2020

500 2030

0 2050 IGCC IGCC-Fuel IGCC- Super Ultra-Super Cell China Critical- Critical- China China

Figure 5-2 Unit investment of power generation in China.

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 223

Third, this change will enable China to 1444 CDM projects by 13rd August 2008. acquire funds and technology through a According to statistics on the CDM EB web- global climate change cooperation mechan- site, by September 2nd, 2008, China had 263 ism. As a developing country, China could registered projects accounting for 22.75% of acquire international funding and technology the world’s the total number of CDM through the CDM mechanism under the projects (Figure 5-3). It is expected that Chi- UNFCCC to develop low carbon industries, na will have annually 113,470,635 carbon but lacks a similar external environment to credits issued, accounting for 51.90% of the develop other industries. International coop- world’s expected total of 221,996,290 (Figure eration helps improve China’s competitive 5-4). advantages. China approved 4 CDM projects for the first time in 2006, and had approved

Others 19.81% India 30.80% Chile 2.16%

Malaysia 2.77%

Mexico 9.17%

Brazil China 12.54% 22.75%

Figure 5-3 Share of world’s registered CDM projects.

Indonesla(1.15%) Qatar(1.13%) Others(7.05%) South Africa(1.15%)

Malaysia(1.15%) Argentina(1.86%) Chile(1.95%) Mexico(3.34%) China(51.90%) Republic of Korea(6.58%) Brazil(8.75%) India(14.00%)

Figure 5-4 Expected annual CERs from registered projects by country1.

1 CERs, Certified Emission Reductions

224 Harmonious Development through Innovation

To turn the above opportunities into real facturing industry. The examples, both do- competitive force relies on developing a LCE mestically and internationally, show that de- as its basis. Seen from the development of veloping a LCE could stimulate the devel- domestic industries, industrializing the new opment of relevant industries and form new sciences and technologies and forming in- competitive advantages. ternational competitive force will be difficult if there is no strong domestic demand, no 5.3.4 Early planning and deployment is matter how much independent innovation is needed to promote the development of a stressed. With China’s huge market, these low carbon economy industries can develop rapidly into econo- mies of scale and enjoy the advantage of Developing a LCE is now a global trend scale. After technologies are mastered, they and gradually is becoming the consensus of can start large scale exports and accordingly policy makers at various levels in many form international competitive force. The countries. China should also make an early super-critical power unit from its introduc- move to develop a LCE. The reasons are as tion to export is a good example of this. follows: China introduced a 600 MW super-critical The first is to avoid the locking effect of boiler for the first time in 2000. Due to the energy consumption and greenhouse gas rapid rise of coal price in China and the in- emission. China is in the process of rapid tensive competition between power compa- industrialization and urbanization, with much nies, there was a high demand for efficient infrastructure and equipment put into opera- power generation technologies. Combined tion each year. Since the lifetime of infra- with a newly installed capacity of 100 GW structure and equipment ranges from a doz- each year, China’s domestic manufacturing en years to decades, they will be locked to ability grew quickly and in 2007, China’s high energy consumption, high pollution, Dongfang Boiler Works began to export su- and high emissions if built without advanced per-critical boilers to Turkey. The same story technologies, equipment, and a long-term also occurred in Japan in the 1970s, when view of development. Therefore, a LCE Japan began to make great efforts in im- should be developed by adopting advanced proving energy efficiency and fighting pollu- technologies and equipment and a reasonable tion as a response to oil crisis and domestic mode of urbanization and consumption to pollution. For example, investment in desul- take the path of low energy consumption, furization alone accounted for 1.4% of the low pollution, and low emissions. The Stern GDP in its peak period, the energy conser- Review also points out that to control the vation and environmental protection indus- global temperature at 2℃ to 3℃ above tries grew and developed in Japan. Now, pre-industrial levels, action must be taken energy efficiency and environ- early to reduce the cost and risks of climate ment-friendliness are still important aspects change, even if GHG emissions are allowed of the competitive force of Japan’s manu- to increase before 2020.

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 225

The second reason is to adapt to the low cost competition and will not realize its changes in international economic patterns goal of building a new international compet- and trade rules caused by greenhouse gas itive advantage. emission reduction. As mentioned above, many developed countries have made essen- 5.4 Difficulties and Obstacles in tial adjustments in their economic and social the Development of a Low Carbon policies to shift to a LCE and some devel- Economy in China oping countries are also beginning this change. The impacts of climate change on industrial development, international trade 5.4.1 Difficulties in the development of a rules, and consumption behavior has begun low carbon economy in China to emerge. As a country with high foreign trade dependence, China should take early 5.4.1.1 Huge energy consumption due to actions to adapt to changes in the interna- the accelerated industrialization and urba- tional economy. nization of China The third reason is to lead the world in In the history of global economic de- technological development and industrializa- velopment, countries required a huge amount tion by early planning and deployment during of material and energy in the process of in- this period of low carbon technological de- dustrialization and urbanization to meet the velopment. Many low carbon technologies growing demands of steel, auto, are now at the stage of research and devel- ship-building, and machinery industries, as opment with intensive competition between well as large-scale urban expansion, such as different technological paths and with rapid in the US between 1870 to 1973 and in Japan changes. For example, there is intense com- between 1950 to 1973. Only after the com- petition between different technological pletion of industrialization and urbanization paths for energy efficient and environmen- can the energy consumption per capita sta- tally friendly cars. Developed countries are bilize (Table 5-3). Thus is the same with car- investing funds and showing leadership in bon emission per capita: before income per the research and development of low carbon capita reaches USD10,000, a major criteria technologies. China, too, is leading the world for generally completed industrialization and in the research of some low carbon technol- urbanization, the carbon emissions per capita ogies. If China cannot keep up with the pace increases with the rise of income; after in- of low carbon technological innovation, it dustrialization and urbanization, carbon will be very difficult to catch up once the low emissions per capita growth begins to slow carbon technologies step into large-scale and eventually stabilizes or even drops commercialization; China will repeat the tra- (Figure 5-5). ditional mode of technology importing and

226 Harmonious Development through Innovation

Table 5-3 Primary energy consumption per capita (tons of oil eq).

Year Global UK US Japan China 1820 0.21 0.61 2.45 0.20 1870 0.31 2.21 2.45 0.20 1913 0.61 3.24 4.47 0.42 1950 0.84 3.14 5.68 0.54 1973 1.54 3.93 8.19 2.98 0.48 1998 1.65 3.89 8.15 4.04 0.88 2005 1.78 3.88 7.89 4.5 1.32 Madison, 2005, Table 5-4, Table 5-5; Data of 2005 quoted from International Energy Agency, Key World Energy Statis- tics 2007.

25 Canada

) France 2 USA 20 Germany Italy Australia Canada UK 15 USA Japan Germany Japan Australia 10 South UK S.Korea Africa Indonesia S.Korea Mexico Italy 5 France China South Africa Carbon emission per capita (t of CO (t of capita per emission Carbon India Mexico 0 Indonesia China India 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 Per capita GDP (USD, int12,000)

Figure 5-5 Relationship between carbon emission per capita and phases of development.

China is currently undergoing rapid jing with 84.3% and Tianjin 75.7%, while industrialization and urbanization with a those of Guizhou and Tibet were the low- relatively low economic development level est with 27.5% and 28.2%, respectively. and large regional gaps. In 2007, China’s The urbanization rate of China is not only income per capita was only USD 2,460, lower than that of developed countries, equal to mid-low level income countries. In but also lower than in countries at the light of the urbanization process, in 2006, same income level. It is estimated that China’s urbanization rate stood at only China’s rapid urbanization will last until 43.9%, among which that of eastern, cen- 2030 with an annual 1% of the total popu- tral and western regions was 54.6%, 40.4% lation, around 14 million, transferring from and 35.7% respectively: Shanghai enjoyed the countryside to urban areas, which will the highest rate of 88.7%, followed by Bei- stimulate huge demand for urban housing

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 227 and infrastructure construction. levels of the four regions, making the task of China is generally in the mid-phase of invigorating the central region and develop- the industrialization. Of the four economic ing the west tougher (Table5-4)1. It is esti- sections, the eastern region has entered the mated that the industrialization of China will post-industrialization phase; the northeastern last until 2020 or even longer and that the is in the mid-industrialization phase, while accelerated development of industrialization, the central and western regions are in the especially heavy and chemical industries, will latter half of the pre-industrialization phase. foster huge material and energy consumption Vast gaps can be seen in the industrialization growth.

Table 5-4 Comparisons of varied industrialization phases of different regions in China (2004).

Economic Sec- Phase Provinces, Municipalities, or Regions tion Post- industrialization (5th) Shanghai, Beijing Later period of industrializa- Latter Half Tianjin tion (4th) First-half East Guangdong, Zhejiang, Jiangsu Latter Half Shandong Mid- industrialization(3rd) Nationwide, First-half Liaoning, Fujian, Shanxi, Jilin, Heilongjiang, Hebei Northeast Inner Mongolia, Ningxia, Hubei, Chongqing, Latter Half Central, West Shaanxi, Qinghai, Xinjiang, Yunnan, Hunan, He- Early- industrialization(2nd) nan, Gansu, Jiangxi, Anhui, Sichuan, Hainan First-half Guangxi, Guizhou Pre- industrialization(1st) Tibet Source: Chen Jiagui and associates (2006).

China’s high energy consumption may and regulations to control energy consump- continue to climb for quite a long time in the tion under selective policy circumstance future, given its low level of economic de- (scenario A); the second scenario is about velopment at present and the 20 years indu- energy consumption amid fast economic strialization and urbanization estimate. Addi- growth circumstances, assuming a 7.5% an- tionally, the IEA has forecasted in the World nual average economic growth rate from Energy Outlook, 2007, two scenarios for 2005 to 2030 (scenario B)2. Over these 25 China’s energy consumption growth (Table years, China’s energy consumption will climb 5-5): the first is adopting certain measures 2.6% to 4.1% without sharp declines.

1 Chen Jiagui, Huang Qunhui, Zhong Hongwu: The Synthetic Evaluation and Comprehensive Analysis of the Industrialization Process in China, from 2006’s 6th issue of Economic Research. 2 Forecast data on China’s future economic and energy consumption growth rates can refer to：US Department of Energy, Interna- tional Energy Outlook 1999, 2005; International Energy Agency, World Energy Outlook 2000, 2004; APEC Asian Pacific Energy Re- search Centre, Energy Demand and Supply Outlook in APEC Northeast Asia Case, 2005; APEC Asian Pacific Energy Research Cen- tre, Energy Demand and Supply Outlook 2002.

228 Harmonious Development through Innovation

Table 5-5 Forecast on the energy consumption of China (million tons of oil eq).

2005 - 2030 Average 2005 - 2030 Aver- 2005 2015A 2015B 2030A2030B growth rate, A age growth rate, B Coal 1,094 1,766 2,075 1,8613,003 2.1% 4.1% Oil 327 517 625 6521,048 2.8% 4.8% Natural Gas 42 126 125 225 284 6.9% 7.9% Nuclear 14 44 34 12082 9.0% 7.4% Water power 34 70 63 99 91 4.4% 4.0% Biomass and waste 224 218 229 251 219 0.5% -0.1% Other renewable energy 13 11 50 38 0.0% - Total 1,735 2,754 3,163 3,2574,765 2.6% 4.1% Source: IEA，World Energy Outlook 2007.

5.4.1.2 As China is at the lower stream of lytic aluminum for instance: its export volume the industrial chain in the international in 2003, 2004 and 2005 was 1.04, 1.41, and trade division, huge amounts of energy and 1.14 million tons, respectively, and, despite a GHG emissions are exported indirectly slight decrease in 2005, these figures were the through its exported products equivalent of 15.5, 21.2, and 17.1 billion kWh China is increasingly involved in world of electricity. economic integration and has been highly According to the statistics from 2007 dependent on international trade in the con- World Energy Outlook: Insights into the text of globalization. In 2005, the foreign Energy Futures of China and India, the trade of China totaled CNY 14 trillion, (ac- energy re-export volume of China was counting for 77% of the country’s GDP), 400Mtoe in 2004, approximately 25% of and it is emerging as the major manufactur- China’s total energy consumption; while the ing base of the world. However, as it is rela- imports only contained 171Mtoe of energy, tively down stream in the international labor about 10% of the country’s total. The division, most of its imports are high val- amount of energy contained in China’s ex- ue-added products and services, while its ports is far larger than that of any other exports are mainly focused on ener- countries (the energy re-export ratio of the gy-intensive manufactured goods. Corres- US, the EU and Japan in 2001 was 6%, 7% pondingly, imported goods are of lower and 10% respectively), and this high propor- energy intensity than exported goods, result- tion has also resulted in high CO2 emissions. ing in international energy trade imbalance. In 2004, the CO2 emissions caused by China’s Under such a foreign trade structure, China energy re-export was 430 Mt, accounting for indirectly exports huge amounts of energy 26% of the total carbon intensity from all when selling its products to other countries departments in 2001. and meeting the demands of consumers The research of Wang and Watson, 2007, worldwide. Take the heavily exported electro- from the Tyndall Centre for Climate Change

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 229

Research also demonstrated that in 2004, proportion in the EU and than the world av- about 1.11Gt of CO2 emissions came from erage (Figure 5-6). In early 2005, the Renew- China’s gross export, accounting for 23% of able Energy Law was launched and has been that year’s total CO2 emissions, 4.73Gt, or the in effect since January 1, 2006. As a supple- equivalent of the entire CO2 emissions of Ja- ment of this law, the Middle And Long Term pan, the sum of Germany and Australia, and Program of Renewable Energy Develop- more than twice as much as that of the UK.1 ment has been approved and issued by the 5.4.1.3 Coal-dominated energy structure is State Council. According to this new pro- not easy to change in the mid-long term, as gram, by the year 2020, the installed power determined by China’s resource peculiarity generation capacity of renewable energy will Coal, oil and natural gas account for 94%, account for 30% of the total, among which 5.4% and 0.6% respectively in the proven water, wind, solar and biomass power will energy reserves of China. Such an energy reach 300GW, 30GW, 1.8GW and 30GW proportion has determined that the respectively. The supply of renewable energy coal-dominated energy production and con- will become the equivalent of 400-500Mt sumption pattern of China will not change standard coal. By that time, the total of the easily in the long term. Although in the past primary energy consumption will reach two decades, Chinese authorities have made around 3.5Gt, among which renewable the utmost efforts to diversify energy sources, energy will account for about 1/72. Although reduce dependence on fossil fuels, and de- the use of renewable energy is expanding in velop renewable energy, the coal-dominated China, it only plays a minor role in mitigating energy structure does not show any obvious the proportion of coal in the energy struc- shift. As of 2006, the proportion of coal in ture. In the near future, fossil fuels, especially the primary energy consumption reached coal, will remain as the major energy supply. more than 69.4%, much higher than the

100

80 60 % 40

20

China EU World

Oil Gas Coal Nuclear Hydro Combined renewables & Geothermal/ waste solar/wind Figure 5-6 Comparison of the energy structures of China, the EU and the world average.

1 Tao Wang and Jim Watson, “Who owns China's carbon emissions?”, Tyndall Briefing Note No. 23, October 2007, http://tyndall.webapp1.uea.ac.uk/publications/briefing_notes/bn23.pdf 2 Research results on the projected energy demand vary geatty. Presented is relatively conservative data.

230 Harmonious Development through Innovation

5.4.1.4 Insufficient technology innovation vestment of enterprises from the US, Japan capacity and obstacles existing for tech- and Germany account for 71.9% of the total. nology transfer Only four mainland Chinese enterprises en- The first obstacle is insufficient tered the scoreboard, with R&D funding no self-innovation capacity. From the capital in- more than GBP 22 million pounds each, jection perspective, the current R&D spend- while that of the three top 15 Japanese en- ing in China accounts for less than 1.5% of terprises spent over 2.5 billion pounds each. GDP, still far behind the 2% goal set in the With regard to the innovative capacity of the 11th Five-Year Plan, and this is further lagged companies, at present, for most Chinese en- behind the 2% of developed countries and terprises, only 24% of the R&D funding is the 5% to 10% of the world’s top 500 com- allocated to new product development, and panies budgets. Great efforts are needed in with a major focus on short-term projects order to overtake the 3% level of the world rather than long-term and forward-looking leading economies. Calculated by R&D fundamental research (less than 10%). The funding per capita, that of China was only over-emphasis on short-term economic ben- USD140, accounting for 14% of that of Ja- efits, the utilitarian and exterior-design pa- pan, USD 1,000. From the perspective of tents, and the low “circulation rate” of the investment composition, foreign enterprises R&D of the military and civilian technolo- have enhanced their investment in China: gies have hindered the scientific and tech- approximately 800 multi-national enterprises nological advancement of China. In addition, have set up R&D centers in China, and Jap- a great number of Chinese enterprises anese leading enterprises, like Sony and To- spend more money on technology imports shiba, have established their R&D bases here. and less on technology absorption and di- Of the patent applications submitted to the gestion with the average ratio of 6.5 : 1. By State Patent Bureau, 1/2 of the high-tech contrast, that same ratio of Japan after the inventions and patents, core technologies in- WWII was 1: 7. cluded, belong to MNCs. Regarding compa- Second are obstacles in technology ny investment, enterprises have accounted transfer. The international community has for over 70% of the total R&D investment, reached a common consensus on the crucial approaching the level of developed countries, role of the technology innovation and trans- but the gap of total R&D expenditure and fer in addressing global climate change. Stu- intensity from developed countries is still big. dies shows that in order to stabilize GHG At present, only 25% of the over 28,000 concentrations at the level of 550ppm, about large-and-medium sized enterprises have 70% of the emission cuts must be realized in their own R&D institutes; 75% have no the coming 20 years with the aid of current R&D professionals at all. Among the 1,000 and near commercialized technologies. At enterprises listed on “the 2005 R&D Score- present, developing countries still lack ad- board” unveiled by the Department of Trade vanced technologies conducive to GHG re- and Industry (DTI) of the UK, the R&D in- duction and their economic development

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 231

features high carbon emission. Whether de- power, these are basically commercial trans- veloping countries are able to utilize their fers, while the terms on IPR transfer are very advantages as latter comers so as to achieve strict. In short, China still has a long way to the goal of a LCE during industrialization go before realizing comprehensive industria- depends on their funding and technological lization and the extensive development of its capacity. Although the UN Framework Con- energy industry by relying on its own R&D vention on Climate Change has stipulated the capacity. obligation of developed countries to transfer Third is inadequate attention to technol- advanced technology to their developing ogy absorption and digestion. These two counterparts, actual progress is still far from factors are of equal importance to technolo- expectations. In terms of technology pro- gy importing, yet have long been ignored by viders, the fear for monopoly has hobbled Chinese enterprises, which repeatedly bring the quick spread and transfer of low carbon in technologies and end up with technology, especially with regard to over-dependence on them.1 There are two trans-national obstacles with issues such as models of technology import: one is for the IPR and market shares. Technology reci- mere use of technology, while the other is pients, talent shortages, high technology for improving the self-innovation capacity. transfer fees, scattered industrial structure, Under the on-going industrial reform, a great and incomplete policies and laws have all many enterprises are still influenced by the become major international obstacles of backward mechanism and are willing to which the conquering or mitigating by an in- spend money on technology importation as ternational climate system will benefit us it promises immediate benefits, but are stingy from lower GHG emissions. Additionally, on technology absorption and digestion; although one essential objective of CDM perhaps they think the distant water cannot was to urge developed countries to transfer quench present thirst. Horizontally, several low carbon technology to developing coun- enterprises repeatedly purchase one tech- tries, in practice, the result was still mainly to nology; vertically, the first-round introduc- transfer centers around capital or the pure tion is followed by the second-round, which trade of carbon emission rights, instead of ends in huge spending and incomplete tech- technology transfer. Given the technology nological study with no mature gap from developed countries, their slow ac- self-innovation capacity. Since present tech- tion to transfer advanced technology, and the nology innovation has many uncertainties country’s limited R&D capacity, China has to and is subject to piracy and returns loss, it rely on commercial channels to import requires a tougher environment and condi- technology. Therefore, despite China’s con- tions than other investments. Thus the tinuous efforts in importing advanced energy foremost for a technology innova- technologies such as wind, solar, and nuclear tion-friendly environment is to enhance the

1 Chen Qingtai: Inadequate Innovation Capacity has become Achilles Heel for China’s Economy, quoted from www.ce.cn, February 20, 2006

232 Harmonious Development through Innovation motivation mechanism within the enterprises business operating experiences. through the implementation of a series of effective measures, typically government in- 5.4.2 The institutional and mechanism centives such as environmental conservation obstacles for China to develop a Low laws, technical standards, safety and sanita- Carbon Economy (LCE) tion regulations, and market access require- ments. Only when the due high-yield policy 5.4.2.1 Government control over energy environment is secured for the successful price and large subsidy technology innovations can enterprises give China is a developing country in eco- priority and permanent driving force to nomic transition where a transitive subsidy technology innovation for improving market for energy consumption is justifiable and competitiveness. In the meantime, it’s of even necessary sometimes. Government great significance to support should provide each citizen with affordable small-and-medium sized enterprises (SMEs) and accessible energy service at an acceptable that are good at technological and scientific price. The practical buying power should be innovation. Surveys show that even in the factored in to calculating the proportion of large company-dominated US, 83% of tech- against disposable income for the sake of nology innovation comes from innovative social justice and harmony. Due to the sig- SMEs, whose clear property rights from pri- nificance of energy in the economy and its vate sectors, flexible mechanisms, astute own distinction, the energy industry is of- sense of market exploration, and a thirst for ten with intervened by government. Ac- adventure that helps to diversify risks have cording to IEA estimates, China’s energy made them a force of technology innovation. subsidy reached USD25 billion in 2005, In China, however, SMEs are still in a fledg- second to just two energy giants, Russia ing phase and many innovative and informed and Iran (Figure 5-7). entrepreneurs lack necessary capital and Russia Iran China Saudi India Indonesia Ukraine Egypt Venezuela Kazakhstan Argentina Pakistan South Africa Malaysia Thailand Nigeria Viotnam 0 5 10 15 20 25 30 35 40 45 billion dollars Oil products Natural gas Electricity Coal

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 233

Figure 5-7 The energy subsidy of non-OECD countries in 2005.

In recent years, despite that the coal and 76%, over 40% of which is for ener- oil prices have been increasing, government gy-intensive industries, while residential has kept control of the price of oil and elec- consumption only accounts for 11% of the tricity. But, maintaining this under-pricing of total, and agricultural use no more than 3%. energy must be compensated by a subsidy. In this case, the largest share of subsidies go There are problems for controlling the to the manufacturing industry. To a certain price of oil and power. First, price control extent, price signals are able to stimulate means a subsidy for production that in fact energy-intensive industries. In this sense, re- exerts no influence on final consumption. forming the energy price mechanisms should Domestic consumption of oil and power will start with price of oil and power. Price sub- not be influenced by the rising international sidies should be eliminated as soon as possi- oil price but encouraged and enhanced by ble for China’s current and long-term inter- production subsidy and finally lead to inef- est1. fective consumption, higher pressure for The fast growth of heavy industry has subsidies and supplies of energy, and greater made people realize that low energy prices environmental pollution. Furthermore, cur- should be blamed for the over consumption rent subsidies for energy production that of energy and low energy efficiency. Low encourage consumption mean that most of price stimulates enterprises to invest in ener- the subsidy will flow into the pockets of the gy-intensive or inefficient technologies and rich, since low energy prices lead to indirect equipments, doing harm to industrial re- energy subsidies for foreign consumers structuring. Related research proves that the through the international division of labor short-term price elasticity in terms of de- and international trade. mand for energy is −0.015, while long-term Under current circumstances, subsidizing is −0.122. This means that price mechanisms energy prices on a large scale is fundamen- do influence demand, but this influence is tally against the economic reality of China. It still minor due to the low elasticity of energy will impede industrial restructuring and in- price and whole economy. Because the ener- vestment in energy conservation and energy gy price mechanism only has a minor influ- efficiency. China, a developing country expe- ence on demand and is yet to be optimized, riencing fast industrialization, must refrain multiple market players do not have ener- from repeating the model of developed gy-saving awareness, price hikes can only countries whose industrialization exhausted have a limited control on demand2. supplies of energy and raw materials. As for power consumption, industrial use consumes

1 Zhou Dadi, Who is subsidized by the low electricity price （《压低电价补贴了谁》），Xinhua Daily Telegraph，September 5, 2008. 2 Wei Yiming, Liao Hua, Fan Ying, Liang Qiaomei, China Energy Demand and Energy Saving Potential Estimate During 11th Five- Year Period, （《“十一五”期间我国能源需求及节能潜力预测》），one of series of report on energy and environment policy by Research Center of Energy and Environment Policy of Institute of Scientific Policy and Management Science of China’s Acad- emy of Science, China/s Research Center of Forecasting Science, 2007.

234 Harmonious Development through Innovation

5.4.2.2 Energy conservation and emission present, government policy stipulates the reductions of enterprises are confronted compulsory integration of renewable ener- with policy-related obstacles and inade- gy-generated power into the grid and is to be quate impetus purchased in full with price difference shared Enterprise is the main player for energy by all regional grids. The government buys conservation and the development of a LCE. electricity at a preferential price commonly It has been proven by international expe- higher than that of the conventional con- riences that the enterprise initiatives to sub- sumer. But, the preferential pricing mechan- stantially reduce emissions will occur if only ism of renewable energies is to not flawless. the market is engaged with policies that en- For instance, in terms of power generated courage and subsidize the investment in more from wind energy, there are two pricing prac- advanced energy-saving equipment, technol- tices: pricing upon government approval and ogy and management mechanisms. As a result, pricing through tendering. The latter encou- a large number of projects, technologies, and rages market competition, but any possible investment opportunities of great developing hostile price squashing during the process potential in energy will slip away. Currently, will dampen investors’ enthusiasm. However, Chinese enterprises are facing problems that the former will constrain market competition. hardly can be solved by themselves or by Taxation methods are also to be improved in market mechanisms. These problems are as terms of tax favors. Still, for conventional follows: enterprises that can have deducted by input First is the cost issue, especially for the VAT for buying materials, the VAT rate for investment of renewable energy. Without them is kept around 4%. By comparison, government policy support covering price, wind farms, without the need to buy any taxation, and financial subsidies, the market materials, consume less and do not need in- by itself can not push forward the industry put a VAT deduction. Therefore, the VAT of new energy against its current high cost. rate for them, after being halved, remains at By enacting the Renewable Energy Law, 2005, 8.5%, which is higher than that of their con- and a series of supporting practices including ventional counterparts. Taxation thus fails to earmarked funds, power generation policy, encourage the growth of the renewable price and expense sharing, price subsidies, energy industry. and coordinated transactions, China has gen- Second are the difficulties in financing. erally set up its policy framework for renew- Energy-saving and emission reducing projects able energy. But current subsidies for re- need substantial one time investment and have a newable energy projects are relatively small, long cost recovering cycle. For example, when whether in terms of scope, amount, or its fulfilling an energy management contract, the proportion to the total investment in energy energy-saving entities usually pay first. Without which currently is no more than 10% of policy support, these entities find financing dif- total energy investment (This same ratio is ficult. The major problems facing energy man- above 40% in developed countries). At agement contracts are insufficient knowledge of

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 235 its patterns and the fact that the emerging and inconvenience for consumers to choose and potential energy service companies lack the re- use these products. On the other hand, quired capacity and financing channels. Mean- though they are advanced, highly ener- while, some technical problems, including sur- gy-efficient products may be of higher cost, veying, measuring and cost recovering, also exist. meaning their overalls price far exceed those Generally speaking, the obstacles in front of of ordinary products. Since this price differ- these companies are a long development cycle, a ence cannot be compensated for due to in- lack of immediate profit, a high liability rate, and adequate supporting incentives, these ener- financing difficulties. Besides, the mindset of gy-saving products, in fact, are not so wel- enterprises and entrepreneurs is, of course, comed in the market. another bottleneck. Last, the external infrastructure needs to be Third is the certification of standards. enhanced. ‘Carbon Strategy’ in enterprises calls According to the Energy Conservation Law for external support. For instance, thermal and of People’s Republic of China, China has es- power co-generation is met with problems like tablished its certification system for ener- integrating into the grid and providing centralized gy-saving products by developing the China heating to neighboring areas. Without support Commission for the Certification and Man- from governmental policy, these problems can agement of Energy-saving Products, promul- hardly be solved only by enterprises. gating the “Regulations of Management and 5.4.2.3 Energy conservation and emissions re- Certification of Energy-saving Products” and duction depends on administrative means and symbols of energy-saving products. The rarely on market-oriented approach “Government Procurement List of Ener- Currently, energy conservation and emis- gy-saving Products” was released in 2004 and sions reduction are still in the transition stage revised twice. The policy framework provided from depending on administrative means to by it includes: (1) to implement compulsory market means. During this process, the leader- energy-efficiency standards for some products ship of the central government and administra- such as automobiles and home appliances; tion is necessary. By fulfilling targets in a mul- (2) to authenticate energy-saving products so ti-tier way, the local government and enterprises that consumers will choose these products af- are better motivated to implement energy con- ter comparison with non energy-saving ones; servation policies. This facilitates the realization (3) to make list of government procurements of speedy results and short-term targets. Take with priorities. The policies above, largely in- power generation as an example: through energy structional, have some flaws in terms of re- conservation control, fire-hydro power exchange, sults, such as inconsistency between different and launching large power generation projects certification standards and a lack of economic while constraining small ones or replacing them incentives. However, the domestic ener- with larger ones, encouraging results are yielded gy-saving products market is far from being in this industry; in 2007, in power plants with standardized and is full of diverse certificates generation capacity of at least 6000 kWh, the and products of intermingled quality, posing standard level of coal consumption per power

236 Harmonious Development through Innovation supply is 357g per kW/h, 9g per kW/h less than proactively address the global issue of climate in 2006 and also the largest fall in recent years. change or the domestic issue of energy, re- This amount equals an annual savings of coal sources, and environment, or want to seize the equivalent to 243.2 million tons in the produc- opportunities created by the transition of the tion of these coal fire plans, 2.75% of total international economy to low-carbon to forge a consumption. new competitive edge. Therefore, China should But for the middle and long term, energy launch research in this field as soon as possible conservation and emission reduction in the to be fully prepared in related knowledge. power industry must be based on a lasting me- Second, China must integrate developing chanism pillared by the market and compli- a LCE into the 12th Five-Year Plan. An early mented by the government. Domestic and in- development of a LCE is better than a de- ternational research of energy-saving mechan- layed one. To integrate developing LCE into isms is focused on three areas: market access, the 12th Five-Year Plan as one of targets for market trading, and market withdrawing. The social and the economic development will be research gets broad concern internationally, but not only conducive to the transformation of is new to China. Based on the situation in Chi- economic growth model, but also to the so- na now, market accessing and withdrawing is lution of problems of energy, resources and easy to carry out through government man- the environment. This integration also will be dates, while market trading requires some par- a gesture to the world that China is resolute ticular measures to maximize its potential. in tackling climate change. As a result, China will enjoy an improved image and status in 5.5 Policy Suggestions the international community. Third, China must pay close attention to The first suggestion is to conduct syste- the influence of climate change on the matic research on the strategies, channels, and growth of international economy and inter- related policies for the development of a national trade rules. China should promote low-carbon economy. Internationally, reducing the research and international exchange of GHG emissions is becoming from a scientific the calculation methods for the carbon emis- consensus to global action. A large number of sion of products. China also should keep industrialized countries have set their targets for track of the progress and consultation of in- emission reductions and adjusted their social ternational trade issues like a border tax ad- and economic policies substantively. Some de- justment for a more favorable trade climate veloping countries have also responded to cli- and alleviate the impact of changes in inter- mate change. It is a clear trend that the global national trade policy on China’s export in- economy is transforming into a LCE whose in- dustries. China must watch the development fluence on international economic patterns and of international low carbon technologies and trade rules is appearing. A low carbon and sus- industries by which to inject new impetus tainable development model is what China into domestic counterparts. must choose no matter whether China wants to

Chapter Ⅴ Research on the Pathway to Low Carbon Economy for China 237

238 Harmonious Development through Innovation

Chapter Ⅵ

Policy Research on Energy Efficiency and Urban Development1

such as with buildings and appliances. 6.1 Energy Efficiency and Urbani- In less developed countries, moderating zation: Concepts and Methodology or decreasing energy consumption is an important issue, but often with different driving forces compared to industrialise 6.1.1 Fundamentals in urban consuming countries. In these countries, the need to sectors reduce greenhouse gas (GHG) emissions and local pollution is probably less of a pri- 6.1.1.1 Moderating energy consumption is ority; alleviating the burden of oil imports, a key issue for sustainability and economic reducing energy investment requirements, development and making the best use of existing supply The Kyoto Protocol objectives and, capacities to improve access to energy are more recently, the constraints on energy more important issues. supply have enhanced the priority given to With the steep rise in oil price since 2003, energy efficiency policies. Almost all Or- the cost of oil imports has soared, with se- ganization for Economic Cooperation and vere impacts on the economic growth of the Development (OECD) countries and an in- world’s poorest countries2. Any efficiency creasing number of non-OECD countries improvement in the oil consuming sectors are implementing new or renewed energy will result in direct benefits in the balance of efficiency instruments adapted to their na- trade. tional circumstances. Besides the Moderating or reducing energy con- pre-eminent role of market instruments sumption, for instance, in electricity use, will such as voluntary agreements, labels, and have two benefits: information dissemination, regulatory (1) Supplying more consumers with the measures also are widely implemented same electricity production capacity, which is where the market fails to give right signals, often the main constraint of many countries

1 This Chapter is based on the research analysis of the Task Force on Energy Efficiency and Urban Development (Transportation and Building Sector). Task Force Co-chairs: Jiang Yi, Zhou Wei Laurence Tubiana; Task Force Members: Mao Qizhi, Li Qiang, Qi Ye, Ji- ang Yulin, Jiang Kejun, Bertrand Château, Albert Bressand, Shobhakar Dhakal, Nick Eyre, Lucienne Krosse, Partha Mukhopadhyay. 2 Almost a tripling between the beginning of 2003 26 US$/bl for the Brent) and August 2006 (73 USD/bl); since then the price is around 60 USD/bl, which is still twice higher than in 2003.

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 239 in Africa and Asia; automatic switch-off lights for hotel rooms are (2) Reducing the investment needed for good examples of how equipment can reduce the expansion of the electricity sector; this the influence of individual behavior. But, simi- is especially important in countries with a larly, the ability of individuals to reduce unnec- high growth in electricity demand, such as essary consumption depends on the technical China and many South East Asian coun- context where they live and move: badly insu- tries. lated homes heated to 15°C in winter may 6.1.1.2 Moderating or reducing energy consume a lot more energy than a similar home consumption that is very well insulated and heated to 20°C; Moderation or reduction in energy con- people can rely on public transportation rather sumption can be achieved not only through than on cars for getting to work only if public technological improvements, but also transportation networks are available close through moderation in the needs for energy enough to their home. services or through better organization and Moderation or reduction of energy con- management along with improved economic sumption based on technical support proves conditions in the sector, also known as to be long-lasting: a well insulated building “non-technical factors”. built today will still be there in 50 years from In some cases, because of financial con- now and will still generate low energy con- straints due to high energy prices or low in- sumption at that date. come, consumers may decrease their energy Moderation or reduction of energy con- consumption through a reduction in their sumption based on behavioral support does standard of living, such as a reduction in not provide any guarantee to remain active heating temperature of car use. Such reduc- after some years: The increase in incomes or tions, if not supported by changes in peo- globalization through the internet and all ples’ aspirations, are highly reversible. kinds of media may result in behavioral Moderating or reducing energy con- changes in the wrong direction with regard sumption is, first of all, a matter of indi- to energy efficiency. vidual behavior and reflects the rationale of 6.1.1.3 This is a policy issue energy consumers. Avoiding unnecessary Any cost-related decision concerning consumption of energy or choosing the energy consumption reduction at the indi- most appropriate equipment to reduce the vidual level, is based, more or less, on a amount of the energy consumed contrib- trade-off between the immediate cost and utes to decreasing individual energy con- the future decrease in energy expenses ex- sumption without decreasing individual pected from lower consumption. The higher welfare. the energy price is, observed or expected, Avoiding unnecessary consumption is cer- the more attractive the energy efficient so- tainly a matter of individual behavior, but it is lutions are. also, a matter of appropriate equipment: ther- Making the “good” investment decision mal regulators for room temperature and for domestic appliances or industrial devices,

240 Harmonious Development through Innovation from the energy consumption moderation (1) A rapid increase of imports of hy- viewpoint, certainly relies on a sound eco- drocarbons is likely to raise severe and nomic rationale. Good price signals are nec- growing security and socio-economic con- essary. cerns. In market economies, where most en- (2) A rapid increase in the emissions of ergy prices to final consumers are unregu- pollutants and GHG related to energy is lated, prices normally reflect the supply likely to raise severe and growing internal costs fairly accurately and are the main health concerns, social unrest, and growing drivers of individual’s behaviour regarding foreign pressures. energy needs. However, for several reasons, Energy consumption moderation or reduc- prices often reflect only a part of the over- tion, as appraised by this task force, has to be all costs of fuels and electricity. They in- placed in to this context and more generally clude none or few environmental external- in the context of sustainable socio-economic ities and long run marginal development growth in China. This means that improving costs. energy efficiency in cities in China has two As a result, behaviors that regard the main targets: needs for energy services and decisions made (1) Decoupling the demand for hydro- by final consumers when purchasing equip- carbons from economic development and ment or making an energy efficient invest- welfare improvement. ment, such as the retrofitting of dwelling, are (2) Decoupling the emissions of pollu- rather far from global economic optimisation, tants and GHGs from economic develop- thus creating a gap between actual energy ment and welfare improvement. consumption and what could be achieved Insulating a house makes it more energy through an accurate price system accounting efficient from an engineering point of view: for all costs involved. less energy is consumed for the same com- Taxation is the usual means used by gov- fort. But this technical improvement at the ernments to reduce or suppress such price micro-level may be not visible at the distortions at the consumer level. In that macro-level, that is, the whole stock of sense, taxation is always complementary to dwellings, if, at the same time, more houses energy efficiency policies and measures. It is are built, dwellings are larger, and/or more hardly just a component of these policies appliances are used. and measures, however, because of its much Energy efficiency is not just a technical broader socio-economic aspects, but it cer- matter, it is also a matter of efficient ser- tainly determines the effectiveness of such vices: Making a phone call instead of paying policies and measures. a physical visit, using public transportation 6.1.1.4 Measuring energy consumption instead of a car to go to work, recycling moderation bottles, reducing the heat at night and using China is confronted with two major timber instead of concrete for house con- challenges related to energy: struction all result in a decrease in energy

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 241 consumption for identical or very similar China, in particular with regard energy im- services. Again, such improvements may ports. exist at the micro-level but may not be di- (2) From an environmental viewpoint, it rectly visible at the macro-level. Assessing means: 1) improving the living conditions energy efficiency also means measuring the in cities－air quality, noise, and congestion; overall impact of all the improvements at 2) minimizing GHG emissions of a given the micro-level on the evolution of total standard of living for the Chinese popula- energy consumption. tion. Of course, assessing energy efficiency (3) From a social point of view, it means: from a policy view point does not mean re- 1) favoring appropriate conditions for life viewing each particular dwelling or factory, styles and aspirations (standard of living) but rather, it means estimating or measuring which minimizes energy needs for a given how far all these improvements at the mi- income: 2) reducing inequalities with regard cro-level went to contribute to the actual to living standards. evolution of energy consumption in the There are two main levels where energy various sectors and for the whole country. consumption moderation or reduce issues in This is the role of energy efficiency indica- cities should be tackled: tors, such as those developed in Europe (1) The level of the urban citizen, both (ODYSSEE), by the World Energy Council in her current living conditions and in his (WSC) or by the International Energy urban mobility, by minimizing her energy bill Agency (IEA). while increasing her living standard. It is In order to calculate such indicators, both a matter of technology and of behavior the prerequisite is to have detailed data on and life-style. energy consumption per sector and per (2) The level of the city as a whole by end-use. providing a spatial and functional organiza- tion of the city that is likely to minimize the 6.1.2 Urban design and planning and needs for energy services and providing energy consumption moderation these energy services in a way that minimizes the requirement of imported energy and mi- 6.1.2.1 General concept nimizes environmental impacts, both at local Moderating or reduce energy consump- and global levels. tion in Chinese cities in relation to sustaina- 6.1.2.2 Energy consumption moderation bility issues has three major meanings, ac- or reduction in buildings and construc- cording to the three main dimensions of tion sustainability: (1) A technical perspective (1) From an economic viewpoint, it From a technical perspective, energy means: 1) minimizing the energy bill of the consumption in buildings and construction Chinese urban citizens of a given standard can be moderated or reduction by three of living; 2) minimizing the energy bill of means:

242 Harmonious Development through Innovation

1) The architectural and technical cha- them more responsible for their indoor racteristics of the building itself, such as in- management, including with the technical as- sulation, passive solar radiation, and expo- sistance of an efficient climate management sure to the wind. systems, and of convincing them that over- 2) The technical performance of the heating or overcooling may be just the con- appliances inside the buildings, in particu- trary of comfort. lar in relation to the heating and cooling 6.1.2.3 Energy consumption moderation or demand reduction in urban transport 3) The supply of solar energy through (1) Technical perspectives dedicated panels on the building From a technical perspective, moderating Existing buildings offer much fewer or reducing energy consumption in urban possibilities for improving the technical ef- transport has two main dimensions: ficiency than new constructions due to few 1) The technical performance of the ve- possible modifications of architectural hicles used for urban transport. components, reduced possibilities for in- 2) The use of an energy type with fewer sulation and recourse to solar energy, and impacts on energy imports and on the envi- more constraints for changing the heat- ronment. ing/cooling system. Among existing The technical performance of vehicles is buildings, possibilities for improving ener- both a matter of engine and power-train effi- gy efficiency also strongly depend on fac- ciency and of vehicle size and power. Very tors including the age of the building, its few things can be done to improve the tech- size, and its location. nical efficiency of existing vehicles, but a lot (2) Behaviors and life styles can be done for new vehicles as compared to Behaviors and life-styles are likely to im- the existing ones. pact strongly the energy consumption of Biofuels and electricity are the most im- buildings, as shown in various surveys. Two portant options for reducing energy imports aspects are particularly sensitive from this and the local environmental problems point of view: created by urban vehicles. However, attention 1) The perception of comfort, for exam- should be brought to how biofuels and elec- ple, which inside temperature is desired in tricity are produced and how they affect winter and which in summer. global environment. 2) The indoor management of energy (2) Behaviors and lifestyles requirements, for example, differentiating in- There are three major aspects in this regard: side temperature requirements according to 1) For those who purchase a car, the the various parts of the dwelling, according characteristics of the car purchased, includ- to the time of the day. ing size, power, and energy. Moderating or reducing energy con- 2) For those who own a car, the decision sumption, from this point of view, is not a to use it or not according to the travel type matter of frustrating people, but of making and purpose, and how the car is used, in-

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 243 cluding load factor, and driving attitude. cient heat supply services. 3) For all, the use of “soft” modes, such Concerning this second aspect, two main as walking or bicycling, according to travel concepts are worth investigating: distance. 1) Creating high heat density areas within Average characteristics of a car pur- high population density areas－a concentra- chased are strongly related to the communi- tion of high buildings－ in order to minim- cation of car manufacturers and vendors for ize the cost of district heating systems per selling cars and to fiscal dispositions regard- dwelling. ing cars. Modal choices are partly constrained 2) In sunny regions with a lot of availa- by the availability of transportation alterna- ble space, favoring passive solar heating in tives such as public transport and bicycle highly insulated, low buildings. lanes, but also depend on social and cultural (2) Population density, urban functionali- habits that can be influenced. For example, ties and mobility supply the bicycle may be perceived either as an Providing energy efficient mobility ser- old-fashioned means for poor people or as a vices raises the question of the allocation of new-fashioned means for modern people. the city space for transportation among For those who own a car, this choice also competing infrastructures, such as allocating depends on the conditions for the use of road space to cars versus for public trans- cars, including tolls, parking availabilities, and portation lanes versus as dedicated lanes for fees. “soft” modes. This is a matter of existing 6.1.2.4 Energy efficient urban design size, geography and layout of the city and a (1) Heat density and heat supply matter of its future expansion. There are, Among the three dimensions to be in- therefore, two main issues regarding energy vestigated with regards to efficient heat efficient transportation: supply, the three factors are the geography 1) The possible reallocation of part of of the city, its population, and its average the street network in the existing part of the heat density, since these characteristics city for bus lanes, tramways, and “soft mod- impact directly the cost-effectiveness of es”. the district heating systems. From this 2) The energy efficient urban design of viewpoint, energy efficient urban design is future expansion of the city. both a matter of existing size and layout An energy efficient urban design from of the city and a matter of its future ex- the mobility viewpoint tries first to minimize pansion. Since the existing size and layout the transport demand for daily mobility. This are given, there are two main issues re- is a matter of appropriate zoning with provi- garding energy efficient urban design: sions of goods and services close to the 1) The efficiency improvement of the housing areas to minimize the distances to heat supply in existing buildings. go to work, to school, and to shopping areas, 2) The design of the future expansion of etc. Second, it aims at creating appropriate the city so as to minimize the cost of effi- conditions to make quality public transporta-

244 Harmonious Development through Innovation tion economically viable, in particular locat- tion pace during the period of 2030-2050. ing high transport demand at quality public Between 1990 to 2005, China’s urbaniza- transportation nodes, that are easily accessi- tion level increased from 26% to 43%. The ur- ble by foot and bicycle. banization level is uneven between different For car owners, the attractiveness of public places. On the top are Shanghai, Beijing, and transportation is mostly a matter of availability Tianjin, which have rates above 70%. Next are and time spent in transportation as compared to Guangdong, Zhejiang, Jiangsu and the three using car. This is why public transport on sepa- provinces in northeast, whose rates range from rated, dedicated routes, like metro, light rail, or 50% to 60%. Last are Guizhou, Yunnan and bus lanes, proves to be a much more attractive Xizang, with rates lower than 30%. Other plac- alternative than normal buses are. These require es’ urbanizing rates range from 30% to 50%. much more expensive infrastructures and As can be seen, most places in China are still in equipment that just buses on normal streets, but the developing stage of urbanizing. they prove to be more cost-effective for the city Accompanied with the fast pace of ur- if the passenger traffic is high enough. Passenger banizing, the per capita building area is in- traffic is a matter of the population of the city creasing. According to the statistical data, the and the concentration of traffic flows, which in current urban floor area per capita of China turn is a matter of population density and func- is nearly 30 m2, which exceeds the corres- tional layout. ponding index of Hongkong and is close to the average of Japan and Singapore, about 6.2 Review of Situations and 36 m2; the index of some provinces and ci- Trends of Energy Consumption ties even exceeds those of Japan and Singa- and Energy Efficiency in Urban pore. But, as a whole, the floor area per ca- Areas in China and Worldwide pita of China is far lower than that of USA and Europe. However, in the recent 15 years, the urban building floor area doubled every 7 6.2.1 Introduction: characteristics of years and more than 1 billion m2 of buildings China’s urbanization were constructed every year. If 1 billion m2 of buildings are built and the urban popula- Thirty years have been passed since China’s tion increases 15 million every year, the ur- Reform and Opening. During these years, Chi- ban floor area per capita of China will reach na’s urbanization is keeping a fast, increasing 42 m2 and will be close to the European level. pace. The urbanization level was 17.92% in The total energy consumption for building 1978, but reached 44.94% in 2007, an annual operations will certainly increase with the in- increment of more than 0.9%. If the increase crease of building scale. If the urban build- in rate is stable, the urbanizing level in China ing scale increases one time, the building will become 48% in 2010, reach the world av- energy consumption will increase by one erage urbanization in about 2030, and syn- time or even more. Therefore, it is necessary chronize with the world’s increasing urbaniza- to scientifically and reasonably control the

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 245 urban construction scale and urban building new buildings constructed every year to be scale and to control the urban building floor less than 0.7 billion m2. area per capita to be less than 35 m2 and the

45 100.0% 41

) 39 building floor area per capital urbanization rate 2 40 38 90.0% 35 33 34 33 34 34 80.0% 31 32 31 29 29 29 30 29 29 30 70.0% 30 27 27 27 27 28 25 26 60.0% 25 24 24 21 21 50.0% 20 16 17 40.0% 15 30.0% 10 20.0%

Building area per capita (m 5 10.0% 0 0 Jilin Tibet Hebei Hubei Anhui Gansu Fujian Henan Hunan Shanxi Shanxi Tianjin Hainan Jiangxi Beijing Jiangsu Yunnan Sichuan Qinghai Ningxia Guizhou Guangxi Xinjiang Zhejiang Liaoning Shanghai Shandong Chongqing Guangdong Heilongjiang Inner Mongolia Inner

Figure 6-1 Building floor area per capita for each province or typical cities in 2005.

70 65.0

60

) 53.3 2 50 46.1 39.3 40.5 39.7 40 37.0 35.0 29.0 28.8 30 26.0 27.7

20

Building area per capita (m 10

0 u u US area Japan Tianjin Beijing Suzho Shanghai Singapore Hongkong West Erup. West Chongqing Guangzho China Urban

Figure 6-2 Comparison of per capita floor area with developed countries or areas in the world.

The population of cities in China will be into the cities directly and dramatically will increased to 77 million in the next five years, increase the land of residences and various with average growth of more than 15 million. types of public infrastructure. However, the The concentration of such a large population per capita building area will greatly affect city

246 Harmonious Development through Innovation construction. For example, these are the city Asia; if 1 billion m2 of new building is built construction scope that can be found in each year, then building area per capita will three recent versions of the 11th Five-Year have reached the level of west Europe in 2025. Plan development program proposal to the If 2 billion m2 of new building is built each year, year of 2020: then in 2030, the building area per capita will Recently, 2 billion m2 of city construction is exceed the level of America. However, China is being finished every year. At this speed, 10 bil- unable to reach the level of western Europe lion m2 of new construction will be built during countries or America because it is beyond the the 11th Five-Year Plan. In 2020, 30 billion m2 capacity of China’s land, resources, energy, and of building area in cities will be completed and environmental conditions. at that time, there will be 45 billion m2 of Moreover, not only does the fast urba- building area with 54 m2 per capita. nizing pace promote the development of Of the 2 billion m2 of new construction, the building industry, it also boosts the de- half will be in the cities. With this speed, in velopment of building material industry. 2020, 15 billion m2 of building area in cities will Many materials used in buildings like steel, be completed and at that time, there will be 30 cement, and glass, are all industrial products billion m2 building area, with 35 m2 per capita. that consume large amount of energy. The New construction area is 0.7-1 billion m2 resources and energy consumed and the pol- per year. With this speed, in 2020, up to 10 lution emitted during the production process billion m2 of building area in cities will be will reach a level unacceptable within society completed and at that time, there will be 25 if building rates are unchecked. billion m2 building area, with 30 m2 per capita. Take the data of 2005 as an example. The Now that the development of city con- 320 Mt of steel production this year consumed struction is fast gathering momentum, 224 Mt of standard coal, which equalled 11% should China indulge and ride with a loose of the China’s merchandise energy consump- rein so as to reach or even exceed the first tion. Among the 320 Mt of steel, 150 Mt was prediction above, or shall China bring the used for building, which equalled 47% of the development under control? production. With the steel used in the railroad, As shown in Figure 6-2, compared to the highway, street, bridge and dam added, the steel data of some advanced countries and dis- used for construction equally 70% of the total. tricts, the building area per capita and the In addition to this, the large-scale production domicile area per capita of China’s cities are of plate glass, architectural ceramics, architec- in the forefront. Even if there will be a 1.5 tural plastics, and architectural non-ferrous million increase in urban population per year metal material, and other building materials, al- coming from village immigrants, only so came with large energy consumption. Tenta- 500-600 million m2 of new buildings built tive estimate shows that these required 4%-5% each year will suffice to keep the building of China’s total merchandise energy consump- area per capita, and domicile area per capita tion. According to this calculation, the direct will reach the level of advanced countries in or indirect energy consumption in building and

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 247 transportation construction required a total of such as big glass walls, maintained by the 20% of China’s merchandise energy consump- American building system. In addition, citi- tion during year 2005. If the construction scale zens admire the American car culture, even was decreased to half of that, then the China’s with the resultant traffic jams, heavy pollu- merchandise energy consumption can be re- tion and fuel bottlenecks. duced by 10%. In fact, after experiencing the horrific The overheated city construction has a energy, economic emergency, and environment close relationship with the social consumption pollution problem in the last century, the west- idea and culture. In fact, from 2001, China ern world is seriously rethinking the competing showed a first sign of emphasizing the heavy and lavish way of living of the last 50 years and industry development. Domains like steel, new, healthy living campaigns have launched. building construction materials, and real estate Some people in the United States and Europe showed a high growth rate, which rarely was are voluntarily converting to a more spartan, seen during the last 20 years. Gone, along with low material consumption lifestyle. For exam- the vigorous market economy, are the unremit- ple, they prefer clotheslines to driers, bikes and ting improvements of the living standard and public transportation to cars, and open win- the continuous increment of consumer durable dows to air conditioners, not only because they goods like housing, automobiles, or household are quiet, convenient for operating, fire-free, appliances. The livelihood consumption pattern not noxious to ozone and climate, cheap to buy, in China cities is advancing towards the direc- and easy to repair, but also because they main- tion of “high standard”, “super-lavish” and tain a closer link to the natural environment. so-called “international”. As a whole, China’s economy is entering the stage of heavy indus- 6.2.2 Actual energy consumption of try development, which is driven by the up- households in urban areas in major grading of consumer structure. countries around the world Consumer cultures employ high material consumption as one of the most important 6.2.2.1 Energy consumption status in Chi- factors of self-aggrandizement. The upper na and developed countries class displays their identity and status with Compared to other places in the world, lavish consumption. China’s society is in a China, as the biggest developing country, is special state of transition and the social units, still at a relatively low level of urbanization, including government officers, entrepreneurs, and the energy consumption per capita is not and ordinary citizens, resulted from the rapid high. However, China is accelerating its urba- changing of social structure learned from nization process and if no continual measure advanced countries without deep under- is taken during the process of high-speed standing. This will lead to dramatically in- economic growth, it will face the rigorous creasing building energy consumption re- challenges of energy consumption and envi- sulting from the high living standard and la- ronmental destruction. vish building and architecture environments, In industrialized countries, the share of

248 Harmonious Development through Innovation building and transportation in total energy the energy consumption in building and consumption has been growing steadily with transportation is almost half of the total con- the GDP per capita for the last 4 decades. In sumption of the country. The main drivers of OECD countries as well as in the EU, energy these evolving patterns have been consump- consumption in building and transportation is, tion patterns and urban sprawl, which are today, close to two-thirds of total energy closely inter-related. This is a rising challenge consumption. If we just consider urban areas, for China that must be addressed today.

Table 6-1 Energy consumption statuses for building and transport sectors in developed countries. 1971 1980 1990 2000 2005 OECD 54% 56% 61% 62% 64% EU-25 48% 54% 59% 62% 64% Sourse: Enerdate.

It is worth mentioning that during the 30 most important contributor to business ac- years of Reform and Opening, with the de- tivities. As to the cities with the largest ter- velopment of the economy and the improve- tiary industry, building and transportation ment of urban function, China’s tertiary in- will become the most significant composition dustry proportion is increasing rapidly, the of urban energy consumption. secondary industry proportion remains almost In China today, building and transporta- the same, and the primary industry proportion tion industry only takes up 33% of the total is decreasing. According to official an- energy consumption, which is at the same lev- nouncements by the State Statistic Office in el as the EU in 1960s. However, since the April, 2008, the proportion of the primary; 1990s, the energy consumption of transporta- secondary; tertiary industry in 2006 was tion and service is increasing by 8% per year. 11.3:48.7:40.0. At the same time, the total energy consump- In a nutshell, the secondary and tertiary tion is only increasing by 3.4% annually. Be- industrial sectors in China are the leading tween 2003 and 2005, the direct livelihood industrial sectors of cities. What is more, in energy consumption increased by 13.1%, some parts of same provinces, the tertiary 7.3%, and 9.9% each year compared to the industry proportion tends to surpass the previous. The total direct livelihood energy secondary industry proportion. For example, consumption in China is 530 Mt of standard tertiary industry in Beijing, Shanghai, Nanj- coal in 2005, which took up 24% of the total, ing, and Guangzhou has already become the and the number increased by 10% in 2006. major part of the industry. According to in- Transportation and building energy con- ternational benchmarks for economic devel- sumption took up more than 50% of the to- opment and urbanization, most cities’ func- tal in the advanced cities, which is as the tions will change from manufacturing to ser- same level as the EU in 1980s. For example, vice and tertiary industry will become the after statistically counting the tertiary indus-

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 249 try (building and transportation) energy Guangzhou, the building energy consumption consumption we can find that the tertiary ranges from 30%-40%. As to the build- industry proportion amounts for 70% of ing-related electrical power consumption, Bei- industry in Beijing and the high number jing (55%) also has the highest share. Guang- comes with the highest energy proportion of zhou and Shenzhen range from 30%-40%. In 50%. Shanghai, Tianjin, Suzhou and Guangzhou, The tertiary occupation energy proportion the share ranges from 20%-30%. Nanjing’s is is less than 20% in Chongqing, which is rela- lower than 20% ( Figures 6-3, 6-4). tively low. In Shanghai, Tianjin, Suzhou, and

8,000 60% total energy consumption 7,000 50% tertiary industry and residential consumption 6,000 proportion 40% 5,000

4,000 30%

3,000 20% Standard coal (Mt) Standard 2,000 10% 1,000

0 0 Tianjin Beijing Suzhou Nanjing Shanghai Shenzhen Hangzhou Chongqing Guangzhou Figure 6-3 Energy consumption for building and transport sectors in typical cities of China.

1,000 60% 900 total electricity consumption

kWh) 50%

8 800 tertiary industry and residential consumption

10 proportion

× 700 40% 600 500 30% 400 20% 300 200 10% 100 Electricity consumption ( consumption Electricity 0 0 Tianjin Beijing Suzhou Nanjing Shanghai Shenzhen Hangzhou Chongqing Guangzhou Figure 6-4 Electricity consumption for building and transport sectors in typical cities of China.

250 Harmonious Development through Innovation

6.2.2.2 Urbanization and energy consump- petitiveness. GDP per capita, size, population tion: comparisons between countries density, and urban pattern seem to be the key Research in urbanization finds that large determinants of energy consumption. cities provide very positive side effects to (1) Density of urban areas across the world economy. Large cities can produce more spe- In the world, Asian countries have the cialized goods and services for the local market, most dense cities as is shown in Figure 6-5. can accumulate more financial service provi- Mumbai and Kolkata in India (not in the sion and an educated labor force, and can con- graph) appear to the most dense cities in the centrate administrative functions. world, with nearly 30,000 inhabitants per km2. More generally, it might be possible that Karachi in Pakistan, Lagos in Nigeria, smart urbanization has an impact on the com- Shenzhen in China, and Seoul in South Ko- petitiveness of a country. For instance, urbani- rea are also very dense cities. On the contrary, zation can be determinant to have high-quality American cities are less dense. system of transportation, and the mobility of This comparison is, however, difficult, be- goods and people is an important condition to cause the borders of cities may differ. Ameri- economic development. Moreover, oil pro- can and European cities are large, while some curements are a source of impoverishment for cities in Asia are more narrowed. For instance, many countries where oil is mostly imported. the density of Paris stood at 3500 inhabitants Because of its impact on energy demand, ur- per km2 in the database, while in the core of banization is then, once again, linked to com- Paris, density is 20,000 inhabitants per km2.

Karachi 19 000 Lagos

Asia Shenzhen Seoul

16 000 Melbourne Taipei

Chennai

Bogota Shanghai 13 000

Lima Beijing Delhi Tehran KinshasaJakarta Manila Tianjin South Bangalore 10 000 Cairo Ho Chi Minh Baghdad Shenyang America Sao Paulo Hyderabad St Petersburg Mexico Santiago Singapore Recife Lahore Istanbul Dalian 7 000 Rio de Janeiro Monterey Khartoum Osaka Bangkok Guadalajara Europe Athens Ankara London Tel Aviv Madrid Sapporo North Moscow Barcelona Porto Alegre Buenos Aires Toky o Tashkent Warsaw America Manchester CapeTown Taichung Fukuoka Birmingham Berlin 4 000 Jeddah Riyadh Paris Rome Nagoya Los Angeles Milan Kuala Lumpur Toronto Lisbon Johannesburg San Francisco Cologne Frankfurt Hamburg New York Sydney MiamiMontreal. Chicago Washington Dallas Philadelphia 1 000

Figure 6-5 Different density for international countries or areas (Source: Enerdata).

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 251

The average population density per con- 1) It is an often of single-use zoning: tinent has been calculated on the basis of the commercial, residential, and industrial areas main cities in each country. The database are separated from one another. As a result, compiled more than 250 cities spread all over the places where people live, work, shop, and the world. The results show the following find recreation are far from one another, figures: usually to the extent that walking is not prac- tical. Therefore, many of these areas have Table 6-2 Average density in main cities. few or no sidewalks. Asia 8,200 inhab. / km2 2) It is low-density land use: sprawl con- Europe 3,200 inhab ./ km2 sumes much more land than in traditional Africa 5,300 inhab. / km2 urban developments because new develop- Pacific 2,000 inhab. / km2 ments are of low density. The exact defini- Middle East 4,300 inhab. / km2 tion of “low density” is arguable, but a Russia and Central Asia 5,000 inhab. / km2 common example is that of single family North America 1,300 inhab. / km2 homes, as opposed to apartment buildings. South and Central America 5,900 inhab. / km2 3) It is based on car-dependent com- Source: Enerdata munities: areas of urban sprawl are also cha- European cities were denser in the past racterized as highly dependent on automo- than they are now. Over the last decades, cit- biles for transportation, a condition known ies have grown more horizontally than verti- as automobile dependency. Most activities, cally in Europe and the US. Thus, core cities such as shopping and commuting to work, have lost population, while suburban areas require the use of a car as a result of both have grown significantly. Paris illustrates this the area’s isolation from the city and of the evolution; the core Paris counted 3 million isolation the area’s residential zones have inhabitants in the beginning of 1900’s, with- from its industrial and commercial zones. out any suburbs. Now, the core of Paris (2) Evidences of the link between den- counts 2 million inhabitants and the suburbs sity and energy consumption in transport have around 8 millions. The following figures reveal that public The term “urban sprawl” describes this transportation is more developed when cities evolution towards very spread out cities. are dense. The graph below shows the mar- People tend to live outside cities and then ket share of public transport and density in becoming commuters. Urban sprawl has a main cities. In Asia, public transport is rela- few characteristics: tively high and cities are dense.

252 Harmonious Development through Innovation

16 000 45% ) 2 14 000 40% 35% 12 000 Public transport market 30% 10 000 share 25% cities (hab/km 8 000 Density in main cities 20% 6 000 15% 4 000 10% 2 000

Density in main 5% 0 0% Asia Australia Canada Europe US Figure 6-6 Comparison about the density and public transport.

The two maps below deliver the same transportation over a car; on the contrary, conclusion. Data of density and data of per- where density is low, car use becomes pre- centage of people using their car to go to dominant. Thus, in the core Paris and the work on the other hand are shown an sepa- neighbourhood just outside, density is rate maps. The French national statistical around 20,000 people per km2 and approxi- system source allows high accuracy in terms mately 25% of commuters use their car to go of geography, as Paris and its suburbs are di- to work. On the contrary, in the distant sub- vided into more than 400 sub-elements. urb, density is around 500 people per km2 As the maps shown where density is high, and 70% of commuters use their car. people tend to use alternative means of

Density Car use to go to work

Paris Paris

25 km Low High Figure 6-7 Changes of car use and population density in Paris.

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 253

United States 1,800

1,600

1,400 Canada

Australia 1,200 Saudi Arabia Ireland 1,000 Austria

800 France Spain Italy Ukraine Germany Japan 600 Malaysia

Hungary Mexico 400 Russia Chile S. Africa Poland Thailand

Consumption of energy in transport(koe/capita) energy of Consumption Ukraine Brazil Turkey Peru 200 EgyptIndonesia Colombia Pakistan India China 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Density in main cities (inhabitant/km2)

Figure 6-8 Density in main cities.

The same idea can be stressed by other Urban sprawl is part of the national spirit; indicators. Figure 6-8 emphasizes the link Los Angeles often being quoted as the para- between density and the consumption of en- digm of urban sprawl. ergy in transport. It appears that, in a given country, energy consumption for transport Table 6-3 Figures at national level for both needs is high when density is low. For instance, countries illustrate this difference. an average US consumes 1, 8 toe in transpor- USA Japan tation per year. This is more than twice that in GDP per capita 43,000 USD 37,000 USD Europe, despite the standard of living being Average density 31 inhab./km2 350 inhab./km2 Cars per household 2.4cars 1.2 car quite similar. This difference is due to urban Consumption of road planning specificity in each continent; the transport per capita 1,820koe 600koe European population is more located in cities per year and those cities are denser than in the US. Source: Enerdata The comparison between the US and Ja- (3) Evidence of the link between density pan is very emblematic of how urbanism can and energy consumption in households impact energy consumption for transporta- Does density also have an impact for en- tion. In Japan, cities are very dense and urban ergy consumption in dwellings? As insulation sprawl described before is far less, or preva- of buildings is better in collective than in in- lent. In the US, the culture is very different: dividual dwellings, the answer might be posi-

254 Harmonious Development through Innovation tive as well. A French study has estimated the Previous analysis outlines the importance average consumption of collective dwellings of urbanism in energy consumption for for space heating at 125 kWh/m2 per year. space heating and transportation. It might be For individual dwellings, the energy needed interesting to estimate the energy consump- has been estimated at 174 kWh/m2 per year, tion for those needs in both cases, a city 40% higher. characterized with low density and on the As a result of that, it is expected that contrary a high density city. low-density zones, which are characterized Paris’ urban area is divided into three with many more individual dwellings, will parts, the core Paris, the 1st ring suburb, and generate more energy consumption. the distant suburb, as Shown in figure 6-9. (4) Energy used for transport and space heating in relation to urbanization in Paris:

ٛ Paris ٛ 2.1 millions inhabitants ٛ Surface : 106 km2 2nd Suburb ٛ Density : 20,000 capita/km2

1st Suburb * 1st suburb * 3.2 millions inhabitants Paris * Surface : 396 km2 * Density : 8,000 capita/km2

* 2nd suburb * 4.1 millions inhabitants * Surface : 2,353 km2 * Density : 1,700 capita/km2

Figure 6-9 Changes in Paris about the suburb area and inner city.

We see in the table below that energy that energy consumption per capita in core consumption per capita for space heating Paris is 0.43 tep per year, while it is 0.73 tep and commuting is 80% higher in the 2nd per year in the distant suburb. suburb than in Paris. Indeed, estimates show

Table 6-4 Changes about the city and space heating. Energy used Paris 1st suburb 2nd suburb in toe per year (2.1 M inhab.) (3.2 M inhab.) (4.1 M inhab.) Work commuting 120,000 280,000 470,000 Space heating 800,000 1,500,000 2,500,000 Total 920,000 1,780,000 2,970,000 Total per capita 0.43 0.57 0.73

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 255

energy consumption has already been gener- 6.2.3 Energy consumption in the building ally discussed in chapter 6.1, here the focus sector in China will be on the operating energy consumption. This includes energy consumed for lighting, Energy consumption in relation to heating, cooling, and electrical appliances building includes embodied energy － during the whole lifetime of buildings. building material production, building ma- 6.2.3.1 Overall building energy consump- terial transportation, construction, and tion maintenance and operating energy for build- In 2004, the total building area of China ing operation during its life time. The fast was 38.9 billion m2 and consumed about 0.51 urbanization of China has accelerated the billion tons coal equivalent (tce) of commer- rise of the building material industry and the cial energy, which accounts for 25.5% of to- construction industry and the subsequent tal commercial energy consumption as energy consumption has occupied 20% of shown in Table 6-5. Energy consumptions in the total commercial energy consumption of detail are listed as follows: China. However, as this part of embodied

Table 6-5 China building energy consumption, 2004.

Area Elec. Coal LPG NG Coal gas biomass Total commodity billion m2 TWh Mtce Mtce Mtce Mtce Mtce Mtce Rural 24 83 153.39.6 - - 266 192 Urban res. (excl. heating) 9.6 150 4.6 12.1 5.5 2.9 - 78.2 Residential heating along 4 21 - - - - - 7.4 Yangtze River North China urban heating 6.4 - 127.4 - - - - 127.4 Ordinary commercial 4.9 202 - - - 94.7 17.4 5.9 Large scale commercial 0.4 50 - - - 17.6 Total 38.9 506 302.721.7 11.4 2.9 266 517.3 Note: Fuel and heat consumption are converted to standard coal equivalent according to their gross caloric values. When calculating the total energy consumption, electric power is converted to standard coal equivalent according to the conver- sion coefficient subject to the mean plant coal consumption in thermal power plants in China of the year 2004, i.e. 1 kWh electrical power is equivalent to 354 g coal equivalent Data source: 1) Rural data: Sustainable energy source development financial and economic policies research reference documents, data of 2005, Wang Qingyi, Oct. 2005; 2) Other data: China Statistic Yearbook, 2005.

256 Harmonious Development through Innovation

Large scale Ordinary commercial commercial 4% 19% Rural 35%

North China urban heating Residential Urban 25% heating along residential Yangtze River 16% 1%

Figure 6-10 Sectoral energy consumption of China, 2004.

6.2.3.2 Lower energy consumption in Chi- rural areas is excluded, there are still folds in na than in developed countries the gap between China and developed coun- As shown in Figure 6-10, despite having tries. Although the energy statistical methods already reached 510 Mtce, China building and systems of each country are different, all energy consumptions are far lower than the data are matched with each other in their those of developed countries. Even com- quantities and developing trends. Thus, ac- pared with European countries, which have cording to the energy consumption data fairly good policies on building energy effi- comparison between China and major de- ciency, China’s unit area consumption is only veloped countries, it can be reasonably con- 1/5 of Europe and the per capita value is cluded that unit area building energy con- only 1/7 of European level. Even if the sumption of China is currently only 1/2- 1/3 energy consumption of the less developed of the developed countries’ levels.

60 50.35 50 46.62

a) 40 · 2 30 25.69 25.49 21.83

kgce/(m 20 13.29 10 6.98

0 USA Japan OECD Russia Urban China India China

Figure 6-11 Per unit area building energy consumption, 2004.

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 257

More ever, the China heating consump- spectively, occupying 10% of the statistical tion is half of developed countries with sim- samples are excluded from the date. Table 6-7 ilar climate. Table 6-6 shows the heat de- shows the heating consumption of some mand of buildings in over 100 residential European countries. Concerning the climatic quarters in Beijing when the room tempera- differences, amended consumption data are ture is maintained at 18℃. The data source is also provided in the table. According to real consumption in the year 2006 and comparisons of Tables 6-6 and 6-7, the con- amended according to the outer temperature clusion that there are no great differences of and the design climate parameters of Beijing. heat demand between Beijing and European The highest values and the lowest values, re- countries could be made.

Table 6-6 Heating demand in Beijing buildings (room temperature 18℃).

Building category Heating demand scope kWh/(m2·a) Common residential building 50-100 Common office building 30-90 Hotel 40-90 Emporium 10-120 School 30-100

Table 6-7 Heating consumption in surveyed countries.

Heating degree Heating consumption Heating consumption after climatic Year Building type Country days [kWh/(m2·a)] correction [kWh/(m2·a)] 2004 Residential Beijing 2450 83 83 1998 Residential 1 Poland 4043 124 75 2004 Residential Germany 3126 185 145 1998 Residential 2 Germany 3430 57 41 2004 Residential France 2747 150 134 1998 Residential 3 Finland 5303 55 25 1998 Residential 11 Sweden 3230 20 15 2004 Residential Greece 1565 120 188 2004 Office Germany 3126 120 94 2004 Office France 2747 166 148 2004 Office Holland 2784 310 273 2004 Office Greece 1565 100 157 2004 Hotel Germany 3126 225 176 2004 Hotel France 2747 179 160 2004 School Germany 3126 160 125 2004 School France 2747 118 105

258 Harmonious Development through Innovation

Heating degree Heating consumption Heating consumption after climatic Year Building type Country days [kWh/(m2·a)] correction [kWh/(m2·a)] 2004 School Holland 2784 145 128 2004 School Greece 1565 55 86 Note: (1) Energy consumption data source: a) 1998 data from the survey on a batch of energy efficient buildings: Indicators of Energy Efficiency in cold-climate buildings, Results from BCS Expert Working Group, http://eetd.lbl.gov/. b) 2004 data is the statistical data from: Beijing－Report on Beijing residential building heating test in 2005-2006 by Tsinghua University; other countries－Applying the EPBD to improve the Energy Performance Requirements to Existing Buildings- ENPER-EXIST, Intelligent Energy of EPBD, 2007. (2) Climate data source: Beijing data is sourced from “civil building energy saving design standard JGJ26-95”, based on 18℃ ; USA data is from “monthly state, regional, and national heating degree days weighed by population”, National Climate Data Centre, USA, 2006, based on 18.3℃; Japan data is sourced from “Handbook of Energy and Economic Statistics of Japan”, energy con- servation centre, 2006, based on 14℃ ; Other European countries are sourced from 2007 Earth Satellite Corporation (www.earthsat.com), based on 18.3℃ . (3) Methodology: (Amended energy consumption of region A)=(heating consumption of region A)/(heating degree days of region A)× (heating degree days of Beijing).

Among the reasons that explain these the Central heating plant (CHP) sourced discrepancies despite far better insulations district heating system in North China, in European buildings: building shape coef- which makes full use of exhaust heat of ficient, ventilation and infiltration, and coal-fired CHP to maintain total energy ef- maintained room temperature. European ficiency as high as in developed countries. residential buildings are mostly detached Primary energy consumption of optimized houses and their shape coefficient is ap- CHP for heat production is only 70%-85% proximately 2 times that of high-rise apart- of water source heat pumps that are re- ments in China (12 floors); the shape coef- garded as currently the most energy effi- ficient of most office buildings in Europe is cient. Consequently, although the envelope over 1.5 times that in China. In addition, in in China is worse insulated, the overall recent years, indoor air quality of European heating consumption appears lower com- buildings has been controlled strictly by the pared with developed countries. application of mechanical ventilation with 6.2.3.3 Great individual differences in do- an exhaust volume generally over 100% of mestic buildings in China the building volume per hour. Besides, the It could be concluded that China con- set temperature in European residences va- sumes much less energy than developed ries from 21℃ to 24℃, which shall con- countries in buildings, compared either in sume approximately 15% more energy than unit area or in per capita building energy at 18℃. consumption. However, great discrepancies And another important reason could be of individual building energy consumption

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 259 occur, even among buildings serving the hai and Chongqing, including all household same function in the same geographical re- electric end-uses such as air conditioning gion of China. Figure 6-12 shows the sur- (AC), lighting, and household electric ap- veyed annual electricity consumption of pliances. Three to five-fold individual differ- some residential buildings in Beijing, Shang- ences easily are found.

70 SH BJ CQ 60

50 a)

· 40 2

30 kWh/(m 20

10

0 0 50 100 150 200 Floor Space (m2)

Figure 6-12 Surveyed residential electricity consumption (Beijing, Shanghai and Chongqing).

Figure 6-13 offers the whole year AC imately the same income, and use the same electricity consumption of medium-income cooling device, a split air conditioner. Further families in a Beijing residential building, with analysis suggests that the over ten-fold dif- the application of split AC respectively ference in Figure 6-13 are not greatly con- measured in 2007. Household electricity cerned with the incomes of each family but consumptions differ greatly from flat to flat, with the ages of the residents;. the older although all the dwelling families share the person will have lower AC energy consump- same envelope insulations, earn approx- tion.

15

12 ·a)

2 9

6 kWh/(m Average 2.3 kWh/(m2·a) 3

0 1 3 5 7 9 1113151719212325 No. of flats

Figure 6-13 Electricity consumption of split ACs in a Beijing residential building.

260 Harmonious Development through Innovation

6.2.3.4 Differences in commercial sector electricity consumption of some office are also largely determined by energy buildings in two famous campuses of Beijing consumption modes and Philadelphia. An office building, in Bei- Impacts of energy consuming modes on jing with an electricity consumption near to residential energy consumption are as dis- the average level of the whole campus was cussed in the above paragraphs. Generally, selected for in-depth comparative analysis of the same conclusion could be drawn in the the energy consumptions of a Philadelphia commercial sector. Orders of magnitude campus building. This building was built in differences of energy consumption in com- 2002 with very good insulation and Variable mercial buildings can be, for the most part, Air Volume (VAV) Systems for air condi- attributed to how people use buildings rather tioning. The main differences between the than what technical solutions are equipped in buildings are lighting and appliances, cool- buildings. ing, and the ventilation fans in a centra- Figure 6-14 is the comparison on annual lized AC system.

450 400 350 300 ·a)

2 250 200

kWh/(m 150 100 50 0 A1 A2 A3 A4 A5 A6 A7 B1 B2

Figure 6-14 Annual electricity consumption of campus office buildings in Philadelphia (B) and Beijing (A).

Figure 6-15 illustrates the cooling con- mechanical ventilation volume of outdoor sumption of several Beijing government of- fresh air, and indoor temperature and humid- fice buildings applying centralized AC sys- ity. Differences of these factors would result tems. Individual floor area of these buildings in different levels of indoor thermal comfort, is similar to this case, but there is gap greater such as satisfaction rate of all air conditioned than one-fold of cooling consumptions rooms, satisfaction hours in the whole cool- among them. The reasons are ranked in des- ing period, and satisfaction level of all occu- cending order of their influences as: total pants. operation time, fan electricity consumptions,

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 261

60 52 50 46 46

40 35 ·a)] ·a)] 2 30 22 22 20 20 19 19

[kWh/(m 20 12 9 10 AC electricity consumptions 0 building ABCDEFGH I J KL

Figure 6-15 AC electricity consumptions of some government office buildings, Beijing.

6.2.3.5 Impacts of different routines for ignore the adaptability and regulation capaci- indoor environment maintenance on ty of the human body and their positive reg- building energy consumption ulation of the environment. Then two con- Generalizing the above discussions, there sequences emerge: 1) an enormous amount are now two different routines for good indoor of energy is consumed; if all people followed environment: 1) a mechanical one, which con- this living mode, it would consume 130% of sumes great amount of energy, and 2) a natural currently produced energy in the whole one, which is mainly in virtue of natural means, world; and 2) the residents are not very satis- with complementary mechanical solutions. fied for lacking free choices of individual Mechanical routine: The “Most Com- control upon the indoor environment, which fort” indoor environment is maintained by is actually not coherent with human beings’ artificial mechanical ventilation, cooling and requirements after millions of years’ evolu- heating, so that the indoor physical status is tion, especially the requirements for physical rigidly controlled. The industrial revolution, health. The energy consumption can be re- with its developing scientific technologies, duced to a certain degree through various has greatly enabled people to maintain good technical breakthroughs, yet it is almost an indoor environments. The concept of “hu- infeasible dream to lower the proportion to man will overwhelm natural forces” gradually 30% to 40% from the 130% at present merely prevailed, which is the consequence of un- by technical solutions. Indeed, endowing the reasonable expansion of energy consump- residents with abilities of regulation upon tion from the industrial sector to the building preferred environmental conditions may be sector. Various environmental parameters more psychologically appropriate and will be such as temperature, humidity, air flow and fulfilled by technical innovations. Yet, com- indoor luminance are rigidly implemented pletely relying on a mechanical approach to and maintained by mechanical AC, ventila- maintain such environment may further in- tion, and lighting, so as to provide the op- crease the demands of energy resources. timal services for residents. However, they Natural routine: in the natural mode,

262 Harmonious Development through Innovation various passive means and self regulations of 6.2.4 Current status of China’s urban the residents, such as opening window for transport and energy consumption ventilation and sunshades, should be used for appropriate indoor environment. Also, they Rapid urbanization and motorization, should be coordinated with and adapted to especially the rapid growth of private cars, the natural environment through the has brought great challenges to urban trans- self-regulation and adaptability of the human portation systems. Figure 6-16 shows the body. If these means finally cannot meet en- growth of vehicle ownership in recent years. vironmental requirements, they shall be From the early 1990s to today, China has complemented by mechanical or manual maintained a high annual growth rate of 13% means, such as heating. The mechanical do- in vehicle ownership. By the end of 2006, the minating mode usually assures an invariable total number of registered vehicles was close indoor status with constant environmental to 37 million; furthermore, of the vehicles parameters, while the nature dominating registered, ownership of private vehicles ex- mode aims at being harmonious with the va- perienced an annual growth rate of 23%, far riable natural environment. In fact, in the higher than that of total vehicle ownership. days before modern society, this mode was In Figure 6-16, the civil vehicle fleet includes widely used, which has supported the breed- the passenger vehicles and truck which pro- ing and civilization development of the hu- vide commercial transport service, vehicles man being. The residential environment un- belonging to commercial enterprises and der this mode does not consume too much government institutions, and private vehicles. natural resources, has lower levels of de- It does not include vehicles for special pur- structive externalities upon the global envi- pose, such as fire trucks, municipal sanitation, ronment, and can be regarded as more sus- and military fleets. Furthermore, the private tainable. vehicle fleet includes the vehicles belonging To sum up, it is the choice between these to private individuals. two routines that causes up to ten-fold, dif- ferences of building energy consumption.

35 30 Civil vehicles Private vehicles 25 20 15 10 5 0

Vehicle population (million units) population (million Vehicle 1990 1992 1994 1996 1998 2000 2002 2004 Year

Figure 6-16 Growth of registered motor vehicles in China.

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 263

Motorization will continue to grow ra- frastructure. The development of those in- pidly in the next 10-20 years, yet vehicle frastructures further accelerated the motori- ownership in China is much lower compared zation process in cities. Congestion became with that in other developed countries. In- worse. Lessons were that the free develop- ternational experience shows that there will ment of small cars was not beneficial. be a vehicle purchase peak in a country when (3) Rapid Development Phase its per capita GDP reaches 3,000-4,000 USD, In order to accommodate the rapid mo- which China will attain in 20 years. Thus, ve- torization and the healthy development of hicle ownership, as an important indicator urban transportation, China’s cities began to for standard of living, will continue to rise. implement series of policies and measures 6.2.4.1 Overview of China’s transport de- for the Smooth Project and to bring atten- velopment tion to public transport’s priority. Ministry Urban transport development was cata- and other national government office created lyzed by its own conflicts along with its evo- relative regulations and raised a goal of es- lution. The urban transportation develop- tablishing a public transportation-focused ment process can be viewed as following system by 2010. During this phase, the con- four main phases due to different conflicts in flict between public and private transport the case of China cities. became more evident in addition to besides (1) Initial Phase the supply-demand conflict. As motorization Before industrialization and motorization, developed dramatically and brought signifi- urban populations increased slowly and cant impact to the urban living condition, people traveled by foot, animal, or bicycle. many cities added special items to their urban Most available transportation modes were at transportation management frame to restrict a low speed and the travel distance was gen- the over development of small cars and to erally short. The conflict of transportation promote prior development of public trans- was not evident in this phase. The travel time port. Those measures adopted brought im- and distance were tolerable to most people. portant positive affects to urban transporta- (2) Startup Phase tion issues, but faces many challenges. More Along with the development of urban effort should be enhanced to strategic plan- economies, GDP, and public living quality, ning and land use to meet development ob- urbanization and motorization began taking jectives eventually. place. In this phase, the major conflict was (4) Maturation Phase between the rapid increase of motorized After the conflicts between urban transport transport’s demand and relatively limited demand and supply and between private and public road resources. Therefore, a motor focus transportation are alleviated, some new issues may transport development plan was in a great take place, such as transportation systems’ service need. Many cities started construction of level and the variety of resident travels. Therefore, a new, broader vehicle lanes, expressways, se- fast, safe, diverse, efficient and highly accessible paration bridges, and other motorization in- transport system should be provided. Social and

264 Harmonious Development through Innovation economic resources are in need of optimal utiliza- for leisure purposes; with the improvement tion to satisfy people’s updated transportation de- of standard of living, average daily trips by mand, whether motorized or non motorized and urban citizens gradually will be rising, there- private or public transport is adopted. fore travel distance and reliance on vehicles 6.2.4.2 Demand of resident travel keeps in- will rise, as well. It is estimated that, on the creasing basis of the macro-economic development Rapid urbanization and the improvement scenarios, passenger trips in Chinese urban of citizens’ standards of living will lead to areas will be 951.7 billion person-trips by increasing travel distances and time. Such 2020, including 255.7 billion person-trips by situations may stimulate the use of motor public transport and automobiles, with an vehicles and travel by other motorized modes. expected annual growth rate of 9% from The experience of developed countries indi- 1998 to 2020 (Figure 6-17). cates that there is a growing trend of trips

1,200 30%

1,000 Urban trips 25% Share of urban trips in mode of vehicles 800 20%

600 15%

400 10%

200 5%

0 0% Share of urban trips in mode of vehicles of mode in trips urban of Share

Number of urban trips(billion person-trips) trips(billion of urban Number 1998 2000 2005 2010 2020 Year

Figure 6-17 Future personal trips in China.

6.2.4.3 Urban passenger transport volume ratio of diesel. The petroleum consumption increases rapidly of Beijing was 1.06 million tons in 2000 and The urban public transportation volume, increased 122% to 2.35 million tons in 2005. including bus, metro, and rails, kept increas- Shanghai consumed 1.33 million tons of pe- ing since 1980, because the demand of resi- troleum in 2000 and 2.42 tons in 2005. Over dent travel rose, with 48,369.30 million 90% of petroleum was used for transport. people in 2005 increased 1.6 times of 1980. Most of that was used for urban passenger Especially in latest 10 years, it grow by 7.4% transport, though small portions were taken per year, which is close to the rate of GDP by inter-city passenger transport and freight increase (Figure 6-18). Urban passenger transport. According to the study of China transport is a major petroleum consumer in National Development and Reform Com- China, while it consumes a relative smaller mission, Beijing’s petroleum consumption

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 265 was 900,000 tons in 2000 and 2.1 million tively. Small cars used 80% of the total pe- tons in 2005. Correspondingly, the figures for troleum consumption. Shanghai are 1.06 and 2 million tons, respec-

25,000 60,000 GDP development Passengers transferred 50,000 20,000

40,000 15,000 30,000 10,000 20,000

5,000

GDP development (billion RMB) GDP 10,000 Passenger transfered (million person-times) 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Figure 6-18 Passenger volume of public transport in China.

6.2.4.4 China’s transport energy consump- It should be noted that the data in Chi- tion increases the most compared with na’s statistics system only includes those op- other sectors erational transport enterprises whose energy The transportation sector is significantly consumption is counted. The current data dependent on energy resources. Energy does not contain non-transport vehicles and consumption for transportation increases their consumptions. As the estimation by in- dramatically along with China’s economic ternational standards, the energy consump- development and has become one of the tion of transport would take 10% of the na- most rapidly growing industries in terms of tion’s total. The transportation industry con- energy consumption. Data reveals that the sumes almost all gasoline, 60% of diesel, and transportation industry consumed 7.55% of 80% of coal oil. China’s petroleum con- total energy used by the nation. Of sumption is dependent on foreign imports at oil-related consumption, transportation takes the high rate of 40% and the dependence is 31.45%. These two figures have increased growing. In order to ensure the nation’s 10.75% and 12.16% respectively since 2000 energy security and to reach the energy con- (Figure 6-19). There is still an evident gap servation goal for the 11th Five-Year Plan of between China and developed countries re- reducing energy consumption 20% per unit garding unit energy consumption, utilization GDP, the transportation industry must bring rate, and equipment efficiency of the trans- more effort on energy conservation. portation industry.

266 Harmonious Development through Innovation

200 8.0%

180 7.0% 160 6.0% 140 120 5.0% 100 4.0% 80 3.0% 60

transport service (Mtce) service transport 2.0% 40

Energy consumption incommercial 20 1.0% Percentage of total energy consumption energy of total Percentage 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Energy consumption in commercial transport service Percentage in total energy consumption

Figure 6-19 Transport energy consumption in 1995-2006.

6.2.4.5 Cars consume most energy in all largest CO2 emissions per passen- transport modes ger-kilometer among the six modes of Different modes of transport differ dras- transportation and 7 times that of buses. tically in energy consumption in urban Thus, from views of both environmental transport system. Table 6-8 shows that cars benefit and of transportation efficiency, the consume the most energy per passen- promotion of mass public transfer tools such ger-kilometer. The energy consumption per as light rail, subway and tramcar is one the passenger-kilometer of light rail, subway and measures to establish an energy-efficient ur- tramcar is only 6% that of cars’ and single ban transportation system in the future. bus is 10% of the cars’. Cars produce the

Table 6-8 Comparison of energy consumption among various transport modes (energy intensity per person-kilometer of single bus set at 1).

Energy consumption per Energy consumption per Transport means Transport means person-kilometer person-kilometer Bike 0 Electric trolley bus (hinge joint) 0.8 Motorcycle 5.6 Electric trolley bus (BRT) 0.7 Car 8.1 Tram 0.4 Bus（single） 1 Light rail transit 0.45 Bus（hinge joint） 0.9 Subway 0.5 Bus（BRT） 0.8

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 267

6.2.4.6 Transport energy consumption per rences of car buyers in Tokyo. It is common capita is less than developed countries, but for families in Japan to have two vehicles. increasing rapidly Most of the families wanted to buy bigger Fuel consumption per capita in China cars at first, so fuel consumption kept in- had been increasing steadily from 1990 to creasing. When families purchased their 2005 (figure 6-20), where Beijing consumes second car, they came to prefer small or the most fuel－as much as 3 times of the na- economy-model ones in light of tax costs tion’s average level, which is still less than Ja- and environmental issues. Hence, Tokyo’s pan and Korea. Figure 6-20 shows that car population increased continuously, but Tokyo’s fuel consumption per capita was less its fuel consumption per capita stayed at a than the national average until 1999. One of relative steady rate. the reasons for this is the change of prefe-

140 120 100 80 60 40 (toe/1000 person) (toe/1000

Gasoline Consumption 20 0 1990 1992 1994 1996 1998 2000 2002 2004 Beijing Shanghai China

500

400

300

200

(toe/1000 person) (toe/1000 100 Gasoline Consumption

0 1990 1992 1994 1996 1998 2000 2002 2004

Tokyo Japan Seoul Korea

Figure 6-20 Urban passenger transport energy consumption of China, Japan, and Korea.

268 Harmonious Development through Innovation

6.2.4.7 Cars take largest portion of urban will be 5.9% per year. 45.3 million tons of oil passenger transportation energy consump- will be consumed in 2030, as six times the tion amount of 2000, and small cars take 80% of China’s urban passenger transportation total urban transportation energy consump- consumed 7.9 million tons of oil in 2000, tion, which is undoubtedly the largest con- and the increasing rate from 2000 to 2030 sumer of energy (Figure 6-21).

5000

4000

3000

2000

1000 Energy Consumption (10 000 toe) 000 (10 Consumption Energy 0 2000 2005 2010 2015 2020 2025 2030

Year

Car Bus Light Rail Transit & Subway

Figure 6-21 Energy consumption of China’s urban passenger transport in 2000-2030.

Currently, the urban building rate continuously 6.3 Conclusions increases at the speed of 5% to 8% in China and more than 1 billion m2 worth of new buildings Currently, the proportion of both build- are built every year. This will not only lead to the ing and transportation energy consumption doubling of floor area of urban buildings and a in social site energy consumption is as much continuous increase of building operating energy as 33%. Following the experiences of devel- consumption in the next 15 years, but also indi- oped countries, this proportion will steadily rectly will promote the fast development of ener- increase with the development of the econ- gy-intensive building material industries, such as omy and adjustments of industrial structure. cement, steel, and glass. Statistical data shows the For example, this same proportion of social energy consumption of the cement, steel, glass, site energy consumption in OECD countries and China used for urban construction account and EU member countries has reached about for 20% of the total energy consumption in Chi- 2/3, among it the proportion concerning na in 2005. If the urban construction scale can be only urban building and transportation is decreased half, the total energy consumption can more than 1/2. be decreased 10%. Chinese urbanization is currently a great Various types of new buildings are the challenge for itself as well as for the whole world. main part of urbanization. According to the

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 269 statistical data, the current urban floor area only 1/7 of that in the US and 2/7 of that in per capita of China is nearly 30 m2, which western and northern Europe; the operating exceeds the corresponding index of Hon energy consumption per unit floor area for Kong and is close to the average of Japan urban buildings in China is 1/3 of that in US; and Singapore of about 36 m2; the index of the operating energy consumption per unit some provinces and cities even exceeds that floor area for residential buildings in China is of Japan and Singapore. But, as a whole, the 1/3 of that in the US and 1/2 of that in Eu- floor area per capita of China is far lower rope. However, recently, with the growth of than that of USA and Europe. However, in the economy, the improvement of living the recent 15 years, the urban building floor standards, and the influence of the ideas of area doubled every 7 years and more than 1 “joint track with international standard” and billion m2 of buildings were constructed “30 years of no backwardness”, a great every year. If 1 billion m2 of buildings are amount of high standard residential and office built and the urban population increases 15 buildings that pursue to be different and large million every year, then urban floor area per have been built. The operating energy con- capita of China will reach 42m2 and will be sumption for these buildings realizes the con- close to the European level. The total energy ception of “joint track with international consumption for building operations will standard”: The energy consumption per unit certainly increase with the increase of build- floor area has increased greatly. For example, a ing scale. If the urban building scale increas- so-called high-grade residential building in a es one time, the building energy consump- certain place of China claims that it has ap- tion will increase one time or even more. plied the most advanced energy saving tech- Therefore it is necessary to scientifically and nique for air conditioning and heating. Its reasonably control the urban construction heating and air conditioning system runs all scale and urban building scale and to control day long for most of the year and its energy the urban building so that floor area per ca- consumption reaches 20kWh/(m2·a), which is pita remains less than 35m2 and that new 7-10 times that of common residential build- buildings constructed every year are less than ings and is equivalent to that of the 0.7 billion m2. This should be the important high-grade residential buildings in developed part of the construction in a resource-saving countries. Also, the electricity consumption society and it is the basic necessity to realize standard per unit floor area of large-scale the sustainable development of urban con- commercial buildings in most cities of China struction according to a scientific develop- is 200kWh/(m2·a) to 300kWh/(m2·a), which ment view. has already reached the level of developed Up to now, the building operating energy countries such as the USA, Japan, and in the consumption per capita in China was 1/12 of EU. Those commercial buildings in China ac- that in the US and 1/6 of that in west and count for less than 5% of the total building north Europe; the building operating energy floor area, but account for more than 10% of consumption per capita of cities in China is the total building energy consumption.

270 Harmonious Development through Innovation

If the urbanization idea of “joint track development is transferring to updating the with international standard” spreads widely, structure of consuming sectors of China’s building energy consumption in China will economy. This necessitates research on: 1) reach the high level of the “developed coun- impacts of living, work, leisure entertainment tries”. Take the urban building electricity and individual transportation on urban consumption per unit floor area in China for building and transportation energy consump- example: If it reaches the current level of tion; 2) categorization and distribution of that in the US, then the 30 billion urban different consuming patterns and their inhe- buildings in China will consume 3 trillion rent social impacts; 3) objective policies and kWh of electricity annually in 2020 – 1.5 social guidance for an energy-conserving so- times the current total amount of electricity ciety in China; 4) possible consuming pat- generated in China; if it reaches the legal terns in terms of energy- and re- building energy efficiency level in German of source-conservation in future society; 5) 60 kWh/m2a, then in 2020, the electricity proper energy consuming modes in building consumption for urban buildings in China and transportation sectors. These will be es- will be equivalent to the current total amount sential to achieve social development and of electricity generation for the whole coun- better citizen life while consuming less ener- try in a year. gy compared with developed countries. Moreover, rapid urbanization and the Both international and domestic research improvement of citizens’ standards of living and experiences show energy consumption will lead to increased travel distances and moderation or reduction can be achieved, as travel time. Such situations may stimulate the well, by more efficient technologies to satisfy use of motor vehicles and travel by other one’s needs and by more efficient organization, motorized modes. The experience of devel- lifestyles, and consumption patterns. Modera- oped countries indicates that there is a tion or reduction in the energy consumption in growing trend of trips for leisure purposes; the social consumption sector, especially for the with the improvement of the standard of building and the transportation sectors, can be living, average daily trips by urban citizens achieved through technological improvements, gradually will be rising, therefore travel dis- and from moderation of the needs for energy tance and reliance on vehicles will rise, as services or from non-technical factors such as well. better organization and management or im- However, it should be noticed the ex- proved economic conditions in the sector. panding trend of luxury consumption in Moderating or reducing energy consumption is China beginning in 2001. The improved liv- first, a matter of individual behaviors and re- ing standards of citizens due to the great flects the rationale of energy consumers. economic achievements of China inherently Avoiding unnecessary consumption of energy increase the requirements for daily consu- or choosing the most appropriate equipment to mables such as dwellings, cars, and domestic reduce the cost of the energy contributes to appliances. Generally, motivation for industry decrease in individual energy consumption

Chapter Ⅵ Policy Research on Energy Efficiency and Urban Development 271 without decreasing individual welfare. On the A general mathematical model for other hand, it seems that the urban design also China’s urban buildings and transportation has influences on energy consumption in the energy consumption should be founded after transportation sector and in household space city-level energy surveys and individual sur- heating. veys for household and behaviour distribu- This recommended task force will tion. By analytical comparison of typical ur- emerge with a common and clear under- ban policy backgrounds and the implementa- standing of the role of energy efficiency in tion results of both domestic and foreign ci- relation to sustainability, especially the rela- ties, that is, the implemented strategies, me- tionships between urban design and planning chanisms, and inspiriting measurements for and life styles and energy efficiency, and the urban development and structural adjust- relationship between urban design and plan- ments aiming at reducing energy consump- ning and transport and energy networks by tion, possible policies should be advised for reviewing the relationships from history and controlling urban development speed, en- from experiences from international and couraging suitable lifestyle, and developing domestic cities. corresponding technologies.

272 Harmonious Development through Innovation

Chapter Ⅶ

Long-term Incentive Strategies for Energy Efficiency1

in Figure 7-1. 7.1 Energy Productivity as a Na- End-use energy consumption includes tional Goal several resources that fall into two categories: primary energy, such as coal, oil, nuclear, natural gas, hydropower, and biomass; and 7.1.1 Understanding the importance of secondary energy, such as electricity, thermal energy productivity power, and gasoline, that are converted from primary energy. The needs similar to a “light, In economics, productivity is the amount warm room” or a “cool drink” must be con- of output created, in terms of goods pro- sidered too, since there are different ways of duced or services rendered, per unit input providing these services. End-use energy used. For instance, labor productivity is typi- consumption thus goes one important step cally measured as output per worker or out- further, from primary energy through end put per labor-hour. Resource productivity energy to services. This allows for a much refers to the economic output per resource larger potential of energy productivity to be input. The Chinese GDP of 2007 divided by exploited. the amount of resources consumed in that Factors that influence China’s energy year is the Chinese resource productivity of productivity include: technology innovation, 2007. This can, of course, be subdivided and technology development and deployment; differentiated for different resources such as resource allocation structure, industrial energy, water, and minerals. structure and institutional arrangement, As with labor or capital productivity, management and mechanisms, subsidies, energy productivity measures the output and price and tax structures, demand preferences quality of goods, services and welfare gener- that are dependent on prices, infrastructure, ated with a given set of inputs, taking into institutional presetting, and cultural habits. account the entire energy chain as illustrated

1 This Chapter is based on the research analysis of the Task Force on Energy Efficiency and Economic Instruments for the Environ- ment. Task Force Co-chairs: Ye Ruqiu, Ernst Ulrich von Weizsäcker;Task Force Members: Jia Kang, Zhou Daoxu, Ye Yanfeng, Zhu Baoliang, Yang Hongwei, Ren Yong; Motoko Aizawa, Mikael Skou Andersen, Rae Kwon Chung, Jean-Philippe Barde, Jota Shohtoku, Kai Schlegelmilch

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 273

Exploitation/ Process/Conversion End Use Economic Activities Development Secondary Energy Primary Energy Electricity, Heat, 1. Heating, 1. Agricuture, forestry, Oil Products… stockbreeding, fishery, and Coal 2. Lightning, water conservancy industries; Oil 3. Mechanical 2. Manufacturing industry; Natural Gas Work, 3. Construction industry; 4. Transport, warehousing Nudear Power 4. Transporting, and storage, and post industies; Hydro Power, etc… 5. Wholesale, retail, hotel Wind Power, and catering industries; Photovoltaic Power, 6. Living consumption. Biomass Energy…

Figure 7-1 Comprehensive energy system.

The concept of energy productivity pro- Coal is available, but causes large environ- vides an overarching framework for under- mental problems locally, such as health standing the evolving relationship between damages, and globally through global energy consumption and economic growth. warming. Renewable sources of energy en- Energy-productivity improvements can come joy strong growth rates. However, for the either from reducing the energy inputs re- considerable future, they will remain a li- quired to produce the same level of ener- mited option - chiefly for reasons of space gy-related services, or from increasing the and cost. Nuclear energy in relevant quantity or quality of economic output amounts will need to factor serious prob- without increasing energy inputs. Within lems of uranium scarcity – uranium prices each of these are multiple components that rose much faster than oil prices in recent can change over time. Thus, emphasis of years – and other problems, such as ra- energy productivity should focus on energy dioactive wastes and the nuclear cycle’s vul- efficiency improvements as well as substan- nerability to terrorism and wars. tial system changes. The core answer to the energy challenges may not come from modified energy supplies 7.1.2 Taking increase of energy produc- but from a systematic, long-term strategy of tivity as a Chinese national goal increasing energy productivity, which essen- tially means curbing energy demands while Energy demand is rising in China and further increasing prosperity. worldwide at high speed. Oil and gas are be- It is a fact that huge efficiency increases coming increasingly scarce and expensive. theoretically are available. In the book Factor

274 Harmonious Development through Innovation

Four, available in Chinese, fifty examples are agenda. Australia’s and other countries’ deci- presented for a quadrupling of energy and ma- sions of phasing out incandescent light bulbs, terial productivity1. A more ambitious sequel, Japan’s top runner program, the EU’s emis- called Factor Five is in preparation and will sions trading system ETS, and China’s com- focus more on systemic productivity increases mitment in the 11th Five-Year Plan to in- beyond isolated efficiency technologies2. crease energy productivity compare favorably Eventually, even a factor of twenty should be with the inertia in other parts of the world. feasible. This could solve most energy-related But even these laudable measures fall very problems of climate, the local environment, short of meeting the present challenges. and social equity, both in China and worldwide. The basic reason for inertia on this front, A strategic increase in energy productiv- so it seems, is a world-wide policy of keeping ity looks like a highly attractive national goal energy prices as low as possible. This has for China. According to the 11th Five-Year understandable social reasons but it also Plan, the Chinese government has estab- sends a signal to consumers, manufacturers, lished detailed plans specifically for energy and investors that energy efficiency and conservation, such as the Comprehensive productivity will be left mostly to idealism or Working Scheme on Energy Conservation some mild state intervention. The trillions of and Reduction of Pollutant Emissions, in yuan, dollars, and euros invested annually in which it set out the targets for the year new businesses and infrastructures have al- 2010: most no commercial motive for addressing (1) Energy consumption per RMB10,000 energy productivity. This is the reason why GDP be reduced from 1.22 tons of standard many of the Factor Four examples, such as coal in 2005 to below one ton, down by Amory Lovins’ high tech ‘Hypercar’ needing about 20%. less than two liters per 100 kilometers, have (2) Water consumption per unit of in- not made it to the market. To successfully dustrial value added be reduced by 30%. reach the market in significant numbers, they (3) Discharge of major pollutants be re- require huge investments that will not pay duced by 10%. off under present conditions. To make such strategic investments in 7.2 A Surprise Lesson from History: resource productivity profitable, resource Resource Prices Have Been Falling prices should go up. However, so far, the opposite has occurred. Combined efforts by Despite basically well-known potentials, politicians, entrepreneurs and mining engi- there are few signs of any country of aggres- neers have established a long term trend of sively pursuing the energy productivity continuous decreases of resource prices, as

1 Von Weizsäcker, Ernst Ulrich, Amory Lovins, Hunter Lovins. Factor Four. Doubling Wealth, Halving Resource Use. London. Earthscan, 1997; also available in 12 other languages including Chinese. 2 Von Weizsäcker, Ernst Ulrich, Charlie Hargroves, Michael Smith. Factor Five. London Earthscan, 2009.

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 275 shown in Figure 7-2 for “raw industrials”, price hikes of the past couple of years have meaning natural resources of industrial im- just brought us back into the lower confidence portance, including energy. This comes as a interval of the long-term downward trend. big surprise to many who are accustomed to (The picture does not reflect the develop- complaining about high resource prices. The ment after 2004!)

Figure 7-2 Industrial raw resource prices, inflation adjusted over 200 years. Prospecting, mining and transport technologies are the main drivers. The price hikes since 2000 have just brought us back into the lower confidence interval of the downward trend. Source: The Bank Credit Analyst, 2005

There have been a few periods during prices were now going up irrevocably. The which resource prices increased, notably new surge of oil, gas and other mineral the two World Wars. More memorable in resource prices was triggered by steeply our times have been the oil price shocks of rising demand from the rapidly developing the 1970s, which can also be seen in Figure Asian economies and was led by China. 7-2. In 1973, the oil exporting countries However, China and the world wide min- managed to quadruple oil prices overnight ing companies since have injected a lot of and push it further up in 1978. However, money into new prospecting and mining, the rest of the world reacted by signifi- which brought the price surge to a halt and cantly increasing prospecting and mining now there are indications that commodity until, by 1982, oil prices had come down to prices may come down again, at least in pre-1973 levels. constant dollars. During the early years of the 21st cen- Typically, it is the geological limits and tury, many people felt that finally, resource extraction and refinery cost that ultimately

276 Harmonious Development through Innovation

determine prices. In earlier decades, access on CO2 and end up with, basically, spend- and transport limitations also played a ma- ing many financial resources on an jor role, but the share of transport cost has end-of-the-pipe-technology like carbon been falling systematically over time. If the capture and storage (CCS) with a high un- geological limits remain the main determi- certainty of permanent success. Further- nant factor for resource prices, it could be more, such a limited strategy will lead to assumed that oil prices will come down to substituting coal with very inefficient nuc- around USD80 per barrel, reflecting the lear power, leading to other serious prob- price of coal, which has a high estimate of lems and also preventing a substantial in- USD100 per short ton, plus the liquefac- crease in energy productivity. Considering tion cost at industrial scale, plus company this, many OECD countries focus on profits. Clearly, this price would be a blow energy, only sometimes supplemented by to all investors putting their money into CO2. high tech vehicles like the Hypercar. Theoretically, prices can be fixed by the state, although in the past this was mostly 7.3 International Experiences in done to keep prices low. Fees and charges Raising Energy Prices: Introducing can be levied; the EU’s emissions trading Environment-Related Taxes scheme (ETS), a cap and trade regime, serves to put a price tag on fossil fuels. If markets, sometimes with the help of Some states, notably in Europe and begin- socially motivated price subsidies, lead ning in Scandinavia, have introduced car- mostly to low prices and if low prices are bon negative and energy (CO2-/energy) seen as the main obstacle to the efficiency taxes. revolution, then it would seem evident that In several EU-member states CO2-/energy China and the world should go for a policy taxes have been introduced as part of more shift from keeping prices low to actively comprehensive Environmental Tax Reforms increasing them. (ETR) (Appendix III) that have shifted the Different instruments are available to tax burden away from taxes on labor in ex- put price tags on energy, or, more specifi- change for innovative taxes on energy prod- cally, on carbon dioxide. In fact, energy can ucts and CO2. As a result of these reforms, be seen as a good proxy considering all annual tax payments of more than EUR25 greenhouse gas emissions to the extent billion have been shifted. The member states that addressing all greenhouse gas emis- in question and the year for the first shifts sions, not just CO2 emissions, via general were: Finland (1990), Sweden (1990), Nor- energy taxation is the best choice. The way (1991), Denmark (1992), Netherlands overall objective is to increase energy (1996), Slovenia (1997), Germany (1999), UK productivity and to achieve a major shift (2000), Estonia (2006), and the Czech Re- of the economic structures. To this end, it public (2007). would not be in sufficient to concentrate These European countries show a reduc-

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 277 tion in fuel demand that results from the cases the effect was slightly positive. In addi- ETR. The size of this reduction is dependent tion, the number of jobs created increased upon two factors. One factor relies upon the substantially, by up to 0.5% or 250,000 jobs tax rates imposed, that is, how they are ap- between 1999 and 2003. To ensure optimal plied to the various fuels and fuel user effects and smooth implementation, it is ne- groups and how easy it is for fuel users to cessary to follow some guidelines for imple- substitute between the various fuel types and mentation (Appendix III). non-fuel inputs. The other factor relies upon As ETR results in higher fuel prices, it is the scale of the secondary effects from re- considered likely that there will be an in- sulting changes in economic activity. The re- crease in the overall price level. The degree ductions in fuel demand attained in 2004 of this is likely to be dependent on the scale were in the range of 1.5% to 5%, when the of the increase in fuel costs, how easy it is ETR-effects had been carefully separated out for industry and consumers to switch be- from underlying trends. tween fuels to cheaper alternatives and In Finland, it is estimated that in the ab- non-energy inputs, and how much of the sence of energy-/CO2 taxation, carbon cost is passed by industry on to consumers, emissions would have been 7% higher in which is dependent on the level of competi- 1998, if taxes had remained at the 1990 level. tion in the industry. It should also be noted In Norway, carbon dioxide taxes lowered that price effects should be reduced through

CO2 emissions of some stationary combus- a tax shift such as reductions in employers’ tion plants by 21%. social security contributions, labor costs, or The reductions in GHGs closely follow corporate taxes, or recycling back the reve- the results for total fuel consumption, with nue into industry while keeping the incentive the largest reductions of up to 5.9% in 2004 effect at the margin. occurring in regions with the highest tax The measure of inflation, the consumer rates, such as Finland. In contrast, the Ger- price index (CPI), records a larger increase in man ETR was not particularly efficient in cases where the taxes are levied on house- reducing emissions because it did not initially holds rather than industry. The reason for include coal. However, overall, the ETR this is that the consumer price index is a alone resulted in a reduction of 2% to 3% of weighted average of the price of consumer

CO2 emissions; in the transport sector, clear- products, including energy. In the cases ly larger effects were noted. In reaction to where the tax is levied on households, the the world oil price increase, transport fuel whole tax is reflected in the consumer price sales in Germany dropped by 17% between index rather than just the share that is passed 1999 and 2007 – after steady increases over on by industry. Therefore, it is not unex- the previous several decades. pected that an increase in the consumer price European countries that implemented index was seen in Sweden whereas the five ETR did not experience a negative impact on other European countries showed no or neg- economic growth (GDP) from ETR; in some ligible increases in CPI.

278 Harmonious Development through Innovation

A complication can arise with ener- gram of carbon-/energy taxation, believed to gy-intensive companies, because the com- have been significant for the marked impacts pensation they receive via the reduction in on energy productivity, was the earmarking social security contributions does not fully of 20% of the revenues to co-finance energy match the additional energy costs; they efficiency measures and upgrade production may have a small labor stock, but consume technology. large amounts of energy. However, due to An interesting variant of energy taxation significant energy-savings as well as certain has been the “escalator” idea of adding small special arrangements, such as tax exemp- annual price signals that are agreed upon tions, the effective tax burden for ener- many years in advance. This was been first gy-intensive industries has, in Europe, introduced in Great Britain and copied by been kept at less than 2% of gross operat- Germany with some modifications. In re- ing surplus. trospect, it is apparent that the escalator In Denmark, industry improved energy proved very effective in reducing demand intensity by close to 30% in the decade from (Figure 7-3) by comparing Great Britain, 1990-2000, whereas the Netherlands ob- Germany, Canada and the US with regard to tained improvements in the range of 10% to fuel consumption and CO2 emissions per ca- 15%. A particular aspect of Denmark’s pro- pita per year.

Changes in CO2-emissions per capita in tons (base vear 1993)

20

15

10

5

0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

−5

−10 Fuel Duty Escalator 1993-1999

−15 German Ecotax 1999-2003

Source: DIW 2005 Figure 7-3 Steering effect of fuel tax escalators (Picture: FÖS, 2006, Database: DIW, 2005).

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 279

payback time of the most important invest- 7.4 Increasing Energy Prices in ments, meaning long lasting infrastructures: Parallel with Energy Productivity A glance into history shows that under the Gains conditions of the low gasoline prices in the US, an investment like the Japanese Shin- Combining the escalator idea with the kansen bullet train would never have been long-term goal of increasing energy produc- possible. tivity leads to a novel policy proposal. The Besides, the OECD country Switzerland policy suggests politically establishing a tra- has been successful with a similar approach. jectory of steadily progressing energy and Public investments were tested to calculate commodity prices, with the slope of the tra- the external costs, in addition to the ordinary jectory being determined by statistically es- investment and operational costs, into the tablished increases of energy and resource total price of large investment projects such productivity. as infrastructure and buildings. This led to a If energy prices increase only in line with much improved profitability of energy effi- average energy productivity gains, then, by cient and renewable technologies. definition, there would be no detrimental so- Are there alternatives to a tax system for cial consequences. This is of highest political establishing the price corridor? Theoretically, significance and contrasts favorably with ex- increasing resource prices could also be in- periences from the past of rising energy duced by an ambitious cap-and-trade regime prices causing major hardship for families, with gradually tightened cap levels. However, small enterprises, and whole branches of in- past experiences with cap-and-trade regimes dustry. The negative effect, however, has tra- show very unpredictable fluctuations of the ditionally been associated with the size of the price, resulting in part from speculation. price increase and with its unpredictability, There is no way of linking resulting prices allowing no advance adaptation. to previous efficiency gains. Moreover, despite this welcome feature of low social impact, the long term escalator 7.5 Is There a Problem for the sends a strong signal to investors, manufac- Poor, Industry, or Inflation? turers, consumers, and infrastructure plan- ners to be prepared and to adapt. In all like- Objections against an ecological tax es- lihood, the signal will actually accelerate in- calator can come from advocates of the poor, vestments into energy efficiency technologies from industry, and from inflation fears. and energy productivity-creating systems. Advocates of the poor will note the rela- The trajectory will need to be kept stable tive importance for the poor of the energy for many decades. Investors will be all the costs in the consumer basket. Energy and more confident the longer they can be as- water taxes tend to be “regressive”, i.e. nega- sured of the trend. The time horizon of the tively impact the poor more than the rich. To measure should be at least as long as the solve this problem, the proposed policy

280 Harmonious Development through Innovation could, additionally, grant a tax-free or 7.6 The Paradigm of a Twenty-Fold tax-reduced minimum tableau of approx- Increase of Labor Productivity imately one gigajoule of energy per person per week. Then, the really poor would ac- The history of technological progress tually benefit, while the burden would shift so far is the history of the increase of la- towards the middle income and rich strata of bor productivity. It has been a revolution, the society. indeed, the Industrial Revolution. Labor Blue-collar workers, too, have a tendency productivity grew at least twenty-fold over of opposing energy taxes. They typically time. During the 19th century, the increase adopt the arguments of the poor and have in labor productivity in what came to be the concern that energy taxes might destroy the industrialized countries was approx- industrial jobs. However, as demand for in- imately 1% per year, which is not particu- dustrial output is rising, a country like China larly impressive. This rate increased to needs not fear net job losses if the price in- 1.5% during the first half of the 20th cen- crease proceeds slowly and predictably. tury and to 2% thereafter. In contrast, Industry and investors are actually likely there have been phases like Germany dur- to benefit from the predictability of the tran- ing the late 1950s, Japan during the 1960s, sition. They can move into ambitious tech- and China after 2000, where labor produc- nological and infrastructural projects with tivity increased more than 7% per year, al- very limited risks. This then will lead to ma- though, to a large extent, this can be attri- jor advantages over competitors working buted to copying technologies that had under conditions of fluctuating, if somewhat been developed elsewhere. lower, resource prices who invariably give too One fact, well known by organized labor little attention to the long term scarcity of and by employers, is that wage negotiations resources. have always taken labor productivity gains as Another concern, very relevant in China their yardstick. It was only during the recent today, is inflation. However, a tax shift neo-liberal and neo-conservative phase since could be made from value added taxes to the early 1980s that wage increases began to energy taxes with a net neutral effect on lag behind productivity gains. From the em- price level. ployers’ perspective, this was chiefly due to Evidently, it would be desirable for both competition from low wage countries. Yet, ecological and for economic reasons to find what is not so well known is that productivity an international agreement on price trajec- gains also grew in parallel with gross labor tories. However, if the increase is to be cost. Which was the hen and which was the linked to productivity gains, then pioneer- egg? Empirically, we can observe wages and ing countries are more likely to benefit productivity going up in parallel (Figure 7-4). than to loose because they will be at the This idea of labor costs spurring labor forefront of a trend that will arrive world- productivity is an exciting implication for the wide, anyway. potential of using energy price signals for

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 281 spurring energy productivity gains. As a the board, a new mentality set in that focused matter of fact, the oil crisis of the 1970s on energy efficiency. Figure 7-5 shows the served as an unplanned experiment for this effects. hypothesis. As energy prices went up across

Figure 7-4 Rise of wages and of labor productivity mostly in parallel. This graph shows this rela- tionship for a time span of fifty years in the USA, but very similar pictures are availa- ble for other countries and other periods of time.

Figure 7-5 The oil price shocks of 1973 and 1978 triggered a steady increase in energy produc- tivity in the USA. The new mindset of energy efficiency survived even the period of declining energy prices between 1981 and 1998.

282 Harmonious Development through Innovation

This system of increase should be made into 7.7 A Revenue-Neutral Ecological a law that is valid for the long term, for Tax Reform twenty years or even fifty or more years, with fairly tough clauses for exemptions or devia- The paradigm of labor productivity tions from the rule. seems to support the idea of a steady in- It is conceivable to develop a similar sys- crease of energy prices. As stated earlier, if tem for materials and for water. If prices for energy prices increase in line with average primary raw materials and for water extracted energy productivity gains, there would be no from nature rise steadily, the incentives in- average social suffering. The situation can crease for the reuse of materials and for wa- become even more attractive if the fiscal in- ter purification. Simultaneously, the profita- come from energy taxes is re-channeled into bility of mining operations fall - which is the economy by reducing the fiscal or para- highly desirable. fiscal load on human labor, thus giving an additional push to overcome unemployment. 7.8 Long Term Price Elasticity is However, if inflation is the highest concern, High the reduction of value-added taxes and/or other taxes could be considered. Generally, energy and resource con- The new idea is to make the trajectory of sumption have a low price elasticity in the energy prices very predictable by compen- short term; otherwise, the upward curve in sating world market fluctuations. Downward Figure 7-4 would have started in 1973 or fluctuations would be compensated upwards 1974, not in 1977. In the long run, however, and upward fluctuations, such as the painful the price elasticity is astonishingly high, as price hikes of late 2007, could be compen- can be seen from an observation made by sated downwards, so as to bring prices back Jochen Jesinghaus1. to a previously agreed price corridor. The Figure 7-6 shows a striking negative cor- slope of the upward corridor could be de- relation between fuel prices and per capita termined annually, or every five years by the fuel consumption. Ten years after the intro- cycle of Five-Year Plans, in line with meas- duction in the US of the Corporate Average ured average energy productivity gains over Fuel Economy (CAFE) standards in 1975, the previous year or years. Adjustments The US, although admirably catching up on could be allowed on a quarterly basis so as to per mile fuel consumption, was still the make prices even more predictable. country with by far the highest per capita The system could be differentiated for fuel consumption. In layman terms, under vehicle fuels, electricity, carbon content, and the condition of low fuel prices, what CAFE other criteria. It will be a matter of political conveyed to drivers was: “Now you can drive priority setting weighed against simplicity. more miles for your money”. In the absence

1 Ernst von Weizsäcker and Jochen Jesinghaus. 1992. Ecological Tax Reform. London, Zed Books.

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 283 of any price signal, single efficiency gains did creased mileage and consumers switching to not prevent per capita annual fuel consump- bigger cars. tion from steeply growing, mostly due to in-

Figure 7-6 Even for petrol consumption, which is often referred to as nearly inelastic to price changes, we observe a clear correlation between prices and fuel consumption – if we ask the right question. This graph describes how much petrol is consumed per capita per year in different OECD countries that have nearly equal levels of wealth and mo- bility. Countries had more or less stable policies on domestic fuel prices for many years proceeding the year (1988) in which the data were collected. The picture re- flects long-term price elasticity.

This experience is very valuable for de- provides a holistic, strategic, thinking, and termining a price trajectory overcoming the systematic policy approach to energy chal- dilemma of short-term instruments. We can lenges. It suggests that energy policies safely rely on small signals if we give society should target not only the energy supply the assurance of a long term, upwards trend side, but also the energy demand side. This for energy and for other resource prices. means considering not only production, but also consumption, with a view of 7.9 Conclusions and Strategic curbing energy demand while further in- Recommendations creasing prosperity. Thus, it is vital to op- timize the whole life cycle of energy re- (1) The concept of energy productivity source utilization and the whole system of

284 Harmonious Development through Innovation socioeconomic activities. With this under- the escalator idea: standing, China should take a systematic 1) The long-term escalator sends a strong and long-term strategy of increasing ener- signal to investors, manufactures, consumers gy productivity as a national goal, which and infrastructure planners to be prepared will provide China with great ability to deal and to adapt. In all likelihood, the signal will with energy challenges. actually accelerate investments into energy (2) Both theoretical analysis and prac- efficiency technologies and energy produc- tical experience prove that raising energy tivity creating systems. prices is a fundamental driving force to 2) The history of technological progress raising energy productivity through curb- so far is the history of the increase of labor ing energy demands and stimulating tech- productivity. Since the Industrial Revolution, nology innovation. In this regard, policy- labor productivity in industrialized countries makers may be misled by the fluctuation has grown at least twenty-fold. Concurrently, of energy prices in the past. In the past we observe labor wages and productivity ris- 200 years before 2000, the real prices of ing in parallel. This trend of labor costs raw industrial resources, including energy, spurring labor productivity is an exciting in- had been falling in general trend and im- dication for the potential of using energy provements in prospecting, mining and price signals for spurring energy productivity transport technologies were the main driv- gains. ers of reducing prices. Consequently, the 3) Generally, energy and resource con- incentives have weakened for all investors sumption have a low price elasticity in the to put their money into high technology, short term. Longer term, however, the price efficiency innovations. elasticity is often surprisingly higher. This (3) Considering the complexity of raising experience is very valuable for determining a energy prices, China can adopt a long-term price trajectory overcoming the dilemma of a strategy - the ‘escalator’ idea of adding small, short term upwards trend of energy and announced, periodical price signals. The es- other resource prices. calator strategies should be kept stable for 4) OECD countries’ experiences suggest many decades and the slope of the upward that the introduction of comprehensive en- escalator could be determined annually or vironmental- or energy-related taxes such as every five years by the cycle of the five-year a fuel tax, a carbon tax, and a pollu- plans in line with measured average produc- tant-related tax, is a good way to establish tivity gains over the previous years. Raising long term escalator strategies for energy prices at the same rate as raising productivity prices. Yet, it should be noted that environ- concurs with the concept of a Harmonious mentally harmful subsidies and tax provi- Society. Prices rising only as fast as produc- sions must be removed first. tivity gains will not, on average, create any (4) Regarding the impacts of ener- social hardship. gy-related taxes, the following conclusions There are a number of facts to support and observations could help to mitigate the

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 285 concerns that are very relevant in China to- neutral effect on inflation. day: 4) Succinctly, if the increase in energy 1) If energy prices increase in line with prices is linked to energy productivity gains, average energy productivity gains, the intro- pioneering countries are likely to benefit, not duction of environmental or energy-related lose, because they will be at the forefront of taxes should not have negative effects on a trend that will come worldwide anyway. welfare and thus will not cause any overall 5) Another means of keeping impacts on suffering. price levels low is by aiming at the largest 2) The situation can become ever more potentials for energy efficiency first, thus attractive if the fiscal revenue from energy starting with Chinese industry, since 70% of taxes is re-channeled into the economy by energy consumption takes place in that sec- reducing the fiscal or parafiscal load on hu- tor. The production costs are so low in China man labor thus giving an additional push to that impacts of potential cost increases due overcome unemployment. As the demand to energy tax increases hardly exist, while the for industrial output is rising, a country like above mentioned opportunities are great. China needs not to fear net job losses if the (5) It is conceivable that similar price increase proceeds slowly and predicta- long-term escalator strategies are applicable bly. to other natural resources such as industrial 3) A tax shift could be made from val- materials and water. ue-added-taxes to energy taxes with a net

286 Harmonious Development through Innovation

Appendix 1 Current Situation and Roadmap of Development of Environmental Economic Instruments in China

the 11th Five-Year Plan “Outlines for Na- A.1.1 Challenges in a com- tional Economic and Social Development mand-and-control approach (2005-2010)”. For instance, compared with the situations in 2005, China must reduce its China now shares a common under- energy intensity of per unit GDP by 20% in standing nationwide that energy and resource 2010, the total volume of SO2 and chemical shortages and environmental pollution have oxygen on demand (COD) by 10%, and wa- become a bottleneck hindering its sustainable ter intensity per unit of industrial val- development after 30 years of rapid growth ue-added by 30%. in economy. The shortage of energy and In the past, command-and-control in- other natural resources occurs in two dimen- struments have dominated China’s policy sions: limited supply capacity on the one package to address energy and environmental hand, and low efficiency in production and issues; however, no substantial changes in the consumption on the other. As a result, China current national actions to achieve the two is suffering from high intensity of pollutant legal-bounding targets of energy-saving and emissions caused by low efficiencies of pollution abatement have occurred up to now. energy and natural resource utilization. Gen- Consequently, China is facing a number of erally, it is estimated that the average intensity difficulties and challenges in the enforcement of energy and natural resources per unit of policies and the achievement of envi- product in China is 30 percent higher than ronmental and resource targets. These dif- that in industrialized countries. This gap ficulties are: 1) high costs: a Sino-US Joint would be much bigger if calculating the Economic Study, for example, shows that emissions intensity in per unit of GDP, for 16% of costs could be reduced to achieve example, SO2 and NOx emissions per unit the 11th Five-Year plan targets of ener- GDP in China would be as high as eight gy-saving and pollution abatement in the times the averages of OECD countries. power sector of China by applying an emis- To attack this issue, the Chinese Gov- sion trading system instead of com- ernment has taken very extensive and inten- mand-and-control instruments; 2) enforce- sive actions since the beginning of this cen- ment of some command measures such as tury. Among those actions, of particular sig- the closing of small enterprises in energy— nificance have been national initiatives in and pollution-intensive sectors often raise energy-and-resources saving and in pollution social equity and stability problems and even abatements with legally-binding targets set in legitimacy questions of the enforcement

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 287 body of government, which contravenes the ket-based policies were set up in the “State country’s effort to building a harmonious so- Council Scheme for Energy-saving and Pol- ciety; 3) command-and-control measures can lution Abatement” issued in 2007. produce immediate effects, but such effec- In response to calls from the national gov- tiveness is not sustainable due to fewer eco- ernment, SEPA, NDRC, the Ministry of nomic incentives and little self-motivation for Finance, and other relevant ministries have complying with the command measures. launched active initiatives. Pan Yue, vice minis- ter of SEPA, published a SEPA roadmap for A.1.2 New initiatives and difficulties in the the development of economic instruments in development of economic instruments his article in 2007. The roadmap consists of seven groups of instruments: environmental Fortunately, China sees the coming of a taxation, pricing and environmental fees, green strategic transformation period where the crediting, environmental insurance, emission Chinese Government has substantially re- trading, eco-compensation mechanisms, and newed its attitude, strategies, principles, and green trading policies. policies towards dealing with the relationship (1) China has accumulated good expe- of environment and development (Special riences with related environmental fees. Pol-

Study of Strategy Transformation, CCICED, lution fees on SO2, NOx, and other main 2007). Regarding the challenges raised by pollutants have been levied for more than command-and-control measures, the Chinese twenty years and sewage fees and waste fees Government has brought forward clear re- are applied nationwide. Future efforts will be quirements to introduce economic instru- in improving the existing systems, in particu- ments. At the 6th National Conference on lar increasing the fee rate with the aim of Environmental Protection held in 2006, producing sufficient incentives. Premier Wen Jiabao pointed out that we shall (2) An emission trading system was in- resolve environmental problems through troduced several years ago, yet it is still with transformation by relying mainly on admin- experimental stage in a number of cities and istrative means to integrate legal, economic, sectors. With US EPA support, relevant col- technological and other necessary adminis- laborated studies have been completed and a trative measures, and to follow economic few are ongoing. rules and natural rules consciously in order (3) The issue of eco-compensation me- to upgrade environmental protection endea- chanisms similar to payments for ecosystem vors. The 17th Congress of the CPC, held in services in other countries has been discussed 2007, required that reform in fundamental for a decade and incorporated in a few sector- economic systems such as price and taxation al policies and experimentally implemented in shall take environmental protection into con- a number of local communities. Although the sideration and formulate fiscal policies to- road is long to establishing eco-compensation ward sustainable development. More specific mechanisms nationwide, many studies such as requirements for the development of mar- CCICED Task Force on this topic conducted

288 Harmonious Development through Innovation from 2005 to 2006 have provided good quests banks to cancel or postpone lending grounds to policymaking. SEPA published funds to those enterprises that violate envi- Guidance of Launching Pilot Projects on ronmental laws or regulations. The issuance Eco-Compensation last year. of the Green Credit system has brought (4) How to mitigate the environmental about very active responses from local gov- impacts of trade is a pressing concern of ernments, financing institutions and business green trading policies nowadays in China. In circles. However, the Green Credit system is this regard, many studies have touched just a starting point of the process and a upon this point, including two task forces number of important technical issues remain, of CCICED in its second and third phases. hindering the process from moving forward. SEPA established a special study team on For instance: 1) The Green Credit system is the WTO and the environment several years not workable for the many ago that now is working intensively on small-and-medium enterprises that raise green trading policies. In fact, the Chinese funds from illegal financing bodies or indi- Government started strong intervention to viduals; 2) there is a lack of informa- reduce exportation of energy-and-pollution tion-sharing mechanisms and platforms be- based products last year through removing tween banks and environmental management preferential export taxes. bodies; 3) the banks feel pressed to make de- Intensive initiatives have taken place cisions on the cancellation and the limitation since 2007 in environmental taxation, green of funds lending due to the lack of metho- credit, environmental insurance, and green dologies and criteria to evaluate enterprises’ stock. non-compliance behavior with environmen- (5) SEPA, the Ministry of Finance and tal laws and their environmental risks; 4) no the National Taxation Administration have incentives encourage the banks to implement started to discuss the possibilities and ap- the Green Credit system. proaches of creating new, independent, (7) In February, 2008, SEPA and the Su- environmentally-related taxes and of in- pervision Committee for Insurance jointly corporating environmental context into the publicized the “Guiding Opinions for Liabil- existing tax systems. The discussion is still ity Insurance of Environmental Pollution”. ongoing. Considerable technical work The Guiding Opinions specifically refers to needs to be done both in terms of the the frequent occurrence of pollution acci- general framework of environmental taxa- dents in recent years. A general and prin- tion and of the design of specific taxes. cipled statement in the most recent Guiding (6) In July 2007, SEPA, the People’s Bank Opinions attributes this pollution to the fact of China, and the Supervision Committee that the actual process of implementation for Banks jointly issued the “Opinions on the has not started yet and the necessary know- Enforcement of Environmental Laws and ledge for implementation is yet unavailable. Prevention of Credit Risks”, referred to as (8) One week after the publication of the Green Credit system hereafter. It re- environmental insurance, SEPA issued its

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 289 third new economic instrument: “Guiding (1) Now is the right time for China to Opinions on Enhancing Environmental develop economic instruments for re- Management for Enterprises in Stock Mar- source-saving and environmental protection ket”. This Guiding Opinions is based on that are characterized by a strong govern- two requirements: One, that environmental mental willingness and active initiatives. performance checks by environmental (2) China has developed the roadmap of management bodies shall be one of qualifi- eight environmental economic instruments cations when enterprises applying to enter systems and the process of developing spe- the stock market; two, that enterprises in the cific instruments has been initiated and in- stock market shall disclose their environ- tensively pushed forward. mental performance information periodi- (3) In terms of a technical basis, imple- cally. SEPA recognizes this system as an mentation experiences and existing studies, economic instrument because it is related to environmental taxation, green credit, and en- the fund-raising ability of enterprises, a kind vironmental insurance need systematic stu- of indirect approach against direct borrow- dies to guide their development. ing funds from the bank towards which the (4) Some other potential instruments green credit system is aiming. As compared beyond the roadmap developed in China, with the other two new initiatives, green such as environmental bonds, lottery, and credit and environmental insurance, envi- other market-based financing tools, need to ronmental management for enterprises in be explored. stock market has a stronger technical basis. (5) As compared to the situation of economic instruments for environmental A.1.3 Concluding remarks purposes, the development of incentive in- struments targeted at energy-and re- Five observations from above are: source-saving lags behind.

290 Harmonious Development through Innovation

Appendix 2 Assessment of Current Policies for Energy Productivity in China

only feed and accommodate 1.5 billion A.2.1 Abstract people at the OECD’s average standard of living. Energy efficiency is a popular topic in Energy productivity refers to the output different events and occasions. It is either and quality of goods and services generated emphasized by improving energy supply ca- with a given set of energy inputs. It is not pacity or by reducing end-use consumption. only about energy efficiency, but also system Together with a dramatic increase in the optimization. Higher labor productivity is supply of sustainably-generated, renewable caused by the increase of wages; an equal energies, these are the two key elements to mechanism can be applied with energy solve the energy and climate problems. De- productivity. Market based instrument helps veloping economies are an increasingly do- the optimization of resource allocation and minant force in global energy demand the efficiency of energy utilization, thus growth while they are marching into their achieving better energy productivity. industrialization processes, as industrialized The paper reviews current policies for countries did several decades ago. Rather energy productivity in China, including than primarily seeking to reduce end-use command and control instruments, market energy demand and needs, there should also based instruments, information publicity, and be a focus on improving energy utilization in persuasion and encouragement, among a more productive way. Energy productivity which command and control and market is a useful yardstick of progress and a tool to based instruments are the major two types, analyze public policy by substantial system with the latter one gradually becoming a ma- improvements and energy efficiency en- jor role in policy mix. In order to better hancement. achieve policy effectiveness in promoting energy productivity in China, the optimiza- A.2.3 Definition of energy productivity tion of a policy mix favoring in the latter tendency is recommended, in combination A.2.3.1 Energy consumption systems with institutional and policy reform. End-use energy consumption includes several resources that fall into two categories: A.2.2 Background primary energy, such as coal, oil, nuclear, natural gas, hydropower, and biomass; and Energy shortage has become a crucial secondary energy, such as electricity, thermal issue in human development. At the present power, and gasoline, that are converted from level of energy productivity, the world will primary energy. The logistical system is illu-

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 291 strated in Figure A2-1.

Exploitation/ Process/Conversion End Use Economic Activities Development Secondary Energy Primary Energy Electricity, Heat, 1. Heating, 1. Agricuture, forestry, Oil Products… stockbreeding, fishery, and Coal 2. Lightning, water conservancy industries; Oil 3. Mechanical 2. Manufacturing industry; Natural Gas Work, 3. Construction industry; 4. Transport, warehousing Nudear Power 4. Transporting, and storage, and post industies; Hydro Power, etc… 5. Wholesale, retail, hotel Wind Power, and catering industries; Photovoltaic Power, 6. Living consumption. Biomass Energy…

Figure A2-1 Comprehensive energy system.

Energy productivity must to take into year is the Chinese resource productivity of account of the entire chain, which also in- 2007. This can, of course, be subdivided and cludes the needs and services. Hence, the differentiated for different resources such as needs similar to a “light, warm room” or a energy, water, and minerals. “cool drink” must be considered, too, since As with labor or capital productivity, there are different ways of providing these energy productivity measures the output and services. Energy productivity thus goes one quality of goods, services, and welfare gener- important step further: From primary energy ated with a given set of inputs. Factors that through end energy to services. This allows influence China’s energy productivity include: for a much larger potential of energy prod- technology innovation, development and uctivity to be exploited. deployment, resource allocation structure, in- A.2.3.2 Definition of energy productivity dustrial structure and institutional arrange- In economics, productivity is the amount ment, management and mechanisms, subsidies, of output created, in terms of goods pro- price and tax structures, demand preferences duced or services rendered, per unit input that are dependent on prices, infrastructures, used. For instance, labor productivity is typi- institutional presetting, and cultural habits. cally measured as output per worker or out- The concept of energy productivity pro- put per labor-hour. Resource productivity vides an overarching framework for under- refers to the economic output per resource standing the evolving relationship between input. The Chinese GDP of 2007 divided by energy consumption and economic growth. the amount of resources consumed in that Energy-productivity improvements can come

292 Harmonious Development through Innovation either from reducing the energy inputs re- the 11th Five-Year Plan, the government has quired to produce the same level of ener- established detailed plans specifically in energy gy-related services, or from increasing the conservation, such as the “Comprehensive quantity or quality of economic output with- Working Scheme on Energy Conservation and out increasing energy inputs. Within each of the Reduction of Pollutant Emissions”, in these, are multiple components that can which it set out the target of the year 2010: change over time. Thus, emphasis of energy (1) Energy consumption per RMB productivity should focus on energy efficiency 10,000 GDP be reduced from 1.22 tons of improvements as well as substantial system standard coal in 2005 to below 1 ton, down changes. by about 20%. (2) Water consumption per unit of in- A.2.4 Current policy systems for energy dustrial value added be reduced by 30%. productivity in China (3) Discharge of major pollutants be re- duced by 10%. Policy instruments for energy productiv- In 2007, the State Council released two ity in China include several policy instru- papers planning the country’s energy devel- ments such as command and control instru- opment: the “White Book on China’s Energy ments, market based instruments, and persu- Conditions and Policies”, and the “11th asion and encouragement. Policy systems in Five-Year Plan for Energy Development by energy productivity are illustrated as below. the NDRC”. These two papers portray Chi- A.2.4.1 Command and control instruments na’s energy conditions and thus, summarize Command and control instruments play a the energy policies conducted and to be very important role in the Chinese policy sys- made in China. The essence of Chinese tem, including three categories of strategic energy policy is to improve energy produc- planning and sectoral policies, laws and regula- tion capability to satisfy the increasing de- tions, and administrative commands and guid- mands of social production and the elevation ance. These policies have strong and positive of people’s living standards, to be based on impacts on energy productivity in China. emphasizing energy conservation and envi- A.2.4.1.1 Strategic planning and sectoral ronmental protection and to improving ener- policies gy efficiency. As China’s highest level of guiding plan- In 2004, the Medium and Long Term ning, the 11th Five-Year Plan, has switched its Energy Conservation Plan was released, one of focus from fast economic development to the major outcomes of which is to implement economic development in a sound and fast way. ten key energy conservation priority programs: Here, ‘sound’ refers to a sustainable and clean (1) Upgrading low-efficiency coal-fired way, emphasizing economic development as industrial boilers well as environmental protection, which then (2) District heat and power cogeneration can translate into energy conservation and re- (3) Recovery of residual heat and pressure ductions of major pollutants. Following with (4) Oil saving and substitution

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 293

(5) Energy conservation in motor systems nion Soliciting Draft) (6) Optimization of energy systems 9) China’s National Climate Change (7) Energy conservation in buildings Program, the State Council, 2007.6.4 (8) Green lighting and energy conserva- 10) China’s Specific Scientific and tion in government agencies Technical Actions on Climate Change, (9) Building energy conservation moni- MOST, NDRC, SEPA, MFA, MOF, toring etc. 2007.6.13 (10) Technological support system 2. Sectoral Plan and Policy The implementation of these ten pro- 1) The 11th Five-Year Plan for Coal grams is estimated to save 240 Mt coal Industry Development, NDRC, equivalent during the 11th Five-Year Plan pe- 2007.1 riod of 2006-2010, equivalent to 550 Mt CO2 2) Coal industrial policy, NDRC, emission reductions. 2007.11.23 3) Medium and Long Term Devel- Box A2-1 Policy System opment Plan for Nuclear Power (by importance) (2005-2020), NDRC, 2007.10 4) Natural Gas Utilization Policies, 1. General Guiding Planning NDRC, 2007.8.30 1) The 11th Five-Year Plan for Na- 5) Medium and Long Term Devel- tional Social and Economic Devel- opment Plan of Renewable Energy, opment of the People’s Republic of NDRC, 2007.9 China , 2006.3 6) The 11th Five-Year Plan on Re- 2) Comprehensive Working Scheme newable Energy Development, on Energy Conservation and Reduc- NDRC, 2008.3 tion of Pollutant Emissions, the State 7) International Scientific and Tech- Council, 2007.6.3 nical Cooperation in Renewable and 3) White Book on China’s Energy New Energy, MOST, NDRC, Conditions and Policies, the State 2007.11.12 Council, 2007.12

4) The 11th Five-Year Plan for Energy These plans focus more on energy conser- Development, NDRC, 2007.4 vation by improving energy efficiency and by 5) Medium and Long Term Energy technology improvement. Since the late 1980’s, Conservation Plan, NDRC, 2004 the Chinese Government has placed more 6) Interim Regulations on Promoting emphasized more on the transformation of Industry Structure Adjustment, 2005 economic development and the adjustment of 7) Industry Structure Adjustment economic structures, in order to reduce natural Guiding Catalog 2005, NDRC resource and energy consumption and to im- 8) Industry Structure Adjustment prove clean production as major parts of Chi- Guiding Catalog 2007, NDRC (Opi- nese industrial policy. Two Industrial Restructuring

294 Harmonious Development through Innovation

Guiding Catalogs, from 2005 and 2007, were guiding plans in specific industries with published to improve industrial structures. In corresponding policies, targets, and instru- the 2005 catalog, over 20 sectors are sorted into ments. the three categories of encouragement, restric- A.2.4.1.2 Basic energy laws and regulations tion, and elimination, within which 47 energy In 2007, the Energy Conservation Law industries are encouraged, 6 are restricted, and was revised on the basis of its 1997 version. 18 are to be eliminated. The number of en- The revised new law came into effect on April couragement, restriction, and elimination cata- 1, 2008. This law was revised due to the great loging for the coal sector are 14, 4, and 12, re- progress in social economic development and spectively. The respective numbers in electricity to better ensure the achievement of the tar- industry are 17, 2, 3. Six items in oil and gas gets set in the 11th Five-Year Plan of improv- sectors are encouraged, and 3 are to be elimi- ing energy efficiency by 20%. The revised nated. At the moment, the 2007 catalog is still Energy Conservation Law is greatly supported in the drafting state of opinion soliciting, but it by a good number of regulations and meas- will generate better and timely energy conserva- ures, as well as by administrative commands. It tion effects once it is officially released. is a great progress in various aspects such as: Specifically towards facing the challenges In addition to strengthening relative of global climate change, China takes a posi- regulations in industrial energy conserva- tive and responsive reaction to address this tion under ruling energy conservation pol- issue, being the first developing country to icies in different industries and technology release a “National Climate Change Pro- upgrade policies, the revised law added gram”, which was released by the State energy conservation articles in building, Council, and followed by “China’s Specific transportation, and public sectors, which Scientific and Technical Actions on Climate contribute a great portion to total energy Change” in 2007. As energy conservation, consumption: renewable energy, and reductions of major The revised law improves energy man- pollutants together are one of the two ac- agement and standards systems: tions to fight climate change through mitiga- (1) The energy savings target responsibil- tion and adaptation by specifically addressing ity and energy saving assessment systems. climate change on the national and local level, The system is established to set targets for China can achieve a great effect in saving local governments and officers in charge and energy at the same time. they will need to report to the central gov- Besides, China has established sectoral ernment about the implementation effects of planning and policies regarding to different energy conservation and will receive negative energy sectors, such as the coal industry, the performance assessments if they fall short nuclear power industry, the utilization of of the targets. natural gas, and renewable energies. These (2) Capital assets, investment project energy plans will better facilitate the implementa- conservation assessments, and censor systems. tion and application of general energy With the mandatory energy conservation stan-

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 295 dards and design norms, this system is for con- energy conservation management and mon- trolling blind and fast development of itoring. The revised law was strengthened high-energy consumption industries. with 19 legal responsibilities, defines respon- (3) A system to eliminate backward, sive punishment, and increases the scale and high-energy consumptive products, facilities degree of punishment. and production processes. This system con- trols the market entrance of high-energy BoxA2-2 Legal System consumptive products, facilities and (by importance) processes; it also enhances the shutting down 1) Energy Conservation Law, 2008.4.1 the backwards production facilities. 2) Regulations for Energy Conserva- (4) Energy management system in key tion of Civil Buildings, State Council, energy consumption units: 2008.10.1 (5) An energy efficiency label manage- 3) Measures for the Implementation ment system. This is established as a law sys- of Energy Conservation Law in tem, declaring implementation targets and Highway and Waterway Transporta- punishment measures. tion, Ministry of Transport, 2008.9.1 (6) An energy conservation honor and 4) Regulations on Energy Conserva- awarding system. This is an encouragement tion in Public Institutions, the State measure that establishes energy conservation Council, 2008.10.1 models in order to stimulate positive thought 5) China’s Policy Outline in Energy and working enthusiasm in the whole society. Conservation Technologies, NDRC, The revised law defines two systems: an MOST, 2006.12 energy conservation target duty system and an 6) Renewable Energy Law, 2006.1.1 energy conservation assessment and evaluation 7) Law of Energy (opinion soliciting system. These two systems include energy draft), 2007.12.3 conservation targets for the assessments of lo- 8) Mineral Resources Law of the cal governments and officials in charge. People’s Republic of China, The revised law improves economic 1996.8.29 policies by regulating central and provincial 9) Electric Power Law of the People’s government to arrange specific funds to Republic of China, 2003.09.18 support energy conservation work, to carry 10) Law of the People’s Republic of out tax preference to listed energy conserv- China on Coal Industry, 2003.09.18 ative technologies and products, to subsid- 11) Cleaner Production Promotion ize the promotion and application of energy Law, 2003.02.10 conservative products, to induct financial 12) Measures on Energy Saving Man- institutes to increase credit support to agement, under revision, 2000.12.29 energy conservation projects, and other re- 13) Implementation of Construction quirements. Energy Conservation Monitoring and The revised law defines the subjects of

296 Harmonious Development through Innovation

Management Systems in Office (3) Several Opinions on Speeding up Buildings and Large-scale Public Shutting Down Small Thermal Power Plants, Buildings, the Ministry of Housing UNRC, 2007.1.20 and Urban-Rural Development, (4) List of Backward Cement Production 2007.10 Facilities to be Shut Down in 2007, UNRC, 14) Energy Saving Management 2007.12.28 Measures in Key Energy Consump- (5) Notice of NDRC on Promoting tion Units, revision Energy Conservation and Reduction of Pol- 15) Regulation on Civil Building lutants in Small and Medium Companies, Energy Conservation Management, 2007.11.27 the Ministry of Housing and Ur- A.2.4.2 Market-Based Instruments ban-rural Development, 2006.1.1 A.2.4.2.1 Energy Pricing Mechanism 16) Interim Measures on Clean Pro- Reform duction Auditing, NDRC, SEPA, (1) Electricity pricing reform 2004.10.1 1) Electricity Pricing Reform Devel- 17) Measures on Coal Ash Compre- opment: Most relevant to this task force, hensive Utilization Management, 1994 since 1985, China has implemented several 18) Measures on Coal Gangue Com- electricity pricing policies, such as repay- prehensive Utilization Management, ment of capital with interest (RCI pricing), 1998 fuel and transportation (FT pricing), and 19) Interim Regulations on Lubricant operation period (OP pricing). These pric- Recycle and Reuse, revision ing policies helped turn the long-term 20) Regulations on the Compilation power supply shortage situation, thus and Assessment of “Energy Con- supporting the fast social economic devel- servation Chapter” in the Feasibility opment for a certain period. However, Assessment Report in Fixed Assets such policies cannot accommodate current Investment Construction Projects power demands and market structure 21) Air Pollution Prevention and change, hindering the healthy development Control Law, 2000.4.29 of the power industry. In July 2003, an Electricity Pricing Reform Scheme was A.2.4.1.3 Administrative commands and proposed by the NDRC, printed, and dis- guidance tributed by the General Office of the State (1) Decision on Strengthening Energy Council. This new round of electricity Conservation by the State Council, pricing reform has since started. 2006.8.6 (2) Guiding Notice of the Ministry of Box A2-3 Policy System Transport on Port Energy Conservation and (by importance) Emission Reductions of Pollutants, the Min- 1) Notice of General Office of the istry of Transport, 2007.12.20

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 297

State Council on Printing and Distri- lish a sane electricity purchase mechanism by bution of Electricity Price Reform pricing leverage, and to protect the legal Scheme, 2003.7.9 rights of electric power companies and con- 2) Notice of National Development sumers; and to implement a price linkage and Reform Commission on Printing mechanism between electricity and coal and and Distribution of Implementation between electricity and heat to advocate Measures of Electricity Price Reform, energy conservation and improve energy ef- 2005.3.28 ficiency. 3) Interim Measures on On-grid Elec- ① Long-term Goal: Along with institu- tricity Price, NDRC, 2005.5.1 tional power reform, power prices will be di- 4) Interim Measures on Transmission vided and defined as four parts: onto-grid and Distribution Electricity Price, price, transmission price, distribution price, NDRC, 2005.5.1 and sales price. Onto-grid price and sales 5) Interim Measures on Retail Elec- price are influenced by market competition, tricity Price, NDRC, 2005.5.1 while the government will fix transmission 6) Circular on Establishing Coal and and distribution prices. Meanwhile, a canon- Electricity Price Linkage, NDRC, ical and transparent price management sys- 2004.12.15 tem should be established. 7) Circular on Establishing Coal and ② Short-term Goal: Establish a Heat Price Linkage, NDRC, Ministry onto-grid price mechanism adapting to of Housing and Urban-Rural Devel- moderate competition of power generation, opment, 2005.10.25 basing on the separation of the power plant 8) Motion on Promoting Electricity and grid company; initially establish trans- Consumption by Price Leverage, 1999 mission price and distribution price mechan- 9) Interim Management Measures on isms to improve the healthy development of Burden Sharing of Renewable Energy power grid; link sales and onto-grid prices; Power Price and Fees, NDRC, 2006.1 optimization of sales price structures; where 10) Interim Measures on Renewable possible, allow relatively high voltage level or Energy Power Additional Price In- electricity consumption users to purchase di- come Allocation, NDRC, 2007.1 rectly from power plants as a trial implemen- tation. 3) The electricity price forming mechan- 2) The direction and the goals for elec- ism tricity Pricing Reforms are: to establish The sales price Government guides with gradually an electricity pricing mechanism in unified policies and multi-level management. the market economy system; to optimize re- The sales price is composed of four parts: source allocation, to promote the healthy onto-grid price, transmission and distribution development of the power industry, and to loss, transmission and distribution price, and satisfy increasing power demands; to estab- government funding. An average sales price,

298 Harmonious Development through Innovation according to the sum of the four parts, is this price. called the benchmark price and is fixed by d) Government funds and add-ons are the government. The three different catego- charged by quantity according to relevant na- ries of users are residential living, agricultural, tional laws, regulations or considerations ap- and industrial and commercial users. Elec- proved by State Council or departments au- tricity prices for different categories of users thorized by the State Council. are fixed accordingly. The principle behind ② With sales price categorizing reform, fixing sales prices is equal burden sharing, residential and agricultural users each receive effective power demand adjustment, and a unique quantity price; Industrial, commer- paying attention to public policy targets and cial and other power utilities. (Two Tariff establishing the link with the grid entry price Electricity Price) = (Quantity Price) + (Basic mechanism. Taking full advantage of price Price). leverage better allocates power resources and ③ The sales price adopts peak-valley, protects the legal rights of power companies rainy-dry-season, and seasonally differentiat- and users. ing prices. ① (Sales Price) = (Onto-Gird Price) + ④ Sale prices adjustments can be peri- (Transmission and Distribution Loss) + odic adjustments or link adjustments. Pe- (Transmission and Distribution Price) + riodic adjustments refer to when the gov- (Government Funds). ernment department in charge of prices ad- a) Onto-grid price: When participating in justs sales prices every year. If the annual a regional competitive power market, change is small, sales price should be kept (Onto-grid Price) = (Capacity Price, fixed by constant. Link adjustments correlate with government in charge) +(Quantity Price, de- onto-grid prices, but only applicable to in- termined by market competition); when not dustry, commercial, and other users. participating in a regional competitive power 4) Coal and Electricity Price Link Me- market, the onto-grid price is fixed by the chanism government in charge. ① Onto-grid price to coal price and sales b) Transmission and distribution loss price to onto-grid price are linked in order to occurs after grid companies purchase elec- reduce power plant costs and to improve ef- tricity from power plants, including those ficiency. But, power plants need to assimilate belonging to grid companies, or from other 30% of the price increase. grid companies; it is the normal loss in ② The price link period is 6 months long. transmission and distribution process. If coal price fluctuation reaches or exceeds c) The (Transmission and Distribution 5%, the onto-grid price should be adjusted; Price) = (Transmission and Distribution and electricity sales price, in turn, will be ad- Service Price in Public Network) + (Spe- justed according to the fluctuation of the cial Service Price) + (Assistant Service onto-grid price. Price). The government, along with unified ③ In order to relieve coal-fired power policies and multi-level management, fixes plants’ operation difficulties, China has im-

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 299 plemented two coal-electricity price linkages Electricity pricing reform has gone in the past three years. The onto-grid price through a long history together with insti- of power plant raised by a total of RMB 5.01 tutional reform and market structure ad- cents per kWh, which releases the operation justment. At present, the coal price is con- pressure in power plants to a certain extent. nected with the international market, while On May 1, 2005, the initial coal-electricity the sales price of electricity is under gov- price linking, the onto-grid price was raised ernment guidance. The goal of electricity by RMB 2.52 cents. June 30, 2006, was the pricing reform is to better establish an second coal-electricity price link, when the electricity system that utilizes the leverag- onto-grid price was raised by RMB 2.49 cents. ing of prices to optimize electricity re- 5) Unique electricity prices in urban and source allocation, as well as to establish a rural areas normative and transparent price manage- 6) Lowering small coal-fired plant gener- ment system. ation price The coal and electricity prices link system For those small coal-fired plants that has been established to resolve the overturn- have a higher sales price than benchmark ing situation of increasing coal price and price, their sales prices will then be lowered frozen electricity prices. China has imple- to benchmark price. mented two rounds of coal-electricity price 7) Additional subsidies for Renewable links to relieve market tension, which was Energy progress on the way to further pricing Through nationwide burden-sharing reform. However, coal price increases were and proper subsidies, increased onto-grid much greater than the increase of electricity price and properly, and gradually fixed grid price; the coal price almost tripled during the transmission and distribution prices im- past seven years, while there were only two prove renewable energy power generation, rounds of coal-electricity price link, raising increase sales prices, and adjust the struc- electricity price by RMB 5.01 cents in the ture of sales prices. Those projects within past 3 years. Current electricity prices hasn’t the subsidy catalog receive RMB0.1 per yet completely reflect the market situation kWh as subsidy. and more efforts are expected to be made in 8) Summary on Electricity Pricing pricing reform. Reform

300 Harmonious Development through Innovation

Figure A2-2 Coal price development in China.

Due to long-term low electricity prices, cific costs. Once the electricity price has ex- current price reform will lead to price in- ceeded the rate of the feed-in-tariff-scheme, creases. However, the increases reflect the as often is the case of relatively competitive market condition and better allocate re- wind energy in Germany, the price for elec- sources by market mechanisms with higher tricity will not rise anymore due to the avail- efficiency; moreover, the increases also will ability of wind energy. In Germany, it is es- become an economic incentive to consumers timated to be around EUR 5 billion p.a. The to save energy. lesson is that an important advantage of such While increasing the price of electricity a promotional system are fixed, 20-year, le- generated by conventional coal fire power gally guaranteed, technology-specific support plants, China is also adopting renewable schemes. However, this method has one energies into power generation and certain problem, which is that it counteracts our subsidies are offered to such plants to foster general approach of setting the right price their development. Being both cleaner and signals. renewable, these energy forms will achieve Moreover, the system of unique electric- the same targets of emission reduction and ity prices in urban and rural areas is estab- environmental protection, as well as substi- lished to ensure social justice and to ensure tute for limited fossil fuels and will, in the the basic living standards of the rural popu- mid- and long-term, cap the electricity price, lation. While increasing the electricity price, as the experience of the German success the government must also increase the story of renewables suggests. Here, the “me- low-income population subsidy. This is very rit-order” impact requires that plants are reasonable, but China should also consider connected to the grid according to their spe- whether it is – in the mid- and long-term –

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 301 so wise to spend public money just for com- ③ In October 2001, due to problems of pensating for higher energy expenditures or an overly direct and transparent connecting whether it would not be much more effective method and high price change frequency, oil if these higher expenditures would be price connection methods were further ad- avoided by spending the money in funding justed and improved. Since 2006, the prices efficient or renewable energy equipment. of oil products were determined on the basis (2) Oil Pricing Reform of weighted average prices in Brent, Dubai, 1) The Several Stages in Oil Pricing and Minas, plus refinery cost, proper profits, Reform domestic customs tax, and oil products cir- ① On June 3, 1998, the former National culation fees. Development and Planning Commission is- 2) The current oil pricing mechanism and sued the “Crude Oil and Oil Products Prices policy Reform Scheme”, stipulating that the crude oil In March 2006, the General Office of transaction settlement price would be deter- the State Council printed and distributed the mined by negotiation between the two corpo- “Oil Price Comprehensive Reform Scheme” rations of China National Petroleum Corpo- in order to further adjust the oil price and ration (CNPC) and China Petrochemical reform the oil pricing mechanism. The cur- Corporation (Sinopec). The price is composed rent price policy is as follows: of the crude oil base price and discount or ① Crude oil prices connect with the in- premium, within which the crude oil base ternational market, reflecting international oil price is determined by the former National price change. Development and Planning Commission ac- ② Considered factors include domestic cording to the last month average price of market supply, producing cost, and various similar quality crude oil international price, social endurance. The government depart- and a discount is negotiated by suppliers and ment in charge macro-controls retail prices buyers. The prices of gasoline and diesel oil and allows an 8% of fluctuation space for oil are government referential prices. The former product retailers. National Development and Planning Com- ③ Allowance mechanisms to vulnerable mission fixes a retail median price of import- social groups and commonwealth industries ing tax cost plus domestic proper circulation correspond to oil price increases. price. CNPC and Sinopec fix the retail prices ④ Price links exist between relative in- with a 5% fluctuation range on the basis of dustries, such as between oil price and the retail median price. transport sector price. ② Since June 2000, domestic oil prod- ⑤ Fiscal adjustment mechanisms to oil ucts’ prices have started to connect with the companies price increasing incomes, such as international market. Domestic oil products’ oil special profit tariff, started on March 26, prices adjusted according to the international 2006, with a highest rate of 40%, by Deci- price changes, but only referred to the Sin- sion of the State Council on the imposition gapore price at that time. of an oil special profit tariff.

302 Harmonious Development through Innovation

⑥ Upstream-downstream profit adjust- resource allocation and improving energy ment mechanisms exist within the oil com- efficiency. At present, the gasoline price in panies, such as between the crude oil price China is around USD 1/L, while the price and oil products prices linkage mechanism. in EU is around USD 2/L and in the US 3) Summary on oil pricing reform USD 1/L; the price is lower than that in The process of oil pricing reform is ac- EU but almost the same as in the US. If companied with the institutional reform of taking income levels into account, the cur- the oil industry in China. The oil industry has rent oil price is higher than that in the US gone through four major periods since the and the EU. The prices are still under the founding of the country, from highly con- guidance of the government, which main- centrated and monopolistic management to tains a price change lag to the international the current market competition system under price fluctuation. Oil and oil product pric- government macro control. Within the pe- es are reflected at the international level to riods, there were two oil circulation system a large extent. reforms. The first one took place in 1994, Similar to electricity pricing reform, oil causing all the crude oil to be distributed ac- pricing reform leads to larger prices that bet- cording to government plans and the former ter reflect the market situation of demand National Planning Commission fixed the and supply as well as international markets prices of crude oil and oil products. Since conditions. Thus, the reforms optimize 1998, a grand pricing reform has been car- energy resource allocation and work as an ried out to introduce market mechanisms and economic incentive to energy conservation. price leverage, as well as to connect the do- Moreover, while increasing the oil prices, mestic price with the international market. subsidies to agriculture production industries The current pricing system, although in as well as low-income and rural population need of further and deeper improvement, increase responsively. has achieved good progress in optimizing

Table A2-1 Oil products prices adjustment.

Date 2008-6-20 2007-10-31 2007-1-14 2006-5-24 2006-3-26 （RMB/ton） Price Markup Price Markup Price Markup Price Markup Price Markup Gasoline 6980 1000 5980 500 6200 -220 5700 500 5400 300 Diesel 6520 1000 5520 500 5520 0 5020 500 4820 200 Jet Fuel 7450 1500 5950 500 6040 -90 5540 500 5240 300 Date 2005-7-23 2005-6-25 2005-5-23 2005-5-10 2005-3-23 （RMB/ton） Price Markup Price Markup Price Markup Price Markup Price Markup Gasoline 5100 300 4900 200 5050 -150 5050 0 4750 300 Diesel 5470 250 4420 150 4420 0 4270 150 4270 0 Jet Fuel 4940 300 4640 300 4640 0 4640 0 4640 0

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 303

Figure A2-3 Oil products prices adjustments in China.

(3) Natural Gas Pricing Reform ① Grade 1 Gas Price: On December 26, 2005, the NDRC is- – Fertilizer Gas: 560-710 RMB/1,000m3 sued a circular on natural gas production – Industry Gas: 585-920 RMB/1,000m3 price-forming mechanism reform and natural – Urban Gas: 560-920 RMB/1,000m3 gas producing price increases. The circular ② Grade 2 Gas Price: 980 RMB/1,000m3 declared the pricing reform of natural gas. ③ The retail price (2007.4): 2.05-2.30 Major contents in the circular include: RMB/m3 1) Price categories of fertilizer produc- (4) Renewable Energy tion gas, industry gas, and urban gas, and the Apart from the conventional fossil fuels, gas from different gas fields are categorized renewable energies are positively promoted into two grades. in China. There are various kinds of renewa- 2) The price is government guided; The ble energies that are under rapid develop- government provides a factory reference ment, such as solar power, wind power, hy- price, with a 10% of fluctuation range de- dro power, biomass, and nuclear power. The termined by market. prices of renewable energies are relatively 3) The price linking and adjustment sys- high at early stages. The government has tem is established with substituting energy supported their development with abundant prices and gas prices are adjusted every year. technological and fiscal policies. Meanwhile, 4) The gas price will be gradually in- with technology advancement and the in- creased. The two grades will achieve a unique creasing price of fossil fuels, renewable ener- price within three to five years. gies will become more attractive and com- 5) Current gas prices are as follows: petitive.

304 Harmonious Development through Innovation

Take the nuclear electricity price, for ② May, 2005, coal: RMB 2.5-4 per ton example: The electricity price of nuclear 3) Summary power varies between different nuclear pow- Levying natural resources, the resource er plants in China. With the higher domestic tax was designed to adjust resource revenue production rate of nuclear power plants, the and reflect compensation for the use of costs of nuclear electricity have been lowered. state-owned resources. The current resource The electricity price in Qinshan Nuclear tax is a specific duty, with the advantages of Power Plant 2nd Phase is RMB 0.393 per low management cost and a stable fiscal in- kWh, which is the national lowest nuclear come. However, compared with the high electricity price. The electricity price of energy prices, the low resource tax, even af- Dayawan nuclear power plant is RMB 0.414 ter adjustments, is weak in functioning of per kWh, while the average fire electricity resource rank different revenue adjustment or price is around RMB 0.387 per kWh. improving the efficiency in resource utilization. A.2.4.2.2 Taxation and fees Further reform is recommended to (1) Definitions transfer the specific duty into an ad valorem A tax is a distribution means of social tax and to raise various tax and fee standards products in order to meet the social public related with environmental protection so that needs, according to social functions and is energy prices will properly reflect resource prescribed by law, compulsively and volunta- scarcity and the costs of resource destruction rily. Tax is usually collected by taxing agen- and of environment recovery. cies, both custom and fiscal departments, and (3) Eco-compensation mechanism is expended in government budgets towards 1) The Regulation on Mine Resource social public needs. Compensation Fee Levy Collection and A fee is a kind of expense that is charged Management was issued by the State Council by the government agencies for providing cer- in 1994 and amended in 1997. tain specific services. It is usually collected by 2) Eco-compensation demonstration other taxation agencies and institutions. Specific areas fees are collected for specific expenses. 3) Eco-compensation standards system (2) Resource tax 4) Summary 1) The interim ordinance on resource The mechanism aims at internalizing the taxes, 1993, is described in Table A2-2. external costs of ecological environment by integrating environmental pollution treat- Table A2-2 Resource tax rate in 1993. ment and ecological recovery fees into the Tax item Crude oil Natural gas Coal production cost of mining companies. The Tax rate basic principles of the mechanism are: ex- 8-30 2-15 0.3-2.4 (RMB/ton) ploitation protection, destruction recovery, beneficiaries’ compensation, and polluters’ 2) Resource tax adjustment payments; the beneficiaries of eco-protection ① February, 2007: coke: RMB 8 per ton have the duty to pay proper compensation

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 305 fees to eco-protectors. For instance, in the protection projects and investing in energy case of a gas transfer project from area A to conservation and environmental protection area B, the gas receivers and consumers in equipment. area B have the duty to pay compensation 1) Enterprise Income Tax Law, 2007.3.19. fees to area A. ① Article 27: Three year deduction and The most important system in the three-year-exemption of taxes on enterprise eco-compensation mechanism is that of income from environmental protection and mineral resource exploitation. The energy conservation projects. eco-compensation mechanism of mineral ② Article 33: Only 90% of the income resources is designed to guarantee and im- from enterprises with comprehensive re- prove the exploration, protection and source utilization to produce products in ac- proper exploitation of mineral resources, cordance with national industry policies is and to protect the state property rights and calculated in total income for tax; interests of mineral resources. ③ Article 34: 10% of the investment in The fee rates of oil, natural gas, coal, and specific equipments of energy conservation coal mine methane are 1%, apparently low and water saving is deducted from the total compared with international levels of be- payable enterprise income tax; the equip- tween 10% and 16%1. The low fee rate un- ments shall be listed in Enterprise Income derestimates the value of mineral resources Tax Preference Catalog of Energy Conserva- and causes poverty and inequality in the tion-and Water Saving-Specific Equipments. western areas of mineral regions where the 2) “Promotional List of National Key compensation fee should have contributed to Energy Conservative Technologies”, NDRC, regional economic and sustainable develop- 2005. ment. 3) “National Guiding List on Clean Pro- Thus, the rate of the mineral resource duction Technologies in Key Industries”, compensation fee should increase, transfer NDRC, 2006. from a specific duty to an ad-valorem duty to 4) Summary take into account of the interests of local The tax preference is carried out ac- populations. cording to the energy conservation and (4) Tax Preference in Favor of Energy pollutants’ emissions reductions goal in the Conservation and Pollution Reductions 11th Five-Year Plan and functions as a sup- Tax preferences are provided for ener- porting measure to energy conservation gy and water resource conservation, for guiding plans such as the “Comprehensive comprehensive resource utilization, and to Working Scheme on Energy Conservation environmentally sound products, such as and Reduction of Pollutant Emissions”. an enterprise income tax deduction and The technology lists for energy conserva- exemption to companies implementing tion and clean production are designed as energy conservation and environmental technical guidance to industries for tech-

1 Resource: http://www.mlr.gov.cn/zt/hy/gtlh/gtklh/200711/t20071122_93434.htm .

306 Harmonious Development through Innovation nological upgrades to apply clean and ener- Amount Controlling Plan of Major Pollu- gy conserving technologies, facilities, and tants Discharge during the 11th Five-Year processes, and thus improve energy effi- Plan Period” was framed by the Ministry of ciency. Environmental Protection and the NDRC A.2.4.2.3 Emissions trading system and and was approved by the State Council in other market based instruments 2006. Two Total Discharge Controlling Plans

(1) Emissions Trading System were set on COD and SO2 discharge within The emissions trading system of pollu- different provinces. The 10% of COD dis- tants in China, aiming at environmental pro- charge reduction is 12.728 million tons, with tection, has a long history of academic re- 12.639 million tons distributed to different search and experimental implementation in provinces and 89,000 tons for payable alloca- different areas. In order to meet the manda- tion and emissions trading demonstrations. th tory targets set by the 11 Five-Year Plan The 10% of SO2 emissions reduction target and to better achieve the national energy equals to 22.944 million tons, with 22.467 conservation and pollution reduction goals, million tons distributed to provinces and specifically SO2 and COD emissions, payable 477,000 tons reserved for payable allocation allocation and trading plans have been and emissions trading demonstration. framed and implemented. In addition, addi- ③ Development: In the 1980’s, a pollu- tional electricity price quota trading systems tion levy system was established to control to encourage and support the development concentration; since 1990, to regulate the to- of renewable energy have been carried out tal amount of air pollutants, a discharge for the past several years. In recent years, permits system, and an emissions trading emissions trading systems have been intro- system gradually was established. In recent duced for climate protection, such as the es- years, the emissions trading system have been tablishment of an international carbon mar- tested in demonstration areas of seven ket and CDM projects specifically for China. provinces: Tianjin, Jiangsu, Zhejiang, Shang-

1) Emissions Trading System of the Ma- hai, Shanxi, Henan, and Guangxi. SO2 emis- jor Pollutants, SO2 and COD sion rights have been traded in these demon- ① The design aim of emissions trading stration areas. The emission trading system systems is to reduce emissions of pollutants of COD was also experimented with in by economic incentives and to achieve a Jiangsu and Shanghai, with good effects. win-win situation between environmental However, the scale and extent of general protection and economic development. emissions trading system in China falls be- ② Compulsive energy and environmen- hind the demands environmental protec- tal protection targets set in the 11th Five-Year tion. Plan were a 10% major pollutants reduction 2) Renewable Energy Power Additional by 2010 compared to the base year of 2005. Price Quota Trading System In accordance with and implementation of A renewable energy power additional the 11th Five-Year Plan, a “National Total price quota trading system was established

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 307 and first carried out in 2006, when the initial petroleum gas, were canceled and the draw- renewable energy-generated electricity price back rates of 15 types were lowered includ- subsidy and quota trading scheme was issued. ing steel products to the lowest of 5%. It was the symbol of the official start of the ② 2006.9.14: Export drawback of 3 burden of sharing the cost of renewable types of products, including coal and natural energy power generation costs. So far, two gas, are canceled and the export drawback schemes have been circulated. rates of 5 types, including steel and cement, ① “Circular of 2006 on Renewable were lowered. Energy Electricity Additional Price Subsidy (3) Green Credit System and Quota Trading Scheme”, NDRC and “Motion on the Implementation of En- State Electricity Regulatory Commission, vironmental Protection Policies and Regula- 2007.9 tions to Prevent Credit Risks”, SEPA, ② “Circular for January to September of People’s Bank of China, and China Banking 2007 on Renewable Energy Electricity Addi- Regulatory Commission, 2007.7 tional Price Subsidy and Quota Trading 1) For the new construction projects Scheme”, NDRC and State Electricity Regu- which failed environmental assessment ap- latory Commission, 2008.3 proval or the inspection and approval of en- 3) Clean Development Mechanism vironmental equipments, no credit support “Measures for the Operation and Man- should be offered in any form by any finan- agement of Clean Development Mechanism cial institute. Projects in China”, NDRC, Ministry of 2) The green credit system emphasizes Science and Technology, Ministry of Foreign both energy conservation and pollution re- Affairs, 2005.11.29 ductions. (2) Green Trade Policy (4) Government Procurement 1) “Circular on Export Controlling of “Motion of the General Office of the Certain High Energy Consumption, High State Council on Establishing Mandatory Pollution and Resource Intensive Products”, Government Procurements of Energy Con- NDRC, MOF, MOC, etc, 2005 servative Products Systems”, 2007.7.30. 2) “Cancel the Export Tax Refund of Government Procurement List of Envi- Parts of Resource Intensive Products and ronment Labeled Products. Lower Export Tax Refund Rate of Parts of Government Procurement List of Ener- Resource Products”, Ministry of Finance, in gy Conservative Products. order to restrict the export of resource- and (5) Information, Persuasion, and Encou- pollution-intensive products. ragement ① 2007.7.1：2831 products were in- 1) “Energy Efficiency Labeling System: volved, taking up 37% of the total in cus- Management Measures on Energy Efficiency toms tariffs, within which 553 high energy Labeling, Products List of Implementing consumption, high polluting, and re- Energy Efficiency Labeling”, 2008.6.1 source–intensive products including liquid 2) “Energy Consumption per GDP In-

308 Harmonious Development through Innovation dex Bulletin System”, NDRC, 2006 energy conservation and environmental pro- 3) “Management Measures of Green tection and while increasing energy efficien- Building Assessment Labeling” (trial), 2007.8 cy. 4) “Energy Conservation Products Au- Second, energy productivity policies at thentication Management Regulation”, the current stage focus more on improving 1999.2.11 energy efficiency. Further work is needed in 5) “Circular on Encouraging Energy researching and introducing policies of sys- Conservation and Environmentally protec- tem optimization and in promoting renewa- tive small Displacement Automobiles”, ble energy. Many of the policies are for im- NDRC, et al, 2005.12.15 proving energy efficiency, but rather, for 6) “Bulletin of Energy Utilization Condi- considering the whole network reform or tions in a Thousand Enterprises”, NDRC, optimization of the energy system. For ex- National Bureau of Statistics, 2007.9 ample, the highest-level guiding policy of the 7) “Nationwide Energy Saving Actions: 11th Five-Year Plan set the mandatory energy Notice of the State Council on Deeply Im- conservation target of reducing energy con- plement Nationwide Energy Saving Actions”, sumption per RMB 10,000 of GDP by 20% 2008.8.1 by the year of 2010; underneath are a series 8) Public participation: water price ad- of policies designed and carried out to justment public hearing, etc. achieve this goal of energy conservation and (6) Policy Summary, Assessment, and pollution reduction, including the “Compre- Proposal hensive Working Scheme on Energy Con- First, policies and instruments for energy servation and Reductions of Pollutants productivity must be designed based on the Emissions” and the Energy Conservation current situation in Chinese society and on Law. Industrial structure adjustment policy policy goals while considering both present was designed to achieve better industry and future development needs. Policies and structure via shutting down a number of instruments are designed to achieve certain production processes and equipments in the goals based on current situation of the so- category of elimination, while others are li- ciety. When applying Chinese policies of mited from developing or positively encour- energy productivity, we should take the cur- aged. One of the most important determi- rent Chinese situation into consideration the nants here is energy consumption and effi- major social contradictions that lay in the ciency improvement. Structural adjustments background of social production and in- in seven industries with surplus productivity, creasing material and cultural demands of such as electrolytic aluminum, are on the the people. Therefore, the policy system Government’s agenda, which aims to achieve must be designed on the basis of streng- a better industry structure through the means thening the country’s capability to meet up of system optimization. with the demands of social production and Third, command and control instru- general living standards, while achieving ments are very well applied in China and

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 309 supported by a comprehensive set of policy energy utilization efficiency. Along with in- systems. However, they are not sufficient to stitutional and management system reform, achieve set targets, as the ones of environ- pricing reform of major energy resources mental protection in the previous Five-year and taxation reform have taken place over plans were difficult to achieve. As guided by the past decades. At present, coal and crude the highest level of the 11th Five-Year Plan, oil prices are connected with international which set a 20% of mandatory target to cut markets and determined by market demand down energy consumption per RMB 10,000 and supply situations. The leverage of price GDP by 2010 based on 2005, clear manda- plays its part here. Additionally, electricity tory targets set in various policies in different pricing and oil products pricing mechanisms aspects have been carried out. The White have transformed from govern- Book on China’s Energy Conditions and ment-instructed to government-guided, with Policies as a Medium and Long Term Energy price links with coal and crude oil. However, Conservation Plan, the “11th Five-Year Plan the current electricity price and oil product for Energy Development”, and “the Com- prices are still lower than the international prehensive Working Scheme on Energy average. Government is expected to further Conservation and Reduction of Pollutant open the energy market and transfer to mar- Emissions”, as well as several other specific ket mechanism-determination. Aside from sectoral plans and polices. These policies pricing mechanism reform, resource tax and form a comprehensive system to emphasize eco-compensation fees are expected to be energy conservation and to detail clear, perfected and their rates to rise to proper mandatory plans for the targets, covering standards, better reflecting the scarcity of the various aspects in different energy industries. energy resources, the cost of resource de- Still, given the difficulties in achieving past struction and environmental protection, as targets for SO2 emissions control in the pre- well as better behaving as economic incen- vious Five-year plans, additional measures tives to the consumers to achieve industrial which comprise of more economic incen- and nationwide energy conservation. More- tives to strengthen the self-interest of citi- over, a new tax, such as fuel tax, is recom- zens and businesses are required. mended, not only to achieve higher fuel effi- Fourth, market-based instruments are ciency in single cars, but also as a strong becoming more and more important, and are economic incentive to steering motorists to- expected to play a major role in instrument wards reduce their total driving miles, which mix. A long-term energy price increase in in turn improves energy productivity through line with the energy productivity increases to both energy efficiency and through system accelerate innovations and structural changes optimization. However, the public sector is recommended as the major instrument. should also consider social equity and take The rationale is that the market mechanism is the society system as a whole. If the energy considered as the key mechanism to achieve prices are increased sharply in a short time better resource allocation and to improve or the tax rates are raised by a large extent,

310 Harmonious Development through Innovation socioeconomic issues such as inflation, as consumption. Such measures could be a well as agriculture production and the living huge contribution towards improving energy standards of the low-income population, productivity. Once the concept of energy should be fully taken into consideration. productivity is established nationwide, the Therefore, steady yet increasing energy prices ideology will have great impact not only in and taxes are recommended to achieve better daily life energy saving, but also in decision energy productivity, taking full advantage of making by the people in charge of various market mechanisms and the leverage of industries. Besides, the ideology of welfare prices. could be discussed and redefined so that Fifth, nationwide, continuous energy when people use more and more energy to saving actions are needed, and are greatly improve their living standards, they first encouraged in China. A recent notice was is- question whether they really enjoy the mul- sued by the State Council to advocate all the tiplying and piling of energy products. population to take actions to reduce energy

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 311

Appendix 3 OECD Countries’ Experiences in Environmentally Related Taxes (ERTs)

2000. The tax on non-hazardous waste A.3.1 Brief of ERTs in OECD countries has reduced the net delivered waste to municipal sites by 26% in the period Twenty years experience from OECD 1987-1996, and waste delivered to countries indicates that environmentally re- smaller fills and private waste sites by lated taxes (ERTs)1 are effective and efficient. 39% between 1990 and 1996. The Swe- In 2006, 375 different ERTs were in use in dish sulphur tax, introduced in 1991, led OECD countries, of which 150 were ener- to a fall in the sulphur content of gy-and 125 were transport-related. Other oil-based fuels of more than 50% ERTs apply to specific air and water emis- beyond the legal standards. Also in sions and to products such as packaging, Sweden, a tax differentiation was intro- batteries, pesticides, fertilizers, lubricants, and duced in 1991 on diesel fuels in order to household appliances. Most ERTs have stimulate the use of less polluting fuel proven to be successful, triggering significant oils. From 1992 to 1996, the proportion emission reductions (see Box A3-1). of “clean” diesel sold in Sweden rose from 1% to 85%, which led to a reduc- Box A3-1 Examples of ERTs in tion of more than 75% on average in the sulphur emissions of diesel-driven OECD countries vehicles. In Germany, the sulphur tax There is growing evidence on the differential between transport fuels environmental effectiveness of ERTs. with a sulphur content of more than In Belgium, the tax differentiation be- 50 parts per million (ppm) and those tween heavy fuels with a sulphur con- with a practically immeasurable content tent below or above 1% induced a de- of sulphur, less than 10 ppm, led to a crease in the use of the fuel with the shift of the entire market within just a higher sulphur content from 20% of few weeks at the turn of the year 2003 the market in 1994 to less than 1% in towards fuels with no sulphur. Many 1998. This decrease was also due to a other examples can be quoted. switch to natural gas. In Denmark, the sulphur tax caused a reduction of emis- sions of 34,000 tons between 1996 and

1 OECD (and IMF) defines a tax as a compulsory, unrequited payment to general government. Taxes are unrequited in the sense that benefits provided by government to taxpayers are not normally in proportion to their payments. The term environmentally related taxes is used by OECD to describe any tax levied on tax-bases deemed to be of particular environmental relevance.

312 Harmonious Development through Innovation

A.3.2 Implementing ERTs in OECD sectors. ERTs can also be implemented in a countries revenue neutral context, i.e. decreasing other, possibly distorting, existing taxes such as la- Three complementary policy options are bor or corporate taxes, thus keeping a con- open to introduce ERTs. stant tax burden on the economy. Compen- First, environmentally harmful subsidies sating new ERTs with the reduction in exist- and tax provisions must be removed, for in- ing distortionary taxes can provide a “double stance: certain types of agricultural subsidies dividend” in terms of both environmental leading to problems such as the overuse of benefits and of economic efficiency gains. fertilizers and pesticides, intensive farming, Whichever option is chosen, the use of tax and soil erosion; energy subsidies that cause revenue should be explicit and transparent. energy waste and low energy productivity; Revenue neutrality greatly contributes to the the under-taxation of polluting fuels such as political acceptability of taxes. coal. (2) International competitiveness. Energy Second, existing taxes with and environ- taxes should aim at the largest potentials for mental relevance can be adapted and restruc- energy efficiency first, thus, in China, starting tured. For instance, fuel taxes can include a with industry, since 70% of energy con- carbon and a sulphur content component. sumption takes place in that sector. Third, new ERTs can be introduced for As long as domestic energy prices in different types of emissions such as air and China remain below the international price water, domestic and industrial waste, and level, the implication is a subsidy connected polluting products. to every good produced, not only for the Furthermore, as subsidies are just nega- domestic market, but for buyers on the in- tive taxes, a broader perspective should be ternational market as well. A border-tax ad- chosen, thus ensuring consistency of the justment for the energy embedded in export policies by choosing the right policy mix. goods would be a first step towards captur- The main steps of such an Environmental ing the uncompensated loss of natural re- Fiscal Reform (EFR), implemented in several sources implied by the present arrangement, OECD countries, comprise of reforming while maintaining a price policy within China environmentally harmful subsidies, restruc- in accordance with the harmonious society turing existing taxes, and introducing new goal. In the longer run, however, the gap environmental taxes. In implementing ERTs, between domestic energy prices and interna- six main issues must be considered carefully: tional energy prices will tap on the strength (1) The use of tax revenue. The revenue of China’s economy, so approaches need to of ERTs can be used for different purposes, be identified to reserve the price-support for such as feeding the general Government the most worthy consumers, such as budget or dedicated environmental funds or low-income households and certain manu- as compensation payment to the most af- facturers. Taxing export goods in order to fected segments of population or industry capture the rent from energy consumption

Chapter Ⅶ Long-term Incentive Strategies for Energy Efficiency 313 could, at the same time, be a viable approach annual steps will combine effectiveness, a to remedy certain climate policy concerns if strong stimulus for innovation, and social the tax, to some extent, includes the carbon acceptance. Remaining, potentially regres- content of fuels in its tax base. sive effects should preferably be tackled In addition, the Chinese government is through either a progressive tax design looking for potential tools for reducing and/or base or through compensation problems of embedded carbon caused by the measures, such as a lump sum payment, export-oriented intensive trade by ener- hence preserving the incentive effect of the gy-intensive industries in China. Border tax tax. In addition, intelligent regulation with adjustments may be a means to address this market elements, such as a feed-in-tariff for problem. Furthermore, the production costs renewable energy, also has a positive impact are so low in China that impacts of potential on the equalization of unequally affected, cost increases due to energy tax increases particularly for rural regions. hardly exist while the above mentioned op- (4) Acceptance building. It is essential to portunities are great. Still, new ERTs can af- build a consensus of stakeholders such as the fect the competitiveness of targeted sectors business and agricultural community, envi- of the economy by affecting prices and prof- ronmental organizations, and different gov- its. ernment levels and departments including the Furthermore unwanted effects can also Finance and Environmental Ministries. Such be remedied through conventional measures consensus can be built, in particular, through such as recycling the revenue back to the af- ex ante consultations with important stake- fected sectors while maintaining abatement holders of society, called “environmental tax incentives at the margin or by reducing other commissions”, or through clear objectives, existing taxes such as labor or corporate taxes. regular consultations, and transparency and In any case, a full exemption of the ERT that feedback procedures. To this end, a consistent would erode the incentive effect of the tax policy mix is required. Taxes are generally should be phased out in the medium to preferable as they are efficient, raise revenues, longer time perspective. trigger and spur innovation, and are predicta- (3) Social implications. ERTs can also ble in terms of price impacts. However, a so- affect poorer segments of the population, phisticated command-and-control-system notably through price increases in energy, should serve as the bottom line. transportation and other products. Mitigat- (5) Long-term and progressive imple- ing such regressive effects by reducing tax mentation. It takes time for the economy to rates for the lower income categories would adapt to new price signals provided by new erode the purpose of the tax and should be ERTs. For instance, technical innovations avoided. Social hardship can be avoided if and new organizations and structure of the price increases are politically limited to energy sector will take place over time if proven increases of national energy produc- clear and consistent signals are provided. tivity in the previous year or period. Small Concerning energy and transportation taxes,

314 Harmonious Development through Innovation

OECD data indicates that the price elasticity take advantage of the strategic opportunities of demand for petrol or gasoline is relatively stemming from the ongoing reform of tax low in the short run, just -0.15 to -0.28, but and fiscal, policies and of environmental and is significantly higher in the long term at energy policies, in particular in the context of -0.51 to -1.07. This indicates that significant the 11th Five-Year plan and preparation for the effects could be expected in the longer term 12th Five-Year plan. Reforming the tax system of 4-5 years. This also underlines that envi- offers an opportunity to improve economic, ronmental tax reforms must be seen in a me- social, and environmental welfare in a cohe- dium to long term context, as it takes time rent way. Reforming energy policy should be for the economy to adapt to evolving market made consistent with the new tax system in a signals and in particular to enable technical long-term perspective. Environmental policy change to take place. Therefore, progressive reform should enable the crafting of an ap- application of ERTs according to a prede- propriate policy mix for social planning, both termined and predictable schedule will enable using command and control and with eco- economic sectors to adapt and to develop nomic instruments, in particular, taxes. In this new technology and new organizations in a respect, it would be desirable to make a com- stable and long-term perspective. prehensive assessment of existing policy in- (6) Inflation. This can be avoided if struments to identify possible duplications, energy price increases are accompanied by conflicts, and inefficiencies and to maximize appropriate reductions of other taxes such as synergies. However, a comprehensive “As- employers’ social security contributions or, as sessment of Current Policies for Energy in China, taxes on employees liable to the Productivity in China” (annex) has already employer or value added taxes. Other options been carried out, providing very valuable in- for revenue recycling while permanently re- sights to the existing policies and measures for ducing energy costs are to co-finance public which the proposed measures here can be well and private infrastructure and equipment that linked and integrated into the existing policies. builds on efficient and renewable technolo- Many other economic and administrative gies. instruments are available for effective envi- ronmental policy, including environmental A.3.3 Preliminary conclusions for China bank credits and insurance policies. The Task Force will explore further a range of policy China’s current reform process should instruments available.

Annex Ⅰ CCICED Membership 315

Annex Ⅰ

CCICED Membership (as of November 2008)

Mr. Li Keqiang Vice Premier, State Council, Chairperson of the Council Mr. Zhou Shengxian Minister, Ministry of Environmental Protection Executive Vice Chairperson of the Council Ms. Margaret Biggs President, Canadian International Development Agency Executive Vice Chairperson of the Council Mr. Xie Zhenhua Vice Chairman, National Development and Reform Commission (NDRC), Vice Chairperson of the Council Mr. Klaus Töpfer Former Executive Director, UNEP Vice Chairperson of the Council Mr. Børge Brende Managing Director, World Economic Forum; Norway Vice Chairperson of the Council Mr. Zhu Guangyao Secretary General of the Council Ms. Jiang Zehui Vice Chairperson, Committee of Population, Resources and Environment, the National Committee of the Chinese Peoples’ Political Consultative Conference Ms. Wang Jirong Vice Chairperson, Environment Protection and Resources Conservation Com- mittee, National People’s Congress Mr. He Yafei Vice Minister, Ministry of Foreign Affairs Mr. Zhang Shaochun Vice Minister, Ministry of Finance Mr. Li Ganjie Vice Minister, Ministry of Environmental Protection Mr. Yi Xiaozhun Vice Minister, Ministry of Commerce Mr. Ning Jizhe Vice Minister, Research Office, the State Council Mr. Ding Zhongli Vice President, Chinese Academy of Sciences (CAS); Academician of CAS Mr. Shen Guofang Professor, Former Vice President of Chinese Academy of Engineering (CAE); Academician of CAE; Chinese Chief Advisor of the Council Mr. Liu Shijin Vice President, Development Research Center, the State Council Mr. Feng Zhijun Professor, Counsellor of the State Council Mr. Li Xingshan Former Academician Dean, Central Party School of the Communist Party of China Mr. Zhou Dadi Senior Research Fellow and Former President Energy Research Institute, NDRC Mr. Lu Yaoru Professor, Chinese Academy of Geological Sciences, Ministry of Territory and Resources; Academician of CAE

316 Harmonious Development through Innovation

Mr. Zou Deci Professor and Senior Urban Planner, China Academy of Urban Planning and Design, Ministry of Construction; Academician of CAE Mr. Zhou Wei Professor and President, Research Institute of Highway, Ministry of Transport Mr. Wang Hao Professor and Director, Department of Water Resources, China Institute of Water Resources and Hydropower Research, Ministry of Water Resources Academician of CAE Mr. Ren Tianzhi Professor and Deputy Director, Institute of Agricultural Resources and Re- gional Planning, Chinese Academy of Agricultural Sciences, Ministry of Agriculture Mr. Wang Wenxing Professor and Senior Advisor, Chinese Research Academy of Environmental Sciences; Academician of CAE Mr. Niu Wenyuan Professor and Chief Scientist, Institute of Policy and Management, Chinese Academy of Sciences Mr. Ma Xiangcong Senior Research Fellow, Institute of Law, Chinese Academy of Social Sciences Mr. Ding Yihui Professor and Senior Advisor, China Meteorological Administration Academician of CAE Mr. Hao Jiming Professor and Dean, Department of Environmental Science & Engineering, Tsinghua University; Academician of CAE Ms. Sarah Liao Former Secretary to the Environment, Transport and Works of the Hong Kong Special Administrative Region Government Mr. Roger Beale Senior Associate, the Allen Consulting Group; Former Portfolio Secretary, the Department of Environment and Heritage, Australia Ms. Soledad Blanco Director, International Affairs and LIFE, DG Environment, European Com- mission Mr. Corrado Clini Director General of Sustainable Development and Research Department, Min- istry for Environment, Land and Sea, Italy Mr. Gordon Conway Chief Scientific Advisor, Department for International Development, UK Ms. Linda Cook Board Member of Executive Committee and Chief Executive Officer for Gas and Power, the Royal Dutch/Shell Group Mr. Daniel J. Dudek Chief Economist, Environmental Defense Fund, USA Mr. John Forgách Group Chairman, the Equator LLC in New York; Brazil Mr. Arthur Hanson Distinguished Fellow and Former President, International Institute for Sustain- able Development, Canada; International Chief Advisor of the Council Mr. Stephen B. Heintz President, Rockefeller Brothers Fund Mr. Masami Ishizaka Advisor, Overseas Environmental Cooperation Center, Japan Mr. James Leape Director General, WWF Ms. Julia Marton-Lefevre Director General, IUCN Mr. Lars-Erik Liljelund Director General, the Swedish Primeminister Office Mr. Dirk Messner Director, German Development Institute Mr. Mark Moody-Stuart Chairman, Anglo American plc; UK Mr. Mohammed Valli Moosa Former Minister of Environmental Affairs and Tourism of the Republic of South Africa

Annex Ⅰ CCICED Membership 317

Mr. R.K. Pachauri Director General, Energy & Resources Institute, India; Chair of UN Intergovernmental Panel on Climate Change (IPCC) Mr. Achim Steiner Executive Director, UNEP Mr. Björn Roland Stigson President, World Business Council for Sustainable Development (WBCSO) Mr. Hau-sing Tse Senior Vice President, CIDA, Canada Ms. Laurence Tubiana Director, Institute of Sustainable Development and International Relations, France Mr. Hans van der Vlist Vice Minister, Ministry of Housing, Spatial Planning and the Environment, the Netherlands

CCICED Secretariat: Mr. Xu Qinghua Deputy Secretary General Mr. Guo Jing Secretariat Director Mr. Chris Dagg Director, Secretariat International Support Office