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The political economy of emissions reduction in China

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									China’s Dilemma




10
The political economy of
emissions reduction in China
Are ncentves for low carbon growth
compatble?

Cai Fang and Du Yang


There s growng, unassalable evdence of severe exstng and potental
consequences of global clmate change and of the relatonshp between
human economc actvtes and global warmng (for example, stern 2007). The
kyoto Protocol and the Bal clmate conference road-map proposed ether
compulsory or moral requrements for acton from all economes—ncludng
chna, whch has the largest populaton sze, the fastest growth rate and the
second-largest gross domestc product (GdP) n purchasng power party (PPP)
terms. As research (Thomas 2007) estmates, assumng the rato of carbon
doxde emssons to GdP remans at the 2001 level, total global emssons wll
reach as hgh as 25 bllon metrc tonnes by 2018. Whle ths wll represent an
ncrease n global carbon doxde emssons of 69 per cent, emssons n chna
wll ncrease to 9 bllon tonnes—a growth of 218 per cent, exceedng all other
countres n terms of total emssons.1
    It s seems to be the case that chna’s emssons reducton efforts are
motvated by nternatonal pressure, whch the central government passes on
to local governments and enterprses. If, however, external pressure s the sole
motvatng factor for the government to take the ssue serously—and t s not
nduced endogenously by chna’s economc growth per se—chna wll face
great dfficulty reducng emssons because there wll be a lack of ncentves
to carry out emssons reducton strateges. That s, the followng questons
should be answered before we can be confident about the realsaton of the
strategc goal. Frst, does the central government have persstent volton to
carry out the polcy, n financal and admnstratve terms? second, are local

                                      226
                                     The political economy of emissions reduction in China


governments wllng to sacrfice short-term growth for sustanable long-term
development? Thrd, can an enterprse’s behavour n dealng wth emssons
reducton ncentves be compatble wth the government’s ntentons? As has
been wdely observed, chna’s rapd economc growth durng the transtonal
phase was stmulated largely by local governments pursung GdP growth
and the resultng enhancement of fiscal revenue. To guarantee an effectve
mplementaton of the strategy, any slow-down of economc growth supposedly
caused by emssons reducton must be compensated.2
    Those polcy advocates for chna’s emssons reducton who emphasse the
ssues of oblgaton and responsblty but pay no attenton to ssues relatng to
capablty and ncentve, are rrelevant n polcy decsons and ncomplete n the-
oretcal consstency. The argument of ths chapter s that the relatve barganng
power and effectveness of polcy advocacy are determned by the domnant
prortes and the partcular stage of development. Whle condtons mature,
ncentves, behavour and prortes change. The envronmental kuznets curve
(ekc), whch depcts the relatonshp between per capta ncome and env-
ronmental qualty, s a reflecton of such poltcal and economc logc (dea-
con 2005). Whle the ekc s ndcatve of a smplfied correlaton of envron-
mental appearance wth envronmental requrements assocated wth per capta
ncome, there can be deeper mplcatons behnd t. In the case of chna, the
government’s behavour, charactersed so far by ts developmental state, whch
conssts of strong development mpulses from the central and local govern-
ments, responds more senstvely to the demands from potental changes n
growth patterns than to the demands from ncome ncreases.
    In ths chapter, we dscuss the contnung fundamental changes n chna’s
development stage and the mplcatons for growth patterns. Takng sulphur
doxde emssons as an example, we estmate a chnese ekc and try to reveal
ncentve mechansms and polcy focuses for mplementng emssons reducton
strateges from the emprcal findngs. The followng questons are expected to
be answered: 1) can the orentaton of growth polcy be changed as a result of
nteracton between central and local governments; 2) are emssons reductons
and low carbon growth financally feasble; and 3) can ncentves be compatble
between the central government, local governments, enterprses and the
general populaton n mplementng a strategy of emssons reducton?

Development stage and growth patterns
chna’s envronmental problems are the result of ts economc growth pat-
tern, charactersed by a relance on labour and captal nputs rather than on
productvty enhancement, although ths growth pattern suts a partcular


                                       227
China’s Dilemma


development stage. The chnese stmulaton of economc growth s unque n
combnng central and local governments to form a developmental state, whch
characterses the outstandng government functon n economc development.
consequently, whle ndvdual enterprses nherently tend to respond to growth
pattern changes—whch emssons reducton s the result of—regulatons and
other government reactons are much more mportant n guaranteeng the
realsaton of the strategy. The mpendng new development stage wll help
the government shft ts polcy orentaton by makng the relevant regulatons
ncentve-compatble among stakeholders.
    The poltcal economy of emssons reducton relates to the dfferent reac-
tons of all relevant partes. Frst, for the central government, decson-makng
has to do wth the recognton of the mportance of emssons reducton as
requred by the change n the development stage. second, for local governments,
ncentves to shft growth patterns from nput drven to productvty drven and a
wllngness to sacrfice short-term growth n GdP and fiscal revenue for sustan-
able growth are more relevant n response to the central government’s mandate.
Thrd, for enterprses, whch are supposed to care more about profitablty
than externalty, mmanent rrtants requrng transton from nputs-based to
productvty-based expanson are generated by modficaton of the producton
factor endowment. Fnally, for people, stronger demands for envronmental qualty
come ultmately from the transton from a lvelhood domnated by subsstence
pressures to comprehensve human development that alters n accordance wth
development stages. In the final analyss, an envronmental strategy can be
mplemented effectvely only by combnng the quartet of capacty, responsblty,
oblgaton and ncentve.
    In hs promnent paper on the relatonshp between economc growth and
ncome nequalty, kuznets (1955) postulates that n the economc growth process,
ncome nequalty first ncreases then declnes after reachng a turnng pont.
envronmental economsts later appled ths nverted U-shape curve to depct
a smlar relatonshp between economc growth and envronmental qualty
(Grossman and krueger 1995). The ekc can also be a useful framework wth
whch to examne whether the chnese economy possesses nherent momentum
to transform ts growth pattern to a more envronmentally frendly one and, n
partcular, to understand the poltcal economy behnd the transformaton.
    In more concrete terms, we nvestgate the ways n whch the changes n
development stages mpact on envronmental polcy decsons from two asp-
ects. Frst, the change n development stage requres transformaton of growth
patterns. The economc growth pattern can be referred to n ways n whch
factors of producton are allocated at mcro and macro levels and t can usually
be classfied by what knds of sources the economc growth s based on. Thanks

                                       228
                                    The political economy of emissions reduction in China


to the earler than expected completon of demographc transton, the entre
perod of reform and openng-up n chna has been charactersed by adequate
labour force supply and a hgh savngs rate. Ths demographc dvdend resultng
from a productve populaton structure has been realsed through marketsed
resource allocaton mechansms and partcpaton n the global economy. The
favourable populaton factor has provded chna’s economc growth wth a
wndow of opportunty and, therefore, the phenomenon of dmnshng return
to captal has been deterred (ca and Wang 2005). In the meantme, economc
growth n transtonal chna has reled heavly on nputs of producton factors
rather than on productvty mprovement. After a short rse n total factor
productvty (TFP) and ts contrbuton to growth n the early stages of reform,
chna’s TFP performance has been unsatsfactory snce the 1990s (for example,
Zheng and hu 2004; kujs and Wang 2005). Ths was a major attrbuton of
the growth pattern charactersed by heavy polluton, hgh depleton and low
efficency (kaneko and manag 2004).
    smlar stores were told about the early experences of the ‘Four Tgers’
when they created the dsputable ‘east Asan mracle’. At the tme, krugman
(1994) noted that the economc growth n east Asa was fuelled merely by
nputs of labour and captal, and the growth of TFP and ts share of economc
growth were nsgnficant. krugman beleved the mracle was doubtful; hs
judgement was based on the neoclasscal theory of growth, whch assumes
dmnshng returns to captal due to lmted supples of labour, whch was not
true n those economes. The facts subsequently showed that once the dual-
economy feature of an unlmted labour supply dsappeared, those economes
had to transform ther economc growth patterns from nputs drven to TFP
drven—and have snce sustaned ther growth (Bhagwat 1996). After three
decades of extraordnary economc growth, fuelled largely by demographc
dvdends, and as the populaton ages rapdly and the reservor of surplus
labour n rural areas runs dry, chna’s labour supply and demand scenaro
has changed fundamentally snce 2004. Wth the approach of a lews turnng
pont, condtons under whch economc growth becomes ncreasngly relant
on productvty mprovement rather than on expanson of nputs are maturng
(ca 2008).
    In addton, the ncrease n per capta ncome nduces people’s desre for
securty and qualty of lfe, and ther calls for a better envronment. A decade
ago, the World Bank (1997) estmated that n 1995, financal losses resultng
from ar and water polluton were worth Us$54 bllon, accountng for 8 per
cent of chna’s total GdP. snce then—namely, durng the perod from 1995
to 2006—the real per capta ncome of urban households ncreased by 131


                                      229
China’s Dilemma


per cent, and the real per capta ncome of rural households ncreased by
74.8 per cent. As a result of a much faster rate of ncome growth for the upper
group, the rchest 20 per cent earned 4.6 tmes more than the poorest 20 per
cent. Per capta ncome level s the decsve factor n both of the wdely used
approaches to estmatng losses caused by envronmental damage—namely,
the human-cost and the wllngness-to-pay approaches. The upper ncome
group, especally, has stronger barganng power to have an mpact on polcy
decsons about envronmental ssues. Therefore, the outstandng performance
of ncome enhancement for chnese resdents must play a role n ncreasng
calls for envronmental mprovement. Frequent envronmental ncdents n
recent years have shown how quckly and enthusastcally ctzens and the
press can respond to envronmental dsasters (hayward 2005).
    The concerns of chnese resdents, scholars, polcymakers and, to a lesser
extent, enterprses about envronmental qualty have been translated nto the
central documents and protocols of the eleventh Fve-Year Plan. The documents
make repeated calls for transformaton of growth patterns and the eleventh Fve-
Year Plan stpulates restrctve crtera for emssons reductons. As a response
partly to those regulatons and partly to the ncrease n prces of raw materals
and wages, chnese manufacturng enterprses successfully mproved the
efficency of ther usage of ntermedate nputs and labour productvty (km
and kujs 2007).

China’s environmental Kuznets curve
An effectve way of understandng the relatonshp between economc
development and emssons n chna s to depct the ekc. As we have mentoned
already, economc development and demand for envronmental qualty as a
result of mproved lvng condtons can be represented by per capta GdP.
When dscussng ekc therefore, we employ provncal panel data to explore
the relatonshp between emssons and per capta GdP and observe when the
kuznets turnng pont appears. The two man emssons are those of carbon
doxde and sulphur doxde; however, ths chapter descrbes only the ekc of
sulphur doxde because the data for carbon doxde emssons are not yet
avalable offically.
    sulphur doxde s one of the man ar pollutants produced by the combuston
of sulphur compounds and s of sgnficant envronmental concern. snce coal
and petroleum, whch are the man sources of energy n chna, often contan
sulphur compounds, ther combuston generates sulphur doxde. In 2005,
total sulphur doxde emssons n chna were 25.49 mllon metrc tonnes—the
hghest n the world. In the eleventh Fve-Year Plan, lmtng sulphur doxde


                                      230
                                           The political economy of emissions reduction in China


emssons s one of the man goals for envronmental protecton. The plan
requres a 10 per cent reducton n sulphur doxde emssons by 2010—that s,
total emssons of sulphur doxde should not exceed 22.95 metrc tonnes.
    data for our emprcal analyss were collected from the China Statistical
Yearbook (nBs, varous ssues). The varables we chose ncluded sulphur doxde
emssons, per capta GdP, ndustralsaton levels and populaton by provnce
from 1991 to 2006. due to ncomplete data for Tbet and chongqng, we excluded
these two provnces from the data sets. Table 10.1 dsplays the summary of
statstcs of the varables. Average sulphur doxde emssons for all observatons
were 14.02 metrc tonnes per 1,000 people; they reached 19.37 metrc tonnes
per 1,000 people n 2006. Groupng the averages of sulphur doxde emsson
levels n the perod 1991–2006 by regon, we found slghtly more emssons
generated n the coastal areas than n the central and western areas, but the
eastern provnces emtted much less sulphur doxde (15.2 metrc tonnes per
1,000 people) than ther central and western counterparts (21.6 metrc tonnes
per 1,000 people) n 2006 alone. In addton, t s worth notng that the dspartes
of per capta GdP n 2006 were greater than the tme seres average.



Table 10.1     Summary statistics of variables

Varable                          mean (sd)         mnmum       maxmum        mean n 2006
All provinces
so2 emssons
(metrc tonnes/1,000 people)      14.02 (8.74)        1.48           57.95        19.37 (12.53)
Per capta ncome (1990 yuan)    4,954 (4,407)        860           34,200        9,743 (7,069)
Populaton (mllon)              41.2 (25.3)         45.4            97.2         43.5 (26.6)
Coastal
so2 emssons
(metrc tonnes/1,000 people)     14.29 (7.33)        14.8            33.19        15.23 (6.79)
Per capta ncome (1990=100)     8,516 (5,727)       1,794          34,200        1,712 (766.4)
Populaton (mllon)             39.85 (28.6)         67.4           93.1          44.3 (32.9)
Others
so2 emssons
(metrc tonnes/1,000 people)      13.88 (9.41)        3.55           57.95        21.55 (14.37)
Per capta ncome (1990=100)     3,080 (1,499)        860            8,518        5,861 (1,497)
Populaton (mllon)              42.0 (23.4)         45.4            97.2         43.0 (23.7)


Note: We define Bejng, Tanjn, laonng, shandong, Jangsu, shangha, Zhejang, Fujan,
Guangdong and hanan as coastal areas, and the remanng provnces as central and western
areas.
Source: natonal Bureau of statstcs (nBs), varous years. China Statistical Yearbook, chna
statstcs Press, Bejng.



                                              231
China’s Dilemma


    We now descrbe the tme trend and regonal characterstcs n detal. Fgure
10.1 shows the changes n chna’s per capta sulphur doxde emssons as a
whole over tme. Whle there has been a general trend of ncreases n sulphur
doxde emssons n the past decade, emssons have accelerated snce 2002.
Wth rsng publc attenton pad to envronmental protecton and mproved
capacty for mplementaton, the amount of sulphur doxde lmtaton has
ncreased more rapdly than emssons. In general, the growng pattern of
sulphur doxde generaton can be charactersed by a hgher rate of removal
and bgger ncreases n emssons n terms of absolute magntude. Ths mples
that, wth enormous economc growth, current efforts of removal and recovery
cannot adequately counter emssons.
    Fgure 10.2 shows the changes n regonal emssons of sulphur doxde
over tme; the proporton of emssons generated n the central and western
provnces of the total enhances over tme. The rato of emssons n 19 nteror
provnces to that n 10 coastal provnces was 1.57 n 1991, but t ncreased to
2 n 2006. Gven the ncreasng dspartes n economc development between
eastern provnces and central and western provnces n the same perod, the




Fgure 10.1 Emissions and removals per capita of sulphur dioxide in
            China, 1991–2006

  300
                       Per capita emission (metric tonnes/10,000 people)
                       Per capita emission (metric tonnes/10,000 people)

  250                  Per capita removal (metric tonnes/10,000 people)
                       Per capita removal (metric tonnes/10,000 people)


  200


  150


  100


    50


     0
         1991

                1992

                        1993

                               1994

                                      1995

                                             1996

                                                    1997

                                                           1998

                                                                  1999

                                                                         2000

                                                                                2001

                                                                                       2002

                                                                                              2003

                                                                                                     2004

                                                                                                            2005

                                                                                                                   2006




Source: natonal Bureau of statstcs (nBs), varous years. China Statistical Yearbook, chna
statstcs Press, Bejng.




                                                           232
                                         The political economy of emissions reduction in China


efficency gans of emssons reducton n costal areas are much hgher n real
terms, whereas those n the nteror provnces are dssatsfied. Ths rejects any
attempt to take emssons n chna as a homogenous ssue and suggests a
methodology that treats the two dstnct regons dfferently whle tryng to do
any meanngful analyss.
    The scattered observatons n terms of sulphur doxde emssons at certan
tmes shown n Fgure 10.3 further reveal the great heterogenety between the
coastal and nteror regons. The horzontal axs represents the levels of per
capta GdP n 1990 prces and the vertcal axs the levels of per capta sulphur
doxde emssons. At a relatvely low level of per capta ncome for coastal and
nteror regons, there was no sgnficant dfference n emssons between the
two regons. As each of the economes grow, the levels of emssons grow, wth
an even larger dvergence n emssons than n economc growth, mplyng that
f there s a sgn of ekc, t must be the case that the eastern provnces alone
present the path of ncrease first and then declne n emssons.
    To see whether an ekc n terms of a sulphur doxde emssons pattern exsts,
we run a regresson to examne the relatonshp between regonal economc
development and sulphur doxde emssons based on the followng emprcal
model.

   Si,t = α0 + β1 yi,t + β2 y i,t + β3mi,t + ui + vt + εi,t
                              2
                                                                                        (1)

n whch Si,t s per capta sulphur doxde emssons of provnce i n year t, yi,t
and yi,t are per capta GdP at the 1990 constant prce and ts square term of
       2

provnce i n year t, and mi,t s the level of ndustralsaton of provnce i n year
t measured by the rato of value added n the ndustral sector to total GdP.
ui s the provnce dummy reflectng the persstent provncal dfference, such
as dfferent patterns of energy consumpton, regulaton of energy use and
envronmental protecton, preferences for energy consumpton and so on.
vt s the year dummy to control the factors that change wth tme, apart from
economc development, such as commodty and energy prces, technology for
sulphur doxde removal and the lke. εi,t represents randomly dsturbng factors
apart from tme and regon. As n other studes on the ekc, the purpose of ths
estmaton s to look at the sgnficance and sgn of β1 and β2 to decde f they
present an nverted-U shape.
    Table 10.2 presents the regresson results. The three columns lst regresson
results for all 29 provnces, for coastal provnces and for central and western
provnces, respectvely. The fitness to model vares among regons: that for
the model of coastal areas has the hghest overall R 2 n three equatons, whle


                                           233
      China’s Dilemma



      Fgure 10.2 Regional composition of sulphur dioxide emissions, 1991 – 2006

                                                                2,500
SO2 Emission (ten thousand metric tonnes)




                                                                                            Coastal               Other
      (ten thousand metric tonnes)




                                                                2,000
              SO2 emissions




                                                                1,500


                                                                1,000


                                                                 500


                                                                     0
                                                                             1991

                                                                                    1992

                                                                                           1993

                                                                                                  1994

                                                                                                         1995

                                                                                                                 1996

                                                                                                                        1997

                                                                                                                                 1998

                                                                                                                                        1999

                                                                                                                                               2000

                                                                                                                                                      2001

                                                                                                                                                               2002

                                                                                                                                                                      2003

                                                                                                                                                                             2004

                                                                                                                                                                                    2005

                                                                                                                                                                                           2006
      Source: natonal Bureau of statstcs (nBs), varous years. China Statistical Yearbook, chna
      statstcs Press, Bejng.

      Fgure 10.3 Sulphur dioxide emissions against per capita GDP by
                  province, 1991–2006

                                                                600
                  SO2 emissions (metric tonnes/10,000 people)




                                                                                                                                 Coastal areas               Others




                                                                400




                                                                200




                                                                 0
                                                                         0                        10,000                        20,000                       30,000                   40,000
                                                                                                                Per capita GDP (1990 price)


      Source: natonal Bureau of statstcs (nBs), varous years. China Statistical Yearbook, chna
      statstcs Press, Bejng.




                                                                                                                               234
                                      The political economy of emissions reduction in China


that for other areas s low. The model for coastal areas explans 58 per cent
of varatons of sulphur doxde emssons, whle that for others explans only
5 per cent.
    What concerns us are the sgns of the square term of per capta GdP n all
three equatons, because the negatve sgns ndcate the exstence of an ekc,
though the coefficents are statstcally nsgnficant for the regresson for
central and western provnces. For ths reason, we can nfer that the presence
of an nverted-U shape for the pooled sample exsts only because the general
pattern of sulphur doxde emssons n coastal areas shows a predctable
kuznets turnng pont. Based on the regresson results n the first column, we
can plot a graph that depcts the changng pattern of sulphur doxde emssons
n chna as a whole, denoted by 29 provnces (Fgure 10.4). lookng at Fgures
10.3 and 10.4, the plots of observatons for the central and western areas scatter
far left of the turnng pont, whle those for the coastal areas stand around the
turnng pont. The huge heterogenety dentfies a need to dstngush between
the two regons when observng the ekc n chna.
    We now use nformaton from the second column n Table 10.2 to predct
the ekc for coastal areas, and show the outcomes n Fgure 10.5. Accordng to
the parameters estmated from the current sample, the turnng pont appears
when per capta GdP reaches rmB18,963 at the 1990 constant prce. Beyond
ths pont, emssons are supposed to decrease. Wth ths pattern, provnces
that surpassed the turnng pont n 2007 ncluded Bejng, Tanjn, shangha and
Zhejng, whle Guangdong and Jangsu were very close to the pont n terms of
per capta GdP. In other words, n the current crcumstances, many provnces
n eastern chna have already had the capacty and ncentves to reduce ther
sulphur doxde emssons—namely, to afford low carbon growth.
    on the other hand, wth acceleratng economc growth, the central and
western provnces contnue ther patterns of emssons. In the thrd column of
Table 10.2, we see that coefficents of per capta GdP and ts square term are
statstcally nsgnficant. If we use a dfferent specficaton wthout ncluson of
the square term, as shown n the last column of Table 10.2, we see a sgnficant
and postve coefficent for the varable of per capta ncome, whch mples that
the central and western regons stay at a phase of ncreasng emssons. As s
expected, Fgure 10.6 shows that, though dvergng, most of the provnces n
the regon are scramblng n lne wth monotonously ncreasng sulphur doxde
emssons. In comparson wth the predcted ekc of the eastern provnces, the
pcture here does not show any sgn of an ekc.




                                        235
China’s Dilemma



Table 10.2                 Economic development and sulphur dioxide emissions:
                           two-way fixed-effect model

                                  All provnces           coastal areas           Interor areas
GdP per capta n 1990 prce             .0033                 .010            0.031              .015
                                       (1.38)                (3.10)          (1.54)            (2.93)
square term of GdP per capta          -2.09e–07             -2.68e–07        -1.21e–07         -
                                       (3.35)                (4.06)          (0.8)
rato of secondary ndustry n GdP      3.77                  3.93             4.41             4.60
                                       (6.26)                (5.99)          (4.63)            (4.99)
Fxed effect, provnces                 Yes                   Yes              Yes              Yes
Fxed effect, years                     Yes                   Yes              Yes              Yes
constant                             -44.1                  -75.5          -104               -91.86
                                       (1.67)                (2.23)          (2.60)            (2.48)
r2
   wthn                               0.47                  0.48            0.53             0.52
   between                              0.06                  0.61            0.002            0.0003
   overall                              0.15                  0.58            0.051            0.064
no. of observatons                  464                    160             304              304


Note: t value s n parenthess.




Fgure 10.4 Environmental Kuznets curve: 29 provinces


                 600
                                            CI             EKC       SO2 emissions




                 400
 SO2 emissions




                 200




                  0


                       0           10,000             20,000              30,000              40,000
                                            Per capita GDP (1990 price)




                                                    236
                                                The political economy of emissions reduction in China



Fgure 10.5 Environmental Kuznets curve: coastal provinces


                 400
                                 CI                       EKC           SO2 emissions



                 300
 SO2 emissions




                 200



                 100



                   0

                       0              10,000              18,963                  30,000
                                          Per capita GDP (1990 price)



Fgure 10.6 Environmental Kuznets curve: central and western China


                 600
                           CI                  EKC         SO2 emissions




                 400
 SO2 emissions




                 200




                   0
                       0        2,000             4,000             6,000               8,000
                                          Per capita GDP (1990 price)




                                                  237
China’s Dilemma


Conclusion and policy implications
exemplfied by sulphur doxde emssons, the chnese ekc shows the exstence of
a relatonshp between ncome ncreases and envronmental mprovement. There
are, however, ssues to be consdered apart from the general concluson.
    Frst, whle one can expect a future turnng pont from ncreases to declne
n emssons for chna as a whole, most chnese provnces are stll far from
reachng that pont. The central and western provnces n partcular stll have a
strong desre for economc growth at the cost of the envronment n order to catch
up wth ther eastern counterparts. If the prevously outlned path s followed,
chna wll have to suffer further envronmental degradaton before reachng
ts spontaneous turnng pont, because the experences of a spatal transfer of
ndustres show (and the ekc mples) that the latecomers n economc growth
tend to receve the transferred ndustres from ther advanced counterparts n
accordance not only wth ther comparatve advantage but wth ther acceptance
of envronmental degradaton—that s, there wll be a tendency for the central
and western regons to welcome pollutng ndustres transferrng from eastern
regons. Gven the strong desre for growth n the less-developed provnces
and the large ncome gap between chnese provnces, sngle ncentves such
as per capta ncome are not sufficent to lead those regons to the kuznets
turnng pont. Genune changes must rely on the ntroducton of ncentves and
regulatons based on the need for transformaton of growth patterns.
    From the regresson results, one can see a great heterogenety of sulphur
doxde emssons among regons, whch suggests dstnct polcy packages for
dfferent regons n terms of emssons reducton. For most coastal provnces,
whch ether passed through or are movng towards the kuznets turnng
pont, the nertal path and ntrnsc forces can lead them to reduce emssons
spontaneously. As far as the central and western provnces are concerned, t
s hard to predct when they wll enter the kuznets turnng ntervals snce the
emssons n these areas are acceleratng. In ths regard, t s essental to enforce
regulatons to lmt ther emssons behavour as total emssons n chna are
already the hghest n the world.
    Although we estmated a reasonably fitted ekc and ts vsble turnng
pont for the eastern regons, observatons dffer substantally. even for those
observatons whose postons are on the rght nterval of the turnng pont, they
stand at dfferent plots, mplyng sgnficant heterogenety among the eastern
provnces. In general, the emssons n the east reman hgh and ther declne
wll be slow.
    studes show that whle a general relatonshp between per capta ncome
and envronmental qualty has been observed, there are huge dfferentals


                                        238
                                      The political economy of emissions reduction in China


across pollutants. Greenhouse gas emssons, whle concomtant wth those
such as sulphur doxde that are drectly harmful to people’s health, usually
do not follow exactly the same path as other pollutants. As a greenhouse gas
wth no smell and no mmedate harm to health, carbon doxde emssons have
not shown a sgnficant path as the ekc suggests. For nstance, the prevous
emprcal studes rarely found an ekc between ncome levels and carbon
doxde emsson patterns. If there are rare cases, they show that the turnng
pont ndcatng carbon doxde emssons tendng to declne comes much
later and requres several tmes hgher ncome levels than do other pollutants
(Webber and Allen 2004).
     It s beleved wdely that because of chna’s enormous populaton sze, the
domnance of manufacturng n ts ndustral structure and the low efficency
of energy usage, n nternatonal rankngs, chna s postoned hgh n terms of
per capta emssons and low n terms of per GdP emssons. startng wth ths
feature, there s a tendency for chna to converge wth rest of the world—that
s, ts per capta emssons have been found to ncrease over tme, reflectng the
development emssons effect, and the per GdP emssons declne, reflectng
the progress of technology and mprovements n efficency (Fgure 10.7). As s
expected, the overall performance of carbon doxde has not been as good as
that of sulphur doxde.3
     even though the ekc s not a sufficent noton for revealng the complete
determnants of the rse or fall of emssons, t s useful to justfy the exstence
of the relatonshp between levels of development and polluton, because t
shows that governments, enterprses and people are wllng and able to respond
postvely to changng envronmental requrements derved from changes n
developmental stages and therefore growth patterns. The predctable ekc
and turnng pont dsclose the governmental cognton, determnaton and
polcy measures n respect of the envronmental ssues, and the ncentve
compatblty between stakeholders—although they by no means mply that the
chronc envronmental problems can be solved xenogenetcally when the tme
comes. Actvtes conducted by governments at all levels, such as educaton
and the provson of nformaton, play a role n shortenng the tme of solvng
the problem (deacon and norman 2004).
     our emprcal results show that there s hgh heterogenety n sulphur doxde
emssons across provnces, whch s also true for the emssons pattern of
carbon doxde; therefore, the polces regardng emssons should be specfied
regonally. In chna’s case, gven the strong motvatons of the central and
western provnces to catch up wth ther eastern counterparts, one of the
challengng tasks for the central government s to desgn a well-functonng


                                        239
China’s Dilemma



Fgure 10.7 Changing trends of carbon dioxide and sulphur dioxide
            emissions, 1995 – 2006

                300,000                         CO2 per capita                   CO2 per unit GDP          1,500
                                               CO2 per capita                    CO2 per unit GDP
                                                SO2 per capita                   SO2 per unit GDP
                                               SO2 per capita                    SO2 per unit GDP
                                                                                                           1,300
                250,000

                                                                                                           1,100
 CO emissions




                                                                                                                     SO2 emissions
                200,000
CO2 2emission




                                                                                                           900




                                                                                                                   SO2 emission
                150,000                                                                                    700

                                                                                                           500
                100,000
                                                                                                           300
                 50,000
                                                                                                           100

                     0                                                                                     -100
                          1985


                                 1987


                                        1989


                                               1991


                                                      1993


                                                                 1995


                                                                        1997


                                                                               1999


                                                                                      2001


                                                                                             2003


                                                                                                    2005
Note: Per capta emssons are measured by tonnes per 10,000 people; per unt GdP emssons
are measured by tonnes per 100 mllon yuan.
Sources: Informaton on per capta carbon doxde emssons from World Bank, varous years.
World Development Indicators. World Bank, Washngton, dc; nformaton on per GdP carbon
doxde emssons calculated from data from World Bank, varous years. World Development
Indicators. World Bank, Washngton, dc, and natonal Bureau of statstcs (nBs), varous
years. China Statistical Yearbook, chna statstcs Press, Bejng; nformaton on sulphur
doxde emssons from natonal Bureau of statstcs (nBs), varous years. China Statistical
Yearbook, chna statstcs Press, Bejng.



mechansm to provde ncentves that wll translate the mplcatons drawn from
changng growth patterns nto changes n the functon and behavour of local
governments to spur regonal economc development. such polcy measures
nclude those that mprove transfers between central and local governments
and among regons, provde physcal and financal ncentves for less-developed
regons to choose sustanablty rather than explotaton of growth potental
and to mplement emssons reducton polces wth ncentve compatblty
between agents.
   The effectveness of emssons reducton polcy les n the endogenous
demands for change n growth patterns and requrements for a better
envronment. only when economc development moves to the stage at whch
economc growth becomes productvty drven can the polcy package amed


                                                             240
                                            The political economy of emissions reduction in China


at sgnficantly reducng greenhouse gas emssons be ncentve-compatble
wth the development motvatons of local governments and the behavour of
enterprses. By estmatng the ekc, ths chapter examned the need for the
chnese economy to mplement emssons reducton strateges. The results
show that t s not enough to wat for the turnng pont to come; nstead, polcy
mplementaton should be strengthened further n order to make ncentves
compatble between the central and local governments, enterprses and people
n a jont effort to reduce emssons and mprove the envronment.

Notes
1   The figures for chna’s carbon doxde emssons are dsputable. Apart from offical chnese
    denal of the figures estmated and publshed by Western scholars, there s a problem of
    emssons transfer—that s, n the past two decades, an ncreasng amount of the polluted,
    energy-consumng and emsson-producng products have been manufactured n chna, but
    consumpton has taken place manly outsde chna.
2   In hs dscusson at a workshop, Assar lndbeck (2008) rased the ssue of government
    ncentves for emssons reducton as a sacrfice of growth. hs concern was that the central
    government’s mposton of emssons duty on local governments could result n strong
    resstance from the latter and countermeasures aganst t, leadng to polcy falure.
3   Auffhammer and carson (2008) forecast a lkely scenaro of a dramatc ncrease n carbon
    doxde emssons n chna n the future. As a consequence, chna s expected to take the
    lead n global greenhouse gas emssons.


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Acknowledgements
The authors thank Wang meyan and Zhang Bnbn for ther excellent assstance
n data processng.
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