An RFF assessment of Chongqing's environmental regulatory framework identified the two national programs most effective in controlling the municipality's air and water pollution—and the flaws that mar them. Although the RFF team identified ways to improve implementation of the two programs in urban and industrial regions, China may be unable to take corrective action immediately, given current economic realities. Breaking the cycle in which environmental degradation follows on industrial development will require foreign investments and loans from multinational development banks.
China began to develop its regulatory framework for environmental management and pollution control just after the first United Nations Conference on Environment in Stockholm in 1972. Today, China's framework is comprehensive and well developed, comprising a vast set of environmental laws, programs, and standards promulgated by the state, provincial, and local governments, all underpinned by the "Environmental Protection Law of the People's Republic of China" (1989), first adopted on a trial basis in 1979.
Despite the framework's comprehensiveness, analyses of environmental programs at the local level reveal several weaknesses, which China's National Environmental Protection Agency in Beijing is beginning to address. These include gaps in program coverage and conflicts between programs, as well as the fact that no current laws control air pollution from domestic sources or water pollution from municipal sewage. A lack of systematic integration of economic development and environmental protection goals is another problem, subtle and pervasive.
Members of an RFF research team found sufficient evidence of these general weaknesses to explain why Chongqing's own environmental regulatory framework is not working as intended. Trends in ambient levels of air and water quality and the city's high levels of air and water pollution make the point as well.
Environmental Management in Chongqing
In conducting their case study, the RFF team discovered that two of the eight programs established by the state for urban and industrial pollution control were far more effective than the others in controlling air and water pollution in Chongqing. These are environmental management for construction projects—or Three Synchronizations, as it is called in China—and the pollution levy system. In addition to singling them out for deserved recognition, the team also discovered weaknesses that prevent even these programs from living up to their promise.
Chongqing's pollution levy system is inadequate to control industrial discharges
Three Synchronizations
Introduced in Chongqing in 1977, this program's purpose is to ensure that new construction projects include pollution abatement facilities to meet state emission and effluent standards. Under the program, a new industrial enterprise or one that wishes to expand or change its production process must register its plans with the local environmental protection bureau and design (first synchronization), construct (second synchronization), and begin to operate (third synchronization) pollution control facilities simultaneously with the principal part of the enterprise's production activities.
The RFF China Program
The China Program began in 1989 with a project to translate into Chinese fifteen books written by RFF researchers. Since then, RFF has been working with China's universities, research institutes, and national and local governments to balance the country's sometimes conflicting goals of rapid economic development and protection of human health and the environment (See Resources, Spring 1995, No. 119). The accompanying article highlights findings of an assessment of the environmental regulatory framework of Chongqing Municipality in Sichuan Province, based on a report that RFF recently completed for the World Bank. In conducting the assessment, RFF teamed with researchers from the Beijing Environment and Development Institute and the Chongqing Environmental Protection Bureau.
The program has had a significant impact on controlling pollution from new sources in Chongqing. According to the Chongqing Environmental Protection Bureau, 70 percent of all investments in pollution control systems and equipment made by firms in the municipality are the direct result of Three Synchronizations regulations.
Despite these encouraging results, however, Chongqing Municipality has tended recently to let economic development take precedence over environmental protection, eager as the municipality is to catch up to the per capita incomes of coastal cities in China that have experienced dramatic economic growth. Waning enforcement of Three Synchronizations regulations is reflected in the program's low fines for noncompliance. From 1990 to 1993, the amounts charged for violating the third synchronization requirements at seventy-three industrial enterprises in Chongqing averaged less than the annual salary of a typical worker.
Also problematic is the rapid rise in the number of township and village industrial enterprises (TVIEs) in Chongqing, most of which are engaged in highly polluting activities. TVIEs tend to be small, and because there are so many of them—90,000 in the rural area—it is impossible for Chongqing's environmental protection bureaus to ensure universal monitoring and inspection.
Indeed, a different approach to enforcement is needed. Monitoring and enforcement procedures to control pollution at industrial enterprises in Chongqing's urban area cannot be practically applied to control pollution from TVIEs dispersed over thousands of square kilometers of rural countryside. The compliance rate of these enterprises with Three Synchronizations regulations is no more than 22 percent, and perhaps much lower.
Pollution levy system
Second only to Three Synchronizations in catalyzing investments in industrial pollution controls in Chongqing, this system is nevertheless afflicted with problems, too. Introduced in 1980, it consists of a combination of fees levied on industrial enterprises whose pollutants exceed state emission and effluent standards and a series of fines and other charges levied on those who violate system regulations.
In effect, the system offers a carrot and wields a stick to control emissions and effluents. The carrot consists of grants and low-interest loans that industrial enterprises may receive for the construction of industrial pollution control facilities. The stick consists of fees levied for exceeding state emission and effluent standards.
Thus far, the combination of carrot and stick has not been sufficient to induce a high level of compliance with the standards. As under Three Synchronizations, the penalties for noncompliance levied by the system are too low. Set by the central government, the amounts of such fees are far below the marginal costs of operating and maintaining waste treatment facilities and cannot be raised or lowered by local governments.
Soft budget constraints have also had their impact. State-owned industrial enterprises in poor economic health are often allowed to pass pollution levy fees on to the state as deficits to be covered by government subsidies or to escape from payment altogether.
The pollution levy system's carrot has encouraged initiative on the part of industrial enterprises in Chongqing that are not in compliance with emission and effluent standards to the extent that, in order to qualify for a grant or loan from the pollution levy fund, they themselves must finance at least 50 percent of the cost of controlling the pollutants they emit.
The success of the system has its limits, however. The grants and loans available through the fund do not necessarily go to those projects that promise the most cost-effective regional pollution control. This is because the grants and loans are earmarked for industrial enterprises that have paid pollution levy fees, and because the amount of a grant or loan to a particular enterprise cannot exceed 80 percent of the total fees the company has paid. Moreover, the pollution levy system funds cannot be used for investments in sewerage systems to collect and treat industrial wastewater, even though such systems are often more cost-effective than "end-of-pipe" treatment.
Intended to give industrial enterprises an economic incentive to comply with emission and effluent standards, China's pollution levy system was designed for a second purpose as well—to raise revenues for the use of the environmental protection bureaus. In Chongqing, this includes the city's own environmental protection bureau as well as some twenty-one other bureaus operating at the municipality's district and county levels.
Chongqing Profile
Chongqing is a severely polluted city of 15 million people located in China's most populous province—Sichuan Province in Southwest China. The central government moved dirty heavy industries there in the 1960s to prepare for an anticipated Soviet invasion.
As China's fifth largest city in terms of industrial output, Chongqing has heavy industry that accounts for 60 percent of the value added in the industrial sector; high-sulfur coal is the principal source of energy. The municipality has approximately 8,000 industrial enterprises in the urban area of which about 1,000 are state-owned and 7,000 are owned collectively
Based on 1988 data, Chongqing ranked first among twenty-three large cities in China for levels of sulfur dioxide and eighth for levels of total suspended particulate matter. Acid rain, with a pH ranging between 3.5 and 4.5, also is a serious problem. For the past ten to fifteen years, the municipality's growth in real terms has averaged just under 10 percent annually in terms of income per capita, however, Chongqing lags far behind other major Chinese cities, with less than 30 percent the per capita income of Shanghai and less than 40 percent that of Beijing.
As required by State Council regulations, Chongqing must set aside 80 percent of the pollution levy fees collected to pay for industrial pollution control systems and equipment. The local environmental protection bureaus may use the remaining 20 percent and all of the fines and charges for regulatory violations to cover the costs of their equipment, supplies, staff training, and public education programs.
Increasingly, however, local environmental protection bureaus have come to rely on these fees to cover far more—up to 90 percent in some cases—of their operating budgets. This distortion of the system reflects the inadequate means of public finance for environmental regulatory agencies in Chongqing, which goes far beyond the environmental regulatory framework per se. Responsibility for raising income for operating budgets has placed fundraising objectives far higher on the priority list of the environmental protection bureaus than their main regulatory responsibility, which is to enforce environmental laws, regulations, and standards.
As it stands, the need to raise revenues for operating budgets has virtually institutionalized the pollution levy system in China—not because the system is efficient or even effective in controlling emissions and effluents, but because it is a principal source of financial support for local environmental protection bureaus.
Study Findings
As the findings of the study suggest, Chongqing might explore ways to make its environmental protection bureaus less dependent on pollution levy fees as their principal source of financial support. The municipal government could provide additional public finance, or the environmental protection bureaus could charge a service fee for monitoring industrial emissions and effluents. Currently, the bureaus perform this service at no charge. Because there will be a shortage of capital for pollution control in Chongqing for several years to come, the Chongqing Environmental Protection Bureau, together with the Chongqing Planning Commission, should address the most critical environmental problems first.
Delegating more power to local governments also would help Chongqing integrate decisions on environment and development. For example, the central government might consider giving local governments the authority to increase pollution levy fees, as well as the authority to decide the most effective way to use the pollution levy fund, given local conditions.
In addition, the Chongqing Environmental Protection Bureau might consider indirect regulatory approaches for controlling emissions and effluents at township and village industrial enterprises, such as taxes on the sulfur and ash contents of fuels, as substitutes for pollution levy fees on emissions of sulfur dioxide and particulate matter. Finally, the Chongqing Municipal Government could increase the size of the staffs of the county environmental protection bureaus to better enforce Three Synchronizations regulations and emission and effluent standards with regard to TVIEs.
Rusting waste containers in Chongqing, one of the most heavily polluted areas in the world.
The Future
Given current economic and institutional realities, China may be unable to act on all of the findings of the study in the near term. However, as the economy of the region grows, the capital necessary to address some of Chongqing's knottier problems will accumulate and improvements in environmental programs could be implemented in pace with economic and other institutional reforms.
As is the case throughout China, economic development is a precondition for long-term environmental protection in Chongqing. Without the creation of wealth, it will be impossible to restructure and modernize the industrial sector, develop cleaner sources of energy build needed urban and environmental infrastructure, and clean up existing contaminated sites within the city.
At least in the short run, then, meaningful environmental progress will require a willingness on the part of the international community to support and encourage China's investments in clean technologies and environmental infrastructure before the proceeds of economic development arrive. Such a response could make a decided difference, however. For despite the dire nature of some of China's environmental problems, they are not that much worse overall than what the United States, Europe, and Japan experienced only a few years ago.
Walter O. Spofford Jr., leader of the RFF study team, is a senior fellow in RFF's Quality of the Environment Division and director of its Environment and Development Program. Other members of the RFF research team included staff members of the Beijing Environment and Development Institute, and Kathlin Smith, who is associate director of the Committee on Scholarly Communication with China.
In addition to Spofford and Smith, co-authors of the final report included BEDI staff members Ma Xiaoying, currently a doctoral candidate in engineering at Stanford University, and Zou Ji, currently a visiting research associate at the London School of Economics and Political Science.
A version of this article appeared in print in the May 1996 issue of Resources magazine.
A version of this article appeared in print in the May 1996 issue of Resources magazine.
