Economic Instruments - OtherEnvironmental Fees and Funds (China)
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Environmental Fees and Funds, China
Background In 1979, a law was passed that stated, "in cases where the discharge of pollutants exceeds the limit set by the state, a compensation fee shall be charged according to the quantities and concentration of the pollutants released" (Article 18 of China's Environmental Protection Law). China is one of the most populated and polluted countries. Atmospheric pollution in Beijing is so bad that removing 100 tonnes of SO2 per year would reduce mortality by one statistical life (Xu et al., 1994).
Design Scope The pollution charges are levied on air emissions, wastewater discharges, noise, solid waste, and radioactive waste (NEPA, 1996 and Potier, 1995).
Coverage The system was introduced in three phases; with the initial implementation in 1979 a few municipalities enforced the law. Suzhou city was the first centre to introduce the regulation and it was gradually extended to 27 provinces, autonomous regions, and cities directly under the central government. In 1982 the state called for national implementation. Since 1988, the start of the third phase, the emphasis has been on reforming the system for allocation and use of charge revenues. The charge encompasses a fourfold system of penalties for serious violations of standards. Fees are paid only for discharges that exceed a certain level, so they are more like non-compliance fines than fees or taxes. ‘The charge is levied as a non-compliance fee, but only on the "worst case" pollutant from a given source; it is based on both excess pollutant concentration (above standard) and total volume of wastewater discharge. As worst cases are successively cleaned up by a given source, the levy shifts across pollutants' (O' Connor, 1998, pp. 97). In principle, charge rates are set at a level slightly higher than average operational costs (including a depreciation factor) of pollution control facilities, to encourage broad compliance with standards. The real value of the charge rates has decreased over time, as they are not linked to inflation, therefore the efficiency of the charges in reducing pollution has fallen. Attempts to increase the rates been met with strong opposition from industry (O'Connor, 1998). Enforcement of the pollution charges are carried out by local officials and a discretionary policy seems to prevail in terms of the intensity of enforcement (the actual revenue collected as a share of potential revenue). In 1998, the Chinese government circulated ‘Regulations on Environmental Management of Construction Projects' that discussed the idea of environmental impact assessment, and required construction projects to design, construct and put into use relevant environmental protection facilities along with the progress of the project itself ("three simultaneousnesses" for short). The Environmental impact assessment (EIA) is a legal measure to curb environmental pollution and ecological destruction at the source. A law on Environmental Impact Assessment, which came into effect in 2003, extends the EIA practice from construction projects to all development construction plans. The State has also adopted the EIA engineer professional qualification certification system to foster a contingent of professional technicians in this field (SEPA, 2006). On the SEPA website a description of how the EIA system works is outlined (see references): EIA is practiced in 1.46 million construction projects nationwide, and 630,000 new projects have met the requirements of designing, constructing and putting into use relevant environmental protection facilities, with the implementation ratio being 99.3 percent and 96.4 percent, respectively, 95.7 percent of the latter has reached the set standards. Since 1996, a total of 26,998 billion yuan (€2605 billion) has gone into construction projects across the country, of which the input for environmental protection amounts to 1,230.6 billion yuan (€118.8 billion), and the amount keeps rising year by year. Thanks to the implementation of the EIA system, industrial projects are reporting "increase in output instead of pollution" or "increase in output with decrease in pollution," and some ecological projects involving major environmentally sensitive issues have avoided potential ecological damage by making changes to the site, route or plan. In 2005, 30 illegal construction projects involving a total of 117.94 billion yuan (€11.39 billion) of investment were halted. In February 2006, ten construction projects, with a total of 29 billion yuan (€2.8 billion) of investment, were investigated and dealt with for not simultaneously designing, constructing and putting into use relevant environmental protection facilities. The state environmental protection authorities have listed Inner Mongolia, Xinjiang, Guangxi, Dalian and Wuhan, the railway and petrochemical industries, the planning of the Ningxia Ningdong Coal Chemical Industry Base and that of the Shanghai urban rail transportation network as the first pilots of EIA practice in the field of construction planning. The authorities have also completed the EIA work regarding the Special Plan on the Integrated Construction of the National Forestry and Paper-making Industry, conducted EIA work regarding the development and utilization planning of the Tarim River valley, the middle and lower reaches of the Lancang River, the Dadu River in Sichuan, the upper reaches of the Yalong River, and the Yuanshui River valley. When applying EIA to the Nujiang River valley hydropower development plan, comparisons were made regarding the environmental impact to be caused by the layout, scale, ways and sequence of time at different steps of the development plans, and measures were suggested to prevent and reduce the possible impact. The EIA of the stepped hydropower development plan of the Dadu River valley had taken into full consideration the coordination between environment and development, and made comprehensive arrangements for protection of the environment in the valley where resource exploitation would be carried out, by which arrangements a total of backwater distance of 39 km, 1,867 ha of arable land and two county seats were saved from being submerged, and consequently 85,000 people no longer had to be relocated. The State encourages orderly exploitation of hydropower resources, and has reset the energy development strategy and the electricity development principle from "actively developing" to "orderly developing" hydropower based on ecological protection (SEPA, 2006).
Rates Sulphur dioxide discharge fee collection has been expanded to include all related enterprises, public institutions and private businesses, and the rate of such fees per kg has been raised from 0.2 to 0.63 yuan (€0.02 to €0.06) in 2006.
Allocation of Revenues The fees are used first to finance funds that are used by industry for to subsidize pollution control measures (70-80% of the fees) and then for central administrative costs. The remainder are returned to the industry to be used only for environmentally beneficial uses. In 1995 3.7 billion yuan (€0.36 billion) was generated from the general pollution levy fee. Of this, about 80% was earmarked for pollution abatement projects in the form of soft loans available to individual enterprises, and the rest are used for funding of local Environmental Protection Bureau (EPB) for research, monitoring and administrative costs - e.g. the purchase of monitoring equipment and analytical instruments, the hiring and training of additional staff. As the fee rate is low the contribution to total environmental investment amounted to 6.1% of total environmental investment in 1986 and 8.25% in 1990 (Lu, at al, 1996). Within the steel industry, charge revenues have been a major source of financing for pollution control investments: from 1982 to 1986, they accounted for almost 30% of pollution control expenditures in the steel industry; during that period the industries rate of compliance with discharge standards rose from one-third to 60% (O'Connor, 1998).
Performance Most of the country's several hundred thousand factories are monitored and potentially subject to the pollution charge. In 1994, more than 19 billion yuan (€1.8billion) was collected from environmental levies (NEPA 1994). In 1995 3.7 billion yuan (€0.36 billion) was generated from the general pollution levy fee (Wang, 1998). The fees are relatively low and less than the marginal cost of abatement so their effectiveness has been questioned. However, studies on the rate of output and water pollution for 29 Chinese provinces and regions between 1987 and 1993 claim positive benefits from the fee (Wang and Wheeler, 1996). Investment in pollution control has been on the increase; between 1996 and 2004 it reached 952.27 billion yuan, equal to one percent of that period's GDP. In 2006, expenditure on environmental protection has been formally itemized in the State's financial budget. This increase in expenditure on pollution control has been partially financed by improved policies concerning environment-related fee collection. This was strengthened by a strict separating of fee collection from the channelling the fees exclusively into the prevention and control of environmental pollution roles. The treatment of urban sewage, garbage and hazardous wastes is also charged, which has helped promote the public awareness of pollution control. ‘A concession operation system has been established and implemented for the operation of urban sewage and garbage treatment. In some places, the operation of sewage treatment plants and garbage treatment establishments set up by the government has been transferred to enterprises through public bidding/tendering and contracting. In this way, the government has strengthened its role of supervision while the economic returns of the investment in environmental protection have also been augmented' (SEPA, 2006). Other environmental tax policies in China include one that favours auto industry upgrading and auto pollution alleviation. If the low-pollution emission standards are met ahead of schedule, the consumption tax will be reduced by 30 percent for auto producers (SEPA, 2006). ‘Tax reduction or exemption are extended to enterprises engaged in reclaiming renewable resources, making comprehensive use of resources and producing equipment for environmental protection, as well as enterprises using waste water, gas and residues as the main materials of production. The policy of collecting tax on the occupation of cultivated land is observed strictly, so as to promote the rational use of land resources, strengthen land management and protect arable land. The standards of tax collected on the production of coal, crude oil, and natural gas will be raised in steps in the future in order to protect mineral resources and promote the rational development and utilization of resources' (SEPA, 2006).
Drawbacks The rate is the same across the country, but abatement costs and damage vary greatly and the pollutants are not perfectly mixed. Enforcement seems to depend on population and population densities, incomes etc. but this seems to be changing and improving with time (SEPA, 2006).
References NEPA, 1994, (Beijing National Environmental Protection Agency), Pollution Charges in China, Beijing, China. NEPA, 1996, (Beijing National Environmental Protection Agency), Pollution Charges in China: Origin, Implementation, Development, Beijing, China. O' Connor, D, 1998, Applying Economic Instruments in Developing Countries: from theory to implementation, Environment and Development Economics, 4 (1998), 91-110. Potier, M., 1995, China charges for Pollution, The OECD Observer, No. 192, February-March, 18-22. SEPA, 2006, (State Environmental Protection Administration), Environmental Protection in China (1996-2005), Information Office of the State Council of the People's Republic of China, June 2006, Bejing. Available at http://www.zhb.gov.cn/english/chanel-1/detail-1.php3?chanel=1&column=a&id=12841 Sterner, T., 2003, Policy Instruments for Environmental and Natural Resource Management. RFF, Washington. Wang, H., and D. Wheeler. 1996. Pricing Industrial Pollution in China. Policy Research Working Paper 1644. Washington DC: World Bank. Xu, K., R.J. Windle, C.M. Grimm, and T.M. Corsi. 1994. Re-evaluating Returns to Scale in Transportation. Journal of Transport Economics and Policy 28(3): 275-286. |
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