Common Tragedies

Thoughts on Environmental Economics

The political economy of Chinese pollution

Posted by Daniel Hall on November 24, 2007

Today’s New York Times has the latest entry in their excellent series on pollution in China. It focuses on the difficulties China confronts as it tries to improve the energy efficiency of its economy, with a goal of cutting energy use per unit of output by 20% by 2010. One root cause of their failure that the article highlights is a lack of control over local government officials, combined with mixed signals regarding what constitutes successful economic governance:

Officials in Beijing, faced with the likelihood that they will fall short of their target, have issued uncharacteristically scathing assessments of the performance of some local leaders, and they have vowed to use more of their powers to bring wayward officials into line. …

The struggle to meet the target highlights the challenge of making China greener at a time when China’s top leaders have continued to emphasize breakneck growth, even as they worry about its costs. Officials at all levels arguably still face greater risks to their careers if they allow economic performance, job creation or tax revenue to lag than if they fail to curb pollution. Slower growth also means fewer opportunities for friends and relatives of people in power to cash in on the country’s boom.

We’ve highlighted this dynamic — the relative autonomy of local leaders in China — previously in regards to “illegal” electric plants.

Indeed, the article notes that many regions, rather than raising electricity prices to encourage conservation and efficiency, are actually subsidizing rates for energy-intensive industries such as metals production:

Even after the national government canceled exemptions to special consumption fees that used to be available to companies like Qingtongxia in 2004, the local government extended them for another year, obtaining huge savings for its metal industries. As recently as 2005, regional officials continued to argue that the exemptions should remain.

Local officials have long permitted big companies like Qingtongxia to undercut even officially established energy prices. The lowest officially permitted electricity price in Ningxia, usually reserved for the most efficient of big industrial energy users, is 5.3 cents per kilowatt hour. But until this past May, Qingtongxia had managed to win itself a rate of 4.8 cents per kilowatt hour.

This brings the frustrations of energy-intensive industries in the EU and the U.S. into sharper focus, as these regions either implement or consider emissions pricing. It will be difficult enough for these industries to remain in business if they must pay for their emissions while Chinese companies do not; it is that much worse when China is actively subsidizing energy costs to enable even faster economic growth.

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