China’s new environment tactic: rewards for energy conservation, emissions

The Chinese government has come up with yet another approach at reducing pollution and encouraging energy efficiency, a $933 million reward system. The rewards are part of a new $3 billion Finance Ministry package addressing environmental problems.

The new system, however, carries a few innovations. One of which is that the revenue system is now being tied in to the environmental situation. China’s revenue is doing quite nicely, thank you, and attached to it are a lot of laws and obligations that will be very hard for officials to avoid. This is actually a pretty sneaky tactic, and deserves attention from anyone suffering from a shiftless administration. There are now mandatory targets. As any bureaucrat could tell you, those are potential bullets for any real failures. The Death Of A Thousand Cuts has also made an appearance, and it’s worse then downsizing: it’s a direct threat to budgets. According to Xinhua: “"Instead of giving stipends in advance, we have chosen to subsidize only enterprises and governments that have made effective expenditures in energy conservation and reward those that have done good jobs in this regard," said Zhang (vice minister of finance).” Translation: “Screw up, and you’re history.” The kindly phrased “no stipends in advance” comment is a performance indicator with no comebacks. This situation has arisen largely because some local officials simply didn’t do anything about China’s previous attempt to get some action out of them on the truly hideous environmental situation. They didn’t want to spend the money, they simply ignored the whole concept. The Chinese solution would have received praise from China’s emperors, who had exactly the same problem with provincial governors. Much like a good gardener with a new rose graft, the revenue rootstock is now only available to those flowers who do some blooming. There just aren’t any ways around that, and this approach has some real teeth to it. “He (Zhang) said the shift in strategy would help spur the enthusiasm for energy conservation at grass-roots level.” We can assume Mr Zhang has a sense of humor, anyway. With this delicate reference to reality come some actual measures, audits, and the rest of the paraphernalia of enforcement related to revenue. Previously the idea of conservation was more policy than regulation, but this move changes that position from an idea to an order. The government has written itself some actual leverage over its wayward administrators. The rest of the package tells a story. To give some indication of the scale of the pollution problems, China is spending almost as much to provide sewers to China’s western and central cities. A third of China’s 660 cities don’t have sewage plants. Five billion yuan, about $450 million, is to be used to finance treatment of severely polluted rivers and lakes. China is setting targets, aiming to cut energy consumption by 20% and emissions by 10% for the period 2006-2010. Xinhua reports that most provinces have missed those targets up to the first half of 2007. One very telling statistic probably defines the state of China better than most: “China, the world's fourth largest economy, is consuming its natural resources at a rate faster than its economic growth. To produce 5.5 percent of the world's GDP last year, China burned 15 percent of the world's coal consumption, and used 30 percent of the world's steel and 54 percent of the cement.” There’s a few things you can tell from this: 1. China hasn’t really hit its stride yet, in terms of per capita GDP, or anything like it. If China was producing on the same per capita GDP as Germany, they’d be producing 40 times as much, in US dollar terms. (German per capita GDP was $31,900 in 2006, Chinese $800) That means they’d have produced 220% of current global GDP, on raw unadjusted figures. That’s not intended to be an abuse of stats, China and Germany aren’t interchangeable yet, but you see what I mean. There’s room for development. 2. That situation is probably because of inefficient methods, rather than lack of effort or investment. Old technology, particularly energy technology, has a natural cost drag. 3. Inefficiency costs money, and China has shown itself very sensitive to costs, particularly in production. Therefore they will do a lot to improve. 4. That ratio of consumption to production isn’t sustainable, economic, or desirable. 5. The high consumption of steel and cement is necessary, just to create the infrastructure. The machine is still being built. It’s the scale of construction which is making things look big, but when the construction phase is over, they’ll look trivial. 6. China has identified its weak spots and is moving heaven and Earth, (and more impressively, the Chinese bureaucracy and local officials), to do something about it. Nobody’s ever seen over a billion people invent a whole new country in a generation before. If it was a movie, the critics would say it was unbelievable. But I think I’ll keep watching.