From Red to Green?

China, the largest contributor of global greenhouse gases, is finally ready to talk about the environment. Just two days before the G8 Summit on global warming, the National Resource and Development Commission (NRDC) of the Chinese government issued the nation’s first plan on climate change. While the plan makes no promises for any significant reduction of emissions (the primary cause of global warming), it does call for more efficient resource management, greater public awareness of environmental protection, and more comprehensive R&D with respect to clean and renewable energy technologies. Great. It appears that China is finally on the path from red to green.

Or maybe not. While I commend the Chinese government for standing behind a national climate policy, I have my doubts as to the commitment and feasibility surrounding the initiative. Here’s why:

For the past two decades, the Chinese government has set the nation on a straight path towards economic prosperity. Much of this development has, and continues to be, driven by the expansion of heavy industry. Sectors such as petrochemicals, steel, construction materials, power generation, and coal mining have long been China’s national champions, receiving government support and protection. Unfortunately, these same industries also hold the national title for utilizing the most wasteful technology in their manufacturing processes in terms of energy and resources. Given the loose enforcement of environmental protection laws by local government agencies, these industries have remained reluctant to invest in cleaner technology. Moreover, that they are protected in China from foreign competition reduces the potential for clean technology spillover. Lacking diversity of firm ownership type and nationality, these sectors are effectively isolated from the phenomenon of technology and knowledge transfer that has facilitated the greening of their unprotected counterparts. Thus, domestic Chinese firms in heavy industries have neither the resources necessary to clean-up their operations, nor the fear of penalty if they don’t. Why, then, should we expect them to adopt modern technology that favors environmental concerns over economic development?

The same question can be asked of the Chinese government. Given the tension between environmental protection and economic growth, why should we expect to see official support for and active policies that favor the former? Thus far, nothing – not pressures for currency appreciation, nor labor standards, nor human rights, and certainly not environmental issues – has deterred the government from the path to prosperity. Economic development has become the new party line and the most effective bolster for political legitimacy. Such priorities are confirmed by Zou Ji, a policy expert at Renmin University who advised on the climate plan. According to Zou Ji, “The position that development shouldn’t be sacrificed to climate change measures or emissions quotas is a basic national policy, and it’s not going to change. But that doesn’t mean that there’s not room for cooperation or negotiation. It does mean that cooperation has to be on the basis that economic development has to continue.” So it appears as though China has two conflicting national policies: one that supports climate change, and one that continues to prioritize economic development. As long as there exists a tension between these two agendas, the Chinese government will oscillate in its commitment to environmental issues. Recent environmental policy formation might convince some optimists of China’s eminent greening; however, it is policy implementation that will reveal the true colors of the Chinese government.

Policy implementation will perhaps be the fundamental obstacle to environmental protection in China. The problem stems from insufficient coordination between national and local governments and inadequate enforcement of environmental regulations. Like so much of Chinese legislation, environmental policy is formulated at the national level, yet administered by local government agencies. This decentralization of authority creates a buffer between various levels of bureaucracy, thereby obscuring responsibility and weakening the force of national environmental policy. With such poor administrative coordination, local governments engage more actively in pointing-fingers at other parties than in environmental protection initiatives. Moreover, with pressure from the top to reach certain financial goals, local governments have a disincentive to implement environmental regulations that might threaten their economic interests. Finally, institutional constraints such as lack of technical training, insufficient financial and human resources, and low pollution discharge fines will further impede the successful implementation of environmental policy. In sum, commitment to environmental protection at the national level is only a small part of the drive for a greener China. The real struggle is one of coordination, enforcement, and conflict of interest at the local level.

So now what? Should we give up all hope for blue skies and green business? Not necessarily. The focus, thus far, has been on large-scale, top-down government initiatives for environmental protection. As demonstrated above, such efforts are likely to be compromised, too slow, or entirely ineffective. In my opinion, the real potential for environmental change lies in the private sector. In China, the tendency is to view the private sector not as an agent for change, but as a group affected by it. In other words, we often talk of how business will respond to new government environmental regulations, but never of how the government might respond to green business initiatives. We forget how much influence the private sector has had on national and local policy-making as a result of its economic clout. The private sector also inherently possesses the organization, coordination, and motivation necessary to promote environmental change. What needs to happen in China is an environmental campaign driven by private business.

Corporate social responsibility aside, corporations have an incentive to adopt cleaner technology and standards in China. Whether or not supported by legislation, greener businesses will receive more favorable treatment by the government as long as environmental policy continues to be an issue of national concern. While Chinese officials might not be 100% committed to environmental protection, they do realize the urgency of the issue. And while they may not actively implement or enforce environmental regulations, they would be foolish not to support the passive greening of their local economies through the entry of cleaner businesses. Several large corporations have already begun to upgrade their technologies in recognition of such opportunities. China Power International, a state-run company, recently invested 30 billion yuan (US$3.1-3.9 billion) in renewables. This constitutes the largest single such investment by any company in China (Shell invested an estimated $1.25 billion from 1996 to 2006, and BP, $900 million since 1999). Why is China Power International so committed to renewables? Chief Executive Li Xiaolin says that, [he] ‘Anticipates benefiting from the government’s increasing affinity for clean energy, be it in the form of smarter regulation or financial incentives.” If Li Xiaolin is right, green business might become the newest bargaining chip for firms operating in China, especially given the phasing-out of FDI promotion incentives for foreign firms.

At present, the Chinese government lacks both the incentive and capacity to implement an effective environmental policy. Such will not change as long as there exists a tension between environmental protection and economic growth. The private sector has the unique ability to transform this tension into a delicate balance that results in mutual benefit for all parties and for the environment.

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