The state of China's environment

by Richard Welford rwelford@hku.hk
Links: http://www.csr-asia.com/upload/csrasiaweeklyvol3week6.pdf

Last week a BBC article reported that China is failing to make progress on improving and protecting the environment, citing a new Chinese government report that ranked China 100th out of 118 countries surveyed.

But with a fifth of the world's population, China actually only consumes 4 percent of the world's daily oil output. The real problem is the unrelenting economic growth that continues to fuel a voracious appetite for energy. The new report will make worrying reading for China's leaders who have made repeated promises to clean up the country's heavily polluted environment. The country is now paying the price for consistently putting economic development ahead of the environment.

The World Bank estimates that China will grow at 6 percent per year over the next 15 years, twice the rate expected for the world economy as a whole. That figure may be conservative and thus the future for the global economy will depend in no small part on the future of China.

That is why we should all be interested in some of the trends and issues outlined in this article.

Since 1978, China’s economic growth has averaged around 10 percent per year. China now has the fourth largest economy in the world.

Living standards have improved dramatically with life expectancy increasing from 35 in 1949 to 73 in 2005. However, this rapid growth rate, coupled with a huge trend of urbanisation, has generated significant pressures on the environment, natural resources and human health.

Different surveys point to the losses from pollution and ecological damage ranging from 7 percent to 20 percent of GDP per year for the last two decades. Sixteen of the world’s 20 most polluted cities are to be found in China. The impact on human health has been particularly severe. About 300,000 deaths a year have been attributed to air quality problems alone.

At least a third of all water resources are severely polluted, energy use is highly inefficient, desertification continues and biodiversity loss is alarming. China is building a new coal-fired power station every 12 days. In 2006 alone, it added 70,000 megawatts of new power generation.

The pollution, energy, water and material intensities of the Chinese economy remain high.

There is a need for efficiency programmes and the introduction of new technologies in all these areas. China generates significantly more pollution and consumes more resources per unit of GDP than OECD averages.

China’s economic miracle could soon be halted because of pressure on the environment and resources. Acid rain affects a third of the country. Half the water in the seven largest rivers in China is useless. A quarter of the population does not have access to clean drinking water. Less than 20 percent of all waste is treated.

The government is very much aware of these environmental problems and has launched some impressive environmental targets for the next five years. It wants to see a 10 percent reduction in total pollutants, a 20 percent reduction in energy consumption per unit of GDP, a 30 percent reduction in water usage by industry and significant action taken against companies that continue to pollute illegally. However, such tough targets have already led to dubious statistics being recorded by local governments eager to make themselves look compliant, according to the State Environmental Protection Administration.

It must also be recognised that pollution from China has severe transnational boundary impacts. Air pollution affects neighbouring countries and regions, the damming of rivers has impacted water resources downstream in other countries, regional sea pollution is impacting marine diversity and greenhouse gas emissions have a global impact.

China has been striving to diversify its energy sources and increase energy efficiency. This is not primarily because it wants to comply with global climate change strategies or even to reduce its own energy related environmental impacts, but the changes are likely to achieve the same desired results. The main reason for the energy strategy is mainly aimed at securing enough energy to sustain its growing economy and the consumption demands of the rapidly urbanising population.

China’s huge dependency on coal has to be the starting point for any analysis. Around three quarters of China’s electricity is generated using coal-fired power plants. The biggest question relates to how much higher coal usage will become and the extent to which other energy sources are introduced to satisfy future energy demands.

China’s latest five year plan targets improving energy efficiency. This is an area where success ought to be easy to achieve. For every dollar of output it produces, China currently uses three times the energy of the world average and a staggering ten times the Japanese level.

The National Development and Reform Commission wants to see a 20 percent increase in coal-based energy efficiency, saving 240 million tonnes.

But a move away from coal is vital if energy demand is to be met in a way that does not cause exponential increases in greenhouse gases and sulphur dioxide. Total capacity is set to double by 2020 and China is aware that it will need all the energy sources it can muster. In the long run the Chinese are committed to hydrogen fuel cells and nuclear fusion. But in the medium- term attention has focused on hydropower, nuclear energy and fuel-efficiency techniques such as coal gasification.

China’s construction of the Three Gorges Dam has been highly controversial for the environmental, social and human rights impacts of its construction. Yet China plans more large hydroplants that will change the flow of rivers downstream and impact on industries and the lives of people dependent on the water flows. In the case of the Mekong, dams have badly affected the other countries sharing the water and impacted on the lives of people, the viability of some agricultural activities and biodiversity.

Nevertheless, the Chinese government points out that hydro plants can bring huge benefits in the form of low-carbon energy, regional development and better water management. Over the next fifteen years overall hydro capacity is set to increase from 110GW to 250GW, contributing around 25 percent of total Chinese electricity capacity.

China’s plans for nuclear energy are also highly controversial. The process of building a nuclear energy industry has already started and mainland China already has nine nuclear power reactors in operation. Additional reactors are planned to give an eight-fold increase in nuclear capacity by 2020. China aims to become self-sufficient in reactor design and construction, as well as other aspects of the fuel cycle. However, China will have to rely heavily on imported uranium to fuel its nuclear power programme. China's known uranium resources are theoretically sufficient to fill the requirements for the mainland nuclear programme in the short-term but not longer-term. Currently, production at several mines in Xinjiang region supplies about half of current needs. The balance is imported from Kazakhstan, Russia, and Namibia.

Nuclear power has an important role, especially in the coastal areas remote from the coalfields and where the economy is developing rapidly. It is the coastal areas with comparatively developed economies that most lack energy resources. They are reliant on the long-distance transport of coal from the north-west and north China, which, however, lays heavier burdens on the busy railway transport. In this context, nuclear power is targeted for the southern and eastern coastal areas.

The goal is to derive at least 5 percent of the country's energy from nuclear power in the next 15 years. Although that's far behind today's world average of 16 percent, it will amount to the biggest nuclear-construction project the world has seen in decades. The current plan of the Chinese  government is to increase nuclear generating capacity to between 40 and 50 plants by 2020, requiring 2 or 3 plants per year being added.

Of course, the best options (and opportunities) for China’s environment (and indeed in the interests of the whole world) are in the area of renewables. China still has around 70 million households without any electricity at all which open up huge possibilities for small-scale solar technologies. But larger scale solar energy remains relatively expensive and best used in a more direct way for heating water.

Wind power offers huge opportunities for a country with the varied topology of China. China could easily produce 10GW of electricity from the wind by 2020 and total land-based capacity could match planned hydro-power at 250GW. But off-shore, the possibilities are even greater with enough potential capacity to meet all China’s energy needs in the future. More generally, the Chinese government is keen to see a significant increase in “green energy” and has set minimum quotas for power companies. Any company with an installed capacity of over 5GW will have to ensure that 5 percent of their output is powered by renewables (specifically not including large hydropower projects). This percentage will increase to 10 percent by 2020.

Air quality in Chinese cities is amongst the worst in the world. However, there have been improvements in some areas recently. Reductions in the amount of soot and dust in the air have improved air quality. Sulphur dioxide concentrations in urban air (largely as a result of burning coal in inefficient ways) fell throughout the 1990s but have recently began to increase again and acid rain badly affects around 10 percent of all cities.

Air pollution regulations and permit regulations are poorly enforced. Transport is an increasingly significant part of the problem with motor vehicle traffic now responsible for the largest source of urban air pollution in many cities. In Beijing alone 1,000 cars a day are added to the already congested streets.

China’s overall carbon dioxide emissions now account for around one-seventh of the global total. Per head of population this is well below the global average but because of the sheer size of the population, it makes China the second biggest source of carbon dioxide after the US. It is China’s massive energy consumption that is largely responsible for greenhouse gas emissions and this is set to surge over the coming two decades.

As a developing country China is not bound to limit its emissions under the Kyoto protocol and the country has in the past officially stated that it would not consider any limitations until it reaches a medium level of development (currently considered to be around a US$5,000 per capita income). Even at current levels of growth that is a target unlikely to be met for another forty years.

China has a comprehensive legal framework for water resource and pollution management with clear mechanisms to set water quality objectives. Yet, this has been poorly implemented to date.

However, a range of new initiatives have recently seen some major reforms in the water sector. Water supply and waste water treatment utilities have undergone considerable reform. Basic institutions for river basin management are in place and user charges for water services, pollution charges for industrial users and abstraction charges have all been introduced.

Having experienced severe consequences from flooding over the last decade, China has invested heavily in infrastructure and associated technology to mitigate flood damage and have informed communities about the risks they face. Laws are being implemented to prevent further development on flood plains and some land has been returned to use as flood storage functions.

Despite these reforms, China’s water situation is approaching crisis. Many rivers, lakes and coastal areas are severely polluted. This has seriously degraded aquatic eco-systems creating a threat to human health as well as to other animals. Water shortages and lack of clean water is now also constraining economic growth in some areas. Among China’s 600 largest cities, around 400 are suffering from water shortages. Inefficient agricultural practices, alone, consume 70 percent of China’s water. Surface water has become polluted and scarce. Demand for groundwater far exceeds the replenishment rate. However, consumption and use of water resources is highly inefficient and there are huge opportunities for improvement in this respect.

In 2003 China enacted a cleaner production law that has already shown some success in decoupling industrial waste from economic growth. Measures to recover and recycle waste are also well advanced and we are seeing safer disposal to landfills. The recent opening up of the waste management industry has led to a new influx of foreign waste management technology which has certainly reduced both levels and the safety of municipal waste processing.

Nevertheless, the amounts of municipal waste, industrial waste and hazardous waste far exceed what can safely be treated and disposed of. Responsibility for waste management is fragmented across too many agencies and enforcement is inadequate. Dumping of waste in an uncontrolled fashion is still a problem and this is further damaging the environment and human health.

China has a comprehensive legal framework covering nature and biodiversity, including wildlife and marine protection. Recently, protected areas have increased significantly and China has received international recognition for its natural and cultural heritage programmes, particularly for the preservation of wetlands. New forestry initiatives have seen reforestation of large areas of land. Farm forestry has been promoted in many areas sensitive to soil erosion. There have been a number of programmes launched for the protection of endangered wildlife and nature conservation.

However, species loss continues. Illegal poaching of endangered species continues. There is insufficient monitoring of nature reserves and the protection status of species at risk. Biodiversity is often poorly considered when it comes to economic development plans.

China stands to benefit from the booming global greenhouse-gas market. Foreign investors are flocking to pay Chinese energy companies and factories to reduce pollution instead of spending far more to cut emissions at home. Initially skeptical of the carbon-trading market, worrying that it would allow richer nations to pay their way out of obligations to reduce emissions under the 1997 Kyoto Protocol on climate change, China has come to embrace the system as an opportunity to attract foreign investment in promoting energy efficiency and renewable-energy projects.

China currently accounts for 60 percent of carbon credits trading under the Cleaner Development Mechanism (CDM). The CDM allows polluters in one country to earn credits by reducing greenhouse-gas emissions in another. In effect, developed countries get opportunities to emit greenhouses gases at a relatively low economic cost and achieve their emission-reduction targets, while developing countries, such as China, obtain benefits such as funding and technology transfer, which will boost their efforts to pursue sustainable development.

Beijing has approved almost 150 projects so far under the CDM, including wind farms and hydropower generation, as well as chemical-pollutants reduction projects. These are expected to cut 630million tons of carbon dioxide by 2012. By then, many predict that China will be the main supplier of emission trading units in the CDM market.

The environmental situation facing China is nothing short of a crisis. The degradation of the environment caused by economic growth and a shortage of many basic resources are constraining further growth as well as creating huge hidden costs associated with health, an inability to do business (e.g. at times of water shortages) and trans-boundary impacts. There are real risks associated with China’s continued degradation of the environment, for the country itself, for the Asian region and for the global environment. Not least, China is set to become the biggest contributor to greenhouse gas emissions whilst having no real commitment to their reduction.

Nevertheless, the Chinese government is aware of the environmental problems associated with rapid growth and has a stated commitment to reversing some of the trends outlined in this paper. This will provide huge opportunities for environmental services, consultancy and environmental technologies. Moreover, inward investment in technologies and systems capable of reducing greenhouse gas emissions have the potential to be hugely profitable in the context of carbon offset through the CDM.

There is little doubt that China’s growth will soon be constrained by a lack of resources (including water). But again this leads to huge opportunities for those with the knowledge and know-how relating to resource efficiency. And with such inefficient industry across the whole country, the potential efficiency improvements are both achievable and relatively easy given experiences and lessons learned from more developed countries.