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Pollution Forces China to Transform its Mode of Economic Growth

Jan 22 , 2013
  • Zhang Monan

    Researcher, China Int'l Economic Exchanges Center

Recently, a prolonged haze of smog and dust sealed Beijing and large parts of China. Severe weather conditions tolled the bell of a dusty economic development mode featuring heavy pollution, huge energy consumption and high emission. It brooks no delay to strategically transform the mode of economic growth.

As a matter of fact, while enduring an economic crisis, the world also suffers increasingly frequent ecological and environmental crises. Global energy consumption has been increasing at an annual rate of 3% on average in the past nearly hundred years. The consumption of large-quantity carbon-based energy has caused greenhouse effect, environmental degradation and continued degeneration of the global ecological system, which in turn leads to more severe energy and environmental crises. In light of this, China has to transform its mode of growth by creating a sustainable economic and energy system and introducing a 3E model characterized by coordinated development of the economy, energy and environment.

The so-called 3E model was first put forward in Japan to deal with the trilemma of energy, environment and economic growth. As the world’s second largest economy and leading energy consumer, Japan is endowed with limited natural resources. The self-sufficiency rate of major energies including oil, coal and natural gas is only about 4%. Of the oil, coal and gas needed in Japan, 99.7%, 97.7% and 96.6% respectively depend on import. The Japanese economy was badly hurt by the two oil crises. On the basis of the 3E principles of “energy security, economic growth and environmental protection”, Japan has sped up efforts to readjust its energy mix and published enterprise sustainability report under the Kyoto Protocol. It has implemented a strategy of energy diversification and adopted the New National Energy Strategy, pushing for a shift from excessive use of depletable high-carbon energy to mass development and use of clean low-carbon energy and from the development and use of traditional and conventional energies to technical innovations for new energies and setting a strategic target of increasing overal energy efficiency by over 30% by 2030. In short, a strategic transformation based on 3E is key to a new economic pattern in Japan

Now that low-carbon economy has become a major battlefield of global competition and interest structure in the post financial crisis era. China must speed up readjustment of its economic structure and energy mix and also realize a strategic transformation on the 3E basis. However, the reality in China is that between energy, economy and environment, overall systemic alignment is poor and contradiction is prominent.

Take the contradiction between energy system and environment system as an example. China’s energy utilization efficiency is only 33%, 10 percentage points lower than that of developed countries. Its energy intensity more than doubles that of the world average. Energy intensity for leading products on average is 40% higher than advanced foreign countries. With the traditional coal-based energy mix, large amount of pollutants including waste gas, sewage and solid waste are discharged in the process of energy production and consumption, leading to drastic deterioration of environment. On the other hand, as energy consumption increases faster than GDP growth, shortages of power or coal frequently occur.

Generally speaking, the industrial development remains inefficient and highly energy-intensive. Meanwhile, energy price hikes incentivize investments in energy-intensive or inefficient industries, equipments and technogies, quite detrimental to the betterment of the industrial structure. Economic losses caused by serious environmental pollution as a result of the current structure and ways of energy consumption already account for 2-3% of the Chinese GDP.

Since the proportions of heavy and light industries started to reverse in 1991, the Chinese industrial structure is very much focused on carbon-based heavy industries, with low energy production and utilization efficiency, high resource intensity and low share of low-carbon industries in the economic aggregates. Services, the industry most needed in a low-carbon structure, account for less than 40%. The task of adjusting the industrial structure will be arduous.

The public nature of energy, resource and environment and unclear ownerships lead to extensive external diseconomies. The faulty market and price mechanisms make it hard to measure the returns of resource factor inputs in order to achieve external balance. Furthermore, main consumers of energy and resources failing to undertake due responsibility is also an important reason behind heavy pollution and high energy consumption.

By 2020, China plans to reduce its CO2 emission per unit GDP by 40-45% compared with 2005. It is imperative to create an economic and policy system in which energy, economy and environment develops in a coordinated manner. The priorities are to ensure energy security, enhance energy efficiency, actively explore new energies and renewables including solar, tidal, wave, current, wind, geothermal, biomass, hydrogen and nuclear fusion energies, create a sustainable energy system and promote overall balance, structural optimization and efficiency improvements. Efforts should also be made to improve the system of compensation for resources use and the ecological compensation mechanism, set up a sound energy- and resource-pricing mechanism, compensate ecological losses caused by energy and resource development with environment tax and resource tax, and push for a green national accounts system covering energy consumption, ecological environment and economic growth, thereby accelerating a 3E model of sustainable development in China.

Zhang Monan is Associate Researcher, Economic Forecast Department, State Information Centre.

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