Part I Background

China is now facing more and more severe environmental, resource and social problems following rapid economic growth in many years. Particularly, the whole society is paying great attention to resource and environmental problems. Blindly pursuing rapid economic growth will lead to environmental deterioration and resource depletion, and will impede the nation’s social and economic growth, regional development, and the progress of modernization.

Latest calculation published in China Green National Economic Accounting Study Report 2004 [1]shows that, if all the pollutants released into the environment in 2004 were treated with currently available technologies, the total direct investment would be 1080 billion RMB (in addition to investment already incurred), or 6.8% of the year’s GDP. The “economic loss caused by environmental pollution” is estimated to be at least 3.05% of the GDP in the year. Here, the loss caused by pollution does not include the extra cleaning expenses due to air pollution and the losses caused by groundwater pollution, soil pollution and ecological destruction. Obviously, the environmental price that China has to pay for its economic growth is heavy.

The presence of these problems led to the initiation of this project. The objective of this Task Force on Economic Growth and Environment is: in order to achieve the harmonious and sustainable development in China, advise Chinese high-rank decision makers on how to establish an incentive mechanism promoting the harmony between economic growth and the environment, and establish an operational mechanism of economic and environmental forecast and early warning for macro decision-making and regulation.

At the first phase of this project (in 2005), the Task Force fully considered the interaction between economy and environment, hence suggested to establish an indicator framework to measure the performances of local governments. At the second phase (2006), the Task Force developed a 3E (Economy-Energy-Environment) model to forecast the trends of economic growth, energy consumption and environmental pollution during the 11^th Five Year. Later, the Task Force will combine performance measurement, green accounting system and 3E model, and regularly develop and publish Report on Evaluation of China’s Economic, Environmental and Social Development.

Our contribution includes, therefore, a longer-term view of developing the information basis for performance and policy evaluation by:

l  Establishing an indicator system for monitoring and measuring the trends and policies of sustainable development, in addition to evaluating government performance;

l  Establishing an early warning and forecast platform based on the 3E model; and

l  Providing policy recommendations on managing and monitoring harmonious coexistence of economic growth and the environment.

 

Part II

Evaluating and early Warning of China’s Economic Growth and Environment--Green Accounting, Indicators and Modelling

2.1 Changing approaches of economic growth and early warning of environmental risks

High-speed growth and heavy pollution are two major features of China’s current economic development. This forces Chinese government to be dedicated to changing the approaches of economic growth in order to keep the balance between economic growth and the environment. On the Third Plenary Conference of 16^th National Congress of the CPC, the scientific view of development was announced; later the goal of establishing a socialist harmonious society was set up. In 11^th Five-Year Outline Plan of Economic and Social Development, detailed quantitative targets are proposed for economic growth, energy efficiency and total quantity control of environmental pollution. However, the actual implementation in 2006 shows that these targets are very hard to achieve, and it will be a difficult mission to balance economic growth and environmental protection. To achieve these goals, more effective policy instruments are critical, and it is necessary to track and assess changes or trends of both economic growth and the environment and to provide early warning, allowing informed decision-making based on reliable information.

2.2 Evaluating and early warning of environment and economic growth: green accounting

2.2.1 Important roles of governments in environmental protection and regulation

Externality of environmental pollution means that the environment is a typical public goods for which market failure occurs, and governmental intervention is required, just as proven by experiences of the developed countries. This is particularly true for China in which economic development is strongly dominated by the government, and local governments at all levels are an important driving force of the economic growth. For many years, the idea of “development as the top priority” has been interpreted as “GDP on the top”, leading to the unbalance between economic development and environmental protection. To solve the problem, governmental roles in environmental management and regulation should be strengthened. Research carried out by our Task Force reveals that currently the priorities should be: implementing a new indicator system of governmental performance measurement to enhance governmental functions of environmental protection; establishing a mechanism of environmental forecast and early warning at both national and local levels to provide accurate information for more informed and scientific decision-making.

2.2.2 Green accounting, evaluation of governmental performance

 Green accounting is a new national accounting system of which the resource and environment change is calculated into national economic accounting. Calls for a green GDP reflect the need for an overall assessment of the trade-offs between economic growth and environmental protection. Perhaps more importantly, the underlying production and consumption patterns of households and enterprises need to be assessed as to their respective environmental impacts. To this end, Agenda 21 of the Rio Earth Summit recommended the implementation of a System of integrated Environmental and Economic Accounting (SEEA) by all member States.[2] The SEEA is based on the worldwide-adopted System of National Accounts (SNA). The SNA ensures not only consistency in the concepts, definitions and classifications of its indicators but facilitates international comparability and reporting in a globalizing world.

If green accounting system is applied and Green GDP is used to evaluate the performance of local governments, there will be no such problem as merely pursuing traditional economic growth but neglecting the environment. A joint international workshop of CCICED, the National Bureau of Statistics (NBS), Statistics Canada and international green accounting experts (Beijing, November 2004) explored options for “greening” China’s GDP and national accounts. Green accounting and its environmentally adjusted indicators would be in line with the concept of scientific development that takes into account the effects of environmental degradation and resource depletion. The meeting concluded that green accounting in China is feasible but faces institutional and practical challenges. The implementation of environmental-economic accounts and indicators and their use in forward-looking analyses in China will require the close collaboration of data users and producers. This is a challenging task for a country on the way to more transparent and frank information exchange and discussion. Further work should determine environmental priorities and clear objectives for greening the national accounts.

 

Box 1 As described in a contribution to the 2004 CCICED Workshop the SEEA[3], can assess the environmental sustainability of economic performance and growth in terms of “economic” and “ecological sustainability”: l　  greened national accounts measure economic sustainability as the maintenance of the value of produced and natural capital, facilitated by reinvesting the cost of capital consumption; and l　　 Physical material flow accounts measure ecological sustainability as the dematerialization of the economy in terms of material inputs, reduced by a specified sustainability factor.

 

2.2.3 Monetary indicators of green accounting

Monetary indicators such as the environmentally-adjusted net domestic product (EDP), capital formation (ECF), and value added (EVA) measure sustainable economic activity and growth by deducting produced and non-produced natural capital consumption as cost from the conventional indicators. A controversial issue in compiling these indicators is the pricing of environmental impacts, notably of environmental quality degradation. An important application of monetary indicators of green accounting is the measurement of the governmental performance and environmental early warning. Carrying on the green accounting to an area may calculate the environmental losses from economic growth. The analysis of the changes of environment losses, may appraise the effect of the environment policy, and further evaluate the performance of local government, and carry on the early warning to economical growth and environmental situation.

2.2.4 Material indicators of green accounting

The physical part of the accounting system presents material flows and stocks, notably natural resource inputs (e.g. the total material requirement, TMR, indicator) and pollution ‘outputs’. Contrary to the monetary green accounting indicators, material flows cannot be interpreted as indicators of both, environmental and economic, performance. They measure environmental pressure and refer, therefore, to environmental performance only. They can be linked, however, to economic performance indicators, notably GDP, as ratios of material intensity or resource productivity. Therefore, material flow indicators of green accounting are also important for evaluating economic growth and give early warning of environmental risks.

2.3 Towards a common indicator framework for assessing and early warning of economic growth and environment

2.3.1 Indicators and indices

Indicators and indicator frameworks for the environment and sustainable development have proliferated. The reasons are different policy agendas driving indicator development, and the necessarily judgemental selection of indicators for formulating and monitoring the agendas. Most indicator frameworks are derived from the popular Pressure-State-Response (PSR) Framework advanced by the OECD, which in turn was based on the United Nations Framework for the Development of Environment Statistics (FDES). For instance, the European Environment Agency uses a Driving Forces-Pressure-State-Impact-Response (DPSIR) Framework. At the global level, the United Nations proposed indicators for sustainable development and Millennium Development Goals for politically negotiated “themes”.

　　　 The desire of policy makers to obtain overall ‘nutshell’ assessments of the state of the environment and sustainable development generated various indicators (or indices) of the sustainability of economic performance and development. However, compound indices usually resort to equal weighting of unequal phenomena when averaging ‘representative’ indicators. Ad-hoc compilations of these indices also lack consistency with established statistical concepts and methods. Statistical offices do not therefore compile such indices in most countries.

2.3.2 Accounting framework for economic and environmental indicators

Figure 1 Accounting framework for economic and environmental indicators

		OPENING STOCKS	Economic assets (CAPf)	Environmental assets (CAPn)
			+
	DOMESTIC PRODUCTION (industries)	FINAL CONSUMPTION (households, government)	CAPITAL FORMATION	CAPITAL ACCUMULATION	REST OF THE WORLD
SUPPLY OF RODUCTS	Output (Oi)				Imports (M)
	Thereof: environmental protection (EPE)				Thereof: (EPE)
USE OF PRODUCTS	Intermediate consumption (ICi)	Final consumption (C)	Gross capital formation (GCF)		Exports(X)
	Thereof: EPE	Thereof: EPE	Thereof: EPE		Thereof: EPE
USE OF FIXED CAPITAL	Fixed capital consumption (CCi)		Fixed capital consumption (-CC)
VALUE ADDED, NDP	VAi, NDP
USE OF NATURAL ASSETS (depletion and degradation)	Environmental cost (ECi) Material inputs (MI), Land use (L), Emissions (E)	Environmental cost(ECh) MI, L, E	Natural capital consumption (-EC) Depletion of natural resources (∆CAPn), net additions to stocks (NAS), change in environmental quality (∆EQ)		Export/import of materials, wastes and residuals (XMI,E, MMi,E)
ENVIRONMENTALLY ADJUSTED INDICATORS	EVAi = VAi - ECi EDP = SEVAi - SECh TMR, DMI, TDO, DO	Output of residuals by households (DO, TDO)	ECF = CF - CC – EC Net additions to stocks (NAS)
			+
			Other changes of economic assets (OVCf)	Other changes of environmental assets (OVCn)
			=
		CLOSING STOCKS	Economic assets (CAPf)	Environmental assets (CAPn)

Source: Bartelmus (2001), Fig. 3, p. 1728.　 

Abbreviations: VA = Value Added

NDP = Net Domestic Product

EVA = Environmentally-adjusted net Value Added

EDP = Environmentally-adjusted net Domestic Product,

EC = Environmental Cost

ECF = Environmentally-adjusted Capital Formation

TMR = Total Material Requirement

DMI = Direct Material Input

TDO = Total Domestic Output

DO = Direct (domestic) Output

EPE= Environmental Protection Expenditure

 

A common framework for all indicators and indices would increase the transparency of indicator selection, definition and compilation. It would also minimize the risk of data manipulation. A recent UN expert group, charged with revising the – largely ignored – indicators for sustainable development of the UN Commission for Sustainable Development, recommended, therefore, the development of a common indicator framework. The experts also identified a capital (accounting) framework as the most appropriate means of combining environmental and economic indicators.[4] Based on these views we recommend using a hybrid accounting framework. Such a framework would not only combine indicators for local and national performance evaluation but would make indicator selection more informed, compatible and transparent（Figure 1）

Figure 1 is in fact the centerpiece of the revised SEEA. It contains most of the economic and environmental indicators. However, it excludes social indicators because of the conceptual and measurement problems of “social” and “human capital”. The shaded areas present environmental and environmentally adjusted indicators. Land uses and material inputs are also shaded as they represent pressures on environmental carrying capacities.

Physical indicators, notably from material flow accounts (MFA) are shown italics. To some extent they underlie the monetary indicators of the SEEA. The table thus displays the connections between the physical data base and monetary valuation. Material ‘outputs’ of the MFA are the emissions (E), which are costed in the SEEA. Their accumulation as ambient concentrations in environmental media of land, air and water affects environmental quality (EQ) and generates the environmental damage borne by humans and ecosystems. Among others, damage information enters human welfare indices such as the GPI (not shown in the table). Physical resource stocks are the counterparts of monetary wealth indicators (CAP); monitoring the use of these stocks in different units of measurement facilitates their management and conservation but is less useful for overall environmental and economic policies.

The accounting framework of Table 1 should be helpful in combining and harmonizing the various indicator listings, index compilations and accounting approaches, including material flow accounts, energy balances, input-output tables, and greened national (satellite) accounts, currently developed in China.

2.3.3 Micro-macro link

A further advantage of an integrated accounting framework for data development is its possible link to corporate accounting. More and more, corporations, motivated by ‘corporate social responsibility’, have taken up environmental accounting. Corporate accounting faces similar challenges and opportunities as national environmental accounting. Developing the so-called ‘micro-macro link’ between the two accounting efforts would facilitate, in particular,

1. full-cost pricing, i.e. the internalization of environmental (social) cost
2. improve the data quality in both micro- and macro-accounts, and
3. generate consistent micro- and macro-economic strategies and policies for making current production and consumption patterns more sustainable.

At the international level, the International Organizations for Standardization (ISO series 14000) and the European Union (EMAS: Environmental Management and Audit Scheme) have developed corporate environmental management guidelines and indicator systems.

2.4 Green accounting and modeling

All the green accounting of national economy and indicators which has time series feature may be used to implement early warning on economical growth and environment. However, the green accounting and indicators are more applied in post evaluation and analysis, but weak in forecasting. Therefore, our task force developed a 3E model, which aims to forecast economic and environmental trends and simulates different policy scenarios.

The 3E model, based on input--output table, forecasts economic growth, change in sectoral structure, energy consumption, pollutant emission, and pollution disposal. According to the comparison of forecast results with proposed goals, regulative economic and environmental policies guaranteeing sustainable development are recommended.

Figure 2 describes in a simplified manner the direct connections between the 3E model and our accounting framework. The figure shows the different model components (in bold) as data modules of the framework. The arrows correspond to the different functional relationships of the 3E model.

　　　　  Figure 2 Accounting framework and 3E model

Population forecast

 

 

 

 

 

 

 

Economy			Environment
DOMESTIC PRODUCTION (industries) 1,2...n	FINAL CONSUMPTION	CAPITAL FORMATION
Industrial output (volume of production) (Oi)			Emissions (E): Water contaminant Air pollutant Solid waste
		Gross capital formation (GCF) Thereof: Pollution treatment
Intermediate consumption (ICi) Thereof: Pollution treatment	Volume of consumption (C)		Material inputs (MI): Energy consumption Water consumption
Fixed capital consumption (CCi)		Fixed capital consumption (-CC)
Industrial value added (VAi)

 

Accounting and modelling are different, as accounting module is a descriptive data system, while model converts statistical variables into model parameters for forecast and other analysis. Technical (input-output and pollution emission) parameters indicate data relationship currently observed, and are used for input and output analysis and forecast.

Part III

Indicators and indices for evaluating and early warning the sustainable development and the progress of harmonious xiao kang society in China

In order to evaluate and early warn the course of the sustainable development and the performance of local government in the construction of the harmonious “xiao kang” society，the Task Force developed an evaluating and early warning indicator system.

3.1 Indicators and early warning of harmonious “xiao kang” society

A harmonious xiao kang society dose not only means simply increasing the average GDP per capita;, but the overall standard of living for all Chinese must be all-inclusive and farily distributed across China alleviating the current disparities between rural and urban households and between coastal and inland households. Harmonious Xiao kang society does not only denote material comforts but harmonious development in all aspects, which includes issues of urbanization, promotion of education and reshaping the social strata. In other words, a xiao kang society is focused on the improved and sustained economic, social and environmental well-being of all citizens. So we combined Xiao kang with “harmonious” and call it as harmonious Xiao kang society. In the stage from 2006 to 2020, the harmonious Xiao kang society and sustainable development overlap each other in conception and connotation. Therefore, the target and indicators of harmonious society can be used to evaluate and early warn the local government performance and as well as the sustainable development.

The indicator selection is very important for evaluating、forecasting and early warning on the local performance of sustainable development with the indicator system. Each indicator should describe a certain features of sustainable development, moreover may obtain the corresponding data. Some of the key methodological issues that need to be kept in mind when considering the development of a system of indicators and indices along these lines are the following:

A. choice of a conceptual framework and the main categories of indicators;

B. choice of component indicators;

C. choice of policy targets related to each indicator;

D. methodology to establish a normalized (dimensionless) performance score for every indicator;

E. the weighting scheme for the indicator;

F. display for visually presenting the score of indicators and the index

[P1] 3.2 The principles to evaluate and early warn the course of harmonious “xiao kang” society

 According to international experiences, we proposed the principles of developing indicator system which can track, analyze and forecast the construction course of harmonious “xiao kang” society.

A. Establish a sustainability evaluating system or framework of which consisted with a suite of matching indicators of suitable sustainability performance. The framework and indicators would be constructed, prudently and incrementally, over time at both the national and regional/provincial levels.

B. Establish a clear set of sustainability and harmonious development value statements, sustainability criteria and measurable goal statements as a first step in developing and implementing sustainability indicators. The statements and criteria should be commonly accepted throughout China, yet respect unique local economic, social and environmental conditions;

[P2] C. Consider establishing sustainability standards, which are directly related to the sustainability values and criteria, and the total capital or genuine wealth condition analysis at the provincial or regional scale. Healthy competition amongst provinces and the sharing and benchmarking of best-practices, using indexed indicators, could be encouraged. Benchmarking sustainability performance, using aggregate sustainability indices across communities and provinces is possible and desirable for evaluating and early warning to the local government performance.

D. The indicator system not only has the evaluating function, but also has the function to guide the decision-making of local government, and in favor of establishing corresponding feedback mechanism to the policies. When a local government’s performance of sustainable development and result of evaluating to the construction of the harmonious “xiao kang” society are far away from the benchmark, there is need to send out the explicit early warning report to those governments.

3.3 Indicator system for the evaluating and early warning of China’s sustainable development and the course of harmonious “xiao kang” society.

Measuring progress toward desired targets of sustainable development and harmonious society construction in different regions helps to set policy priorities for local governments, and to perfect the monitoring system for centre government. (The indicators we chose were shown in Box 2.)

Moving from the current performance measurement system dominated by economy towards one including sustainability criteria and objectives will entail a multi-year, multi-level effort. China, like many other countries, is not new to these efforts. At various regional levels governmental institutions have been experimenting with sustainability indicators for several years.[5] The task force chose six pilot cities to carry on experiment using the indicator system in box 2，and the data of four cities are complete. The evaluating result was shown in table 1.

During the process of the computation to the actual data，it usually adopts the average value of three years in history as the base number of the assessing year. The number changes along with time lapse，and guarantees the base number in each year changes based on the year-shift. This method may avoid the influence from the abnormity of some year (it happens in China frequently). To the integration of all indicators，we have adopted the weighted average method，that is to give the same weight to the indicators in the same level，and finally synthesize to an index. In fact, the index is a sustainable “Annual Progress Index” (API).

The API in each city by year obtained by this method is provided with the feature of time series. The time series of API reflects the change tendency of the comprehensive sustainable development of the evaluated cities，and also may be used to carry out early warning to the sustainability of cities. Though the comparison of the change rate of API among different cities，it can distinctly warn the sustainability differences of them.

The change and the comparative analysis of sustainable development API among different cities can provides useful basic information for the performance of different cities to central government。

The data in table 1 shows：the API of three cities were dropping comparing one of the 4 cities got a little rising. In the macroscopic early warning significance，during 2001-2003，the sum of the API of four cities dropped from 492.47 to 442.04，and dropped 17 points averagely each year. It shows that the overall sustainability of 4 cities is dropping. If the samples are more enough, it is viable to judge the whole change of the sustainability of the country.

In the significance of evaluating sustainable development performance to each city，the API of city A is the highest and the performance is the best；City B is next; and City C is the third; and city D is the worst.

But in early warning significance，the sustainability of city A and B is dropping in a large scale. In particular city B，its API was highest among the 4 cities in the basic year，but the dropping rate was the biggest. The API of city D is dropping slowly under the situation of lower-level performance. Only the API of city C went up steadily with lower base (see figure 3)

Though the method above was based on the evaluation on the performance of sustainable development，by adding more indicators or adjust the weight of the indicators reasonably，it could be suitable to carry out evaluation and implement early morning to the progress of harmonious“xiao kang” society.

Table 1:  the sustainability API of four pilot cities

Year		2001	2002	2003	2004	Point of API Change per year
City B	Total score	109.50	114.69	90.30		-9.71
City A	Total score	189.38	187.38	147.93	155.82	-8.39
City D	Total score	98.60	98.61	97.63		-0.33
City C	Total score	94.99	96.25	106.18	107.77	+5.52
Total		492.47	496.93	442.04		-17

Figure 3 the API of sustainable development in four pilot cities
Part IV 3E Modelling for forecast and Early Warning

4.1 Structure and mechanism of 3E model [6]

The Task Force has developed  a 3E (Economy-Energy-Environment) model that could forecast and provide early warning for China’s economic growth, energy consumption and environmental pollution, It is a quantitative analysis platform, which combines econometric technique, input-output analysis and extended linear expenditure system..

The 3E model consists of three sub-models: economy, energy and environment.

The economy sub-model consists of the following modules: income, consumption, investment, import and export, employment, final demand formation and total output, which mainly forecasts industrial outputs, value-added by sectors, product sales volume, population ,urbanization level and so on.

 Based on the forecast results from the economy sub-model and the estimated energy consumption coefficient, the energy sub-model mainly forecasts volume and structure of energy consumption in each sector. Besides, volume and structural change of resident energy consumption are forecasted.

Also based on the results from the economy sub-model, the environment sub-model mainly forecasts generated volumes of wastewater, water pollutant, air pollution and solid waste. Volumes of reduction and discharge of these wastes are also forecasted. In order to control these wastes, investment should bring into operation which is just the feedback variable into the economy part.  Based on this sub-model, we can also simulate the impacts of pollution control investment on economic development. The structure of the 3E mode is as following (see figure 3).[7]

Figure 3  Structure of 3E Model

 

 

 

 

 

 

4.2 Qualitative analysis of macro economic trend during the 11^th Five Year

4.2.1 Long-run economic trend in China

Since the reform and opening up, China has been advancing in the rapid path of economic growth. GDP in 2005 increased nearly 12 times than that in 1978and per capita GDP increased nearly9 times, reaching USD 1750 according to current exchange rate. Following the development goals set up in the 16^th Representatives Meeting of CPC, GDP in 2020 will be double compared with the GDP in200， , in other words, the annual growth rate of GDP should reach 7.2% on average. Based on our judgement, the average annual growth rate of GDP will exceed 9% during the 11^th Five Year. The reasons are as following,

4.2.1.1 During the 11^th Five Year, China’s economic growth will remain at high level of the business cycle. From 1978 to 2000, China is one of the fast growth countries in the world, and the average annual growth rate of GDP was over 9%. Since 2000, China’s economy has entered into another round of rapid growth, and major macro-economic indicators have maintained sound performance, which provide a favourable foundation for further rapid and stable economic growth during the 11^th Five Year in China.

4.2.1.2 The investment to acceleration upgrade of heavy and chemical industrial structure is the main character in China. . Since the late 1990s, China has entered into a new stage, which is the speeding up phase of industrialization and urbanization. Following the experiences of industrialization in the rest of the world, heavy and chemical industry usually upgrades rapidly at this stage. Therefore, China’s investment will keep increasing at relative high speed, and investment ratio will remain at the level of 35-40% in the next five years.

4.2.1.3 Upgrading of consumption structure becomes an important driving force . With the gradual increase of resident income, China has entered into the age of mass consumption, and demand structure will be substantially changed accordingly. After Chinese citizens reach overall “xiao kang” standard of living, targets of consumption will be turned from products worth of thousands RMB to those worth of ten thousand or more expensive. Updated household appliance, family cars and housing will become the new consumption hotspots for urban residents.

4.2.1.4 Rapid urbanization promotes the stable and rapid increase of domestic demand. International experiences suggest that the progress of urbanization may be divided into three phases: start-up, speed-up and maturity. China’s urbanization ratio was promoted from 29.04% in 1995 to 42.99% in 2005, which is in the speed-up stage and will go on in the following years. Development of housing and infrastructure will still stimulate investment, and will further encourage the growth of the entire economy. In the 11^th Five-Year Plan, the strategy of constructing a new socialist countryside is proposed, providing another investment hotspots.

4.2.1.5 Stable international situation is favourable to China’s economy, and foreign trade will remain one of the driving forces of domestic economic growth. In the next 5-15 years, peace, development and cooperation will continue to be the main theme of the world, and this will offer a great opportunity for world economic development. Further economic globalization, faster international industrial transfer and better functioning of science and technologies will be the irreversible trend of future global economy. Under this circumstance, China’s cheap labour is still dominated the competition, and foreign trade will play an important role in stimulating China’s economy.

Box 3　 GDP growth rates planned by provinces/cities and weighted national rate

Box 3　 GDP growth rates planned by provinces/cities and weighted national rate
Province/city	Planned GDP growth rates between 2006 and 2010 （%）	Weight in national economy in 2005 （%）	Contribution to national economy	Province/ City	Planned GDP growth rates between 2006 and 2010 （%）	Weight in national economy in 2005（%）	Contribution to national economy
Beijing	9%	3.47%	0.31	Guangdong	9%	11.04%	0.99
Tianjin	12%	1.86%	0.22	Guangxi	10%	2.07%	0.21
Hebei	11%	5.15%	0.57	Hainan	9%	0.45%	0.04
Shanxi	10%	2.10%	0.21	Chongqing	10%	1.56%	0.16
Inner Mongolia	13%	1.94%	0.25	Sichuan	9%	3.76%	0.34
Liaoning	11%	4.07%	0.45	Guizhou	10%	0.99%	0.10
Jilin	9%	1.84%	0.17	Yunnan	9%	1.77%	0.16
Heilongjiang	10%	2.80%	0.28	Tibet	12%	0.13%	0.02
Shanghai	9%	4.65%	0.42	Shannxi	11%	1.87%	0.21
Jiangsu	10%	9.30%	0.93	Gansu	10%	0.98%	0.1
Zhejiang	9%	6.80%	0.61	Qinghai	10%	0.28%	0.03
Anhui	10%	2.73%	0.27	Ningxia	10%	0.30%	0.03
Fujian	10.90%	3.34%	0.36	Xinjiang	9%	1.34%	0.12
Jiangxi	11%	2.06%	0.23	Hubei	10%	3.30%	0.33
Shandong	10%	9.40%	0.94	Hunan	10%	3.29%	0.33
Henan	11%	5.36%	0.59
National GDP (calculation based on regions’ GDPs planned and weights of the GDPs in national economy in 2005)				9.96%

 

4.2.1.6 Local governments will face heavier pressures of economic development. Various social conflicts will put greater pressure on local governments to develop economy. As defined in each province’s /city’s 11^th Five-Year Plans, the proposed GDP growth rates of each province/city is much higher than the national level, which is also an important driving factor for the t economic growth(see box 3).

4.3 　Environmental and economic pressures faced in 11^th Five Year- based on 3E model simulations

4.3.1 Simulation and forecast

During the 11^th Five Year, China’s economy will continue to grow at high speed, with the average annual growth rate at 9% or higher. Based on  3E model, we simulated three different scenarios of economic growth: higher speed, medium speed and lower speed.

In higher-speed scenario:  It is assumed that, during the 11^th Five Year, China will follow the scientific view of development, and fully implement the national strategy of creating an innovative country, independent innovation will have important breakthroughs, urbanization will progress smoothly, approaches of economic growth will have major improvements, international trade will continue to grow at high speed, and many problems in current economic development will be successfully solved. Based on these assumptions, total factor productivity will continue to increase stably and rapidly, reach 3%, much higher than the average level in past 20 years (2.6%) .

In medium-speed scenario: It is assumed that, although China has entered into a new rapid growth period, accumulated problems will become prominent. Institutional reform will continue but will face more difficulties; more time will be needed to fully implement the national strategy of creating an innovative country; independent innovation will need accumulated capacity; urbanization progress will be hampered  by social security and other issues,  and growth of international trade will probably slow down. Based on these assumptions, total factor productivity will maintain the same average level in past 20 and more years (2.6%).

In lower-speed scenario: It is assumed that, China will face many risks in economic development. For example, institutional reform will continue but will face more difficulties; independent innovation will not make great progresses during the 11^th Five Year; progress of urbanization will be disturbed by social security and other issues; economic growth approach will be hard to change; appreciation of RMB will constrain export and will slow down the inflow of foreign investment; and prices of basic resources and energy sources will keep rising. Based on these assumptions, total factor productivity will drop down from 2.6% to 2.2%.

The forecast results of main indicators in three different scenarios is as following (see table 2),

Table 2 Forecasts of economic indicators in three different scenarios (growth rate, %)

 

4.3.2 Forecast of industries’ structural change

In each scenario, it is invariably predicted that, during the 11^th Five Year, China’s industrial structure will continue to shift towards heavy and chemical industry (see prediction results in Table 5). Growth rates in industries such as ferrous melting, non-ferrous melting, oil processing, coal and charcoal, cement and other construction materials, heavy chemistry machinery, and auto manufacturing etc., will be slightly higher than overall economic growth rate. Weight of heavy chemistry industry will grow to some extent. This will exert substantial pressures on China’s environment and resources.

 

 

Table 3  Growth speed forecast of total output in major sectors during 11^th Five Year[8]

 

4.4 Energy demand forecast during the 11^th Five Year in China

Economic growth has been steadily increasing in recent years. At the same time, consumption of resource and energy has been growing dramatically, even surpassing the speed of economic growth. Between 2001 and 2005，China’s GDP increased by 9.54% per year, while energy consumption grew by 10.50% per year. Energy elasticity coefficient reached 1.1，meaning that this period had witnessed the highest elasticity coefficient of energy since the opening and reformation of China. Energy consumption per unit output is much higher than in the developed countries and the average of the world. In future, energy demand in China will be affected by many factors, and there will be many uncertainties. According to the forecast in the medium-speed scenario，energy demand will reach 2.9 billion tons of standard coal in 2010, increasing by 5.4% per year from 2006 to 2010.

Future energy demand will be a great challenge to the ability of energy supply in China.[9] With regard to total coal demand, it will reach 2.68 billion tons in 2010, and although coal’s percentage in primary energy sources will be reduced to 66% in 2010 compared with 70% in 2002, coal’s dominant status in energy consumption will keep for a long time (see Table 5 for forecast of future energy demand). With regard to sectors in demand of coal, electricity, ferrous metal melting, oil processing, cement production will still be the main industries of coal consumption. By 2010, total coal demand in these four industries will reach 2.06 billion tons, occupying about 77% of total coal demand. In particular, coal demand by electricity industry will reach 1.49 billion tons in 2010, occupying about 55.7% of total coal demand. In mid and long term, the coal-dominant structure of energy consumption will bring more difficulties to air pollution control in China.

Table 4　 Energy consumption forecast in medium-speed scenario during the 11^th Five Year

4.5 Forecast of environmental pressures in China in “11^th-five-year- plan”

At present, the pressure of environmental protection is bigger than pressure of energy supply in China. Emissions of the ain pollutants in China have all surpassed the carrying capacity of the environment at a large scale. Volume of pollutant emission has been rising in 2006. Emissions of COD and SO₂ have risen by 3.7% and 4.2% separately in the first half year of 2006. The goal set up in the 11^th Five Year Plan to reduce the total volume of main pollutants by 10% is hard to achieve, especially at the economic growth rate of 9% annually. We used 3E model to forecast the volumes of different pollutants separately. The forecast is based on the present level of technologies and policies and at current intensity of sectoral pollution discharge.

4.5.1 Wastewater produced will be increasing yearly, and wastewater treatment will be under heavy pressure.

Wastewater forecast was based on the volumes of production and domestic wastewater, as well as the volume of aquatic pollutants (See Table 5 for the results).

For cropping sector with rapid increase of irrigated farmland, wastewater and pollutants generated will show rising tendency.

For animal farming industry sector with increasing output and higher proportion of large scale farming, wastewater and pollutants produced will be rising situation year by year.

In industrial sectors, the volume of wastewater produced is mainly related to value added and the coefficient of wastewater generation. In the medium-speed scenario, the model forecasts that the volume of industrial wastewater will reach 75 billion tons by 2010, or 2.69 times of the figure in 2003 (2.786 million tons). The volume of COD in wastewater generated will reach 37.37 million tons, or 2.4 times of the quantity in 2003 (15.58 million tons). The volume of NH₃-N generated will reach 1.82 million tons, or 2.5 times of the quantity in 2003 (724,000 tons).

With regard to industrial structure, chemistry, paper production, electricity, and iron and steel will be the top four sectors with most wastewater generated, accounting for 32.8% of the total volume of industrial wastewater in 2010.

Table 5[10] Forecast of volumes of wastewater and pollutants generated

The top four sectors generating most volumes of COD will be paper making, food processing, chemical industry, and textile industry, accounting for 48.1% of the total volume of the whole industry.

Along with the increase of water consumption in urban and rural areas; urban and rural wastewater generated will increase correspondingly. Rapid growth of urban population and slight increase of the pollutant generation coefficient will cause the fast increase in the volume of pollutant generated. Without effective treatment, damage caused by urban wastewater pollution will be unimaginable.

4.5.2 Rapid increase of atmospheric air pollutants generated and heavier treatment task in the future

Economic trend, energy consumption forecast, and analysis of fuel quality suggest that, by 2010, the volume of SO₂ generated will amount to 45.85 million tons (see Table 6), among which the volume of industrial SO₂ generation will reach 43.65 million tons. Research shows that, for compliance with standards of urban environmental quality and realization of targets of acid rain control, the volume of SO₂ emission must be limited to 16 million tons. During "11^th-five-year- plan", SO₂ emission needs to be reduced by 10% compared to the year 2005 to 22.95 million tons. To this end, volume of SO₂ reduction shall reach 20.70 million tons, a heavy task indeed.

Table 6  Forecast of SO₂ generation　　　　　 unit：10,000 tons

Industrial		2010
	Energy combustion	3398
	Production process	967
	Subtotal	4365
Domestic and other	Other sectors	121
	domestic	99
	Subtotal	220
Total		4585

 

Soot generation is consistent with the trend of coal consumption growth. By 2010, total volume of soot produced will reach 247.04 million tons, mainly by power industry. By 2010, volume of soot produced by power industry will be 215.67 million tons, accounting for 87.3% of the total. Therefore, soot control in power industry is very important. Similarly, volume of dust produced will be in the upward trend. By 2010, volume of dust generated will reach 108.41 million tons. With regard to sectors, cement industry, ferrous and non-ferrous metal melting will grow quickly, generating more dust.

4.5.3 Continuous increase of solid waste generated and higher pressure on treatment and disposal of solid waste

Overall forecast of 3E model reveals that, China’s fixed capital investment will remain high growth speed during the 11^th Five Year; resource-intensive industries will still grow quickly; therefore, production of solid waste will be remain at the peak level to reach 1169.96 million tons in 2010, increasing by 30.1% compared to the year 2003. See Table 7 for forecast results.

Along with accelerated urbanization, improved living standard and wide consumption of household appliance, urban and rural domestic waste will also accelerate.

Volume of urban domestic waste generated equals to number of population multiplied by per capita urban domestic waste generated. It is forecasted that, per capita domestic waste generated by urban citizens on average will reach 1.06 kg/day by 2010, and the total volume will reach 220.29 million tons. Influential factors considered in the forecast of electric and electronic waste are mainly sales and the average life span. It is forecasted that there will be 55.36 million sets of used electric and electronic appliances in five major categories in 2010, generating 2.102 million tons of electric and electronic wastes. Therefore, recycling and safe disposal of industrial solid waste, household waste, and used household appliances etc., will be an important issue in next five to ten years or more.

 

Table 7: Forecast of industrial solid waste generated in China

Category	2004	2010
Total volume of coal gangue (ten thousand ton)	12921	19800
Total volume of coal dust generated (ten thousand ton)	17481	22967
Total volume of slag(ten thousand ton)	10509	11634
Total volume of slag from melting(ten thousand ton)	12298	15113
Total volume of tailing (ten thousand ton)	25583	32753
Total volume of dangerous waste (ten thousand ton)	1171	1274
Total volume of industrial solid waste(ten thousand ton)	89932	116996
Total volume of general solid waste in industry(ten thousand ton)	88731	115722
Total volume of dangerous solid waste (ten thousand ton)	1171	1274

4.6 Comprehensive analysis of economic growth and environment early warning during the "11^th-five-year- plan"

As previously described, China’s economy in "11^th-five-year- plan" period will still grow with a high speed, and the growth will hold endogenous momentum and pressure. Though the central government will take measures to control the fast speed of economic growth, the average annual growth rate will still exceed 9%, which will put large pressure on the resource supply and environmental protection.

l　　　　  Growth rate of GDP will reach 9.6 percent, 2 percent higher than proposed.

During the "11^th-five-year- plan", the persistent and fast growth of China’s economy has endogenous momentum and pressure. Since 2004, the Central government has promulgated a series of strong economic and administrative regulations to slow down the fast growth, but the effects are not ideal. The Task Force believes that the China’s economy is not overheated, but some structural conflicts have aggravated, for instance, inefficient financial system, distorted income distribution, overheated real estate industry, etc. Notably, persistent economic growth has gone beyond the limit of environment’s carrying capacity.

l　　　　  Energy consumption will increase on a large scale; as a result, it’s very hard to realize the goal to reduce energy consumption per unit of GDP by 20%.

According to the forecast of medium-speed scenario, the energy consumption in “11^th –five-year-plan” will increase by 5.4% each year. The elasticity coefficient of energy consumption will be 0.56, nearly halved in comparison with 1.1 in “10^th –five-year-plan”; despite of this, the energy consumption per unit of GDP could merely be reduced by 17.35%. In the first half year of 2006, this figure did not reduce; instead, it increased by 0.8%. Considering the real condition in this year, the energy consumption per unit in 2006 will be slightly higher than in 2005，meaning that the target to reduce the energy consumption per unit of GDP by 20% in“11^th –five-year-plan” must be realized in four years. In each year 5.4% of energy consumption needs to be reduced. According to the forecast of the task force, even the policy of energy saving could be implemented effectively, the target to reduce 20% of the energy consumption of GDP per unit is extremely difficult to reach.

l　　　　  Environmental pressure is increasing, and there are few chances to realize the target of reducing the total volume of major pollutants by 10%.

Table 8  Environmental and economic pressures facing China in 2010

Main pollutants	Volume in 2010 (100,000 tons)	Proposed control goals in“11th five years plan ”	Volume of emission in 2010 (100,000 tons)	The volume of treatment in 2010 (100,000 tons)	Investment of treatment(investment and running cost) /hundred million RMB
Waste(COD)	3737	Volume of emission reduces 10% comparing to the end of 2005	1273	2464	5542
Waste air (SO2)	4585	The volume of emission reduces 10% comparing to the end of 2005	2294	2291	6409
Industrial solid waste	116996	Integrative recycling  rate of solid waste is over 60%	---	----	1965

Table 8 shows that China will face enormous environmental pressure. According to the “11^th –five-year-plan”, discharge volume of main environmental pollutants (COD and SO₂) should be reduced by10% compared to the year 2005. In 2010, COD generated in China will reach 37.37 million tons. Discharge volume should be lower than 12.73 million tons, and reduction volume should reach 24.64 million tons. This needs an investment of 554.2 billion RMB. SO2 generated will reach 45.85 million tons; discharge volume should be lower than 22.94 million tons, and reduction volume must reach 22.91 million tons. It needs an investment of 640.9 billion RMB. Industrial solid waste generated will reach 1.17 billion tons. To recycle and reuse 60% of the waste will need an investment of 196.5 billion RMB. Treatment of the three pollutants needs an investment of 1391.6 billion RMB，accounting for around 1.8% of GDP. Disposing other waste and realizing the environmental targets in 2010 will cost 2% of the GDP. This is difficult to achieve. Obviously, with the current approach of “end-of-pipe” control, environmental targets cannot be realized. This means that the circular economy, clean production and waste control from sources is the key to the realization of environmental protection. However, the development of circular economy faces institutional and conceptual obstacles. For instance, the state has promulgated the policy that gives the priority of grid connection to power generation with waste and surplus heat; but there is still strong resistance to grid connection of this type of electricity, even in the capital of China, Beijing.

l　　　  Downward trend of Annual Progress Index of Urban Sustainability

Analysis about the Annual Progress Index of Urban Sustainability in pilot cities show that, although the economic growth rates in cities have been fast, the value of the index has been falling. Between 2001 and 2003, the index values in four pilot cities had been dropped from 492.47 to 442.04, by 17 points annually. This indicates that the overall sustainability of these four cities is in the downward trend; though at low decreasing speed, this trend is still alarming.

 

 

Box 4：Early warning of urban- rural gap Since 1996, the gap between rural and urban areas has been expanding. Between 1995 and 2005, the average annual income of urban population per capita increased by 7.67% annually on average, while the net income of rural population increased by only 4.99%. The ratio between urban income and rural net income increased from 2.71 in 1995 to 3.22 in 2005. This trend will continue in the future. During the 11th Five Year, it is assumed that the annual growth rate of urban income will remain the same (7.67% annually), while the growth rate of rural income will be increased from 4.99% to 5.5%. It is forecasted that by 2010, the ratio between urban income and rural net income will be increased to 3.6. Expanded income gap will cause the further widening of the gap between urban and rural living standards. The model forecasts that the gap between urban and rural consumption will be expanded by 15.8%.

 

Box 5. The fast speed of economic growth in China possesses the strong internal power and pressure   First: After the opening and reformation for 20 years in China, the original accumulation of economy has been abundant and the supply of internal capital is richer increasingly. Low-cost capital supply provides the stable foundation of investment.   Second: the progress of industrialization and urbanization and the enhancement of the income per capita leads to mass demand of investment and consumption, providing plentiful investment opportunities for the enterprises. Private investment and investment by self-raised fund have become the dominant forces of fixed capital investment in China. This is one of the essential reasons of the fast speed of the economic growth. Third, the implementation of scientific concept of development and the construction of a harmonious society is putting more pressure on expenditure of local governments, which pushes the local governments to promote economic growth. The scientific concept and the goal of a harmonious society have strengthened the responsibility of the local governments, and the pressure of governmental expenditure is boosted up. For example, constructing the scientific concept and a harmonious and  “people-centered” society, promoting “Five Comprehensive Considerations”, cancelling the agriculture tax, reinforcing the construction of infrastructure, enhancing the investment in social security and medical and sanitation services for the rural inhabitants, improving educational condition in rural areas, improving the ecological environment and so on; to realise these goals needs to increase the expenditures of local governments. Without fast economic growth, there would be no source for governmental expenditure. The construction of a harmonious society needs the capital. The harmonious social development must step with certain speed of economic growth. Fourth, narrowing the over-expanding gap between city and countryside can only depend on income increase of the rural inhabitants and people in poor undeveloped areas, but the income of urban residence cannot be reduced. China has not developed to such level that h to eliminate "Matthew Effect" in market economy. China needs to reach the balance between fairness and efficiency. The rural-urban gap expands unceasingly, but the society keeps general stability, the main reason being the fast economic growth. Although the growth rate of farmer's income is lower than the rate of city people, after all, it is growing. If the speed of economic growth reduces to such a degree that job hunting for farmers becomes difficult and wages are low, the degree of disharmony will be higher. Five, regional differences are also expanding continuously. The GDP per capita of Shanghai is over 10 times of that of Guizhou Province. In the same country, in the identical market, at similar price level, the existence of such big income gap between regions is a special characteristic of China’s economy. Regional "Matthew Effect" will continue to enlarge the regional differences. If not accelerating the economic growth in undeveloped areas, the construction of a harmonious society will remain on the paper. Six, the increase of employment is also an important driving power of economic growth. In China, social security system is not satisfying today. For the ordinary countryside inhabitants, employment means income. Without income, farmers’ livelihood will have no safeguard. Millions of graduates from universities and over several ten millions of farmers are not covered by social security system. China has 8 millions of new labours every year. Only at 8% of the rate of economic growth, can this problem be solved. If lower than this rate, the employment pressure will become obviously higher. Seven, With the gradual increase of resident income, China has entered into the age of mass consumption. General consumption of household appliance, family cars, and increased per capita housing area have become driving forces of fast economic growth. Above factors determine that China’s economic growth must be kept at a high speed.

 

 

 

 

 

Box 6 A comparison of the growth rates of east and west regions in “the 11th-five-year-plan”
	Province	Average growth rate	GDP of each province in 2005	The weight of GDP in the region	The growth rate’s proportion of GDP in region’s growth rate（%）
Ten province /cities of the east region	Beijing	11.90%	6814	5.87%	0.67
	Tianjin	12%	3663	3.16%	0.38
	Hebei	11%	10116	8.71%	0.96
	Liaoning	11%	8005	6.89%	0.76
	Shanghai	11.50%	9144	7.88%	0.91
	Jiangsu	13.1%	18272	15.74%	2.06
	Zhejiang	9%	13365	11.51%	1.04
	Fujian	10.60%	6560	5.65%	0.60
	Shandong	10%	18468	15.91%	1.59
	Guangdong	13%	21701	18.69%	2.43
	Sum for east		116110.8	100%	11.40%
Twelve provinces of the west region	Inner Mongolia	16%	3822	11.45%	1.83
	Guangxi	11%	4063	12.16%	1.29
	Chongqing	9%	3069	9.19%	0.86
	Sichuan	11%	7385	22.12%	2.48
	Guizhou	10%	1942	5.82%	1.06
	Yunnan	9%	3472	10.39%	0.92
	Tibet	12%	250	0.75%	0.09
	Shanxi	12%	3674	11.01%	1.27
	Gansu	10%	1928	5.77%	0.59
	Qinghai	10%	543	1.63%	0.16
	Ningxia	9%	599	1.81%	0.16
	Xinjiang	10%	2639	7.91%	0.80
	Sum for west		33390.3	100.01%	11.49%
Note：Above data is from the “11th –five-year-outline” of different provinces. Locally proposed GDPs are all higher than the data from National Statistics Bureau (NBS). This table uses the proportion of local province data in local GDP to represent the total proportion of 2001-2005, and uses the proportion as the weight to weigh the growth rates of east and west in 2001-2005 on average, and then obtain the total local growth rate in east and west separately.

　　　　　　　　　　　　　　　　　　　　　　　　　　  Part V　 

Policy Recommendations on Balancing Economy and Environment

All the study results, including those of the case studies about the measurement of governmental performance / sustainable development using indicator systems, and the early alarming / forecast about macro-economic growth and the environment by the proposed 3E model, reveal that the sustainability of China’s economy is still facing great challenges. During the 11^th Five Year, the economy will keep growing at high speed far above the proposed goal, while goals of energy efficiency and environmental protection will be very hard to achieve. Without effective measures, these goals may not be reached. Therefore, the Task Force suggests that, during the 11^th Five Year, Chinese government shall take effective measures in five areas in order to realise the goals. These include investment, environmental monitoring and information disclosure, development of circular economy, reform of institutional arrangement /administration system, and pricing / taxation system.

5.1. During the 11^th Five Year, the economic growth rate in China will exceed 9%. If the total quantity of major pollutants is to be reduced by 10%, the government should take effective measures to encourage local governments and corporations to increase investment in environmental protection and pollution control. Environmental investment should account for up to 2.0% of GDP by 2010.

To reach the above goal, it is advised that:

Firstly, regard environmental investment as one of the major goals of macro-economic regulation, and define year-specific objectives. It is advised to establish an economy and environment forecast and early alarming platform, on which annual environmental protection and regulation goals are set up.

Secondly, Further clarify environmental responsibilities of governments at different levels. Increase the weight of environmental performance in measurement of local government performance and strictly implement the measurement to encourage local governments to increase investment in environmental protection.

Thirdly, in conjunction with the policy of total quantity control, accelerate the implementation of emission trade policy so that environmental capacity becomes an important source of environmental protection investment.

Fourthly, set up a regulation on environmental guarantee deposit. Environmental guarantee deposit should be collected from all new construction projects in line with sectoral pollution discharge standards. Deposit shall be returned after the running of the project with discharge in compliance with relevant standards.

 Fifthly, more strictly implement the policy of pollution discharge fee. This is to encourage existing enterprises and regions to develop circular economy, to increase investment in waste recycling and reuse, to increase investment in pollution control, to reduce waste discharge and secondary pollution.

 

5.2. Establish a mechanism for collecting genuine environmental information. In order to guarantee accurate environmental accounting, scientific and operational environmental management policies and objective and fair measurement for local governmental performance, the Central Government should establish an independent environmental data processing system. It is advised:

Firstly, based on existing environmental monitoring system, the Central Government should establish an improved national water pollution, air quality and solid waste monitoring system.

Secondly, fully promote legal enforcement and supervision capacity of environmental protection, and establish an environmental supervision system. In all medium and big-sized cities, strengthen environmental protection and resource management, and expand functions and responsibilities of governmental departments in charge of environmental protection and resource management. Learning from German experiences, establish a public servant regime for environmental supervision. In large state-owned or high-pollution enterprises, environmental supervisors should be appointed and administered directly by state environmental protection authorities. Further, a well-trained and competent public servant should be appointed to every 50 enterprises or public institutions for supervising their environmental activities, resource efficiency and information accuracy. Overall benefits of this system for environmental protection and resource saving will far exceed the cost, and employment will be increased, too.

Thirdly, while continuing the pilot projects on Green GDP accounting, establish a material flow accounting and statistic system to provide scientific and accurate information for nationwide environmental and resource management.

Fourthly, establish and improve the mechanism of environmental and resource information disclosure. Regularly publish quarterly environmental and resource newsletters.

5.3. Shift the emphasis of circular economy from resource saving to environmental protection, and accelerate its development.

Firstly, speed up the promulgation of basic and special laws on circular economy, promote recycling and reuse of resources and wastes, reduce the generation of waste from sources, and minimize the pressures on end-of-pipe waste control.

Secondly, strengthen the enforcement of Energy Saving Law and Renewable Energy Law. Accelerate the development and utilization of biomass energy sources, especially the generation of biogas, petroleum, and electricity using organic and other wastes.

5.4. Improve environmental management system, and clarify authorities and responsibilities of both central and local governments. It is advised:

Firstly, based on the present inter-ministerial regime of the National Environmental Protection Joint Meeting, establish a State Environment and Resource Committee (SERC) to coordinate works of SEPA, MLR, MWR, SFA, and energy authorities.

Secondly, establish a hierarchical system of environmental management, and clarify authorities and responsibilities of both central and local governments for environmental protection. Macro environmental management should be the responsibility of the central government, while local environmental affairs should be the responsibility of the local governments. This institutional arrangement will allow the central government to effectively supervise local governments, to expand local governments’ environmental responsibilities.

It is proposed that the title “State Environmental Protection Administration” be changed to the “Ministry of Environment” so that the authorities of the national environmental protection are enhanced. As an integrated department in charge of environmental protection affiliated to the central government, its major authorities include: formulating national policies of environmental management; controlling and managing environment and resource at the aggregated level; environmental management across catchments and regions; collection, processing and disclosure of the state’s environmental information; assessment, monitoring and early warning of local environmental management; and supervision of environmental management in large state-owned enterprises.

At the same time, the local governments should follow the central government’s regulation on aggregated quantity control, be in charge of environmental management, and hold responsibility for environmental quality and environmental accidents in their administrative areas.

5.5 Reform pricing mechanism so that prices can fully reflect the social values of environment and resources, and circular economy can have comparative advantages. It is advised:

Firstly, set pollution discharge fee at higher rates for wastes such as sulphur dioxide, sewage, industrial and other soot, and solid waste. Rate increase shall allow waste recycling and reuse enterprises to make reasonable profit in the aim of competitive circular economy.

Secondly, increase primary resource price in two ways: dramatically increase resource tax rates; and improve payment of and working conditions for labours from rural areas. With the leverage function of the pricing system, encourage enterprises to efficiently use resources and recycle wastes. Prediction results from the task force advise an increase of resource tax rate to 20% of output of resources, such as coal, oil and natural gas. Tax rates for other resources shall be increased according to scientific assessment.

Thirdly, distribute “environmental bonus” reasonably. While corporate social responsibilities and environmental costs are increased, environmental bonus should also be shared. This helps people balance economic growth and environmental protection. It is advised to adopt tax compensation policies, which is to rebate one percent of tax to those enterprises in compliance with environmental standards.