China’s Water Pollution Crisis Diagnosis and Comparative Policy Analysis

5/7/2013

Lucas Blaustein

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The Economics of Environmental Quality

Environmental pollution is understood as the negative effects that users of the

environment experience as a consequence of that environment’s degradation (Ward).

These negative effects manifest in many forms, but all are generally referred to as

damages. With these damages come ablative costs – cleaning up an oil spill or

increased filtration are both examples of ablative costs incurred by society when the

environment is damaged. The relationship

between damages and ablative costs

results in a simple trade-off situation,

where reducing emissions minimizes the

damages of environmental degradation,

but also robs resources from other areas

of the economy (Field).

Simple quantitative tools exist to measure the relationship between the functional forms

of these damages and costs. Shown graphically in figure 1; there is an understood

efficient level of emission, where marginal damages equal marginal ablative costs.

Because a trade-off exists, an equilibrium level of emission is formed, where society

reaps the maximum benefits of having a clean environment, without sacrificing too

many resources in the attempt to rectify environmental pollution.

Figure 1

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While all pollutants share some characteristics, differences are abundant. In order to

correct for these differences, environmental policy must consider the unique attributes

of each form of pollutant. In terms of water resource economics, water pollution

manifests in two unique ways that are particularly important when constructing relevant

water policy: 1) recreation benefits are significant when considering water pollution

control; and 2) large economies of scale in water treatment allow for one centralized

system of environmental cleanup (Tietenberg).

In terms of environmental pollution, water is divided along its two main categories –

surface and ground. In terms of ground water, most forms of pollutants infiltrate ground

water supplies through leaching into water saturated regions. Once such pollutants

become present in a ground water supply, they are much harder to remove. Unlike

ground water, surface water pollutants further divide into point and non-point sources.

Non-point sources affect water diffusely and indirectly, whereas point sources are

usually associated with discharge directly into surface water from a specific location.

The last division that takes place when discussing water pollution is determined by the

environments capacity to handle the pollutant. Fund pollutants are defined as having

some assimilative capacity, so that either over time, or through the natural course of the

environment the pollutant dissipates. The more troublesome pollutants are defined as

stock pollutants, which accumulate in the environment usually in relation to manmade

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activity. The most harmful and renown group of stock pollutants are heavy metals

(Tietenberg).

China’s Ministry of Water Resources ranks water into three main categories – good

water quality, fair water quality, and poor water quality. Good water quality is broken

down into three subcategories: 1) the source of the natural body (nature reserve); 2) a

class one water source (protected area) for drinking water and aquatic species; and 3) a

class two water source for drinking water, swimming, and common aquatic species. Fair

water quality is broken down into two subcategories: 1) class four water sources, for

general industrial water supply and recreational (non-human contact) use; and 2) class

four water sources, for agriculture and landscaping. Lastly, poor water quality is broken

down into only one subcategory: a class five water source that is highly polluted.

For the purposes of this paper, water pollution is restricted to the measuring of stock

pollutants, paying special attention to heavy metals. A list of priority pollutants, as

defined by the United States Environmental Protection Agency (EPA), was used as the

basis for restricting research methodology. The EPA uses four criteria in its

determination of whether or not a pollutant is considered a priority: 1) the pollutant must

be on the list of toxic pollutants; 2) there has to be a chemical standard available for the

pollutant, so that testing for the pollutant can be performed; 3) the pollutant must have

been reported as being found in water with a frequency of occurrence of at least 2.5%;

and 4) the pollutant has to have been produced in significant quantities, as reported in

Stanford Research Institute’s 1976 Directory of Chemical Producers, USA. The list of

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priority pollutants was used as a guideline for the purposes of comparative analysis in

understanding the environmental degradation of pollutants within China.

China’s Water Resources

At 2,841 km3/year, China’s water resources are the sixth largest in the world, but this

statistic bellies the seriousness of China’s underlying water problem – per capita

availability is a mere 1/4th the

world average (World Bank).

China’s low level of per capita

availability is characterized by the

environments naturally uneven

spatial distribution of water

resources. Most of Western

China is an arid desert, with little

in the way of abundant precipitation. As you move Southeastward precipitation

increases with proximity to the South China Sea. However, China’s precipitation is also

highly unpredictable, characterized by massive rains that result in environmental

disasters such as flash floods, landslides, and monsoons, to years of dry spells, which

often come in succession (World Bank).

Map 1

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Demand within China for water resources is growing and unabated. From Deng

Xiaoping’s ‘To Get Rich is Glorious’ to Xi Jinping’s ‘Chinese Dream,’ the residents of the

world’s most populous country are transforming their nation in a development push that

could end divergence within 40 years, returning China to a place it held for eighteen of

the last twenty-one centuries, as the world’s largest economy. But such rapid

development is further taxing the already limited water resources within China.

According to a study published by the Organization for Economic Cooperation and

Development (OECD), Chinese water demand will increase from 555 billion cubic

meters to 818 cubic meters in 25 years. This will produce a severe supply shortage in

over half of China’s water basins.

China’s demand for water is split across numerous sectors. With over 300 million

farmers, the majority (62%) of China’s water still goes to agricultural uses. But in recent

Figure 2

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years industry’s demand for water resources has grown rapidly within China, now

accounting for 23% of use. Municipality or residential use is China’s fastest growing

area of demand, but only accounts for 13% of China’s domestic water consumption.

Only 2% of China’s water is allocated for the purposes of environmental protection

(Refer to Table 1).

In every corner of China, water is becoming an issue. With China’s water resources so

heavily taxed, the damages caused by environmental degradation cannot afford to be

overlooked.

China’s Water Pollution Crisis

In September of 2012, the residents of Chongqing city on the banks of the Yangtze

River were left startled

when they awoke to

find their river had

turned red. Nothing

could have prepared

people for the sight of

their entire city

inundated by water the

color of blood. But

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what occurred in Chongqing wasn’t a biblical plague, or the ominous foretelling’s of an

angel of Revelations, for what occurred in Chongqing had happened before.

In 2011, powerful dye had been illegally dumped into the municipal water supply of the

Central Chinese city of Luoyang, turning the city’s water an ominous red color. After a

government investigation, the perpetrators of the illegal dumping were arrested and

their factories shuttered. Nonetheless, harmful environmental degradation had already

occurred (DailyMail).

This one story is but an example of China’s ongoing water pollution crisis. According to

a report coauthored by China’s State Environmental Protection Agency and the World

Bank, over 90% of China’s surface water resources near cities are polluted, of the 27

lakes and reservoirs being monitored in 2007 – none were safe for human contact.

Nationally, 70% of China’s surface water resources are polluted, with major pollution

being concentrated in Northern China, where water resources are less abundant and

population density is greater.

In total, only 42% of surface water in

China is safe for human consumption.

30% of surface water is considered

safe for agricultural or industrial use.

42

30

28

Surface Water Pollution

Human Consumption Ag and Industry Unusable

Figure 3

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28% is so heavily polluted as to be currently unusable. In 2007, 72% of China’s low-

income population (over 115 million people) lacked access to piped water, relying solely

on surface water for consumption. This has resulted in a growing health crisis among

poorer Chinese.

Concerning groundwater, approximately 90% of China’s urban groundwater resources

are polluted and 60% are unsafe for human consumption (MEP). The two main priority

pollutants that affect groundwater are arsenic and fluoride. With China’s surface water

being rapidly depleted in Northern provinces, in addition to insecurity over the safety of

surface water, Chinese municipalities are increasingly turning to ground water

resources.

In recent years, China’s water crisis is changing. As the Chinese economy transforms,

with economic stability and standard of living being emphasized over economic growth,

the number of heavy metals and point sources of water pollutants have been steadily

decreasing. But this decrease is being offset by an increase in non-point sources,

attributed mainly to greater uses of fertilizers and chemicals within agricultural

production.

Dr. Pei Guo of China Agricultural University, cited pollutants from China’s agricultural

industry as being one of the major environmental issues facing the Chinese

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government. Such forms of non-point pollution are much harder to measure, contain,

and monitor than traditional point sources. Furthermore, due to lower purchasing power

parity, and poor economies of scale, most Chinese farmers lack the capabilities of

improving the products or methods they use for agricultural production. China currently

has 300 million farmers on an average of an acre and a half of land, with rural income

well below national average income.

In total, the World Bank estimates that China’s water crisis is already costing the nation

upward of 2.3 percent of its total GDP, with 1.3 percent being due to water scarcity, and

1 percent being due to water pollution respectively. The impact on human health is

staggering, and estimates from the early 2000’s are as high as 3.9 billion dollars in

medical expenses. Some recent studies suggest a 10% rise in the incident of cancer

due to the exposure of greater numbers of the population to water borne heavy metals

(OECD).

The Water Policy of the People’s Republic of China

The Chinese government understands that it faces a water pollution crisis. Beginning

with the 11th Five Year Plan, the People’s Republic of China (PRC) began to emphasize

cleaner growth and less pollution. Environmental governance is being concentrated, by

bringing the 14 different ministries tasked with environmental protection under one

umbrella.

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The latest 12th Five Year Plan is being lauded by environmental groups, boldly stating

its objective to replace economic growth above all costs, with what it describes as

‘quality growth’. Many new pollutants have been added to the list of target pollutants for

reduction, furthering helping to improve water quality. As well, a large investment is

being made in both rural and urban wastewater projects, to help not only improve water

resource management, but help curb pollution and better water quality.

Despite the progress that has been made, the governance structure that enacts and

then affects Chinese water policy is still both complicated and fragmented. China’s

State Council sits as its largest body, overseeing all aspects of legal formulation and

implementation. From the State Council, power branches off to provincial governments,

as well as to the Ministry of Water Resources. While The Ministry of Water Resources

monitors pollution throughout China, and is tasked with putting in place China’s water

policy, it has no power over the provincial governments – who only answer to the State

Council. Due to this bizarre governance structure, most water policy lacks teeth, and

Figure 4

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enforcement is one of the critical issues that

hinders effective implementation of China’s

water policy.

As China continues to develop its water

policy, placing emphasis on improving

investment in clean water technology, and

reducing priority pollutants, China also

needs to begin to develop incentive structures to help discourage pollution, and account

for the ablative costs that society incurs from damages to the environment.

Suggested Water Policy Solutions

According to the Organization for Economic Cooperation and Development (OECD),

China’s water policies have improved dramatically over the past five years, as water

pricing policies have evolved to better reflect water scarcity (Refer to Table 2). Most of

China now operates under a two-tiered tariff system with respect to water consumption.

The tariff is determined at the local level, and increases with the level of consumption. A

water supply and wastewater treatment fee are often bundled together and are required

to earn an 8-10% return on capital. Lastly, there is also a separate charge that is set to

reflect the scarcity of water in the local area. But despite these improvements, much of

China’s water market policy remains weak and institutionally ineffective.

Figure 5

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The OECD sets out a number of corrective measures that could aid China in improving

its water policy and accounting for the ablative costs of water pollution, the corrective

measures are to: 1) better staff local municipalities, as to get more accurate data on

pollution figures; 2) introduce taxes and levies on emissions; or 3) implement an

emissions trading scheme (ETS) that creates a market for the right to pollute – model

an ETS system after an already existing system such as the United States cap-and-

trade system.

ETS systems implement a form of transferable pollution rights. They can reduce

pollution by insuring that the marginal cost of abatement is equalized across polluters

and pollution reduction is achieved at the lowest possible aggregate cost. ETS systems

also promote dynamic efficiency by encouraging the researching of alternative

technologies. Lastly, ETS systems can create a double-dividend, boosting revenue that

can be used to further cut other harmful forms of pollutants and invest in water

treatment projects. China already has a number of ETS systems in place, but the small

scale of these systems and their lack of regulatory power have mitigated their success.

One of China’s largest failures in water policy has been related to the issue of trans-

jurisdictional water pollution. China’s current water policy fails to address the negative

externalities that downstream third parties face when subject to pollution conducted

upstream. The failure to address trans-jurisdictional water pollution arises mainly from

the institutional framework that currently governs Chinese water policy.

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As discussed earlier, China’s water policy is enacted by a range of organizations that

often have little in the way of punishment that can be enforced at the local level.

National organization have no method for ordering local officials to enforce policy, as

local officials only answer to China’s State Council. The largest problem that arises from

China’s current water policy is that without one organization that both governs and

enforces water policy, trans-jurisdictional water pollution goes unaccounted for.

According to Edwin Ongley and Xuejun Wang of the International Water Resources

Association, China must take the following steps to address trans-jurisdictional water

pollution: 1) give power to one organization to regulate and enforce China’s water

policy; 2) allow for greater transparency, so that local residents within an area can

participate in the analysis and creation of effective water policy; 3) gather better data at

the local and regional level; 4) enforce accountability by creating a legal basis to which

officials can be held; 5) create better descriptive laws that sets out concrete metrics to

make targeting certain pollution levels easier; and 6) allow public participation and

dispute settlement so that third parties injured by pollution may voice their concerns and

seek remedy.

According to Lan, Livermore, and Wenner in their essay Water Pollution and Regulatory

Cooperation in China, “in the face of inter-jurisdictional externalities, one can expect a

race-to-the-bottom in which jurisdictions compete to deliver a friendly business

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environment by offering lower environmental standards.” Within China this presents a

particularly difficult situation, as the system of Hukous does not allow for the free

movement of citizens between provinces. Yet, while citizens are restricted, businesses

are able to move freely, meaning that the while businesses can escape the tax indices

of their polluting activities by moving to an area with looser environmental regulations,

Chinese people cannot, and are left to suffer with the environmental damage a business

leaves behind.

Lan, Livermore, and Wenner suggest that China adopts the concept of “cooperative

federalism” from the United States, in which local governments within China agree to

comply and abide by the same regulations set forth by the national government.

Another policy suggestion is the use of cost-benefit analysis, where ablative costs are

compared to the willingness to pay for clean water. The goal of such cost-benefit

analysis is the maximization of net benefits by equalizing marginal damages and

marginal ablative costs (Refer to Figure 1). By comparing the costs of implementing

these policies to their associated benefits, the hope is to reduce the politics inherent

within the localized decision making process, and ground all decisions in metrics that

are uniform within China.

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Conclusion

China faces immense challenges in confronting its water pollution crisis. The levels of

priority pollutants within China have already had harmful effects on the environment,

resulting in economic loss, harm to the health of the population, and damage to China’s

water resources. While current policy is an improvement over past policy, much work

still remains in order to effectively reduce water pollution in China. Current weaknesses

in China’s water policy exist in the institutional framework and cooperation that governs

the regulation of water pollution. Other problems exist in the collection of pollution data,

and issues related to trans-jurisdictional water control. Luckily for China, corrective

policy already exists to address these challenges in the forms of numerous economic

tools and policies. Through comparative policy analysis, China could borrow

transferable pollution rights or (ETS), cooperative federalism, and cost-benefit analysis

from other nations such as the United States to help ease their water pollution

problems. One can only hope that the leaders of China can learn from the mistakes of

the nations that have developed before them, as they define their countries path to

quality growth, and seek to solve China’s water pollution crisis.

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Works Cited Cont’d

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Works Cited Cont’d

18. Zao, Laijun, Ying Qian, Rongbing Huang , Changmin Li, Jian Xue, and Yue Hu. "Model

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Image Resources If Not Previously Referenced (By Order of Appearance)

1. Fig 1: http://ars.els-cdn.com/content/image/1-s2.0-S0167880997001254-gr1.gif

2. Map 1: http://seeingredinchina.files.wordpress.com/2012/03/china-map-of-

precipitation.jpg

3. Pic 1: http://i1.ce.cn/district/newarea/roll/201302/20/W020130220442066917812.jpg

4. Fig 5: http://www.globalwaterintel.com/archive/13/1/general/five-years-clean-chinas-

wastewater.html

Tables

Table 1

Table 2