OPINION> Commentary
We can't afford to pollute first and improve later
By Lin Boqiang (China Daily)
Updated: 2007-08-06 07:00

The key to solving China's environmental issues is to improve society's awareness. The common excuse that China is still at the early stage of economic development and needs to focus on alleviating poverty rather than protecting the environment does not wash. The argument goes that as the economy develops and per capita income increases, there will be greater demand on the environment and measures will be taken to improve it.

This "pollute first, improve later" concept is based on the environmental Kuznets curve (EKC), a theory on environmental degradation and the per capita income of a country developed by US economists Gene Grossman and Alan Krueger. According to the EKC, pollution follows an inverted U-shaped pattern relative to the country's income level.

When the country's economic development level is low, pollution is light. The environment deteriorates as the country's economy develops. However, when the economy develops to a certain level, the environment will gradually improve. Behind this curve lies the traditional economic model of developed countries - "pollute first, harness later". According to the inverted U-shaped pattern, demand for the environment increases as people get wealthier and more capable of reducing environmental deterioration.

The curve describes the relationship between economic growth and the environment in developed countries. Their success seems to infer that there is no need to pay special attention to environmental issues; that the "green" stage of the curve will be reached through rapid economic growth.

If economic growth is sufficient for the appearance of the EKC, it would suggest that environmental issues can be solved through development, and that protection policies are an unnecessary luxury in developing countries with low incomes. The question is whether the success of Western countries can be replicated around the world. And the answer is no, because over time the pollution situation, resources and the international economic environment have all changed.

Environmental degradation during the early stage of industrialization in Western countries is different from what's happening in developing countries today. For example, in countries with large populations like China and India, large-scale and high-speed economic development and energy consumption can easily reach or even exceed the critical point of resources and the environment. If resources are exhausted during the economic take-off period, it will take a long time and huge costs to recover. The effects of some forms of environmental deterioration - such as soil erosion and the inability to recover from natural disasters - are already irreversible.

The inverted U-shaped curve was realized in Western countries through an "external environment mitigation model". The industrial growth model was unchanged and environmental issues are dealt with through efforts outside industrial production.

The model alleviates the environmental predicament faced by the traditional economic model but ignores the possible resource shortage that modern industry may face. The "external environment mitigation model" has led to higher consumption of resources during the harnessing period, actually increasing overall resource consumption. The premise for its success should be that there are large supplies of inexpensive resources and the environment has not been seriously damaged.

But China is facing a different situation - that fast economic growth will create a shortage of resources. At the same time, global warming is threatening the development of humans. The traditional "external environment mitigation model" may not work anymore.

The EKCs of developed countries are often realized at the cost of developing countries by accelerating their environmental deterioration. China's economic structure and income level means it is still far from being able to transfer high-polluting production activities to other underdeveloped regions. Given China's population and large consumption, even if it gets to that point, there may be nowhere else to transfer the high-energy consumption and high-pollution industries. Therefore, it may need a long time to pass the upward part of the curve.

The inverted U-shaped curves under different economic development models and environmental policies have different characteristics. Passive environmental policies only partly consider environmental costs. They can lower the peak of the environmental deterioration curve through measures like strengthening standards and setting subsidies for improving the environment. Active policies can further lower the peak of the curve by internalizing the costs to minimize damage to the environment and thus effectively prevent irreversible damage during the take-off period of economic development.

Though policies might not change the overall shape of the curve, they may work on the details. For example, policies can flatten out the curve or lead to the early appearance of the peak. But even as we admit the existence of the inverted U-shaped curve, we should use policy measures and international assistance to control environmental deterioration. Developed countries have shown that if sustainable development is implemented and adequate environmental policies are in place, the curve can be reduced.

Improving the environment mainly depends on adjusting the economic structure, improving resource efficiency, changing the investment structure, advancing technologies and increasing income levels. All factors except income are driven by the price of resources. Therefore, the government should make better use of its resource price mechanism to encourage reforms on their use, investment structure and production technologies - and thus promote economic restructuring.

It is undeniable that developed countries are lucky when it comes to the environment. China's current situation shows that we cannot wait for the automatic improvement of the environment when the economy develops. The existing policy interventions seem to be unable to fundamentally reverse the trend of environmental deterioration. Further deterioration of the environment can only be prevented by continuing market reforms, especially resource price reform.

The author is director of the China Center for Energy Economics Research at Xiamen University

(China Daily 08/06/2007 page4)