Chinas Water Pollution Crisis

Diagnosis and Comparative Policy Analysis

Lucas Blaustein

5/7/2013

The Economics of Environmental Quality

Environmental pollution is understood as the negative effects that users of the environment experience as a consequence of that environments 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).
Figure 1

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.

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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).

Chinas 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 Institutes 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.

Chinas Water Resources At 2,841 km3/year, Chinas water resources are the sixth largest in the world, but this statistic bellies the seriousness of Chinas underlying water problem per capita availability is a mere 1/4th the world average (World Bank).
Map 1

Chinas 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, Chinas 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).

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Demand within China for water resources is growing and unabated. From Deng Xiaopings To Get Rich is Glorious to Xi Jinpings Chinese Dream, the residents of the worlds 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 worlds 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 Chinas water basins.
Figure 2

Chinas demand for water is split across numerous sectors. With over 300 million farmers, the majority (62%) of Chinas water still goes to agricultural uses. But in recent
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years industrys demand for water resources has grown rapidly within China, now accounting for 23% of use. Municipality or residential use is Chinas fastest growing area of demand, but only accounts for 13% of Chinas domestic water consumption. Only 2% of Chinas water is allocated for the purposes of environmental protection (Refer to Table 1).

In every corner of China, water is becoming an issue. With Chinas water resources so heavily taxed, the damages caused by environmental degradation cannot afford to be overlooked.

Chinas 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 wasnt a biblical plague, or the ominous foretellings 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 citys 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 Chinas ongoing water pollution crisis. According to a report coauthored by Chinas State Environmental Protection Agency and the World Bank, over 90% of Chinas 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 Chinas surface water resources are polluted, with major pollution being concentrated in Northern China, where water resources are less abundant and population density is greater.
Figure 3

Surface Water Pollution

Human Consumption Ag and Industry Unusable

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.
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28 30 42

28% is so heavily polluted as to be currently unusable. In 2007, 72% of Chinas lowincome 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 Chinas 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 Chinas 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, Chinas water crisis is changing. As the Chinese economy tran sforms, 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 Chinas 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 Chinas 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 2000s 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 Peoples Republic of China

The Chinese government understands that it faces a water pollution crisis. Beginning with the 11th Five Year Plan, the Peoples 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.
Figure 4

Despite the progress that has been made, the governance structure that enacts and then affects Chinese water policy is still both complicated and fragmented. Chinas 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 Chinas 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
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enforcement is one of the critical issues that hinders effective implementation of Chinas water policy.

Figure 5

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), Chinas 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 Chinas water market policy remains weak and institutionally ineffective.
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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-andtrade 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 Chinas largest failures in water policy has been related to the issue of transjurisdictional water pollution. Chinas 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, Chinas 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 Chinas State Council. The largest problem that arises from Chinas 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 Chinas 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 C hinas 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 Chinas water policy exist in the institutional framework and cooperatio n 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 Chinas water pollution crisis.

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Works Cited Contd 9. Peplow, Mark. "Why has the Yangtze River turned red?." Nature. Newsblog, 11 Sept 2012. Web. 7 May. 2013. http://blogs.nature.com/news/2012/09/why-has-the-yangtzeriver-turned-red.html. 10. Tietenberg, Tom. Environmental and Natural Resource Economics. 6th. New York: Pearson Education, Inc., 2003. Print. 11. The People's Republic of China. Ministry of Environmental Protection. Environmental Laws. 1984. Web. http://english.mep.gov.cn/Policies_Regulations/laws/environmental_laws/200710/t20071 009_109915.htm. 12. "The river that DID run red: Residents of Chinese city left baffled after Yangtze turns scarlet Read more: http://www.dailymail.co.uk/news/article-2199800/The-river-DID-runred-Residents-Chinese-city-left-baffled-Yangtze-turns-scarlet.html. 13. Ward, Frank. Environmental and Natural Resource Economics. Upper Saddle River, New Jersey: Pearson Education, Inc., 2006. Print. 14. "Water Governance." World Wildlife Organization. World Wildlife Organization, n.d. Web. 7 May 2013. http://en.wwfchina.org/en/what_we_do/freshwater/water_governance/. 15. "Water, health, and economics." World Health Organization. World Health Organization, n.d. Web. 7 May 2013. http://www.who.int/water_sanitation_health/economic/en/. 16. Xie, Jian. "Addressing Chinas Water Scarcity." World Bank. The World Bank, n.d. Web. 7 May 2013. http://wwwwds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/01/14/00033303 7_20090114011126/Rendered/PDF/471110PUB0CHA0101OFFICIAL0USE0ONLY1.pd f. 17. Yang, Yong, Ying Chen, Xiaolin Zhang, Edwin Ongley, and Lei Zhao. "Methodology for agricultural and rural NPS pollution in a typical county of the North China Plain." Environmental Pollution 168. (2012): 170-176. SciVerse. Web. 7 May 2013. http://www.sciencedirect.com.libezproxy.tamu.edu:2048/science/article/pii/S0269749112001996.
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Works Cited Contd 18. Zao, Laijun, Ying Qian, Rongbing Huang , Changmin Li, Jian Xue, and Yue Hu. "Model of transfer tax on transboundary water pollution in Chinas river basin." Operations Research Letters 40.3 (2012): 218222. SciVerse. Web. 7 May 2013. http://www.sciencedirect.com.libezproxy.tamu.edu:2048/science/article/pii/S016763771200020X. 19. Zaragoza, . "Charting Our Water Future." OECD. Organization for Economics Cooperation and Development, 04 May 2010. Web. 7 May 2013. http://www.oecd.org/greengrowth/sustainable-agriculture/45074347.pdf.

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-ofprecipitation.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-chinaswastewater.html
Table 2

Tables

Table 1

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