When Shutting Down Polluters Doesn't Work, China Turns To the Market

The TreeHugger.com

While the notion that environmental protection can be good for business certainly hasn't gone mainstream in capitalist China, this year the country has made some bold attempts to make pollution bad for business. In lieu of national policies backed up by a strong legal system (think the Clean Air Act) -- or just good ol' fashioned brute force -- the government has recently announced market-based disincentives for heavy polluters, like raising the threshold for investment in energy intensive industries and eliminating tax breaks.

Now the ambitious leader of the State Environmental Protection Agency (SEPA), Pan Yue, is touting a system of "green credit.." The idea, which sounds new to me, is to restrict heavy polluters from access to the bank loans they need. It's part of a growing push for what's becoming feared as "green tightening," a slew of economic policies to stop polluters. Pan also released a blacklist of 30 medium-sized companies to whom credit should be immediately denied.

As with every clean policy in growth-obsessed and complex China, though, uniting with those departments will be the sticky part. At the end of May, the major Chinese banks had 1.5 trillion yuan, or $198 billion, in medium- and long-term loans outstanding to energy-intensive and polluting sectors, up 21.8 percent from a year earlier.

Though Pan expects the People's Bank of China and the China Banking Regulatory Commission to abide by the blacklist, it is too early to tell whether other banks will deny loans. But the day after SEPA's announcement, the head of the People's Bank warned other financial institutions that lending to energy guzzlers and heavy polluters is about to get a lot riskier, given the government's increasingly tough stance towards such firms.

In issuing the credit blacklist, Pan noted that it was the strongest measure that his agency could enact, a reminder of how much more influence it should have. Pan said of the blacklist, "It cannot fundamentally contain the trend of worsening pollution, and we need the force of even more combined economic levers."

For now though SEPA will need to depend upon continued cooperation from other government offices if it wants its policies to become reality. Given the central government's increasingly stern green rhetoric, chances are good they'll get more cooperation.

For instance, the news State Council is working on policy to measure local officials' environmental records in considering their promotions. The Chinese Academy of Sciences yesterday echoed calls for a "green tax." And yesterday too, a government watchdog announced that nearly 2000 corrupt officials have been caught, amidst a continuing crackdown on corruption that leads to, among other things, pollution.

In capitalist China, money definitely talks. But there's a big difference between talking and getting the right people, the local officials and businessmen, to listen. And so far there's been little sign of listening. As The Age points out, no provincial government, except for Beijing, met the 2006 target of 4 per cent reductions in energy use. And as country's GDP soared 11.5 per cent in the first six months of this year, the six most energy-consuming sectors grew by 20 per cent.

If the government backs up its green rhetoric with serious reforms soon, like at this November's National Congress meeting, then the government's dream of cutting energy consumption and pollutants dramatically over the five years can become a reality. Otherwise, money will continue to talk, but it will drown out the country's best market-based policies, not to mention other pressing concerns.