Accounting for the Environment in China
In September 2006, the Chinese government unveiled a long-awaited study on how to account for environmental costs during its economic and industrial boom, known as the Green GDP Accounting Study. But noble as the concept was, as soon as it was released, serious problems in the accounting strategy came to light. Is the Green GDP effort just theoretical window-dressing, or does it have legs for the long run? Elizabeth Economy, author of The River Runs Black: The Environmental Challenge to China’s Future (Cornell University, 2004) fills us in.
The numbers were in. In early September 2006, after more than two years and tens of thousands of man-hours, the Chinese government released its long-awaited Green GDP Accounting Study — a bold pilot that was to represent China’s Gross Domestic Product (GDP) figuring in environmental degradation and the cost of natural resources. Sprinkled throughout the short report were assessments of the costs of water, air and solid waste pollution, along with recommendations to increase investment in environmental protection. Overall, the State Environmental Protection Administration (SEPA) and the National Bureau of Statistics (NBS) — the two agencies leading the Green GDP campaign — announced that environmental pollution cost China US$64 billion in economic losses in 2004, accounting for 3.05 percent of China’s GDP.
Yet the real story of the report wasn’t so much what was in the study as what wasn’t. Chinese environmental statistics for water and air pollution, land degradation, and water scarcity top the world charts. Media reports from around the country frequently recount tales of factories which can’t operate because of lack of water, farmers who can’t sell their poisoned fruit, and hundreds of thousands of people dying prematurely from respiratory diseases related to air pollution. While not an insignificant number, the 3 percent figure was a far cry from what had been anticipated. Chinese scientists, international economists and the World Bank, among others, had for more than a decade calculated that environmental degradation and pollution cost the Chinese economy the equivalent of 8-12 percent of GDP annually.
Recognizing that the report fell significantly short of the public’s expectation, SEPA and NBS officials quickly launched damage control. They said that they were able to account for only half the items they had originally intended to include in their accounting, so environmental problems such as groundwater and soil contamination, along with eight others, were not included in the calculations. Moreover, they noted that there were some “underestimations” and “missing items” within the calculated costs of even those they did evaluate. Officials further hinted at significant methodological challenges, noting that their calculations were limited by “localization of departments, limits of technologies, and the limitation of basic data.” Further muddying the waters, SEPA Vice Minister Zhu Guangya even issued a separate environmental report almost concurrently claiming that damage to China’s environment cost the government roughly 10 percent of the country’s GDP annually — far closer to the figure that had been expected from the Green GDP study.
Yet even as some officials attempted to salvage the future of the Green GDP, others were undermining their efforts. After the report’s release, Deputy Director of the Beijing Bureau of Statistics Yu Xiuqin stated that the “Green GDP is not that important by itself. The importance of the concept is not about the figures we are going to see. Green GDP figures can only serve as guidance for public opinion; they will not have an actual impact on environmental protection.” She added that it would not be a good idea to link the Green GDP to officials’ performance evaluations because it would promote the production of false statistics.
The upshot was that the once highly-touted effort to find a means of raising the profile of China’s environmental challenge, and of enforcing some discipline on China’s local officials and their ambitions for economic growth, had fallen dramatically short of expectations.
What Went Wrong?
It wasn’t supposed to be this way. Two and a half years earlier, in February 2004, China’s environmental activists thought they had been vindicated. When an outspoken and visionary Vice Minister of SEPA, Pan Yue, announced that a study of China’s GDP that included the burden on the environment would be undertaken, it was far more than an academic exercise: It was a dramatic political statement. No longer would officials be evaluated solely on their success in growing their local GDP; rather, when looking at an official’s performance or suitability for higher office, Beijing would consider the success with which the official had integrated economic growth and environmental protection as measured by this Green GDP.
In fact, NBS had earlier undertaken a Green GDP experiment in Chongqing which sits astride the Three Gorges Dam reservoir. Based on this experience, the Chinese leadership decided to expand its Green GDP program and launch local GDP calculation trials in Beijing, Jilin, Shaanxi, Guangdong, Shanghai and Shanxi. By February 2005, the experiment had been expanded to include Tianjin, Hainan, Liaoning, Sichuan, Zhejiang, Hubein and Anhui. Specifically, SEPA, NBS and assorted domestic and international think tanks and universities would work together to assess the economic losses caused by air, water and solid waste pollution, although precisely how this would be accomplished remained vague. Meanwhile media outlets, such as Xinhua also supported the Green GDP.
In and outside China, officials, analysts and the general public viewed the Green GDP efforts as evidence that China’s leaders were finally beginning to take some action after years of rhetoric concerning the need to improve China’s environmental situation.
The Real Challenge
Behind the scenes, however, endless political gamesmanship threatened to undermine the campaign. Some provincial officials recognized the Green GDP as an opportunity. In July 2004, the deputy director of the Anhui Provincial Environmental Protection Bureau, Xu Jiasheng, stated, “The best solution is to balance the relationship between the two (economic development and environmental protection). Environmental protection should be one of the criteria used to judge the performance of government officials and a Green GDP calculating system should be adopted.” Similarly, in the coal-producing region of Shanxi, officials saw the Green GDP effort as an important opportunity to address years of grievances. After the Shanxi Academy of Social Sciences calculated the costs of the depletion of coal resources, exploitation of land, water consumed and environmental pollution, Dong Jibin, the deputy director of the Academy, said that pollution costs alone amounted to 10.9 percent of the official GDP. Dong argued that since resource exploitation and pollution had diminished Shanxi’s GDP, the central government needed to compensate Shanxi for its “contribution and sacrifice.”
Yet other officials were more wary. Certainly there were legitimate concerns: Few countries in the world had even attempted such an effort, thus there were not many models for China to emulate. In addition, Chinese statistics have always been notoriously unreliable, often reflecting political concerns rather than accuracy. Then resource accounting is a complex venture in any case. Even the project’s most ardent proponent, Vice Minister Pan Yue, noted some challenges: “How do you decide the value of natural assets when they are not traded in the market and thus have no price.? How much is the cost of felling a part of a forest? We don’t know because we don’t know how to count the ensuing animal extinction and soil erosion.” And despite being charged with directing the effort, representatives of the NBS were highly skeptical. As NBS spokesman Zheng Jingping stated, “As for the Green GDP project, the concept is good but the practice will be difficult.” Zheng also claimed that Green GDP was not necessarily the best way to ensure sustainable development because it wouldn’t include all the necessary factors, and he suggested that while the consciousness-raising that had resulted from discussion of a Green GDP was all well and good, the public’s hopes were too high for what the system could actually accomplish.
Political opposition from many of the local officials under scrutiny was also fierce. When the final report was issued, the document failed to provide the detailed accounting of regional GDP statistics that the government had promised. Many local leaders felt threatened by the results and successfully blocked open publication. And so Beijing issued two very separate reports: one for consumption within its own elite and one for everyone else.
In the end, the Green GDP experiment went forward, but all the limiting factors, the vocal opposition, and the muted reservations took their toll. What resulted was at best a first step toward a more comprehensive and sustained effort to calculate the country’s real losses from its environmental pollution and degradation. At worst, it will be viewed as yet another valiant attempt by China’s environmental activists to counter the overwhelming drive to develop China’s economy, no matter the environmental costs.
What Does the Future Hold?
China’s top environmental officials continue to promote the Green GDP. As Pan Yue has stated, “Although it will be a long process to establish the system because of difficulty obtaining data and the approach, we have to kickstart it. China cannot wait until all the preconditions are ready. Otherwise it will be too late to save the country’s environment.” Putting a bright face on the political challenges faced by the Green GDP concept, he suggested that it was good that local officials opposed the process: opposition, he said, demonstrated that SEPA’s efforts were already bearing fruit.
It is most likely, however, that Green GDP accounting, like many of China’s environmental campaigns, laws and regulations, will not achieve real success unless it is nested in a much broader set of political and economic reforms. Political and economic incentives must be in place to make it easy for local officials to do the right thing. Pricing for water and energy should reflect replacement costs and encourage industry and households to conserve resources; empowering the media and non-governmental sector to serve as aggressive watchdogs on both industry and local government practices and encourage public participation; and significantly increasing investment into capacity building for lawyers and judges to enhance environmental expertise would all be important accompanying measures. Without such a wholesale reform effort, the Green GDP will likely become yet one more example of a much-heralded environmental campaign that rapidly fades into obscurity.