China Considers Tradable Pollution-Rights Permits

By Andrew Batson
The Wall Street Journal
Wednesday, March 29, 2006

HONG KONG -- China might introduce a market-based system of fees and tradable permits for miners and industrial polluters to lessen the country's environmental problems.

Zhu Zhigang, a vice minister of finance, said in Hong Kong on Tuesday that China should increase monitoring and enforcement of environmental standards but that giving companies economic incentives to cut their pollution would be more effective.

"China imposes charges after pollution takes place, which forces the government into a passive position and doesn't allow it to implement an incentive system to get companies to actively protect the environment," Zhu said.

Zhu's comments reflect the increasing attention to environmental issues at the top levels of China's government. A string of major pollution accidents -- including a chemical spill late last year that forced authorities to turn off water for several days to millions of people-- has drawn attention to some of the consequences of the country's rush for economic growth.

President Hu Jintao's administration has made environmental protection a priority as it seeks more developed, sustainable economic growth. China's understaffed environmental regulators have struggled to enforce rules, and local governments often overlook violations by polluting companies that provide jobs and revenue.

Zhu said current penalties for polluters are too lenient and don't cover the costs of cleanup. It would be better for companies to pay for rights to discharge a certain quantity of pollutants. They could then buy and sell those rights, he said. "The trading of rights is an effective way to introduce market mechanisms into environmental protection," he said.

Such a system could also help reduce resistance of local governments to environmental standards, by giving them a large share -- perhaps 80 percent -- of the revenue from the proposed new permits, Zhu said.

China also plans to introduce a similar approach to mining, with coal mines serving as a test case for policies requiring companies to take account of environmental costs, Zhu said. Under the policy, regulators would require new mines to pay a market price for mining rights and to bear the cost of repairing environmental damage caused by their activities, he said. Corresponding fees would be levied on existing mines that received their franchises free.

The Chinese government is increasingly turning to taxes rather than administrative orders to achieve policy goals. In recent weeks, authorities have imposed taxes on disposable chopsticks and on exports of certain processed copper products, measures analysts said are driven by Beijing's desire to curb consumption of scarce resources.

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