By Lin Boqiang (China Daily)
Updated: 2007-08-06 15:47

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.

 

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