By Zhou Hongchun, Research Department of Social Development of DRC

Research Report No 144, 2014 (Total 4643)

Ecological civilization construction is generally considered part of governmental responsibilities. It is necessary to figure out through in-depth studies what the government should be responsible for, what external environment should be created and what management system should be developed as comprehensively deepening reform and opening up in China. The paper will discuss the issues like the boundary between the government and market, the domains for which the government should create an external environment as well as the management system needed for ecological civilization construction so as to lay a solid foundation for the establishment of ecological civilization institutions.

I. The boundary between the government activities and market should be determined based on the characteristics of ecosystem factors

1. Government's improper intervention has intensified the conflicts between economic development and environment.

Important to the implementation of the basic state policies for resource-saving and environmental protection, ecological civilization construction should include such four areas as spatial layout, resource efficient use, environmental protection and institutional improvement. The current issues of resources and environment in China are closely connected with China's development. They are also related to government's direct allocation of resources or improper intervention in resource allocation.

First, the government's dislocation or beyond its responsibilities lead lower efficiency in resource allocation. Some local governments rely on the sales of land and mines as the major source of fiscal revenue, which contributes to the excessive use of arable land and ecological environment. Some transfer and allocate metal minerals, coal, oil and other resources beyond their administrative authority. Therefore some mines become exhausted after predatory exploitation, resulting in a great loss of resource tax revenue due for the country. Moreover, some local governments started development zones and magnificence hotels and buildings on the pretense of "operating the city". In consequence, there are industrial parks but no plants in the parks or plants but no production lines in the plants. Land is becoming a scarcer resource in the coastal areas and towns without or rare residents are increasing.

Second, a defective pricing mechanism has depressed the prices and increased excessive consumption of resources and destruction of the ecosystem. Government intervenes too much in pricing. For example, different on-grid prices are set for different power generating unit, which is a typical behavior of "rent setting". Some ministries, by examining and approving projects, implement encourage instruments where punishment instruments are more appropriate, which leaves space for "rent-seeking". Resource depletion, serious environmental pollution and ecological degradation have been the major constraints to the healthy development of the economy, grave obstacles to improving people's living quality and potential trouble in sustainable development in China.

Third, government's supervision is missing. Some local governments, for the sake of tax revenue, have no supervision over pollution or even become a "community of interests" with polluting enterprises. Problems, such as low pollution charges, narrow coverage and low charging rate for emission, hinder daily operation of environmental facilities like wastewater plants and incineration plants. With the absence of government's supervision, enterprises discharge waste arbitrarily without waste treatment and gain extra profits. The pollution control cost is borne by the whole society. Therefore, it is not rare to see the phenomena of "high cost for compliance but low cost to be illegal", and the circumstances of "entrepreneurs getting rich, the government paying the bill and the public suffering the pollution consequences".

Fourth, policies are not correctly implemented and some of them even generate "negative effects". For instance, some local governments have invited merchants and investments through preferential policies for land, tax breaks, fiscal subsidies, low standards of environmental protection. It turns out that exacerbate production capacity and the largest waste of resources and ecological damage due to many enterprises transferred with energy-intensive and pollution. Furthermore, some policies have produced negative effects in the process of implementation. For example, the incentive policy of comprehensive utilization of resources, while promoting the development of related industries, has generated the effect of "polluter charge", contrary to the polluter pay principle prevailing in the world. Take another example. The export rebate policy is to boost the export of primary products such as rare earths, polysilicon but has accelerated the depletion of mineral resources and caused more anti-dumping and anti-subsidy investigations.

2. Basic principles to differentiate the boundary between the government and market.

It is to discuss what the government should be responsible for, what instruments should be adopted and what priorities should be in the improvement of the ecological civilization institutions. Basic principles are as follows.

The first is sustainability of ecosystem. Natural resources and ecological environment are components of ecosystem, the sustainability of which is key to the sustainable development of the economy and society. Government should formulate policies, regulations, rules and plans to facilitate the sustainable development and utilization of natural resources and meet the needs of the current generation and bequeath sufficient resources and development opportunities for the future generations. Market mechanism can be more used to boost the allocation efficiency of resources and ecological environment. For instance, market measures such as the use of environmental capacity and emissions trading scheme, can mitigate the adverse impact of automobile emission at the source in aggravating haze in urban China.

The second is the property and interests. Since ecosystem factors have the attributes of public goods and resource assets, government should play a role in providing public goods on the one hand while market mechanisms can be used, on the other hand, to reflect the attribute as resource assets. China's existing laws stipulate that natural resources like water, forests and minerals etc are owned by national citizens and the ecological environment is a "public good". A spate of "tragedies of the commons" appears due to undetermined property. In order to avoid "market failure", the government has to clearly define the property rights of resources and strengthen the management of natural resources with undermined property rights but owned by all citizens. Natural monopoly prevails in utilities like water supply, power generation, gas pipeline, flood control and environmental protection. Governments of near all countries in the world intervene in these sectors. China is no exception.

The third is the distribution of usufruct. Government should balance the relationship between socio-economic development and eco-environmental protection. Economic development should be achieved at the least cost of environmental degradation. Nor the people with abundant natural resources should suffer from poor living. In view of the unfair distribution of property profits from natural resources and the widening gap between the rich and poor, the scope of resources tax collection should be expanded to promote common prosperity. As for the phenomenon that automobile emission aggravates "haze", "Pigovian tax" should be levied to get "clean air" back in cities. Moreover, clarifying property right of resources will lay a foundation for accounting ecological value and establishing the balance sheet for natural resources. Government can also start with efficiency indexes for water resources, cultivable land and pollution discharge to provide the basis for defining ecological red lines (specially-protected areas) and accountability.

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