The failures in meeting policy targets such as reducing energy

The failures in meeting policy targets such as reducing energy intensity by 4 percent per year are the results partly of the unrealistic nature of the targets and partly of the failure to implement laws and policies by the Chinese government in general, including those to protect the environment. Besides the reduction of the use of energy per unit of output, a more important way to protect the environment is to control the emission of pollutants in production that uses the same amount of energy or to use clean energy. Laws to control such emission is not effectively enforced. Chinese producers violate environmental protection laws to reduce cost of production. More importantly local government officials do not cooperate in enforcing such laws. It is often to the advantage of local governments to allow pollution to take place illegally in order to promote a higher rate of economic growth and the central government cannot control them.  Local government officials benefit from higher levels of output in their region as they receive credits for economic development and sometimes bribes from polluting producers. These factors will continue to hinder the enforcement of environmental laws for some time to come.

However, there are also factors contributing to successful implementation of laws and policies to protect the environment.  One is the strong resolve of the central government.  The National People’s Congress enaacted on October 28 2007 a Law on Conserving Energy by stating that work carried out by local government officials in energy conservation should be integrated into the assessment of their political performance along side with output growth. The second is that, if it wishes, the central or local government has the power to enforce such laws because the operation of an industrial enterprise requires its approval and sometimes even its assistance in the provision of land or credit.  In order to protect and improve the environment the government not only can punish the offender but can provide economic incentives for people to act for the economic welfare of the society.  There are a number of incentive schemes adopted by the Chinese government for industrial producers as we have described in section 3.3. Wheeler, Dasgupta and Wang (2003) has provided econometric evidence to show that pollution levy does have a negative effect on the quantity of water and air pollution per unit of output. Third, there is a positive income effect on the demand for a clean environment.