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Changing the rules of the game

Pan Yue

Ma Li

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Crackdowns on polluters have had limited success in curbing China’s ecological crisis. Pan Yue, deputy director of the country’s top environmental watchdog, talks to Li Ma about green economics, and why now is the time for a change in strategy.

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In a change from the previous strategy of “environmental storms” – strict crackdowns on polluters – Pan Yue, the deputy director of China’s State Environmental Protection Administration (SEPA), proposed seven new green economic policies in a speech to the China Green Forum on September 9, 2007. The emphasis has shifted from the so-called “big stick approach” to a more practical, economic approach to environmental protection. 

In this interview, Pan admits that while crackdowns have had positive effects, they do not help to create systems -- and the changes they bring are far below expectations. Pan now wants to see green economic policies put in place, and change the rules of the game.

Ma Li: What are the reasons behind this shift from the “big stick approach” of environmental crackdowns to the search for new economic policies to solve environmental problems?

Pan Yue: Four major crackdowns have taken place since early 2005, and they have had positive effects. But to be honest, the results are far from what we might have hoped for. A number of limitations – restrictions on lawful punishments, limited scope and over-reliance on local enforcement agents – mean that the crackdowns have failed to alter the situation and put a durable system in place.

It has always been our aim to build systems, and so it’s a great shame to find ourselves in this situation. Legal crackdowns have resulted in nothing more than a tug of war. We need to change the rules of the game, and put green economic policies into place. We’re now going to shift from traditional administrative measures to using economic policies – and then to large-scale legislation.

ML: Do you think economic policies can entirely solve China’s environmental problems?

PY: China’s environmental problems involve politics, the economy, society and culture; they are far more complex than the problems faced by developed countries. It’s unrealistic to expect one or two policies to fix it all. All I can say is that, to date, environmental economic policies have been found to be the most effective ways of creating long-term systems.

However, this is a more difficult undertaking than the crackdowns. It can either keep everyone happy or it can be effective, but not both. There will be conflicts of interest between government departments and between regions and industries. The public will also have high expectations, which the final outcome may not meet. We’ve tried in the past, and come up against these setbacks and failures, but we must remain calm and determined.

ML: Other countries are using green economic policies, and Chinese academics have raised them in discussion. Why does China still not have any?

PY: There are a lot of reasons for this, but perhaps the most important is that they would affect the powers and interests of many government departments, regions and industries. When a new policy conflicts with established interests it is likely to be set aside.

Therefore, the theoretical discussion of these policies is not enough – I want to call on the economic authorities and any authorities with an environmental remit to work together in developing policies to curb emissions and energy use. And let me make this clear, we would be happy to play a supporting role if any economic authority wants to take a lead in making this happen.

ML: The “green credit” system was put into operation this year. How is it progressing?

PY: In July 2007, SEPA, the People’s Bank of China and the China Banking Regulatory Commission (CBRC) published a paper about how to use environmental policies and regulations to reduce credit risk. SEPA and the People’s Bank of China have entered the details of 15,000 breaches of environmental law into a database that has been made available to commercial banks. Some of those banks are now using that information to refuse credit to companies that have broken environmental laws in the past. The CBRC has also sent banks a blacklist of companies that have polluted certain river basins and are not to receive credit. Some overseas banks, such as Standard Chartered Bank, are also planning to work with us on green credit.

ML: How would you evaluate this experiment? Based on its progress so far, could you call it a success?

PY: It’s too early to say it’s a success. But the current state of the environment doesn’t allow us to wait until we’ve come up with flawless policies. We need to evaluate, research, experiment and reach conclusions – all at the same time.

ML: Trials of compulsory environmental liability insurance are about to start. Can you tell us where those trials will take place, or what the actual policies are?

PY: Currently we’re working on this with the China Insurance Regulatory Commission (CIRC) and putting together plans and supporting technology for the trials. We still need to clarify further the actual scope of compulsory insurance, define liabilities, compensation standards and processes. The actual locations and industries have not yet been finalised.

ML: PetroChina and Sinopec have both said that large industrial enterprises should not be covered by these rules, on the basis that they have ample financial resources with which to cover any environmental compensation costs. What’s your opinion of this?

PY: Neither of those companies has formally presented that view to SEPA, so it is not a question I can answer. All I can say is that there are examples abroad of petrochemical firms that incur huge bills for compensation after major incidents. These firms also need to have environmental liability insurance to spread the risk.

I hope large state-owned enterprises will look at participating in this system. As to whether it will be made compulsory for these firms, we’ll need to look at that during the trials, and listen to a range of opinions.

ML: Environmental tax has been talked about for many years, but progress has been slow. Why is that? Will there be any progress over the next two years?

PY: The planning and implementation of green taxes is an incredibly complex task. Designing the tax itself and its relationship to other taxes, setting the tax rate, the cost of collection and analysing its impact on the economy – it’s not going to happen quickly.

The good news is that it is now on the agenda. The State Council’s plans for reducing emissions and energy consumption actively call for research on green taxes, and the Ministry of Taxation is actively looking at using a tax to bolster environmental protection. With the current pressure for reductions in power use and emissions, a breakthrough on this issue can be expected in the near future.

ML: We have heard a lot about environmental compensation over the past two years, but have not seen any progress. What’s holding it back, and how are the environment authorities going to push it forward?

PY: Some localities have been actively exploring environmental compensation mechanisms. But in general, progress has been slow. It affects many different interests, and there is not yet any clear legislation provided or a debate over the source of funding, distribution channels, methods and standards. There is also a strong degree of departmentalism, with no single framework or plan for implementation. Many well-designed policies get lost in “further discussions” between different government departments.

Establishing an environmental compensation policy should focus for the moment on protecting water resources. This will create the conditions for a more general policy. This should also be a method of transferring funds from developed areas to less-developed areas, from cities to villages and from wealthy populations to the poor. It should transfer money from the lower reaches of rivers back to the source, and from polluting industries to clean enterprises. When it is successfully implemented, it will lay the foundations of a fair system.

Background: the road to the new green economics

When Pan Yue revealed his plans for seven new green economic policies to the China Green Forum on September 9, he called on the economic authorities and government departments responsible for the environment to work together in researching and conducting trials of these proposals.

Pan’s proposed policies include green taxes, which would tax individuals or groups based on their use or misuse of environmental resources.

Green capital markets would leave polluting enterprises unable to obtain credit, or do so only at punitive rates of interest. Polluters would be unable to issue bonds or increase their investments, while environmentally-friendly firms would enjoy lower interest rates and other benefits.

Environmental insurance policies would force polluters to take out insurance against environmental risks. In the event of a pollution accident, the insurers would pay compensation to the victims.

Other policies include: environmental charges; environmental compensation; an emissions trading market; and a green trade policy.

Pan has revealed that SEPA’s next step is to join forces with the Ministry of Finance for research and trials on environmental tax and compensation policies. The China Securities Regulatory Commission will audit the environmental records of listed companies. The CIRC will hold trials of compulsory environmental liability insurance, and the Ministry of Commerce will strengthen its oversight of export firms’ environmental standards.

SEPA and its partners hope to unveil these policies within a year, says Pan, and have trials up and running in two years. This means, he says, that the first stages of China’s green economic policies should be in place within four years.

This interview first appeared in Beijing News.

Ma Li is a reporter for Beijing News

Pan Yue is deputy director of the State Environmental Protection Administration

Also by Pan Yue on chinadialogue:

“The rich consume and the poor suffer the pollution”

The environment needs public participation

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Chinese environmentalists are finally shifting their focus from talking to doing. The of propaganda or showing-off of China's environmentalists is coming to an end. It is time for those environmentalists who are just working on environmental campaigns to end their simple promotion "missions".



Do not know the career perspective for those who are studying environmental science.


受自我中心主义驱使,为了赶上西方国家发展速度,中国政府已经严重忽视了环境问题.人们思想中灌输的唯物主义观点完全缺少了环境意识.作为拥有世界第六大人口数量的中国,对人民的环境教育也应该同步.庞大的人口数字,对整个世界的影响也是巨大的.来自权威人士的言论我们已经听的太多,现在是我们关注的时候了.希望大家能站出来反对他们所制造的夸大言论,尽管现在行动已经晚了,但仍值得这样做.--- dorjee

Late still worth it

In egoistic drive to catch up with west, Chinese government has seriously neglected its environment and instilled in the mind of people materialistic attitude without and total absent of environmental consciousness. Environmental education to Chinese people should be incorporated for China is home for one sixth of the world population. By sheer size of its population, it make a whole world of difference. We have heard enough from the authorities, now it is time to watch. Hope they you will up to the hype they have created even though it is too late but still worth doing. --- dorjee



A long way to go.

I am also interested in the issue mentioned above.

Since early 2000, environmental engineering has become a popular subject in China. However, graduates of the subject have found it is difficult to be employed.

This is because that priority has been given to economic growth instead of ecosystem balance. Policies by the Central government have been ignored by local authorities.

Environment protection in China still has a long way to make some achievement.



Environmental economic policy

Hopefully discussion about how to guarantee the adoption and implementation of environmental economic policies will be held at the 17th National People's Congress.

However, I think all talks will end without any results.

Initiatives like green credit easily remain as topics instead of being implemented due to shortage of supervision regulations.




Too many initiatives could mean less achievements.

Too many environment-related economic polices adopted at the 17th National People's Congress could result in few of them to be implemented.

It makes more sense to introduce few policies and ensure its through implementation.

If pollution discharge fees turn out to be a mature and long-lasting solution, more efforts should be focused on its improvement. It will be more effective than adopting other measures like environmental taxation at the same time.

Also more environmental policies do not necessarily mean that businesses could be held accountable for their pollution, and contrarily it will could make the regulations confusing for companies to apply to.

Meanwhile, the mechanism to assess officials' achievement should be improved. Green GDP accounting should have been carried on, though it faced many difficulties.

Giving up halfway through an experiment, SEPA and the Central Goverment risk losing their reputations.


文章写得很好,尤其是关于环境责任险的部分.一个很有趣的事实是,在1860年刚开始实施火险的时候,保险赔付不是用来支付火灾造成的损失,而是支付给救火人员用于防止火灾的发生或者减少损失的.当然对于环境损害发生之后很难计算责任,但是计算哪些特定产品会增加对环境的危害通常而言是比较容易的.这种方式的强制环境责任险可以引导资金从那些危害环境的活动流向防止危害或者解决环境问题的活动.这样一种经济工具很有可能可以引导各国将不可持续的经济模式转向一种现代化的工业增长模式,正如中国在十一五规划中定义的"循环经济"一样.还有一个很关键的优势就是这样可以节省去大量的规章规定,甚至可以省去制定排放限额的麻烦.北大西洋公约组织的科学项目正在研究这一方式,预计Springer明年将发布研究结果.感兴趣的话,可以到下面的地址阅读草案 James Greyson

Insurance can also prevent problems

Great article, especially the discussion of insurance. Interesting to note that when fire insurance first began in 1680 it did not pay for the costs of damage but instead paid for fire brigades to prevent and reduce damage. Whilst it is usually difficult to prove liability for environmental damage after it happens, it is usually easy to calculate the risk of particular products ending up adding to waste levels in the environment. Obligatory insurance on this risk can transfer money from activities which cause problems into a fund for activities which prevent and overcome problems. It is possible to use just this one economic instrument to rapidly transform every country's unsustainable economy into a modern industrial growing economy which follows the 'circular economy' model defined in China's 11th five year plan. A key advantage is that the amount of prescriptive regulation can be reduced and there is even no need for mandatory emissions limits to stabilise the climate. For anyone interested, this approach is being developed for NATO's Science Programme and will be published next year by Springer. The draft paper is available at
James Greyson

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