Pollution Charge System Compliance
Attributes
Medium: Water
Country: China
Analytical Framework(s): Other
Study Date: 1995
Publication Date: 1997
Major Result(s)
Study Note: As a national environmental policy, the Pollution Charge System (PCS), has been carried out in China for 18 years. Local and international researchers are interested in the effectiveness of this "most important market-based environmental policy". However, the results on whether or not the PCS in China functions as an economic incentive, tends to be conflicting. Past studies have shown that the existing fee is too low. The theoretical conclusion therefore is that the existing fee would not provide sufficient incentive for pollution control. This study has shown that even if the fee is at the optimal level, there are distortions that exist in the behavior of both the enterprises and the regulatory bureaus that could lower the incentive for pollution control.
Study Details
Summary: By adopting both case study and survey methods in investigating enterprises' compliance behavior in dealing with the Pollution Charge System (PCS) in China, this project found that no matter what the existing fee level is compared to the optimal fee level, the enterprises respond to it in an economic way. However, most of their compliance behavior and the local environmental protection bureaus' (EPBs) enforcement behavior lower both the incentive functions that the existing fee level could have offered and the overall effectiveness of the PCS. Thus there is a need for reforms within PCS itself, (e.g., removing subsidy and raising fee rate) and institutional reforms within the EPBs.
Site Characteristics: Pilot implementation of PCS began in the 1970s but it became widely used in the country only after the Provisional Measures for the Assessment of Pollution Charges was issued in 1982. It covers four types of pollution: water, air, solid waste, and noise. The PCS is a two-step policy with a fee collecting system and a pollution control subsidy system. It provides for the collection of fees when discharge standards are exceeded. These fees are calculated based on the multiple by which the standards were exceeded and the volume of wastewater discharged. Payment of the fees is in addition to, rather than in lieu of, the responsibility to treat the effluent that failed to meet the applicable standards. Eighty percent of the revenue from the fees is designated for rebate and subsidy to assist enterprises in the construction of waste treatment facilities. The remaining 20 percent is allocated for EPBs use such as the purchase of monitoring equipment.
Comments: The author noted that a characteristic of Chinese enterprises is that they try hard to maximize production, not profit. When the planning system was still predominant, the political pursuit was the most important factor in assessing the benefits. Output maximization was the enterprises' target. With the political and economic reform that started in the late 1970s, political ambition was gradually replaced by income motivation. Maximizing income (wages and bonus) of managers and workers constitute the most important goal of the enterprises' economic activity. Later, with the transition from planning to market economy, profit maximization gradually becomes the end goal of production. The author also believes that enterprise behavior is determined not only by internal motivation, but also by external environment. This includes changing the economic system and enforcement by authorities, among others.