Carrot and stick strategy needed to cut emissions

More incentives would give polluting businesses reason to change their ways

The State Council Information Office hosted a press conference Tuesday to brief the media on a policy and action plan aimed at addressing climate change. This plan, of course, follows the recently concluded Asia-Pacific Economic Cooperation (APEC) summit in Beijing, where the leaders of China and the US issued a joint statement pledging their support for a deal that will see the two nations aggressively curb carbon emissions over the coming decades. For its part, the US has set a goal of reducing its carbon-dioxide (CO2) output by 26 to 28 percent below 2005 levels by 2025. Meanwhile, China intends to see CO2 emissions peak around 2030, if not sooner.

Xie Zhenhua, vice minister of the National Development and Reform Commission (NDRC) said at Tuesday's conference that the establishment of this goal forces the Chinese government to transform its development model, readjust its industrial structure and commit to upgrades designed to enhance the quality and efficiency of economic growth.

China's commitment to curbing energy consumption shows that it is ready to take responsibility in international environmental protection efforts. By doing so, the country can also address urgent issues in its own development. As Chinese Premier Li Keqiang said not that long ago at the Summer Davos Forum, China must focus on energy efficiency and environmental protection since overexploitation of resources has led to serious domestic pollution problems.

China has already made strides toward alleviating its energy inefficiency problems thanks to earlier policy efforts. For instance, NDRC data show that Chinese energy consumption per unit of GDP fell 4.2 percent year-on-year in the first half. This figure exceeds the government's official target of 3.9 percent and marks the largest drop of its kind since 2009. From such results, it seems China has both the potential and the capability to fulfill its carbon goals.

Unfortunately, some enterprises regard investment in energy-saving technologies and environmental protection measures as a waste of money. Reports say that some companies which have purchased more efficiency equipment allow these machines to go unused in order to save on operating expenses. Such behavior underscores the lack of environmental awareness that still exists within China's business community as well as the weakness of environmental policy enforcement mechanisms.

China's new Environmental Protection Law, which is set to take effect on January 1, 2015, will put additional financial pressure on environmental offenders with daily penalties for rule breakers. Fines have long been the government's weapon of choice when it comes to clamping down on polluting enterprises. While businesses that harm the environment deserve to face monetary penalties, negative incentives alone have done little to instill the importance of energy efficiency or the value of protecting China's natural environment.

More positive incentives should be introduced as China works to achieve its pollution reduction and carbon emissions goals. Authorities should consider, for example, broadening an experimental carbon trading mechanism that rewards businesses for being efficient. Such a mechanism allows enterprises to buy and sell emissions rights, thereby letting companies profit directly from their own carbon-cutting measures.

The government began pilot tests on such a trading scheme in select provinces and cities back in 2011. By expanding the geographic scope of this program, more enterprises could take part in emissions trading, yielding more substantial results in the process.

Thankfully, the political will to achieve such an expansion seems to be building. An official from the NDRC mentioned at Tuesday's conference that the government plans to introduce regulations pertaining to carbon emissions trading by the end of this year. He also said the government has accelerated the construction of a nationwide carbon emission trading market, which he expects to see up and running within the next few years.

A balance of negative and positive incentives can steer more enterprises toward improving their environmental protection strategies. On the one hand, harsh fines can deter enterprises from increasing emissions or illegally disposing of waste. At the same time, a carbon trading framework can compensate enterprises that contribute to the country's carbon-cutting agenda.