(March 4, 2014) With China’s economy operating under perverse incentives, China’s leaders, now assembled in Beijing, will be powerless to clean up its environment.

By Patricia Adams, Special to the Financial Post, published on March 4, 2014

This article also appeared in Huffington Post Canada on March 10, 2014, as China must regulate pollution or be doomed to an “airpocalypse”.

China’s National People’s Congress — 3,000 delegates from across the country — meet in Beijing Wednesday, with the country’s crippling smog, which now looms as a threat to the leadership, high on the agenda.

To deal with smog in China’s big cities — so thick at times that bus drivers lose their way — desperate authorities have been throwing everything they can at the problem, from confiscating outdoor BBQs to threatening death sentences for polluters. But the measures, both logical and feckless, have utterly failed.

Logical because, given China’s system of governance, other measures have been unavailable to those responsible for keeping the air clean. Feckless because the scattershot measures mostly miss their mark — they ignore the reasons China’s air pollution has reached apocalyptic — dubbed “airpocalyptic” — levels.

The worst polluters are coal-fired power plants and factory boilers, motor vehicles and the construction industry. Together, they blanket China’s major cities with pollutants 40 times levels considered safe to breathe by the World Health Organization.

Why does the government target BBQs and individuals instead of the major polluters? Because it knows how to deprive ordinary citizens of their property and their lives. It doesn’t know how to regulate an incoherent economy bereft of market discipline.

The air in China — the world’s largest purchaser of low-grade petroleum – is polluted in good part because China imports cheap fuels. “We would happily refine oil to a higher level,” the state oil giants PetroChina and Sinopec tell China’s leaders. “Just let us recoup our costs by telling the state planners (who set prices at the pump) to raise prices.” The sulphur content in China’s gasoline is five to 15 times that in the U.S. and Europe.

“No,” China’s leadership has responded, at least to date. Higher fuel prices raise the spectre of inflation and social unrest.

Even if the Chinese leadership agreed to raise fuel prices, and if the state oil giants produced cleaner fuels, all know that the fuel ultimately pumped into the automobiles would often be dirty — gas pump operators are known to adulterate the low-quality fuels they purchase from the giants with even lower-quality fuels from free-lancers.

The power sector is similarly booby-trapped. The mandated price of electricity is so low that the state power giants don’t invest in cleaner coal-burning power plants. Because the price of gas is high they don’t invest in cleaner gas-fired plants.

Even if the state-owned energy companies — notorious for violating environmental rules — could pass on higher costs to recoup the expense of refining cleaner fuels and scrubbing dirty smokestack effluents, citizens wouldn’t be confident that they weren’t simultaneously being gouged and polluted. They might then take out their ire on the government.

China’s central government is good at announcing targets to reduce sulphur dioxide and nitrogen oxide emissions — and even installing controls sometimes – but incapable of enforcing them. For years, China’s leaders have promised to clean up the air, and for years, inspectors have been bribed to ignore infractions. Local officials likewise have allowed polluters to set up shop in their communities in return for bribes and taxes. Meanwhile, air quality worsens.

A toothless Ministry of Environmental Protection has little power to sue violators. Even if it did, suits are pointless because the judicial system delivers Communist Party-determined verdicts. State-owned institutions are vehicles for payments to party cronies.

Because pollution is now the number one cause of popular dissent, the Chinese government introduced a four-tiered air-quality measure to quell public outrage. At the blue level, all is well; at yellow acceptable; at orange and then red factories and power plants must be shut and cars yanked off the road. Yet, when Beijing’s smog levels went “off the charts” in January, the code remained at yellow.

“Why doesn’t the government declare an emergency,” everyone, including the state media, asked? “The government is reluctant to raise the alert level” because measures that would shut down the economy simply “are not feasible,” says Ma Jun, head of the Institute of Public and Environmental Affairs. And if enterprises and drivers ignored high alert levels, as many are likely to do, the government’s edicts would be exposed for what they are – hot air.

China’s air isn’t polluted because the technologies to keep it clean are unavailable but because the country lacks a credible regulatory regime that makes polluters pay and rewards investors to innovate.

The new administration of Premier Li admits that China’s economy has boomed because resources have been underpriced and the state-dominated industry subsidized. It now recognizes that the toll on the environment poses a grave threat to Communist Party rule. Yet almost certainly, the 3,000 now assembled at the Chinese People’s Congress in Beijing will fail to undertake needed reforms — China’s corruption and centralized economic control are too deeply entrenched.

Patricia Adams is an economist and executive director of Toronto-based Probe International. E-mail: PatriciaAdams@probeInternational.org.