China Energy Industry

Saving China’s environment

Read in full Patricia Adams’ closing address to the International Symposium on China’s Environmental Crisis: Is There a Way Out? A resounding “Yes!” says Ms. Adams. “Give power to the people”.

Saving China’s Environment:

Give Power to the People

International Symposium on

China’s Environmental Crisis: Is There a Way Out?

The Riley Institute at Furman University

Younts Conference Center

Greenville, South Carolina

September 22-23, 2014

Patricia Adams, Executive Director, Probe International

Thank you very much to the Riley Institute and Furman University for the opportunity to speak at this important gathering and for your generous hospitality. As you know, we had all hoped that Dai Qing, a rocket scientist, a journalist and now China’s most celebrated environmentalist, would be here to tell you about the challenges that Chinese journalists and environmentalists face in speaking the truth about China’s environmental problems.

I won’t attempt to represent Dai Qing, though I may quote her, because, as a dear colleague of 25 years and a fellow of my organization, she has inspired us and given us many, many insights into China and into our own societies.

Indeed, it is because of Dai Qing that my organization, Probe International, based in Canada, became so involved in Chinese environmental issues. In 1986, with factions in the Chinese government pushing to build the Three Gorges Dam, the Canadian government announced that it would finance and prepare a feasibility study for the dam. The purpose was to provide the Chinese government with a “bankable” study so it could raise funds to build the dam and to ensure that Canadian dam-building companies won some of the lucrative contracts that would be awarded for construction of, what would be the world’s largest dam.

So, when the study was finished, we at Probe International used Canada’s Access to Information Act (like FOIA) to get it. I should add that this was the first time a feasibility study for a major international development project had ever been released to the public.

The feasibility study was close to 3,000 pages in 13 volumes and many appendices. We then asked 11 experts in the field, and from around the world, to review it.

Their findings were shocking — for example, the costs and risks, such as sediment accumulation and reservoir-induced seismicity, were discounted, the engineers recommended leaving tens of thousands of people to live in the active flood storage area around the perimeter of the reservoir to keep resettlement numbers down, and so on.

So shocking were the findings of these independent reviewers that we published them in Damming the Three Gorges and we filed complaints against the engineering companies with their regulatory bodies, accusing the engineers of negligence, incompetence, and professional misconduct.

Now, this was all occurring in the months leading up to and following the massacre in Tiananmen Square on June 4, 1989. Just as we were finishing our book, we heard that another critical book about Three Gorges, called Yangtze! Yangtze! had been published in China by a journalist, then unknown to me, whose name was Dai Qing. Her book, a collection of arguments by China’s most eminent scholars cut through the propaganda in favour of the dam, exposing its fatal flaws. Dai Qing and her team of journalists distributed Yangtze! Yangtze! to all State Council delegates leading them to postpone the dam for five years. This was stunning news, an unprecedented act of bravery, and as the Far Eastern Economic Review called it, a “watershed event in post-1949 Chinese politics, representing the first use of public lobbying by intellectuals and public figures.”

That would all soon end with the events of June 4, after which Dai Qing was jailed for ten months. The forces in favor of Three Gorges mobilized to badger the National People’s Congress into approving construction of the dam in 1992, and China’s so-called “rise” began in earnest.

Here we are, 25 years later, the Three Gorges Dam is built, and China’s environment is more seriously polluted and degraded than any other on earth. Last night, Jennifer Turner gave you raw, breathtaking details of the extent of China’s environmental crisis, and its enormous costs to the economy and citizenry.

According to the Geological Survey of China, 90 percent of the country’s groundwater is polluted, much of it too toxic for fishing, drinking and even industrial use. Urban areas are so polluted that all 74 cities recently surveyed by the government exceeded World Health Organization air standards.

The countryside, meanwhile, is no refuge — indeed it has been said that rural areas are at risk of becoming a toilet with 243 million tonnes of feces and 163 million tonnes of urine from livestock every year. “And that is not even counting the nasty chemical cocktail of pesticides, herbicides, nitrogen fertilizer and growth stimulants,” said the UK’s Guardian newspaper. China’s Ministry of Environmental Protection and the Ministry of Land and Resources recently released results of a nationwide soil pollution survey and it isn’t pretty: one-fifth of the country’s arable land is polluted and contaminated with inorganic chemicals like cadmium, nickel and arsenic.

The situation is so bad that even the government now acknowledges the existence of some 450cancer villages,” where power plants and industrial facilities are poisoning villagers’ water and air causing unusually high death rates.

And despite reforms to the country’s largely uncoordinated and often corrupt food regulatory network, scandals involving contaminated and even toxic food continue to plague China and the country’s food continues to be regarded as a likely source of poisons.

With China’s billion-plus citizens afraid to drink the water, eat the food and breathe the air, with the rise in public protests over environmental issues, the government of President Xi Jinping has declared “war on pollution.”

But “war” is the wrong metaphor, and the command and control tools that are employed in wartime, though familiar to the Communist Party, will not fix China’s environment.

Let me illustrate by analyzing China’s continual episodes of air pollution — so bad they’re dubbed “airpocalypses” — which, at times, are so thick that bus drivers lose their way.

Many of you will remember last March, when China’s 3,000 National People’s Congress members met in Beijing under crippling smog. Because public concern over the smog ran so hot China’s leadership, feeling threatened, moved the environment high up the agenda. To deal with smog in China’s big cities, desperate authorities began throwing everything they could at the problem. They confiscated outdoor BBQs. They closed some factories. They dispatched inspectors. And they threatened death sentences for polluters. But these measures, which were both logical and yet feckless, failed utterly.

They were logical because, given China’s system of governance, other measures have been unavailable to those responsible for keeping the air clean. But they are feckless because the scattershot measures mostly miss their mark — they ignore the reasons China’s air pollution has reached apocalyptic 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 the 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 is polluted in good part because China imports cheap fuels. China is the world’s largest purchaser of low-grade petroleum. And China doesn’t refine its oil to a high standard. The result is extraordinarily high levels of pollution — the sulphur content in China’s gasoline is 5 to 15 times that in the U.S. and Europe.

Why doesn’t China refine its oil to higher, cleaner levels? It isn’t because China doesn’t have the know-how. “We would happily refine oil to a higher level,” the state oil giants PetroChina and Sinopec have told China’s leaders. “Just let us recoup our costs by telling the state planners (who set prices at the pump) to raise prices.”

The answer from China’s leadership has been “No,” at least to date. It fears that higher fuel prices would lead to inflation and social unrest.

Even if the Chinese leadership agreed to raise fuel prices, and if the state oil giants produced cleaner fuels, it wouldn’t help much.

Everyone knows that the fuel ultimately pumped into the automobiles would often be dirty — gas pump operators are notorious for adulterating the low-quality fuels they purchase from the giants with even lower-quality fuels from freelancers.

It also wouldn’t help much because China’s vehicles don’t use catalytic converters. Automobile manufacturers, and car purchasers for that matter, see no point in installing them when dirty fuel at the pump would soon damage them.

It gets worse. The electric power sector is similarly booby-trapped. The mandated price of electricity is so low that the state electric utilities can’t afford to invest in cleaner coal-burning power plants — the government wouldn’t let it recoup its costs. Likewise, because the price of natural gas is high the electric utilities can’t afford to invest in cleaner gas-fired plants.

Even if the state-owned energy companies — who are themselves notorious for violating environmental rules — could pass on higher costs 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.

The citizens’ distrust is understandable. China’s central government is good at announcing targets to reduce sulphur dioxide and nitrogen oxide emissions but the government is 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.

China has a Ministry of Environmental Protection but it is toothless — it has little power to sue violators. Even if it did, suits are pointless because the judicial system delivers verdicts that the Communist Party determines. State-owned institutions are vehicles for payments to party cronies — they are effectively immune from the courts.

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 answer is provided by Ma Jun, head of the Beijing-based Institute of Public and Environmental Affairs. He says the government is reluctant to raise the alert level because doing so would shut down the economy. Declaring emergencies simply “are not feasible.” The government is also reluctant to declare an emergency out of fear that it couldn’t make the declaration stick. Enterprises and drivers are likely to ignore high alert levels, exposing the government’s edicts for what they are – hot air.

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

Instead of a “war on pollution,” China needs a peaceful process of de-nationalization and law-making. The goal should be to reverse “Guo jin min tui” — the motto by which “the state advances as the private sector recedes.” Instead, the goal should be to have the private sector advance and to be disciplined by markets and laws that empower citizens to protect their air and watersheds.

Let me explain by looking at the example of hydro dams.

A recent study of worldwide dams by researchers at Oxford University has documented that large dams are not economically viable. They cost close to twice as much as projected and this doesn’t include the negative social and environmental costs or the effects of inflation and debt servicing.

This is not new information. We have known this for years. Large hydro dams are capital intensive and in recent decades were never built without subsidies provided by the deep pockets of ratepayers and taxpayers, in all countries, not just China.

But, there is no better example of this than the Three Gorges Dam. Officials estimate the cost of Three Gorges at $23 billion. No one believes this number. The best estimate of the cost of Three Gorges by independent researchers is closer to $60 billion. Needless to say, the dam was built by a state-owned enterprise. How was it financed? In a variety of ways.

Every electricity consumer in China, big and small, pays a special charge on their electricity bill that went into what was known as the Three Gorges Construction Fund. After construction on the dam was finished, and it became apparent that the environmental problems with the dam required expensive remedial measures and the resettlement of still more people, officials changed the name of the Construction Fund to the National Fund for Major Water Resource Projects. China’s electricity ratepayers, continue to pay for the never-ending costs of the Three Gorges Dam.

This was not the only source of financing. The Three Gorges Corporation, like most state-owned enterprises in China, borrows cheap capital from the state-banking sector. Because of state restrictions on investment vehicles, Chinese citizens have few choices but to deposit their savings in state banks that pay well-below market interest rates. The Chinese state and quasi-state banking sector thus becomes an important source of subsidized capital, not just for Three Gorges, but also for the numerous dams now being built throughout southwest China.

But there is another trick they used. When it became obvious that power generation was Three Gorges’ only revenue source and every other part of Three Gorges’ operations was a drain on the public purse, the state privatized the turbines and generators so they could continue to operate on financial markets, while segregating the money-losing operations to continue to be bailed out by ratepayers and taxpayers.

But the state has to commandeer more than just money to build their dams.

Dam builders need to flood people off their land. Consider for a moment, what would happen if an American state or agency like the Tennessee Valley Authority proposed to flood over a million people off their land to build a hydro dam. It simply wouldn’t happen: no government would survive the next election, and the regulatory tests would likely stop the scheme if the costs of compensating so many people didn’t. In China, dam builders need the power of expropriation without fair compensation, and they have it.

Dam owners also need immunity from liability for the many other costs and risks that they trigger, such as landslides and earthquakes, the destruction of fish stocks, and the elimination of economic activity as a result of altered sediment and water flows, saltwater intrusion at estuaries etc. In China, they have that immunity.

Just how big are these costs? Huge.

Fan Xiao, one of China’s most respected and forthright geologists from the Sichuan Geology and Mineral Bureau, estimates that, due to the scouring effect of the silt-free water released from the dam, downstream riverbanks have collapsed and the Yangtze’s riverbed downstream of Three Gorges has dropped 11 metres. The economic costs of this altered hydrogeomorphology are enormous: the water table has dropped, drought ensued, and ships beached. Most profoundly, Lakes Poyang and Dongting, China’s largest freshwater lakes and environmentally and economically crucial floodplains, are draining into the Yangtze, killing off fish stocks and depriving millions of their fishing livelihoods.

Surely, you are probably thinking, there must be some benefits to the Three Gorges Dam.

How about power production, or flood control?

The price per kilowatt of power produced by Three Gorges is four times higher than the national standard set by China’s State Electricity Regulatory Commission (SERC).

Other deadly risks have been introduced by the dam’s operations: Chinese officials now admit that the constantly rising and falling reservoir level — a full reservoir to generate power, a drained reservoir to accommodate floodwaters — is triggering landslides in some 5,000 potential danger sites around the reservoir, requiring the evacuation of 300,000 people, over and above the 1.4 million already moved to make way for the dam’s 600 km-long reservoir.

Meanwhile, a study by seismologists at the China Earthquake Administration said that the dam has “significantly increased” seismic activity 30-fold in a phenomenon called reservoir-induced seismicity.

While Chinese officials were quick to crow that the dam would harness the power of the Yangtze River to produce clean energy — the dam’s combined generating capacity is now at 22.4 million kilowatts and provides 11 per cent of China’s hydroelectric capacity — it isn’t clear how long that will last.

Geologist Fan Xiao, says in a study that dam developers have gone wild building so many dams along the Yangtze that their combined reservoir volume will exceed the Yangtze’s flow. There simply isn’t enough water to fill all the dams to their designed capacity that will result, he says, in “an enormous waste of money.”

Even the chairman of China Three Gorges Project Corporation — the state-owned company responsible for the dam — acknowledges that his dam will face stiff competition for water as other dams are completed.

Officials have always fallen back on the dam’s power to control floods to justify the project’s exorbitant price tag, but even that argument has grown flimsy. Officials now admit that the dam’s storage capacity is smaller than claimed and of questionable benefit in the event of a major flood.

Other dams fare no better.

Thanks to the determined analysis of Chinese geologists, like Fan Xiao and others, the science of reservoir-induced seismicity suggests that the enormous M8 earthquake that hit Sichuan province in May 2008 and killed upwards of 90,000 people, was indeed triggered by the operations of the Zipingpu Dam.

And the spate of earthquakes that have hit China recently are now thought to have been triggered by the many other dams that are being built and coming into operation upstream of Three Gorges.

Will environmental impact assessments help stop environmentally costly projects like Three Gorges from been repeated? Unlikely.

Here’s why.

For one, none of the costly environmental consequences of building the Three Gorges Dam were unknown. They were all predicted in this book, 2 decades ago. The dam was built because the environmental and social environmental consequences were immaterial to those making the decision. The Communist Party brass wanted to build the Three Gorges dam, just as they want to build 130 more dams in the seismically active southwest region of China today, for prestige, for chauvinistic reasons, for power, yes, and for influence peddling and corruption.

For years, Dai Qing has called the Three Gorges Dam a big fishing project for the “benefit groups”, a “black hole” of corruption, and “a goldmine for corrupt officials.”

Today’s Chinese leaders admit privately that it is an expensive white elephant, and that Dai Qing was right all along.

After years of receiving kid-glove treatment in which the media was prohibited from publishing anything critical of Three Gorges, Chinese President Xi Jinping has trained his sweeping campaign to root out graft and curb abuse of power on the Three Gorges Corporation.

To the surprise of many, earlier this year, the Central Commission for Discipline Inspection (CCDI), an internal Communist Party watchdog, announced it had found officials at the Three Gorges Corporation guilty of nepotism, shady property deals, and dodgy bidding practices. The Chairman and General Manager have been replaced and the investigation is ongoing.

Needless to say, the detailed findings of the investigators remain under wraps while earlier attempts by independent lawyers at the Transition Institute to secure records of Three Gorges’ costs using China’s new Freedom of Information law failed and failed and failed again through the court system.

As long as lawmakers are unaccountable to the populace, as long as laws are nonexistent or unenforced and the courts are dysfunctional, and as long as the state controls access to capital, and can commandeer resources at will and without compensation, China’s environment will continue to be misused and its citizens and economy will suffer.

Many assume that the solutions to China’s environmental crisis are better technologies: scrubbers on smokestacks, higher fuel standards, hazardous waste treatment facilities, solar and wind power instead of hydro dams and coal.

And to be sure, these will have a role to play in a cleaner economy. But without tackling the root causes of China’s environmental decay, they will be ineffective.

Without market discipline, without a free press and free speech, without liability for decisions that put lives and property at risk of contamination, flooding and catastrophic dam failure, without an informed public that is free to challenge lawmakers and throw them out of office at the ballot box, without the rule of law that gives citizens the right to protect themselves from harm, governments will be able to externalize the costs of decisions onto the citizenry with impunity. And they will continue to justify those decisions with feasibility studies and environmental assessments that are nothing more than propaganda.

And as with the South-North Water Diversion Project, which will divert water from the Yangtze 1,000 km to quench Beijing’s thirst, the Chinese government does what it knows how to do – it pours concrete and moves people who are in the way.

Jennifer Turner said last night that everything China does is big. And that is true.

But it need not be so.

The more elegant and effective solutions — and there are many that we know about and many that we haven’t even thought about, such as using markets and laws to properly reflect water scarcity, such as incentivizing Beijing’s residents and entrepreneurs to rehabilitate the watershed and recharge groundwater and aquifers — these are more difficult to craft given the institutional desert that the Communist Party has created.

I would argue that environmentally damaging projects and policies can only proceed if environmental destroyers receive statutory permission to do so, if they receive immunity from liability, if they receive subsidies to compensate for the financial risks of their activity, and if they have a regulatory regime that gives them monopoly powers or protects their rate of return.

The hydro-dam industry is a good example of how this distortion in incentives occurs. Without the subsidies, immunities and market protection that I have described, and without the prospect of rich “fishing projects,” there would be very few large hydro dams in the world. Big dams are simply too financially and environmentally costly for the private sector to invest in. Only the state, with its deep pockets and powers of expropriation, can externalize those costs onto citizens to the benefit of cronies.

But those costs, though uncounted and unrecognized, are nevertheless real, and they undermine the well being of the citizenry and have an insidious effect on the Chinese economy and environment.

Give citizens the tools to force the beneficiaries to internalize the costs and compensate the victims, and you will find that China’s economy and environment will thrive together.

Many commentators see China’s massive population and its desire to pursue profits and to raise their standard of living as one of the gravest threats, not only to the Chinese environment, but to the global environment too. I don’t see them that way at all. Instead, I see the Chinese government as the largest threat and the citizenry as the world’s largest group of front-line defenders of the environment.

Remember, for every national or global environmental threat – whether it is to air, water, or land – there will be local victims who feel the consequences first and most painfully.

Give Chinese citizens the right to know, the legal and political tools, and the security to exercise their rights and to hold accountable those who would destroy their environment, and costly investments will be rejected and sustainable investments favoured. And the innovation that will occur as Chinese citizens invest to meet each other’s needs, in an economy governed by the rule of law, will be truly awesome.

Give power to the people of China to protect their environment and China will thrive, and so too will the rest of the world as a result.

Thank you.

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