China is the world’s largest consumer of energy and emitter of CO2 emissions – more than all developed nations combined (BBC, 2021). As a result, China is under intense pressure to reduce its emissions and achieve its net zero pledge by 2060. To help accomplish this, the Chinese Communist Party (CCP) issued binding directives in its 14th Five-Year Plan for 2021-2025 to shrink carbon emission intensity by 18%, increase forest coverage by 24.1%, and have “good air quality” for 87.5% of the year (Murphy, 2021).
Some argue that China’s authoritarian structure makes these binding directives straightforward because of the central government’s ability to compel businesses and citizens to comply with top-down mandates (Gilley, 2012). I argue that the picture is more complicated – China’s model of “fragmented authoritarianism” (Lieberthal, 1995) presents both political and financial disincentives for local leaders to implement environmental mandates. This paper aims to analyze the nature of these disincentives and provide recommendations for how the central government can overcome them to attain the environmental targets in the latest Five Year Plan and reach net zero by 2060.
Setting the stage: Fragmented authoritarianism and policy implementation in China
While China might appear to have a top-down, hierarchical command-and-control government, fragmentation of authority is actually at the heart of China’s political system (Lieberthal, 1995). Through the lens of government revenues and expenditures, China is the most decentralized country in the world (Wingender, 2018). With 31 provinces, 334 prefecture units, 2,850 county-level administrative units, and more than 40,000 township-level units, these subnational governments have significant autonomy in governing the world’s largest population.
Accordingly, policies that are formulated by the central government are broad aspirations that are largely interpreted and implemented at the discretion of a sprawling network of county and municipal level bureaucracies staffed by “cadres” – CCP members who fulfill a range of civil-service type roles. In particular, Party secretaries and mayors hold significant authority in implementing national directives.
Cadres are expected to rotate to different posts in different regions after a set term. The rotation system was originally designed in the post-Mao reform era as a way to enhance the Party’s monitoring and control of their cadres but has widened its utility as a way of reducing regional administrative disparities, improving training, diffusing policy innovations, and bridging administrative and regional hierarchies (Eaton and Kostka, 2014). This cadre rotation system has unfortunately acted as a roadblock to achieving China’s environmental objectives.
High cadre turnover: Short timelines for cadre rotation result in the prioritization of career advancement with a focus on short-term results and economic growth.
Most cadres and those in government leadership positions are expected to serve for a term of five years before rotating. However, a growing body of evidence shows that very few are serving the full length of their term. One analysis between 2002 and 2011 found that average tenure was 3.3 years and less than 14% stayed beyond 5 years. Another analysis found average tenure among 2,058 municipal mayors was just 2.5 years (Eaton and Kostka, 2014).
The result of these faster rotations is a shifting prioritization of what cadres want to accomplish when they are in the post so that they can get promoted to higher positions. The Cadres Performance Evaluation System (CPES) is the primary institutional mechanism set by the central government to measure performance and incentivize the behavior of cadres. They are consistently evaluated on five key characteristics: morality, capability, diligence, performance, and probity (Ran, 2013).
Some local governments have added specific quantitative targets on top of CPES. In 2007 the Ying Kou Economic and Technological Development Zone (YKETDZ) added six quantitative measurement categories (Ran, 2013):
- economic development
- social stability
- development of education, science and technology, culture, health, and sports
- environment protection and population control
- public security
- adherence to the Party’s ideology
Though environmental protection is included on this list, interviews with government leaders found that it was loosely regulated and considered a “soft target”. For example, failing to reduce sulfur dioxide emissions was not formally punished, nor would receiving that reduction result in political rewards (YKETDZ People’s Government, 2007).
In contrast, the quantitative targets related to economic growth, like GDP growth rate and revenue collection, or social stability, like a reduction in “mass incidents” or “petitions” were considered “hard targets” that had to be met. Failure to meet them could doom promotions and negate any other positive accomplishments in their evaluation (Ran, 2013).
Because of the promotion pressure and selective evaluation incentives from local governments, cadres focus their energies on projects which they expect will advance their careers. These projects have tended to be those that are highly visible, can be quickly delivered, and generate economic growth, like extravagant construction projects (Eaton and Kostka, 2014).
Environmental priorities not only have much longer horizons for the benefits to materialize (e.g. reforestation efforts could take several years to mature), but in some instances, they involve direct trade-offs with hard targets like economic growth or personal enrichment. For example, in the Datong municipality, local leaders ignored national mandates to restructure coal-mining operations to be less environmentally damaging because they received bribes from coal bosses (Eaton and Kostka, 2014). In other circumstances, environmental mandates which call on local governments to “green” their industrial plants impose high costs leading to layoffs and reductions in employment.
Unfortunately, the solution is not as simple as incorporating environmental protection as a hard target. An analysis in the Nantong prefecture found that when environmental goals were set as hard targets in cadre evaluation, many cadres resorted to fabricating statistical data (Ran, 2013). Part of the reason they can get away with this is that the central government doesn’t have an effective way of verifying the data submitted by cadres. For example, the measurement of energy intensity doesn’t have a national standard and local officials can use any method they like (Ran, 2013). As a result, until the achievement of environmental goals more directly results in promotion potential, can be similarly enriching, and whose completion is tamper-proof, local cadres will continue to prioritize other projects which guarantee their career advancement.
Weak bureaucracies with conflicting interests: Local bureaucracies with the most responsibility for implementing environmental mandates have the least authority to do so while also serving conflicting goals.
It is not only cadres who are insufficiently incentivized to carry out environmental edicts, the bureaucratic agencies responsible for implementation at an institutional level are not empowered to do. Typically the local Environmental Protection Bureau should have the highest responsibility and authority for the environment but in reality, it’s restricted by a weak position with its responsibility broken up among more than 10 different actors (Jahiel, 1997; Lo & Tang, 2006). Some of these actors include the Water Resources Bureau, Agriculture Bureau, and the Development and Reform Committee. However, these additional actors are not just advancing environmental objectives, but other goals as well which often come in conflict with each other.
For example, a Water Resources Department should oversee the protection of water resources, but its bureaucratic mandate also includes the development of water resources for hydropower, reservoirs, and dams which are often harmful to the environment (Mertha, 2008). As another example, the Development and Reform Committee is tasked with leading on energy and climate issues, but its primary interest is around economic planning and promoting heavy industry which ends up conflicting with its climate mandate since industry businesses are highly polluting.
Because of this mismatch in the power/responsibility dynamic along with conflicting mandates, fully implementing environmental policy is stymied by bureaucratic institutions themselves which don’t find themselves fully incentivized or empowered to do so.
Lack of financial resources: Local governments are responsible for financing the majority of environmental expenditures without sufficient support from the central government.
In addition to a lack of empowerment and conflicting goals, local bureaucracies often lack the finances to see through ambitious environmental programs. In fact, not implementing environmental programs could result in more money – as was seen in the cadre example.
Funding for local bureaucracies comes from four primary channels: the central government’s budget, the local government’s budget, loans from banks, industry investment, and foreign aid/NGOs (Ran, 2013). One analysis found that among those four sources, the central government provided only 10% of all funding for environmental protection between 2006 to 2010 (People’s Daily, 2011).
Part of the reason is that it’s incredibly cumbersome for local governments to obtain funding. It requires negotiation and paperwork through five administrative levels of government with intermediate actors that provide varying levels of cooperation, often requiring guanxi, or personal relationships and trust with key players in order to advance funding requests.
One example of this happened in the city of Shihezi where the Tianye Company sought funding for a recycling project but was only able to get 0.4 billion RMB from the National Development and Reform Committee after they convinced top leaders from Beijing to visit the company a few times (Ran, 2013). Another project in Shihezi to plant trees to combat desertification wasn’t able to be done during the summer, the best time to plant, because the funding from the central government became too delayed and didn’t arrive on time.
Because of these hurdles, local governments tend to finance the majority of their environmental projects from their own budgets. However, in some instances the financially prudent option is non-implementation. For example, environmental regulations are loosely applied in some areas that rely heavily on heavy industry for economic growth.
In Shihezi, the Tianye chemical plant refused to pay 2 million RMB in pollution fees for two years because they contributed 30% of the local GDP. Local government officials felt that was more important to appease the plant owners for providing jobs and economic growth than punishing them for flouting environmental standards (Ran, 2013). Further, if other industrial businesses came to know that the local officials here were not enforcing environmental fees, then they may be incentivized to relocate their operations there.
Conclusion and Recommendations
To reach net zero by 2060 and attain the environmental targets set out in the latest Five-Year Plan, the Chinese central government has to overcome the implementation gap of environmental policy at the local level. Doing so will require tackling the misincentives for action in the cadre evaluation process, empowering local bureaucracies to prioritize environmental action, and providing financial resources to execute projects. Two ways the central government could do this, include:
Strengthening the weight of environmental protection and five-year tenure durations in the CPES, in addition to establishing national standards for environmental targets with robust measurement, reporting, and verification tools.
In the current CPES methodology, cadres and local governments perceive environmental objectives to be “soft targets” compared to economic objectives while also not being penalized for rotating out of their terms earlier than five years. A re-weighting of the CPES to confer greater career advancement prospects if environmental mandates are met would help cadres and bureaucracies prioritize these tasks over catering to heavy industry and other polluting industries. In addition, by penalizing rotations before the end of 5-year terms in the CPES evaluation, cadres would look more favorably on environmental projects which may have a lengthier time horizon to implement since they are obligated to stay longer (Eaton and Kostka, 2014).
Lastly, given the known challenges of data fabrication by cadres due to loose national standards on environmental metrics, the central government will have to invest substantially in tightening the reporting process. This could include new digital tools or physical hardware that cadres are required to use to measure certain environmental metrics like atmospheric concentration of greenhouse gases, soil moisture content, tree coverage, etc. Establishing national standards and baselines with a consensus methodology and reporting criteria would also help counter efforts by cadres to fabricate information or inflate their accomplishments.
Opening China’s national emissions trading system to foreign investors can boost FDI for local governments to invest in environmental protection and reduce emissions.
In 2013, China launched seven provincial and municipal carbon emissions trading system (ETS) pilots in preparation for the rollout of a nationwide ETS in 2020. China now boasts the world’s largest carbon market – three times bigger than that of the 27-member European Union (Busch, 2022). Unfortunately, the national ETS only covers “onshore covered entities” and foreign investors are not allowed to finance carbon offsets in the ETS-linked voluntary market, which they were allowed to do in the 2013 pilot (Mazzochi et. al., 2022).
The NDRC estimated that over 139 trillion RMB in investment will be needed to reach China’s emissions goals (Zhang and Jialu, 2023). It is virtually impossible for local governments to raise this volume of capital on their own. Allowing access to offshore investors into the carbon market would help immensely in this effort to channel finance towards environmental goals. One study examining the 2013 ETS pilot found a positive correlation between provinces that rolled out the ETS and foreign direct investment in their region (Shao et. al., 2022). Specifically, FDI increased in areas that had tighter environmental regulations and lower energy consumption.
Boosting FDI is a national priority for President Xi. At the Boao Forum in 2018, he announced that China’s door would open “wider and wider” to foreign investment as he sought to make China the top destination for foreign investors (Li, 2019). Liberalizing access to the national carbon market could play a critical role in facilitating increased FDI as well as channeling significant sums of money to local governments who are currently struggling to finance China’s ambitious target of peaking emissions this decade and reaching net zero by 2060.
References
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