Year

2013

Degree Name

Doctor of Philosophy

Department

School of Economics

Abstract

Thirty years of economic reforms have transformed China from a poor and stagnating centrally planned economy into a socialist market economy with unprecedented rates of economic growth, fuelled in large part by international trade and foreign direct investment. However, this achievement has produced equally unprecedented rates of energy consumption with the associated threats to environmental sustainability.

The primary objective of this thesis is to examine the environmental performance of China during the period of 1980-2009. In particular, we examine the rates and trends in absolute and per capita emissions of four types of industrial pollutants: carbon dioxide (CO2), sulphur dioxide (SO2), chemical oxygen demand (COD) and production wastes, through the prism of relevant economic theories. Specifically, three hypotheses were tested: (1) an income-related environmental hypothesis; (2) a trade-related environmental hypothesis; and (3) an energy-related environmental hypothesis.

CO2 is an air pollutant which is having a global impact, and therefore two entirely different methodologies, a production-based decomposition analysis and a consumption-based input-output analysis, have been adopted. The objective is to estimate the amount of CO2 pollution and the determinants of that pollution not only at the domestic level but also the amount that is relocated due to increased global trade. The production-based decomposition analysis revealed that economic growth was the major factor driving the rapid growth of CO2 emissions from China. This was especially so for China’s industrial sector and industrial provinces. Conversely, improvements in energy intensity played a big role in lowing CO2 emissions. Given the fact that a major part of China’s productive output is exported, the consumption-based input-output analysis showed that in 2007 China would be responsible for 38% less CO2 emissions than is the case using the production-based decomposition analysis. A few sectors are considered as highly emissions-embodied and highly energy-intensive and these sectors need attention if China’s environmental performance is to improve.

Reductions in pollutants emissions are also subject to consumer preferences. The income-related environmental hypothesis posits that increasing per capita incomes will eventually result in decreased pollution as citizens express a growing demand for improved environmental quality (known as the Environmental Kuznets Curve hypothesis, EKC). This transformation may be achieved via a combination of appropriate technological progress, structural change and foreign trade. We apply the relatively new panel unit root and cointegration analyses to test the EKC hypothesis for China. The results show that a statistically significant EKC relationship between two local pollutants (SO2 and production wastes) and economic growth exists for the country as a whole and for a few coastal provinces.

COD is a commonly used method of measuring the amount of organic materials in lakes and rivers. Reductions in COD in China have already been evidenced (Dean, 2002). In this thesis we decompose the trade-related components of COD into scale, technique and composition effects by using simultaneous equation methods. The direct composition impact was found to be significantly positive for COD growth. However, the indirect impact was negative and significant, indicating that the technique effect outweighed the scale effect. This result also provides some support for the EKC hypothesis in that rising incomes were associated with falling COD growth due to improved production techniques. Moreover, this indirect impact was higher than the direct impact and so we find a net negative impact of trade on COD growth. This suggests that the increasing per capita income resulting from increased international trade is contributing to improving water quality in China.

Based on the major findings, we recommend some relevant policies as follows: i) improvement of energy efficiency; ii) movement towards renewable energy and cleaner industrial and service sectors; iii) establishing a sound social security system; iv) adaptation of market-based instruments to lower emissions; v) encouragement of reforestation programs; vi) harmonising regional economic growth with environmental protection in the western areas by learning new cleaner production technology; vii) further trade liberalisation policy, but moving from ‘dirty’ production to clean production; and viii) strengthening and enforcing the environmental regulations.

FoR codes (2008)

140205 Environment and Resource Economics, 140210 International Economics and International Finance, 140302 Econometric and Statistical Methods, 140304 Panel Data Analysis

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Unless otherwise indicated, the views expressed in this thesis are those of the author and do not necessarily represent the views of the University of Wollongong.