Policy Solutions for Sand Storms and Other Regional Air Quality Problems in Northern China? An Introduction to Market-Based

Instruments

ByJian XIE

Hong LANGuoqian WANG

Zhong MA

About the authors

Jian XIE, Senior Environmental Specialist, Environment and Social Sector Unit, East Asia and Pacific Region, the World Bank;

Hong LAN, Lecturer, School of Environment, Renmin University, Beijing, China;

Guoqian WANG, Junior Professional Associate, the World Bank Institute, the World Bank;

Zhong MA, Professor and Executive Vice Dean, School of Environment, Renmin University, Beijing, China.

Email correspondance: jxie@worldbank.org

The paper is a work in progress. It reviews

the situation and causes of land degradation

and sand storms in northern China and

existing government efforts. It introduces a

few market-based instruments, aiming to

improve these efforts.

Desertification and Land Degradation in Northern China

The total area affected by desertification in China is 2.6 million km2, of which 1.6 million km2 is caused by wind erosion and 0.2 million km2 by water erosion, equivalent to over 1/4 of total land area of the nation and widely spread in 13 provinces in northern and northwestern regions.

About 20,000 km2 of China’s land is being degraded each year due to desertification, soil erosion, salinization and other factors

Desert areas are expanding 2460 km2 a year at an accelerated rate of expansion

Consequences Sand storms frequently occurred 7.7 million hectare of farm lands threatened by

desertification 105 million hectare of steppe, desert steppe and

pasture lands seriously degraded 430,000 km2 on the Loess Plateau suffer water

erosion Water conservation facilities and systems

malfunctioned Houses, machines, road systems and other

infrastructure damaged Disease spreading and more…

Number of Major Dust Storms in China, by Decade, 1950–99, with Projection to 2009

   

Decade Number   

1950–59 5

1960–69 8

1970–79 13

1980–89 14

1990–99 23

2000–09* 100   

* Preliminary estimate for decade based on more than 20 storms during 2000 and 2001.

Source: China Meteorological Administration, cited in “Grapes of Wrath in Inner Mongolia,” report from the U.S. Embassy in Beijing, May 2001.

A Recent Dust Storm

A huge sand storm occurred on March 18-21, 2004.

Covered 1.7 million square kilometers in over 10 provinces in northern China.

Affected a population of 150 million.

Human factors are becoming a major cause

Deterioration of vegetative cover due to overgrazing, wood cutting and burning

Wind and water erosion resulting from improper land management, and

Salinization due to improper use of water

Underlying Reasons

Population growth The pressure from economic development Poor awareness of ecosystem function Inadequate institutional arrangements for

protecting fragile land from overuse and degradation, such as

insecure property rights inadequate compensation system weak implementation, monitoring and

enforcement

Example: Market and Policy Failures in Grassland Areas

Property rights unclear (state or community ownership),

longer-term right of use not guaranteed to householders,

adjusting land allocation among households based on the

change in the number of household members

Competing uses of land (grain production)

Marginal benefit of overgrazing > Marginal share of cost, if

increasing usage

=> Tragedy of the Commons: depleting common pool resources

Major Government Interventions for Conservation (I)

“Grain for Green” project in northern and western China – i.e., the conversion of agricultural land into forests or grasslands Launched in 1999, plan within 10 years to convert 5.3 million mu (about ¼

hectare a mu) agricultural land into forestry land ， reforest 8 million mu, control soil erosion areas of 36 million mu ， and control desertified area of 70 million mu.

Subsidize local governments and farmers with grain Natural forests preservation

Launched in 1998 with logging ban; plan to invest 106 billion Yuan RMB (about USD12 billion) in 10 years to protect the forest areas in upper reaches of Yellow and Yangtze River.

Subsidize local government and logging industry

Major Government Interventions (II)

Grassland conservation Targeting 1/4 of total grassland; the government

subsidized local people grain and forage for their stopping breeding livestock on the grassland

Forest green belt development in northern China to control sand storms

The project duration is 73 years and it involves an area of 4 million square kilometers

Controlling sandstorm source areas around Beijing and Tianjin

Need for Government Financial Supports: The Case of Sichuan

Since the logging ban in Sichuan Province in 1998, the provincial revenues from timber industry reduced 740 million Yuan RMB, about 5.2% of total revenue.

Affected farmers lost on average 200 Yuan per person in their annual income (equivalent to 13% net income).

For those farmers whose agricultural land were converted into forests, their average lost of grain production is 48 kilogram per capita.

Sources of the Funding

1. Government BudgetIn the period of 1998-2001, the central government alone spent 42 billion Yuan RMB (about 5 billion USD) of government revenue income on these projects.

2. National Bond From 1998 to 2002, the central government issued 1 billion

Yuan RMB of national bond for environmental protection.

3. Transfers of the central government

The central government returns part of its tax revenue to

local government for conservation purpose.

Effectiveness of the Governmental Interventions

The worsening trends of desertification and soil erosion have not been reversed, however.

Frequency of sand storms keeps rising. Although the achievement of controlling deserts

and soil erosion has been observed in some demonstrative areas, the long-term effect of the programs is still too early to tell and may not be very promising.

Although the “polluters pay” principle, which has

been explicitly interpreted as “whoever cause damage

to eco-systems must compensate and whoever benefit

from ecological services should pay for” in the area of

natural conservation, has been widely endorsed by the

government, real implementation rarely exist,

especially at the community and individual levels.

Need for effective and comprehensive policy and legal framework to address the cause of

land degradation and sand storms

Possible Instruments

Well-defined property rights Users’ fees and eco-compensation deposit Establishment of markets – tradable permits Payments for environmental services Government transfers

Property Rights

Well-defined environmental property right itself can be a policy instrument

Remedy the “tragedy of the commons” The economy of scale and sustainability still

questionable Designing issues

Perfection may not be possible, but designing should be as close as possible

Quality Quality of the title Transferability

Types of Property Rights

In most cases, people confuse “open access” with “common property rights.”

Owner Example Access With-drawal

Manage-ment

Exclusion

Private Private Fee simple title to land

Controlled by owner

By owner By owner By owner

Common Group Common land Controlled by joint owners

By joint owners

By joint owners

By joint owners

Public State National park Controlled by state

None By state By state

Open access

No one Ocean fishery Uncontrolled Un-controlled

None None

Quality of the Property Right

Quality of the Property Right

China: Now and Future Trends

Clarifying property rights “Desertification Prevention and Control Law”

Lengthen the maximum tenure years Imposing further duties onto landholders

Eliminating open access Contracting public land to individual households

Encouraging self-governing association of households that share common lands improve the scale of economy

Market-Based Policy Instruments (2)—Establishing a Market

Tradable Permits (for use of public land) Clearly defining property rights is a

prerequisite Limit of trading Retirable?

U.S. retiring grazing permits on federal land

Potential pitfalls High transaction cost Ill-defined or enforced ownership Uncertainty and asymmetric information

Market-Based Policy Instruments (3)—Payments for Environmental Services

Source: Pagiola, S., World Bank, 2002

Market-Based Policy Instruments (3)—Payments for Environmental Services

Prerequisites Clearly defined property rights Established market Supporting legal and institutional

systems Costa Rican Experience and its Implications

Sound valuation of environmental goods and services

Government Transfers for Ecological and Environmental Services

A popular approach, well-received and used by government fiscal planning and budgeting agencies

Easily implemented at low transaction cost

Need to have the amount of transfers well based on market values of environmental services or costs

Implication to China Property rights

Further secure land ownership or the right of use, not limited to privatization , need to be flexible and cost-effective, improving the economy of scale

Government transfers to finance eco-protection Still an important means, need to scale up, based on market value,

with fair mechanism and monitoring system Establishing markets for environmental goods and services

Tradable permit for use of public land to improve efficiency Payments for environmental services

An emerging tool, can be tested in some areas with mature land ownership