Environmental Impacts of China

1
Environmental Impacts of Chinas WTO Accession

• Haakon Vennemo
• Based on joint work with Kristin Aunan, He
  Jianwu, Hu Tao, Li Shantong and Kristin Rypdal

2
Background

• A bunch of studies on economic and social impacts
  of Chinas WTO accession (e.g., Bhattasali et al,
  2004)
• A bunch of studies on impacts of free trade on
  environment (e.g., Copeland and Taylor, 2004)
• But not much on environmental impacts of Chinas
  WTO accession

3
Who cares?

• Policy makers in China interested in
  environmental impacts
• To plan countermeasures
• To plan new policies in the free trade vein
• Donor community interested in encouraging Chinese
  interest
• And worried that environmental impacts of
  accession are negative
• Governments, NGOs etc interested in
  environmental impacts of freer trade
• China an important developing country case study
• Many opinions and qualitative statements, not
  many facts and quantitative assessments

4
Free trade in developing countries will

• Increase scale of production, which increases
  pollution (scale hypothesis)
• Change composition of industries, or attract
  dirty industries (composition/pollution haven
  hypothesis)
• Encourage more efficient technology (technique
  hypothesis)

5
And in symbols

• eahs
• eemissions/environmental indicator
• aemission factor (per output) in polluting
  industries
• hshare of industry that pollutes
• sscale of gdp or similar
• êâhs
• êchange in emissions
• âchange in emission factor/technique
• hchange in share of polluting industries
• schange in scale

6
Key aspects of Chinese WTO-accession

• Before accession there were
• Quotas on imports and exports
• High nominal, but often low effective tariffs
• Processing and traditional trade
• WTO would not make or break the nation
• But a single issue seldom does Among single
  issues, WTO has big economic impacts
• In addition to political impacts

7
After accession we analyse

• Tariff reduction and quota elimination on
  industrial products
• Quota elimination on agricultural products
• Quota elimination on textile and apparel exports
  (Multifiber agreement)

8
After accession we dont analyse

• Reduction of barriers in service trade (banks and
  such)
• Increased protection of intellectual property
  rights (DVDs and such)
• Security of market access (bureaucracy and such)
• Enforcement of commitment
• Cooperation in dispute settlement

9
The model

• Time recursive CGE model with neoclassical
  closure
• Developed at DRC by Li Shantong et al
• 53 industries, of which 10 agriculture, 29
  manufacturing and 6 service
• 6 factors of production (3 labour, land, capital,
  land, material input) (nested CES)
• Saving and consumption (ELES)
• 7 pollutants to air
• 9 health end-points

10
Frictions and distortions

• Imperfect labour and capital mobility between
  Guangdong/ROC.
• Imperfect labour mobility between urban and rural
  occupations
• Imperfect mobility between processing and
  traditional trade
• In addition to direct effect of quotas and
  tariffs the impact of WTO depends on its ability
  to alleviate above frictions and distortions.

11
Emission block
Traditional pollutants From WB/OECD
calibrated to EDGAR database CH4, N2O
Livestock, fertiliser
12
Results significant industry level change
13
Results Positive composition effect
14
Results one scenario at a time
15
Other impacts

• 1.39 percent increase in GDP
• 0.65 percent improvement in public health
  (monetary equivalent)
• But baseline cost to public health is only 2.3
  percent of GDP. 0.65 of this is small.
• Income distribution deteriorates
• Urban households in Guangdong gain 8 percent in
  income

16
Further studies

• Sensitivity analysis what matters for results
• Three-region version of model (He Jianwu will
  report)
• Inclusion of biomass demand
• A means of assessing indoor air issues in
  macroeconomic setting
• Trade- and environmental policy
• The literature talks about endogenous policy
  response

17
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