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The China Project

November-December 2002

China will surpass the United States in annual emissions of CO2 within a decade and, in a few decades, in total cumulative emissions of CO2 since the beginning of the Industrial Revolution. Harvard's China Project, run by Michael B. McElroy and based in the Center for the Environment, was begun with that in mind. "The goal for this cooperative work with China," McElroy says, "was to try to find a way to persuade the Chinese that the climate issue was important. And I've become fascinated with the practical and intellectual problem of how a rapidly industrializing country of 1.3 billion people can sustain development without destroying their own environment."

Along the way, McElroy became convinced "the best way to do this was to think about fossil-fuel use more generally, and to focus on the other kinds of problems it causes, such as the impact of air quality on public health." If one could demonstrate that the health-related costs justified measures to reduce air pollution, for example, CO2 emissions would almost certainly go down.

Morris University Professor Dale W. Jorgenson, who heads the economic component of the China Project, is assisting a research project on this very topic at Tsinghua University in Beijing. "China has been growing at a very rapid pace, and this has had a big positive impact on the standard of living," Jorgenson says. But with growth has come a large increase in energy use, made possible by China's abundant coal. (China's is now the most coal-dependent economy in the world.) Until very recently, the Chinese government imposed no restrictions on the burning of coal, which led to widespread pollution-related illness, particularly in urban centers. Five years ago, the World Bank estimated that about 8 percent of China's gross domestic product (GDP) is lost to the increased morbidity and mortality associated with domestic environmental pollution. Jorgenson puts the number closer to 5 percent, but his analysis suggests that it will rise to 15 percent by 2030 if nothing is done.

"The Chinese have been very interested in controlling environmental pollution," says Jorgenson. (They plan to showcase Beijing, once shrouded in a sulfurous pall, as host to the "Green Olympics" in 2008.) "What I have tried to develop is an approach that will reconcile the basic objectives of the Chinese government, which are economic growth and economic development, while maintaining or enhancing environmental quality." To that end, he advocates imposing a carbon tax and using the revenues to "offset the existing enterprise taxes that are the primary source of friction in the system that slows down economic growth.

"The tax system in China relies very heavily on taxes on business enterprises," Jorgenson explains. Reducing business taxes would "release the brake pedal and allow economic growth to continue," while a simultaneous tax on the carbon content of fossil fuels would sustain government revenues and create "a serious abatement program for environmental pollution" with health-related economic benefits.

Could a health-based approach work in the United States? Not to the same degree, says Jorgenson: a 30-year legacy of federal environmental regulation has produced a domestic environment much cleaner than China's. And because capital taxes in China far exceed those in the United States, "you get more bang for the yuan in China than you would be getting in the U.S. per dollar."

Beyond mitigation of CO2 emissions, the project has practical implications for air quality in the entire Northern Hemisphere. Pollution plumes from China extend past Hawaii and occasionally reach the United States. "When there is one car for every two Chinese, it is going to be a disaster not just for the Chinese. You can imagine a situation in which it will no longer be possible to regulate air quality domestically in the U.S.," says McElroy. Can the Chinese sustain rapid growth without repeating the mistakes of the industrialized Western nations, either by adopting different growth strategies or by taking advantage of new technologies? Answering that question, McElroy says, is in the self interest of the Chinese, and in Americans' interest, too.