EST Innovation Model and Incentive System in China:
Waste Water Reduction Technology as a Case Study
Xu Qingrui Guo Bin Wang Yi Lu Yan
Research Center for Management Science and Strategy, Zhejiang University
Hangzhou 310027, P.R.China
INTRODUCTION
At present, the water pollution issue has been becoming more and more serious for
China, the number of cities suffering from water laciness in China has increased form
154 in 1979 to 300 in 1995. And also according to statistics, the direct economic loss
due to water pollution amounts to about 27,300 million RMB Yuan in China in 1993,
which is nearly equal to 1.33 per cent of GNP in 1993. Some authorities also claim that
the water resource will be the key bottleneck influencing the rapid economic growth for
China in the next century.
As to China, although Government has adopted some measures for reduction and
control of water pollution, there still exist some problems:(i)the main measure in
existing incentive system for water pollution reduction is emission charge, this will
result in the uncertainty in unit charge of waste water emission'(ji)The charge
standard for water pollution emission is much lower than its treatment fee. As a whole,
the ratio.of total industrial waste water emission charge to GNP has showed a declining
trend from 1986 to 1992 while the pollution situation has become more and more
serious.(iii)The investment in waste water pollution treatment is far less than the urgent
demand.(iv)For most of Chinese firms, they still adopt some simple methods for water
pollution reduction and treatment, and lack some advanced environmentally sound
technology.
DIMENSIONS OF EST INNOVATION
In fact, environmentally sound technology is a key factor to sustainable development
for China. As a widely accepted concept, environmentally sound technology was first
advanced by E. Brawn and D. Wield in 1994". It almost includes all the technologies
Telated to environmental protection. In our opinion, the EST innovation can be divided
into three dimensions as end-of-tipe technology oriented dimension, ecological process
oriented dimension, and ecological product oriented dimension")
MODEL STRUCTURE & CAUSE-EFFECT DIAGRAM
In this model. it will include six subsystem: water environment subsystem; science and
technology subsystem; economy subsystem; population subsystem; education
subsystem; and incentive subsystem (See Fig. 1).
803.
(1)Water environment subsystem. In this subsystem, natural desolution capacity
(NDC) is considered. It should be pointed out that the NDC is a dynamic variable, and
has a adverse relation with pollution situation".
(2)Science & technology subsystem. The adoption of EST will greatly reduce
pollution emission and improve the treatment quality of water pollution‘).
(3)Economy subsystem. There exist mutual interaction between economy and
environment protection. The pollution will induce resources scarcity, which will result
in economic loss and efficiency decrease. On the other hand, the development of
economy will often raise pollution treatment investment, which will result in the
increase of NDC.
(4)Population subsystem. It includes two factors, population amount and population
structure. Under a certain environmental capacity, the unrational population
increasement will inevitably cause the resources scarcity more intensified'”.
(5)Education subsystem. Education can play important role in improving people's
environmental consciousness, and enhancing the opportunity of EST development.
Moreover, it can make desicion-makers take environmental issues into their policy
making and enforcement process.
(6)Incentive subsystem. There is a close interaction between economy subsystem and
incentive subsystem. It is a common problem in developing countries that no enough
investment in environmental protection technology especially EST is available.
Population «> Science & Technology
N\A) Oe
/ Nj 7
Education «———————+_ Environment
Fig. 1 The EST Innovation Model
for Waste Water Reduction Technology
And also, by considering the interrelation between subsystems and the intemal
interaction in each subsystem, we form the cause-effect diagram (See Fig.2).
BASIC BEHAVIOR OF EST INNOVATION MODEL
According to the government's development planning of society and economy in China,
we choose following basic parameters:(i)The GNP of year 2010 will be doubled on the
basis of year 2000, then the average annual economy growth rate will be about
10%.(ii) The investment in EST developing remain the same level of 1995.
Then we get the model basic behavior as Fig.3. By year 2010, the environmental loss
caused by water pollution will rush to 275.7 billion Yuan which is 9.1 times more than
1990, which will be a serious problem for the future economy growth of China.
” 804
08
a rate \
Total populati
Resource per people
Investment on fixed assets
RaDenmminee— Eduvation —o eee High education__
Resource policy | Fixed at in building ie on ecwirtrment mee Tink trond Te
Industrial structure ea assets + Depreciation Basic cmv “<uauaion Environment engineering, education
Pollution generating efficiency
Investment on ecological technology Eamon conciousness
Science & technology capability
Technology innovation capability
Ecological technological innovation
er
End-of-pipe technological innovation
Portfolio incentives I
Ecological process innovation Ecological product innovation
Ecological technology in fixed assets Portfolio incentives [II Rate tata effect
Death rate GNP per people Rate of Fesource use Pollution control
Average life span)» Production consumption of resource ~/»Pollution generation —» Waste emission
Engal efficiency ———————— Pollution generation of route life
Health state of inhabitant
Fig.2 The Cause-Effect Diagram of EST Innovation Model
Effect of high education on science & technology
Portfolio incentives I
Environment standards
Natural degradation Difference
en pahent capacity 4
10 Eo B
0 Bebe oO Bb a2
1990 2000 2010 2020 2020 2040 2050 1990 2000 2010 2020 2020 2040 2050 1990 2000 2010 2020 2020 2040
Note: A: End-of-pipe B: Process C: Product
Fig.3 The Basic Behavior of EST Innovation Model
POLICY SIMULATION & ANALYSIS
OF WASTE WATER REDUCTION EST INNOVATION
(EST Innovation Mode Selection
Technological progress has a essential act on the improvement of environmental quality
and development of economy”). In order to analyze the impact of different type of EST
innovation on the coordinate development of economy and environment, we will use
three different investment mode as end-of -tipe oriented, ecological process oriented
and ecological product oriented mode. We get following results (See Tab.1). It shows
that for China, it should be better to choose ecological process oriented innovation
mode at present stage, then after 2030 transfer to ecological product oriented
innovation mode.
Tab.1 Simulation Results of EST Innovation Modes
Bnd-of type Oriented] Ecological Process | Ecological Product
Parameters Mode oriented Mode Oriented Mode
2000 [2010 2020 [2050 |2000 [2010 [2020 [2050 |2000 [2010 [2020 [2050
[one [5.04 [10.2 [16.5 [25-2 [6.50 [13.5 [22.5 [36.9 [5.10 [9.08 |a9.7 [28.5
Environmental Loss [3380 [7250 [9530 [15100[3290 |s6700|9800 [e260 [3540 [3530 |s650 [12900
Water Pollution Cost |sz0 2130 [3250 {5500 [730 {1670 [2040 [3360 [1050 [2380 [3160 [3950
innovation Results [670 |s20 1920 |2sa0 [360 |az0 [750 2220 J2a0 [370 [560 [sao
(2)Policy Analysis of Waste Water Emission Charge
We Select three charge policy to simulate the results:(i)Mode I, first low speed then
high speed S-type growth mode. In this mode, the ratio of waste water emission charge
to GNP increases from 0.05% at a low speed to 0.07% in 2010, then a high speed to
0.12% in 2050. (ii)Mode I, first high speed then low speed S-type growth mode. In
this mode, the ratio increases from 0.05% at a high speed to 0.09% in 2010, then a low
speed to 0.12% im 2050. (iii)Mode Il, the ratio of emission charge to GNP increase at
a same annual rate from 0.05% in 2000 to 0.12% in 2050.We found that the mode I is
more appropriate for China, because that for China, the enterprises’ internal economic
mechanism is still under establishment, so‘an appropriate high growth rate in emission
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charge will inevitably hamper the process of externality internalization process. This
also will result in the low enthusiasm for enterprises to invest in EST innovation.
CONCLUSION
By using the waste water reduction technology as an case, this paper establishes a
system dynamic model to stimulate the impact of EST innovation mode on economy
growth, as well as the influence of incentive system on the EST innovation. We found
following results.
®@ At present, China should choose the ecological process oriented innovation mode,
then after 2030 transfer to ecological product oriented innovation mode.
© As to waste water emission charge policy, it is appropriate for China to take the "first
low speed then high speed S-type growth mode". In this mode, the ratio of waste water
emission charge to GNP increases from 0.05% at a low speed to 0.07% in 2010, then a
high speed to 0.12% in 2050.
© When the ratio of investment in waste water treatment to the whole environmental
Protection investment increases from 35% to 45%, then the loss caused by water
pollution and the whole environmental loss will both decrease. And when this ratio
increase from 45% to 50%, the loss by water pollution will decrease while the whole
environmental Joss will increase.
MAIN REFERENCES
[1] Xu Qingrui et al., Innovation of Environmentally Sound Technology in China:
“. Case Study, Proceedings of Intemational Conference on the Economic Benefits of
Cleaner Production, Shanghai. Sept. 1995.
[2] Pearce W. David et al. Blueprint for a Green Economy. London: Earthscan, 1989.
[3] Pearce W. David. Sustainable Development: Economics and Environment in the
Third World. London: Edward Elgar, 1990.
[4] G. Fishelson, Emission Control Policies Under Uncertainty, Joumal of
Environmental Economic. Management, 3, 1976: pp.189-197
{5] H.Brundtland, Our Common Future. Oxford:Oxford University Press. 1987.
[6] A.V.Kneese and B.T.Bower, Managing Water Quality: Economics, Technology,
Institutions, Johns Hopkins Press, Baltimore, 1979.
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