August 08, 2013

China's Pollution Fighting Budget Will Have to Be Bigger than its Military Budget

China will spend $275 billion over the next five years improving air quality—roughly the same as the GDP of Hong Kong, and twice the size of the annual defence budget [40% of the defence budget over the same five years]. China is also spending to clean up water pollution.

China plans to invest 2.3 trillion yuan ($375 billion) in energy saving and emission-reduction projects in the five years through 2015 to clean up its environment. This is about 54% of the projected $685 billion that China will spend on its military over 5 years. The plan, which has been approved by the State Council, is on top of a 1.85 trillion yuan investment in the renewable energy sector. Combined the energy saving and emission-reduction projects and the renewables buildup is $675 billion. China would benefit more by shifting military budget into pollution fighting. China has sufficient military and has nuclear and military to deter any attack and to meet basic military goals. China's pollution is harming its economy now and harming the health of everyone and killing upwards of 1 million people each year.

The health costs of air and water pollution in China amount to about 4.3 percent of its GDP. By adding the non-health impacts of pollution, which are estimated to be about 1.5 percent of GDP, the total cost of air and water pollution in China is about 5.8 percent of GDP.

China's economy will go from $8.5 trillion this year to about $12-20 trillion in 2018 (depending upon RMB currency appreciation). The cost to China will be $490 billion to 1.2 trillion in each of the years. It will be in the range of $3-5 trillion over the 5 year timeframe.

I think China could productively spend three to four times its military budget over five years ($2.1 - 2.8 trillion over 5 years or $420 billion to $560 billion per year) on anti-pollution measures that offset the 5.8% GDP losses.

In January 2013 the air of Beijing hit a level of toxicity 40 times above what the World Health Organization deems safe. A tenth of the country’s farmland is poisoned with chemicals and heavy metals. Half of China’s urban water supplies are unfit even to wash in, let alone drink. In the northern half of the country air pollution lops five-and-a-half years off the average life.

China should do even more to clean up air and water even faster. It will help to reduce the healthcare burden on its citizens. The pollution is shortening life expectancy by about 5.5 years and makes people less healthy before they die.

Saving lives and improved health would offset the spending on cleaner energy, buildings, industry and transportation.

China has set a target of reducing its carbon emissions per unit of GDP by 40-45 percent by 2020 from the 2005 level, and raising non-fossil energy consumption to 15 percent of its energy mix, Xie Zhenhua, deputy director of the National Development and Reform Commission (NDRC), was quoted as saying.

As part of broader plans to curb pollution, the government will also roll out tiered power pricing for eight energy intensive industries, while sectors that struggle with overcapacity will face higher power tariffs, Xie said.

The government will also gradually expand a carbon trading pilot program to more cities starting from 2015, with the aim of creating a national market, he said.

Seven cities and provinces, including Shanghai, were ordered by the NDRC in late 2011 to set up regional carbon trading markets.

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