I. Definition of Circular Economy in This Report
1. Definition and Four Points
Circular economy is a model of economic development which aims at environmental protection, pollution prevention and sustainable development through conservation of resources, reusing, and recycling in order to minimize pollution from the source and reduce overall waste per unit output.
The government should be aware of the following four points:
1.1 The reuse and recycling of resources and waste promotes an efficient use of existing resources.
1.2 Protection of the environment and prevention of pollution are the foremost aims of developing a circular economy. However, such aims often cannot be achieved through a traditional market because polluters and beneficiaries do not necessarily have to pay for the damages they cause or benefits they receive (the so-called economics of externality); thus government intervention is required. On the other hand, the government should still make maximum use of economic means and market mechanisms and should incorporate environmental factors into the economic system. Only when absolutely necessary should the government use administrative measures to intervene in the market.
1.3 Circular economy transforms traditional patterns of economic growth. Circular economy not only targets waste disposal, it also involves transformation of industrial organization and allocation, urban infrastructure, environmental protection, technological paradigms, social welfare distribution, etc. These transformations are based on systemwide innovations for the whole economy. Therefore developing circular economy shall take a system innovation approach as the first step. Furthermore, the government should play a key role in mobilizing society as a whole to establish a new culture of circular economy.
1.4 To establish a new economic development pattern means either upgrading or replacing the existing production pattern. The new circular economy model can obtain the benefits of environmental protection without compromising rapid economic growth, but the government must realize that certain policies necessary for developing circular economy may lead to rising prices of certain inputs, especially for primary resources, and may reduce the economic growth rate measured by the traditional GDP. Nevertheless, this is a necessary cost for overall environmental benefit.
2. Circular economy at three levels
At the level of enterprise, circular economy mainly focuses on cleaner production, comprehensive waste recycling and recovery, and non-hazardous waste disposal. It emphasizes "reduce, reuse, and recycle" for materials and energy.
At the regional level, circular economy emphasizes structuring a substance recycling network which takes the industrial chain as the carrier in order to realize optimum regional resource allocation and reuse through the establishment of an industrial system for comprehensive waste collection, reproduction, recycling and non-hazardous disposal.
At the national level, circular economy represents a new pattern of economic operation, which, assisted by government participation, aims at sustainable economic and social development. This pattern brings waste and environmental elements into the market system, utilises market mechanisms to regulate with laws, regulations, and policies, and follows principles of resource conservation and environmental consciousness.
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Box 1 Launch of the 3R Initiative The demand for resources has steeply increased with the growth of world population and the expansion of economic and social activity. Waste generation has also increased in both volume and variety. Furthermore, globalization activates the flow of goods, including recycling materials, products, and technology, and the interdependence of international society in the areas of environment and economics is rising. Under these circumstances, it has become a consensus that the world should cooperate to establish a material-cycle society where environment and economics are compatible, while seeking mutual benefits. For that purpose, an international initiative, the 3R initiative, was agreed at the G8 Sea Island Summit in 2004 and officially launched at a Ministerial Conference in April 2005, hosted by the government of Japan. The initiative aims to establish a materials flow in which Reduction, Reuse and Recycling are prioritized, and is named for the first letters of those three words. |
II. Present development of circular economy and problems in China
1. Assessment of present development
Since 2000, the State Environmental Protection Administration (SEPA) has piloted Ecological Provinces in China with the goal of preventing pollution at the source and has carried out theoretical research and practical experiments on circular economy. Since 2002, SEPA has pioneered extensive pilot projects in wider areas of China. In July 2005, the State Council officially issued Suggestions on Accelerating the Development of Circular Economy. This document contains key guidelines concerning circular economy's targets of development, priorities, and management measures. It requires that government departments at various levels consider the development of circular economy as an important guiding principle in formulating plans and programs. In particular, the idea of circular economy should be employed to direct the formulation of the national Eleventh Five-year Plan, regional plans, overall urban planning, special plans for sustainable utilization of mineral resources, conservation of energy and water, and comprehensive utilization of resources. Governments should also formulate promotion plans for circular economy. Circular economy has become a nationally significant strategy. Many areas across the country have been mobilised, and many provinces, cities and counties have formulated strategies for circular economy.
At the level of enterprise, many have actively initiated cleaner production and managed to achieve ISO14000. In urban areas, local clean-up, waste collection. recycling and reuse are being actively implemented, and ecological industrial parks are being established in order to make industrial chains of circular economy possible. In many regions. efforts have been made to establish Ecological Provinces (Cities, Counties), Model Environmental Protection Cities, and Pilot Ecological Areas in which sustainable production and consumption are integrated; that is, in which industrial and agricultural areas are interconnected.
By 2004, eight provinces were approved as the Pilot Ecological Provinces, one as a Pilot Circular Economy Province; a number of cities, such as Guiyang and Rizhao, have developed circular economy plans; forty-four Model Environmental Protection Cities have been identified, one hundred and sixty-six Model National Ecological Areas have been named; fourteen Ecological Industry Demonstration Parks have been established; seventy-nine villages and towns have been awarded the title of "Scenic Village or town", and thousands of enterprises have passed audits of cleaner production.
After the State Council's Document No. 22 was issued in July 2005, NDRC and other departments have identified a number of Circular Economy Pilot Areas and Projects at different levels.
The development of Ecological Provinces is based on ecological construction and circular economy. All the other provinces, cities, and autonomous regions that have not applied for Ecological Province Development have started to develop special Circular Economy Plans when formulating 11th Five-year Plans. It is reasonable to say that circular economy has been promoted nationwide.
With the extensive promotion of circular economy and other environmental protection practices, China has made great achievements in environmental protection. For example, in the seven key river drainage basin and catchments of China, the proportion of poor quality water was decreased by 3.5% in 2004 compared with the year 2003, and severe urban pollution has now been improved. However, due to rapid economic growth since 2003, total resource consumption has been swiftly rising; consequently, China's overall environmental quality is getting worse. Major pollutant emission is rising (see Table 1), and the energy consumption per 10,000 CHY
Table 1: Annual Emission of Main Pollutants and Number of Major Cities Reaching the Standard of Air Pollution Control
|
Year |
Annual amount of SO2 emission (Million ton) |
Rate of reaching the standard of air pollution control in 113 major cities (%) |
Utilization rate of industry solid waste (%) |
Annual amount of COD (Million tons) |
Percentage of water quality in main 7 river drainage basin and catchments worse than Class 4 (%) |
|
2003 |
19.95 |
33 |
55.7 |
13.34 |
61.9 |
|
2004 |
22.50 |
29 |
55.7 |
13.39 |
58.4 |
Resources: SEPA, Announcement of Environment Situation in China in 2004.
GDP has also risen. It appears that the development of circular economy in China is still at a primitive stage.
2. Main problems
There are several major problems facing the development of circular economy in China.
First, the lack of a sound and logical natural resource pricing system. Consequently, the prices of primary resources are unreasonably low or even free of charge, making recycling and reuse of resources uncompetitive costwise.
Second, the lack of a legal framework and pricing system for environmental protection in China. Environmental protection is a leading area of market failure. Protecting the environment requires the establishment of legal framework and direct government intervention to induce the market to function in the direction of developing circular economy. Without them, the responsibilities and obligations of producers, consumers, and governments are not clearly defined, and the market for the trade of emission rights cannot be established.
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Box 2 Unreasonably low prices of primary resources Since the reform and opening up, especially after 1990s, more and more private and other non-state-owned enterprises have entered the mineral resource market. However, the state government has not yet formulated institutions for systematic resource taxation to regulate the utilization of mineral resources. Most private owners obtained the right of mineral exploration at extremely low cost, occasionally by unusual approaches or even secret bargaining with local government officials and responsible authorities. Pursuing their own short-term private profits, they usually employed outdated technologies at minimum cost, exploited rich mines that are easier to explore and then readily abandoned them. Therefore, the extraction rate of the extensive mineral resources in China is very low, being 10-20% for some small coal mines. This causes enormous waste of natural resources, and later re-exploration will be at a much higher cost. Together with the irrationally low price of primary-resource dominated commodities and the uncompetitive price of secondary raw materials, these economic barriers substantially undermine the economic foundation of circular economy in China. For example, water shortage is a pervasive problem in the Huabei Area of China. Excessive extraction of groundwater is extensive and has caused the ground surface to sink in many places. It is estimated that it costs about 10 CNY to divert one ton of water from the Yangtze River to Beijing. In the Huabei Area, the fee for using one ton of groundwater is less than 1 CNY; thus incentive for groundwater extraction is much greater. In Daxing County, one of the suburbs of Beijing, taking one ton of groundwater costs only CNY 0.84, and no accurate measurement of the extracted quantity exists. In addition, the fee for sewage discharge is low. In some counties in the upper reaches of Yellow River that are severely short of water, it costs less than 0.1 CNY to divert a ton of water from a branch of Yellow River. Therefore, the unreasonably low price for water resources results in no incentive for the conservation of water in these areas. |
Furthermore, SEPA and local EPAs are China's authorities for the supervision and management of environmental protection. Local governments largely focus on rapid economic growth and employment opportunities. When conflicts between the two occur, local governments and local EPAs (which are affiliated with local governments) tend to adopt a tolerant or favourable attitude towards behaviours of local enterprises that may negatively influence the environment. Local EPAs lack the authority to effectively implement their rights of environmental supervision and law enforcement. In some cases, enforcement rights endowed to environmental protection authorities by national laws and policies are not forceful enough to deter enterprises from harmful waste and pollutant discharge. For instance, the maximum penalty for enterprises directly discharging pollutants is CNY 200,000; on the contrary, the external losses caused by such misconduct may be much higher. As a result, direct discharge of waste cannot be effectively controlled. Enterprises and consumers require pressure to conform to environmentally efficient conduct.
Third, China has not yet formed a comprehensive system of laws, regulations, and policies supporting the development of circular economy. So far, 19 laws of environmental protection have been officially promulgated in China, yet no complete legal framework of circular economy is available. Several related special laws concerning circular economy are still at the drafting stage. Though in some provinces and municipalities, some laws, regulations, and policies promoting circular economy have been developed, they are not systematic.
Fourth, the current scale of most pollution-generating enterprises is small, and the development of circular economy lacks support from the positive effects of economy of scale. Small businesses are major pollution producers in China and have several disadvantages for the development of circular economy. They are usually scattered, employ outdated technologies, inefficiently consume energy and resources, and discharge waste and pollutants without treatment. These enterprises also have no sufficient capabilities to carry out necessary waste management and recycling and reuse of resources.
Fifth, secondary pollution is severe because no complete network of waste management and recycling exists. Presently, practices of circular economy are limited in pilot enterprises, focusing on cleaner production and recycling/reuse of resources. What is available now is a preliminary network of recycling and reuse of waste, which usually centres around big cities, consisting of individual waste collectors and distributors. The collection, sorting, and recycling of wastes are driven by the market spontaneously, and wastes having no direct utility values are excluded in this spontaneous market, and are mainly collected, delivered and dumped by state-owned cleaning companies, sometimes to open sites. In some cities, there are insufficient funds for the normal operation of such plants and facilities. Furthermore, the treatment scale of existing waste and sewage treatment plants is usually small, the technologies are outdated, and secondary pollution is severe.
Sixth, the central government has realized the strategically important role of circular economy, but no sufficient financial (i.e. special funds) and policy supports have been directed to the development of circular economy projects. Such development is marginalized and has not been included into the scope of general economic policies for specific implementation. These are often causes for complaint by SEPA and local EPAs.
Seventh, China has not yet developed a consistent statistical system for basic material flow management and lacks an adequate environmental supervision, management, and statistics system. Therefore, the management of circular economy at enterprise and other levels lacks the basic support of data.
Eighth, no effective investment and financial mechanism has been formed for circular economy, resulting from a lack of funding for projects leading to circular economy. In some areas, governments cannot raise sufficient funds for environmentally friendly projects that have low economic returns. In underdeveloped areas, infrastructure needs upgrading to support circular economy, but local governments with weak financial capabilities cannot support the necessary construction.
III Targets of circular economy
During the 16th National Congress of CPC, a general objective of comprehensive development was put forward, which aims at building a well-off society across the country by year 2020. Therefore, the aim of developing circular economy should be consistent with the above general objective.
1. Objective and goals of circular economy development by year 2020
The general objective is to quadruple GDP (as compared with year 2000) and simultaneously reduce the total discharge of main pollutants to the environment by 20%, building China into a resource-saving and environmentally friendly society.
Specific goals are:
1.1 To set up a circular economy mechanism and a scientific regulatory and control system
1.2 To form a cleaner production system, especially among large and medium-sized enterprises.
1.3 To follow ecological principles to organize industrial parks and form circular chains of urban industries.
1.4 To use cities as nuclei to set up networks of industries that integrate collection, sorting, reuse, and non-hazardous disposal of waste all over the country.
2. Goals and targets of circular economy development during the 11th Five-Year Plan period
Local governments should follow the guiding principle of circular economy when drafting the 11th Five-Year Plan (2001-2010), and work out special development plans for implementing circular economy.
The central government should carry out the following actions: 1. Formulate a supporting system of laws, regulations and policies. 2. Establish an operational system of market mechanisms and technological innovation. 3. Set up a number of pilot enterprises, industrial parks, agricultural demonstration areas and ecological cities. 4. Promote ecological farming and encourage cleaner production in the whole country. 5. Industrialize the system of waste management and circular use of energy and resources.
Below are several major specific targets:
2.1 Reduction
2.1.1 Energy consumption per unit output (CNY 10,000 GDP) will be reduced by 3% to 4% annually and 14.25%-18.5% in five years.
2.1.2 Primary resource consumption per unit output (CNY 10,000 GDP) will be reduced by 3% to 4% annually.
2.1.3 The efficiency coefficient of agricultural irrigation will reach 0.5 (0.4 in 2003 in China, 0.8 in developed countries).
2.1.4 The absorption efficiency of chemical fertilizer used for agricultural uses will be raised up to 40% (30% present in China, and 60% on average in developed countries).
2.2 Reuse and recycling
2.2.1 Reuse of industrial solid waste will be increased to a rate of up to 65% (55.7% in 2004).
2.2.2 All metal resources, including copper, aluminum, lead, and iron, and steel, will be recycled.
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Box 3 Changes since 1995 in China's energy consumption efficiency The total energy consumption in China decreased from 1389.48 million tons of standard coal equivalent in 1996 to 1302.97 tons in 2000. Measured in terms of GDP, energy consumption per 10,000 Yuan GDP in this period was reduced by 7.48%. On the other hand, the total energy consumption in China increased from 1349.14 million tons of standard coal equivalent in 2001 to 1970.00 million tons in 2004. Measured in terms of GDP, the annual growth rate of energy consumption per 10,000 Yuan GDP in this period was 2.24%. There are two likely reasons why the energy consumption efficiency decreased, then increased again. First, the relative weight of heavy chemical industries that are heavy energy users has risen over this period . Second, there may be some inaccuracies with the GDP statistics. Data may have been over-estimated before 2000 and under-estimated after 2000. In the nine years since 1996 to 2000, the annual reduction of total energy consumption per 10,0000 Yuan GDP is 3.78%. The more effcient use of energy should be an inevitable long term trend. It is possible to achieve an annual reduction of average energy consumption by 3-4% in 2006-2010. This will allow the energy consumption per 10,000 GDP to decrease by 14.2-18.5% over this period. |
2.2.3 Up to 90% of industrial wastewater will be reused in a closed circle in key cities (79.2% in 2003).
2.2.4 Up to 70% of waste produced by animal farming industries will be reused.
2.2.5 Total material recycling rate will be increased to at least 70%.
2.3 Waste treatment and safe disposal
2.3.1 The ratio of urban household sewage treatment will be raised to 40% (25.8% in 2003).
2.3.2 Total SO2 emission will be reduced by 55% (29.4% for key urban industries in 2003).
2.3.3 COD reduction of animal farming industries will be raised to 47% (2003: 33%), industrial COD reduction rate will be raised to 77% (2003:661.5%), and the COD reduction rate of urban household wastewater will be raised to 47% (22.5% in 2003).
2.3.4 All final industrial solid waste will be reused when possible and safely disposed (58.4% in 2003).
2.3.5 The urban household waste treatment rate will be increased to 70% (50.8% in 2003).
2.3.6 All hazardous and toxic wastes will be treated and disposed safely.
IV Selection of priorities to the development of Circular Economy
1. Role of governments
The development of circular economy is closely related to all economic activities in society. Experiences of developed countries suggest that the operation of circular economy must rely on the market mechanism. The main task of governments is to set up a market mechanism, develop laws and regulations that are in favour of circular economy, provide economic incentives and support to key industries, regions, and members of society, so that the externality arising from conflicts between resource utilization and environment protection can be solved.
2. Criterion for priority selection
Considering the current situation in China, five principles should be followed when selecting priorities for the development of circular economy.
2.1 "Support enterprises in the direction of circular economy to build in the capacity to make profit and progress." Preferential fiscal and tax policies should be granted to those enterprises that provide employment and are environmentally friendly but are otherwise uncompetitive under the current market situation.
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Box 4. Reuse of solid waste in Rizhao City, Shandong Province There are several dozens of small-sized mills processing stone materials in Rizhao City, Shandong Province. These enterprises are largely family-based and provide a large number of employment opportunities. Each of them dumps a small quantity of abandoned stone materials; but the sum of the wastes is huge and covers large area of land. If compelled to treat the solid waste they produce, none of the enterprises will have the capability to fulfill this task. Therefore, Rizhao EPB took the lead and supported the establishment of a circular economy enterprise that uses the solid waste to produce artificial stone materials. The EPB regulates that each of the enterprises shall deliver the abandoned stone materials to the artificial stone material factory. In this way, solid wastes are reused, the environment is protected, economic growth is supported, employment is increased, and the circular economy enterprise is also able to make profit. The government does not need to pay even one cent; instead, its tax income is increased. Thus, a positive circle of environmental protection, increase in employment, reuse and recycling of resources and economic growth is achieved. |
2.2 "Control high pollution discharge and high consumption of natural resources." Industries such as metallurgy, chemical industries, and paper manufacturing should be given priority to develop circular economy. Governments should promote cleaner production in these industries, stimulate them to reuse and recycle resources and waste, and internalize the external costs through the enforcement of strict pollution standards and the use of economic means. If efficiency of resource use in these industries is improved, the bulk of pollution would be reduced, and the major problems of resource utilization and environmental protection would be largely solved.
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Box 5: Energy and resource saving in Shanghai Baosteel Group Corporation Through several means of energy saving and recycling and reuse of resources, Shanghai Baosteel Group Corporation has reduced energy consumption per ton steel to 675 Kg standard coal equivalent, lower than the national average by 10% and lower by nearly 50% than 1.2 tons of standard coal equivalent in the 1980s when the company began operating. Furthermore, freshwater consumption per ton of steel was decreased to 3.72 m3, only one forth of the national average, and the gas emission rate of blast furnace has been reduced from 10% to 0.13%. Taking advantage of recycling and reuse of resources, Baosteel now is able to supply sufficient electricity on its own and even supplied a surplus of 860 million KW of electricity in 2004. Solid waste generated by the corporation is now basically recycled and reused. Assuming that all iron and steel companies in China can achieve the level of Baosteel, 20 millions tons of standard coal and 3 billion tons of freshwater can be saved, and SO2 reduction can reach several hundred-thousand tons. |
2.3 "Principle of limited and optimal use of shortfall resources." This principle means to restrict the use of resources, for example, water in China, that are either in greatest shortage or are most difficult to import. To achieve this, proper pricing mechanisms and policies should be employed to encourage the economical utilization of such resources.
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Box 6. Examples of zero sewage discharge A: With the use of the advanced CMF-RO treatment technologies, zero sewage discharge has been realized in TEDA (Technological & Economic Development Area) in Tianjin. The cost of CMF-RO treatment is around 2.2~2.3 Yuan per ton. The cost of water after RO and desalination treatment is below 2.0 Yuan per ton after the treatment scope reaches 20,000 tons, and is lower than the price for tap water, 3.0 Yuan per ton. This measure reduces a large amount of water consumption, minimizes sewage discharge, increases employment, and realizes substantial economic benefits. Each year around 30 million tons of water can be saved. B: Zero sewage discharge in Hebei Xibaipo Power Co. Ltd (the former Xibaipo Power Plant). This is the outcome of a key national Eighth Five-year project and a key Ninth Five-year project of Hebei Province. At present the total installation capacity of this company is 1200 GW. This company invested 60 million Yuan to implement the zero sewage discharge and water conservation project. Nearly 20 million tons of sewage was recycled and reused each year and zero discharge was thoroughly achieved in 2002. If calculated with the cost of water that is diverted from the south to the north, this company can save the cost of water use by 32.13 million Yuan a year. |
2.4 "Principle of mature technology." This is to accelerate the application, promotion and extension of proven technologies that can realize efficient recycling and reuse of resources. There are many proven technologies available on the market (for example, real estates' water and energy conservation, recycle and reuse of the black liquid produced by the paper industry, cooling water, and grey water), and they should be promoted.
2.5 "Principle of economy of scale." This means encouraging the establishment or upgrading of individual enterprise on a desirable scale so that the effects of economy of scale can be achieved Governments should guide concentrated spatial distribution of enterprises to realize the benefits of regional network of circular economy.
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Box 7: Resource recycling and reuse in paper manufacturers in Shandong Since 2000, in order to minimize the environmental pollution caused by sewage discharge by the paper industry and to implement the strategy of economy of scale, all the small-sized paper manufacturing enterprises with less than 50,000 tons of annual capacity were shut down in Shandong Province. With support from the government, several large-sized factories were established, each with over 200,000 tons of annual production and employing the circular economy approach in production to allow economies of scale in production and waste treatment- these factories collect and reuse alkali and organic matters in black liquid to facilitate further reuse of water. As a result, the production of paper is dramatically increased, the amount of discharged COD is substantially reduced; cost drops and the competitiveness of the enterprises is strengthened, and total employment is maintained. Economic growth, increased employment, improved economic benefits and environmental protection are the multiple wins of this approach. |
3. Priority Industries for Developing Circular Economy
According to the classifications and definitions of industries and sectors in Classification of National Economic Industries (GB/T4754—2002), the Task Force used the method of cluster analysis and related quantitative decision tools to carry out an analysis of average precedence based on 6 selected indices. The analysis resulted in the selection of 18 industries out of 39 that should be given four grades of priority to develop circular economy.
3.1 Grade I Priority (three industries)
Coal-fired power generation sector, raw chemical material and chemical products manufacturing sector, ferrous metal smelting and rolling processing sector.
3.2 Grade II Priority (six industries)
Oil refinery and coking sector, paper and paper-products sector, textile industry, food processing sector, chemical fabric manufacturing, food processing sector.
3.3 Grade III Priority (5 industries)
Coal mining sector, cement manufacturing, beverage producing sector, non-ferrous smelting and rolling processing, transportation equipment manufacturing.
3.4 Grade IV Priority (4 industries)
Specialized equipment manufacturing, ordinary machinery manufacturing, ferrous metal mines mining and screening, rubber products sectors.
4. Priority Regions
China should determine prioritised regions based on the following considerations: 1. Uneven distribution of population and resources, 2. Great economic and social diversity, and 3. Widespread ecological and environmental degradation.
Three types of areas are given priority in hope of minimizing regional differences and fulfilling the different roles for different regions to improve the overall environment in China.
4.1 Areas of national ecological significance. These should be source areas and the upper reaches of big rivers, including the seven big catchments, especially Three Gorges Reservoir area.
4.2 Water supply areas for major cities and other ecologically sensitive areas. For those areas, the ultimate target of circular economy is zero emission. In northwest China, which suffers extreme water shortage, priorities should be given to recycling of water resources.
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Box 8. A water source area in Fushun City, Liaoning Province: environmental protection VS economic development Fushun is a city in which coal and heavy chemical industries are dominant in local economy. In the upper reach of the city sits a large reservoir, which is one of the major portable water sources for the key city in Northeast China, Shenyang. In order to maintain the water quality of this reservoir, any type of enterprises that produces pollution is strictly prohibited. This is a dramatic constraint to local economy and has largely affected the living standard of the local residents. Although the water quality is maintained at Class I standard, it is degraded to Class III within the urban area of Fushun and to Class V or even below Class V when the water flows again out of Fushun. Fushun's coal resources have been depleted; tens of thousands of coal miners are laid off, facing extremely high pressure of reemployment. Increase of employment requires economic development, but economic development puts high pressure on water resource and the environment. In order to solve the conflict between economic growth and environmental protection, Fushun is now listed as on of the four key pilot circular economy development areas in Liaoning Province, which is a national circular economy pilot province. The development of circular economy requires certain investment in infrastructure, as needed for the technological upgrading of the existing enterprises. However, the local area lacks sufficient financial and fiscal capabilities. Such water source areas that need special protection shall be identified as priority and pilot areas of circular economy and be provided with financial and fiscal supports and ecological compensation. |
5. Patterns of circular economy in urban and rural areas
5.1 In urban areas
China is at a stage of rapid urbanization, which is typically followed by industrial expansion. Great effort should be made to promote circular economy to shift from extensive use to intensive use of resources and energy. Therefore, the pattern of circular economy in urban areas should extend in two ways: ecological industrial parks and vein industries.
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Box 9 Suzhou High &Innovative New Technology Industrial Park Suzhou is a new city that has been formed through the concentrated development of High & Innovative Technologies. Its GDP has risen over 20% over the last ten years. The continuous rapid economic growth has exerted great pressure on the local environment. Problems of water shortage, rapid increase of total emission, etc have rapidly pushed the city to the limit that its environmental capacity can accommodate. In 2002, the total discharge of hazardous industrial waste reached 12,800 tons, and has been rising by 50% annually for three years. In response, the area has undergone a strategic shift in priority from economic development to the protection of the environment since 2003. Circular economy is developed in both production and consumption domains to establish an ecological area. a. Production: First, the focus is technological advancement and management, cleaner production, reduction of energy consumption per unit output. Second, further development within and across electrical information industry, accurate mechanical processing, fine chemical industry, and environmental protection industry. The ultimate goal of development is product flow that forms a circular chain of industries at the production stage to convert wastes into usable resources and to minimize the total amount of waste discharge. b. Consumption: Advocate and implement sustainable consumption, develop ecological housing, establish ecological communities, and implement recycle and reuse of urban wastes. c. Establishment of a "vein industry system," or an industrial system of sorted collection, recycling, reuse, and safe disposal of urban wastes. This area has established a system that takes the different features of wastes into account, centering around and extending from this area to all of Suzhou City and even other areas in the Yangtze River Delta. Taking advantage of technology and the positive effect of economy of scale during the progress of the development of ecological industrial park, a waste exchange and reuse & recycling centre has been established which receives industrial waste and used products from the whole Suzhou City and other areas in the Yangtze River Delta and processes the waste into secondary raw materials and products. Summary: Enterprises increase energy use efficiency and reduce energy consumption through the improvement of technological efficiency, cleaner production and green consumption to achieve reduction of waste discharge, comprehensive waste collection, waste sorting and recycling to establish a vein industrial system, resulting in a circular society. Suzhou High & Innovative Technology Industrial Development Area can be seen as a model of sustainable urbanization. |
5.2 In rural areas
In rural areas, residents and industries are scattered. They cannot take advantage of economy of scale and the clustering effects of cities. Therefore, circular economy pattern in rural areas should consider features of agriculture's modernization process and the TVEs,selectively integrating industry and agriculture to fulfill the concept of circular economy; for instance, the development of animal farming- biogas- agriculture or agriculture and food processing industries.
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Box 10 An integrated circular economy system combining both agriculture and industry can be a model for development of circular economy in agriculture or in rural areas. This pattern can be extended. For instance, droppings and corn stalks produced in grain and animal farming can be used to generate biogas, and the residues can be utilized as organic fertilizer.
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V. Development of a legal system of circular economy
The driving forces for the development of circular economy are external to economy, and the traditional system of market economy does not provide intrinsic driving forces for conservation. Therefore, the government is responsible for system innovation and formulating a series of laws, regulations and policies.
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Box 11 Analysis of SO2 emission reduction According to the goals the TF suggested for the upcoming Eleventh Five-year Plan, SO2 emission reduction shall reach up to nearly 22 million tons by 2010. This demands a large investment, which will substantially increase the cost of coal burning and will raise the cost of energy consumption correspondingly. It has two possible impacts: enterprises will have smaller margins, or prices will rise. One of the government's key roles will be to stimulate enterprises to reduce SO2 emission from coal and to recycle and reuse sulphur. Five policies are suggested: increase of the SO2 emission fee, price increases for products consuming coal (i.e. coal-fired electricity), support to enterprises innovating technology to minimize cost of SO2 emission reduction, an SO2 emission reduction subsidy to enterprises, higher prices for products undergoing SO2 emission reduction processes. Governments may select one or more of the alternative policies to stimulate enterprises to reduce SO2 emission. |
1. Current legal system related to circular economy
No special legal frame for circular economy in China exists so far. However, some laws and regulations related to resources and environmental protection have been established, including:
1.1 Article 26 of the Constitution, Clause 2 of Article 9
1.2 Law on Environmental Protection of the People's Republic of China
1.3 Special laws targeting specific fields of pollution prevention and control or specific problems (i.e. Marine Environmental Protection Law, Law on the Prevention and Control of Water Pollution, Law on the Prevention and Control of Atmospheric Pollution, Law on the Prevention and Control of Environmental Pollution of Solid Wastes, Law on the Prevention and Control of Environmental Noise Pollution, Law on the Evaluation of Environmental Impact Analysis, Law on the Prevention and Control of Radioactive Pollution, Cleaner Production Promotion Law, etc. );
1.4 Laws of natural resources (i.e. Forestry Law, Grassland Law, Coal Law, Mineral Resources Law, Fishery Law, Land Administration Law, Law on Desert Control, Water Law, Law of Water and Soil Conservation, Meteorology Law, Sea and Ocean Law, Law on Wildlife Conservation, etc.")
1.5 The administrative departments of resource and environmental protection in China have formulated relevant administrative rules (i.e. Implementation Methods of Quantitative Evaluation of Comprehensive Restoration of Urban Environment, Regulation on Claiming and Registration on Pollutant Discharge, Rules of Environmental Protection Management for Construction Projects, etc. issued by SEPA and others);
1.6 Local governments have issued local regulations on environmental protection. In addition, environmental standards have been developed at three levels, including national, sector/industry and local levels. There are at least 470 related standards.
2. Main problems of current environmental legal system
2.1 A gap between environment laws and resource laws is detrimental to the development of circular economy. The former aims at end-of-pipe control of environmental quality, rarely or insufficiently highlighting waste reduction, recycling and reuse, which is the control of waste and pollution at the source. The Cleaner Production Promotion Law is a step towards narrowing the gap; however, this law does not have enough mandatory force. Resource laws mainly concern resource conservation rather than the effective utilization of resources.
2.2 The current legal system needs further improvement, as it lacks a comprehensive law across industries and departments and between basic and special environmental protection laws. This law may resemble the Law of Promoting Effective Utilization of Resources and the Law of Waste Disposal in Japan, and the Law of Waste Avoidance, Recycling and Disposal and the Closed Substance Cycle and Waste Management Act in Germany.
3. Suggestions about Legal system for circular economy in China
It is necessary to reconsider all of the current laws related to circular economy, either to amend present laws and documents or to add new laws and regulations to formulate an integrated legal system for circular economy.
3.1 Formulating a basic law of circular economy
A basic law of circular economy is suggested to address major issues and major guidelines concerning the development of circular economy. These are:
A. To establish a resource-saving and environmentally friendly society is the general objective and guideline of the law and future policy direction.
B. To clarify the rights, responsibilities and obligations of governments, enterprises and citizens as the foundation of special laws
C. To standardize policy tools and interventions for promoting circular economy.
D. To regulate market admittance rules for circular economy products.
3.2 Amending the Law of Environmental Protection
The Law of Environmental Protection is a basic law that has been officially promulgated for 15 years. It is the primary guideline for environmental legislation in China. However, some articles in this law are no longer suitable for the current situation. New ideas or concepts, such as waste avoidance at the source, development of circular economy, promotion of sustainable development, and establishment of a resource-saving and environmentally friendly society, should be integrated into it.
3.3 Developing special laws and regulations
Certain special laws or regulations should be formulated to develop circular economy regarding specific wastes or specific issues. The following are suggested:
A. Regulation of Classified Collection and Recycling of Containers and Packages
B. Regulation of Collection and Recycling of Household Appliances and Electronic Products
C. Regulation of Recycling of Construction Materials and Wastes
D. Law of Recycling and Safe Disposal of Dangerous Wastes
E. Law of Recycling and Disposal of Waste from the Animal Farming Industry
F. Law of Product Manufacturing from Secondary Materials
There are other specific issues concerning circular economy, such as inspection and audit of cleaner production, waste management including collection, storage, transportation, final landfill, and management of enterprise and facilities for waste handling and disposal.
3.4 Formulating and improving comprehensive laws of circular economy
Comprehensive laws cover common issues and form the basis of special laws. It is urgent for China to formulate a comprehensive law promoting the effective utilization of resources and environmental protection, which have been isolated in the existing legal system. Certain comprehensive laws may be originated from amending existing laws. For example, new contents may be added into the existing Law of Reuse and Recycling of Solid Wastes and Prevention and Control of Environmental Pollution Caused by Solid Wastes to form a new Law of Waste Recycling and Environmental Protection.
3.5 Developing related laws
In terms of content and classifications, some existing regulations do not belong to the laws of circular economy but do have positive side effects on its development, such as Laws of Government Procurement, Taxation and Administrative Procedure Law, Administrative Reconsideration Law, etc. China should formulate a Green Procurement Law as soon as possible to stimulate the procurement of environmentally friendly and recycled products.
VI. Recommendations for the policy system for the development of circular economy
1. Comprehensive policies
1.1 The central committee of CPC has formulated the future targets of economic and social development by year 2020, following a scientific approach of development. Development of circular economy should be regarded as one of the key elements for achieving the targets. Development of circular economy should be integrated into the performance measurement system for government officials at different levels, thus strengthening the role of government.
1.2 It is necessary for the central government to set up the National Environment and Resource Commission（NERC） based on the SEPA, the Ministry of Land and Resource, the State Forestry Administration, the Ministry of Water Resource. It's functions focus on policy integration for the management of environment and resources. Before the NERC was set up, it is necessary for the central government to set up specific organizations to plan, coordinate, and guide policy implementation for efficient decision-making because the management of circular economy requires effective cooperation between different departments.
1.3 It is necessary to formulate a development plan for circular economy and to define short- and long-term objectives for development and advancement. Amendments should be made from time to time according to changing conditions. The circular economy plan must be combined with the national economy and the plan for social development and must be linked to modifications of regional industrial structures, environmental protection, ecological restoration, urban development, rural infrastructure, etc.
2. Industrial policies
The industrial policy for circular economy may be divided into two categories. First, policies directly targeting industries using secondary resources or based on waste recycling (vein industry). Second, policies regulating all industries practicing cleaner production and closed loop.
2.1 Policies for waste recycling and safe disposal industries and development of vein industries
A. Accelerate the formulation of industrial and technological standards for vein industry and products of circular economy and strictly prevent secondary pollution.
B. Identify catalogues and lists of products and innovative fields of circular economy for special support and encourage innovations involving waste recycling. The identified circular economy projects may benefit from the following preferential policies:
2.2 Utilization of secondary resources and cleaner production policy within enterprise
A. Establish substance/material flow accounting systems in enterprises to provide primary data for waste management
B. Apply compulsory cleaner production inspection and accounting systems in over 80% of key industries and enterprises by 2010;
3. Fiscal, tax and Financial policies
3.1 Increase the average rate of resource taxes (including imported resources) to at least 20% of its market value.
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Box 12 Resource Tax and Reduction of Consumption Using a Chinese CGE model, the TF analysed the impacts of a raise in the resource tax on resource consumption and the national economy. Results suggest that via the market pricing mechanism, a raise in the resource tax will dramatically reduce resource consumption and domestic energy consumption with only a slight negative impact on GDP. The TF suggests the collection of a comprehensive resource tax at the rate of 20% of output generated by companies that exploit resources. This measure will reduce resource use by 1.7~ 2.7% for coal, 1.6 ~ 2.3% for oil and natural gas, 1.7 ~ 2.1% for metal ore, and 1% for non-metal mineral resources and will reduce the domestic resource reduction by 4.5 ~ 5.4% for coal, 10.9 ~ 11.6% for oil and natural gas, 13.5 ~ 13.9% for metal ore, and 10.5% for non-metal mineral resources. At the same time, GDP will be reduced by only 0.12 ~ 0.33%. |
3.2 Establish a tax for consumption of water and energy beyond a reasonable consumption quota. For ease of collection and delivery to the government treasury, this tax could be incorporated into the price of water or energy.
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Box 13 Water consumption in Dresden, Germany
 In 1985, a wastewater fee was introduced but at a very low rate, thus having almost no impact on consumption.. With the introduction of higher water and wastewater fees in 1991 with continued increases, the water usage was reduced by more than 40 %.
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3.3 Ending export tax refunds for energy-intensive products
3.4 Tax exemption for technology and equipment imported by circular economy enterprises
3.5 Tax refunds for all exported circular economy products
3.6 Tax deduction for all investments in energy-saving, resource-saving and cleaner production technologies
3.7 Introducing an emission tax to encourage enterprises to recycle resources
Box 14: Waste tax and its effects on waste recycling in Denmark
In 1987, Denmark was the first country to introduce a tax on landfilling of waste. The tax was 40 DKK (6 USD) per tonne on top of the disposal fee. The purpose of the tax was to create an economic incentive to route more of the waste to recycling in order to improve the reuse of resources from waste and to reduce the amount of waste going to landfill. About 40 % of the waste went to landfills in 1987, while the remaining part was incinerated or recycled, although statistical data on waste management were fairly uncertain at that time. Consistent definitions and data collection procedures were introduced in 1991, providing a reliable record on the development in waste management in Denmark.
The tax has been increased several times and in 1999 the tax reached 375 DKK (57 USD) per tonne. The level of recycling in 2003 was 65%, 26% was incinerated and only 9% of the waste went to landfills. Since 1995 the introduced increases in the tax has had no major effect on the recycling ratio, while landfilling has decreased steadily. The introduction of a ban on landfilling of organic waste has also contributed to less waste going to landfill.
In Denmark, a close association exists between the landfill tax and the reduction of landfilling. With the rise in landfill tax, the recycling rate increases while the landfill rate decreases. A similar trend is anticipated in China.
3.8 Accelerating the transition from value-added tax to consumption tax
3.9 Establishing a Green Government Procurement law
3.10 Enhancing fiscal investment policies supporting circular economy, especially in vein industries and waste management projects, including large-sized waste collection and delivery plants, collection and storage facilities for hazardous waste, and establishment of sewage pipe networks. These should be regarded as a part of city infrastructure and be included in the government's budget.
3.11 Fiscal authorities at various levels should increase the government's investment in the R&D of resource-saving and energy-efficient technologies.
3.12 Ecological compensation policies should be studied and formulated to support the development of key areas of national ecological significance.
3.13 Credit policy, primarily policy loans. Policy loans can be basically managed by the National Development Bank, which provides indirect capital support to industries and projects in the direction of circular economy.
3.14 Non-government capital should be encouraged and channeled into circular economy, particularly in vein industry. Measures should be taken to attract more investment through the capital market.
3.15 Circular Economy Fund should be established. Governments should formulate regulations and rules of fund allocation, use, management, and auditing. Selected capital management companies should be entrusted for the management of the fund.
The Circular Economy Fund can be raised from the following sources:
A. Special government bonds
B. Revenue from issuing a Circular Economy Lottery for the public
C. Waste discharge fee
D. Resource taxes
E. A surcharge levied at the time of purchase to finance the recycling of certain goods (cars, large electrical household appliances, etc.)
F. Funds from non-government sources and international aid funds.
The above funds should be used to support the R&D of technologies and subsidize key projects of circular economy.
4. Policies guiding industrial locations
4.1 Developing national land regulations and regional land function plans aiming at nationwide ecological and environmental protection. In ecologically sensitive areas and areas influencing the safety of the nation's environment and resources, certain industries should be rigidly prohibited, and the model of circular economy should be followed to minimize conflict between economic growth and environmental protection.
4.2 Amending current policies on the industrial layout to change the current scattered locations of TVEs. This change should be incorporated into the process of urbanization and lead toward the conglomeration of enterprises in ecological industrial parks. Development plans of such areas should differentiate among various types of enterprises consistent with principles of circular economy so that the locations of each enterprise can form a reasonable network of resource and energy utilization and contribute to the development of vein industry.
5. Policies to take advantage of economy of scale
The positive effects of economy of scale should be fully utilized for the efficient use of resources and energy.
Three levels of Economy of Scale Policies:
5.1 Individual Enterprise: Encourage manufacturing and operation on the most cost effective scale. For areas with many small enterprises with high pollution, government should make efforts to promote economy of scale.
5.2 Spatial Concentration of Enterprises: Promote the specialization and concentration of industries in ecological industrial parks and encourage small enterprises to gather in these parks, making it easier to manage waste and develop a circular economic network.
5.3 Establish a market admittance standard for vein industry to take advantage of economy of scale, which is vital for the control of secondary pollution.
6. Administrative policies
6.1 Formulate policies of manufacturer responsibility on the collection of used products.
The government shall promptly form a manufacturer guarantee system for the recycling of large products, i.e. charging up to 5% of the price of large consumables as a guarantee and depositing it into the National Circular Economy Fund, which is to be returned after manufacturers have transmitted the used consumables to recycling companies.
6.2 Charge consumers a guarantee for small consumables containing toxic substances while encouraging them to assist waste collection, i.e. charging consumers a guarantee for new batteries, but if used batteries are returned, no guarantee is required.
6.3 As for products difficult to recycle or having a high recycling cost, fees should be incorporated in the price. Fees could also support a double recycling system similar to Germany's Green DOT for recycle and reuse.
6.4 An economic compensation system/mechanism for ecological environment should be established, using extra charges, resource taxes and fees collected from various charges and the increase of resource prices.
6.5 Increase the charge for urban waste disposal and emission. In order to lessen the burden on low-income inhabitants, relevant subsidies may be provided.
6.6 Formulating market entry policies for resource and energy-intensive technology and equipment.
Based on available and proven technology, the government shall establish efficiency benchmarks for energy, water and other resource use for equipment and water consumption intensive industries. Technology and equipment below the benchmark levels should not be labelled as energy and resource efficient and market admittance shall be refused.
6.7 Design and encourage labelling of circular economy products.
6.8 Formulate specific policies for some issues, e.g.., policies limiting excessive packaging.
7. Technological policies
7.1 Compulsory phase-out of outdated technology: A list of outdated technological systems should be formulated for compulsory phase-out.
7.2 Incentives for technological innovation: The state should establish a Technological Development Fund and award funds to support the research and development of circular economy, in particular, domestic technological innovation in research institutes and enterprises.
7.3 Technological introduction and promotion: Support and encourage enterprises to introduce advanced technology through the provision of subsidies and tax deductions, reductions, and exemptions. The government may purchase certain technologies and provide them to enterprises free of charge or at low cost to promote widespread application.
8. Encouraging public participation
8.1 Provide education and training about circular economy to all government officials and extend knowledge of circular economy to the public.
8.2 Integrate circular economy knowledge with school education.
8.3 Advocate green lifestyle and green consumption to the public.
8.4 Regularly disclose environmental information and encourage the public to supervise the environmental behaviours of enterprises and government.
8.5 Encourage NGOs to participate in the development of circular economy and encourage establishment of technological consultation and service organizations and associations.
9. Participation in international cooperation
China should participate in the international effort to introduce proven technologies and successful experiences from developed countries and members of international organizations. National treatment and better conditions should be given to the foreign investment in the area of circular economy.
