(EnergyAsia, August 17 2012, Friday) — The Asian Development Bank (ADB) has urged China to initiate comprehensive fiscal, economic and legal measures to achieve ambitious targets for reducing pollution while growing the economy.

While praising China’s green progress including its increased investment in environmental infrastructure, greater focus on achievable targets, and strengthened accountability and enforcement, the bank’s second environmental report on the country also noted various shortcomings.

The report, “Toward an Environmentally Sustainable Future”, said China has reduced chemical oxygen demand and sulphur dioxide emissions by 10% and energy consumption per unit of GDP by nearly 20% despite continued robust economic growth.

But these achievements have been offset by the country’s worsening threats of water pollution, water scarcity and rising output of solid waste. Additionally, China faces crises stemming from increasing output of urban and industrial wastewater and solid waste.

“Non-point source pollution including fertiliser run-off, pesticides and discharges from livestock facilities, threatens the aquatic health of lakes and estuaries. Addressing these issues will require innovative strategies, regulations and economic incentives,” said the ADB.

The report highlights four root causes behind the country’s environmental challenge: the rapid pace of economic growth, the economy’s heavy reliance on exports and investment, its high dependence on coal, and the rapid pace of urbanisation.

To change this unsustainable growth pattern, ADB has urged Beijing to reform the pricing of resources and introduce a green taxation system.

The new system would tax resource extraction, and pollutant and carbon dioxide emissions, and allow tax deductions to offset investments in pollution control equipment.

The bank also called for fiscal reform that would put new revenues and savings from environmental taxes into the hands of sub-provincial governments for use in environmental protection and resources conservation.

The report encourages Beijing to invest in natural resources through a national regulatory framework of “eco-compensation” where the government or private sector pays for ecological services protection by households, communities and local governments.

In developing a national eco-compensation ordinance, the government needs to evolve from being the main purchaser of ecological services to an “enabler” that encourages private sector participation.

Legal reform is critical to improving environmental governance. Such reform should clarify institutional responsibility, reduce ambiguity and redundancy in regulations, and empower enforcement authorities.

Under its Country Partnership Strategy for China (2011 to 2015), the ADB supports the government in pursuing clean and sustainable growth, prioritising renewable energy and energy efficiency, encouraging low-carbon transport systems; protecting degraded rural ecosystems, and developing livable cities.

“China’s environmental challenge is arguably the most complex that any country has confronted,” said Robert Wihtol, Director General of ADB’s East Asia Department. “While China’s environment has improved in many respects, the overall situation continues to deteriorate as environmental pressures increase. The country’s environmental situation has not yet reached a turning point.”