China’s cities, especially those in the north, have been cursed with air pollution for decades. Until the 1990s the main source of this pollution was the burning of coal in power stations, factories and district heating. Emissions included coal dust, sulphur oxides which cause acid rain, and nitrogen oxide. Over the last 15 years the government has achieved some success in reducing the level of urban pollution from coal by moving coal-fired plants out of the cities, introducing natural gas, increasing the proportion of coal that is washed, and promoting the use of flue-gas desulphurization in power plants.
Unfortunately, the relative decline of pollution from coal has been matched by the rise of pollution from road traffic. The total number of motor vehicles in China has risen from 4 million in 2000 to nearly 100 million in 2012. More than five million vehicles are registered in Beijing alone.
As with coal, one of the main pollutants from motor vehicles is sulphur. But the pollution that has been of most concern is PM2.5 particulate matter, as this reaches furthest into the human lung. The World Health Organization’s guidelines set a value for a 24-hour mean concentration of PM2.5 at 25 microgrammes per cubic metre. In Beijing this January, levels were frequently about 500 and reached as high as 1,000 microgrammes per cubic metre. Vehicles were identified as the principal culprit, not just their exhaust but also their brakes and tyres and the roads they drive on.
This growing pollution from vehicles is compounded by that from coal. Despite the efforts of government to reduce pollution from the use of coal, it remains a problem because the annual consumption of coal has doubled from 1.8 billion tonnes in 2003 to more than 3.6 billion tonnes in 2012. Aside from motor vehicles and coal, other sources of PM2.5 include construction sites, dry winter soils, landfill waste dumps, and waste incineration plants. A final aspect of this atmospheric pollution is that it moves with the wind which explains why it covered so much of the country in January and why it then blew over to Japan.
China has been making concerted efforts to raise vehicle fuel standards since the year 2001 when it required all new vehicles to meet the National Phase I (similar to EURO I) standard for gasoline. This was followed by setting the threshold for gasoline and diesel at National Phase II for 2004, National Phase III for 2007 and National Phase IV for 2010 (each similar to the equivalent EURO standard). At the same time, the number of buses and taxis running on natural gas has risen in cities where gas is available.
This strategy has not been as successful as had been hoped for three main reasons. First, although the new vehicles coming off production lines have generally kept up with the rising technical standards, large numbers of old vehicles fail to meet these standards and they account for a significant share of the pollution. Only recently has the government started to offer subsidies to vehicle owners who scrap their vehicles which fail to meet Phase 1 standards. Second, the Phase IV standard has not been widely applied across the country. Provincial and municipal governments have set different standards, most being Phase III.
Finally, although a significant proportion of the country’s refinery capacity is said to be able to produce fuel of Phase IV and V standards, the oil companies have not utilised this ability on account of the higher operating costs. Notably, most diesel is of a low standard and is used by large numbers of trucks and busses. In order to meet the rising standards of fuel required, Sinopec and PetroChina will need to invest several billion dollars a year for a number of years. This challenge is exacerbated by the large proportion of imported crude oil with high sulphur content, especially that from the Middle East which consistently accounts for about 50% of crude oil imports.
At the beginning of February the State Council announced that a new low-sulphur standard for diesel would be introduced in 2014 and that stricter standards for gasoline and diesel (National Phase V) would follow in 2017. But just raising standards will achieve nothing unless the government addresses three types of challenge: regulatory, economic and, underlying both, political. The slowness of the national oil companies to upgrade their refineries can be blamed on the failure of the Ministry of Environmental Protection to implement their own regulations, and on the failure of city governments to raise standards in line with the central government. These failures reflect the longstanding weakness of environmental agencies in China and the tendency for local governments to focus on economic growth at the cost of the environment.
The national oil companies blame the low price they receive for oil products at the refinery gate which results in financial losses for them even before the incremental cost of producing clean fuel is taken into account. Their ability of the oil companies to resist implementing government regulations illustrates their continuing political power despite the restructuring, commercialisation and listing that took place between 1998 and 2000. It also highlights the problems that arise from the government’s longstanding policy of constraining refinery gate and end-user prices for oil products as part of social policy, but allowing crude oil prices to follow international markets.
Meeting the fuel standards will require a combination of better regulation by national and lower levels of government, as well as economic incentives for the oil refiners such as higher refinery gate prices or lower taxes on clean fuels. But the government will have to follow up aggressively on its new slogan of an “ecological civilization” if it is to be successful in tackling the many causes of urban air pollution.