Overview and Analysis of Environmental and Climate Policies in China’s Automotive Sector

• Date: 01 September 2013
• Published date: 01 September 2013
• Author: Marcus Wachtmeister
• DOI: 10.1177/1070496513492520
• Subject Matter: Articles

Journal of Environment & Development

22(3) 284 –312

© The Author(s) 2013

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DOI: 10.1177/1070496513492520

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Article

Overview and Analysis

of Environmental and

Climate Policies in China’s

Automotive Sector

Marcus Wachtmeister1

Abstract

This article categorizes the mode of the most important environmental and climate

policy instruments adopted in the automotive industry in China and identifies

challenges to instrument implementation as well as potential ways to overcome them.

The analysis shows that command-and-control standards are the dominant mode of

environmental policy in China’s automotive industry and incentive-based instruments,

taxes, and other market-based measures that form the backbone of transport policies

in Europe and elsewhere are underrepresented. However, exceptions to this rule

exist in form of locally applied incentive-based instruments, and in form of subsidies in

the policy field of new energy vehicles. At present, command-and-control regulation

shows the highest efficacy despite design flaws. Incentive-based instruments will

achieve sufficient effectiveness in China only if their design as well as implementation

and enforcement infrastructure are reformed substantially. This includes defining

clear responsibilities, and powers in enforcement as well as rulemaking.

Keywords

environmental policy instrument, command-and-control, flexibility, China, automotive,

new energy vehicles

Introduction

The academic literature on environmental policy differentiates between allegedly effec-

tive but inefficient command-and-control regulation and more flexible instruments that

1University of Oxford, Oxford, UK

Corresponding Author:

Marcus Wachtmeister, Oxford University Centre for the Environment (Dyson Perrins Bldg.), University

of Oxford, South Parks Road, Oxford, OX1 3QY, UK.

Email: marcus.wachtmeister@OUCE.ox.ac.uk

492520JED22310.1177/1070496513492520Journal of Environment & Development X(X)Wachtmeister

research-article2013

Wachtmeister 285

offer polluters a more efficient albeit potentially less effective way to comply with envi-

ronmental legislation (OECD, 2007). For the purposes of this article and to contrast such

instruments from regulatory measures, the latter group of instruments is summarized as

“incentive-based instruments.” At odds with regard to the exact nomenclature in this

field, the literature mostly differentiates five groups of incentive-based instruments, that

is, environmental taxes (such as fuel taxes or the Norwegian tax on sulphur); tradable

permit schemes (for instance the European CO2 trading scheme ETS); subsidies, grants,

and other forms of financial incentives for the supply or demand of environmentally

beneficial goods, products, and services (such as cash-for-clunkers schemes or subsidies

for electric vehicles); the (mostly) financial promotion of technological development

and research (for example research grants and funds); and suasive instruments, such as

voluntary agreements (for instance the 1998 European voluntary agreement on limiting

CO2 emissions of new passenger cars), environmental labeling schemes (such as the

European tyre label), and other information-based approaches (for example the European

mandatory CO2 emission and fuel consumption information on window stickers of new

automobiles).

Flexible instruments and especially environmental taxes have become the often

preferred choice of policy advisers and analysts (OECD, 2007, 2010). Borrowing

from a term describing the shift toward liberal market ideology in other policy fields

(Washington Consensus), Bell and Russel aptly describe this theoretical preference

of flexible instruments as the environmental consensus (2003). Despite this theoreti-

cal preference, incentive-based instruments have predominantly been put into prac-

tice in developed countries1 (Bailey, 2002; Jordan, Wurzel, & Zito, 2005, p. 486;

Wurzel, Jordan, Zito, & Brückner, 2003) and in select policy fields (Jordan, Wurzel,

& Zito, 2013). In developing countries and emerging economies, on the other hand,

the dominant policy mode continues to follow the command-and-control approach

(Keohane, Revez, & Stavins, 1998). Several scholars argue that this is the case

because developing countries and emerging markets often lack the resources (Da,

Ronaldo, Richard, & Ruitenbeek, 1999), skills (Shi & Zhang, 2006), or institutional

enforcement capacities (Lo & Tang, 2006) to implement flexible instruments. While

incentive-based instruments theoretically lessen the need for external monitoring

and enforcement, several authors hold that a significant need for enforcement and

monitoring as well as conducive institutional factors prevails (Jordan et al., 2005;

Prakash & Gugerty, 2010).

Only few studies have so far investigated the case of China. Several of these studies

show that Chinese environmental and climate policy is traditionally dominated by

command-and-control regulation (Gloria & Sterner, 2010) and that the regulatory

approach in China is to a large degree ineffective. Reasons are seen in a lack of effec-

tive enforcement and implementation (Blackman & Harington, 2000), especially at

the local level (Beyer, 2006; Ross, 1984). This lack of conversion of legislation into

business practices of (mostly state-owned) enterprises has motivated scholars to solely

emphasize institutional implementation problems in Chinese environmental policy.

Such a one-sided focus runs at least two risks: first, the pessimistic view of China’s

institutional capacity to implement incentive-based instruments hinders scholars to