Papers Delivered at International Conference on Cleaner Production
Beijing, China -- September 2001 -- Paper 7 of 30

Evaluation of environmental conservation and economic benefits from environmental industry-case study of Japan and tentative application to China

Toshihiko MASUI 
National Institute for Environmental Studies, Tsukuba

Abstract : The macro economic benefits derived from the environmental conservation activities including the installation of the cleaner production technologies are evaluated by using several economic models. The negative impacts such as the price effect caused by these activities can be offset by the positive impacts such as the income effect by these activities and mitigation of environmental constraints.

Keywords: model analysis, cleaner production technology, environmental Kuznets curve, environmental industry

Introduction

In this presentation, several model analyses to evaluate the environmental policies are introduced. The main purpose of this presentation is to evaluate the effectiveness of the cleaner production technology and of the environmental industries by using several economic models. The first analysis represents the Japanese experience to overcome the severe air pollution. From the experience in Japan, the energy saving investment and energy conversion contributed to SOx emissions reduction considerably compared with the installment of desulfurization equipment. The second analysis is related to “Environmental Kuznets Curve.” Based on the global model, in China the cleaner production technology has big potential to both reduce SOx emissions and promote the economic activities as well as the end-of-pipe technology. The last model evaluates the macro economic benefits in case of introduction of the environmental preservation activities such as installation of the cleaner production technology under environmental regulations. Although this model is still under construction, the application to the developing countries has been started.

Experience of air pollutant management in Japan

There are many options to reduce SOx emissions. Energy saving, fuel conversion from the high sulfur content fuel to low, installation of desulfurization equipment, change of industrial structure, and so on. Fig. 1 shows the simulation results of an economic model to reproduce the history of air pollution measures in Japan. This model includes the relationship between SOx emissions and the economic damage derived from air pollutant. This simulation results can reproduce the investment for desulfurization as shown in Fig. 2. From the Japanese experience, the cleaner production technologies such as energy saving and fuel conversion could contribute to reduce SOx emissions considerably compared with the end-of-pipe technologies such as desulfurization. In 1960s, reduction measures focused almost entirely on the fuel conversion, while the effects of the desulfurization started to appear significantly at the beginning of the 1970’s. After that, the energy conservation also had a significant influence on the situation.

Fig. 1. Factor analysis for SOx emission volume reductions in Japan

Fig. 2. Actual investments for desulfurization and model simulation results

How much impact did these activities to reduce environmental burdens give the macro economy in Japan? The two aspects should be considered. The first one is negative impact. These activities lead the increase of production cost. As a result, the price of products is also increased. This increase in price makes the demand decrease, that is to say “price effect”. The other one is positive impact. The activities of the sectors producing equipment for pollution prevention are promoted. This is “income effect”. In the case of Japan, these negative and positive aspects were offset, and as a result, the severe economic deficits did not happen.

Environmental Kuznets curve and environmental policies

“Environmental Kuznets” curve is known as the hypothetical dynamic relationship between the economic development and the state of the environment. That is to say, as the economy grows, environmental situation is degraded at first but later improved. Fig. 3 represents the “Environmental Kuznets curve” of Japan, China and US. SOx emissions are regarded as the environmental burdens in Fig. 3. From the historical data in Japan and US, the environmental burdens increased along with the economic growth, but then decreased while the economic activity continued to increase. This concept is introduced to the economic model. In this analysis, the relationship between economic growth and economic damage from SOx in Japan is applied to China.

Even in the reference case, which has no additional policies, SOx emissions in China will be decreased as shown in Fig. 4, because of the severe economic damage from SOx emissions. If the desulfurization equipment is introduced, the SOx emissions will be decreased drastically, but the GDP per capita will also be decreased. On the other hand, the energy saving technology or the clean energy is introduced, the economic loss will be smaller than that under the introduction of desulfurization, and the SOx emissions reduction is also smaller. But the better the economic situation is, the smaller the differences among these options. From these results, the introduction of the cleaner production technology can help to lower the peak of the environmental Kuznets curve, and as a result, it contributes to not only the environmental conservation but also the economic progress in the long run.

Fig. 4. Simulation results in China (relationship between economic activity and environment)

Macro economic effects of environmental preservation activities

AIM project team of National Institute for Environmental Studies and Kyoto University has been developing the several models for global warming problem. Among them is AIM/Material model, which is the country-base model. This AIM/Material is computable general equilibrium (CGE) model and treats not only CO2 emissions reduction policy but also the other environmental policies such as solid waste management and air pollutant reduction policy. Moreover, this model includes the environmental industry. Environmental industry is defined as the industry which produces goods or services improving the environment. As mentioned in the previous chapters, the activities to preserve the environment have both positive and negative impact to the macro economy. This model evaluates how the environment friendly activities contribute both economic development and environmental conservation.

In Japan, we are facing the several severe environmental problems such as global warming, pollutant from vehicle, solid waste, and so on. Especially, the greenhouse gas emissions reduction and the reduction of final disposal of solid wastes are one of the most important global and domestic problems, respectively. These problems can be regarded as the environmental constraints in this model. At present, AIM/material model concentrates on these two environmental problems as shown in Fig. 5 representing the structure of AIM/Material model. This model has 33 economic sectors, 31 commodities, and 18 solid wastes as shown in Table 1. In order to estimate the impact of the activities to protect the environment under these environmental constraints, following 3 scenarios are prepared;

• Scenario 1: No environmental constraints scenario
• Scenario 2: Environmental constraints scenario without countermeasures
• Scenario 3: Environmental constraints scenario with countermeasures including the introduction of cleaner production technology

In this analysis, the environmental constraints are imposed on CO2 emissions and final disposal of solid wastes. Kyoto target is regarded as the constraint on CO2 emissions. The government target, to make the quantities of final disposal of solid waste in 2010 half of those in 1996, is the constraint on solid wastes. The countermeasures in Scenario 3 include the enhancement of material and thermal recycling, reduction of waste generation, energy efficiency improvement, increase of environmental investment, and so on.

Table 1. Classification of sectors, commodities and wastes in this model

Fig. 6 represents the GDP trajectories by scenarios. By introducing the environmental constraints, the GDP will decrease from the solid line to the broken line in Fig. 6. On the other hand, by introducing the appropriate countermeasures for CO2 reduction and solid waste management, GDP loss will be mitigated from the broken line to dotted line. These results imply that the environmental conservation activities can bring the positive impacts to the economic activity under the environmental constraints, because these activities can mitigate the environmental constraints affecting the activities of the other sectors favorably. Of course, if there are no environmental constraints, these activities are only regarded as the cost. Under the environmental constraints, however, the society cannot regard these activities as costs but benefits. Fig. 7 shows the economic influence to each sector. Based on this model simulation analyses, the sectoral economic impacts can be assessed.

Fig. 6. GDP trajectories under the various scenarios in Japan

Fig. 7. GDP changes in sectors in 2010 (Scenario 1 in 2010 =1.0)

Moreover, AIM project team intends to apply this AIM/Material model to developing countries, because the advance assessment by model can indicate the short cut to the sustainable development as shown in the previous chapter. The preliminary model to apply to India has been developed.

Conclusions In this presentation, based on the model analyses, the introduction of the cleaner production technologies, sometimes expanding to the environmental investment or enhancement of environmental industries, can contribute not only to the environmental conservation but also to the economic development. The advantages introducing the cleaner production technologies are preservation of the environment, promotion of the sectors providing these technologies, and the ripple effects by mitigation of environmental constraints. The expansion of environmental industries including the cleaner production technologies will have a very important role to achieve both the environmental preservation and the economic development.

Acknowledgement 

The author thanks Dr. Tsuneyuki Morita, National Institute for Environmental Studies, and Ms. Yasuko Irie, Tokyo Institute of Technology, for giving the useful suggestion and simulation results.

References 

1. Committee on Japan’s Experience in the Battle against Air Pollution (1997) Japan’s Experience in the Battle against Air Pollution, The Pollution-Related Health Damage Compensation and Prevention Association.

2. Irie, Y., Kobayashi, Y. and Morita, T. (2000) Policy analysis on Alternative Development Paths Based on the Environmental Kuznets Curve, Proceeding of “Society for Environmental Economics and Policy Studies, 2000”, pp.114-115, (in Japanese).

3. Masui, T., Matsuoka, Y. and Morita, T. (2000) Development of Applied General Equilibrium Model Integrated Environment and Economy, Environmental System Research, Vol.28, pp.467-475 (in Japanese).

4. Masui, T. (2001) Quantitative Analysis on Economic Effects of Environmental Policies under Environmental Constraints Using Computable General Equilibrium model, Proceeding of “IFAC workshop on modeling and control in environmental issues” (in press).

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Email: masui@nies.go.jp