Information Mechanisms and the Future of Chinese Pollution Regulation

Just as China has emerged as the world's fourth largest economy, its environment is deteriorating at an increasing rate. The nation's environmental degradation-particularly its rapidly rising level of pollution-threatens to undermine the efficacy of environmental protection measures throughout the world and could have global effects extending beyond the environment. Commentators have attributed the deterioration of China's environment to the gap between the enactment of pollution regulation measures and their implementation. This gap is said to exist because of various institutional and financial constraints imposed upon regulators of industrial pollution. Without challenging such lines of commentary, this Article argues that prior research has overlooked two critical and related information mechanism issues that may independently contribute to the existence of the gap: (1) the manner in which information about industrial pollution regulation is collected and disseminated through mechanisms designed by regulators; and (2) regulators' preferences for certain mechanisms. This Article focuses on China's environmental impact assessment system ("EIAS") and scrutinizes two recently enacted measures that are intended to enhance the EIAS's efficacy but will likely fail to accomplish this objective, a conclusion that will become apparent through a revealing comparison with the regulatory regime governing securities in the US. In critiquing the current information mechanisms in China's EIAS, including the recently promulgated guidelines on public participation in the EIAS, this Article seeks to offer the following three preliminary observations: first, too many resources have been devoted to collecting speculative information for preventive measures that are often strategically produced by regulated subjects, thereby depriving all parties, especially regulators, of the opportunity to accumulate the appropriate type of human capital and efficiently allocate limited resources; second, ill-designed regulation of intermediaries and improper use of public participation requirements in China's EIAS together provide enterprises with incentives not to disclose quality information and may discourage some enterprises from entering the market; and third, for public participation purposes, using the same framework to evaluate decisions made by the government and by enterprises may be counterproductive. Such an approach may help the regulator as an institution without necessarily providing benefits to the public. In particular, shifting administrative costs and public pressure to enterprises may not advance the goal of effective pollution regulation. These three observations may also shed light on studies about the design of information mechanisms in other Chinese regulatory regimes. I. INTRODUCTION: CHINA'S ENERGY SHORTAGE AND ITS REGULATION OF INDUSTRIAL POLLUTION The Pilot 2006 Environmental Performance Index ("EPI") found that in 2005 China's environmental performance ranked 94th among the 133 countries surveyed2 and 15th among all 17 Asia-Pacific countries.3 Air and water pollution are apparendy of gravest concern: China scored 128th overall in air quality4 (lowest among all Asia-Pacific countries) and 116th overall in water resource pollution6 (14th among 16 Asia-Pacific countries7). Chinese officials have even conceded that 80 percent of the nation's waste water is being discharged without any treatment and that more than 75 percent of the nation's rivers are heavily polluted.8 Pollution has had effects outside of China, threatening environmental quality in neighboring countries. For example, pollution has caused significant quantities of acid rain to fall in Japan and Hong Kong9 and has tainted rivers in Russia.10 China's inefficient utilization of energy lies at the heart of the pollution problem. China currently has one-quarter the energy efficiency of industrialized countries" and is the world's second-largest energy consumer after the US. …