It was not surprising to see environmental protection being given top priority at the recently concluded Third Plenary Session of the 18th Communist Party of China Central Committee. The environment has been the biggest casualty of China's remarkable growth over the last three decades, which was re-addressed at the just closed Central Economic Conference. Unless pollution is curbed and further damage to the environment is prevented, Chinese people may not be able to enjoy the fruits of the country's economic success.

While it is difficult to quantify the cost of pollution for the Chinese economy, some estimates are available. A study conducted by the World Bank in the middle of the last decade estimated the aggregate health and non-health cost of outdoor air and water pollution around $100 billion a year, which represented almost 6 percent of China's GDP. A more recent study by the Massachusetts Institute of Technology measured air pollution cost at $112 billion in 2005, after accounting for lost labor because of pollution and higher healthcare costs. Greenpeace's estimated cost of air pollution in 2010 was $328 million in Beijing and $420 million in Shanghai.

Why has pollution become such a big issue in China? One of the usual explanations is the high priority given by local governments to higher GDP growth at the expense of environmental sustainability and ecological balance. Large-scale industrial projects have been sanctioned by local governments on the assumption that they would contribute to provincial and national GDP. Given that the career mobility of local government officials, to a large extent, depends on their ability to mobilize projects contributing to GDP, the emphasis has been natural. However, the attitude of local governments cannot be blamed entirely for the high level of pollution in China.

If a rise in pollution was entirely connected to the thrust on GDP, provinces with higher GDPs should have experienced the highest levels of pollution. But that is not the case. A World Bank study shows that several economically backward regions such as Ningxia Hui, Xinjiang Uygur and Inner Mongolia autonomous regions are more affected by air pollution than the richer provinces in the southeastern part of the country. As such, North China shows greater exposure to air and water pollution than the more developed and economically prosperous coastal provinces.

Some features about China's economic growth are important to note for gauging their effects on pollution. The first is energy intensity of growth. Industrial growth is inherently energy intensive. Such growth not only increases energy demand from producers, but also from consumers as lifestyles become more energy intensive. One of the biggest examples is automobiles. Exhaust fumes from automobiles are a large contributor to air pollution across China, particularly in big cities. While China has been trying hard to develop clean energy technologies for new generation cars, the technological change is going to take time to become effective. Cars employing clean technology would be more expensive.