China’s Hebei Province is an industrial powerhouse, producing automobiles, processed food, electronics, petrochemicals, pharmaceuticals, and iron and steel. Its demand for water to support this activity has been growing, but, at the same time, climate change and over-abstraction have depleted the groundwater resources that supply more than 70 percent of the water needed to maintain this robust economy. Efforts to recharge aquifers from local surface water cannot keep up with abstractions.
Until 2015 Hebei’s provincial government had been administering an outdated water tariff that did not reflect the sources and true cost of the resource. China’s Water Act states that water resources belong to the nation, but when administered by local government, sometimes water charges were being reduced to support local development. A change in awareness of the value of water among users was needed. Acknowledging this, the central government decided to introduce a new water tax that included use from all water sources, and that reflected all the costs associated with its delivery.
New tools and equipment
GWP China and the Hebei Provincial Water Partnership, recognised as the ‘think tank’ for water reform, were invited to work with the national and provincial governments and the World Resources Institute to plan effective implementation of the new tax through open stakeholder participation and dialogue. The partners brought together the interests and expertise of industrial users and multiple government bodies.
The water department classified users, planned for installation of new metering equipment, and monitored the amount of water consumed by water users. The tax authority calculated charges and collected the tax. The finance department determined the investment needed for the reform and use of the income. The information centre that would receive and process data was constructed jointly by the water and tax departments. Meetings, investigations, and discussions gave worried industrial users the opportunity to express their concern about higher water costs, and to learn about options for saving water in their operations.
The new system was in place by 2016, with new water licences issued and illegal wells closed. Technical experts had been brought in to provide water saving advice to companies. The province’s growing business expertise in wireless sensor networks made it possible to install state-of-the-art water meters so users were now able to access data about their usage directly, and to pay their tax online. This was a real benefit for the industry managers responsible for water conservation – what had been, for many, an onerous part-time task.
Project to Policy
The rapid and successful implementation of Hebei’s water tax reform project led to its replication. In December 2017, similar pilot projects were introduced in nine other provinces: Beijing, Tianjin, Shanxi, Inner Mongolia, Henan, Shandong, Sichuan, Ningxia, and Shaanxi. These were guided by a handbook titled The Policy System of Water Tax Reform that summarized Hebei’s experience and approach and provided standards and instructions for calculating quantities and rates. Experts from both GWP China and GWP Hebei contributed to the handbook.
In 2019, GWP China invited experts from the China Institute of Water Resources and Hydropower Research to evaluate the progress and effectiveness of the pilot work. A survey of more than 500 companies showed the change brought about by the tax reform ‘nudge’. Companies reported better understanding of the need for water saving and improved handling of water in their industrial operations. For example, a paper company had saved 700,000 m3 of annual water withdrawal and achieved a 90.8 percent water reuse rate, and a steel producer led its industry in introducing reused urban water after shutting down all its wells, saving 14.6 million m3 of water a year. At the regional level, groundwater extraction has fallen by close to 10 percent.
While these successes make the benefits of the tax reform clear, Professor Pan Zenghui of GWP China Hebei explains that there is still much to be done. “The pilot work has shown us that our water tax rate system is complex – there are about 100 water tax rates in the system, and there are different rates for different types of water use located in different areas. We need to simplify. With this enabling reform, more investigation and discussion should be done for discovering new problems and solving them. And public participation should play a more important role in the future.”
But the challenge of juggling many categories and working out complex calculations has brought provincial government departments closer to one another: there is now ongoing collaboration between water and tax departments. GWP’s role as local facilitator and source of expertise continues to support this transformative process, and to capture the learning that will be of use as China’s physical and economic environment continues to change.
Photo: Lake landscape in Bashang grassland, Hebei province, China, by Mostphotos.com/Ray Woo