China’s Green Incentives

Incentives matter. China has been promoting and rewarding its local officials around the country based on GDP growth figures. This incentive model has played a part in the creation of the great Chinese growth miracle of the last two decades.

The Age reports that China has changed its incentive model:

CHINA has announced a new promotion system under which local officials’ careers will be judged by their performance in meeting environment protection and energy efficiency targets. The move comes as fears China’s surging economy is overheating and domestic unrest about environmental damage mount.

The State Council, China’s cabinet, is working on an environmental veto system under which green performance will be decisive in determining the futures of Government and Communist Party officials, a senior policymaker has told China Daily, the Government’s English-language newspaper.

This is a good major step taken by China. Even though with a communist background China has been clever enough to use some of the most important principles from Capitalism to drive its economic growth.

It goes back to the idea which Schelling talks about that government’s even though wanting to meet targets and deliver outcomes; the best they can and should do is concentrate on inputs and direction. In this case, the energy efficiency targets set by the central government will be supported by the green incentives to the party members. Hopefully this deliver the required outcomes. The bottomline is that this is a better model than mandating targets.

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