China’s demand for its cities to trade carbon is an important lesson for Special Enterprise Zone policy


The oldest ideas on regeneration are the best, right?

Over past 12 months leading Chinese municipalities such as Beijing, Tianjin, Shanghai, and Shenzhen have been gearing up to run carbon-trading trials. Why so? These pilots imposed by the state planning body are intended to help China deal with the dilemma of decoupling emissions from growth in the face of escalating pollution and resource scarcity.

What is noteworthy here is that these pilots include areas designated as Special Economic Zones (SEZs).This is interesting because the past 3 years or so has seen a remarkable rise in interest amongst local authorities in the practice of low carbon SEZs. Examples include solar energy in Baoding (China), marine energy in Humberside (UK), and water treatment in Milwaukee (USA).

An SEZ is a geographically defined area offering certain incentives (e.g. tax incentives or grants) to businesses that physically locate within the zone. The aim is to enhance the competitiveness of manufacturers and service providers through agglomeration.The UK is credited with the idea for the ‘modern’ version in the in 1970s as a way to overcome pockets of economic blight. According to the World Bank by 2007 there were some 160 SEZs in operation across Australia, France, Malta and the UK alone.

Evidence to support the case for SEZ policy is mixed however with the evidence suggesting it contributes more to innovation than it does to development. An examination of the US found that states were generally not successful in raising levels of economic activity: the zones had a positive impact on the creation of new establishments and a negative impact on previously existing establishments. This contrasts sharply with the Chinese experience: through special trading arrangements that allowed and encouraged foreign direct investment Shenzhen, for instance, was transformed from a small town with no basis for an economic development into a huge and modern economic centre that has influenced the development of the whole Pearl River Delta region.

Given the Shenzhen SEZsuccess story, it is perhaps not surprising then that the SEZ idea is being applied to the low carbon agenda too. Cities appear to be using low carbon SEZs for one or a number of reasons. This ranges from raising GDP per capita by attracting investment with a higher skilled technology workforce and regenerating areas suffering from high unemployment through to implementing emissions controls that reduce the incidence of fossil fuel dependent activities and boosting local resiliency by providing greater energy or water security.

Reflecting on the success and failure of previous SEZ schemes, it is fundamentally important then to understand what a city might gain and what it might lose from a modern SEZ policy programme - whether it is carbon-centric or not. Does it lead to an increase in national or regional GDP but not necessarily contribute to local poverty alleviation? If so, do additional provisions need to be put in place to ensure this happens (e.g. getting relocating businesses to hire local apprentices or use local supply chains). This is just from a socio-economic position though. There may be inherent contradictions for a low carbon SEZ or low carbon city between unabated growth and abated emissions, for instance in the case of Baoding where the economic boom from its solar panel industry means its carbon intensity is much higher than peer city equivalents (Hence the Chinese government imposing new carbon-trading pilots). There are also limitations to what a city can do by itself, and UN-Habitat argues that a national strategy for low carbon SEZs is vital to ensure clusters are appropriately selected, complimentary, build trust and avoid unnecessary competition.

In short, if we want to go ‘back to the future’ and use SEZ policy as force for good, the concept needs a reboot to ensure it delivers low-carbon industry that benefits neighbouring communities.

Philip Monaghan is founder & CEO of Infrangilis (a consultancy and think-tank on resiliency strategies). He is the acclaimed author of the books Sustainability in Austerity (2010) and How Local Resilience Creates Sustainable Societies (2012).