Premier Wen Jiabao has been unstinting in addressing the environmental problems of China. I recently had occasion to personally hear this resolve when the premier said, "I want to be the environmental premier," during his meeting with the China Council for International Cooperation on Environment and Development.

We met at Zhongnanhai on a crisp Thursday afternoon at the end of November, with blue skies and white clouds acting as the perfect backdrop for a meeting about the environment. After greeting each of us personally, Premier Wen invited us to "take the opportunity to talk freely about our views", explaining that China would "build a strong country" in part by taking others' advice. He was relaxed and energized as he talked about the environmental challenges that China faces and the importance of innovation in science and technology in solving them, but he added "innovation in our ways of thinking" as well. The premier grew serious as he painted a picture of "China at a crossroads in environmental protection and sustainable development" and the necessity to "drive home the message to all levels of government and all Chinese people".

This declaration triggered a flashback for me to 1988 when then candidate George HW Bush said he wanted to be the environmental president. At that time, there was widespread skepticism about this assertion. However, candidate George Bush became President Bush in short order. Prior to taking office, a president establishes a transitional team, allowing him to begin to establish policy priorities before taking office. One of the tasks for the transitional team was to determine just how the new president would make good on his claim to an environmental mantle. To accomplish this, they invited groups to make suggestions - among them Environmental Defense. We proposed that the new president attack the acid rain problem in the US by creating a market for emissions reductions. President Bush liked the idea and when he announced his proposed amendments to the Clean Air Act, he credited Environmental Defense with "breaking the logjam on acid rain". The program has been wildly successful and much emulated.

Premier Wen faces a similar challenge in finding policies to that would dramatically improve China's environmental condition. While there are many policy choices, only a handful offer the type of leverage that could truly be transformational by unleashing both innovation and investment. These include: environmental criteria for government officials' performance reviews, reform of the penalty structure, implementation of market-based policies, public disclosure of emissions data and continued leadership from the top.

Each of these five levers are oriented toward getting the incentives right, the single most important environmental policy challenge in China. The first of these incentives, pointing government officials in the "good and fast" direction for development, is under way via new government regulations. Alluding to the new Energy Efficiency Law and its accountability provisions, Premier Wen said: "Government officials have learned GDP, they are now learning energy efficiency and SO2 (sulfur dioxide), and soon they will have a new word to learn - COD (chemical oxygen demand)."

The second lever concerns current penalties under China's main environmental laws, which are artificially capped at ridiculously low levels and create a financial incentive for noncompliance. The Water Pollution Control Law amendment is currently being debated in the National People's Congress. The premier should throw his substantial authority and prestige behind the reform of the penalty to at least become a daily cap to ensure that polluting is not more rewarding than compliance with the law. This precedent would send a strong, clear signal to enterprises of the government's commitment to environmental protection and of the financial peril they face if they ignore it.

Sticks are not enough to effectively control pollution. In China, as elsewhere, rewards are more effective and here is another powerful lever - market forces. China has the opportunity to turn pollution control on its head. Rather than being an unfortunate cost of doing business, market-based policies like emissions trading create rewards for those that control emissions beyond the minimums required by government. Emissions trading converts enterprises into environmental entrepreneurs who receive both additional income from extra pollution control and reduced compliance costs. This is one of the most important paths to an innovation society. Waiting in the wings are draft SO2 emissions trading regulations developed under the State Council's December 2005 decision on the environment. The premier could hustle up a review of that plan and get it promulgated before the Spring Festival so that key sectors like the electric utilities will understand their responsibilities and get busy on the 11th five year plan goal of reducing SO2 by 10 percent.

The premier could also turn up the heat on polluters by disclosing to the public emissions data within each community in the nation. Empowering the people with information will allow them to shoulder some of the responsibility locally for controlling pollution. While some may worry about data quality, this is a self-correcting problem. Public disclosure will cause enterprises to be ever more vigilant in reporting their emissions accurately. Premier Wen has previously stated that the government cannot solve all of the problems that China faces and that civil society must take an increasing role in assisting in the work of the government. Providing basic environmental information to the public would go a long way toward that end.

Most important, the premier needs to continue his unswerving focus on China's environmental problems. His steadfastness in raising awareness of the severity of these issues, their priority for the government and the challenge of solving them has been unusual and refreshing for a world leader. He could cement this dedication institutionally by surrounding himself with an environmental cabinet that would include the State Environmental Protection Administration.

If Premier Wen grasps the five levers, he will truly transform the environmental situation in China and earn the precious title of the environmental premier.

The author is Chief Economist of the Environmental Defense,a US-based non-governmental organization.

(China Daily December 18, 2007)