Information Technology and Systems in China's

Information Technology and Systems in China’s Circular Economy: Implications for Sustainability Joseph SARKIS1 Hanmin ZHU2

【1】Graduate School of Management, Clark University, 950 Main Street, Worcester, MA 01610-1477, USA 【2】School of Economics, Wuhan University of Technology, 122 Luoshi Road, Wuhan 430070, China

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Electronic copy available at: http://ssrn.com/abstract=1122865

Information Technology and Systems in China’s Circular Economy: Implications for Sustainability Abstract: The information technology (IT) and IT products industry has become the essential “first pillar” industry and an important force behind the growth of China’s national economy. However, information technology-related electrical and electronic waste has also caused a considerable environmental burden to China. This paper focuses on the developing circular economy (CE) policy within China and its relationship to China’s IT and IT products industry. We introduce a comprehensive framework of CE in China using three categories of CE innovations: technical innovation, organizational innovation, and institutional innovation. We provide insights into how IT and IT related systems influence and are influenced within each of these CE categories. Implications for research are also presented. Keywords: Information Technology Industry; Circular Economy; Ecological Modernization; China

1. Introduction The Chinese Information and Information Technology Industry (IT Industry) is composed of electronics and information products manufacturing, software R & D, telecommunications, Internet and postal services. It currently ranked first among all national industries in output, gross sales scale, as well as in contribution to national economic growth. The IT industry thus has the status of a first pillar industry and is an important force for the growth of China’s national economy. In 2006, the amount of IT industry value-added contribution to the economy was over 1.56 trillion RBM yuan (approximately US$208 billion), or a 7.5% share of China’s GDP (see Figure 1). China’s IT industry surpasses Japan’s and is just behind the US IT industry (CNBS, 2007). Figure 1 about here IT industry growth, however, arrives with a corresponding deterioration of the environment, posing a major environmental challenge for the IT industry and the government. In this paper we 2

Electronic copy available at: http://ssrn.com/abstract=1122865

focus on China’s Circular Economy (CE) regulatory plan and policy. We provide insights into how IT and IT infrastructure may enable this plan and policy, not just for the IT industry, but for Chinese enterprise overall. 2. IT and Electronic Waste Management in China 2.1 Definition of Electronic Waste E-waste includes IT and telecommunications items including computers, entertainment electronics, mobile phones and also supporting ancillary equipment that are no longer of use to the original consumer. E-waste is a significant secondary resource because of its suitability for direct reuse, refurbishment, and material recycling of its constituent raw materials (including computer chips, plastics and precious metals). The EU (and emergent China) WEEE directive defines the following IT and information systems related items and ancillary equipment as potential e-waste (under Annex A of EU Directive 2002/96/EC) (Yu et al., 2007): 1. IT and telecommunications equipment 2. Consumer equipment 3. Lighting equipment 4. Toys, leisure and sports equipment 5. Medical devices, and 6. Monitoring and control instruments 2.2 Problems Associated with Electronic Waste in China E-waste is a valuable source of secondary raw materials when treated properly. Improper treatment makes it a major source of toxins and carcinogens (Cui and Forssberg, 2003). Shortened life cycles and low cost in the Chinese IT industry have resulted in a growing problem which require legal, technical, infrastructural, and logistics systems. These all fit within the CE framework discussed below. 3

China’s traditionally lower environmental standards (which have changed in the past few years) reflects electronic waste being sent for processing – in many cases illegally. Much of what occurs is due to informal networks of e-waste organizations who practice uncontrolled burning, disassembly, and disposal. These activities cause occupational and broader environmental, safety and health problems, because much of this waste is recycled typically using manual and low-cost hand labor (Terazano, et al, 2004). While trade in electronic waste is regulated and controlled by the Basel Convention, the rules have been side-lined in China. Electronic waste is of concern largely due to the toxicity and carcinogenicity of some of the substances if processed improperly. These include lead, mercury, cadmium, and polychlorinated biphenyls (PCBs) (Wong, et al., 2007). The non-sustainability of discarding electronics and computer technology also underscores the need to recycle - or perhaps more practically, reuse electronic waste. However, to be able to achieve this, more formalized systems as recommended by CE are required. The major concerns are summarized by Collins (2007) in a report by the United Nations University. Inappropriate handling of systems may lead to: • Emissions of highly toxic dioxins, furans and polycyclic aromatic hydrocarbons

(PAHs), caused by burning PVC plastic and wire insulation; • Soil and water contamination from chemicals such as: brominated flame retardants (used in circuit boards and plastic computer cases, connectors and cables); PCBs (in transformers and capacitors); and lead, mercury, cadmium, zinc, chromium and other heavy metals (in monitors and other devices). Studies show rapidly increasing concentrations of these heavy metals in humans; in sufficient dosages, they can cause neuro-developmental disorders and possibly cancer. • Waste of valuable resources that could be efficiently recovered for a new product life-cycle.

In 2006, 75% of German and Japanese households were equipped with a personal computer, 4

compared with only 4.1% in China. Also, according to OECD data (OECD, 2007), China overtook the United States in 2004 to become the world’s leading exporter of information and communications technology goods such as mobile phones, laptop computers and digital cameras (See Figures 2a,b ). China exported US$180 billion worth of ICT goods in 2004, compared with U.S. exports in the same category valued at US$149 billion. In 2003, the U.S. led with exports of ICT goods worth US$137 billion, followed by China with US$123 billion. China’s share of total world trade in ICT goods, including both imports and exports, rose to US$329 billion in 2004, an almost ten-fold increase since 1996’s amount of US$35 billion. By comparison, the U.S. share stood at US$375 billion in 2004, up from US$230 billion in 1996. No country has ever experienced as large or as fast an increase in solid waste quantities as present-day China (World Bank, 2007). In 2004 China surpassed the United States as the world’s largest waste generator, and by 2030 China’s annual solid waste quantities will increase by another 150% - growing from about 190,000,000 tons in 2004 to over 480,000,000 tons in 2030. We make the case below that a circular economy (CE), where a circular flow of material and resources occurs within China’s industrial markets, thus conserving resources, may be a viable and valuable option for China in resolving its waste problem.

3. China’s Circular Economy CE was developed in China as a strategy for reducing its economy’s demand for natural resources as well as ecological damage. The importance of CE is described by Pan Yue, Deputy Minister, State Environmental Protection Administration (SEPA):

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“China can no longer afford to follow the West's resource-hungry model of development and it should encourage its citizens to avoid adopting the developed world's consumer habits . . . It's important to make Chinese people not blatantly imitate Western consumer habits so as not to repeat the mistakes by the industrial development of the west over the past 300 years.” SEPA is seeking to chart a fifty-year plan to achieve sustainability. Several developments in recent years reflect this: · Growing recognition of the need to create a development path to meet the needs of a growing population at a higher standard of living without following the model of western consumerism, inefficient resource consumption, and pollution. · Developing a Circular Economy model with high resource efficiency and low pollution. · Passage and implementation of the Cleaner Production law. · Commitment of US$1.2 billion in science and technology investment for sustainable development by the Ministry of Science and Technology. · Entry to WTO and the need for China’s industry to become more competitive. · Acceptance of the nearly universal consensus on climate change, reflected by China’s signing of the Kyoto Accords. CE is central to this policy regime (Indigo Development, 2005) 3.1 Elaboration of the Circular Economy Concept China’s Circular Economy (CE) policy is an economic policy that helps both economic efficiency and sustainable development. It includes three aspects of an eco-economic system: optimal economic growth, good environment, and harmony between human beings and nature. Research on CE within China includes: (1) technical innovation, e.g. cleaner production, waste disposal, and agile manufacturing; (2) innovation for organization, e.g. green supply chain management and eco-industrial parks; and (3) institutional innovation, e.g. institutional arrangement based on mechanism design theory (Nobel Prize Committee, 2007; Baliga and Maskin, 2002) and ecological modernization theory (Chuanqi, 2007). These elements are summarized in Figure 2 which represents an overall framework for analyzing CE. Within each of

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these areas there are significant information and IT implications for management. Figure 3 about here It will be useful for purposes of perspective to consider the three categories of CE distinguished in Figure 3. The broadest category is the socio-economic embeddedness level. According to new institutional economics, institutions need market game rules and implementation mechanisms (Williamson, 2000; Zhu & Sarkis 2007) such as property rights, market regulations, economic incentives, ecosystems services, etc. Property designates entities to which a person or group has exclusive rights. Public property is any property that is controlled by a state or community; private property is any property that is not public property. Within the environmental and ecological domain when property rights are not clearly delineated this property may be violated and destroyed (see, e.g., ‘Tragedy of the Commons’, (Hardin, 1968)). Environment conservation needs guarantees against such encroachment. Accordingly, the key issue for promoting CE is to establish an active institutional arrangement of public rights, i.e. institutional innovation.

This institutional innovation includes various

regulatory policies ranging from market regulations and economic incentives, and environmental assessment and auditing programs. Various community, social, and behavioral changes may also be required at various levels of society.

One of the major underlying tenets within this

institutional innovation ideal is the concept of ecological modernization which argues

that

innovation and technology stewardship are the most effective methods for joint improvement of the environmental and economic well-being of countries and organizations (Zhu, 2007). The second category for CE is referred to as organizational innovation, focused at the 7

organizational level (internal and external). One example of internal organizational practices encouraged by CE are adoption of such pervasive managerial and organizational tools such as total quality environmental management (TQEM) and environmental management systems (EMS) such as ISO 14001 certifications (Bhat, 1998; EPA, 2007). Others include external or multi-organizational practices include Eco-Industrial Parks, Industry Symbiosis Networks, and Green Supply Chain Management Practices (Lowe, 2001; Sarkis, 1995, 1999). The third level is a system of concrete, specific functional, and operational technologies which can support the CE implementation. It includes green design (design for the environment), cleaner production activities (e.g. internal closed loop manufacturing systems), end-of-pipe waste management/disposal technology (e.g. scrubbers for electricity producers or carbon injection equipment), and appropriate information disclosure practices and policies (US Congress Office of Technology Assessment, 1992). Among them, cleaner production is crucial to CE because the difference between the patterns of circular CE and the traditional economy is not only the waste management but more important the need to consider environmental protection, eco-symbiosis and harmony between human beings and nature at the beginning of the production process. Cleaner production requires the continuous application of measures for design improvement, utilization of clean energy and raw materials, implementation of advanced processes, technologies and equipment, improvement of management and comprehensive utilization of resources to reduce pollution at source, enhanced rates of resource utilization efficiency, reduced pollution generation and discharge in the course of production, provision of services and product use, so as to decrease harm to the health of human beings and the environment. (NPC, 2003) 8

4. IT an Integral Cog of China’s Circular Economy 4.1 Institutional Innovation and IT in the Circular Economy Institutions can be categorized into three types: 1) behavioral modes which can be stable, highly valuable, and cyclical happened (Huntington, 1968); 2) structures and mechanisms of social order and cooperation governing the behavior of two or more individuals (Hayek, 1948); and, 3) institutions are rules of market games (North and Thomas, 1973). Moreover, institutions can be entities or arrangements (Hurwicz, 1973). Our focus on institutional arrangements includes formal property rights,

law and

government policy (economic markets, legal), and also informal institutions such as convention or customs (morale, social). An institutional arrangement may be very simple (e.g., a stop light or a school bell) or complex and highly contested (e.g., environmental laws, auditing and consulting practices by accounting firms). Institutional change can be defined as a difference in form, quality, or state over time in an institution. If the change is a novel or unprecedented departure from the past, then it represents an institutional innovation. (Hargrave and Van de Ven, 2006) There are four aspects of China CE institutional innovations which will influence the use, application, and production of IT within China: (1) Property rights development (2) Market based regulatory policy (3) Economic incentive supported policy and (4) Ecological modernization approaches. 4.1.1 Property Rights Institutional Innovation and IT 9

Property rights refer to a bundle of rights covering the use, control, and transfer of assets, including land, natural resources, intellectual products, ecosystems. Property rights may range from private (or semi-private) to leasehold, community, group, shareholder, or other types of corporate rights (Scheiber, 1981). Property rights systems include mechanisms to resolve disputes, defend rights, and administer or manage land resources. An emission trading system is one property right that shifts policy measures to help achieve environmental objectives at potentially lower cost than the more traditional use of uniform standards on emissions sources (OECD, 2001) and also perhaps to encourage innovation. An ambitious emissions trading system, which requires additional governmental infrastructure, is the open-market trading system has been recommended by Chinese scholars (Yi, 2006; Zhu, 2007). This approach allows a pollution source to earn marketable emission rights (property rights) by reducing its emissions to levels below a regulatory standard or by making reductions in advance of a prescribed deadline (a ‘cap-and-trade’ approach). The credits earned may be sold to other sources and used to offset an equal amount of excess emissions. The credits may also be resold or (where allowed) banked for future use. It is widely agreed that credible monitoring systems are essential to ensure the environmental integrity of emissions trading regimes. To develop such markets the roles of information technology, information systems, and decision support technology need to be developed for the many parties that would be involved in the trading. These parties would include, at a minimum, private organizations, governmental agencies, non-governmental organizations, and financial institutes. Systems to support these multiple organizations and their 10

roles in a trading system will also be required. In addition, property rights policies may be developed through a permitting system. The allowance to pollute in different settings essentially becomes a property right for those organizations that have the permits. IT tools such as integrated decision support systems (DSS) for the development of circular economy are established in many regions in China. (e.g., monitoring and controlling the river pollution in major river deltas). One such DSS is for the economic development of the region of Lanchang River, Yunnan Province (Tian, et al., 2007). The system is equipped with five large-scale databases related to geography, population, ecological environment, agriculture, tourism, transportation, water resources, and natural disaster prevention. The system can provide decision support for policy making in natural resource management, environmental protection, and economic growth in the region of the Lanchang and Haihe Rivers, which would include a permitting mechanism to help manage pollution in river systems. 4.1.2 Market-Based Regulations Institutional Innovation and IT In a system of private property rights and competitive markets, prices regulate the behavior of consumers and producers so as to allocate resources to their highest-valued use. A market economy evolves institutions, rules, and standards that further regulate the behavior of economic agents. Emissions trading is an example of a market-based mechanism, which sets prices on emissions, which can then be used as property. Another example of a market based mechanism would be to use deposit and refund type programs (World Bank, 2007).

This type of system may be regulated and implemented 11

effectively for IT products.

Computers, phones, and various electronic accessories are all

encompassed by the Waste Electronic and Electrical Equipment (WEEE) regulations from Europe that are influencing Chinese organizations (Hicks, et al., 2005). In China a similar regulation called the "Management Methods for Controlling Pollution by Electronic Information Products" regulation took effect in March 2007. Part of these regulations require a significant extended producer responsibility for electronic systems.

These regulations may be managed and

effectively implemented through deposit-refund market-based mechanism policies.

To help

address this type of situation, IT equipment from various countries may have specific tariffs and requirements that would encourage their take-back from other countries, and also within China (Bhuie, et al., 2004). 4.1.3 Economic Incentives Institution Innovation and IT In general, economic incentives are defined broadly as instruments that use financial means to motivate polluters to reduce the health and environmental risks posed by their facilities, processes, or products. These incentives provide monetary and near-monetary rewards for polluting less and impose costs of various types for polluting more. This approach provides both an opportunity to address sources of pollution that are not easily controlled with traditional forms of regulation and a reason for polluters to improve upon existing regulatory requirements. Under traditional regulatory approaches, polluters have little or no incentive to cut emissions further or to make their products less harmful once they have satisfied the regulatory requirements. Even though there are overlaps with market based regulatory mechanisms and institutional innovations, there are economic incentives such as pollution charges and taxes, input or output taxes, and 12

various types of subsidies that may not fall within the realm of market based regulatory mechanisms. Economic incentives and constraints help internalize the external costs of socioeconomic activities. The circular economy stresses the importance of taking material circulation and its supply– demand relationship into account as endogenic factors. It is expected that environmental costs and scarcity costs for the sustainable use of natural resources will be internalized into organizational costs, encouraging organizations to save resources and mitigate pollution -- this is a central goal of the CE policy (Yong, 2007). Many taxes and penalties (either as output or input taxes) may not necessarily target the IT equipment overall, but only the materials that are within this equipment. For example, lead, mercury and other toxic elements are pervasive in IT equipment, manufacturers may have to design and develop IT equipment with reduction or substitutes of these chemicals. As part of the taxing of inputs and outputs and extended producer responsibility, government and organizations will require the effective development of information auditing and tracking systems to trace materials as they flow through various product life cycle chains. 4.1.4. Ecological Modernization Ecological modernization theory (EMT) explores the interaction between modernization and the natural environment (Fisher and Freudenburg, 2001).

The early phases of the world

ecological modernization coincided with the period of China’s reform and opening up to the outside world. Accordingly, the environmental pressure arising from industrial modernization and the environmental protection required for ecological modernization formed twin challenges 13

to China’s modernization. EMT encourages green industrialization, green urbanization and ecological modernization all advancing in a coordinated manner. Part of China’s evolving policy is through “dematerialization, greening, ecologization and decoupling” decoupling economic growth from environmental degradation as its main thrust (He, 2007). Thus, technological and ecological synergies are sought out with EMT and ecological modernization. Information technology and systems plays a key role. Three major policy initiatives in China that have EMT implications include an informatization development strategy, development of high-tech industrial parks, and development of National Electronic Information Industrial Parks. China’s State Informatization Development Strategy (2006-2020) sets forth China’s goals in informatization development for the next 15 years: providing information infrastructure nationwide; strengthening capacities of independent innovation of information technology; optimizing the information industry structure; improving information security; making effective progress on building more information-oriented national economy and society; establishing the new type of industrialization model; building a perfect national policy and system for the informatization process; enhancing the capability of applying the information technology among the public. Nine key aspects are emphasized: promoting informatization of the national economy; popularizing e-government; establishing advanced Internet culture; pushing ahead social informatization; popularizing information infrastructure; exploiting information resources more efficiently; improving information industry competition; building national information security system; improving people's ability in using information technology and cultivating more talents 14

in information technology. This informatization development will be crucial in promoting social (environmental) and economic development. Some of these strategies have already been useful for the institutional innovation categories; similarly organizational innovations and the environment will also be influenced as will be described in the next section. China views the development of high-tech industrial parks as a dominant force underlying its ability to build international competitiveness. This has also been defined as the “Point-LinePlane” strategy for high-tech industries and optimizing China’s industry structure on the whole. One such example is The Pearl River Delta, the Yangtze River Delta, and Bohai Area where hightech industrial parks' income from technology, industry and trade will continue to grow by an average of 30% annually. In the face of the industry’s development and changes and challenges in market competition, CCID Consulting releases the 2006-2007 Annual Report on the Development of China’s Hi-Tech Industry, which helps vendors, investors, and industry chain grasp the pulse of China’s hi-tech industry in the following aspects, and comb the development course of segment application value. It is expected that appropriate environmental technologies will be developed in these high tech industrial centers and require supporting IT and systems. In 2005, the Ministry of Information Industry identified the first group of National Electronic Information Parks in Beijing Tianjin Qingdao, Shanghai, Suzhou, Hangzhou, Shenzhen, the coastal areas in Fujian and the Pearl River Delta. The ministry has also decided to speed up the process to build information-oriented enterprises, agriculture and cities using these information parks. These parks are more specific for IT and systems development (instead of just general 15

High Technology developments). A summary listing of these and other (eco-industrial parks) development and programs within CE are shown in Table 1. 4.2 IT within CE Organizational Innovation Organizational innovation items within CE each have IT and information systems implications. Some are quite pervasive and may need to include inter-organizational management systems; other to be at the transactional and operational level. We provide a number of examples. 4.2.1 TQEM and Environmental management systems (EMS) One of China’s recent institutional innovations is the ‘Green Watch’ program which is based on information disclosure and ratings of organizations on a color scale. These ratings are then disclosed to the public. As part of this rating scheme organizations are ranked on the adoption and effectiveness of their environmental management systems (such as ISO 14000 certification) (Wang et al., 2004). The world total of ISO 14000 certificates as of December 2005 was 111,162. China accounted for 12,683 certified locations, only behind Japan, (ISO, 2005). ISO 14000 and total quality environmental management programs and other EMS will require significant information systems to manage them (Tang, et al., 2007). Appropriate IT such as enterprise resource planning (ERP) systems will be needed to manage these integrate ISO-based systems that are heavily documentation, process, multifunctional, and information oriented. In China’s construction industry, environmental impact analyses are required and are more greatly practiced by organizations than environmental management systems. An IT system integrating ISO-like environmental management systems with a generation of environmental 16

impact analysis reports has been developed for this industry to help it get closer to ISO 14000 certification requirements (Chen, et al., 2004). These systems are encouraged and required by a number of China’s regulatory policies. Organizations also feel pressures from regulators as well as competitors (Zhu et al.., 2008). As part of this system, total quality environmental (TQEM) initiatives, such as continuous process improvement of environmental issues, empowerment, and environmental management using data and information, are all dependent on operational and strategic information (Sarkis, 1998).

Managing this information set across and between

organizations is necessary. 4.2.2 Eco-Industrial Parks Eco-industrial parks as an organizational innovation is occurring throughout China (see Table 1). The newly introduced industrialization practice in China has a strong element of information technology in its design and is promoted by means of a new approach to information which is described as ‘‘informatization’’ (Ren, 2003). Informationization strategy focuses on promoting informatization in concert with industrial policy encouraging informationization in enterprises.

Fang, et al, 2007, state that informationization provides a potentially powerful

foundation for eco-industrial development.

For example, as we have noted environmental

information systems at the municipal level being built in some cities led by local environmental protection

bureaus.

Inter-organizational

environmental

information

systems

are

also

recommended for establishment within industrial parks and zones to provide integrated and reliable data. Such data would include eco-industrial park member surveys, detailed information about inputs and outputs of materials, environmental monitoring, and other data. Life cycle 17

analysis and material flow analysis tools and information will help eco-industrial parks guide the eco-industrial development. “Symbiotic synergies” such as exchange of by-products among organizations within eco-industrial parks would be aided (Fang, et al., 2007). 4.2.3 Eco-Symbiosis Eco-symbiosis is defined as an approach where systems work together and within larger systems in a sustainable manner. Eco-Industrial parks may be considered a specific type of ecosymbiosis. Synergistic and mutually beneficial systems may also exist in this environment. This aspect of CE can begin at the level of enterprises, then expand to industrial parks, then to cities and regions, thus enabling accumulation of experience to facilitate reasonable decision-making at each successive step (Zhijun and Nailing, 2007). For example, eco-industrial parks within a larger community (city or province) working together in a broader system may have eco-symbiotic relationships at many levels, similar to an organism that has subsystems working together in a mutually beneficial manner (e.g. circulatory and respiratory systems in humans). Their interaction with each other and the eco-system should be mutual and adaptive in concert to improve environmental and economic circumstances. The implication for these types of organizations from a information technology and information system perspective deals with open source and distributed systems that can communicate at many levels. The Internet, e-commerce, and other relationships amongst different organizations that share knowledge, expertise and data will be needed. This type of system is probably the least developed of the organizational innovations that cross organizational boundaries. Adaptive and dynamic information systems that can evaluate and link these organizations at multiple levels, 18

such as geographic information systems and mobile information technologies are needed to manage this organizational innovation. IT tools that may also help in this environment are systems that can manage waste exchanges that occur across and between organizations, a virtual eco-industrial symbiosis. An example of such a webexchange type tool appears in China’s construction industry and is called ‘Webfill’ (Chen, et al., 2003). Webfill is an e-commerce platform to encourage the exchange of residual materials and construction waste for reuse and recycle among different construction sites and material regeneration manufacturers. 4.2.4 Green Supply Chain Management Green (Environmental) supply chain management is a broad group of organizational innovations that are part of an organization’s larger set of interorganizational value chain functions. Supply chain mangement includes managing resources (informational, knowledge, economic, material, and labor) that flow to from and between organizations (Sarkis, 2006). In China this innovation is still emerging with some aspects that are more developed, notably internal green supply activities, than other areas, for example reverse logistics (Zhu and Sarkis, 2004; Zhu, Sarkis and Geng, 2005). While IT can green a supply chain through many different approaches, one of the most effective methods is through the substitution of information movement for movement of physical objects and materials (Sarkis et al., 2004). This substitution allows for transportation and storage efficiencies, such that material and goods are not transported, produced or stored inappropriately.

Part of the IT and information system

requirements in this environment include the linkage of life cycle analysis, design for the 19

environment, and green purchasing systems within and across organizations. These technologies and systems do not appear to be currently in operation in Chinese organizations due to the lack of information and systems to support the activities across the supply chain. 4.3 IT within CE Technical Innovation 4.3.1 Green Design Green design (also referred to as “sustainable design”, “eco-design”, or “design for environment”) is designing products and their processes to comply with the principles of ecological sustainability while minimizing economic costs. Green design can range from the smallest materials (e.g. nanotechnology) to the largest infrastructures (roads and buildings). Green design’s significance in CE arises because the focus of products life cycle should begin at its infancy. The best way to manage wastes is to prevent them and design them out of a product. Green design relies on a variety of tools, especially IT-oriented tools life cycle analysis systems and various software tools to evaluate the “greenness” of various design choices. The Administrative Measures on the Control of Pollution Caused by Electronic Information Products (the China Reduction of Hazardous Substances (RoHS) regulation) has been in effect since March 2007. The China RoHS is intended to be implemented through a mixture of regulatory (as described above in the institutional innovation section) and informative instruments through information disclosure technical innovations. Any product that falls into the general RoHS Product Category must be affixed with a China RoHS label when it enters the Chinese market (MII et al., 2006). Article 9 and 10 of China RoHS legislation requires a commitment to adopt environmentally friendly product designs that facilitate waste minimization. This 20

requirement clearly signifies a regulatory force for information technology to be eco-designed (Yu et al., 2007). 4.3.2 Cleaner Production Cleaner Production refers to a philosophy of how goods and services are produced with minimal environmental impact under present technological and economic limits. It is a balanced technical (product and process) solution. Overall, it is the continuous application of an integrated preventive environmental strategy to processes, products, and services to increase overall efficiency, and reduce risks to humans and the environment. Cleaner Production is a CE practice required through some of the institutional innovations and supported through organizational innovations. Cleaner production focuses on a strategy of continuously reducing pollution and environmental impact through source reduction , i.e., eliminating waste within the process rather than at the end-of-pipe. Waste treatment does not fall under the definition of CP because it does not prevent the creation of waste. Cleaner production technical solutions overlap significantly with green design. For processes, Cleaner Production includes a combination of conserving raw materials, water and energy; eliminating toxic and dangerous raw materials; and reducing the quantity and toxicity of all emissions and wastes at source during the production process. For products, it aims to reduce the environmental, health and safety impacts of products over their entire life cycles, from raw materials extraction, through manufacturing and use, to the “ultimate” disposal of the product, as part of extended product responsibility and product stewardship. For services, it requires incorporating environmental concerns into designing and delivering services. 21

From a broader technological perspective, designs of new machinery and innovative technology to minimize the environmental burden of production are necessary as is IT to help in the monitoring, management and communication among these systems. From a more specific environmental perspective, there are a number of dimensions of cleaner production that require significant information and document control including the following elements (ChinaCP.org, 2007; Sarkis, 2001):

• Environmental management systems (EMS): two major types of EMS exist including ISO 14000 and the European Unions Eco-Management and Audit Scheme (EMAS). Both these systems are very document and control driven. Integration with enterprise resource planning and other centralized and multifunctional enterprise information technology is needed.

• Eco-labeling (or environmental labeling): involves the use of highly visible and recognizable logos to guide consumers to choose products and services that cause less damage to the environment.

This requires determination of what materials and

processes are used in the system.

• Environmental accounting: includes techniques for evaluating the true environmental costs of operating a business. Information systems will be necessary for effectively determining the true cost of products and materials with internalization of environmental costs (as identified by some of the institutional innovations).

• Environmental audits: assess environmental impact and identifies problem areas. Audits are needed to help organizations improve their operational systems in a cleaner 22

production environment. Environmental audit information and continuous monitoring systems may be necessary for many in-process activities.

• Environmental Indicators: are needed for each of the above cleaner production elements, and are central to performance measurement and control systems. 4.3.3 Waste Disposal Waste management is the collection, transport, processing, recycling or disposal of waste materials. Waste management can involve solid, liquid or gaseous substances, with different methods and fields of expertise for each.

The “waste management hierarchy” refers to a

classification of waste management strategies according to their desirability in terms of waste minimization ranging from more progressive prevention and reduction, to reuse, recycling, energy recovery and disposal at the other end. The waste hierarchy remains the cornerstone of most waste minimization strategies. Waste management information and IT issues for China are: 1. Information Availability: lack of reliable and consistent waste quantity and cost data makes planning for waste management strategies extremely difficult; 2. Decision-Making Tools: lack of consistent policy and strategic planning toward technology selection, private sector involvement, cost recovery, inadequate public access and participation in the planning process; 3. Institutional Arrangements: inadequate decentralization of collection and transfer services, inadequate municipal capacity for technology planning and private sector involvement, and inadequate clarity on mandates between government agencies, between central and local government responsibilities. 23

and inadequate delineation

A number of general and specific IT and information systems requirements are provided for the first two categories above, and the supporting tools and information. For the third category, both regional, local and organization-wide systems can be developed.

For example, the

integration of geographic information systems (GIS) technology with efficient scheduling of waste management and disposal is an important aspect of waste management (Chang et al., 1997) and manufacturing with ‘smart parts’ using radio frequency identification (RFID) technology will make it easier to track and manage these wastes through the system (Zhekun, et al., 2004). 4.3.4. Environmental Information Disclosure Environmental information disclosure is a result of institutional innovations. This technical innovation is meant to integrate information and communication to various stakeholders with various environmental programs. Environmental information management is the most direct IT and information system dimension of CE. It can have a very broad definition and includes written, electronic, visual or audio information on: ·Elements within the environment, e.g. air, atmosphere, water, soil, land, landscape and natural sites, biological diversity and its components; ·Factors affecting the environment, e.g. substances, energy, noise, radiation or waste, including radioactive waste, emissions, discharges and other releases; ·Measures (including administrative measures) and activities affecting or designed to protect the environment e.g. policies, legislation, plans, programmes, environmental agreements; ·Reports on the implementation of environmental legislation ·Cost-benefit and other economic analyses of environmental measures and activities; 24

·Human health and safety and epidemiological information including the food chain information, human life conditions, cultural sites and built structures. In April 2007, SEPA issued the Decree on Environmental Information Disclosure, which will be effective on May 1st, 2008. This decree is the first formal regulation on information disclosure by a Chinese government agency. It is also China’s first comprehensive governmental document to regulate environmental information disclosure. The Decree on Environmental Information Disclosure (DEID) forces enterprises and governments to reveal their important environmental information to the public and serves as a foundation for public participation in pollution control. Although China’s existing environmental regulations provide principles on information disclosure, the regulations have been ambiguous about the targets, measurements, and responsibilities, which created a significant barrier for public participation. DEID requires all governmental departments and agencies to provide relevant environmental information in a timely manner to the public. It also encourages all enterprise to publicize their environmental information voluntarily, and requires all listed enterprises that violate the national and local emission standards to disclose relevant environmental information. Fines and mandatory disclosure are to be enforced if an enterprise does not comply with the DIED. Furthermore, if a citizen or an organization believes that a government agency fails to provide information to the public, administrative penalties and legal actions can be requested (the full text of the decree in Chinese is posted on http://www.gov.cn/ziliao/flfg/2007-04/20/content_589673.htm ) Regionally, the Zhenjiang Province Municipal Environmental Protection Bureau issued a plan for implementation of Environmental Information Disclosure System (EIDS) defining the 25

scope of target enterprise participating in the EIDS, the grading system of corporate environmental behavior, indicators assessing corporate environmental behavior, assessing diagram, period and agenda of information disclosure, and procedure of implementation. The procedure of the implementation is shown in Figure 4. This specific technical solution requires the capabilities to effectively manage and disseminate this information. Information disclosure is a useful mechanism if all stakeholders within communities have easy access to this information. Thus, e-government systems, Internet capabilities, and other informational infrastructure requirements become necessary. 5. Conclusion and Directions for Future Investigation and Research IT and its supporting systems will have both positive and negative profound influence on how various groups, countries, and organizations manage their environmental issues. China is noteworthy as one of the fastest growing countries in the development, application, and production of IT and information systems. The implications of IT in the Chinese environmental situation include IT as a product and as management tool. The product itself can cause a large amount of environmental burden due to the waste and emissions that are generated from its production, use and disposal. The application of IT can be of great help in managing the environmental burden caused by IT and other products, materials and industries. Thus, in many ways, IT planning and management at all levels of analysis, individual, organizational, municipal, regional, national and global, is critical from an environmental perspective. China realizes this issue of industry’s environmental burden and has introduced the concept of the Circular Economy to address these issues. 26

An important factor for developing the CE (and ecological modernization) is enhancement of the technological level to help achieve joint gains in economic and environmental performance. We reformulated the definition of CE into three major innovational categories: institutional, organizational and technological. While hese innovation categories overlap, they jointly provide a comprehensive picture of CE projects and programs that the Chinese government has supported. Within this CE context we have described in general and through specific examples how IT and information systems can be both a burden and a benefit to environmental situations. We only touch upon some general issues that may require research related to IT relationships to the various CE innovations. However, this paper is one of the first to link the issues of IT to CE and to make further sense of this important social policy set forth in China. The paper also provides a springboard and framework for further study in this field. For policy and macroeconomic research we can investigate the most appropriate type of policy mechanisms in a country with shifting political winds. There are ample opportunities to initially predict the outcomes of various policy mechanisms based on previous experiences in other countries. For example, we might ask whether the most effective means of lowering emissions from IT usage and production come from developing market based mechanisms or from economic incentives? Also, what form of institutional innovation will make a long-lasting cultural change in the way organizations and individuals use and apply IT? What t ype of decision technologies are needed to guide policy makers in developing permitting schemes? A number of organizational innovation-level research issues emerge. It is expected that 27

many of the initiatives in this category do not involve one organization, but a number of organizations as part of supply chains, as symbiotic partners, or members of eco-industrial networks and parks.

IT needs should be focused on developing and implementing inter-

organizational systems to manage these relationships. In China, the integration of various policy mechanisms outside of CE, such as various information network policy stances, into the CE framework will need to be investigated within these multi-organizational realms. Environmental management system and ISO 14000 implementation is one of the major organizational innovation initiatives in CE. Many, if not most, of the organizations involved in China’s networks will be small and medium-sized enterprises. A model for integrated systems in China based on the Hackefors model in Sweden (Ammenberg and Hjelm, 2003), where 26 small and medium-sized enterprises have formed an environmental network and implemented a joint environmental management system according to ISO 14001, is potentially applicable in China (Chen et al, 2004). These types of inter-organizational environmental management systems will require development for significant integration of information and documentation across organizations.

Also, how, when, and who will invest in these types of IT systems is a critical

aspect to their implementation that must be addressed.

Further, investigations of various

implementation and project management models will be required. The issues are similar to those in virtual enterprise models within the IT literature. Evaluating how well IT will work in terms of effective implementation of ISO14000 and other environmental management systems is an important area of potential study as are investigation of performance outcomes. Most of the operational level research opportunities for IT and CE linkage are most likely to 28

occur within the technology innovation category. These supporting technologies will prove valuable for the organizational and institutional innovation areas. The research in this area can be at hardware, control, or planning tool levels. Development and application of life cycle analysis and design for environment tools and integrating them with existing IT such as enterprise resource planning systems in the China and international context needs study. Cleaner production control technology many not only be focused on monitoring and control of materials and products manufacture, but also on the gathering and storage of data related to environmental performance that can feed environmental performance, auditing and management systems. New product designs using the latest IT for mobile and life cycle information capture will also be critical as management through closed-loop systems are encouraged. Wide area networks that help in the management of inventory (both traditional forward supply and other byproduct/waste inventory management) will be needed in broader eco-industrial system situations. Social IT systems to incorporate and share information across broader sectors of society are other emergent areas of study within e-government, non-profit, and community-based systems, especially in terms of information disclosure requirements. Research investigations can also include theoretical topics such as transaction cost investigations, technology acceptance, diffusion of technology, and behavior-intent theoretical investigations as these CE technological innovations emerge. As we have seen, the CE concept is a broad-based effort within China that will be significantly influenced by IT capabilities and IT production, and also influence how IT is used and viewed. What is learned by China’s grand experiment is something that may well prove 29

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China's IT Industry Value-Added Share of GDP(%) 8 7 6 5 4 3 2 1 0

7.5 6.89 7.21 5.69 5.9 3.33 2.01 2.24

3.84

4.2

2.65

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 China's IT Industry Value-Added Share of GDP(%)

Figure 1 Proportion Curve of Value-Added of China’s IT Industry among GDP (Source: China National Bureau of Statistics. China Statistical Yearbook, 1997-2007, China Statistics Press).

36

Figures 2a and 2b: Imports and Exports of information and communication technology (ICT) goods, billions of U.S. Dollars in current prices, 1996-2004 (US, China, EU15, Japan) Im ports of ICT goods United States

EU-15

China

Japan

250 200 150 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 2004

Exports of ICT goods United States

China

EU-15

Japan

250 200 150 100 50 0 1996

1997 1998

1999

2000

2001

2002 2003

Source: OECD, ITS database (OECD 2007)

37

2004

Framework of Circular Economy

Technical Innovation

Institutional Innovation

Organizational Innovation

Ecological Modernization

Economic Incentives

Market Regulations

Informatization

Eco-Symbiosis Network

Eco-Industrial Park

TQEM & EMS

Green Supply Chain

Information Disclosure

Waste Disposal

Cleaner Production

Green Design

Public Information Decision/Support System Legal System and Standardization

Strategy, Policy and International Cooperation

Figure 3: Circular Economy Framework

38

Defining target

Collecting relevant information about

Establishing database of corporate

enterprises

corporate environmental behavior

environmental behavior

Information analysis

Grading of corporate

Announcing the grading result to

environmental behavior

the target enterprise

The Office of EIDS discussing the feedback

The Leading Group finalizing the

opinions from target enterprises

grading results

Figure 4 The Procedure of the Implementation of EIDS

39

The

grading

being publicized

results

Table 1 China National Pilot Projects and Units for Development of Circular Economy(Source: NDRC Document: China National Demonstration Program for Development of Circular Economy, National Development & Reform Committee of China, 2005)

Range and Area Steel Industry

1. KEY INDUSTRIES

Nonferrous Metal Industry

Organization

Project Examples and Contents

Anben Steel Group Panzhihua Iron & Steel (Group) Company Limited Baotou Iron & Steel (Group) Company Limited Jinan Iron & Steel (Group) Company Limited Laiwu Iron & Steel (Group) Company Limited Jinchuan Group Limited Zhongzhou Sub-company of Aluminum Corporation of China Jiangxi Copper Group Incorporation Zhuzhou Smelt Group Company Limited Baotou Aluminum Company Limited Henan Shang Electronics & Aluminum Group Inc. Yunnan Chihong Zinc & Germanium Company Limited Anhui Tongling Nonferrous Metal (Group) Inc.

Coal Industry

Huainan Mineral (Group) Company Limited Henan Pingdingshan Coal (Group) Company Limited Xinwen Mineral Group Corporation Fushun Mineral Group Xishan Coal Corporation of Shanxi Coking Coal Group Company Limited

Electronic Generation

Tianjin Beijiang Power Plant Hebei Xibaipo power Company Limited Chongqing Power Plant

Chemical Engineering

Shanxi Coking Coal Group Company Limited Shandong Lubei Enterprises Group Company Limited Sichuan Yibin Tianyuan Chemical Engineering Company Limited Hebei Jiheng Group Company Limited Hunan Zhicheng Chemical Engineering Company Limited Guizhou Hongfu Industry Company Limited Guiyang Kaiyang Phosphorus Chemical Engineering Group Shandong Haihua Group Company Limited Xinjiang Tianye Group Company Limited Ningxia Jinyu Chemical Engineering Group Company Limited Fujian Sanming Huanke Chemical Rubber Company Limited Yantai Wanhua Compound Leather Group Company Limited

Construction Materials

Beijing Cement Company Limited Neimenggu Wulan Cement Company Limited Jilin Yatai Group Company Limited

Light Industry

Henan Tianguan Enterprises Group Guizhou Chitianhua Paper Company Limited Shandong Quanlin Paper Company Limited Yibin Wuliangye Group Company Limited Guangxi Guitang Group Company Limited Guangdong Jiangmen Sugarcane Chemical Engineering Company Limited

40

Seeking effective pattern and path of developing circular economy Finding out the model of resource recycle and reuse based industrial chains Implementation of circular economy policies Applying key technologies of cleaner production Establishing a framework of assessment for circular economy Reducing consumption ratio of energy, water, and raw materials per unit products by a big margin Raising rate of waste reuse greatly Cutting down the emission of waste by a big margin

Table 1. (cont.) China National Pilot Projects and Units for Development of Circular Economy (Source:

NDRC Document: China National

Demonstration Program for Development of Circular Economy, National Development & Reform Committee of China, 2005)

Range and Area

4. PROVINCES AND 3. INDUSTRIAL PARKS MUNICIPALITIES

2. MAIN AREAS

Establishment of Secondary Resources Recycling System

Organization Zhongxing Take-back and Recycling Company, Beijing Secondary Materials Take-back Group, Shijiazhuang, Hebei province Secondary Resources Terminal Market, Jilin, Jilin province Miluo Secondary Resources Terminal Market, Miluo, Hunan province Qingyuan Secondary Resources Terminal Market, Guangdong province Shenzhen Magazine Group, Guangdong province

Waste Metal Reuse Program

Tianjin Datong Copper Company Limited Shanghai Sigma Metals Inc. Henan Yuguang Gold & Lead Group Company Limited Jiangsu Chunxing Alloy Group Company Limited Shenzhen Dongjiang Environmental Protection Company Guangdong Xinhui Shuangshui Shipbreaking and Steel Company Limited

Used House-Apparatus Recycle & Reuse Program

Zhejiang province Qingdao Municipality Guangdong Guiyu town

Remanufacturing Program

Jinan Fuqiang Power Company Limited Beijing Jinyuntong huge Tyre Reparation & Remanufacturing Company

Project Examples and Contents

Establishing and perfecting networks for collection of regeneration resources Applying collection technologies of regeneration resources Modeling collection method of regeneration resources

Tianjin Economic and Technological Development Area Suzhou High-tech Industrial development Park Dalian Economic and Technological Development Zone Yantai Economic and Technological Development Zone Hebei Caofeidian Circular Economy Demonstrative Area Inner Mongolia Mengxi New and High technology industrial Park Heilongjiang Mudanjiang Economic and Technological Development Zone Shanghai Chemical Industry Park Zhangjiagang Yangtze Metallurgy Industrial Park Wuhan East-West Lake Industrial Park Sichuan Western Chemical Industry City Qinghai Chaidamu Circular Economy Demonstrative Area Shanxi Yangling High-tech Agriculture Demonstrative Area

Two types: eco-manufacturing parks and eco-agriculture parks Enhancing efficiency of resource use and reuse Forming solid industrial chains for reuse Integrating the use and recycling of land, energy, water Controlling the emission of pollution Seeking a new ways for sewage and waste disposal

Beijing City Liaoning Province Shanghai City Jiangsu Province Shandong Province Chongqing City Ningbo City Tongling City Guiyang City Hebi City

Building a society of resource savings and environment Establishing an advanced pattern of circular economy in cities Applying economic incentives for circular economy Research assessment and standardization frameworks of developing circular economy

41