Air pollution a result of distorted economic structure

3. Changing the objectives of enterprises and consumers

As principal participants of the market, the corporate sector and consumers do not deem their social responsibility an important factor in market participation, and this makes matters worse for developing clean energy and transport.

Traditional microeconomics states that an enterprise only seeks to maximize its profit. But in reality, experiences from developed countries have shown that an enterprise can have dual goals - profit and social responsibility. This notion has long been evident in the annual reports of major multinational companies, including financial institutes.

If the corporate sector attaches more importance to its social responsibility, it could to some extent replace fiscal measures to alter an enterprise's behavior. In simple words, raising an enterprise's awareness of social responsibility will have same effect as subsidizing clean products.

But the market price is jointly decided by the manufacturer and the consumer in the market mechanism. That is to say, consumer preferences do influence market prices. While traditional microeconomics holds that the consumer only seeks to maximize a product's function, practices in developed countries show that a product's price and function are not the sole factor for a purchase.

For example, a socially responsible consumer will check whether a manufacturer has pollution issues, uses child labor and infringes on intellectual property rights, before deciding whether or not buying a product, even if it has price advantages.

When more consumers become green-minded, the demand for green products will rise, which will boost the price of such products. It also serves as a subsidy to these producers. When it comes to policymaking, society should raise consumers' social responsibility by educating young people, offering environmental protection information to the corporate sector, setting role models and seeking popularization from the media.

To sum up, the changing economic structure should meet the above three goals.

The writer is chief economist at the Research Bureau of the People's Bank of China (PBOC), China's central bank.

This article was translated by Chen Boyuan. Its original version was published in Chinese.