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Ask Enhesa Vol. 4 - China Special

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Featuring contributions from Elaine Ye, Siyang Song, Taotao Yue and Chia-Chen (Evelyn) Chuang

You asked and we answered!

Enhesa’s team of multilingual regulatory analysts are committed to providing quality insight and analysis around the latest EHS news and developments via our Enhesa Flashwebinar series, and blog posts. In response, our team often receives a variety of questions regarding the broad realm of the EHS topics we cover. To meet this demand, we are pleased to announce “Ask Enhesa”, a new reoccurring blog series where our senior thought leaders will take the lead in answering all of your most relevant and topical EHS questions.

Let’s get started…

Do you have any sense of the impact of China's economic climate on environmental regulatory activities? 

China has a rapidly growing economy. Recently, this growth has slowed down due to the global economic environment. As acute environmental issues, such as the “airpocalypse”, mismanagement of hazardous chemicals and soil contamination have gradually become the regulatory priority, the government, at both the national and local levels, continues to actively regulate the major polluting industries and is taking measures to try to clean up the air and soil.

For example, the provincial and municipal governments, especially in Beijing, Tianjin and Sichuan (where the “airpocalypse” has been the worst), have taken a strong hand in regulating the activities that contribute to bad air quality. An important example of administrative activities in this regard is the periodically enforced shutdowns of the industrial plants in these regions. Another landmark action taken by the Chinese government is the ratification of the Paris Agreement under which it promises to reduce the nation’s carbon emissions. Subsequently, in early 2017, the government cancelled construction plans on 103 coal-fired power plants to meet the goal of limiting the total coal-fired power generation capacity to 1,100 gigawatts by 2020.

In addition, in 2016 the National People’s Congress enacted the 13th Five-Year Plan for Economic and Social Development. Among the policy goals of strengthening the enforcement of environmental protection, promoting energy conservation and carrying on the global combat against the climate change, China also aims at developing environmentally-friendly industries by promoting environmentally-friendly products and encouraging technology innovation on energy conservation and emission reductions. On top of this effort, the government is also supporting the development of alternative energy sources, such as wind farms, solar power and tidal power.

However, despite these regulatory and policy measures, the government is more likely to try to strike a balance between economic and environmental interests. Currently, it is difficult to forecast the impact of increased environmental regulation and enforcement on the economy, but it is certain that the Chinese government is placing environmental issues as one of its top priorities and seeing it as an opportunity to take lead in the combat against climate change and developing a greener economy.

Do you have any recent examples of regulatory enforcement actions in China?

China has recently taken the initiative with regards to stringent (criminal) enforcement of violations of EHS laws. For example, last year the chairman of a logistics company in Tianjin received a suspended death sentence following a massive explosion at a chemical warehouse. The explosion resulted in 173 casualties and ¥70 billion CNY of economic losses. Investigations revealed that the company chairman (along with several other company officers who also received prison sentences) committed fraud, paid bribes, committed forgery, and other illegal activities in the unlawful operation of the company, which directly resulted in the catastrophic safety accident. Since the Tianjin explosion, the Chinese government, at both the national and provincial level, issued either policy documents or other administrative decisions to strengthen the coordination between the environmental administrative law enforcement and the criminal justice system. Environmental violation cases, if triggering criminal liability, will be transferred to the criminal prosecution authority.

China is also increasingly taking strict civil (non-criminal) enforcement actions with regards to environmental violations. These enforcement actions include administrative orders to make corrections, suspensions or shut-downs, and most importantly, fines. These actions can have an important deterrent effect since the size and number of fines can bring significant economic losses for facilities. For example, in 2016, the Beijing government conducted stringent water-related environmental law enforcement. As a result, 220 water-related environmental law violations were identified, and a total of ¥39,181,800 CNY (approximately $5.76 million USD) in fines were collectedfrom the non-complying companies. Likewise, in Zhejiang Province, 17,077 environmental violations were processed in 2016, with ¥599 million CNY (approximately $88 million USD) of fines collected.

In addition to the enforcement actions, China also provides financial incentives for companies with good environmental performance.Under the Environmental Protection Tax Law, which will come into force on 1 January 2018 and will completely replace the current Pollution Discharge Fee practice, operations that discharge pollutants significantly lower than relevant national and local standards will receive substantive discounts in their environmental protection taxes. Specifically, operations whose taxable water or air pollutant discharges are of a concentration lower than 30% of the relevant national and local emission standards will enjoy a 75% discount in their environmental protection taxes. Operations whose taxable water or air pollutant discharges are of a concentration lower than 50% of the relevant national and local emission standards will enjoy a 50% discount in their environmental protection taxes. Some provinces, such as Fujian, have already started similar discount incentives in their current Pollutant Discharge Fee practice for a smooth transition to the Environmental Protection Tax regime in the new future.

Are there any regulatory or policy initiatives regarding PM 2.5 in China?

Yes, as PM 2.5 is one of the major air pollutants in China. The Chinese government has been making a large effort to control PM 2.5 through regulatory activities. A major source of China’s PM pollutants is fuel-burning in heavy industry. The amended Environmental Protection Lawthat came into force in January 2015 aims to reduce overcapacity in the steel, coal, and cement industries, which will in turn reduce the emission of PM 2.5. The 2016 amendment to the Air Pollution Prevention and Control Law also focuses on the sources of air pollutants. Meanwhile, the amended Air Pollution Prevention and Control Law imposes stricter quality standards on fuel oil and fire coals, initiates the development and utilization of clean energy, and provides economic incentives to phase out low-efficiency facilities as well as to control the number of automobiles.

In addition to the high-level laws, provincial governments are also taking regulatory action to reduce the emission of PM 2.5. For example, Beijing adopted the Beijing Emergency Response Plan for Heavy Air Pollution in November 2016, which imposes recommended emission reduction methods and mandatory emission reduction methods in times of heavy air pollution warnings. When a Red Warning (the most severe warning) is in effect, certain outdoor construction work must be suspended, gasoline vehicles of certain standards must not be operated, and transportation of certain solid waste must be stopped.

Can you please address the estimated regulatory impacts in China as a result of COP21/COP22?

The efforts of negotiating, signing and ratifying the Paris Agreement during and after COP 21 enable China to see its contributing (or potential leading) role in the international climate change regime, and propel China to more accurately adhere to its climate change mitigation commitments. China has enhanced its internal 2020 and 2030 targets of reducing CO2 emissions per unit of GDP and increasing the proportion of non-fossil fuels in primary energy consumption, which are in line with China’s international commitments under the Intended Nationally Determined Contributions (INDC). Achieving these targets mainly depends on increasing energy savings and energy efficiency, expanding the share of non-fossil fuels, and deeper economic and industrial restructuring. China has accordingly adopted regulatory requirements on energy savings, restriction on expansion of coal-fired power plants, phase-out of obsolete high energy-consuming processes and equipment, and promotion of low-carbon technologies.

In addition, China has committed to establishing a national carbon market before the end of 2017 based on its past experiences with the Clean Development Mechanism (CDM) and experimental emission trading schemes in five cities (Beijing, Shanghai, Chongqing, Shenzhen, and Tianjin) and two provinces (Guangdong and Hubei). The national emission trading scheme will cover companies that are the large energy consumers (with an annual energy consumption reaching 10,000 tons’ equivalent standard coal in any year between 2013 and 2015) in sectors including petrochemical, chemicals, steel, nonferrous metals, and aviation (probably only electricity, cement, and electrolytic aluminum sectors in the initial phase). China has issued experimental guidelines and standards on GHG emissions accounting and reporting methodologies, and will soon disclose its emission allowance allocation rules. The establishment of a national carbon market will strengthen China’s capacity of measuring and monitoring GHG emissions for performing its international obligation regarding national communication and reporting under UNFCCC. To summarize, with the setting of climate change mitigation targets and establishment of a national carbon market, China’s regulation over climate-related issues will make it more aligned with the wider international community.

With regards to ODS phase-out, have there been any recent regulatory changes in China?

To align with the Montreal Protocol on Substances that Deplete the Ozone Layer which China signed and ratified in June 1991, reducing the consumption of ozone depleting substance has become an aim of the environmental protection policy in China. Under the support of the Multilateral Fund for the Implementation, the Chinese government completed a National Plan on Phasing Out Ozone-Depleting Substances (ODSs) in 1997 and has since gradually suspended the use of ODSs by implementing the registration on import/export and permits on ODSs allowance.

Recently, in December 2016, the Fund approved the second stage of the phase-out plan on HCFCs from the refrigeration and air-conditioning industries. The government has also been cooperating with these industries in replacing their product line with substituted materials. Meanwhile, tax-reducing incentives are provided to industries that develop alternative substances or recycle ODSs to reduce the consumption and air emission. At the provincial level, the policy of phasing out of ODS has been extensively adopted in air pollution control laws and regulations. Essential requirements such as applying for operation permits, recycling, and keeping the record of sale, manufacture and treatment of ODSs correspond with the national legislation. During the “12th Five-year Plan” period (2011-2015), the Chinese government announced that the production and consumption of HCFCs were decreased by 250,000 tons, and it was over the first-stage target of phasing out CFCs for 10% of annual consumption that China promised in the agreement with the Fund. In the “13th Five-year Plan” (2016-2020), the next target of reducing the annual consumption of HCFCs is 35%. HCFCs are estimated to be completely phased out in China by 2030.

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