Pollution: 5 Reasons to Remain Optimistic

By Debra Tan 13 May, 2014

In light of recent depressing statistics on soil & water pollution, Tan gives us 5 reasons to stay optimistic, In light of recent depressing statistics on soil & water pollution, Tan gives us 5 reasons to stay optimistic, In light of recent depressing statistics on soil & water pollution, Tan gives us 5 reasons to stay optimistic

Changes in law enshrines economy & environment plus closes loopholes to make illegal discharge more difficult
Revealing of state secrets throws spotlight on violators & lax enforcers whilst potential criminal charges elicit fear
Water quality should improve with Beijing price hikes while open criticism maintains pressure on officials

We know the war on pollution is not a ‘quick’ war. It takes time to clean up. Since last month, some further depressing statistics on the state of pollution have surfaced but here are 5 reasons to remain optimistic that the war efforts are heading down the right path …

1. Passing of the new environmental law – loopholes identified & fundamental shift

We saw this as a key battle in the war against pollution; without this in the arsenal, the war effort would come to naught (see our views on this as a key battle stratagem here). Basically, the amendments allow the MEP to wield a bigger stick which range from:

  • Public naming & shaming;
  • Daily uncapped penalties & fines;
  • Shut down if pollution is not treated;
  • Litigation & filing of civil suits made easier;
  • Violators can be held criminally liable;
  • EIA assessors will be jointly and severally liable; and
  • Mandatory environmental protection target reporting & appraisal system for officials.

“let’s be honest … there were “ways out”… the new law identifies some of these loopholes”

Yes, there is still the matter of weak enforcement but there are a couple of points to note here.

Previously, the low fines made it cheaper to pollute and let’s be honest … there were “ways out”. Interestingly, the new law identifies some of these loopholes: it specifically mentions that enterprises, institutions and manufacturers will not only face fines but criminal charges for:

  • illegally discharging pollutants via underground pipes, seepage wells, pits, high-pressure perfusion or tampering;
  • dodging environmental impact assessments;
  • refusing to suspend the discharge after the authorities have issued a ban;
  • failing to obtain a discharge permit but discharging pollutants; and
  • avoiding & escaping from monitoring by forging data.

“EIA assessors will be jointly & severally liable plus placed the onus on local government officials to explain – in writing”

On top of this, it has also made EIA assessors will be jointly & severally liable plus placed the onus on local government officials to explain – in writing – if environmental targets are not met.

Officials guilty of misconduct such as “cover-ups, falsifying data or asking others to falsify data, failure to fine/punish polluting enterprises according to the new law and/or failure to publicise environmental information”, can be demoted or sacked.

The ranks are closing in. Even those that have equipment for “show” and are not operating them as electricity costs are high, can now be held criminally liable for “improperly using/operating pollution prevention equipment”.

Regardless, it is important to take a step back from the enforcement debate and look at the ‘big picture’.  The new law enshrines environmental protection as the country’s basic policy stating that economic & social development should be coordinated with environmental protection. This is a fundamental shift. We have argued in our 5 Trends for 2014 that Beijing needed to ensure a successful SEI#1 (Trend 1) and a ‘business unusual’ future (Trend 2). The success of both these trends are premised on a mindset shift from ‘economy vs. environment’ to ‘economy AND environment’. By enshrining this principle in the new law, Beijing has provided the base for this fundamental shift.

More details on the amendments here. See the English version of the new environmental law here.

2. Previously ‘state secret’ soil statistics are revealed – heavy polluting industries beware!

The soil statistics revealed by the MEP & MLR on 17 April, were not great.  A total of 6.3 million km2 or two-thirds of China’s territory was surveyed and 16.1 % was found to be polluted. More worryingly, 20% of farmland was found to be polluted.

We see this revealing of these previously ‘state secret’ results of the ‘First Nationwide Survey on Soil Pollution’ as an effort to rebuild trust with the public. With almost 90% of the public surveyed “deeply concerned” about food safety and drinking water, this is a must.

Aside from the headline numbers, we found the results by category of type of land use interesting:

Soil Pollution by Land Use Type

Note that almost of the soil types in the chart on the left are industry rather than agricultural related.

We expect now that these results are public, the government will have no choice but to prioritise their efforts to tackle offending industries.

Heavy polluting industries, industrial parks and mining sites appear to be a good place to start.

However, there is also much criticism from experts (see below) that these numbers are conservative; all the more reason for the MEP & MLR to play hardball with heavy polluting industries.

Miners beware – out of 70 mining sites surveyed and 1672 soil samples taken, a third were found to be polluted. Another reason to feel good is that on the wastewater front, the 2013 Pollutant Emissions Results are still falling with COD down 2.93%, NH4 down by 3.14%.

More statistics from the soil pollution survey here.

3. The power of fear: looming criminal liability & food safety issues

What has been interesting since the passing of the law is that we have heard of cases of voluntary correction by manufacturers & factories for previously illegal discharge. The reason? I don’t want to go to jail. The cost of implementing treatment & operation of pollution prevention equipment is now worth paying. Unlimited penalties and daily fines do not appear factor into this decision making process.

“we have heard of cases of voluntary correction by manufacturers & factories for previously illegal discharge”

This is definitely encouraging news. Now let’s see if the large SOEs do the same – all eyes on previously publicly shamed Petrochina and Sinopec to see if they clean up their past violations (see past opinion on this here)

It’s not just the government’s soil statistics, there was also HSBC’s No Water, No Food report in March 2014 and Greenpeace Research Laboratories’ Technical Report released in April 2014. Both reports highlighted heavy metal pollution in arable lands.

“rising food safety fears have also lead to positive actions by food producers”

These rising food safety fears have also lead to positive actions by food producers. China’s largest chicken meat processor, Dachan Food (Asia) is planning to increase the traceability of its chicken. According to chinadialogue, Dachan plans to open its entire supply chain by assigning each product a QR code that can be scanned by a smart phone. Essentially, you can see which farm the chicken comes from, how it was fed and who processed it.

The investment in this open transparent system will be significant but Chairman, Han Jia-Hwan says that “China is catching up in food safety …  we want people to feel safe via our traceability system. We plan to incorporate footage of the production sites as well.” Han is hoping that it will up consumer confidence. Whether this is a marketing ploy or a scheme that does improve food safety remains to be seen but it is a step in the right direction.

“Never underestimate the power of fear”

Never underestimate the power of fear. We tend to be risk averse when presented with the right pay-off structures. Perhaps a strong monitoring force for enforcement need to be so strong after all when a couple of high profile examples of large fines and criminal punishment will do.

 

4. Beijing price hikes: urban water tariffs finally reflecting water’s scarcity value

The benzene incident in Lanzhou has not only drawn attention to pollution but to (1) the reliance of northern cities in China on groundwater and (2) outdated water infrastructure with ineffective management systems. The issue is critical: the percentage of groundwater falling in the ‘bad’ to ‘very bad’ categories has worsen over the last few years: 55% in 2011, 57% in 2012 to 60% in 2013. The latest groundwater pollution results released by the MLR on 22 April 2014, surveyed 203 cities compared to 185 in 2012.

In “Pricing Water”, we argued that “ultimately, quality standards can only be raised when tariffs are adjusted more comprehensively”. As such it is encouraging to see Beijing’s announcement of the new progressive water tariffs. The base hike of 25% brings the Tier 1 rate to be RMB5/m3; Tier 2 at RMB7/m3 is 1.4x the base rate and Tier 3 at RMB9/m3 or 1.8x the base rate. Whilst this is below the NDRC suggested pricing of Tier 3 at 3x the base rate, it is interesting to note that the levels that constitute Tier 1-3 for Beijing and Guangzhou are different. Beijing has a much lower threshold – see table below:

Beijing & Guangzhou Water Tariff Comparison Table

Beijing is paying much more for much less. And so it should because it is more water scarce than Guangzhou. A household in Beijing pays RMB5/m3 for <15m3 whereas a household in Guangzhou only pays RMB1.98/m3 for <26m3.

However, according to Beijing Development & Reform Commission, the general water use cost in Beijing is RMB6.38/m3 and RMB6.59/m3 including taxes. It would appear that the government is still subsidizing Tier 1 users but not Tier 2 & 3 users. Are tariffs now properly priced?

“It would appear that the government is still subsidizing Tier 1 users but not Tier 2 & 3 users”

We said previously that “the upper block should reflect the cost to ‘replace” water’”. The top tier at RMB9/m3 translates to roughly USD1.45/m3. At these prices, water solutions such as desalination and fully recyclable potable water should be economically viable. On the 23 April 2014, Wang Xiaoshui, Managing Director of Seawater Desalination Department of Beijing Enterprises Water Group Limited, indicated that the total cost of desalinated water is around RMB8/m3 (including production and transfer costs): production cost of Desalination Plant Phase I at Caofeidian is around RMB4.50/m3 and the water transfer costs for piping it 270km to Beijing is RMB2.50-3.50/m3.

It looks like we are moving in the right direction for municipal water. It remains to be seen if these will be applied to industrial users and across other cities in the Dry 11.

 

5. More noise: open criticism and healthy skepticism

Although many have questioned the validity of the soil survey, all have warned that it is on the conservative side. Many academics have also since spoken out as to the difficulty in tackling soil remediation.

“(soil) pollution is difficult to be removed, because the soil and groundwater is lack of self-purification capacity….It is easy to pollute the soil, but it may cost 10 or 100 times of the investment to clean up”

Gao Shengda, Secretary General of China Environmental Remediation Industry Alliance

Gao Shengda, Secretary General of China Environmental Remediation Industry Alliance warns that “(soil) pollution is difficult to be removed, because the soil and groundwater is lack of self-purification capacity….It is easy to pollute the soil, but it may cost 10 or 100 times of the investment to clean up.” See why he thinks China lacks the experience to clean up dirty soil here.

Others are calling for a Soil Pollution Prevention and Remediation Law. Chen Nengchang, researcher at the Guangzhou Institute of Geochemistry says “the law must make clear the goals, the source of funds and the standards of soil remediation. It will be most difficult to clean up China’s soil without such a law.”

Now that China’s fundamental environment law has changed, revisions to other laws concerning pollution prevention and control in particular water & soil may also be revised. Indeed, just last week, the People’s Daily cited a senior legislative official stating the tabling of the Law on the Prevention & Control of Water Pollution.

For a previously taboo subject – there are as of 9 May, over 700,000 Weibo posts mentioning “soil pollution”

For a previously taboo subject – there are as of 9 May, over 700,000 Weibo posts mentioning “soil pollution”. Depressing statistics released have provided the impetus for this discussion. Also on 9 May, Jingjiang’s local government used Weibo to announce that they were suspending the water supply of whole city due to a “pungent smell” in the reservoir by the Yangtze River. 680,000 people were affected and the pollution source still remains unknown. Alarm bells are ringing further downstream.

This conversation has just started; there is no putting the genie back in the bottle – ongoing pollution of China’s waterways and groundwater has to stop, soil remediation has to begin. We remain optimistic that this will happen, it has to.


Recent Events:

  • 17 April 2014: the MEP & MLR jointly published the first nationwide soil pollution survey results (See notice here and the full Chinese report here)
  • 22 April 2014: the latest groundwater survey result was revealed in the 2013 China Land and Resources Annual Report
  • 24 April 2014: the Standing Committee of the National People’s Congress voted to pass the 4th Draft of the Amendment Environmental Protection Law (See notice here and the full Chinese document here)  

Further Reading:

  • China Water Risk’s 5 Trends for 2014 – With environmental risk cited as one of the top risks most likely to derail economic growth, check out our top 5 trends in water for the year of the Green Horse
  • China Lacks Experience to Clean Dirty Soil – Gao Shengda, from China Environmental Remediation Association, shares his views on soil pollution, the limitations of China’s soil standards and what China needs to do in order to clean its dirty soil
  • The War on Water Pollution – Premier Li Keqiang has just declared war on pollution. Tan expands on the government’s stratagems & offensives and fundamental changes required to shore up the MEP’s arsenal in order to wage a successful war
  • Business & Society: Building Trust – Given pressing societal issues, companies are now expected to lead the change across their business value chain. Edelman’s Ashley Hegland on why businesses need to reprioritize value to include such societal benefits to build & maintain trust or face reputational brand damage
  • MEP Reform: From Mountaintop to Ocean – The MEP is currently regarded as too weak to punish polluters due to dispersed authority & overlapping functions. Given the ‘war on pollution’, is reform to make a Super MEP necessary to improve China’s ‘mountains, water, forest, farmland & lakes’?
  • Heavy Metals & Agriculture – Check out China Water Risk’s overview of the status of heavy metals discharge into wastewater, priority provinces, overlap with agriculture sown lands, crops exposed and industries targeted for clean-up
  • Crying Lands: China’s Polluted Waterscapes – Award-winning Photographer Lu Guang shares his journey into China’s polluted landscape and shows us the tangible linkages between industrial pollution and social issues with his insightful and apocalyptic photos

 

Debra Tan
Author: Debra Tan
Debra heads the CWR team and has steered the CWR brand from idea to a leader in the water risk conversation globally. Reports she has written for and with financial institutions analyzing the impact of water risks on the Power, Mining, Agricultural and Textiles industries have been considered groundbreaking and instrumental in understanding not just China’s but future global water challenges. One of these led the fashion industry to nominate CWR as a finalist for the Global Leadership Awards in Sustainable Apparel; another is helping to build consensus toward water risk valuation. Debra is a prolific speaker on water risk delivering keynotes, participating in panel discussions at water prize seminars, numerous investor & industry conferences as well as G2G and academic forums. Before venturing into “water”, she worked in finance, spending over a decade as a chartered accountant and investment banker specializing in M&A and strategic advisory. Debra left banking to pursue her interest in photography and also ran and organized philanthropic and luxury holidays for a small but global private members travel network She has lived and worked in Beijing, HK, KL, London, New York and Singapore and spends her spare time exploring glaciers in Asia.
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