More Power to Enforcement

By Debra Tan 7 November, 2013

Tan gives a run down of upcoming institutional innovations discussed at the 2013 Beijing Forum

The Beijing Forum leaves us with no doubt that cleaning up pollution (water & air) is firmly on the agenda
MEP shows more bite by naming SOEs but more power needed; legislation changes should move in its favour
Areas of confusion still exist relating to right to litigate & level of public participation in reporting polltuion violations

More “institutional innovation” in dealing with the environment & economy is required. On the environment front, that was THE message from the 10th Beijing Forum, a gathering of academics, scientists and experts from all over the world hosted by Peking University (“Beida”). Translation: better enforcement either through new laws or use of new media public participation in environmental protection.

Beijing Forum 2013 – Environment, environment, environment …

There is no doubt that cleaning up pollution (water & air) is on the agenda. The Beijing Forum which took place last week has an annual theme of “The Harmony of Civilisations and Prosperity for All – Retrospect & Prospect”.  Historically, the forum has 4-7 themed simultaneous panel discussions over three days. This year, 4 panels were environment-related:

  • 40 Years of Environmental Protection in China & the World: Retrospect, Prospect & Institutional Innovation
  • Urbanization: Sustainable Planning & Diversity
  • New Hope for Conservation
  • Water & Sustainable Civilisations

The only time when there were these many panels on one topic was in 2009 when the focus was the economy & the financial crisis.

Diaoyutai State Guest HouseThe who’s-who in hour-one of the opening ceremony of the forum should give an idea of the level of attention environmental pollution is grabbing … the Vice-Chairman of the 12th CPPCC National Committee, Vice-Minister of Education, Vice-Mayor of Beijing, Chairman of Beida and video messages from Ban Ki-Moon and Bill Clinton.

Strolling through the grounds of the Diaoyutai State Guesthouse (see picture) where Day 1 of the forum was held in smog with PM2.5 levels at record highs, it’s not hard to see why.

2013 Beijing ForumChina Water Risk was invited to participate in ‘Panel IV: 40 Years of Environmental Protection’. More interesting were the sub-panel discussions/presentations.

Yes, 40 years of Environmental Protection in China and the World, lessons learned and future targets were discussed for air, water & climate change vis-à-vis challenges from economic growth & urbanization. Also discussed was the role of media & public participation in environmental protection. (for full list of topics – click here)

I am not going to delve into each topic discussed/presented by the 31 strong experts in Panel IV (you can read about them here) but suffice it to say that from the China-side, the Ministry of Environmental Protection (MEP), China Research Academy of Environmental Sciences (CRAES), Chinese Academy of Sciences (CAS), Chinese Academy of Environmental Planning, the National Center for Climate Change Strategy & International Cooperation, CCTV and China’s most vociferous environmental magazine were all present. The consistent message throughout … the MEP needs more teeth …

MEP upping the stakes … State Owned Enterprises (SOE) are not exempt

The MEP has been on the offensive after a series of high profile cases like the Handan cover up, accusations of groundwater contamination, admission of cancer villages and a damaging Ministry of Land & Resources groundwater survey indicating that more than 70% of shallow & deep groundwater is ‘unfit for human touch’ in the North China Plain.

In May this year, the MEP started naming and shaming polluting companies. The first blacklist was in response to the groundwater survey and included 56 companies with inadequate seepage wells. No big deal since MEP violations are normally a matter of public record anyway and these official violations are collated by Ma Jun’s team in IPE’s pollution database. Many observers pointed out that companies on this list were small and the naming and shaming exercise was just for show.

But then MEP started withholding new project approvals for polluting companies and provincial governments seemed to be stepping up anti-polluting measures (see Groundwater Crackdown: Hope Springs). Again, cynics said approvals were withheld from companies that were “small and not relevant”. Then in August 2013, the MEP withheld new approvals for PetroChina and Sinopec as both companies have missed environmental targets for two consecutive years. The naysayers started paying attention. Optimists said that this was a clear signal that SOEs will no longer get a free pass from the efforts to clean up. Still, cynics were of the view that this was largely symbolic as there were no new projects up for approval for these two SOEs.

“Over the longer term, we think companies may be vulnerable to more costly and lengthier project delays – unless they comply with existing guidelines”

HSBC Global Research, September 2013, China: The enforcement begins

Nonetheless, looking at HSBC’s analysis sourced from the MEP (see charts below), it is obvious that there are still few hundred de-NOx and de-SOx units left to install before the two SOEs are compliant.

According to HSBC, “PetroChina has not installed denitrification units at any of its 115 coal-fired boilers, whilst Sinopec only has a 2% installation rate (4 out of 174 boilers)”.

Seems like an expensive compliance exercise (see HSBC’s opinion on enforcement here).PetroChina & Sinopec No. of Emission Control Units

Then finally, a blacklist in October that had more bite. This time, a total of 72 companies were found guilty of committing environmental violations in 2013 (until 31st August) including big SOEs such as Aluminum Corporation of China, CNPC and Guodian. In total, over 320,000 companies in 20 provinces were inspected and 2,483 violations discovered. The 72 companies named hailed from a wide array of industries including mining, leather tanning, electroplating and pharmaceuticals (more on this list here).

More teeth from changes in environmental protection law … or will they be “drafted out”?

So it looks like SOEs are definitely not exempt but the reality is that it is still cheaper to pollute since penalties are low. Enter the proposed change in the environmental protection law, which has been delayed and currently in its third redraft. On the plus side, the new environmental law includes removing the cap on pollution penalties and gives MEP the power to impose daily fines. On the other hand, it appears to “slow down” litigation by requiring all public interest environmental lawsuits to be directed through the All-China Environmental Federation (ACEF). We wrote about why this is hotly contested here.

Although there is much debate over the number of NGOs that are allowed to litigate on behalf of the public, it is clear that penalties are impending and necessary. Common sense really, otherwise how can you create a RMB4.5 trillion energy savings & environmental protection industry? Everyone (including forum participants) is eagerly awaiting conclusion of these discussions.

On the cards – more “institutional innovation”

Other “institutional innovations” on the cards with the MEP are a “Clean Water Action Plan” to address pollution of surface water resources and ensure safe drinking water. Premier Li Keqiang himself “launched” the approval of the Draft Urban Drainage & Sewage Treatment Regulations in September. This draft points to better monitoring of wastewater emissions and treatment operations, as well as the maintenance & management of sewers and severe punishments for illegal emissions of wastewater.

Also in September, MEP proposed a new corporate environmental credit rating system for key enterprises that have recorded violations, high levels of pollution emissions and/or significant impact on the environment. A four-class credit rating is envisaged: high integrity, good integrity, warning and bad with different color used to demonstrate the different ratings (green, blue, yellow and red). According to the draft version (now open for public consultation), environmental incidents reported by the media, NGOs or the public could be taken into account in setting credit rating after verification. If a corporate is flagged with a red environmental credit, it will suffer a range of ‘punishments’, such as stricter supervision, delayed approval for new projects, reduced opportunities to apply for subsidies and loans from banks. It remains to be seen whether this innovation will also face redraft delays.

“Areas of confusion” still exist …

It is clear that the path of more-power-to-enforcement is full of “areas of confusion”. One of these key “areas of confusion” is the role of social media in reporting environmental pollution violations. On one hand, the government is encouraging better use of social media and media (state/privately owned) to highlight cases of pollution and to raise awareness about environmental issues and on the other, there is a clamp down on social media. Mixed messages do not bode well: either for public participation in pollution nor for ambitious Strategic Emerging Industries without requisite amendments to the environmental protection law.

“in a rapidly evolving society, it is important for us to consider role of the media to invite public participation and form a good balance in society.”

Jia Feng, Director General
Ministry of Environmental Protection Center for Environmental Education & Communications

In the meantime, we are hopeful that at least the challenges are not only recognized but discussed. Some of the key thought leaders in the environment in China and the world were present over last weekend in Beijing, including those who have input in/drafting of China’s environmental laws and those who represent the environmental voice in policy & management as members of the Standing Committee of the NPC. Even ex US-EPA regulators were present.

It is a long road… the 2013 Beijing Forum was a good start. Now we can only wait and see the extent of “institutional innovation” to be delivered. Perhaps we will have more clarity after the 3rd Plenary Session next week (9-12 Nov) when the 3rd redraft of the environmental protection law is expected to be approved. Icing on the cake would be more details on groundwater protection and wastewater management.

Further Reading

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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