By Luo Ai(partner) and Xie Minru(associate)
On 12 June 2016, a draft amendment to the Water Pollution Prevention and Control Law of the People’s Republic of China (Consultation Paper) (the “Draft Amendment”) was released by the Ministry of Environmental Protection (“MEP”) on its official website. It is the first large-scale amendment to the Water Pollution Prevention and Control Law since it took effect in 2008. On 7 December 2016, the Draft Amendment was reviewed and adopted at the executive meeting of the State Council, to be submitted to the Standing Committee of the National People’s Congress (“NPC”) for consideration.
We note that the Draft Amendment contains significant changes to the industrial emissions licensing system, water pollution control and treatment and the exit of highly polluting enterprises, with more demanding requirements for polluters and stricter provisions on their legal liability. Once the Draft Amendment is adopted and takes effect, it will greatly affect polluting enterprises. What shall those affected do about it? This article aims to sort out and analyze the key issues addressed in the Draft Amendment.
Emissions are subject to licensing
i.Two categories of emitters are added to the list of entities subject to lisencing
Article 47 of the Draft Amendment requires the environmental protection authority to release a List of Toxic and Harmful Water Pollutants and brings more entities under the emissions licensing system in addition to those according to the current Water Pollution Prevention and Control Law. The following two types of entities must apply for an emission license pursuant to the Draft Amendment after its implementation:
- Enterprises that discharge substances prescribed in the List of Toxic and Harmful Water Pollutants other than industrial waste water or medical sewage;
- Large-scale livestock and poultry farms.
The Draft Amendment also provides that enterprises that are required to obtain an emission license may not discharge any pollutants before they are given permission; otherwise they will be ordered to suspend production and be fined between RMB 10,000 and RMB 100,000 per day. If the offenders fail to obtain the license within a specified period, it may face a mandatory shutdown. Therefore, enterprises that are affected must obtain the license in compliance with relevant laws.
ii.An applicant must solicit public opinion before applying for a license
In addition to the procedures set forth in the current Water Pollution Prevention and Control Law, the Draft Amendment requires emitters to comply with a new procedure, which provides that, except those matters concerning national security and trade secrets, polluting enterprises must disclose the content of their applications to the public to solicit public comment.
In light of the foregoing, we recommend that those who are not subject to emissions licensing at present under the Water Pollution Prevention and Control Law keep track of the developments in the List of Toxic and Harmful Water Pollutants to see whether any pollutants they discharge are included in the List. If so, they have to apply for a license immediately. Large-scale livestock and poultry farms, in addition to applying for a license, may consider restructuring their value chain and recycling and utilizing the manures of livestock and poultry and waste water after integrated treatment, to reduce and even avoid the discharge of water pollutants.
Discharging pollutants with caution
Enterprises that have emission licenses under the current Water Pollution Prevention and Control Law must take heed of and treat the following key matters mentioned in the Draft Amendment with caution:
i.Sewage must be treated in a centralized manner and emitters must bear pollution treatment costs and emission fees.
Firstly, Articles 54, 62 and 66 of the Draft Amendment explicitly prohibit any direct or indirect waste water and sewage discharged into groundwater and provide that industrial waste water must be categorized and treated before being discharged. Secondly, industry clusters must be equipped with centralized sewage treatment facilities that meet relevant requirements. Polluting enterprises may choose to discharge waste water to facilities for centralized treatment of urban sewage or to treatment facilities in industry zones. The operators of those treatment facilities provide paid services and charge sewage and sludge treatment fees.
In addition, pursuant to the Draft Amendment, polluting enterprises must pay for their emissions even they meet emission standards, to the contrary of the provision of the Water Pollution Prevention and Control Law that enterprises meeting the standards are exempt from emission fees. The Draft Amendment also sets more demanding technological requirements for sewage treatment: treatment facilities must be able to remove pollutants and those cannot be eliminated must meet the emission standards. Polluters must pay emission fees regardless of their ability to remove pollutants entirely or merely meet the emission standards.
It can be seen from the above that the Draft Amendment has imposed more demanding process requirements on centralized sewage treatment facilities and made polluters bear the treatment costs. The emission fee standards are also altered so that polluters are faced with a marked increase in emission fees as they have to pay both treatment costs and emission fees.
ii.Emitters must monitor the water pollutants data on their own
Under Articles 39, 105 and 116 of the Draft Amendment, polluting enterprises must monitor their emissions data, preserve the original records, establish emission accounting books, and disclose their monitoring programs on a voluntary basis. In addition, major emitters must install automatic monitoring equipment, ensure the completeness and validity of their monitoring data and have a duty to faithfully disclose their monitoring programs to the public. Otherwise, noncompliant enterprises will be liable to a fine between RMB20,000 and 200,000 imposed by the environmental authorities and may be ordered to suspend production.
iii.Environmental impact assessment (EIA) before construction
As required by Articles 35 and 112 of the Draft Amendment, an enterprise that intends to launch a new project, a reconstruction or extension project or build other water-borne facilities that discharge pollutants to water bodies must prepare an EIA report; otherwise, construction will be prohibited. That is to say, in contrast with the Water Pollution Prevention and Control Law, the Draft Amendment explicitly emphasizes that EIA must be conducted before construction, not concurrently with the construction, let alone after it. Noncompliant polluting enterprises may be ordered to stop building or using such projects or other facilities and be fined; they may possibly ordered to restore the status quo ante (demolish the projects under construction).
iv.Cost of breach may increase significantly
We have also noted that the Draft Amendment increases the cost of breach. Specifically, there is a substantial increase in the amount of fines applicable (twice the current amount or even more). For instance, according to the current Water Pollution Prevention and Control Law, the operator of a construction project without prior approval will be fined between RMB 50,000 and 500,000, while the Draft Amendment provides for a range between RMB 100,000 and 1,000,000. Apart from that, the Draft Amendment provides that offenders who damage the ecological environment will be held accountable with no limits of statute.
Based on the above, once the Draft Amendment takes effect, the cost of breach will increase and the requirements of emissions monitoring and EIA will be more demanding. We recommend that enterprises conduct industrial upgrading and structural adjustment as soon as practical to reduce their total emissions. At the same time, they must prudently comply with the emission obligations specified in the Draft Amendment; otherwise they will face huge costs of violating rules and may be held responsible for a lifetime.
Ban on heavy pollution
In accordance with the “Water Pollution Prevention Action Plan” (the “Ten Provisions on Water Pollution”), ten types of small-sized highly polluting firms (the “Ten Types of Small Firms) will be screened and phased out due to their outdated equipment and poor environmental protection facilities. In this regard, Article 58 of the Draft Amendment provides for an exit mechanism for highly polluting enterprises.
The Draft Amendment explicitly provides that no entity or individual may set up or operate any of the Ten Types of Small Firms, which run counter to the national industrial policy, while the current Water Pollution Prevention and Control Law only prohibits the establishment of any new one. That means that with the implementation of the Draft Amendment, the Ten Types of Small Firms may be eradicated all together in the future. We recommend that the Ten Types of Small Firms make haste to upgrade themselves and expand to larger size. What’s more, they may consider improving their environmental facilities to reduce emissions so as to avoid mandatory shutdowns.
In a nutshell, if the Draft Amendment is adopted and implemented, it will have a significant impact on polluting enterprises in terms of water pollution prevention and control. For instance, enterprises that have no need to obtain an emission license in the past may be required to apply for a license, polluting enterprises with emission licenses may face an increase in their costs of pollution and violations of the law, and the Ten Types of Small Firms may be shut down for good. As the government is dealing heavy blows to polluters, we recommend that polluting enterprises take the opportunity to introduce green technologies while play by the book, adjust industrial structure and improve backward production capacities to reduce emissions and embark on a path of environmentally-friendly and sustainable growth.
Editor’s note: this article was simultaneously published on Chinalawinsight.com