China: Environmental protection compliance progress in 2018

By Li Xiong and Yuan Yuan, AllBright Law Offices
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On the domestic political scene, “environment” has become one of the most frequent words. The 19th National Congress of the Communist Party of China put forward five major directions for national development, one of which is “beautiful”, pointing to the control of environmental pollution. At the same time, the congress report proposed “treating the environment like treating our lives” and “implementing the strictest eco-environmental protection system”.

李雄 LI XIONG 锦天城律师事务所高级合伙人 Senior Partner AllBright Law Officess
李雄
LI XIONG
锦天城律师事务所高级合伙人
Senior Partner
AllBright Law Officess

Two environmental protection systems have been effective since the start of 2018. First, the ecological damage compensation system has been put on trial. Any enterprise or individual that illegally infringes the ecological environment is subject to tort liabilities. The government is entitled to bring ecological damage compensation alone, or in response to complaints from the public. Second, the Environmental Protection Tax Law took effect. Using “the more emission, the higher levy – the more hazard emission, the higher levy” incentive mechanism encourages enterprises to increase energy saving and emission reduction efforts.

EIA + pollutant emission permit model. Under the new environmental protection law, enterprises face stricter stipulations, from construction to pollutant emissions. Construction projects need to undergo an environmental impact assessment (EIA). At the production stage, enterprises are subject to the pollutant emission permit system.

Harsher punishment. The new environmental protection law has intensified punishment measures against violations. For enterprises that illegally emit pollutants, environmental protection departments may seize and detain facilities and equipment, as well as order enterprises to limit or suspend production for rectification. If an enterprise refuses to rectify, consecutive daily fines can be imposed without a ceiling.

袁远 YUAN YUAN 锦天城律师事务所律师助理 Paralegal AllBright Law Offices
袁远
YUAN YUAN
锦天城律师事务所律师助理
Paralegal
AllBright Law Offices

Accountability system. Pollutant-emitting enterprises should establish environmental protection accountability, and specify the responsibilities of the person in charge and related personnel. Their environmental protection law violations are recorded into the social credit archive, and illegally emitting enterprises face specific punishment measures – for example, restricted access to various production permits.

Unprecedented enforcement. The Ministry of Environmental Protection (MEP) completed the first round of nationwide environmental protection supervision and inspection, as well as targeted or regional initiatives, in 2016-2017. The number of cases where the environmental protection departments ordered administrative penalties has prominently increased every year. In the meantime, environmental law enforcement agencies are included in the sequence of government administrative law enforcement departments and are entitled to conduct on-site inspections, issue administrative penalties, etc. We expect the trend of environmental protection inspection to continue in 2018.

Under the new legal environment, enterprises should incorporate environmental protection compliance as an integral, indispensable part of their daily operation and development. We suggest enterprises adopt the following four steps to maximize their environmental protection compliance.

Establish a environmental protection compliance management framework. This framework should include creating a department dedicated to environmental protection compliance matters, compiling an environmental protection compliance handbook, and setting up management systems. Each enterprise should comprehensively survey, research and analyze applicable laws and regulations based on the industry, area, current emission levels, production techniques, equipment usage, energy consumption, etc., of the enterprise, compile a compliance handbook, and provide regular training to related personnel.

An enterprise should also establish a series of compliance systems covering issues such as environmental protection accountability, environmental protection risk identification and prevention, and environmental accident emergency response mechanism and contingency plan, and also incorporate environmental protection costs and benefits into the enterprise’s accounting mechanism.

Conduct regular compliance assessment. Enterprises can create a graph of their environmental protection duties based on the environmental protection compliance handbook mentioned above, and make a comprehensive schedule listing the duties at each level, and on each aspect. Using the schedule, enterprises should conduct regular internal checks, assess compliance risks by comparing implementation situations with those notated on the schedule, and rectify potential violations.

Suppliers’ environmental protection compliance. It is not enough for an enterprise to care for only its own environmental protection compliance issues, for if a supplier is ordered to limit or suspend production and pay fines, then enterprises may not be able to find substitute suppliers immediately. Thus, we suggest enterprises: (1) create a back-up supplier framework on core and key components and raw materials; (2) communicate with supply chain enterprises in a timely manner to investigate their environmental protection compliance, and establish regular environmental auditing mechanisms; (3) when negotiating co-operation details with suppliers, include environmental protection compliance issues in the negotiation items and agree on a crisis management mechanism for suppliers with environmental protection-related issues; and (4) sign a supplementary contract with the supplier, or add a clause of special liability for breach of contract, having the supplier agree to make timely and effective compensation in the event of delays, interruptions or reductions due to its environmental protection violations.

Purchase compulsory liability insurance. Based on the MEP Guiding Opinions on Piloting Compulsory Liability Insurance for Environmental Pollution, the MEP and the China Insurance Regulatory Commission jointly implemented the Pilot Scheme on Environmental Liability Insurance. Three types of high-risk industries, including those relating to heavy metals, are subject to compulsory insurance. At present, environmental protection agencies in some cities and regions are also gradually implementing the compulsory insurance system. Even for companies that are not covered by the compulsory insurance scheme at the moment, the authors still recommend that they take the initiative to insure themselves according to their own circumstances in order to avoid bearing higher risks and responsibilities.

This video is only in Mandarin.

Li Xiong is a senior partner and Yuan Yuan is a paralegal at AllBright Law Offices

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