PRC environmental laws for foreign enterprises – Pollution control in China

Johnson Controls and Confo-China, two US enterprises operating in China, were caught up in large environmental pollution events in 2011. Both enterprises were ordered by government agencies to suspend production, again drawing attention to the issue of environmental compliance by foreign enterprises.

PRC environmental laws are continuously being improved. Accordingly foreign enterprises, particularly heavy polluters, need to pay particular attention to these laws in their production and operations. So that such enterprises can better understand the regulations, this column – the first of two parts – offers a brief introduction to the PRC’s environmental legal systems.

Impact assessment

The system of prior environmental impact assessments (EIAs) for construction projects is common internationally. Where construction could have a major impact on the environment, the preparation of EIA documents before construction is required, assessing the pollution that will be generated and the impact on the environment. Construction may not commence until the EIA documents have been approved.

Three ‘simultaneities’

Once the EIA has been approved, pursuant to the Environmental Protection Law, the measures for pollution prevention and treatment of the construction project must be designed, constructed and brought online simultaneously with the main works – the so-called “three simultaneities” system. Projects may be brought on stream only after acceptance of the pollution prevention and treatment facilities by the environmental protection authority.

Pollutant emissions

The PRC requires pollutant emissions to meet standards. The term “standards” means the standards below which pollutant emissions are to be controlled, and they are divided into state and local standards. In general, it is the state standards that apply, but where regional standards – which are stricter – exist, they are to be complied with. If a polluting enterprise fails to meet specified standards, it will be required to pay a pollution charge and be subject to fines, solving the problem within a specified time etc. In serious circumstances, the enterprise may be ordered to suspend production or shut down. If industrial wastewater or pharmaceutical sewage is to be directly or indirectly discharged into a body of water, a pollutant discharge permit is needed.

Control of emissions

This system controls the quantity of pollutants produced by a source during a certain period – and within a certain spatial scope – within the limit tolerated by the environment during that certain period, by allocating emission quantities to pollution sources. It mainly applies to air and water pollution prevention and treatment.

Total pollution emission norms are also a prior condition for obtaining EIA permission for construction projects that are emitters of key pollutants. Pursuant to existing regulations, for regions that exceed key control targets for emissions of water pollutants, the relevant competent environmental protection authority is required to suspend approval of EIAs for new construction projects that are key water pollutant emitters.

Pollution charge

This system highlights the “polluter pays principle”. In China, any discharge of pollutants into a body of water is subject to a pollution charge. The payment of the pollution charge by a polluting enterprise does not mean that it can discharge pollutants, and does not preclude it from being required to treat the pollution, compensate for losses or bear other legal liabilities.

Cleaner production audit

This means investigation of the production and service process to determine the reason for high energy consumption, high materials consumption and heavy pollution, and ultimately the formulation of a clean production plan. China subjects certain enterprises to mandatory cleaner production audits: those whose pollution emissions exceed the state or local standards, or those whose emissions may not exceed state or local emission standards but exceed the targets for controlling emissions of key pollutants; those that are deemed high energy consuming (i.e. exceeding the norm of energy consumption); and those that use toxic or hazardous raw materials to carry out production, or that emit toxic or hazardous substances in the course of production.

Pursuant to laws on environmental protection examinations, an enterprise in the PRC that intends to apply to list or seek further financing should undergo a Listed Company Environmental Protection Examination if it is: a company involved in thermal power generation, iron and steel, cement, electrolytic aluminium or other such industry; or an enterprise that operates in more than one province and whose operations are in a heavily polluting industry such as metallurgy, chemicals, petrochemicals, coal, thermal power generation, construction materials, paper making, brewing, pharmaceutical manufacture, fermentation, textiles, leather making, or mining; or if it is to use the proceeds of the offer to engage in a heavily polluting industry; or its branches, wholly owned subsidiaries and/or companies in which it has a controlling interest are involved in such industries. An enterprise in a heavily polluting industry may not apply to list or seek financing if it has not undergone an environmental protection examination.

Protecting sensitive areas

The term “environmentally sensitive area” means an area that is particularly sensitive to a certain polluting agent or ecological factor, and mainly includes natural preserves, scenic areas, world cultural and natural heritage sites, and drinking water source protection areas.

To protect environmentally sensitive areas, relevant laws strictly control activities within them. For example, with respect to construction projects in sensitive areas, the nature and degree of sensitivity of a project’s environment are important bases for determining the EIA class for the project. When submitting the EIA documents, opinions from the relevant authorities of the sensitive area are also needed.

Other requirements

Foreign enterprises are also required to comply with laws on the prevention and treatment of heavy metal pollution, treatment and disposal of hazardous wastes and general industrial solid waste, prevention and treatment of hazardous chemical pollution, banned substances, registration of new chemical substances and online monitoring of pollutant sources, etc.

Wang Jihong is the managing partner at V&T Law Firm. She practises in the field of infrastructure development

Shi Jie is a partner at V&T Law Firm