China Water Conservation Technology Policy Outline
In 2005, NDRC published its China Water Conservation Technology Policy Outline to:
The Outline mainly focuses on the popularisation of water conservation technology, techniques and equipment before 2010, and gives relative considerations to medium and long-term water conservation technology. It can be accessed via the government website:http://en.ndrc.gov.cn/policyrelease/t20050621_8427.htm.
Financing Change: building sustainability in China’s financial sector
Interesting trends are emerging in China’s finance sector regarding corporate access to capital, notably China’s 2007 Green Credit Policy and 2008 Green Securities Policy. At the same time, insurance companies are beginning to provide products to insure companies against environmental pollution claims. A review of these and other trends in the PRC’s banking sector is provided in The Green Evolution – Environmental Policies and Practice in China’s Banking Sector, released by Friends of the Earth in November 2008.
Action Plan on Environment and Health 2007
In November 2007, China issued an Action Plan on Environment and Health (2007-2015). The Plan, the first of its kind in its field, is expected to guide environmental and health work in a scientific way. Under the plan, the government will enact and improve rules and regulations regarding environment and health, control environmental hazards and reduce environmentally related diseases to safeguard public health. The main tenets of the plan are as follows:
International-China Water Policy Initiatives
U.S. EPA – Clean Water Action Plan – In 2008, under the framework of the China-US Strategic Economic Dialogue (SED), China and the US agreed upon an Action Plan for water (2008-2018) in accordance with the two countries’ Ten Year Framework Cooperation on Energy and the Environment. Details of the plan can be viewed here. In summary, it aims to assist in the development of:
World Bank Analytical and Advisory Assistance – Following a request from the PRC Government, in 2005 the World Bank launched an analytical and advisory assistance (AAA) programme to address China’s water shortages. The objective of the AAA programme is to assist China’s Government to develop, adopt, and implement an integrated set of policy and institutional reforms needed to address China’s water scarcity and build a water conservation society.
The AAA programme concentrates on helping the responsible agencies design and implement the policy and institutional reforms needed to improve the management of water resources, taking both quantitative and qualitative issues into account.
For details of the AAA programme refer to the dedicated World Bank website.
The EU-China River Basin Management Programme – The EU has invested €25 million in the EU-China River Basin Management Programme. Undertaken in the Yangtze River and the Yellow River basins, this was launched in January 2007 and will run for five years. The objective is to establish integrated and environmentally sustainable river basin management.
In addition to these two components, the EU-China River Basin Management Programme will establish an EU-China policy and dialogue platform for river basin and water resource management. This dialogue platform will be linked to the work on the ground in the two river basins. Lessons learned when drafting and implementing the EU Water Framework Directive may be relevant to China. The European Commission is providing Technical Assistance to facilitate training on river basin planning, exchange visits and internships, hold conferences, workshops and forums, and conduct research, studies and surveys.
A number of circulars1 issued in 2008 by the China Securities Regulatory Commission (CSRC) and the Ministry of Environmental Protection (MEP) have provided the basis for what is now referred to as China’s ‘Green Securities Policy’.
The circulars aim to make it harder for heavily polluting industries (including metallurgical, chemical, petrochemical, coal, thermal power, building materials, paper-making, brewing, pharmaceutical, fermentation, textile, leather and mining industries) to raise capital by requiring that companies listing on the stock exchange must obtain an environmental evaluation from MEP. Enterprises should submit relevant documentation to provincial environmental protection bureaus, which then report to MEP and CSRC. According to reports by NRDC’s blog “Green Law”, these requirements appear to have had a significant effect, with MEP reporting that 50% of companies undergoing inspections under these new requirements failed to meet standards. Through its environmental review mechanism, MEP has also created an avenue for environmental information disclosure, including allowing public participation prior to listing.
An interesting test case has been the attempts of Gold East Paper (Jiangsu) Co. Ltd., an affiliate of Asia Pulp and Paper (APP), to apply for an initial public offering of domestic A shares to be listed on the Shanghai Stock Exchange. After nearly a year of objections and public comment by local environmental groups, MEP finally announced in June 2009 that Gold East Paper could proceed to the next stage of listing following improvements in its environmental performance. This was the longest review since the green policy came into effect in 2008.
MEP, in partnership with the China Banking Regulatory Commission (CBRC) and the People’s Bank of China (PBOC), introduced the PRC’s Green Credit Policy in July 20072. The Policy aims to improve corporate compliance with environmental regulations by restricting access to commercial credit for Chinese companies that bypass environmental assessments or fail to meet certain environmental standards. Under the policy, MEP established a ‘credit blacklist’ of such companies, which has been provided to:
i) PBOC to include in its credit database; and
ii CBRC to incorporate into its banking policies and compliance monitoring activities.
According to the policy, banks are instructed to refrain from lending to blacklisted companies until the environmental violations are remedied.
Six months after introducing the policy, MEP reported that environmental protection agencies and departments representing 20 provinces and municipalities had drawn up implementation plans and rules3 and that several financial institutions as well as all three national policy banks had taken action, which included the suspension of loans.
The CBRC sent a list of 38 blacklisted companies to commercial banks that were cited by MEP for failing to:
- Receive approval of environmental impact assessments (EIAs)
- Implement the “three simultaneities” system, that is, environmental protection and conservation efforts occurring in line with the overall project design, construction, and operation, not as an afterthought
- Comply with environmental standards regarding discharged emissions
- Eliminate production processes prohibited by the Chinese government
As a result of the blacklist, more than RMB 2 billion in loans was either denied or recalled from polluting companies.
MEP has stated that of the commercial banks, the Industrial and Commercial Bank of China (ICBC) was the first to respond to MEP’s Green Credit Policy. In September 2007, ICBC issued the Opinions on Promoting the Green Credit Policy and proposed to set up a “one-ballot-veto” system; essentially rejecting credit loans by the single ballot of the borrower’s environmental performance. The bank has since collated corporate clients’ environmental information into an environmental risk database, which reportedly includes data on 47,000 of the bank’s nearly 60,000 corporate clients.
Impact of the Green Credit policy however has been below government expectations4 for the following reasons:
- Many small-and medium-sized polluting enterprises rely on capital from private sources, rather than financial institutions
- Information flow is weak and ineffectual. Local governments fail to release timely, relevant information on environmental violations and fail to meet banks’ demands to examine credit loan applications. Commercial banks do not always fully understand environmental laws, regulations and policies
- On the institutional level, some provinces and financial institutions do not take MEP’s green policies seriously.
- For institutions that do support the policy, their efforts are generally diminished by an overall lack of understanding.
- Industry and local officials hinder the process, as credit restrictions may forestall economic growth and place additional “burdens” on industries under their jurisdictions.
MEP since has made efforts to address these challenges, including speeding up the development of environmental economic policies that are compatible with environmental credit loan policies, and introducing environmental taxes, eco-compensation, green securities, green trade and environmental pollution liability insurance.
1 i) “Circular for Heavily Polluting Industries IPO Application Declaration Document.” ii) “Circular on Environmental Protection Verification of Highly Polluting Industries to Further Standardise the Production and Management of Companies Applying for Public Listing or Refinancing,” (first introduced in 2003, and revised in 2007).
2 Entitled, “Opinions on Implementing Environmental Protection Policies and Rules and Preventing Credit Risk.” After introducing the Green Credit Policy, CBRC issued a Circular on the Prevention and Control of Risks of Loans to Energy-hungry and Polluting Industries and Guidelines on the Credit Line for Energy Saving and Emissions Reduction
3 SEPA, “Makes Public the Stage-based Progress in Green Credit Policy,” February 2008
4 Friends of the Earth, Bank Track, ‘The Green Evolution: Environmental Policies and Practices in the Chinese Banking Sector”, November 2008
In December 2007, MEP and the China Insurance Regulatory Commission (CIRC) launched a system for green insurance. Through the introduction of Guiding Opinions on Insurance against Environmental Pollution, a preliminary insurance mechanism has been put forward. MEP indicated that the system will be piloted in key sectors and regions, targeting enterprises dealing with production, sale, storage, transport and use of hazardous chemicals, high-risk petrochemical companies and companies engaged in hazardous waste disposal.
MEP reports via its web site that since release of the ‘Opinions’, environmental protection and insurance regulation departments as well as the insurance sector have started pilot work. Progress has been made in Hunan, Jiangsu, Hubei, Ningbo and Shenyang. Hunan launched insurance products directed at 18 key enterprises in the chemical, nonferrous metals and iron & steel industries.
As an example, a pesticide company based in Zhuzhou, Hunan Province purchased a policy from Ping’an Insurance in early September 2008 and at the end of that month a hydrogen chlorine leakage from the plant contaminated a vegetable field. Ping’an Insurance reportedly made compensation payments to over 120 households. As of July 2009, seven out of 18 pilot companies had purchased a policy.
At the launch, MEP Vice Minister Pan Yue cautioned that insurance against environmental pollution may yet face obstacles given the novelty of such a mechanism, an imperfect legal system and the lack of compensation standards.