Analysis & Reviews

5 Laws For 2018

5 Laws To Watch Out For In 2018

China has made unprecedented achievements in environmental protection over the past five years, as Ganjie Li, the head of the Ministry of Environmental Protection (MEP), pointed out during the 19th People’s Congress (see more on his speech here). In 2017 alone, we have seen the following key regulations implemented or introduced:

  • River chief mechanism (see a review here);
  • Environmental Pollution Mandatory Liability Insurance (Consultation Paper);
  • Ecological and Environmental Protection Plan/Green Development of Industry in Yangtze River Economic Belt (YREB) (see our report here);
  • Plan for Prevention and Control of Water Pollution in Key River Basins (2016-2020);
  • Expansion of the water resource tax (see a review here)

More stringent regulations and stronger enforcement have already impacted business operations. Sectors such as textiles are already facing increasing operating costs and higher environmental requirements. Meanwhile, thanks to the river chief mechanism in particular, the performances of local officials are now bound to environmental conditions.

Pushing ahead in environmental protection there are 5 other important regulations/policies that will be in force in 2018 which we look at individually below – stay on top of these!

1. New Water Pollution and Prevention Control Law (“Water Ten Law”)

Issued in 2015, China’s “Water Ten Plan” sets tough action on water pollution prevention & control. It is an umbrella plan that ties in other key policies and accounts for water scarcity & geographical mismatch. Most importantly, it underlines China’s seriousness in tackling its water issues.

The new Water Ten Law is the legal backbone for the Water Ten Plan. Approved in late 2016 and implemented on 1 January 2018, the law provides legislative support for the River Chief mechanism and it clearly stipulates that the discharge quota mechanism will be applied to key water pollutants. Moreover, environmental impact assessments for new pollutant discharging projects will be suspended for regions which fail to meet the discharge quota or water quality improvement targets.

The penalty for excessive pollutant discharge has been raised to RMB0.1 – 1mn

The new law also means that environmental violations are going to face more severe punishments. The penalties for excessive pollutant discharge have been increased to RMB100,000 – RMB1mn, compared to 2 to 5 times the pollutant discharge fee previously.

 

2. Environmental Protection Tax Law 

The new Environmental Protection Tax Law is the first taxation system which promotes green development and the construction of ecological civilisation. This new law came into force on 1 January 2018, as a substitute to the nearly 40-year-old pollutant discharge fee system.

The scale of the environmental protection tax may be much larger than the previous pollutant discharge fee

Tax rates can be set up by provincial governments based on local environmental conditions within certain ranges stipulated by the new Environmental Protection Tax Law. Beijing, Tianjin, Hebei and Shanghai have relatively higher rates. In Hebei, for instance, each unit of water pollution can incur a tax of up to RMB11.2. Some insiders estimate that the economic scale of the environmental protection tax will be much larger than previous pollutant discharge fee, amounting to RMB50 billion annually.

Since this is a special tax with a complex taxation system and management, information sharing and collaboration between tax authorities and environmental protection departments is very important and therefore a scheme promoting this is stipulated in the new Environmental Protection Tax Law.

3. Reform Plan for Ecological Environmental Damage Compensation System

There has always been a dilemma in China whereby enterprises pollute, making residents suffer and governments have to foot the bill. However, the recent published Reform Plan for Ecological Environmental Damage Compensation System is expected to deal with this dilemma.

In particular, ecological compensation will be required from enterprises polluting in regions with “key ecological functions”, or enterprises involved in emergent environmental incidents at a “relatively severe” (or higher) level, or other activities with severe ecological impacts.

The 2020 target set by the reform plan is to establish an ecological environmental compensation system with clear responsibilities, smooth approaches, standardised technology and fully guaranteed and effective remediation.

4. Nuclear Safety Law

This law comes at a time when nuclear power is becoming an increasingly prominent industry in China. Along with the high speed rail and the aerospace industry, nuclear power formed the three “namecard” industries China wanted to be known for in the 12th Five Year Plan. By 2020, China’s installed nuclear capacity is expected to reach 58GW (see here for our tome report on China’s water-energy nexus).

Also in force since 1 January 2018, the new Nuclear Safety Law law helps with the supervision and risk control of nuclear activities including site selection, design, construction, operation, nuclear material management and radioactive waste disposal. Enterprises now must apply for permits before corresponding activities.

Apart from penalties and fines, a nuclear damage compensation mechanism is also stipulated in the nuclear safety law. Nuclear operating units have to take measures to compensate potential damages via responsibility insurance, mutual aid mechanism, etc.

5. Tax exemption and more attractive loans for new energy vehicles

To tackle climate change, China has already set up targets and measures for carbon emission reduction and in 2018, another tax-related policy focusing on vehicular emissions will further push the conversation. On 26 December 2017, the Ministry of Finance, State Administration of Taxation, Ministry of Industry and Information Technology and Ministry of Science and Technology jointly published the “Notice on Exemption of New Energy Vehicles Purchase Tax”, which states that from 1 January 2018 to 31 December 2020, the purchase tax of new energy vehicles (such as electric vehicles and hybrids) will be exempt.

Moreover, the new Measures for the Management of Auto Loans stipulates that the loan proportions is 85% for personal use new energy vehicles, and 75% for commercial use new energy vehicles, which are higher than those of traditional vehicles, respectively 80% and 70%. Therefore, down payments for new energy vehicles can be as low as 15%.

China is creating a “surround-sound” regulatory framework

From taxes to compensation mechanisms, China is creating a “surround-sound” regulatory framework. On the one hand, there are “sticks” such as the environmental protection tax; while on the other hand, there are “carrots” such as better loan proportions for new energy vehicles. To prosper in the Year of the Dog, it’s best to stay on top of these along with other key trends.


Further Reading

  • 5 Trends For 2018: The Year Of The Dog - We could be heading for dog days this year and China is getting ready with economic planning that considers water and climate. Check out our 5 trends and stay ahead of the pack
  • China’s Water Resource Tax Expansion - China’s water resource tax pilot has expanded to 9 provinces including key ones like Beijing & Tianjin. China Water Risk’s Yuanchao Xu explores the successes of the initial Hebei pilot and why the additional provinces may benefit
  • Increasing Public Participation In China’s Environment - Can the public participate in environmental decision-making in China? Pacific Environment’s Guo Hanyuan, Kristen McDonald & Zhao Zhong expand on results from their 4-city pilot study and identify challenges
  • The Water Footprint Of Hong Kong’s Diet - Urban centres are very much dependent on distant resources and as a result, their populations are unaware of their indirect water footprint. Davy Vanham from the European Commission looks at Hong Kong’s diet’s high water footprint
  • Water As Leverage For Resilient Cities - Water represents man’s most challenging & complex risk but it can be leveraged for catalytic change. China Water Risk asks Henk Ovink, the first Special Envoy for Water in the world, how this can be achieved
  • What ‘Xi’s Thought’ Means For Water - One key message from Xi Jinping at the 19th National Congress was harmony between environment & economic growth, surely this bodes well for water? China Water Risk’s Feng Hu reviews
  • Green Development For A Beautiful China - The Minister of Environmental Protection Ganjie Li outlined the MEP’s achievements and future plans at the 19th People’s Congress. What are the key takeaways? China Water Risk’s Yuanchao Xu reviews
  • 5 Regulatory Trends: From Enforcement To Finance - Since 2016, China’s environmental policy landscape has undergone a series of important changes. CWR’s Xu summarises key regulations & 5 trends you need to know, from greater enforcement to green finance
  • 2016 State of Environment Report Review - The signs are positive for China’s environment in 2016. Groundwater quality improved after 5 years of decline though there is mixed news for rivers & lakes. Is the tide turning in China’s ‘war on pollution’?
  • China’s River Chiefs: Who Are They? - River chiefs were first implemented in 2007 following a pollution incident. Now, by 2018 all of China’s rivers/lakes will have river chiefs. How will this work & what do they do? China Water Risk’s Yuanchao Xu expands
  • GPC: Smart Subsidies For Renewables - China’s current subsidy system for renewable energy is overburdened. However, China Water Risk’s Yuanchao Xu sees positive change ahead with the recent initiation of Green Power Certificate trading
Yuanchao Xu

About Yuanchao Xu

Yuanchao specializes in sectoral/regional water and climate risk assessment as well as China regulatory risk interpretation. He has contributed to CWR’s water risk valuation work, presenting key valuation methodologies at the PBoC (China’s central bank). He has also written extensively about water regulations in China, representing CWR in the writing of the water risk chapter of the “Green Finance Series – Case Studies on Environmental Risk Analysis of Financial Institutions” led by the Chair of the Green Finance Committee of China. Yuanchao has Erasmus Mundus masters in hydro-informatics and water management. While in Europe, he applied his skills in climate forecasting and water resource modelling to the EUPORIAS project with DHI (Danish Hydraulic Institute) which resulted in a conference paper on seasonal climate forecasting. He went on to develop hyfo, an open-source R programme for climate scientists and modellers to analyse and visualize data as well as gfer for green finance and environmental risk. Yuanchao obtained his bachelors from the China Agricultural University where he specialized in heat energy and power engineering. During his time there, he also patented a testing instrument for hydraulic machinery. He has studied and worked in Beijing, Nice, Newcastle, Copenhagen and Hong Kong.

Read more from