Observations on China’s New Environmental Protection Law

Posted on September 12, 2014 by Robert Falk

On January 1, 2015, China will formally begin implementing an updated Environmental Protection Law. The updated Law imposes significantly stricter environmental controls and greater responsibilities on corporations and local government officials while also giving China’s environmental regulators, prosecutors, and non-governmental organizations (“NGOs”) more “teeth” to demand accountability and obtain compliance.  

Key Aspects of China’s New Law   

1. Increased accountability of polluters

Any violations may be made public and could damage a company’s reputation domestically and abroad.  Individuals who were directly in charge of a polluting activity and/or other personnel who failed to abide by the updated Law’s more stringent environmental requirements will not be able to hide behind corporate walls.  Fines will accrue on a daily basis and responsible officials will be subject to jail sentences.  Companies will be required to publicly disclose their environmental impact assessment (EIA) documents and solicit public opinion on new projects to a much greater extent than previously required.

2. Increased accountability of government bodies /officials

While enterprises that did not comply with environmental regulations were previously subject to penalties, these were often overlooked, reduced, or waived due to local corruption.  To deter lax enforcement, government officials will now be subject to more serious consequences (such as demotions, dismissals, and criminal prosecution) for committing unlawful acts, including improperly granting permits and approving EIA documents, covering up violations, and failing to issue orders to suspend operations for polluters.  (Whereas opportunities to advance in the governmental hierarchy used to depend on meeting economic targets, performance evaluations will soon also take achieving environmental protection targets into account.)

3. Increased public disclosure

The new Law requires public disclosure of information regarding environmental monitoring, environmental quality, and the collection and use of pollutant discharge fees.  Designated types of heavy polluters will also be required to disclose the names, concentrations, and quantity of emissions of the main pollutants discharged, and information on the construction and operation of their pollution prevention and control facilities.  

4. Public interest lawsuits

The new Law allows NGOs to file lawsuits against polluters as long as the NGO is: 1) registered with the civil affairs department at or above municipal level, and 2) focused on environment-related public interest activities for five consecutive years or more.  It has been estimated that there are currently 300 NGOs in China that could meet these requirements.  

5. Protection for whistleblowers

The updated Law will protect any citizen or organization that reports:  (1) environmental pollution or ecological damage caused by any company, or (2) any failure by an environmental regulatory body to perform its legal duties.  Any such report and the identity of the whistleblower must be kept confidential. 

Implications

The fundamental message the updated Law sends to corporations and regulatory bodies is clear – China is now serious about improving environmental quality and will measure its success in curtailing pollution in tandem with its success in fostering economic development.  Keeping companies in key industries accountable for meeting higher environmental standards is, in fact, no longer just official verbiage, but an important strategic component of China’s overall economic strategy. 

In addition to prioritizing compliance, local companies and multinationals can align themselves with the Chinese government’s message by investing in the growing environmental technology sector in China and by promoting corporate environmental awareness and accomplishments to the Chinese public and international audiences via websites and CSR reports.  (In fact, multinationals are expected to lead the way in establishing transparency as a norm in China given their know-how and experience when operating in stricter jurisdictions.)

The updated Law constitutes a meaningful and strategic step toward improving China’s environment. While we cannot be sure how successful any particular aspect of the new Law’s implementation will be, companies are advised not to just take a “wait and see” approach.  A passive strategy risks making the company the target of enforcement actions and potentially significant penalties, and, perhaps most significantly in the longer term, damaging the reputation of the company both in and outside of China.  Instead, the economically and socially sound decision is to adjust corporate strategy in the nearer term to match that of the national Chinese government, and, perhaps, to aim to not only meet, but exceed, the environmental standards and requirements being put into place.  If companies seize the window of opportunity to distinguish themselves from other firms in China in the near term, the potential positive payoffs are likely to be significant in the longer run.

 

*Jasmine Wee a law student at the University of Hong Kong assisted Mr. Falk with a longer article on China’s new Environmental Protection Law from which these observations were derived.