The Chinese Environmental Protection Law
In 2014, the Chinese Government tightened the Environmental Protection Law (EPL), with substantial changes to become effective as of January 2015.
Further amendments were made in the beginning of 2016, with early indications that the government was gearing up its enforcement actions including the following changes:
- Higher penalties and fines for polluters and more power for environmental protection authorities.
- Studies have shown that before the 2016 amendments, the cost of compliance with the EPL was higher than the cost of non-compliance.
- Companies, therefore, have often chosen to pay penalties over compliance, for economic reasons.
- Due to the amendments, the harsher penalties and higher fines will no longer support this approach.
- Provisions on required increased transparency and protection of whistleblowers.
- Increased accountability on provincial and local officials to effectively enforce EPL compliance.
- Expanded scope of eligible parties to environmental public interest litigation.
- This resulted in several environmental protection social organisations filing public interest litigation just months after the amendments took effect.
What is happening today?
In the past five months, environmental audits and inspections have taken place, starting in the Hebei region around Beijing, extending to four major municipalities and ten provinces as of August. Many sectors have been hit including: textiles, rubber, leather, mining, chemicals, carbon, metal, coating and plastics.
As reported on the Chinese Ministry of Environmental Protection (MEP) website, over half of 40,000 Chinese enterprises in the Beijing-Tianjin-Hebei region were found to be in violation of environmental regulations including:
- Pollution (7,180 factories)
- Excessive emissions (67)
- Absence of wastewater treatment (2,480)
- Fake monitoring data (4)
As a result, many factories have been closed without clarity on remediation plans or steps to take to be allowed to reopen, leaving their customers uncertain about their current and planned orders.
Even factories who are in compliance may be hit with uncertainty, as their suppliers could be among those that have been closed, leaving them incapable to deliver a finished product.
The Chinese Government has said that audits and inspections will continue, nationwide.
The government has clearly decided to step up on enforcing compliance with the EPL, and because of its structure it has the ability to do this at an unprecedented speed and scale. The seriousness of this effort is also illustrated by the fact that state-owned factories are equally targeted.
Factories who have not invested in environmental compliance are potentially being caught during an audit, which could result in fines, being barred from obtaining loans, having sewage treatment licenses revoked or even being refused business licenses.
What can you do?
Environmental Performance work in supply chains is something which needs to be tackled proactively, and improvement may take a few years.
In the short term you should:
- Map your supply chain partners in China, at all tiers.
- Link them to current or planned orders.
- Reach out to all of them to understand which have been closed, have received fines and/or penalties, or have received a notice of pending closure.
- Highlight any potential risk to delivery lead times. Create a plan B by finding possible alternative factories.
In the medium to long term you should consider mapping and addressing environmental compliance, risk and performance in a systematic manner by participating in BEPI.
BEPI is a growing network of over 300 companies working with more than 2000 producers on environmental management. BEPI offers a holistic system in which you can map your supply chain beyond tier 1, assess current compliance and performance and address identified risks and gaps.
Chinese Producers of BEPI participants also have access to producer workshops which address relevant topics such as Environmental Management Systems, Environmental Regulatory Compliance and Air Pollution Management.
The Chinese current events are a testament to the need to prepare for the future, today.
Join us on 11 October, at 10 am CET for a webinar on Closure of Chinese Factories Following Tightened Environmental Law – Why and What's Next?.
Speakers include local expert Shell Wang, Executive Director of Environment, Health and Safety Center of Nanjing University who will discuss on the ground insights and suggestions for next steps.
Other panellists include Joyce Chau, FTA Representative Greater China and Anouschka Jansen, FTA Senior Manager Environmental Programmes.
To register, please contact the FTA secretariat.