On January 1, 2015, China’s significantly amended Environmental Protection Law (EPL) went into effect, having been adopted on April 24, 2014. A product of three years of contentious debate, the new EPL marks the first changes to China’s fundamental environmental law since 1989, and sharply elevates China’s commitment to environmental protection in its self-described “war against pollution.” The new EPL’s provisions are extensive and wide-ranging, consisting of 70 separate articles. 

Among other things, the new law:

• Raises the liability risks from non-compliance with environmental requirements;
• Enhances incentives for local government officials to enforce environmental requirements; and
• Opens the door for increased public participation, including by giving certain environmental organizations standing to file public interest lawsuits.

While time will tell what use government authorities and environmental groups make of the new provisions, multinational companies doing business in China will want to ensure that they understand the law’s requirements and enforcement provisions, and account for the EPL in existing environmental management and compliance systems. The legislation leaves many crucial details to be filled in by the Ministry of Environmental Protection (MEP) and other government entities. Companies that operate or invest in Chinese facilities and infrastructure projects should monitor the Chinese government’s further elucidation of the new law’s provisions and evaluate potential opportunities to seek to shape the government’s approach. We summarize here some key provisions of the new EPL, reference certain key guidance documents that have been issued to implement the law’s new provisions and highlight a few of the many issues that bear attention going forward.

Heightened Liabilities for Non-Compliance

The law significantly raises the potential liability for non-compliance. Violators of environmental protection laws may now be subject to daily penalties with no cap. (Previously, violators were subject to considerably smaller fines, which could mean that paying the fine was cheaper than compliance.) Because the EPL amendments provide relatively little guidance on the assessment of penalties, it remains to be seen how these enhanced penalty provisions will be employed. Responsible persons working for a non-compliant enterprise may also be detained for up to 15 days. Examples of infractions that may lead to detention include discharging without a permit, failure to comply with certain orders issued by an environmental protection bureau, or continuing to produce or use a banned pesticide.

Enhanced Enforcement Incentives for Local Governments

The law also enhances incentives for local officials to enforce environmental laws. In China, local governments control the bulk of the personnel and finances for environmental enforcement, limited as they are. Historically, enforcement has been seen as a lower priority, as compared with economic development and maintaining good relations with companies. The new law confronts this problem by enhancing the relative priority of environmental enforcement for local authorities. To this end, it requires governments at or above the county level to account for environmental protection targets in evaluating bureaucrat performance. Additionally, officials who neglect to enforce may be subject to significant penalties, such as demotion, dismissal, and criminal prosecution. Whether, and, if so, how quickly these new incentives will lead to enhanced enforcement remains to be seen.

Public Disclosure Requirements and Public Interest Litigation

The law also opens the door for increased public participation and potentially for enhanced citizen enforcement of environmental laws. Although China has historically been criticized for a lack of environmental transparency, significant efforts have been made in recent years on this front. The new law aims to continue and intensify this trend. To a greater extent than required under prior laws, enterprises and local governments will be required to publicly disclose environmental-related information (including information concerning environmental quality, monitoring, incidents, licensing, and penalties), conduct robust environmental impact assessments (EIAs), and solicit public comment in EIA development. The Chinese government is currently grappling with the need for a workable system for protecting confidential business information that may be sought pursuant to the new information disclosure requirements. 

Additionally, certain public interest organizations will have the standing to file lawsuits in the public interest. To qualify for bringing such suits, an organization must:

1. Be legally registered with the civil affairs departments at the prefecture level or higher;
2. Have been continuously and especially active in environmental public interest activities for five consecutive years or more; and
3. Have no record of violating Chinese law.

Unlike in the U.S., the law does not itself provide for attorneys’ fees and litigation costs for prevailing parties. The law also protects whistleblowers and requires an agency that receives a whistleblower report to treat as confidential any information concerning a whistleblower’s identity.

Initial Government Guidance Implementing the Revised EPL

MEP and other government entities have begun issuing guidance implementing the revised EPL, some of which has been released in draft form for public comment. Over a dozen field projects are now underway to assist in implementing the new law, and four new “implementing measures” are anticipated to be released by January 2015. These regulatory actions are putting flesh on certain key “barebones” provisions of the new law.

Among other actions taken by MEP in the wake of enactment of the amended EPL, particularly notable initiatives include:

• Interim guidance on the new information disclosure requirements of the law (including confidentiality for “commercial secrets”) released for public comment in October 2014; and
• A recommended methodology for assessing and calculating environmental damages, and for making causation determinations, effective upon its issuance in October 2014.

At the same time, the Supreme People's Court (SPC) has been interpreting the new EPL provisions outside the context of any case or controversy For example, in June 2014, the SPC issued for comment a draft judicial interpretation of key provisions of the new EPL that are potentially far-reaching and significantly elaborate on the text of the legislation. Illustrative of the numerous and significant topics addressed is use of the “precautionary principle” in efforts “to reduce the possibility of occurrence of environmental risk and the extent of damage,” involvement of courts in the presentation of evidence in environmental cases, and shifting of the burden of proof from plaintiffs to defendants during the course of a civil action. On January 6, 2015, the SPC issued a judicial interpretation of the new “citizen suit” provision of the EPL. Although an English-language version was not available when this alert was finalized, SPC’s interpretation addresses, among other things, payment of attorneys’ fees to prevailing plaintiffs, the ability of NGOs to bring citizen suits nationwide notwithstanding where within China they are registered, notice of citizen suits to environmental regulatory agencies, and the availability of sanctions where NGOs seek to “profit” from such suits.

The SPC has also been developing guidance that will flesh out the three statutory criteria that must be met before a public interest group can file suit. It is also notable that the SPC has created a national environmental tribunal that is seeking to clarify the “standing” requirements that plaintiffs must meet to bring suit and which levels of courts in China have jurisdiction over environmental cases. Finally, although judicial decisions in China do not carry the precedential weight they do in the U.S., the SPC identified on December 19, 2014, a number of illustrative court opinions involving environmental claims to serve as “guidelines” for resolution of such claims. Although these “guiding cases” are not formally binding on lower courts, the Director of China’s Guiding Cases Project has stated that all courts are expected to follow “guiding case opinions.” This suggests that China may move in the direction of more consistent judicial decisions.

Separately, on November 27, 2014, the State Council Legislative Office issued a notice intended to tighten oversight of environmental compliance and enhance enforcement of environmental requirements. Notable among the elements of this bulletin were provisions directed at projects violating environmental impact assessment obligations (and commencement of construction of projects prior to official approval) and use, by the end of 2017, of various advanced and mobile technologies for environmental inspection by 80 percent of environmental agencies.

These actions bear scrutiny and, where the opportunity is provided, consideration should be given to commenting on them prior to their issuance in final form. Given both the number and importance of new provisions in the EPL and the very general manner in which they are typically framed in the statutory text, one can expect a number of such implementing measures throughout 2015. 

Questions to be Resolved

In what cases, if any, will the government allow new projects to proceed in regions exceeding environmental targets?

Much has been made of the EPL requirement that the State Council issue targets for the total amount of key pollutants discharged by province. Article 44 contains a new provision that would appear to require suspension of new development plans and construction projects in localities that do not meet these targets. It remains to be seen whether MEP will – or even has the authority to – implement a safety valve of some kind to allow certain projects to proceed in non-compliant regions. 

Similar to the U.S. National Environmental Policy Act (NEPA), Article 19 of the EPL requires preparation of an EIA prior to the start of development plans or construction projects with environmental impacts. However, unlike NEPA, the Chinese requirement covers certain private as well as government-sponsored construction projects. Article 44, an entirely new section, requires a halt to EIA approval in regions that fail to meet emission control quotas or achieve environmental quality targets. Note that Article 44 does not contain a “significance” or “temporal” element – the language states that any failure to meet targets for any length of time is to result in a suspension of EIA approvals. In conjunction with Article 19, this provision could be read as a mandatory ban on construction and development in such circumstances. Of course, it remains to be seen how this strong legislative language will mesh with the Chinese government’s desire for continued economic growth.

What will be the scope of the government’s seizure authority?

Article 25 of the EPL contains a provision allowing regulators to “seize or detain any facilities or equipment that cause pollutant discharge” in violation of laws or regulations. On its face, this provision would appear to allow regulators to seize facilities for any unauthorized discharge (i.e., there is no built-in significance threshold or opportunity to cure following an initial violation). MEP should be encouraged to institute safeguards so that property seizure only occurs in truly compelling circumstances.

What circumstances will require the acquisition of a pollution discharge license?

Article 45 of the EPL states that parties that have not acquired a pollutant discharge license “shall not discharge pollutants.” This provision does not define “pollutant.” Nor does it incorporate a significance threshold for the licensing requirement, or limit what conditions an agency may attach to a permit. It also remains to be seen whether the permitting infrastructure needed to give effect to such a prohibition will actually be in place before the prohibition kicks in.

How will the government issue and administer environmental permits?

A number of related concerns exist regarding the issuance, administration, and interpretation of environmental permits in China. These include:

• A less-developed system for air emission and solid/hazardous waste permits than currently exists for wastewater discharges;
• A lack of transparency as to how local environmental protection bureaus (EPBs) interpret and administer permits, and mechanisms whereby permittees can challenge permits, or seek clarification of permit conditions without formally “re-opening” them; and
• The need for even-handed administration of permit conditions and coordination of those agencies responsible for permit approvals and administration.

Similarly, local EPBs appear reluctant to approve the use of alternative pollution control technologies that experience has shown to be effective and whose application would bring welcome flexibility and cost-effectiveness to complying with environmental requirements in permits or otherwise. A workable process for demonstrating the effectiveness of such technologies, and obtaining government approval of them, could prove useful. The revised EPL itself does not clearly take on these challenges. As MEP seeks to implement the new permit provisions of the EPL, these issues merit attention.

How will confidential business information be protected?

As noted above, the strengthened information disclosure provisions in the revised EPL present the prospect of requests for disclosure of significant additional environmental information, some of which could well implicate confidential business information (CBI). Although the draft interim guidance recently released by MEP on information disclosure recognizes certain statutory protection from disclosure for “commercial secrets,” neither MEP nor that guidance has established any regulatory framework of the sort familiar to companies doing business in the U.S. to ensure CBI protection. The development of a framework that establishes clear, uniform, and transparent procedures for addressing CBI claims, training for government officials handling CBI, and accountability for any improper release of CBI would appear to be an important goal yet to be realized.

How much of a factor will citizen suits be?

The new “citizen suit” provisions are clearly intended to augment the limited enforcement resources of government authorities. As with other provisions of the revised EPL, these provisions are stated in general terms and do not address clearly a number of issues that have proven fundamental to use of citizen suit provisions in the U.S. Among others, these issues include:

• The precise nature of the statutory criteria which must be met before citizen suits can be brought;
• What “standing” requirements must be met;
• Whether plaintiffs can recover civil penalties and monetary damages in such suits;
• Whether multiple plaintiffs, including the government, can maintain suits at the same time;
• Whether attorneys’ fees and litigation costs are available to prevailing plaintiffs and defendants and, if so, in what circumstances; and
• The appropriate burden of proof in such cases and whether, as the SPC has suggested, the courts should play a role in assisting with the collection and preparation of evidence.

The coming resolution of such issues will likely play a major role in determining how significant a factor public interest litigation will be in the enforcement of China’s environmental laws.

Conclusion

The new EPL represents a significant step towards the development of a more robust environmental protection regime in China. It reflects the central government’s growing commitment to sustainable development. However, the EPL framework adds new uncertainties for companies that operate or are looking to invest in China. In some areas, the law would appear to mandate that regulators impose drastic limitations on development in certain contexts, while in others, it would appear to grant MEP and local governments extraordinary discretion without legislative guidance or restraint. We will be monitoring these efforts as MEP rulemaking and other government actions fill in the gaps of the EPL.