China Implements Rules to Address Carbon Emissions, Contaminated Soil

January 24, 2017 | Energy, Natural Resources & Utilities

I. China Reaffirms Commitment to the Paris Agreement on Climate Change and Implements National Environmental Protection Plans and Policies

China’s President Xi Jinping urged all signatories of the Paris Agreement on climate change to stick to the agreement in his Davos speech at World Economic Forum held in January 2017. It is widely believed that Xi’s speech indicates China’s strong commitment to the new greenhouse gas (GHG) reduction accord. Consistent with such determination, China has recently implemented a series of national policies and regulations to address climate change and other environmental protection issues.

Control of Greenhouse Gas Emissions

China continues its efforts and commitment to reduce GHG emissions. On October 27, 2016, PRC State Council issued a Work Plan for the Control of Greenhouse Gas Emissions during the 13th Five-Year Period (Work Plan). This Work Plan, among others, sets forth objectives on reduction of carbon emission intensity, ranging from 12 to 20.5%, for different provinces and cities during the 13th five-year period. For example, the carbon emission intensities in Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Shandong, and Guangdong are all to be reduced by 20.5% by 2020.

Launch of National Carbon Emission Trading Market

As noted in our prior alert, pursuant to the National Plan on Addressing Climate Change (2014-2020) issued by the National Development and Reform Commission (NDRC) in September 2014, a national carbon emission trading market will be formed to lower the cost of achieving GHG reduction goals. To implement the plan, a national carbon emission trading market will be launched this year. Accordingly, and in parallel to the launch of the national carbon emission trading market, NDRC will (i) issue administrative rules to regulate carbon emissions trading and (ii) set the total carbon emission cap and assign quota for enterprises with annual energy consumption of at least 10,000 tons of coal equivalent in eight industrial sectors, including petrochemicals, chemicals, construction materials, iron and steel, non-ferrous metals, paper making, electric power, and aviation.

Eco Plan Objectives for 2020

On November 24, 2016, the PRC State Council issued the 13th Five-Year Eco-environmental Protection Plan (Eco Plan). As a framework regulation on eco-environmental protection for the 13th five-year period, the Eco Plan echoes the resource conservation and environmental protection objective set forth in the 13th Five-Year Plan. In addition, to promote a cleaner and greener economy, the Eco Plan sets forth nine parameters that must be reached by 2020 concerning air, water and soil quality, forest reserve and coverage, and key pollutants emission. Particularly, it is worth noting that given the recent severe air pollution in northern China, among other “must reach” parameters, the Eco Plan re-emphasizes the importance of improving the air quality and sets the goal to reach more than 292 days a year with excellent and good air quality by 2020 in most Chinese cities.

Promotion of Renewable Energy

  • Suspension of Approvals for New Coal-fired Power Plant

To address the smog and coal overcapacity crisis, China’s National Energy Administration issued the Circular on Further Regulating and Controlling the Construction of Coal-fired Power Plants on October 10, 2016, which suspends the approvals for over 100 new coal-fired power plants to be constructed in “red risk” provinces. The “red risk” provinces refer to all of the mainland provinces in China except for Hubei, Jiangxi, Tibet, Anhui, and Hainan pursuant to a notice issued by the National Energy Administration in March 2016. All the coal-fired power plants in “red risk” provinces, or those plants that have already been approved but have not yet obtained the entire requisite supporting documents, or those that started construction in 2016, shall suspend their construction. Only the coal-fired power plants that had begun the construction prior to 2016 are permitted to continue with the construction with due care. 

Any construction of coal-fired power plants in violation of foregoing restrictions will be suspended and reported to the public. In addition, penalties will be imposed by the competent government agencies, among which, National Energy Administration will not issue the operation certificate to such violating entities and the power generated from such power plants will not be able to connect to the national power grid for sales.

  • Development of Renewable Energy
On December 10, 2016, NDRC issued the 13th Five-year Plan on Development of Renewable Energy (Energy Plan), which provides guidelines for the development of various renewable energies, including solar, wind, hydropower, biomass, and geothermal energy. The Energy Plan projects the investment for renewable energy to reach the amount of RMB2.5 trillion (approx. USD$380 billion) for the 13th five-year period, and the annual usage of renewable energy will be 730 million tons of coal equivalent.  

The Energy Plan also calls for the establishment of a nationwide mechanism for trading Renewable Energy Green Certificates (Green Certificate), which will be used to document a power generation enterprise’s use of non-hydropower renewable energy. In 2020, the electricity generated by non-hydropower renewable energy is projected to account for at least 9% of all electricity generated by each power generation enterprise (except for certain exempted non-fossil power generation enterprise). The Green Certificate will be tradeable in the market, which will not only save certain power generation enterprises, as buyers, from failing to meet their 9% quota, but will also act as an incentive and subsidy to award those power generation enterprises, as sellers, who have met their own 9% quota. 

Together with the Energy Plan, a set of detailed plans were issued by National Energy Administration for the development of solar, wind, hydropower, and biomass energy. These detailed plans set forth various goals and requirements to be met by 2020: among others, the annual utilized solar energy shall be of at least 140 million tons of coal equivalent, the annual electricity generated by hydropower shall be of approximately 375 million tons of coal equivalent, the electricity generated by wind power shall account for approximately 6% of all the electricity generated in China, and the annual utilized biomass energy shall be of approximately 58 million tons of coal equivalent.

II. China Long-Term Soil Pollution Control Goals and Efforts

The State Council issued an Action Plan for Soil Pollution Control on May 28, 2016 (Action Plan). This is the first time that China has issued nationwide, systemized, and detailed rules specifically targeting soil pollution control and remediation. 

The Action Plan sets out the following goals and major parameters:

  • by 2020, soil pollution in China will be primarily contained, with the rate of safe utilization of polluted farming lands reaching about 90% and the safe utilization rate of polluted plots reaching at least 90%; and
  • by 2030, the national soil environment will be of good and stable quality, while the soil quality of farming lands and construction lands will be effectively guaranteed, and the soil environment risks will be completely controlled. The safe utilization rate of both polluted farming lands and polluted plots will reach at least 95% by then.
From a legislation perspective, this Action Plan calls for the drafting of Soil Pollution Prevention Law and revisions of certain rules to add provisions on soil pollution control so that a basic legal mechanism of soil pollution prevention will be established by 2020. Relevant standards and technological regulations to prevent soil pollution will also be established and improved.

III. China’s Work Safety Regulations Revisions

Follow-up on Tianjin Explosion: Convictions in First Trial

In November 2016, the individuals accused of causing or contributing to the August 2015 Tianjin explosion accident (which resulted in 173 deaths and over 1000 injuries) were tried by various courts, including the Second Intermediate People’s Court of Tianjin and nine other people’s courts. The primary responsible personnel were sentenced to death (with two-year reprieve) or imprisonment ranging from 15 years to life sentences. Twenty-five government officials were sentenced to imprisonment ranging from three to seven years due to willful dereliction of duty, abuse of power, and/or acceptance of bribes. 

Revised Administrative Measures on Workplace Emergency Plan

To better prevent the workplace accidents, the State Administration of Work Safety issued a revised Administrative Measures for Workplace Emergency Plan which came into effect in July 2016. Highlights include: (i) risk assessment for accidents and inventory check for emergency response resources should be done before preparing an emergency plan, (ii) the primary responsible personnel will be held liable for the truthfulness and practicability of such emergency plans, and (iii) the employer should organize internal emergency response training. Non-compliance with the new regulations subjects violators to a fine of up to RMB100,000 (approx. USD$14,600).

*O’Melveny recognizes legal consultant Qianru Hong for her valuable contribution in researching and drafting this article.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Rothenberg, an O'Melveny partner licensed to practice law in New York, Alan Bao, an O'Melveny associate licensed to practice law in California, Xiaoyu Xu, an O'Melveny associate licensed to practice law in China, and Qianru Hong, an O'Melveny legal consultant, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted. 

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