“Repeated violations of discharge standard can significantly damage corporate profit, say a consortium of NGOs”

originally written for chinadialogue, now a blog post

The Institute of Public and Environmental Affairs (IPE), Lvse Jiangnan, and Green Hunan have found scores of major listed companies in chemical
and heavy industries in repeated violation of discharge standards. It
goes onto suggests repeat offenders may find their profit
“significantly” reduced come January 2015 when new amendments to the
Environmental Protection Law (EPL)–the cornerstone of environmental
legislation in China–on discharge standards comes into effect.

Their investigation, which ran from August to October this year, found
that subsidiaries in industries like thermal power, steel, cement,
non-ferrous metal smelting, and chemical–major contributors to the smog
that carpets China’s northeast–have not only high discharge volumes
but also a higher rate of discharge violations than any other
industries. Out of the 36 listed iron and steel companies on the
mainland, for instance, 34 were found to have environmental violation
records.

In a list of more than 200 transgressing companies, many of them were
large state-owned enterprises (SOEs), including Sinochem International
Corp and Aluminum Corp of China (Chinalco). In Lvse Jiangnan’s visit to
the SinoChem Int.’s subsidiary Sinochem Zhenjiang Coking Co. Ltd. site
in 2012 and 2014, they received complaints from residents of rivers
running black with surface layer of tar, health problems, affected
crop-growth, and homes being layered with tar-containing dust ever since
Cokechem moved in. The report also noted that companies from the key
smog-causing industries “do not lack the basic capability to control
their pollution”; this especially means large SOEs.


Enforcement of law to affect market

The
main challenge has been in enforcement of laws, said Ma Jun, the founder
of IPE. The EPL has so far been far too relaxed, only levying one-time
minimal fees on polluting facilities. Since the cost of violations have
been lower than the cost of compliance, legislation has failed to tackle
transgressing companies. However, the amendments to the EPL–to come
into effect in 2015–will be addressing these problems, with a new
penalty system that will accumulate each day of pollution violation,  
“If the law can be enforced, it could put a dent on [violators’]
earnings, I think this will be very helpful,” said Ma.

The report, ‘Green Stocks Phase II’, second in line to the Phase I
report back in June this year, calculated the potential daily penalties
that would be levied against three of the heavily emitting firms they
investigated, and found profits would be “significantly reduced.”

If the cost of violation sufficiently increases, as Ma explained,
investors, upon whom companies rely, will start “paying attention to
genuine risks of dirty investment”. With daily penalties for violations
in place, if companies are caught violating discharge standards,
investors also stand to lose. “It is uncomfortable” to realise that
profit is the most persuasive in goading investors to consider
environmental issues, said Guo Peiyuan, director of SynTao,  “but this
is market logic”.

Broadening responsibility for civil society

However, as Ma warned, sustained pressure from civil society groups and
the media will continue to play an essential role in monitoring
companies where government oversight has been and still is deficient, so
as to appropriate enforcement of fines on polluters. For instance,
IPE’s realtime monitoring–their database ‘Green Stocks’ has
environmental records of 1,069 companies, the world’s largest repository
of such intelligence–can identify polluters and allow “extensive
public supervision” of their behaviour.

The new amendments will also require companies to take part in such
real-time monitoring regimes. Transparency has been poor due to an
exclusion clause, Article 8 of the Regulations on Open Government
Information, that states any data jeopardising social stability or
national, public, or economic security must not be disclosed. The
responsibility of green NGOs, which has been crucial to a growing
environmental movement in China, will be even more crucial as the new
laws will enable them to take legal action against polluters on behalf
of the public.

Political momentum

Another staple
problem that perpetuates environmental problems has been local
government officials who, bent on economic-growth, has frequently
intervened in penalising of transgressive companies. That said, the
central government’s war on pollution has increasingly spilled over into
action; indeed the new amendment will see a formalisation of an
assessment system that takes into account not only economic but also
environmental performance of officials. “There is a real political will
generated in China due to the smog”, Ma said, “this is the first time
the central government really have the political will, they want to
bring the smog under control.”

Photo by flickr user “Billy Wilson”

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