Category Archives: water pollution

. . . and throw away the key.

prison.jpgI reported earlier that the penalty provisions of the new amendments to the Water Pollution Prevention and Control Law imposed a fine of 50% of a “directly responsible” person’s annual salary. As noted, these fines may not have the desired deterrent effect. There are effective deterrents to environmental accidents (note SEPA seems focused on “accidents,” which are admittedly more high profile, but probably less cumulatively damaging than chronic, routine exceedances of pollutant limits; limiting “accidents” was one of the rationales for the “green” insurance proposal discussed below) already on the books.

Look at this bone chilling provision (Article 338) from China’s Criminal Code:

Whoever, in violation of the regulations of the State, discharges, dumps or treats radioactive waste, waste containing pathogen of infectious diseases, toxic substances or other hazardous waste on the land or in the water or the atmosphere, thus causing a serious environmental pollution accident which leads to the serious consequences of heavy losses of public or private property or personal injuries, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined; if the consequences are especially serious, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years and shall also be fined.

Violate the regulations, discharge some hazardous waste, cause a serious accident that hurts people or property and you’re facing up to seven years in the big house. Note the absence of any requirement that the regulations be “negligently” or “knowingly” violated as required in the criminal provisions of the US Clean Water Act, 33 USC §1319(c).

In my personal calculus the prospect of three years in a Chinese lockup is more motivational than losing half my annual salary (another note: this penalty bears a striking, coincidental (?) resemblance to China’s personal income tax scheme which already takes half my salary).

But this criminal provision only applies in a mega-blow out like the Songhua River spill I can hear the skeptics saying. Au contraire! On July 28, 2006 the Supreme People’s Court (SPC), issued an Judicial Interpretation (JI) that set a pretty low threshold for the application of Article 338 and several other environmental crimes provisions:

“Serious consequences of heavy losses of private or public property” was interpreted (JI, Article 1) to include:

  • private or public property losses not less than RMB 300,000 (approx.US$40,000). Article 4 of the JI clarifies that these losses “include actual losses due to the destruction or damage of property directly resulting from environment pollution, and any reasonable expenses incurred which are necessary to prevent the spread of pollution or clean the pollution;”
  • the permanent destruction or loss of use of not less than 5 Mu (slightly less than one acre) of farm or forest land; or
  • the death of not less than 40 cubic meters of “forestry” or other woods, or the death of not fewer than 250 young trees.

“Serious consequence of personal injuries” was interpreted (JI, Article 2) to include:

  • the death of one or more people;
  • serious injury of not fewer than three people; or
  • “light wounds” to not fewer than 10 people.

“Especially serious” consequences which can earn you up to seven years were interpreted (JI, Article 3)to include:

  • private or public property losses of not less than RMB 1,000,000;
  • the permanent destruction or loss of use of not less than 15 Mu of farm or forest land; or
  • the death of not less than 3 people, or serious injury of not less than 10 people, or “light wounding” of not less than 30 people.

A 7 year maximum sentence is a relatively low one in the grand scheme of Chinese criminal sentences. People are but in prison for life for causing a broken ATM machine to stand & deliver so a 3 year term in the hoosegow for seriously injuring three people doesn’t strike me as unreasonable, where there has been at least negligence.

Of course, motivating the prosecutors at the local level faces the same, if not greater, challenges as motivating the local EPB staff, but here’s a suggestion for the next “environmental whirlwind” campaign — throw a dozen environmental malefactors in the clink under Article 338 and see what effect that has on compliance rates.

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Water Pollution Act Amendments (Penalty Box) (Part II)

water pollution.jpg As I mentioned in my previous post on this topic, the as-passed version of the amendments to the Water Pollution Prevention and Control Law assesses penalties for “intentional,” i.e. not accidental, exceedances of discharge standards based on a multiple of the applicable “discharge fee” (up to a maximum of 5x this amount).  The comment draft applied a range of set fines for intentional exceedances (up to maximum of RMB1,000,000).  I have given up trying to determine which penalty type is actually tougher on polluters because there is not enough available information to construct a justifiable typical case for purposes of comparison.  A crucial issue is how to treat chronic over-standard dischargers.  In China this will first involve an issue of proof.  Since “continuous monitoring” is only now starting to be employed in some of the more environmentally progressive areas, the fact is that most wastewater dischargers to receiving streams are not required either to sample or report on a daily basis their flows or pollutant loads or concentrations.  At best, at the start up of plant operations they measured flow and pollutant loadings and their discharge fees were based on that data (another question: if I reported over-limit discharges at plant start up and have been paying the prescribed feed for these discharges, can I now be penalized for them?  I assume not, but the law is not clear on this point).  So, let’s assume the local EPB inspectors show up at the plant, take samples, estimate daily flow rates, and determine that a facility is exceeding discharge limits, does the plant get fined only for the exceedances occurring on that day, or is an assumption made the plant has been exceeding the standards since the start-up of operations (or last visit of the EPB)?  If the assumption is, or the proof will only support, a one-day exceedance, then in almost every case, the discharge fee multiple approach will be lower than the set fine approach.   

Two things of particular note are missing from the Penalty provisions.  First, as previously mentioned, the maximum fixed fine is RMB1,000,000, and that only applies where there have been illegal discharges into a “drinking water source protection zone.”  However, the initial reports were that maximum penalties would increase to RMB5,000,000, which is starting to get serious.  Even after the comment draft had been issued, I attend and event where a high-ranking SEPA official was confidently reporting that penalties would increase to RMB5,000,000.  They didn’t. 

Second, the provisions fail to adopt anything resembling an “economic benefit” penalty as used in the US and elsewhere.  “Economic benefit” penalties attempt to recover any financial benefits a company may have obtained by not complying with the law.  These penalties are based on the premise that the polluter should first cough up any benefit it received by failing to comply with the law and then additional penalties are assessed to actually punish the illegal behavior.  It ensures that theoretically at least there can never be a situation where it is cheaper to pollute and pay fines than to install and operate the required pollution control technology.  Although calculating “economic benefit” requires some financial modeling, it’s not rocket science.  In fact I think some NGO (which one escapes me at the moment) has tweaked US EPA’s BEN model for use in China. 

Given the fact that RMB1,000,000 is still the maximum fixed penalty and there is no provision for “economic benefit” recovery, I have to assume there are plenty of companies out there who have run the math and find that its still cheaper to pollute (and at worst pay the fines) than comply.

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Water Pollution Act Amendments (Penalty Box)

water pollution.jpg China’s Water Pollution Prevention and Control Law was amended on February 28 by the Standing Committee of the NPC (Chinese version here; English translation of Penalty section here; full English translation on its way).  I’ve only had a chance to briefly skim it, but new penalty provisions are getting the most press, so I’ll give you my first take.  Three penalty changes merit comment.  First, a provision (in Article 83) has been added (it was not in the draft law submitted for public comment) which is translated by Xinhua as: “Enterprise heads directly responsible for causing severe water pollution incidents and others with direct responsibility will be fined up to half of their income of the previous year.”  My read is that it is not “enterprise heads,” but those “directly responsible” (对直接负责的主管人员和其他直接责任人员) for an accident which causes water pollution who risk the salary hit.  Thus, rather than the CEO, it can be some lower level employee who takes the rap (it’s possible a non-penalty provision of the act imposes “responsibility” upon CEO’s for water pollution matters, if so, I’ll update).  In addition, as a number of my Chinese colleagues and others have pointed out, the actual booked salary for many employees (upon which this penalty will presumably be based) may not be, how shall I put it, a significant percentage of an employee’s total compensation.  Foreign invested company employees will be more vulnerable on this one.  It should also be noted that Xinhua’s “incident” (事故) really translates as “accident.”  In other words, salary penalization could come into play for a Songhua River type spill, but it will not apply to the day-in, day-out normal operational exceedance of applicable water limits.  

This brings me to the second point, Article 83 also provides: “In the event of any insignificant or relatively large water pollution accident, a fine equal to 20% of the direct losses caused by such water pollution accident shall be imposed. In the event of any serious or exceptional serious pollution accident, a fine equal to 30% of the direct losses caused by such water pollution accident shall be imposed.”  This provision was in the draft released for comments.  Note again it only applies to “accidents,” not routine exceedances.  In the case of the Songhua River spill a fine equal to 30% of the direct losses would have been huge, so this provision, if applied, could have some bite.  One caveat, it is unclear what is exactly meant by “direct losses.”  Are the drafters trying to exclude “consequential” damages?  Hard to say.  I think it is fair to conclude that the provision excludes what would be considered “natural resource damages” under US Superfund law.  In other words, the “value” of fish and birds, for instance, killed as a result of the pollution accident will not be considered part of the “direct loss” base amount unless someone can claim he made his livelihood catching them and that livelihood has been harmed.  Unlike the US, fish and birds have no inherent monetizable value in China.  

Third, the maximum quantified penalty set forth in the amendment is RMB1,000,000 (Article 75) (which is pointed to as a great leap forward), but it only applies to the most obdurate of polluters.  The entity must illegally discharge into a “drinking water source protection zone” and fail to heed the orders of regulators to stop.  Then and only then do the RMB1,000,000 penalties kick in. For the chronic violator who discharges into an ordinary receiving water, the penalties are as follows: Article 73 provides for “fines equal to 100% and 300% of the payable waste discharge fee” for failure to use installed pollution control equipment; and Article 74 provides for “fines equal to 200% and 500% of the payable waste discharge fee” who exceed applicable categorical or water quality standards.  These penalties represent a change from the comment draft which applied fixed penalties of from RMB50,000 to RMB500,000 for the Article 73 situation, and from RMB100,000 to RMB1,000,000 for the Article 74 situation.  Although I will have to do some cipherin’ and make some assumptions to know for sure, my sense is that on average the enacted versions penalties will be lower than those proposed in the comment version.   More anon. . .

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