Environmental Law 2022 Comparisons

After more than 40 years of development, China's overall capability of environmental supervision has been comprehensively improved. Under the guidance of the National Ecological Civilisation Strategy, the main goal and task of China's environmental protection policy has gradually changed from pollution prevention and control to continuous improvement of environmental quality. The 20th National Congress of the Chinese Communist Party (CPC) (held on 16-22 October 2022) continued to emphasise strengthening the ecological environmental protection.

Key Environmental Protection Policies and Principles

The Constitution of China stipulates that “the state shall protect and improve living environments and the ecological environment, and prevent and control pollution and other public hazards”. China's Environmental Protection Law (Trial) was issued in 1979. The Environmental Protection Law was formally promulgated in 1989 and was revised in 2014. The revised Environmental Protection Law makes it clear that "environmental protection shall adhere to the principle of giving priority to protection, focusing on prevention, conducting comprehensive treatment, engaging the general public, and enforcing accountability for damage".

The Civil Code, which combined nine laws including the Marriage Law, the Succession Law, General Principles of the Civil Law, the Contract Law, the Real Rights Law and the Tort Law, came into force on 1 January 2021. The Civil Code clearly defines the "Green Principle" in civil activities, requiring that "civil activities should save resources and protect the ecological environment".

Key Environmental Protection Legislation

China's legal system consists of:

• laws, adopted by the National People's Congress and its Standing Committee;
• administrative regulations, adopted by the State Council;
• local regulations, adopted by local people's congresses and their standing committees;
• departmental rules, adopted by a central ministry or commission; and
• local government rules, adopted by provincial or district governments.

It also includes national standards (GB), environmental industry standards (HJ) and local standards (DB).

As for environmental management in national law, China has been establishing the “1+N+4” legal framework.

• “1” refers to the Environmental Protection Law, which is a fundamental and comprehensive law in environmental protection.
• “N” refers to the special laws in the field of environmental protection, including laws on pollution prevention and control of the atmosphere, water, solid waste, soil, noise, etc, and laws on the protection and control of oceans, wetlands, grasslands, forests, deserts, etc.
• “4” refers to ecological environmental protection legislation for specific regions and river basins, including the Yangtze River Protection Law (effective on 1 March 2021), the Yellow River Protection Law (effective on 1 April 2023), Black Land Protection Law (effective on 1 August 2022), and the Qinghai Tibet Plateau Ecological Protection Law (currently being drafted).

At the same time, the State Council also issued the Regulations on Environmental Protection of Construction Projects, the Regulations on the Management of Ozone Depleting Substances and the Regulation on the Administration of Pollutant Discharge Permits. Many local congresses and their standing committees at provincial level have also formulated local environmental protection regulations. Additionally, there are a number of standards related to environmental management and pollutant discharge limits.

According to the regulations, the Supreme People's Court can make judicial interpretations for judicial trials. The Supreme People's Court has also issued some judicial interpretations on environment-related cases, such as environmental criminal liability, administrative litigation, environmental tort, environmental public interest litigation and ecological environmental damage compensation litigation.

The Plan for Reforming State Institutions, adopted in 2018, stipulates that the Ministry of Ecology and Environment (MEE) manages and supervises the environmental protection work of the whole country. At the same time, it retains the National Nuclear Safety Administration and establishes the National Office for the Import and Export of Ozone-Depleting Substances. The MEE's main responsibilities include tackling climate change and environmental supervision.

At the local level, the Environment Protection Law stipulates that the local governments should be responsible for the environmental quality of their own region. The Ecological and Environmental Department (EED), which is above the county level, is responsible for managing and supervising the environmental and ecological work of the entire region.

The investigators of the EED have the right to:

• enter relevant sites for inspection, reconnaissance, sampling, voice recording, photographing, video recording and on-site sampling, monitoring and testing;
• enquire about the business entities and relevant personnel and request them to explain relevant matters and provide relevant materials; and
• review and copy production records, waste water discharge records and other relevant documents.

When facing government inspection, obstructing law enforcement or dishonesty will be fined by the EED. This is a requirement contained in the environmental law system, including Article 98 of the Air Pollution Prevention Law, Article 81 of the Water Pollution Prevention Law and Article 103 of the Solid Waste Law.

Environmental Impact Assessment (EIA) Approval and Registration

According to the Law on Environmental Impact Assessment and the Regulations on the Management of Environmental Protection for Construction Projects, an EIA should be carried out before construction and be approved by the EED or registered to the EED.

EIA documents include the EIA report, EIA form and EIA registration form, in accordance with the Classified Management Directory of Environmental Impact Assessment of Construction Projects (2021 version). This directory has simplified the EIA approval process compared to the previous version, and projects with little environmental impact have been exempted from the EIA. Some local governments, ie, Shanghai, have developed implementation rules to make the process more feasible and convenient for companies.

Pollutant Discharge Permit or Registration

On 1 March 2021, the Regulations on the Administration of Pollutant Discharge Permits came into force. Pollutant discharge industries, before the operation of the construction project, must obtain a Pollutant Discharge Permit or Registration, which needs to follow the Fixed Pollution Source Emission Permits Classified Management Directory (2019) issued by the MEE.

Onsite inspections are the main basis for the Pollutant Discharge Permits. A Pollutant Discharge Permit is valid for five years; an extension application needs to be submitted for the department's approval 60 days before the expiration.

If the administrative counterparty or the interested party disagrees with the examination and approval of the Pollutant Discharge Permit, it can apply for administrative reconsideration or file a lawsuit within a specified time.

Permit for Sewage into Drainage Pipe Network (Drainage Permit)

According to the Regulations on Urban Drainage and Sewage Treatment, enterprises, institutions and individual industrial and commercial households engaged in industrial, construction, catering, medical and other activities, if they discharge sewage into urban drainage pipelines, need apply to the urban drainage authorities (construction authority or water discharging authority) for a drainage permit. Drainage permits are valid for five years.

Radiation Safety Licence

According to the Regulations on the Safety and Protection of Radioisotopes and Radiation Devices, an enterprise that produces, sells and uses radiation and radiological devices shall obtain a Radiation Safety Licence. The licence is valid for five years.

Hazardous Waste Trading Licence

According the Solid Waste Law, enterprises engaged in collecting, storing, utilising and disposing of hazardous waste should apply for a Hazardous Waste Trading Licence and a Hazardous Waste Collection Licence; the former is valid for five years and the latter for three years.

If the administrative counterpart or interested party disagrees with the approval or permit, it may apply for administrative reconsideration or file an administrative lawsuit within a specified time period.

China's environmental legal liability includes criminal liability, administrative liability and civil liability. The subject of liability includes enterprises, enterprises’ management members and individuals who commit pollution damage acts.

Environmental Criminal Liability

Environmental criminal liability mainly includes the following crimes:

• environmental pollution (Article 338 of the Criminal Law);
• illegally importing solid waste (Article 339 of the Criminal Law);
• destroying a computer information system (Article 226 of the Criminal Law); and
• issuing false documents for an EIA and false environmental monitoring reports (Article 229 of the Criminal Law)

According to the Amendment to the Criminal Law (XI), which came into force on 1 March 2021, enterprises or enterprise managers may be the criminal subjects of organising or carrying out serious environmental pollution. Generally, enterprises' crimes will be fined, while individual crimes will be sentenced to less than seven years' imprisonment and fined. If the following illegal acts occur and cause serious environmental consequences, the imprisonment can increase to a maximum of 15 years:

• discharging, dumping, or disposing of any hazardous waste in protective areas;
• discharging, dumping, or disposing of any hazardous waste in important rivers and lakes as determined by the state;
• acts causing the serious loss of farmland; and
• acts causing any serious injury, illness, disability or the death of a person.

The Interpretations on Certain Issues Concerning the Application of Law in the Handling of Criminal Cases of Environmental Pollution, issued by of the Supreme People's Court and the Supreme People's Procuratorate in 2016, clearly defines 18 criteria of environment pollution crime, such as:

• illegally discharging, dumping or disposing of hazardous wastes of three tons or more;
• discharging, dumping or disposing of pollutants containing lead, mercury, cadmium, chromium, arsenic, thallium or antimony in excess of at least three times the national or local pollutant discharge standards;
• discharging, dumping or disposing of pollutants containing nickel, copper, zinc, silver, vanadium, manganese, or cobalt in excess of at least ten times the national or local pollutant discharge standards;
• discharging, dumping or disposing of radioactive waste, waste containing pathogens of infectious diseases, or toxic substances via kangaroo drainage tubes, seepage wells, pits, crevices, karst caves, perfusion or by otherwise evading supervision; and
• key pollutant discharging entities altering or forging automatic monitoring data or interfering with automatic monitoring facilities to discharge chemical oxygen demand, ammonia nitrogen, sulfur dioxide, nitrogen oxides or other pollutants, etc.

Environmental Administrative Liability

The environmental administrative liability for environmental damage is mainly administrative penalties and administrative compulsory enforcement measures.

The Administrative Penalty Law of China was issued in March 1996 and the new version came into force on 15 July 2021. This Law sets out the types of administrative punishments, including:

• warning and circulation of disciplinary notice;
• fines, confiscation of illegal gains and illegal property;
• temporarily detaining the licence, lowering the level of qualification and revoking the licence;
• restricting the development of production and business operation activities, ordering the suspension of production or business operation, ordering closure and restricting employment;
• administrative detention; and
• other administrative penalties as prescribed by laws and administrative regulations.

According to the Administrative Penalty Law, an administrative authority may seek to enforce a penalty against a citizen, legal person or another organisation for violation of the administrative order in accordance with the law by reducing rights and interests or increasing obligations, such as a fine, confiscation of illegal gains and illegal property. According to the Environmental Protection Law of China, those who fail to rectify the illegality, within the timeframe imposed, may also be fined per day, which could significantly increase the penalty. 

If the violation is serious, the licence may be temporarily detained, and the level of qualification could be lowered or revoked. Other options are restricting the production and business operation, ordering the suspension of production or business operation, closing down and administrative detention (the latter being a punishment for the main person-in-charge, as detailed in 7.1 Directors and Other Officers).

In addition to the administrative penalty, enterprises committing illegal acts may also face administrative compulsory enforcement measures such as sealing up and impounding the facilities that caused the damage. In the field of ecological environment, Article 25 of the Environmental Protection Law, Article 30 of the Air Pollution Law, Article 27 of the Solid Waste Law, and Article 78 of the Soil Pollution Law all provide corresponding provisions on sealing up and impounding facilities and equipment.

Environmental Civil Liability

Environmental civil liability is mainly the liability for environmental pollution and ecological damage.

According to the Civil Code, civil penalties include:

• cessation of the infringement;
• removal of obstacles;
• elimination of dangers;
• restitution of property;
• restoration to the original condition;
• repair, reworking or replacement;
• compensation for losses;
• payment of breach of contract damages;
• elimination of adverse effects and rehabilitation of reputation; and
• offering an official apology.

Where any law provides for punitive damages, such a law shall apply.

Where environmental pollution or ecological damage causes harm to others, the tortfeasor shall assume the tort liability. The infringed party may claim compensation for losses, an apology or restoration to the original state.

For damage to the ecological environment, a state-prescribed organ or an organisation prescribed by law shall have the right to claim:

• damages from the infringer for the damage to the ecological environment;
• expenses for investigations, appraisals and evaluations;
• expenses for cleaning up pollution;
• expenses for restoring the ecological environment; and
• reasonable expenses for preventing the occurrence and expansion of damage.

Article 1232 of the Civil Code stipulates a punitive compensation system for environmental pollution and ecological damage under specific conditions.

Environmental civil liability adopts the principle of no-fault liability and the inverse principle of proof liability. If a dispute arises relating to environmental pollution or ecological damage, the actor shall bear the burden of proof for the existence of the grounds for not bearing liability or mitigating liability as stipulated by law, and there being no causal relationship between their behaviour and the damage.

Generally speaking, as per the "polluter pays" principle, the polluter has the legal liability for historical environmental incidents and damage. However, as per the principle of the “law cannot be applied retrospectively”, no criminal or administrative liability would be investigated for historical environmental incidents or damage (typically those happened in 10-20 years ago). However, the civil liability may still be investigated and borne as per the relevant civil law.

Per Article 41 of the Solid Waste Law, if an entity that has been terminated prior to 1 April 2005 while its industrial solid waste was not treated, all costs incurred for the safe treatment shall be for the account of the relevant government; however, in the case of the legal transfer of the land use right held by such entity, the costs of treatment shall be for the account of the transferee of the land use right.

The “Changzhou poisonous land case” has proved that the company which causes historical pollution should bear the environmental tort liability.

In China, environmental accidents may lead to legal liability including criminal, administrative and civil liability. Please refer to 4.1 Key Types of Liability for details.

Criminal Liability and Key Defence

According to the Amendment of Criminal Law (XI) in 2021, criminal liability for environmental pollution can be up to 15 years in prison and a fine. The main defences of criminal liability include:

• whether the limitation of accountability has been exceeded;
• whether the identification of the responsible person is accurate;
• the authenticity, legality and relevance of evidence, especially criminal facts and damage consequences – this could include monitoring reports and identification reports of hazardous waste;
• the legitimacy of the procedure;
• the suspect’s attitude in admitting a mistake can be used as a defence of diminished responsibility;
• criminal compliance – according to the Guidance on Establishing Third-party Supervision and Evaluation Mechanism for Compliance of Enterprises Involved (Trial, issued on 3 June 2021), if a company involved has a compliance system and is able to be audited by a third party, the compliance material could be taken as the basis to reduce punishment.

Administration Liability and Key Defence

In environmental administrative liability, according to the new version of Administrative Penalty Law, the main defences include:

• limitation of accountability – if normal/general illegal acts are not found within two years, there should be no administrative punishment, but, for those acts that involve citizens' lives, health and safety, financial safety and cause harmful consequences, liability will be extended to five years;
• whether the identification of the responsible person is accurate;
• whether the violator has enough evidence to prove that it has no subjective fault;
• whether the fact determination is accurate, whether the evidence has authenticity, legitimacy and relevance, especially the legitimacy of the sampling procedure in the environmental monitoring report;
• whether the law enforcement procedures are in compliance with the law;
• whether the violator has enough evidence to prove that it has no subject fault; and
• whether the illegal circumstances are minor or the consequences are serious.

Civil Liability and Key Defence

In recent years, there have been cases of compensation of hundreds of millions of yuan (CNY). The main defences for environmental civil liability include:

• whether the limitation of action exceeds three years;
• whether force majeure exists;
• whether there has been fault from the third party or victim;
• whether the liability is joint or several; and
• whether the identification and assessment of ecological environmental damage is carried out in accordance with proper procedures and standards.

Existing environmental protection laws in China specify that all entities and all individuals should prevent and reduce environmental pollution and ecological damage, and should bear liability for any damage caused. It also specifies the requirements for pollution prevention and control.

When an enterprise violates the relevant laws and regulations, if it does not cause serious environmental pollution then it will bear administrative responsibility. If the pollution act is serious, it may constitute a criminal offence. Those who cause damage to the interests of others or the public may also bear civil compensation liability.

Environmental pollution crimes are unit crimes, which shall be fined; the main persons-in-charge and other persons-in-charge should be sentenced to criminal punishment.

An enterprise committing offences in violation of laws related to environmental protection – besides administrative, criminal and civil liability – may also suffer a negative impact on their environmental credit assessment. The enterprise will be subject to disciplinary action, including negative evaluation results of the public, losing the qualifications of government procurement, changes in bank loan financing, receiving more frequent supervision, etc.

A parent company has independent legal status and is not normally impacted by the environment liability caused by its subsidiaries. However, if the parent company has engaged in acts that are related to the causes of an environmental accident, such as excessive control, the subsidiaries’ illegal behaviour could also be attributed to the parent company. Hence, in particular cases, the shareholders might bear civil, administrative or even criminal liability.

An environmental pollution crime with civil public interest occurred in Nanjing, Jiangsu Province (Jianli No 86 from the Supreme People’s Procuratorate of China). The waste water treatment plant (WWTP) was required to bear the cost of the ecological environmental restoration. In this case, the People's Procuratorate signed a mediation agreement with WWTP and its parent company. WWTP had to pay CNY470 million in environment compensation and the parent company had to undertake the joint liability.

Another case is the “3.21" Xiangshui hazardous waste explosion accident which happened at Xiangshui Country, Jingsu Province on 21 March 2019 and caused 78 fatalities. A total of 13 persons from the company – including the legal representative and the general manager – were made to bear criminal liability; two members of the leadership team of the parent company were also made to bear criminal liability. 

China does not yet have an environmental liability insurance system for individual executives. There may be some commercial insurance companies that offer something similar. However, except for environmental accidents which cause damage, the aforesaid violation of laws requiring administrative or criminal liability may be excluded from the insurance coverage.

According to the Criminal Law and relevant provisions, if the environmental pollution crimes are unit crimes, the directly responsible persons in charge and other responsible persons should be fined and punished. The "directly responsible person in charge" includes the actual controller of the company, the principal person in charge or the authorised person in charge and senior management personnel.

In environmental administrative responsibility, administrative detention measures are targeted at company executives and other directly responsible persons. The detention is a maximum of 15 days for the following acts:

• refusing to stop construction when there is no EIA;
• refusing to stop discharging pollutants without a valid discharge permit;
• dishonesty with regard to discharging and data; and
• producing or using forbidden pesticides.

In accordance with the Law on the Prevention and Control of Water Pollution and the Law on the Prevention and Control of Air Pollution and other relevant laws, when water pollution or air pollution accidents occur, besides fining the company, the directly responsible persons in charge and other responsible persons would be fined up to 50% of their annual income.

The Environmental Protection Law does not directly regulate the environmental protection responsibilities of financial institutions and lenders. In the past, environmental protection was regarded more as the social responsibility of financial institutions. In recent years, green finance-related policies and standards have included provisions on green loans.

In 2012, the China Banking Regulatory Commission (CBRC) issued Green Credit Guidelines to provide guidance for the development of green credit for banking financial institutions, and proposed that environmental risk assessment and management should be strengthened. It also proposed that pre-loan due diligence should be undertaken and customers with non-compliant environmental and social practices should not be granted credit.

In practice, there are several cases of banks receiving administrative penalties from regulatory authorities for failing to conduct pre-loan investigations and providing environmental standards financing to enterprises.

For example, CBRC announced on its website an administrative penalty decision regarding a bank (Penalty Decision of Tianjin CBRC [2018] No 35). According to the decision, the bank had failed to carry out pre-loan investigations and provided financing to enterprises that failed to meet environmental standards. The local authority decided to fine the bank CNY500,000.

At present, seven Chinese banks have announced the adoption of the Equator Principles, of which the environmental risk assessment is an important element.

According to China's Green Credit Guide, banking financial institutions shall establish and constantly improve the system of environmental – including social risk management policy – procedure, developing the customer's environmental and social risk assessment standard and social risk evaluation and classification. The results should form the basis of the institution's rating, credit access, management and exit. In terms of process management:

• the lender shall promote credit due diligence, clarifying the content of environmental, social risk due diligence, seeking support from qualified, independent third parties and relevant authorities if necessary;
• the lender shall strengthen the management of credit approval, credit fund allocation and post-loan management, and establish and improve the internal reporting system and accountability system for customers' major environmental and social risks; and
• consumers should invest in progressing environmental and social risk management by improving contractual terms.

If necessary, qualified and independent third parties may also be engaged to evaluate or audit the activities of banking financial institutions, so as to fulfil their environmental and social responsibilities.

Where an enterprise or an individual causes personal injury or property damage to others due to environmental pollution or ecological damage, the party which commits the infringing act shall bear tort liability. The infringed party may file a civil lawsuit in accordance with the relevant provisions of tort liability in the Civil Code and the relevant environmental protection laws.

If pollution causes harm to the public interest, the governments or environmental authorities may ask for compensation through negotiation. If no agreement is reached, then the authorities have a right to sue the court.

Punitive damages related to environmental damage are clearly stipulated in the Civil Code (which did not exist pre December 2020). Where the infringer intentionally pollutes the environment and destroys the ecology in violation of the law and causes serious consequences, the infringed shall have the right to request corresponding punitive damages if three conditions are met: (i) violation of laws, (ii) intentional violation, and (iii) causing serious consequences.

In January 2022, the Supreme People's Court issued the judicial Interpretation on the Application of Punitive Damages in Cases Involving Eco-environmental Infringement Disputes". The interpretation says the court shall take into account factors such as the malicious degree, the consequences, the ecological damage, or the remediation measures when deciding the amount of punitive damages It additionally stated that punitive damages should not be more than twice the amount of personal damages and property losses.

In China, the Civil Procedure Law regulates the joint action, in which one party consisting of numerous persons may be brought by a representative elected by such persons. The procedural acts of such representative shall be binding on all members of the party they represent.

If the object of the action is of the same category and a party consists of numerous persons, and upon institution of the action the number of persons is not yet determined, the court may issue a public notice stating the particulars of the case and the claims and requesting that the claimants register with the court within a certain period of time.

Claimants who have registered with the people's court may elect a representative to engage in litigation; if no such representative can be elected, the court may discuss the matter of determining a representative with the registered claimants. The procedural acts of a representative shall be binding on the party they represent.

Since the implementation of the revised Environmental Protection Law in 2015, the Supreme People's Court and the Supreme People's Procuratorate have released typical environmental resource cases annually, including criminal, civil and administrative penalties.

Typical cases provide the most direct guidance for judicial officers, but do not serve as the basis for court decisions. In addition, provincial ecological and environmental authorities also issue example cases to guide law enforcement personnel to efficiently carry out the law.

The historical pollution of some enterprises caused soil environmental pollution in Changzhou, a city of Jiangsu Province, also causing secondary pollution in the process of remediation. From 2016-18, these polluting enterprises were sued by NGOs, and this environmental public interest litigation received extensive social attention. Based on the "polluter pays" principle, although the land polluters returned the land use right, the court still ruled that the polluter should be liable.

Article 153 of the Civil Code stipulates that a juridical act violating the imperative provisions of any law or administrative regulation shall be void, unless the imperative provisions do not result in the nullity of the juridical act.

The parties may agree on the allocation of the responsibility and liability for the prevention and control of pollution through an agreement, without violating the mandatory provisions of laws and administrative regulations. When environmental violations occur, one party has the right to require the other party to bear the corresponding liability for pollution.

In the construction stage, the proprietors and the constructor can agree on their respective responsibilities for environmental protection and pollution prevention and control.

In the process of transferring land use rights, the legal liability of soil pollution could be divided.

In the solid waste disposal contract, the entrusted company and the disposal transportation company shall agree on pollution prevention and control requirements.

Pollutant discharging enterprises may entrust a third party to provide treatment services and perform corresponding responsibilities and obligations according to the environmental service contract. However, the responsibility of pollution prevention and control agreed by way of an agreement cannot be a defence for the infringed to claim compensation, nor can it be a defence for administrative punishment.

China's current environmental pollution liability insurance is divided into compulsory and voluntary.

The Environmental Protection Law, which was revised in 2015, promotes the development of environmental pollution liability insurance. The Law on the Prevention and Control of Environmental Pollution by Solid Waste, which took effect in September 2020, stipulates that units collecting, storing, transporting, utilising and treating hazardous waste should take out environmental pollution liability insurance in accordance with relevant state regulations.

In 2013, the Ministry of Environmental Protection and the China Insurance Regulatory Commission jointly issued a policy document to carry out the pilot policy of compulsory environmental pollution liability insurance. In 2017, the Measures for Compulsory Environmental Pollution Liability Insurance (Draft) was also published, but the official regulations have not yet been published.

According to the draft measures, compulsory environmental pollution liability insurance contains personal damage to third parties, property damage, ecological damage and emergency treatment and clean-up costs. However, such insurance coverage does not cover administrative penalties caused by illegal acts, fines from criminal penalties or losses caused by environmental crime accidents.

Soil pollution in construction land laws and regulations are:

• the Soil Pollution Prevention and Control Law;
• Management Measures for the Soil Environment of Contaminated Land;
• Management Measures for the Soil Environment of Industrial and Mining Land (Trial); and
• Soil Environmental Quality Soil Pollution Risk Control Standards for Construction Land (Trial) (GB 36600 – 2018).

According to the law, the person or persons responsible for soil pollution has or have the obligation to implement soil pollution risk control and remediation. If the persons responsible for soil pollution cannot be identified, the land use rights holder shall carry out soil pollution risk control and remediation, including a soil pollution investigation, risk assessment, risk control, remediation, risk control effect assessment, remediation effect assessment and later-stage management.

Article 94 of the Soil Pollution Prevention and Control Law sets out the "substituted fulfilment" system; if an enterprise violates this law and fails to fulfil pollution liability, the local ecological and environment or other departments may require corrections and impose a fine between CNY20,000 and CNY200,000.

For refusing corrections, the enterprise shall be fined between CNY200,000 and CNY1 million. The EED can entrust others to fulfil the liability, and the expenses shall be paid by the person responsible for the pollution or the land use rights holder. Meanwhile, the directly responsible person-in-charge and other directly responsible persons shall be fined between CNY5,000 and CNY20,000.

Key Policies and Principles

China is a member of the United Nations Framework Convention on Climate Change and the Kyoto Protocol. It is also a signatory to the Paris Agreement on Climate Change. In 1991, China joined the Montreal Protocol on Substances that Deplete the Ozone Layer and, in 2021, China accepted the Kigali Amendment to the Montreal Protocol to strengthen the control of non-carbon greenhouse gases.

On 22 September 2020, President Xi Jinping announced at 75th Session of the United Nations General Assembly that China would aim to have its CO₂ emissions peak before 2030 and achieve carbon neutrality before 2060.

Over the last two years, China has been establishing the “1+N” climate policy system.

• “1” relates to the Opinions of the CPC Central Committee and the State Council on Completely, Accurately and Comprehensively Implementing the New Development Concept and Doing Well in Carbon Peak and Carbon Neutrality, and the Circular of the State Council on Printing and Distributing the Action Plan for Carbon Peak by 2030, issued in October 2021.
• "N" includes the implementation plans for carbon peaking in energy, industry, transportation, urban and rural construction and other sub sectors, and supports plans in areas such as science and technology, energy security, carbon sink capacity, financial pricing policies, standard measurement systems, supervision and assessment. For instance, in 2022, central departments issued the Renewable Energy Development Plan of the "14th Five-Year Plan", Medium- and Long-term Plan for the Development of the Hydrogen Energy Industry (2021-2035), Implementation Plan for Carbon Peaking in Industrial Sectors.

Meanwhile, many provincial governments issued the implementation plan for their regions. For instance, in July 2022, the Shanghai government issued the Shanghai Carbon Peak Implementation Plan, which focuses on key initiatives, key regions, key industries and key subjects, and organises the implementation of the "Top Ten Actions for Reaching Peak Carbon Emissions".

Key Laws and Regulations

In recent years, China has issued several laws, regulations, rules and standards related to climate change and emission trading, such as:

• the Renewable Energy Law;
• the Cleaner Production Promotion Law;
• the Measures for the Administration of Carbon Emissions Trading (Trial) and relevant three rules related to carbon emission allowance registration, trading and settlement; and
• carbon emissions calculations and verification standards for 24 industries (eg, power generation, steel, civil aviation, chemical, cement).

China is also drafting regulations on carbon emissions trading and preparing to draft a Climate Change Response Law.

Central departments, including the MEE and the National Development and Reform Commission, jointly issued the Guidelines on Promoting Investment and Financing in Response to Climate Change to promote climate investment and financing. Low-carbon technologies and projects will have the opportunity to receive green capital, tax relief and other green financial support.

At the local level, the Regulations on Ecological and Environmental Protection of Shenzhen Special Economic Zone was revised in 2021, specifically adding a chapter on "Addressing Climate Change", which details the general work on addressing climate change, reaching carbon peak and carbon neutrality goals, and carbon emission trading.

Since 2013, China has piloted carbon trading in eight provinces or cities – Beijing, Shanghai, Tianjin, Chongqing, Hubei, Guangdong, Fujian and Shenzhen. At this stage, China's carbon emission quota is allocated free of charge, and will gradually be compensated in the future.

In July 2021, the National Carbon Emission Trading Market opened. It was first run in the thermal power generation industry and is gradually expanding to other industries. Greenhouse gas (GHG) emitting units belonging to a trading market with annual GHG emissions of 26,000 tons of CO₂ equivalent shall be listed in the GHG emitting units, their carbon emission quotas shall be paid annually, and they could participate in the national carbon emission market trading.

In 2007, the National Leading Committee on Climate Change of China was set up. At the Copenhagen Climate Conference in 2009, the Chinese government set a target for controlling GHG emissions, and pledged to reduce CO₂ emissions per unit of GDP by 40% to 45% by 2020 compared with the 2005 level. At the end of 2017, China's CO₂ emissions per unit of GDP had dropped 42% compared with 2005, fulfilling the commitment of the Copenhagen Climate Conference three years ahead of schedule.

On 12 December 2020, at the Beijing Climate Summit, President Xi Jinping announced that, before 2030, China's CO₂ emissions per unit of GDP would drop by at least 65% from 2005, the percentage of non-fossil energy in primary energy consumption would rise to around 25%, and the forest stock would increase by 6 billion mᵌ from 2005. The total installed capacity of wind and solar power would reach over 1.2 billion kW.

According to the 14th Five-Year Plan and the Long-term Goals for 2035, by 2025, energy consumption and CO₂ emissions per unit of GDP will be reduced by 13.5% and 18%, respectively, from 2020 levels.

On 22 September 2021, the State Council of China issued a document titled "The Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy, which is based on the development stage and national conditions of China. Five major goals have been put forward:

• creating an initial framework for a green, low-carbon and circular economy;
• improving energy efficiency;
• increasing the proportion of non-fossil energy consumption;
• reducing CO₂ emissions; and
• increasing the carbon sink capacity of ecosystems.

Although China has not completely banned asbestos mines and asbestos products, it has long been aware of the harm of asbestos dust to the environment and the human body. In 2007, China issued the National Standard for Occupational Health Management of Asbestos Operations (GBZ/T 193-2007). From the perspective of occupational health monitoring, the document provides effective and feasible occupational disease-prevention measures and operation procedures for preventing the emission of asbestos dust during asbestos operations and for controlling dust pollution.

The key laws and regulations on waste management in China are:

• Solid Waste Law (2020 revised);
• Law on the Promotion of a Circular Economy;
• Regulations on the Management of Medical Waste; and
• Measures for the Management of Hazardous Waste Business Licences.

China has issued the National Hazardous Waste List (2021 edition), which is subject to amendment.

The prevention and control of environmental pollution by solid waste in China adheres to the principles of reduction, recycling and harmlessness. Depending on waste type and harmfulness, the Solid Waste Law sets requirements for industrial solid waste, domestic waste, construction waste, agricultural solid waste, hazardous waste pollution prevention, and stricter management of and penalties for industrial solid waste and hazardous waste.

Many local governments have issued regulations on the management of domestic waste, setting requirements for classification, collection, transportation and disposal.

Article 24 of the Solid Waste Law stipulates that the state will gradually achieve zero import of solid waste. At the end of 2020, the MEE and other departments jointly issued an announcement which confirmed the total prohibition of the import of solid waste. It is forbidden to dump and pile solid waste in China.

Generally, after the waste disposal handling is passed onto a third party, the corresponding responsibility for pollution is also removed. However, according to the Solid Waste Law, if an entity that produces industrial solid waste entrusts others to transport, utilise or treat the waste, it shall, before signing an agreement, verify the qualification and technical capacity of the entrusted party and sign a written legal contract, which should also stipulate the requirements for pollution prevention and control responsibilities and potential consequences for all parties.

If an enterprise that produces industrial solid waste fails to verify the technical capability of the transportation and disposal enterprises, and fails to stipulate the requirements for pollution prevention and control in the written contract, it may still be subject to administrative penalties, and shall bear joint responsibility with the entrusted party that causes the environmental pollution and ecological damage.

Article 66 of the Law on the Prevention and Control of Environmental Pollution Caused by Solid Waste stipulates that the state shall establish an extended producer responsibility (EPR) system for electrical and electronic products, lead storage batteries, and automotive traction batteries.

The producers of electrical and electronic products, lead storage batteries, automotive traction batteries, and other products shall, as required, implement a used product recovery system that fits the sales of the products themselves, disclose the system to the public, and achieve effective recovery and utilisation.

The design and manufacture of products and packaging shall comply with the state regulations on cleaner production. Enterprises that produce, sell or import products and packages that are listed in the compulsory recovery list shall recycle such products and packages in accordance with the relevant regulations.

In addition, the state encourages the R&D, production, sale and use of agricultural film that is environmentally degradable and harmless.

According to the Emergency Response Law, when an accident or disaster occurs, enterprises shall immediately organise the emergency rescue team and staff to rescue victims, evacuate people, resettle threatened persons, control hazards, indicate the danger zone, block the dangerous sites, and take other necessary measures to prevent the harm from increasing, at the same time reporting to the local people's government at the county level.

The Environmental Emergency Response Plan stipulates that when an enterprise causes an environmental emergency, it shall immediately initiate an environmental accidents emergency plan to cut off or control the pollution, take other necessary measures to prevent the harm from spreading, give timely notice to related units and residents, report to the local county-level environmental department, and organise an investigation.

Chapter V of the Environmental Protection Law is dedicated to information disclosure and public participation. Citizens, legal persons and other organisations shall have the right to access environmental information, participation and supervision, and have the right to environmental protection. The environmental protection department shall make environmental information available to the public, improve the public participation procedure, provide measures that make it easy for citizens, legal persons and other organisations to participate in and supervise environmental protection. The information disclosed includes:

• national environmental quality, monitoring information of key pollution sources and other major environmental information, and a bulletin of provincial environmental conditions;
• county-level environmental quality, environmental monitoring, environmental emergencies, environmental administrative permissions, administrative penalties, levies and use of pollutant discharge tax, etc;
• reports from county-level government departments on environmental illegal information of enterprises, public institutions, producers and business operators – the list of offenders is promptly made available to the public.

According to the Regulations on the Disclosure of Government Information, administrative organs should take disclosure as normal, non-disclosure as an exception, and follow the principles of fairness, justice, legality and convenience. There are two forms of disclosure of government information by administrative organs: voluntary disclosure and application disclosure. However, information involving state secrets, trade secrets and personal privacy shall not be disclosed to the public.

For information disclosure, the administrative organ shall give a reply within 20 working days from the date of receiving an application; if necessary, this can be extended for up to 20 working days.

The public can apply to the environmental department to provide government environmental information in the form of a written application. The purpose or use is not required to be stated in the application.

If the party refuses to accept the decision on information disclosure, it can apply for administrative reconsideration or file an administrative lawsuit.

MEE: Measures for the Legal Disclosure of Environmental Information  by Enterprises

According to Article 55 of the Environmental Protection Law, pollutant discharging entities under intensified supervision shall honestly disclose to the public the company’s name, the major pollutants, the method of discharge, the concentration and total quantity of the pollutants discharged, any discharge beyond the approved quota, as well as the construction and operation of pollution prevention and control installations to receive supervision from the public.

In December 2021, the Measures for the Administration of Legal Disclosure of Environmental Information by Enterprises was issued by the MEE and came into force on 8 February 2022 ("the Measures"); the Measures for the Disclosure of Environmental Information by Enterprises and Public Institutions issued in 2015 was repealed at the same time.

In accordance with the Measures, the following enterprises shall disclose environmental information:

• key pollutant discharge units (issued by the EED at city level or above);
• enterprises implementing mandatory cleaner production audits;
• listed companies complying with Article 8 of the Measures; and
• bond issuing enterprises complying with Article 8 of the Measures.

Article 8 of the Measures provides that the listed companies and bond issuing enterprises shall disclose environmental information if in the previous year they have experienced the following environment-related issues:

• they have been investigated for environmental criminal liability;
• they have received a fine of more than CNY100,000;
• they have been subject to consecutive daily fines;
• their production is restricted or stopped for rectification;
• their license related to the ecological environment is revoked; or
• the entity’s individuals are subject to administrative detention.

The Measures require the relevant enterprises to disclose the environment information before 15 March every year, while in certain situations the enterprise shall, within five working days from the date of receiving the relevant legal documents, disclose environmental information such as that relating to license approval/changes, administrative penalties, administrative detention and criminal investigations.

The above information shall be disclosed through the website of the legal disclosure system of environmental information for enterprises, which is being developed by the MEE.

Securities: Requirements and ESG

The China Securities Regulatory Commission (CSRC) and stock exchanges of China have relevant regulations on environmental information disclosure of listed companies. In 2021, the CSRC issued the Guidelines for the Content and Format of Information Disclosure by Companies Offering Securities to the Public No 2 – Content and Format of Annual Reports (2021 Revision), specifying that key polluters and their subsidiaries should disclose major environmental information in their annual reports by a national law enforcement body.

Non-key pollution-discharging enterprises shall disclose the administrative penalties for environmental problems during the reporting period, and may disclose other environmental information in accordance with the above requirements. If they fail to disclose other environmental information, they must fully explain the reasons for not doing so.

GHG emission reduction is also included in the scope of environmental information disclosure incentives. Enterprises can voluntarily disclose the measures and effects they have taken to reduce their carbon emissions during the reporting period.

In May 2022, the CSRC issued the new version of Guidelines for Investor Relations Management of Listed Companies, coming into force on 15 May 2022, and environmental, social and governance (ESG) information related to listed companies is included in the communication content for investors.

Investigation on Excessive Emissions Involving Change of Land Use or Recovery and Transfer of Land Use Right

According to Article 67 of the Law on the Prevention and Control of Soil Pollution, land use right owners shall conduct soil pollution investigations, in accordance with regulations, before the use of land for production and the operation of key units under supervision of soil pollution are changed or their land use right is withdrawn or transferred.

The investigation report on soil pollution shall be submitted to the real estate registration organ of the local people's government as real estate registration materials and submitted to the competent ecological environment department of the local people's government for record purposes.

The state has issued the Guidance for Environmental Investigation, Assessment and Restoration of Industrial Enterprise Sites (Trial) and technical guidelines for soil pollution investigation, monitoring and risk assessment in construction land (from HJ.1-2019 to HJ 25.6-2019) to guide due diligence work.

Environmental Risk Assessment and Investigation in Credit Financing Procedures

While banking financial institutions are required to conduct environmental due diligence in accordance with regulations and standards before granting credit lines (as mentioned in 8.2 Lender Protection), other national environmental protection laws do not require environmental due diligence.

Some localities have issued relevant regulations. In March 2021, Shenzhen implemented the Regulations of Shenzhen Special Economic Zone on Green Finance. It stipulates that financial institutions should establish a green investment evaluation system to evaluate investment projects of a specific scale before investment and carry out post-investment management.

Financial institutions may entrust professional institutions to assist in the assessment of green investments. According to the regulations, financial institutions are also required to evaluate the ability of investment project subjects to manage environmental risks. The evaluation includes the internal system, governance structure and organisational system of environmental risk management and control, as well as the continuous willingness, execution ability of environmental risk management, control systems and measures.

The Scope of Environmental Due Diligence

In order to prevent and control potential environmental legal liability risks, some enterprises voluntarily carry out special environmental due diligence before listing and M&A. The scope and depth of environmental due diligence in specific mergers and acquisitions shall be determined by each client according to their own needs. Due diligence, in the authors' experience, usually includes:

• an overview of the enterprise, the enterprise's production and surrounding environment (eg, water, atmosphere, noise and soil);
• environmental impact assessment and the implementation of the "Three Simultaneities" system;
• discharge of pollutants up to standard, total control of major pollutants and completion of emission reduction tasks;
• discharge permit and environmental tax payment;
• general industrial solid waste and hazardous waste treatment and disposal;
• environmental risk assessment prevention and emergency measures;
• hazardous chemical pollution prevention and control, and registration of new chemical substances;
• specifications on whether to protect environmentally sensitive areas;
• environmental management and establishment of an environmental management system;
• cleaner production implementation;
• environmental information disclosure and environmental report preparation and release;
• environmental disputes and penalties;
• historical environmental emergencies and major environmental pollution accidents; and
• soil and groundwater environmental conditions of the site.

Environmental due diligence is the basis for enterprises to carry out follow-up environmental risk prevention and control. Increasingly, enterprises attach importance to the pre-investigation steps and entrust corresponding professional institutions, such as lawyers and technical experts, to carry out corresponding investigations, which can help enterprises to effectively identify and control corresponding risks.

In the process of product sales, procurement vendors have a legal obligation to disclose some environment-related information, such as a seller's request to the buyer to provide MSDS.

Measures for the Administration of Limiting the Use of Harmful Substances in Electrical and Electronic Products stipulates that sellers of electrical and electronic products shall not sell any products that violate the national or industrial standards for limiting the use of harmful substances in these products.

In the process of M&A, it is not a mandatory legal requirement for the seller to disclose information to the buyer. However, the principle of good faith stipulated in Article 7 of the Civil Code is the basic principle that civil subjects should follow when engaging in civil activities.

To prevent potential environmental legal risks in M&A processes, the buyer will generally require the seller to provide key environmental information. If the environmental information provided by the seller is false, which may be considered as a material misunderstanding or fraud, the buyer may apply to the court or arbitration institution for the right to apply for cancellation within one year (within 90 days of the material misunderstanding).

Environmental Protection Tax

In January 2018, the Environmental Protection Tax Law came into effect, replacing the original sewage fee system. According to the Law, enterprises, public institutions and other producers and operators that directly discharge taxable pollutants into the environment are regarded as payers of environmental protection tax and should do so in accordance with the Law.

Taxable pollutants include air pollutants, water pollutants, solid waste and noise, as stipulated in the Table of Taxable Pollutants and Taxable Pollutants and Applicable Quantities of Environmental Protection Tax.

In order to encourage enterprises to reduce the discharge of pollutants, the Environmental Protection Tax Law stipulates that, if the concentration of taxable air pollutants or water pollutants discharged by taxpayers is less than 70% of the national and local standards for the discharge of pollutants, the tax is levied at a reduced rate of 75%. Where the concentration of taxable air pollutants or water pollutants discharged by a taxpayer is less than 50% of the pollutant discharge standards set by the state or local authorities, the tax is be levied at a reduced rate of 50%.

Environmental protection tax is not required for urban and rural centralised sewage treatment sites or domestic waste centralised treatment sites that provide domestic sewage treatment services to the public and do not discharge taxable pollutants into the environment in excess of the discharge standards prescribed by the state and local authorities.

Natural Resource Tax

Natural resource tax is also regarded as a kind of green tax. On 1 September 2020, China's Resource Tax Law was implemented. Taxable products include energy minerals (oil, natural gas, coal, geothermal, etc), metal minerals, non-metallic minerals, hydro gas minerals and salt. The Interim Regulations on Resource Tax formulated by the State Council in 1993 was repealed simultaneously.

The Resource Tax Law stipulates that enterprises and individuals developing taxable resources within Chinese territory and other sea areas under their jurisdiction shall pay resource tax in accordance with this Law, and the specific scope of the resource tax shall be determined by the Table of Resource Tax Items and Rates.