By Julian Wong Mar.11.2008
In: capital and finance, policy
7 comments

SEPA unleashes Green Whirlwinds

The central government, with Pan Yue (潘岳) of China’s State Environmental Protection Administration (SEPA) as its fearless green leader, has enacted a cyclone of green policies dubbed the “Green Whirlwinds”, coinciding with the “peaceful rise” of SEPA to a ministry-level administrative organ. Here’s a brief summary of the green credit, green insurance, green securities and green trade policies that constitute the Green Whirlwinds:

green-whirlwind-image.jpg
Nothing like a whirlwind of green policies to shake up China’s red-hot economy

 

 

Green Credit. Environmental performance is now a criteria for Chinese companies to obtain bank loans according to a framework developed by SEPA and the China Banking Regulatory Commission. SEPA will also collaborate with the International Finance Corporation to develop an environmental evaluation framework akin to the Equator Principles. What is remarkable about this policy is the ex-post facto nature of this policy. Back in last November, it was reported that 12 heavy polluting enterprises had their loans rejected, suspended and/or even recalled. Recently, however, there have been some concerns that the green credit policy is facing some resistance in implementation.

Green Insurance. In order to introduce an environmental insurance regime that is already commonplace in other developed countries, SEPA and the China Insurance Regulatory Commission will jointly set up pilot projects in establishing an environmental pollution liability insurance system. Enterprises in specified industries especially prone to environmental accidents (e.g. transport of hazardous waste) will be required to buy insurance from insurance companies on the basis of their environmental risk profile. The basics idea here is to spread the risks of environmental damage, facilitate fair and timely compensation to environmental victims, while adding additional pressure points (i.e. the insurers) on companies to improve their environmental performance.

Green Securities. Under this scheme, which was developed jointly with the China Securities Regulatory Commission, companies across 13 identified heavy industries (including those in electric power, cement and steel) seeking an initial public offering on the Chinese stock markets must meet certain environmental criteria, and already listed companies in certain heavy polluting industries will be made to provide minimum levels of disclosures on environmental and energy performance (see previous post). SEPA recently completed a review of 37 companies seeking to raise funds on the capital markets and delayed the listing approval of 10 of them found to be in major violation of environmental standards.

Green Trade. Under this recently announced policy, SEPA has blacklisted 141 products as being “highly polluting and environmentally dangerous”. SEPA is proposing that for 39 of such products in particular, tax refunds and access to processing and trade privileges should be eliminated.

Green Taxation. The details of this final pillar of Green Whirlwind policies are forthcoming.

 

The Green Whirlwinds represents the ongoing green shift towards market based policy tools and the recognition that the administrative burdens of being “green policy” is too onerous for the government alone to bear.

Less discussed, I believe that the Green Whirlwinds represents an opportunistic policy move by Pan Yue and SEPA to take advantage of the central government’s concern of an overheating economy to design green policies that also help put some breaks on the hitherto unobstructed flow of easy capital to heavy polluting industries. An opportunistic policy move in the right direction, I’d say.

Comments (7)

  1. cmcelwee Mar.11.2008@4:23 pm Reply

    Hi Julian,

    Nice post. Do you think we are in the middle of the lastest “Green Whirlwind” or is it still to come? It’s unclear to me, but if I had to bet, I think we will see something a little more high dramatic than just “green taxation” (ho hum) in the coming months (probably something involving enforcement measures as usually happens during these campaigns). I don’t mean to disparage “green taxes,” but China essentially has a “green tax” system in its pollutant discharge registration and fee system. Higher fees/more taxes will hit those who are already complying with the law disproportionately. I suppose the taxes could be on consumer products, based on their environmental burden, but I don’t think China has or will in the foreseeable future have the information necessary to impose effective taxes at this point in the consumer chain. My take on SEPA’s recent actions is yes, they certainly are opportunistic, but they are a sign of weakness, not strength. SEPA operates in the sphere where it has some authority; unfortunately, that sphere only impacts the biggest, highest profile players–the ones who already should be in compliance with the environmental laws. The fact that 10 out of 37 potential share listers were not in compliance (or didn’t submit sufficient information) is a sign of how much remains to be done.

    Thank you for thinking and writing about these issues. I have a blog addressing China’s environmental laws (http://chinaenvironment.wordpress.com/), and I will add you to my “blogroll.” Best of luck,

    CRM

  2. Julian Mar.12.2008@1:03 pm Reply

    Thanks, Charlie, for your feedback. I’ve added China Environmental Law to the GLF blogroll as well!

    I agree that there is much to be be done, and in fact, one of the biggest challenges that SEPA acknowledges it faces in administering these new initiatives is the compliance by provincial and local governments and banks with the new policies. See http://english.sepa.gov.cn/News_service/news_release/200803/t20080310_119113.htm

    I think real impactful change will happen when Rule of Law is truly established, i.e. an institutional capacity to enforce and administer the myriad of environmental and clean energy regulations across the ranks. That is the nature of my next blog post.

    Thanks for reading!

  3. eugene Mar.12.2008@4:06 pm Reply

    Hi Julian, what’s your view on the recent upgrading of the SEPA to the Ministry of Environmental Protection?

    Keep up the good writing, added your blog to my list of Recommended Websites at the AsiaIsGreen website (http://www.asiaisgreen.com).

  4. Julian Mar.12.2008@11:50 pm Reply

    Thanks Eugene! I attempt to shed some of my thoughts on the government restructuring developements in my next blog post (March 12). Just as significant, I feel, is how the responsibilities for energy policy regulation have been restructured.

    Keep up the great work at AsiaIsGreen and keeping the green flame burning in Singapore!

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