Clean Production and the Circular Economy

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Clean Production and the Circular Economy

• ABA Annual Meeting
• San Francisco
• August 12, 2007
• Charles R. McElwee
• cmcelwee_at_ssd.com

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Chinas Environment

• How bad is it?
• Will it change?
• How does change impact the development of
  environmental law in China?

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How bad is it?

• Environmental Statistics
• According to the World Bank, China today is home
  to seven of the world's 10 most polluted cities.
• Approximately 700 million people drink
  contaminated water on a daily basis. More than
  three-quarters of the water flowing through
  Chinas urban areas is considered unsuitable for
  drinking or fishing.
• More than 10 percent of China's arable land is
  contaminated by pollution and the situation is
  getting worse.
• According to some sources China has become
  worlds largest source of GHG emissions.

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How bad is it?

• Human Cost
• Between 300,000 and 1,000,000 people die
  prematurely in China annually due to respiratory
  disease caused by pollution.
• Entire communities along Chinas river systems
  report phenomenally high rates of cancers,
  tumors, stunted growth, spontaneous abortions,
  and diminished IQs due to high levels of
  contaminants in soil and water.

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How bad is it?

• GDP Impact
• Various studies estimate pollution costs the
  Chinese economy 7-10 of GDP each year.
• In September 2004, officials in Shanxi province
  claimed that if the costs of environmental
  degradation and pollution were incorporated into
  calculations of the Shanxi domestic product, they
  would negate all growth for the past decade.

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How bad is it?

• Political Implications
• Imported Oil China was self-sufficient in oil
  consumption until 1993. In 2006, China 's
  dependence on imported oil rose to 47 of annual
  demand.
• By 2030 the per capita water supply is expected
  to fall below the 1700 m3, the World Banks
  definition of a water scarce country.
• Civil disturbances over environmental pollution
  cause a great threat to social stability.
• Cross-border migration of pollutants.

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Will it change?

• Environmental Law
• 1989 Environmental Protection Law of the
  Peoples Republic of China passed into law (after
  a 10 year test implementation).
• Chinas first wave of environmental laws relied
  on American media-specific, end-of-pipe
  regulatory model. Beginning in 1995 China enacted
  in quick succession a Clean Air Act (1995), Solid
  (and Hazardous) Waste Act (1995), and significant
  amendments to the Clean Water Act (1996).
• The Criminal Law was amended to include serious
  environmental damage as a crime in 1997.

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Will it change?

• Environmental Regulations
• Chinas environmental laws, even those modeled on
  US precedents, are not nearly as detailed as US
  laws.
• The development of environmental regulations in
  China has proceeded very slowly. As of 2005,
  China reported that the State Council had
  promulgated only 50 administrative environmental
  regulations.
• China lacks a common law tradition of judicial
  precedent.

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Will it change?

• The Enforcers
• In the 1998 the State Environmental Protection
  Administration (SEPA) was upgraded into a full
  ministerial level agency, but not to Cabinet
  status.
• SEPA has only approximately 2,200 employees, with
  220 based in its Beijing headquarters.
• Except for the highest profile matters, SEPA is
  not directly involved in administering
  environmental regulations or in issuing permits
  to regulate pollutants.
• These tasks are handled by local Environmental
  Protection Bureaus (EPBs), which exist at the
  provincial, county and township levels.
• The local EPB bureaus, while theoretically taking
  direction from SEPA, are funded (and thereby
  controlled) by the local governmental
  authorities.

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Will it change?

• Enforcement
• Economy v. Environment
• Ineffective national enforcement mechanism
• Local protectionism/ Relationships exist
  between the local regulators and the regulated
  community.
• Inducements not to enforce
• No external pressures
• Lack of independent NGOs
• No citizen suit provisions or class action
  claims. Lack of formal avenues for effective
  public participation.

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Will it change?

• Tough Talk From the Top
• Wen Jiabao April 17 , 2006 Those who cause
  major pollution accidents through making wrong
  decisions or lax supervision must be severely
  punished."
• Zhou Shengxian, head of the State Environmental
  Protection Administration (SEPA) August 21,
  2006 Fraud in project approval was prominent,
  with many projects passing their environmental
  assessment without fulfilling the necessary
  criteria. It is clear the conflict between
  economic growth and environmental growth is
  coming to a head."

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Will it change?

• New Enforcement Initiatives
• Inclusion of environmental indicators among the
  factors considered when evaluating the
  performance of local officials.
• Use of the centrally-controlled banks to prevent
  loans to companies that can not certify their
  environmental compliance.
• Supreme People's Court (SPC) Opinion (July 28,
  2006) interpreted heavy losses of private or
  public property to include, property losses not
  less than RMB 300,000 (37,500) and interpreted
  serious consequence of personal injuries to
  include the death of 1 or more people, serious
  injury of not less than 3 people, or light
  wounds to not less than 10 people.

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Will it change?

• Increased Publicity
• The Institute of Public and Environmental Affairs
  (IPE), an environmental NGO recently released a
  list of companies that allegedly failed to comply
  with PRC regulations on water pollution from 2004
  to 2006. The list contains about a dozen US-owned
  operations in various manufacturing and service
  industries.

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Will it change?

• Paradigm Shift
• Vigorous enforcement of traditional end-of-pipe
  environmental laws will help, but is not alone
  sufficient.
• As a result, China began to shift its attention
  at the end of the 1990s towards sustainable
  development models of environmental regulation
  championed by Germany and Japan, in particular.

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New Initiatives

• 11th Five Year Plan (2006-2010)
• adopted sustainable development as a national
  strategy and encourages integration of principles
  of sustainability and environmental protection
  into national policies.
• promotes fundamental change in economic growth
  mode from a process driven by large amounts of
  resource consumption to one driven by improvement
  of resource utilization and efficiency.
• 20 percent decline in the amount of energy needed
  to create one unit of GDP by 2010.
• establishes goal to build a cycling and
  sustainable national economic system.

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Chinas Circular Economy Policies

• Promotion of Clean Production Law (2003)
• goal reduce and avoid the generation of
  pollutants, adds sustainability component to EIA
  process.
• requires facilities using toxic or hazardous
  substances to conduct cleaner production audits.
• Solid Waste Law (2005)
• companies shall rationally select and use raw
  materials, energy, and other resources, and adopt
  advanced production techniques and equipment,
  thereby reducing the discharge of industrial
  waste and decreasing it hazardousness.

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Chinas Circular Economy Policies

• China RoHS (2006)
• imposes labeling requirements on electronic
  information products regarding their content of
  certain hazardous substances (lead, mercury,
  cadmium, etc.), useful life span, and
  recyclability.
• second phase will subject listed products to
  cradle-to-grave evaluation to eliminate or
  substantially reduce use of hazardous substances.
• WEEE (2007?)
• applies primarily to household appliances (TVs,
  air conditioners, dishwashers, etc.) and office
  equipment (printers, fax machines).
• will establish guidelines for environmental
  protection from the product design phase through
  disposal recycling.
• encourages reduction of hazardous material use
  and use of environmentally friendly packaging.

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Chinas Circular Economy Policies

• Circular Economy Law (2008?)
• goal improve efficiency in the use of resources.
• will mandate a clean development mode of
  production to produce the maximum amount of
  product from the minimum amount of resources.
• will include a system to evaluate the
  environmental friendliness of projects before
  they enter the market and require cradle to
  grave stewardship.

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New Initiatives

• Energy Conservation Law of China (effective
  January 1, 1998)
• not effectively implemented and only applies to
  energy saving in the manufacturing sector.
  Amendments are currently being developed which
  will expand coverage to include civic buildings,
  transportation, and utilities. They will
  reportedly require an energy conservation
  evaluation and examination system and impose
  energy-efficiency standards and certifications.

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New Initiatives

• Renewable Energy Law (effective January 1, 2006)
  
• Increase renewable energy use from the present 10
  percent to 20 percent of the total energy
  consumption by 2020.
• The law/regulations
• Grant grid access rights
• Impose mandatory renewable generation quotas on
  large power producers
• Provide governmental subsidies and other support
• Grant preferential tax and loan conditions
• Provide for preferential pricing through a
  government guided and government fixed pricing
  scheme

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New Initiatives

• Clean Development Mechanism
• The CDM program allows Annex 1 Kyoto countries to
  invest in GHG emission reduction projects in
  non-Annex 1 developing countries and use the
  resulting carbon emission reduction credits
  (CERs) to assist them in compliance with their
  binding GHG emission reduction commitments under
  the Protocol.
• It is predicted that by 2012, China will have
  generated 1/3rd of the carbon credit market.

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Conclusions

• Increasing importance of environmental compliance
  function
• Reliance on US standards no longer sufficient
• Chinas shift to sustainable development concepts
  presents challenges and opportunities for US
  companies operating here.

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Efficient Recyclers

• China is more efficient at recycling than US

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