On January 29, 2021, the China State Council issued Regulations on Management of Pollutant Discharge Permits with an effective date of March 1, 2021 (Regulations). These Regulations complete legislative efforts on the national pollutant discharge permit system and specify compliance obligations for enterprises with operations in China that discharge pollutants in the form of air emissions, water discharges, or wastes. This Alert provides an overview of the Regulations and highlights key obligations and compliance requirements for pollutant discharging enterprises.

Background

Establishment of the national pollutant discharge permit system has long been a major focus of the Chinese government, and recently issued policy documents^[1] have targeted full implementation of the system during the 14^th five-year plan period, starting in 2021. The China Environmental Protection Law sets out a legal foundation for the establishment of this system, and both the Air Pollution Prevention and Control Law and the Water Pollution Prevention and Control Law authorize the State Council to draft and issue implementation measures for the pollutant discharge permit system. In November 2016, the State Council issued a policy document, i.e., the Implementation Plan of the Permit System for Controlling Pollutant Discharge (Plan), to kick off the evolution of the national pollutant discharge permit system.

The Ministry of Ecology and Environment (MEE) released a draft of the Regulations for public comment in 2018, and it finalized a draft for approval in 2019. After review and comment by other agencies and local governments, as well as expert review and further investigation, on December 9, 2020, the executive meeting of the State Council reviewed and approved the draft. On January 24, 2021, Premier Li Keqiang signed the State Council Order, thereby officially promulgating the Regulations.

With the issuance of the Regulations, the legal framework of the China national pollutant discharge permit system has been well established, including four statutes (i.e., the Environmental Protection Law, and the Air, Water and Waste Pollution Prevention and Control Laws); an administrative regulation (i.e., these Regulations); two ministerial rules from MEE (i.e., Administrative Measures on Pollutant Discharge Permits (Trial) and Inventory of Classified Management of Discharge Permits for Stationary Pollution Sources); and various implementation documents (e.g., technical specifications, discharge standards, etc.) issued by MEE.

The Regulations

The Regulations introduce substantial new obligations on discharging enterprises and expand/increase administrative liabilities for violations of the pollutant discharge permit system. Below are a number of key issues and compliance strategies that are likely to be of interest to companies doing business in China.

• Applicability of the Regulations. Currently, the China national discharge permit system is governed by the Administrative Measures on Pollutant Discharge Permits (Trial) (MEE Measures), which was promulgated by MEE in 2018. The newly issued Regulations are intended to put a further gloss on the national discharge permit system and cover the same government, enterprise, and public activities as the MEE Measures. Because the MEE Measures will remain in effect even after the Regulations take effect, the first challenge for entities seeking to comply will be how to determine when the Regulations and MEE Measures apply.

According to the principle that an inferior law must conform to a superior law, the Regulations issued by the State Council would be superior to the MEE Measures, and therefore will generally supersede the MEE Measures on most issues relating to the pollutant discharge permit system, except for the following types of issues:

1) Issues relating to procedures for implementation of the pollutant discharge permit system which are not specified in the Regulations and are reserved to the MEE Measures by the environmental statutes and the State Council Plan;

2) Issues that are subject to the management provisions of the MEE Measures, as specified by the Regulations (e.g., issues related to pollutant discharge permit renewal, revocation, etc.); and

3) Issues related to the implementation of Article 30 (e.g., feasible technologies for pollution prevention and control) and Article 47 (e.g., pollutant discharge permit application form, implementation report form, etc.) of the Regulations, which are reserved to the ministerial rules. 

• Tiered Management Scheme for In-Scope Discharging Entities. The new Regulations exempt from the pollutant discharge permit system those discharging entities that generate/discharge only a limited amount of pollutants and have only minor environmental impact. However, these entities are still required to complete a pollutant discharge registration. For discharging entities subject to the permitting system, a tiered management system is adopted, which classifies in-scope entities into two categories based on the amount of pollutants generated, the amount of pollutants discharged, and the degree of impact on the environment, as indicated below:

The Regulations do not elaborate the criteria to distinguish between “large” and “small,” or “high” and “low”; rather, the Regulations grant the power to MEE for the formulation of ministerial rules to govern this issue, as well as the definition of discharging entities exempted from the discharge permit requirement. In this regard, the currently effective Inventory of Classified Management of Discharge Permits for Stationary Pollution Sources, which was issued by MEE in 2019, would be the primary resource to determine whether an enterprise is subject to discharge permitting and, if so, which category it should fall in.

• Obligations for In-Scope Discharging Entities. The Regulations set out four main obligations on in-scope discharging entities, namely (1) self-monitoring and recording, (2) establishing a ledger recording system, (3) periodic reporting on pollutant discharge permit implementation, and (4) disclosing pollutant discharge information on the national pollutant discharge permit management platform (http://permit.mee.gov.cn/permitExt/defaults/default-index!getInformation.action). For example, for in-scope discharging entities subject to key management, automatic pollutant discharge monitoring equipment is required to be installed, maintained, and connected to the monitoring equipment of the local ecological and environmental bureau. In addition, the discharging entity must timely report to the local ecological and environmental bureau if any abnormal data transferred by the online monitor is identified.

The Regulations clarify that administrative sanctions for potential noncompliance may be based on the monitoring data collected in the process of enforcement, the pollutant discharge permit, environmental management account records, implementation reports, self-monitoring data, and other related materials, as well as online monitoring data and information disclosed on the platform. Therefore, it is crucial for in-scope discharging entities to correctly record all the data and keep it for at least five years. For entities subject to key management, it is important to properly maintain the online monitor and ensure timely notification of the relevant bureau for any abnormal operation of the monitor. In addition, when a noncompliance situation (e.g., discharge exceeding the standards or other abnormal operations) is identified through self-monitoring (or by the online monitor), in-scope discharging entities must immediately take measures to eliminate and reduce the harmful consequences, truthfully record such in the environmental management ledger, and report to the relevant bureau with explanation notes.

• Discharge Permit Re-application or Application for Modification. The Regulations provide three circumstances under which a re-application for a pollutant discharge permit is required to maintain the validity of the discharge permit:

1) Newly built, modified, or expanded projects that discharge pollutants;

2) Changes in production and business premises, locations of pollutant discharge outlets, or pollutant discharge methods and destinations;

3) Increases in the number of pollutant discharge outlets or changes in the type, volume, and/or concentration of pollutants discharged.

The circumstances under which an application for modification (rather than a full re-application) is required are limited to (a) a change in name, legal address, legal representative, or main person responsible for the discharging enterprise, and (b) changes in applicable pollutant discharge standards and total control requirements for key pollutants. Under circumstance (a), the discharging enterprise must submit the application for modification within 30 days from the date of the changes. The Regulations do not provide clear guidance on the application procedures for circumstance (b); nevertheless, a discharging entity would likely be required to take the initiative for such modifications. 

• Enforcement. The Regulations introduce enforcement initiatives on pollution discharge permits. In particular, each competent department of ecological environment will be required to incorporate enforcement of the pollutant discharge permit system into its annual ecological environment enforcement plan. The regulators further clarified in the press conference announcing the Regulations that discharging enterprises will face different enforcement frequency and inspection methods based on their category of pollution permit management (e.g., key or simplified, as discussed above) and their environmental credit record.^[2] Further, the competent department of ecological environment will oversee the pollutant discharge volume and discharge concentration through the monitoring of the national pollution discharge permit management information platform and on-site monitoring. Such oversight will encompass the operation and maintenance of pollution prevention facilities (including equipment and technologies).

• Penalties. The Regulations significantly increase penalties for violations of the pollutant discharge permit system. Particularly, the fines (up to 1 million RMB) and penalties have been increased for illegal discharge of pollutants, such as discharges without a pollutant discharge permit, discharges that exceed applicable standards, or discharges made without a required permit re-application. For severe violations, the Regulations impose administrative sanctions, such as production or business restrictions or suspension, or even business shutdown. Moreover, a continuous daily fine system will be levied for repetitive violations or for refusal or obstruction of inspections. In addition, the main responsible person (e,g., EHS director or manager) or the directly responsible person may face administrative detention or even criminal liabilities for a continuous discharge without a permit after being notified, or for the discharge of pollutants by avoiding supervision (e.g., discharge of pollutants through concealed pipes, falsification of monitoring data, abnormal operation of pollutant prevention facilities, etc.).

What is Next?

As discussed above, the Regulations update the national pollutant discharge permit system. As a result, in the next few months, we may see revisions to existing ministerial rules and other normative documents to be consistent with the requirements of the Regulations.  Perhaps more importantly, there may be enhanced inspections and a new round of enforcement initiatives related to the national pollutant discharge permit system. 

^[1] The policy documents include proposals for formulating the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and the Long-Range Objectives Through the Year 2035.

^[2] See Q&A on the Regulations from the Ministry of Justice and the Ministry of Ecology and Environment, http://www.chinanews.com/gn/2021/02-05/9405934.shtml.