[NGW Magazine] China's Laws Favour Gas

China's latest addition to its legal armoury for environmental protection should help the growth of its gas industry, as the soil pollution law is intended to complement other normative acts and regulations aimed at cutting emissions.

China’s coal-to-gas transition has taken its first historic steps with the introduction of emission trading systems and taxation, with layers of environmental policy governance looking set to stay. The latest such, the planned soil pollution law, while seemingly unrelated to coal or gas, is a long-term measure which is expected to reap benefits when other measures are also in place. 

At the 13th National People’s Congress in March 2018, the country’s lawmakers said that six pieces of legislation concerning environmental protection, air pollution, water pollution, the marine environment, an environment tax and wildlife protection – as well as the Paris Agreement – have been enacted or modified. The committee is expected to focus on reviewing a draft law on soil pollution as well as a law on solid waste pollution in 2018. 

With the comprehensive legal framework gradually taking shape to protect the environment, emissions monitoring is anticipated to be strengthened, thus enabling other industries such as agriculture to facilitate the coal-to-gas transition in China’s quest for an environmentally aware economy. The strength of the commitment has become clearer since two laws – the environmental protection law and water pollution laws – took effect on the first day of 2018. 

What’s Missing & What’s Taxed

The new soil pollution tax will encompass some of the other pollutants which are not covered by the environmental protection law. This includes those specifically emitted from agricultural production and its waste treatment facilities. Companies and individuals who are found discharging sewage, sludge or other waste containing heavy metals or other pollutants into farmland will receive fines ranging from yuan 500,000 ($79,000) to 2mn when the new law is approved.

The draft has 94 articles covering nine chapters and clarifies the responsibilities of governments, companies and the public. It also covers standards, monitoring, risk assessments, restoration of polluted land, and penalties for violations. The tax on soil pollution also contains components intended to fill in the gaps in the law on environmental protection whose earlier drafts date back to 2004. 

According to Wang Jinnan, head of the Chinese academy for environmental planning under the ministry of environmental protection, the environmental protection tax law is a first and is expected to kick-start a “green” financial and taxation system. Coming into force January 1, it replaced the existing “pollutant discharge fee” which had been in place for several decades.

Nonetheless, according to some tax experts, the environmental protection tax law only targets enterprises and other entities that directly emit a taxable pollutant and does not tax indirectly discharged pollutants.

Significantly while China’s National Bureau of Statistics is collating data such as volume of wastewater and taxable pollutants, carbon dioxide is excluded. Also, enterprises that emit taxable pollutants in legitimate centralised sewage and domestic waste treatment facilities, are exempted from the tax. This varies between local governments too. They are allowed to adjust their pollutant limits, subject to the National People’s Congress Standing Committee. Heavily polluted cities will have more stringent pollutant-free targets to meet. Implementation is a contributing factor as well.

The law requires co-ordination between the tax authority, the environmental protection authority and the local governments who – while not environmental experts – are tasked with establishing pollutant-tracking mechanisms. 

And local agencies have been working hard on inspections and surveys aimed at finding the current levels of pollutants in order to establish the baseline and so establish achievable targets for reduction. 

What this means for Coal-to-Gas 

While the primary aim of the impending tax is to cut soil pollution, it has huge implications for cutting emissions. According to IEA’s report on Carbon Dioxide Emissions From Fuel Combustion, while global energy use contributes to the largest source of carbon emissions at 68% in 2014, the next major singular contribution comes from the agricultural sector at 12% which produces mainly methane and nitrous oxides from domestic livestock, crop cultivation as well as crop production processes which consume energy.

In 2015, global carbon dioxide emissions reached 32.3 Gt CO2 which is within the 0.1% range of 2014 levels according to IEA. Carbon emissions from fuel combustion have remained comparatively constant in 2015, the first year since carbon emissions became a global issue. This suggests that the global emphasis will now turn towards emissions from non-fuel combustion sources.

According to the National Bureau of Statistics, China produced yuan 107bn of gross output value from its agricultural industry in 2015, which depends on good quality soil and water for sustainability. With the underlying transformation of China’s coal-to-gas economy, timely and accurate data on carbon dioxide emissions will be a necessary part of the process of informing law-makers and local governments on whether or not the local, regional and international targets are being achieved.

This includes collating and standardising carbon emissions from gas, and from non-traditional fuel combustion sources such as agriculture. The impending tax on soil pollution is just the first step towards establishing accountability and creating the required governing structures to enable the tracking of carbon emissions from the agricultural sector.

Nonetheless, while measuring carbon emissions is costly and is a norm for which a requirement has only recently emerged, this necessarily implies the transition or a reset to a low-carbon economy whether globally or regionally. And it has developed over the years in China. In May 2017 according to a Carbon Market Readiness Training Report published by the International Emissions Trading Association, an energy company spokesperson said that current emissions data determined by historical data may cause a shortfall in measurements.

He says that emissions will decline as the economy becomes more energy efficient; overlapping policies and incentives, as well as a dip in economic activity could also affect emissions. This will be more pronounced in China since its gross domestic product has leapt ahead in the last decade. 

Also, it will take time and money for the vast country to produce acceptable accuracy for its emissions and their reductions. As the diagram shows, as China’s gas demand goes up, actual emissions also increase. Standardised emission tracking mechanisms will need to be built into district energy and distribution systems, which brings important implications such as urban service costs, gas bills and industrial costs.  

Another contributing factor is the existing level of environmental consciousness of the agricultural communities, which may explain why China has taken the next step while its coal-to-gas economy is still a work in progress. Lastly, China’s simultaneous race in developing green bonds to fund its environmentally conscious economy may have added to the pressure forward to improve existing carbon measuring systems. 

China’s impending soil taxation is in many ways a beginning to another layer of environmental governance which is a critical step towards a coal-to-gas future. While the laws initially serve to deter pollution, they do not immediately change business practices or the perceptions of how pollutants affect people’s lives. Relying on gas for energy consumption also does not necessarily mean a completely clean environment or cleaner soil.

Nonetheless with common measurables and the environmental consciousness in place, China will have internally consistent norms and structures to ensure a clear cut-off from the old coal and polluting economy. It also enables a foundation on which future layers of governance may build continually evolving, environmentally conscious business practices.