In the past few weeks, China has taken major steps to revamp its air pollution and climate change policies, domestically and internationally. On September 25, 2015, China entered into a Joint Statement with the United States (“Joint Statement” or “Statement”) announcing shared goals for the upcoming December 2015 Paris Conference (“Paris Conference” or “COP 21”) under the United Nations Framework Convention on Climate Change (“UNFCCC”).[1] As part of the Joint Statement, China also announced commitments to enact domestic climate policy changes, including its intent to implement a nationwide carbon emissions trading program by 2017. This announcement builds on last year’s Joint Statement issued by the two nations announcing their commitment to addressing climate challenges, including the goal that China’s carbon dioxide emissions would peak in 2030.

Additionally, China approved major amendments to its Air Pollution Prevention and Control Law (“APPCL”)[2] on August 29, 2015.[3] The amendments represent the law’s most significant overhaul since its enactment in 1988. The amendments expand the law from 66 to 129 articles, cover a wide range of subjects, and regulate previously uncharted territory.

Overall, the Joint Statement and the amended APPCL represent China’s willingness to seriously engage with climate issues leading up to the Paris Conference. This alert highlights the most significant aspects of each development.

Joint Statement

China’s recent announcement appears to represent a major turning point in international climate change negotiations. Although China is both a party to the UNFCCC[4] and the Kyoto Protocol to the UNFCCC, which establishes mandatory emission reductions targets for industrialized countries, China has historically not been subject to any of these mandatory emission reduction commitments. However, in June 2014, China submitted its intended commitments for the post-2020 period, suggesting that the Paris Conference may generate the first international binding climate commitments for China. In those commitments, China agreed to peak its carbon emissions by 2030, lower per unit gross domestic product carbon intensity by 60% to 65% from 2005 levels, elevate its non-fossil fuel consumption to 20% of the nation’s primary energy portfolio, and increase by 4.5 billion cubic meters its forest stock volume from the 2005 level.[5] For more background on China’s historical position in international climate agreements and its domestic climate policies, please see our August 2015 alert, China’s International and Domestic Climate Change Policies: An Overview Leading up to Paris.

Following China’s submission of its post-2020 commitments, in November 2014 China and the U.S. jointly announced their shared commitment to address climate challenges together.[6] While this statement represented one of the first indications of two of the world’s largest emitters to collaborate on tackling climate change, the initiative did not create any mandatory commitments for China. This history renders the 2015 Joint Statement all the more significant in that it creates several commitments for China to address climate change domestically and internationally. This alert highlights the shared goals of China and the United States for the Paris negotiations and China’s new domestic climate policies, including its national carbon trading system.

Articulating Shared Goals for the Paris Negotiations

In their Joint Statement, China and the United States laid out common understandings and goals for the upcoming Paris negotiations. President Obama and President Xi Jinping emphasized their intention to collaborate in Paris to reach an outcome that helps achieve the Convention’s goals. The Statement emphasized the importance of including in any agreement transparency measures to facilitate mutual trust; mitigation measures, including strategies for the transition to low-carbon economies; and more significant provisions on adaptation, or a nation’s ability to respond to the many consequences of global warming. The countries also noted that any agreement should recognize differences among the needs and capabilities of developed and developing countries through common but differentiated responsibilities. To this end, China committed 20 billion CNY (the equivalent of $3.1 billion) to set up the China South-South Climate Collaboration fund to assist developing countries in combatting climate change.

Implementing a Cap-and-Trade Program by 2017

China also announced significant domestic climate policy changes, including its plan to implement a nationwide carbon emissions trading program in 2017, which would arguably result in the largest carbon market in the world. In 2011, China launched localized cap-and-trade pilot programs in seven provinces and municipalities,[7] and in 2014, the National Development Reform Commission (“NDRC”) promulgated the first rule establishing a national trading program.[8] However, China projected it would not have the nationwide program in place until 2020.[9] Accordingly, the announcement that such a program will be implemented by 2017 represents a leap forward in China’s timeline.

The nationwide emission trading program will expand upon the existing pilot programs and will cover several specific industry sectors, including power generation, iron and steel, chemicals, nonferrous metals, and building materials, including cement and paper making. China is expected to release national carbon trading regulations in the coming months.

Other Significant Domestic Commitments

In addition to its national trading system, China also announced several significant changes to its domestic climate policy. For example, China plans to implement a “green dispatch” system that will give preferential treatment to renewable energy sources by accepting energy from the most efficient generators to the national electric grid first. This system will capitalize on and further encourage China’s growing solar and wind sector, thereby helping China meet its goal of using 15% renewable energy sources (which includes nuclear energy) by 2020 and 20% by 2030. China and the U.S. agreed to develop and implement fuel efficiency standards for heavy-duty vehicles and targets for building efficiency and energy-efficient appliances by 2019. Additionally, China agreed to limit financing for domestic and international carbon-intensive projects in favor of supporting low-carbon technologies and adaptation measures.

Amended Air Pollution Prevention and Control Law

As noted above, China also recently amended its domestic air pollution law, the APPCL. The amendments create legal requirements for conventional air pollutants as well as sources of greenhouse gas emissions, bolstering the credibility of China’s recently announced changes to its domestic climate policy. The following discussion highlights the law’s most significant developments, which include: taking steps to reduce the use of coal; expanding the involvement and accountability of local government; enhancing environmental transparency at the national and local levels; providing opportunities for public involvement; and establishing a detailed enforcement scheme with increased liability for certain violations.[10] While the amendments represent a huge step forward for China’s air pollution control law, questions about the feasibility of successfully implementing the law remain, especially at the local level. The law goes into effect on January 1, 2016.[11]

Reduced Use of Coal

As amended, the APPCL focuses on reducing emissions from coal use. The law instructs the Ministry of Environmental Protection (“MEP”) and local governments to “gradually decrease the percentage of coal in primary energy consumption, and reduce air pollutant emissions in the production, use and transformation of coal, by adjusting structure and promoting clean energy production and use, as well as optimizing coal use and promoting clean coal.”[12] However, the law does not institute specific measures, such as a cap on coal consumption, that would dramatically reduce the country’s significant dependence on coal.[13] Instead, the law calls for MEP to “promote coal washing,” restrict mining of high-sulfur and high-ash coal,[14] and prohibit the importation, sale, and use of coal that does not meet currently unspecified“quality standards.”[15] The law also calls for local governments to encourage the use of high-quality coal and ban the sale of coal that does not meet “quality standards.”[16]

Increased Local Accountability

The law as amended holds local governments responsible for developing and meeting air pollutant reduction targets. These obligations include developing ambient air quality standards[17] and corresponding air pollutant emission standards,[18] as well as plans to control and monitor air pollution in order to achieve such standards.[19] Localities that fail to meet their pollution reduction goals will be required to implement stricter control mechanisms within a prescribed time by developing an attainment plan.[20] The State Council, MEP, and provincial governments will assess local progress in meeting national and local air quality goals, including under attainment plans, and will hold local officials accountable for any shortcomings by publicly questioning relevant officials on the lack of progress. Ramifications for failing to meet goals include suspending construction projects that would increase regional emissions.[21]

Improved Transparency and Opportunities for Public Input

The amendments to the APPCL also bolster China’s recent progress in enhancing environmental transparency.[22] The law requires the State Council and local governments to publicly disclose emissions-related information, including changes to ambient air quality standards and air pollutant emission standards,[23] urban ambient air quality attainment plans,[24] and ambient air quality monitoring data.[25] The law further requires that the State Council and provincial governments release to the public their assessments of the progress of local governments and cities in meeting ambient air quality standards.[26] Additionally, the law provides increased opportunities for public participation, requesting public input into urban attainment air quality plans[27] and requiring the MEP to develop telephonic and electronic resources through which the public can submit complaints about violations.[28]

Comprehensive Enforcement Regime

The amendments include twenty-nine detailed provisions outlining the penalties for violating each substantive provision of the law. Additionally, the amended law increases the total penalty for certain violations, creating stronger compliance incentives. For instance, those who discharge pollutants without a permit or who exceed emission standards can be fined from 100,000 to 1,000,000 RMB, with the potential for suspending or halting production at the facility at issue altogether for particularly egregious cases.[29] As is the case with China’s amended Environmental Protection Law, effective on January 1, 2015, daily fines will accrue for violators who have not come into compliance despite previous fines and orders to correct violations.[30]

 Potential Implication of These Actions

Together, these climate and air pollution policy developments indicate China is seriously engaging both internationally and domestically to address and mitigate the deleterious effects of industrial activity in the country. These policy shifts suggest that China may agree to binding requirements under the UNFCCC for the first time and bode well for the Paris negotiations. However, December’s meetings will reveal whether China intends to follow through on its commitments.

Implementing these new commitments will clearly require significant additional work and resources. For instance, given the mixed results of China’s carbon trading pilot programs, implementing a nationwide program will pose major technical, political, and resource challenges.

Similarly, while the amended APPCL represents a major step towards improving China’s air quality, standing alone the law merely provides a rough framework for achieving enhanced regulation and progress. Even as amended, the APPCL lacks detailed standards, procedures, and deadlines—all of which must be developed in order to implement such a complex set of regulatory requirements. The law’s success depends in good measure on the resources available to MEP and local governments to implement the law’s many new mandates. Local governments, in particular, may lack the technical capacity and resources to develop detailed environmental regulations based on relatively little guidance and technical assistance. While a few state agencies have already begun to develop plans under the law’s various provisions, the overall response to the law remains to be seen.