July 06, 2007	Friday	Jamadi-us-Sani 20, 1428

BEIJING: After a series of failed administrative campaigns to enforce pollution controls, China is now hoping to use financial means to restrain its big polluters. Forming a rare alliance, the country’s environmental watchdog has joined forces with the China Bank Regulatory Commission in preparing a new green credit policy that would evaluate the eligibility of companies for loans based on their environmental performance.

“For many years China’s conventional way of fighting pollution was to issue bans and orders for closure of polluters,” says Pan Yue, deputy head of the State Environmental Protection Administration (SEPA). “We have come to realise we need economic leverage to go forward. We need to make companies feel it would be costlier to break the law than to abide by it.” China has reached a point of critical reckoning for the damage that a blind pursuit of rapid economic growth for over three decades has caused to its environment. The country has some of the most polluted cities in the world. All of its major rivers are dangerously contaminated, with millions of people lacking access to clean drinking water.

The human cost of widespread pollution is growing by the day. About 460,000 people die prematurely each year from breathing polluted air and drinking dirty water, says a preliminary version of new World Bank study. Chinese authorities have become so alarmed, said a report in the Financial Times this week, that they have asked the World Bank not to publish the estimates of the physical and economic cost of pollution for fear they could trigger social unrest.

So far Beijing has tried to mitigate public complaints by slapping sporadic bans on serious polluters, singling out particular cities and economic zones for environmental clean-ups. The latest clean-up campaign unveiled on Tuesday targets contamination and pollution of China’s four major waterways — the Yangtze, Yellow, Huai and Hai rivers.

But even as he announced the bans on new industrial projects along the river systems, Pan Yue sounded cautiously optimistic about the success of the new campaign. Previous crackdowns on industrial pollution have been short-lived due to pressure from China’s powerful business interest groups.

In 2005, the country’s environmental plight drew a lot of international attention when an industrial spill contaminated the water of Songhua River in north-eastern China, affecting the lives of thousands in the country and in neighbouring Russia. Since then, SEPA estimates that pollution accidents have happened on an average every two days.

“Crackdowns will not solve real problems without the backing of our political and legal systems,” Pan Yue told the media on Tuesday. “We need to find a way of converting the environment and the natural resources into part of the companies’ internal cost.”

The contemplated green credit scheme would subject companies to vigorous checks about their compliance with environmental regulations. Enterprises that fail to complete environmental assessments before embarking on a project or fall short of the benchmarks during its implementation would be denied credits. The planned policy goes even further — vowing to revoke granted loans to companies if they backtrack on pollution controls.

Observers though warn that implementing such strict financial controls would require a long time and a lot of fine tuning between different sides involved.

“The government’s position on protecting the environment by keeping the credit reigns tight is commendable but its actual implementation would need new legal mechanisms,” says business commentator Shui Pi.

One obvious obstacle: Chinese banks do not have independent environmental policies.

Only two of China’s three policy banks, which come under the direct jurisdiction of the State Council, have adopted environmental financing standards. The China Development Bank is responsible for raising funding for large infrastructure projects while the China Exim Bank is China’s official export credit agency.

China has long been criticised for financing projects in developing countries without complying with any internationally acknowledged standards regarding the environment. China is not a member of the OECD, and thus China Exim Bank has not signed on the Common Approaches which establish common guidelines on the environment for the export credit agencies of the OECD countries.

Although China Exim Bank adopted environmental policy in 2004, it only chose to make it public in April this year following a spate of international criticism about its role in funding controversial projects in Africa and other countries. Yet, when the document was made public experts criticised it for being short on specifics.

“The policy espouses strict principles, but does not elaborate them in much detail,” Peter Bosshard, policy director of the US-based NGO International Rivers Network, commented after the publication of the policy.

Even if Chinese banks were to adopt environmental financing standards difficulty remains in enforcing the restrictions, say industry insiders.

China’s environmental watchdog SEPA carries too little weight to shut down polluting ventures completely. Yet, temporary bans would not bite enough to make funding institutions reconsider lending money to polluters. —Dawn/The IPS News Service