China's energy giants resist pollution fight

China’s state leadership transition took place this month against an ominous backdrop. More than 13,000 dead pigs were found floating in a river that provides drinking water to Shanghai.

A haze akin to volcanic fumes cloaked the capital, causing convulsive coughing and obscuring the portrait of Mao Zedong on the gate to the Forbidden City.

So severe are China’s environmental woes, especially the noxious air, that top government officials have been forced to openly acknowledge them. Fu Ying, the spokeswoman for the National People’s Congress, said she checked for smog every morning after opening her curtains, wore a face mask when it looked bad and strapped one on her daughter, too. Li Keqiang, the new premier, saying the air pollution had made him “quite upset,” vowed to “show even greater resolve and make more vigorous efforts” to clean it up.

What the leaders neglect to say is that infighting within the government bureaucracy is one of the biggest obstacles to enacting stronger environmental policies.

Even as some officials push for tighter restrictions on pollutants, state-owned enterprises – especially China’s oil and power companies – have been putting profits ahead of health in working to outflank new rules, according to government data and interviews with people involved in policy negotiations.

For instance, even though trucks and buses crisscrossing China are far worse for the environment than any other vehicles, the oil companies have delayed for years an improvement in the diesel fuel those vehicles burn. As a result, the sulphur levels of diesel in China are least 23 times that of the United States.

As for power companies, the three biggest ones in the country are all repeat violators of government restrictions on emissions from coal-burning plants; offending power plants are found across the country, from Inner Mongolia to the southwest metropolis of Chongqing.

The state-owned enterprises are given critical roles in policymaking on environmental standards. The committees that determine fuel standards, for example, are housed in the buildings of an oil company.

Whether the enterprises can be forced to follow, rather than impede, environmental restrictions will be a critical test of the commitment of Li and Xi Jinping, the new Communist Party chief and president, to curbing the influence of vested interests in the economy.

Last month, after deadly air pollution hit record levels in northern China, officials led by Wen Jiabao, then the premier, put forward strict new fuel standards that the oil companies had blocked for years. But there are doubts about whether the oil companies will comply, especially since oil officials resisted a similar government order for higher-grade fuel four years ago.

State-owned power companies have been similarly resistant. The companies regularly ignore government orders to upgrade coal-burning electricity plants, according to ministry data. And as with the oil companies, the power companies exert an outsize influence over environmental policy debates.

In 2011, during a round of discussions over stricter emissions standards, the China Electricity Council, which represents the companies, pushed back hard against the proposals, saying that the costs of upgrading the plants would be too high.

For the most part, Chinese automakers have supported upgrading cars with cleaner technology, which makes them more marketable worldwide, environmental advocates say. But better technology cannot operate properly without high-quality fuel, and this is where the bottleneck occurs.

The system of forging fuel standards has led to fierce bureaucratic infighting.
The Ministry of Environmental Protection is the main government advocate for both higher fuel standards and better automobile technology. It has the power to force automakers to use new technology by issuing stricter tailpipe emissions standards, but it cannot unilaterally impose new fuel standards or enforce compliance from the oil companies. Instead, it can merely lobby other relevant ministries or agencies to take action.

When fuel standards do not keep pace with vehicle technology, the environmental ministry has to delay issuing new tailpipe emissions standards, and so cars do not get upgraded.

Fuel standards are issued by the Standardization Administration of China, which convenes a committee and a subcommittee to research standards.

They each have 30-40 members, almost all of whom are from oil companies, said Yue Xin, a scientist who sits on one of the groups on behalf of the Ministry of Environmental Protection.

Sinopec and PetroChina, two of the biggest oil companies, have insisted that consumers or the government pay to upgrade their refineries to produce cleaner fuel, and they have delayed approving higher standards unless there is consensus on who pays.

In late January, Fu Chengyu, chairman of Sinopec, acknowledged that the oil companies bore some responsibility for air pollution, but he also argued that the government’s fuel standards were not high enough, according to Xinhua, the state news agency.

What Fu failed to explain was that oil company representatives on the committees researching fuel standards have been the main impediment to pushing through better standards. Yue and others say that because of constant haggling by the oil companies, the government for years delayed issuing upgraded diesel standards that are on par with European standards.

On February 6, after the uproar over record-breaking air pollution, the State Council, China’s Cabinet, broke the gridlock by putting out guidelines that called for a nationwide adoption of the new diesel standards, known as China IV, by the end of 2014. It also set deadlines on the issuing and phasing in of even cleaner China V standards.

The next day, the Standardisation Administration of China issued the upgraded China IV diesel standards that the oil companies had been trying to delay for years.

But the costs of upgrading could still lead the oil companies to ignore the new standards, which is what they did when the State Council in 2009 ordered a phase-in of the China III diesel standard.

In the February 6 announcement, the State Council said the government needed to create a fiscal policy to support the refinery upgrades, but the Finance Ministry has yet to make the policy.

Another big concern lies in the debate over the cleaner China V gasoline standard, which the State Council said must be issued by December and phased in by the end of 2017. In the committee debates, Sinopec argues that it is expensive to meet the requirements for sulfur levels.

Oil company representatives did not reply to requests for comment. In public, oil company executives are trying to shift the blame. Fu told reporters this month that “in fact the biggest killer is coal.”

Beijing officials have said that vehicle emissions account for 22 per cent of the main deadly particulate matter in the air, known as PM 2.5, and another 40 per cent is from coal-fired factories in Beijing and nearby provinces.

In February, the Environmental Protection Ministry issued stricter factory emissions standards for six coal-burning industries. First on the list is the power industry, which accounts for about half the coal consumption in China.

But compliance by the state-owned enterprises could be a problem. The environmental ministry publishes annual lists of factories that have violated emissions regulations. A review shows that the factories are all run by the biggest power companies.