The precedent-setting legislation establishes a comprehensive liability scheme for soil contamination, increasing fines for pollution violations while creating tax benefits for remediating contaminated properties.

By Paul Davies, Andrew Westgate, and Kimberly Leefatt

The Standing Committee of the National People’s Congress, China’s highest legislative body, passed the nation’s first law dedicated to soil protection and pollution prevention on August 31, 2018. China’s new law regulates soil pollution comprehensively and establishes liability policies, representing a major advancement in Chinese environmental governance. The law comes into effect on January 1, 2019.

The law follows the “polluter pays” principle and requires land-use rights holders to investigate and assess soil conditions upon the occurrence of pollution events or the transfer of property. The land-use rights holder or the state may then pursue claims against the responsible parties for the cost of investigation and remediation.

Notably, the new law does not set forth specific soil pollution standards. Rather, the State Council will be tasked with establishing national standards for soil pollution risk control based on soil contamination status, public health risks, and ecological risks. The new law focuses in particular on land used for construction projects and agriculture. Contamination of agricultural land is a key area of concern for the Chinese public due to several highly publicized food safety incidents over the past decade. A survey in 2013 revealed that nearly 3.3 million hectares of farmland in China is too contaminated to be used for growing crops.

The law also makes greater use of incentives to both penalize polluters and encourage remediation. Fines have been significantly increased, with violations resulting in penalties of up to RMB2 million. Executives deemed responsible for severe violations may even receive administrative detention under the law. Interestingly, Article 73 of the new law extends tax benefits to companies “engaged in soil pollution risk management, control, and restoration.”

The law also requires greater disclosure of data on soil conditions. For instance, polluters in certain industries must develop rehabilitation plans that they file with local regulators. Certified professionals in the field must then review the reported results. The law also includes provisions encouraging local governments to establish funds dedicated to pollution prevention. Notably, the law establishes a state-run monitoring network that will publicly identify locations where toxic and harmful substances have been detected in the soil.

In light of the new Soil Pollution Law, companies operating in China would be well-served to review their environmental management practices with respect to identifying and addressing contamination. The new law will also likely result in an increased focus on environmental liabilities in corporate mergers and acquisitions as business adapts to the new liability scheme.

Latham will continue to monitor developments relating to the new Soil Pollution Law.