"Guidance on the Work of Environmental Pollution Liability Insurance" officially announced
In recent days, the "green insurance" system—often referred to as the second environmental economic policy—was officially launched. On February 18, the "Guiding Opinions on Environmental Pollution Liability Insurance," jointly issued by the State Environmental Protection Administration and the China Insurance Regulatory Commission, was formally released. The document clearly states that in the future, companies can take out insurance to cover the risk of environmental accidents. In the event of a pollution incident, insurance companies will compensate affected victims. This mechanism not only helps victims receive timely compensation but also prevents insurance companies from facing bankruptcy, while reducing the financial burden on the government. It is a new environmental and economic policy that benefits all three parties involved.
Three categories of enterprises are being piloted first. According to the State Environmental Protection Administration, the Central Economic Work Conference recently emphasized the need to accelerate the introduction and implementation of policies promoting energy-saving and emission reduction, such as pricing, fiscal, and financial measures. It called for greater use of economic instruments rather than just administrative methods to drive pollution reduction. Last year’s frequent environmental incidents prompted the development of the environmental pollution liability insurance system. Pan Yue, vice director of the State Environmental Protection Administration, noted that China is currently in a period of high frequency of environmental accidents. Among 7,555 large-scale heavy chemical projects, 81% are located in sensitive areas like rivers and densely populated regions, and 45% are major risk sources with inadequate preventive measures. In 2007, the SEPA handled 108 emergency environmental incidents, averaging two per day. After an accident, victims often couldn’t get compensation quickly, leading to social conflicts. The current situation where polluters benefit and society bears the cost cannot continue.
According to the "Opinions," the two departments will pilot the system among companies involved in the production, operation, storage, transportation, and use of hazardous chemicals, petrochemical companies, and hazardous waste disposal companies—industries prone to pollution accidents. Pilot areas include Ningbo, Zhejiang; Henan; Chongqing; and Suzhou, Jiangsu. Regarding underwriting targets and compensation standards, the State Environmental Protection Administration stated that currently, environmental pollution liability insurance covers sudden and accidental direct environmental damage. Other industries may also participate voluntarily beyond the three main categories.
The system will be implemented in four steps. Pan Yue explained that at the operational level, it will proceed in four stages: First, establish the legal status of environmental pollution liability insurance by adding it to national and provincial environmental laws. When conditions are ripe, special regulations on "environmental liability insurance" will be issued. Second, the current policy will cover direct losses caused by sudden environmental accidents. Third, the environmental protection department, insurance regulatory agencies, and insurance companies will each play their roles. The environmental protection department will determine which companies should be insured and set damage standards, while insurance companies develop products, define liability scope, and set rates. Regulatory bodies will create industry norms and conduct market oversight. Fourth, both departments will establish mechanisms for accident investigation, responsibility identification, standardized claims procedures, and information disclosure. When conditions allow, they will explore third-party responsibility recognition systems.
Pan Yue noted that environmental pollution liability insurance is widely used globally, but China's system in this area is still underdeveloped. The joint release of the SEPA and the China Insurance Regulatory Commission is only a "guiding opinion," not a detailed or strict insurance clause. Officials from the China Insurance Regulatory Commission also mentioned that it is still unclear which companies should be insured, what types of pollution incidents would trigger coverage, and how much compensation should be provided.
Large-scale chemical companies may not be exempt. Pan Yue specifically pointed out that implementing the environmental pollution liability insurance system does not mean companies can freely pollute. Premiums are directly proportional to the level of pollution risk. If a company has a high risk of pollution, high premiums could overwhelm its finances. Insurance companies also employ experts to monitor and manage the environmental risks of the insured. This market mechanism will push companies to reduce pollution.
Insuring "green insurance" will inevitably increase company costs. Some large companies, including PetroChina and Sinopec, have expressed support for the implementation of environmental pollution liability insurance. However, they argue it is not appropriate to include large chemical companies in the compulsory insurance scope. Their reasons include strong financial resources to handle pollution compensation independently and potential misalignment with existing insurance and fund systems. For example, CNPC and Sinopec already have a "safety production guarantee fund" that includes environmental protection. If the compensation limit for oil pollution is too high, domestic insurers may lack the capacity to cover it. They suggest incorporating the insurance into enterprise production costs.
To address this, the national environmental protection department noted that certain risk mitigation mechanisms may come into play after an accident. However, when the environmental pollution liability insurance system is fully implemented, no company will be exempt. Although the system is not yet mandatory, the government will gradually make it so through guidance. Currently, it relies on existing systems like environmental impact assessments, "three simultaneous" acceptance, and discharge permits to promote the adoption of the environmental pollution liability insurance system.
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