China’s oil giants take a choke-hold on power

Reuters, BEIJING

Mon, Feb 04, 2013 - Page 5

The search for culprits behind the rancid haze enveloping China’s capital has turned a spotlight on the country’s two largest oil companies and their resistance to tougher fuel standards.

Bureaucratic fighting between the Ministry of Environmental Protection on the one hand and China National Petroleum Corp (CNPC) and Sinopec Group on the other has thwarted stricter emission standards for diesel trucks and buses — a main cause of air pollution blanketing dozens of China’s cities.

To be sure, many sources contribute to air pollution levels that hit records last month, but analysts say the oil companies’ foot-dragging and disregard of environmental regulations underscore a critical challenge facing a toothless environment ministry in its mission to curb air pollution.

With widespread and rising public anger changing the political calculus, it also poses a broader question of whether the incoming administration led by Chinese Communist Party General Secretary and Vice President Xi Jinping (習近平) will stand up to powerful vested interests in a country where state-owned enterprises have long trumped certain ministries in the quest for economic growth at all costs.

To supply cleaner diesel, the oil firms must invest tens of billions of yuan (billions of dollars) to remove the sulphur content, said Mu Xiaoyi, a senior lecturer in energy economics at the University of Dundee in Scotland.

PetroChina, the listed arm of CNPC, said in a statement that all automotive diesel produced by PetroChina last year met existing Chinese emissions standards.

Sinopec chairman Fu Chengyu, (傅成玉) quoted by Xinhua news agency last week, acknowledged that China’s refineries are one of the main parties that should bear responsibility for air pollution.

Even so, he added that was not because fuel failed to meet standards, but rather because fuel standards were not sufficient.

The bureaucratic tug-of-war has been going on for years.

Frustrated by the repeated delays in enforcing existing environmental standards, Chinese Deputy Minister for Environmental Protection Zhang Lijun (張力軍) called a meeting in late 2011 with officials from the country’s two biggest oil companies.

In unequivocal statements, he sought to lay down the law: The ministry was not going to further delay the cleaner China IV emission standard for trucks and buses, despite reluctance by CNPC and Sinopec to supply the fuel that would cost more to produce.

The officials from the oil companies responded by promising to supply the cleaner fuel after last year’s Lunar New Year, which fell in January that year.

However, a few months later, a spot check by the ministry showed the companies were still supplying ordinary diesel, said Tang Dagang (湯大鋼), director of the Vehicle Emission Control Center, whose policy research group is affiliated with the ministry.

With media focusing on a sudden worsening of the air quality in Beijing at the start of this year — 21 days last month recorded “heavily polluted” levels or worse — urban residents are increasingly impatient with the political wrangling.

However, the ministry faces formidable odds in the face of China’s complex bureaucracy and weak enforcement of laws.

In 2008, China promoted the State Environmental Protection Administration to a full ministry in a bid to give it more weight in the country’s fight against pollution.

Yet the ministry still lacks the authority to force big state-owned enterprises and local governments to toe the line.

Excessive pollution levels have already prompted the Beijing government to roll out a series of temporary emergency measures such as shutting down 103 heavily polluting factories and taking 30 percent of government vehicles off roads, but the capital’s air has remained hazardous.

It remains unclear whether Xi will restrain the influence of the oil firms, but with public anger rising, and with a normally compliant media joining in the calls for action, political pressure is growing.

The problem for oil firms such as PetroChina and Sinopec is that central planners set prices at the pump, even when global energy costs remain high.

Tang said both CNPC and Sinopec have told the ministry that they would have supplied the fuels “if they had gotten a reasonable price.”

With no supply of cleaner diesel fuel, Beijing had to delay the implementation of the China IV emission standard for diesel trucks and buses twice — first in 2011 and then last year, when it was extended to July this year.

The new standard aims to cut emissions of particulate matter and nitrogen oxides — two key components of urban smog — from trucks and buses by 80 percent and 30 percent respectively, said Vance Wagner, a senior researcher at the International Council on Clean Transportation.

In response, China’s Ministry of Finance has stepped in to negotiate preferential tax policies with the oil firms to help offset the higher costs of producing cleaner diesel fuel, people close to the environment ministry said.

Chinese media reported last week that new cleaner diesel fuel standards, similar to Euro IV standards that restrict sulfur content, could be issued soon in addition to the existing emissions standards.

However, even the new requirements,, could give oil companies a two-year window for full compliance.

Without intervention at a higher level, the delays are likely to go on.