PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: PIDA97254 Public Disclosure Copy Project Name Reduction and Phaseout of PFOS in Priority Sectors (P152959) Region EAST ASIA AND PACIFIC Country China Lending Instrument Investment Project Financing Project ID P152959 GEF Focal Area Persistent Organic Pollutants Borrower(s) PEOPLE'S REPUBLIC OF CHINA Implementing Agency Foreign Economic Cooperation Office of Ministry of Environment Protection Environmental Category A-Full Assessment Date PID Prepared/Updated 24-Jan-2017 Date PID Approved/Disclosed 24-Jan-2017 Estimated Date of Appraisal Completion Estimated Date of Board 16-Mar-2017 Approval Appraisal Review Decision The review meeting authorized the team to proceed with appraisal (from Decision Note) of the project. Public Disclosure Copy I. Project Context Country Context China's chemical industry is experiencing considerable growth and projected to represent over 30% of global sales by 2030, estimated at over US$2.6 trillion. The country's production however is still dominated by low value added bulk chemicals with relatively weak management systems and capacity for environmentally sound disposal. The rapid increase of production and consumption in China since 1978 has brought about significant environmental pollution and ecological degradation. The Chinese Government is committed to reversing this negative trend and has made environmental protection a national priority. As part of this commitment, China has ratified numerous international conventions, including the Stockholm Convention on Persistent Organic Pollutants (POPs) in 2004, a global treaty counting 180 Parties and addressing an increasing number of chemical substances listed as POPs (currently 26), including perfluorooctane sulfonic acid (PFOS), its salts and perfluorooctane sulfonyl fluoride (PFOSF). POPs are a group of chemical substances that persist in the environment, are transported far from their sources and bioaccumulate. Exposure to POPs can lead to serious health effects including cancer, birth defects, dysfunctional immune and reproductive systems, greater susceptibility to disease and damages to the central and peripheral nervous systems. The Convention was amended Page 1 of 5 in 2009 to include, among others, PFOS, which is subject to phase-out. This amendment entered into force for China on March 26, 2014 following approval of the National People's Congress in August 2013. The National Implementation Plan (NIP) for POPs first adopted in 2007 is being Public Disclosure Copy updated to take into account strategies and action plans for the new chemicals. Preliminary findings confirm that PFOS is the priority for China among the newly added POPs due to its production level and pervasive use of this chemical. Sectoral and institutional Context Environmental and Human Health Impact of PFOS - PFOS was listed as a POP by the Stockholm Convention because it is bioaccumulative and toxic, and in particular because it is exceptionally resistant to degradation in the environment. Potential for long-range global transport has been demonstrated by monitoring data showing the presence of PFOS in environmental samples, in the Arctic, for example. PFOS was measured in environmental monitoring samples in the Pearl River Delta, Haihe River and coastal areas of the Bohai Sea. The concentrations in these areas are of the same order of magnitude as those found in Europe's Po and Ruhr rivers, while high concentrations were recorded near areas where PFOS was produced and used, in water and sediments of lake Tangxun in Wuhan, and in sediments of the Yangtze estuary. High levels of PFOS have also been recorded in the rain in Dalian and Shenyang, and in sewage sludge in Guangzhou. Concentrations in blood in the general population are comparable to levels in the US or Japan, and on the high side. Whilst some studies have found gender-related differences with PFOS levels in blood, many did not and explanations remain inconclusive, with higher levels in males likely resulting from greater occupational exposure. Overall, the picture based on limited available information is of apparently moderate risk on a country-wide scale, but with localized environmental and health risks near areas of production and use. Public Disclosure Copy PFOS control -The Stockholm Convention defines seven acceptable purposes and six specific exemptions that have been registered with the Secretariat of the Convention by the Chinese Government. Use for acceptable purpose is allowed under the Convention, while exemptions expire in 2019. China has banned all other uses that are not listed as exempted or acceptable. The acceptable purposes are: (a) photo-imaging; (b) photo-resist and anti-reflective coatings for semi- conductors; (c) etching agent for compound semi-conductors and ceramic filters; (d) aviation hydraulic fluids; (e) metal plating (hard metal plating) in closed-loop systems only; (f) certain medical devices; and (g) firefighting foam. The specific exemptions are: (a) photo masks in the semiconductor and liquid crystal display (LCD) industries; (b) hard metal plating; (c) decorative metal plating; (d) electric and electronic parts for some color printers and color copy machines; (e) insecticides for control of red imported fire ants and termites; and (f) chemically-driven oil production. PFOS production and use - China started manufacturing PFOS from the late 1980s with a cumulative production of 1,600 metric tons to date, and is the only known remaining producer worldwide. There are 12 producers in China that have or had capacity to manufacture PFOSF. In 2015, only four producers were still manufacturing a little over 100 metric tons of PFOSF annually and supplying it to other downstream producers (approx. 20) to produce PFOS-related substances that in the end translate to at least 100,000 metric tons of PFOS containing products and materials. All PFOSF production lines employ the same industrial process. Page 2 of 5 The main remaining four applications in the country as confirmed both by the NIP update effort underway and a study undertaken for project preparation are: chromium mist suppressant in the Public Disclosure Copy electroplating industry (approx. 17 tons/an); surfactant in foam formulations for firefighting (approx. 61 tons/an); sulfluramid formulations for pest control (approx. 1 ton/an); and in chemically-driven enhanced oil recovery in oil production (approx. 26 tons/an). Geographically, use is concentrated in the Eastern provinces for metal plating and firefighting, where industrial activity is most prominent, and in the Southern provinces for pest control where the infestation from red imported fire ants started and is still the strongest. Approach to PFOS phase-out - Of the POPs newly listed under the Stockholm Convention in 2009, China prioritizes the reduction and control of production and use of PFOS because of the large number of existing applications, and the relatively poorly understood status of alternatives. PFOS products are transformed and reformulated at a number of progressively more downstream producers and users where their PFOS nature may not even be recognized. A large number of enterprises in the metal plating sector are driven primarily by the quality of the final products while environmental management is still a distant consideration. Moreover, the longer-term objective of PFOS reduction in the global environment could conflict with the immediate objective of workers safety from exposure to chromium. In the pest management domain, many of the alternative pest control chemicals also come with their own hazards and toxicity to non-targeted organisms. For the firefighting foam sector, public safety is the utmost priority of the Government. Hence, a PFOS reduction strategy and action plan must offer not only environmentally sound alternatives but also alternatives that would not compromise other objectives of the industries and sectors concerned. II. Proposed Development Objectives The project development objective is to reduce PFOS in selected sectors and enterprises in China in a sustainable manner. Public Disclosure Copy III. Project Description Component Name Component 1: PFOS Production Reduction Comments (optional) The Project will support production phase-out and reduction for primary PFOSF producers and at secondary PFOS producers (approximately 14 companies). Activities to be financed include: closure; conversion of production to non-POPs like chemicals; and adoption of best environmental practices at facilities that will continue production of PFOS and PFOSF for acceptable uses under the Stockholm Convention. Component Name Component 2: Reduction of PFOS Use Comments (optional) Three priority sectors are addressed in this component: chromium mist suppressants in the metal plating sector, firefighting foam sector, and pesticides for control of red imported fire ant (RIFA). The fourth large sector in terms of consumption, oil production, is addressed through TA only under component 3. Component Name Component 3: Policy and Technical Assistance Page 3 of 5 Comments (optional) This component will finance technical assistance activities required to strengthen regulatory and policy framework, standards, and capacity building. These activities are essential for ensuring Public Disclosure Copy sustainability of PFOS phase-out in both production and consumption sectors. Component Name Component 4: Project Management Comments (optional) Component 4 will finance: (i) costs of operations of three project management offices (PMOs) at FECO, Guangdong EPB and Hubei EPB, and (ii) Monitoring and Evaluation. Eligible costs include expenditures incurred by the PMOs in carrying out the Project. IV. Financing (in USD Million) Total Project Cost: 67.22 Total Bank Financing: 0.00 Financing Gap: 0.00 For Loans/Credits/Others Amount Borrower 42.97 Global Environment Facility (GEF) 24.25 Total 67.22 V. Implementation The Foreign Economic Cooperation Office (FECO) under the MEP will serve as the overall national implementing agency for the Project which will be implemented by three PMOs - one housed in FECO, one in Guangdong and one in Hubei Environmental Protection Bureaus (EPBs). FECO PMO will implement national level activities, activities outside of Guangdong and Hubei provinces, and supervise and support project implementation by the two PMOs and consolidate project progress Public Disclosure Copy and financial reports. An Implementation Agreement would be signed between FECO as the national implementing agency and the two PMOs, to set out responsibilities of the parties, the GEF grant amount to be allocated to the activities managed by the respective PMO and counterpart funding (including in-kind contributions). To ensure strong stakeholder involvement, the existing inter-ministerial National Coordination Group (NCG) for implementation of the Stockholm Convention will continue to provide overall guidance and coordination for implementation of the Project and to facilitate adoption of national level regulations as early as possible. The NCG includes 14 ministries with MEP as the Lead Agency. FECO will organize NCG meetings at least once a year to report and collect feedback/ comments on project implementation. In addition, the currently established convention implementation offices in Guangdong and Hubei provinces will serve as Steering Committees to guide project implementation in these provinces. The Steering Committees will ensure that other local government, academia and private sector stakeholders are invited to contribute in their respective areas of competence, as well as ensure information sharing with these agencies on a regular basis. VI. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Page 4 of 5 Environmental Assessment OP/BP 4.01 ✖ Natural Habitats OP/BP 4.04 ✖ Public Disclosure Copy Forests OP/BP 4.36 ✖ Pest Management OP 4.09 ✖ Physical Cultural Resources OP/BP 4.11 ✖ Indigenous Peoples OP/BP 4.10 ✖ Involuntary Resettlement OP/BP 4.12 ✖ Safety of Dams OP/BP 4.37 ✖ Projects on International Waterways OP/BP 7.50 ✖ Projects in Disputed Areas OP/BP 7.60 ✖ Comments (optional) VII. Contact point World Bank Contact: Laurent Granier Title: Senior Environmental Specialis Tel: 473-9034 Email: lgranier@worldbank.org Contact: Solvita Klapare Title: Senior Environmental Economist Tel: 5788+7631 / Email: sklapare@worldbank.org Borrower/Client/Recipient Name: PEOPLE'S REPUBLIC OF CHINA Public Disclosure Copy Contact: Guo Wensong Title: Director of IFI Division III (MoF) Tel: 86-10-68552096 Email: guo.wensong@gmail.com Implementing Agencies Name: Foreign Economic Cooperation Office of Ministry of Environment Protection Contact: Yu Lifeng Title: Deputy Director General Tel: (86-10) 8226-8807 Email: yu.lifeng@mepfeco.org.cn VIII. For more information contact: The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects Page 5 of 5