Now that environmental protection has become a basic national policy, a new era has begun for the environmental protection industry. In recent years, environmental issues have become increasingly prominent; social attention has been increasing, various detailed policies have been introduced, and a large amount of capital flows in. The environmental protection industry has emerged, but beneath the surface lie a few things practitioners won’t say.
Recently, two ministries jointly issued the “13th Five-Year Plan for the Construction of National Urban Wastewater Treatment and Recycling Facilities” (hereinafter referred to as the “13th Five-Year Plan”). This plan is a supplement to the “Water Ten Articles”, in which sludge treatment development priorities were defined and ideas and goals were put forward. The scale of harmless sludge treatment facilities will increase by 1.6 times on the basis of 2015.
It seems that sludge treatment will take off soon. However, the environmental practitioners who used to “fake grandeur” will not be so optimistic. After all, the same thing was experienced in the "12th Five-Year Plan".
Sludge treatment on center stage
Sludge is a huge by-product of sewage treatment, but it has not received enough attention for a long time. "More water but less sludge" is the norm in the industry.
During the period of the “10th Five-Year Plan”, China’s centralized sewage treatment rate was still less than 50%, and naturally it did not have the preconditions for sludge treatment. In recent years, with the rapid increase in the concentration of sewage treatment in China and changes in water treatment processes, the production of sludge has also increased significantly. Huge sludge production, increasing environmental awareness, and stricter environmental regulations all place higher demands on the relatively simple sludge treatment of the past. In addition, the increasingly compressed sewage treatment market space has caused many water companies to feel the pressure, and the huge market space where the sludge market is still growing is particularly attractive.
When you consider the policies over time (see Table 1), the process of sludge treatment development is clear. Looking at the development of sludge treatment in China in recent years, it can be said that the goal of macroeconomic policy planning has been well advanced.
With reference to the development of sewage treatment, it can be said that with the large-scale completion of the goal of centralized sewage treatment in China, China's sewage treatment has basically solved the situation of starting sewage treatment facilities from scratch, and instead began to raise the treatment level of sewage treatment. The fact that sludge treatment gradually came to the stage at this time is also a matter of course.
Table I Progress of macroscopic policies for sludge treatment
The newly promulgated "13th Five-Year Plan" has continued the promotion of sludge treatment.
The 13th Five Year Plan proposed very substantial growth goals (Table 2). In terms of the safe disposal rate of sludge, even if the rate of harmless disposal in the city with the lowest growth rate is approximately 41%, the growth rate in the county towns and key towns is as high as 147% and 100%.
It is worth mentioning that the scale of harmless sludge treatment facilities is expected to increase by 161% to 97,500 t/d by 2020. Although the new plan seems to be slightly more conservative than the target of the 12th Five-Year Plan, combined with actual figures, it is still very ambitious.
Table II Objectives and actual completion of the "12th Five-Year Plan" for sludge planning and the "13th Five-Year Plan" targets
With the continuous increase of macro-level policies to gradually bring sludge treatment to the forefront, the heat of sludge treatment in the industry has also been rising. Institutions have forecasted the amount of investment in sludge treatment, and the forecasted figures ranged from 40 billion in the 12th Five-Year period to hundreds of billions in the 13th Five-Year period. Although the forecasted figures are inexact, it can be seen from the increase in the investment amount that the sludge disposal market in China has great potential.
The strange development path
Like many environmental sub-sectors, the sludge disposal market not only has a large stock, but also has a good potential. However, the actual development situation is always a bit unclear, and the market response is less active than the policy proposed.
When the “12th Five-Year Plan” was promulgated, the industry was delighted with the disposal of municipal sludge. The sludge treatment industry has continued to heat since 2011. In recent years, due to the rise of the PPP model, some sludge disposal projects have also taken the express train. Enterprises have taken action, for example, Wuxi Huaguang entered the sludge disposal industry through its merger with Wuxi Guolian Environmental Science& Technology Co. Ltd.
However, after a short period of intense heat, the rapid decline came. In 2014, tenders for sludge disposal in Xiamen and Fuzhou were repeatedly patted and eventually changed to competitive negotiations. The sludge disposal projects that have already taken a closer look are also achieved this way, or through packaging with other economically beneficial projects.
Why is an industry with favorable policies, a huge market, and sufficient potential for sludge disposal in this awkward situation? In fact, it is not only the sludge treatment industry. A lot of environmental protection sub-sectors in China now face this embarrassment.
As a typical policy-driven industry, the environmental protection industry is accelerated by policies. However, the industry alone is not enough, there is no continuous escort and full support for later policies, even if the sub-sector has sprouted it may die or at least not live well.
Saying that there have been no related supportive policies in recent years is not fair. The improvement of environmental standards and industry standards, the strengthening of environmental protection supervision, and the adoption of flexible financial measures to help environmental protection projects to land have greatly promoted the development of China's environmental protection industry. However, in this prosperous world, we should also be clearly aware that our country’s supporting policies still have relatively large flaws.
As far as sludge disposal is concerned, the support of related policies in recent years has continued to exert itself. A series of corresponding industry standards have been issued, which is definitely of great significance for regulating the development of the industry.
However, policies introduced recently have also created new confusion for practitioners. For example, the Ministry of Environmental Protection requires the sewage treatment plant to use 80% moisture content and 20% solids when handling sludge. In addition, the landfill standard requires that the moisture content should not exceed 50%. However, the standard corresponding to the quality inspection department is 40% moisture content and 60% solid content. The implementation of the standards will not only puzzle enterprises, but will also plague the supervision department. For enterprises with profit-priority, the lower the natural cost, the better, but if the implementation of the lower standards is prioritized and the other set of standards is not, it will undoubtedly make people question the authority of the standard and will take away from the significance of the constraint.
In addition, as pointed out in an earlier Umore Consulting article on the sludge market, the artificial “industry” caused by the multi-sectoral participation is also an obvious barrier to the healthy development of the industry.
There is a certain degree of difficulty in handling sludge. First, it is used as a derivative of sewage, but the product is not entirely liquid. After a different process, solids are used for landfill, land use, and incineration. This leads to the fact that it is not in the five major categories of water, solid waste, atmosphere, noise, and ecology that were common in the environmental protection industry in the past. It has a certain degree of particularity. As companies dump at random and in different places, such as farmland, rivers and lakes, and forest lands, they will touch the management of other departments. At present, the five departments related to sludge treatment, the Ministry of Agriculture, the Ministry of Environmental Protection, the Ministry of Housing and Urban-Rural Development, the National Development and Reform Commission, and the Forestry Bureau respectively correspond to the sludge farmland use, secondary pollution, sludge emissions, investment in sludge disposal, and the use of sludge forestry sites. Such a fine and complex classification directly leads to difficulties in the docking of departmental functions.
In addition, although environmental monitoring has become increasingly stringent in recent years, and illegal dumping has been banned for a long time, it still happens from time to time. Environmental monitoring itself also has a relatively serious problem.
The problem of illegal dumping reflects not only the problems shown in environmental monitoring, but also the concentrated expression of the biggest pain points in the sludge disposal industry. Previous articles pointed out that sludge disposal and waste treatment methods are quite similar, especially waste incineration power generation, anaerobic fermentation, etc. The key fulcrums for development are environmental standards and disposal fees; one is the rules of the game and one is gaming chips, both are indispensable. This statement is true, but also explains the strange development path during the "12th Five-Year" period.
Environmental standards have different calibers, and standards have lost the authority they deserve. On the one hand, environmental monitoring may be confused by the varying standards mentioned above. On the other hand, it does not fully exert its monitoring functions. In the long run, if bad money drives out good money, there will be no companies that are willing to apply proper sludge treatment.
In addition, the most important thing is the cliché cost issue.
On the one hand, due to the constraints of the technology itself, disposal costs have been constantly expensive. With increasingly stringent environmental standards, there is not much room for disposal costs to fall. For example, in Japan – a developed country where environmental management has been very sophisticated and the environmental technology is very mature - the cost of sludge disposal is still several times higher than the current actual treatment cost in China.
On the other hand, sludge disposal fees have also been on the rise, there is no economic stimulus, and the market lacks a driving force for natural development. In developed countries such as Europe, half or more of the wastewater treatment fees are used for sludge treatment. In China, people have always been cautious about adjusting sewage treatment fees for the sake of people's livelihood. Although it is clear that the urban sewage charge should not be lower than the sewage treatment fee and sludge disposal fee in the “Water Ten”, the details remain unknown: how can it be adjusted later? How much will it be?
The reality continues to squeeze the development space of the sludge disposal market itself, so it is no wonder why the sludge treatment has not grown well.
Is policy the reason for failure?
Because the environmental protection industry is a typical policy-driven industry, policies play a decisive role in the entire industry. The new energy market grew several times bigger when policies were implemented. Neither the pace of development nor the scale are replicable. Such "China speed" can be reached by very few countries. On the other hand, sludge disposal was not a real hotspot during the “12th Five-Year Plan” period. It is no wonder there is an article saying that the downturn in the sludge disposal market during the “12th Five-Year Plan” period was a result of policy being taken off the hook.
Fortunately, policy continues to exert itself.
Two points in the “Water Ten” are the most critical. The first is to clarify that sludge should be stabilized and harmlessly treated, unsatisfactory sludge should be prohibited from entering farmland, and illegal sludge dumping points should be prohibited. Second, the city policies should be clarified. Sewage fees should not be lower than the cost of urban sewage treatment and sludge disposal. The first point requires the implementation of a more complete policy system, industry standards, and environmental monitoring support. The second point is the explicit disclosure of the intention to loosen sludge treatment fees. These two have pinpoint the main difficulties of direct treatment of sludge: inadequate policy support and cost issues.
Going forward, the key to the 13th Five-Year Plan was not its ambitious goals. Instead, the plan followed the “Water Ten” and tried to tackle the main difficulties in sludge treatment. The investment for newly constructed and reformed sludge innocuous treatment facilities during the “13th Five-Year Plan” period was 29.4 billion CNY, which is a decrease compared to the 34.7 billion planned during the “12th Five-Year Plan” period. However, with reference to the substantial increase in the scale of facilities construction during the “13th Five-Year Plan” period, it is not difficult to understand the influx of social capital participation in the new plan. It also gives people reason to believe that there will be actions and even major actions in the follow-up national macroeconomic policies.
Perhaps the wind that soars in the sludge industry is really coming.