Under the EOD mode: the development and reform of the environmental protection industry

In September this year, the National Development and Reform Commission and many other ministries and commissions once again introduced EOD-related policies, but for most environmentalists, EOD is still just an unremarkable new species, but the author believes that its success or failure will lead environmental protection to a large extent.

01 About EOD

1.

Friends who are concerned about policies should know that since the 18th National Congress of the Communist Party of China, the importance of China's ecological civilization has been raised to an unprecedented height.

Therefore, there are always people who say that environmental protection is a sunrise industry, and this is the best era for environmental protection.

However, this ignores that environmental protection has always been a costly thing.

Therefore, in this context, the Ministry of Environment has proposed the EOD model since 2018, and this year the National Development and Reform Commission and other ministries have again issued relevant EOD policies, which shows the central government’s attention

1.

Come back, what is EOD,

The EOD (Ecology-Oriented Development) model is based on ecological protection and environmental governance, supported by characteristic industry operations, and integrated regional development as the carrier.

In the author’s opinion, the narrow EOD model is actually to internalize the economic value brought about by ecological environmental governance to solve the problem of funds invested in the early stage of environmental protection.

For a long time, environmental protection has been a traditional positive external industry (that is, benefiting others without getting corresponding compensation).

But relying on government subsidies is obviously not the best strategy, especially when the government is short of money, the entire industry appears precarious

To solve the dilemma of the positive externality industry, a commonly used modernization method is to clarify property rights based on the Coase theorem, and achieve the optimal allocation of resources through market mechanisms

In the EOD model, the project company improves the environment, attracts industries and population with a good ecological base, and locks in advance the value-added social benefits brought about by environmental effects to realize the overall premium value-added of the region, and thus realize the feedback to the environmental protection industry.

If we look back on the development of the city, we can actually find that EOD is not a brand new species, similar to TOD (Public Transportation Oriented Development Model), SOD (Public Service Oriented Development Model) and so on

The companies operating this type of project are represented by the Hong Kong MTR Corporation.

The Shenzhen Metro in the Mainland also basically learned the MTR model.

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Path: See how EOD turns green water and green mountains into gold and silver mountains

It can be seen from the above that the EOD model is similar to the above-mentioned TOD.
With reference to Jibang Consulting, its realization path is basically divided into three steps:

1) Reconstruct the ecological network: through environmental governance, ecosystem restoration, and ecological network construction, create a good ecological base for urban development and drive land appreciation;

2) Improve the overall urban environment: improve the overall urban environmental quality by improving public facilities, transportation capacity, urban layout optimization, and shaping of characteristics, so as to provide high-quality conditions for subsequent industrial operations;

3) Industry introduction and talent introduction: activate the regional economy through population influx and industry development, thereby increasing residents' income, corporate profits and government taxation, and finally realizing a self-reinforcing positive feedback mechanism
.

The corresponding income sources are mainly divided into two parts:

1) Land premium and land transfer income
.
Realizing land appreciation through environmental improvement, and then sharing the first-level land transfer income or real estate development to achieve the balance of capital needs can be said to be the core of the current EOD model, which is also the most direct and fastest income model, but it may make EOD projects The combination of eco-environmental governance projects and real estate projects failed to incorporate the ecological orientation into the overall consideration of the project’s pre-planning, construction, operation, and industrial introduction.
Therefore, it lacks the ability for sustainable development, and the land premium and land transfer income are directly used as project income Lack of clear policy support
.

2) The industry feeds back and shares the income
.
From the current point of view, there are fewer projects to achieve effective integration of ecology and industry.
This is mainly due to the long industry cultivation cycle, greater uncertainty, and the number of participants in the project.
It is difficult to quantitatively measure the ecological value, and it is difficult to determine the benefits between the entities.
The classification of types requires high requirements for the strength of the participants, and further exploration is needed in this regard
.

02change

So what opportunities will it bring to the environmental protection industry? In the author's opinion, there are mainly three influences as follows:

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Revenue and financing improvement, environmental protection + or redefine the industry market space

On the one hand, the EOD model greatly protects the profitability of the project through land appreciation income and industry backfeeding shares; on the other hand, the EOD model is conducive to bank project financing with limited recourse (that is, when the environmental protection governance project company cannot repay the loan , Financial institutions may also recourse for land or industry value added by creditor’s rights to the environment), thereby providing better financing guarantees for environmental protection projects and further guaranteeing the source of funds for environmental protection projects
.

This means that it was necessary to do in the past, but the shortcomings of environmental protection that have no money to do can be plugged in the wings of capital to achieve the improvement of the regional environment, thereby also redefining the space of the environmental protection market
.

With reference to the hot "Internet+" in previous years, through the combination of the Internet and traditional industries, we can optimize production factors, update business systems, and restructure business models to complete economic transformation and upgrading.
The EOD model will also promote environmental protection+ Vigorous development of the industry, such as:

+ Environmental tourism, environmental protection + health support, environmental protection + real estate, environmental protection + feature of the town, environmental protection and so on revitalization + countryside
.

Considering that the current source of EOD income is still based on land appreciation, the most direct benefits will mainly include soil restoration, mine restoration, and water environment restoration
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The launch of the EOD model will optimize the profit model of the environmental restoration industry, increase the enthusiasm of social capital for participation, and accelerate the release of environmental restoration projects
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In fact, relevant policies have been issued from the state to the local level to pave the way for this, so as to avoid the relevant policy risks of land revenue sharing
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l In March this year, the State Council put forward the "environmental restoration + development and construction" model in the "Guiding Opinions on Building a Modern Environmental Governance System"
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l In November this year, the “Guangzhou City Strengthening the Work Plan for the Prevention and Control of Soil Pollution in Transferring Reserve Land” stated that “remediation can be completed within one year after evaluation and passed the review, and the construction content of the plot and the restoration project can be effectively connected to improve the construction efficiency.
Before the restoration, the transferee shall assume the responsibility for soil pollution restoration
.
"

These policies all try to move the restoration industry from net land transfer to net land development, so as to solve the problem of many early links and time-consuming caused by net land transfer, which seriously affects the subsequent development and utilization process
.
In addition, since the clean land development model can first transfer contaminated land (low value), then repair and control, and then develop after the repair reaches the standard (high value), the problem of unity of repair and development subjects is realized, and it also helps companies to lock in advance The value-added part after the repair of the land parcel is guaranteed, and the early-stage governance investment of the enterprise is guaranteed
.

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Changes in the competitive landscape: three types of enterprises will benefit

According to the proportion of environmental protection in the overall project, the author divides EOD projects into three categories according to different calibers.
Correspondingly, the competition pattern of the three types of enterprises will be reshaped:

1) Small-caliber EOD: Environmental restoration has ushered in opportunities, and garden enterprises regain their glory
.
Generally, it is aimed at areas with relatively small scale and obvious land value-added benefits, such as the overall relocation + restoration development of urban chemical plants and chemical parks along the river, the restoration of combined cultural and tourism in suburban mines, the development of small-node lakes in small watersheds, and small and medium-sized cities.
The governance of the central park, along with the promotion of the EOD model, will directly benefit environmental restoration companies and ecological garden companies
.

After all, these types of companies have already had a lot of exploration and experience in this area, one of which is a comprehensive company with the dual capabilities of environmental restoration + real estate development, such as the Ningbo Qingfeng brownfield restoration + development project of Beijing Construction Engineering (see Behind the restart of the IPO of Jiangong repair: muscles, hidden worries and the future), Shanghai Jiangong's Chenshan Botanical Garden project, Shanghai Taopu Technology Smart City and other projects
.

The other category is ecological gardening companies such as Oriental Garden, Tiehan Ecological, and Elion Ecological.
Although most of these companies have suffered from blind debt expansion and deleveraging in the PPP tide of the past few years, but only Through the rational mechanism design of EOD and the strengthening of internal management at the same time, this type of enterprise will continue to regain its glory in the future
.

2) Medium-caliber EOD: the era of regional environmental protection groups and large-scale integrated groups
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Medium-caliber EOD projects are mainly aimed at large-scale regional environmental governance projects, such as the protection of the Yangtze River, the protection of the Yellow River, the renovation of Beijing Yongding River, the renovation of Hangzhou Canal, etc.
Such projects are generally large in scale and long in period, requiring the deep participation of environmental protection companies.
The project will be constructed and operated throughout the entire cycle, and a long-term mechanism will be established
.

Such projects are generally based on regional environmental protection groups, and large-scale integrated groups will also make corresponding arrangements based on their strengths
.
For example, the Yangtze River Environmental Protection Group under the Three Gorges Group, which implements the protection of the Yangtze River, signed the first EOD project of the group with Wuhan East Lake High-tech Zone in August this year: the first phase of the ecological tourism demonstration zone of the Optics Valley Ecological Corridor
.
In addition, EOD pilot surveys are actively carried out in Chenzhou, Hunan, Wuhu, Anhui, Ma'anshan, and Ganzhou, Jiangxi
.

Another example is the Chengdu Environment Group, which is rooted in the west.
The EOD project of Chengdu Yangxi Lake Wetland Park is currently close to completion.
On the basis of creating a "model of shallow hill terraced wetland in eastern Sichuan", the Chengdu International Vocational Education City will be laid out along the lake in the future.
, Airports, boutique hotels, hospitals, commercial facilities and other supporting facilities
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As well as the China Communications System with strong comprehensive strength, it has also begun to enter the EOD project
.
In August 2019, CCCC Tianjin Waterway Bureau, CCCC Dredging Group, CCCC Eco-Environmental Protection Investment, CCCC Fourth Navigation Engineering Survey and Design Institute and CCCC (Tianjin) Eco-Environmental Protection Design and Research Institute consortium won the bid of 6.
5 billion yuan in Ji Yunhe ( Jizhou Section) EOD project of water system management, ecological restoration, environmental improvement and comprehensive industrial development
.

3) Large caliber: subdivided field expertise
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Larger caliber and large-scale EOD projects focus more on regional environmental governance and industrial introduction and development.
There are many participants in this type of project, and the workload of traditional environmental protection governance is relatively small.
It is more to reflect the environmental concept first, with environmental planning and ecological evaluation For related work, high-quality companies in some sub-sectors also have some subcontracting opportunities, but in this way, the environmental protection company will inevitably not have much voice in the entire project, and naturally don't want to participate too much in the later rights and interests.

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This type of project usually requires the entity to have the ability to implement the entire industrial chain from project planning, industrial planning, project implementation, land development, asset operation, and industrial investment.
At the same time, it requires the enterprise's financial strength and financing ability to be strong, and the long process and Cycle funds must have the ability to control and overtake, so they are usually represented by large real estate developers, especially those with environmental protection and industrial operations, such as CITIC Guoan and China Fortune Land Development.
(Look at potential owners: D )
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In 2014, CITIC Guoan decided to work with the Xianghe County Government to jointly promote the CITIC Guoan First City Canal Ecological and Cultural Project, with a total investment of about 50 billion yuan, focusing on the construction of the Cultural and Creative Industrial Park of Guoan First City and the comprehensive renovation of the Xianghe section of the Beijing-Hangzhou Grand Canal.
We will create high-end service industries such as cultural creativity, health and wellness, and provide a good ecological environment and industrial foundation for the functional relief of the capital
.
In 2018, the company took "China's leading eco-city operator" as its strategic positioning, and currently has implemented EOD practices in Beihai, Emei, Taicang, Hainan and other places
.

Although China Fortune Land Development, known as an "Industrial New City Operator", has not yet clearly announced the EOD slogan, its operating model for industrial new urban construction is very similar to EOD (for example, Gu'an Industrial New City, its most representative).
There is also an environmental protection sector, so it can be speculated that it will also be a major player
.

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Pay for efficiency, drive out bad coins, and lead the transformation of business models

Strictly speaking, the investment in my country's environmental protection industry in recent years is not small.
This can be seen from the national environmental protection industry operating income of 1.
78 trillion yuan in 2019, but the improvement of environmental quality in some areas is not obvious.
There are many factors behind this.
,E.
g:

l The environmental protection industry focuses on construction for a long time and neglects operation and maintenance, causing some projects to fail to continue to function, or even "basking in the sun"
.
Although the Ministry of Construction issued the "Administrative Measures for Municipal Public Utilities Franchise Management" in 2004, the industry has entered the era of integrated operation and management, but the phenomenon of light operation is still obvious
.

l The effect of pay-for-performance implementation is not satisfactory
.
For a long time, the industry has lacked a pay-for-effect mechanism, and environmental protection companies have paid more attention to engineering profits
.
Although China’s environmental protection has officially started the pay-for-effect era with the progress of PPP projects in 14 years, the concept of pay-for-effects has not yet been reflected in the project design, procurement, and construction.
For example, in the design stage, the professional requirements for environmental governance are insufficient.
The procurement phase places too much emphasis on quotations, and the implementation phase lacks an effective linkage mechanism between environmental service prices and governance effects.
The actual implementation effects of some projects are not satisfactory
.

l Scattered pollution control, lack of overall implementation under the regional environmental quality improvement goals
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At present, China's environmental governance is still dominated by scattered points, but environmental quality improvement is a systematic project that requires a multi-pronged approach and multiple measures.
It is difficult for a single project to implement a comprehensive improvement of regional environmental quality
.

Since the prerequisite for the successful operation of the EOD model is the real improvement of the environmental quality and can be maintained for a long time, the model will really head-on the environmental governance effect, especially if you want to enjoy the benefits brought by the introduction of industries and population, the EOD project will truly be effective.
Pay, thereby forcing the environmental protection industry to reform and expel bad money
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At the same time, the long-term environmental quality maintenance attribute of the EOD project can also help environmental protection companies realize the transformation of their identities from engineering suppliers to long-term environmental protection quality maintenance operators, thereby optimizing the business model of environmental protection companies in the long run
.

03 Conclusion

Although the EOD model sounds very good, it does not mean that it is risk-free.
In fact, if an EOD project is to be implemented, it has to overcome many risks such as a large industry span, a long effective period, and an unclear land development income policy
.
In addition, we need to learn from the problems in the implementation of the PPP model to avoid over-prescribing, and at the same time, we should try to avoid unrelated project bundling, so as to truly focus on the premium feedback brought by the increase in the ecological value of the project itself
.

In short, with the development of EOD, investment in environmental governance will shift from the "polluter pays" model to the "polluter pays + beneficiary pays" model, making everyone realize that the ecological environment is also a resource that serves the social economy.
And a basic factor of production
.
As an innovative model that truly turns green waters and green mountains into golden mountains and silver mountains, the future of the EOD project is bright and the road is tortuous
.

But just as Li Dakang tried to overcome all difficulties and successfully renovated the subsided area of ​​Lincheng, the development of environmental protection industry and EOD also requires such insight and courage! I believe that the subsequent announcement of the EOD pilot project of the Ministry of Environment will bring more possibilities and confidence to everyone
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Main reference articles

Jibang Consulting Wang Wenjuan, EOD (Ecology-Oriented Development) model, what is it? (Part 1)

Huaxia Fortune Industry Research Institute, EOD: The "little flowers" of the environmental protection industry?

Lu Yuantang, Wang Jianing, Zhao Yunhao, et al.
The implementation and management mode of ecological environmental protection projects and the optimization of the use of financial funds[J].
Environmental Protection, 2018, 046(023):37-40.