Transcript Supporting policies & laws

Clean technology and alternative energy investments, a
brief overview of policy and legal considerations for
investors in China
Christopher Tung, Partner, Hong Kong
September 2010
Copyright © 2010 by K&L Gates Solicitors. All rights reserved.
Overview
 What are the key drivers?
 Supporting policies and laws
 Sustainable development policy & law timeline
 Who dares wins (or loses)
 Preferred sectors?
 Trends
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What are the key drivers?
 Rapid economic growth: no.2 economy
 No.1 greenhouse gas (GHG) emitter
 Serious environmental degradation
 Actual & potential social instability
 Desire to be world class in clean tech & alternative
energy – “leap frog” potential
 Low carbon economy objectives
 Planned and focused policies and law with long term
objectives in line with sustainable development
 Institutional control: State Council and the NDRC
2
Supporting policies & laws
China has systematically gone about developing
policies and laws to support:
 greater energy efficiency
 reduced localised pollution
 reduced GHGs
 encourage the deployment of renewables and clean
technology solutions
 the development & growth of domestic capacity and
know-how
 higher value foreign investment to reinforce
domestic action
3
Supporting policies & laws
 11th Five Year Plan (FYP) – energy efficiency focus
 Cleaner Production Promotion Law 2002
 Environmental Impact Assessment Law 2003
 Clean Development Mechanism Measures 2004
 Renewable Energy Law 2005
 China National Climate Change Programme, 2007
 Circular Economy Promotion Law 2009
 National carbon intensity reduction target, 40-45% by
2020 (base year 2005)
 12th FYP and 13th FYP – low carbon economy, clean tech
and alternative energy focuses
 New Energy Law 2011?
4
Sustainable development policy & law timeline
1992
Rio Earth Summit
UNFCCC
2004
Introduction of
China CDM
Measures
2012
1st Commitment
Period ends
1993
China ratifies
UNFCCC
2005
Kyoto operational
EU ETS Phase I in
force
COP 13 Montreal
China RE Law
2015
China RE target
15%
Review of
Copenhagen
Accord
End of 12th FYP
1994
China Agenda 21
2007
CNCCP
COP-13 Bali
Bali Action Plan
National Leading
Group on Climate
Change formed
2016
Start of 13th FYP
1997
Kyoto Protocol
2001
Marrakech Accords
2008
China climate
position paper
COP-13 Bali
Bali Action Plan
1st Commitment
Period starts
2020
40-45% national
carbon intensity
reduction target
End of 13th FYP
2002
2003
China ratifies Kyoto
Protocol (KP)
NDRC designated
China DNA
NC4 established
KP extended to
Hong Kong
2010
2009
COP-15
Copenhagen
Accord
China national
carbon intensity
target proposed
China RE target
10%
20% reduction in
energy intensity
of GDP
COP-16 Cancun
2030
Objective for
China peak
emissions (CAS
2009)
2011
Start of 12th FYP
2050
80% emission
cuts by Annex I
countries
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Who dares wins (or loses)
 SAS motto unthinkable for a well advised investor
 Access to local RMB markets improving BUT
 Constant risks (new, immature, changing M&A rules,
anti-monopoly law, Foreign Invested Partnerships and
tax avoidance policies. Note risk of retroactive effect)
 Consolidated and detailed national regulations to
facilitate PE investments still required
 Scrutinise critically: “We did it before, so it’s ok”
 In clean tech, even in tried & tested technologies
there can be challenges (note wind power: clear feed–
in tariffs and earlier local content requirement,
abolished in 2009)
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Who dares wins (or loses) – cont’d
 A cavalier attitude to environmental liability and risks,
increasingly untenable (developments in disclosure,
enforcement and litigation – class actions)
 Advisers with strong local knowledge, a grasp of
commercial and technical, as well as policy and law in
practice heavily preferred but rare
 Reliable local partners can also be difficult to identify
or attract but essential in practice
 Intellectual property protection patchy
 Pioneering domestic carbon trading and finance
7
Preferred sectors?
 Industries: FYPs and foreign investment catalogue
foreign participation in clean tech broadly encouraged
http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/Ministeri
alRulings/P020071121358108121219.pdf
 Locations: clean tech areas and PE friendly –
Beijing, Chongqing, Shanghai, Tianjin, Shenzhen
(Growth Enterprise Board or ChiNext)
 Local incentives: vary widely (consistency with
national policies & regulations should be carefully
checked)
8
Preferred sectors?
 Clean tech investments with carbon finance:
 Compliance carbon market: Kyoto Protocol –
Clean Development Mechanism (CDM) & the EU
Emissions Trading Scheme
 Voluntary carbon market: verified emissions
reductions under internationally recognised
certification standards (Voluntary Carbon
Standard, VER+ & the Gold Standard)
 China domestic carbon market (Panda Standard)
Since 1 December 2009 HK companies can wholly
own & control Chinese CDM projects (foreign
ownership is otherwise restricted to 49%)
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Preferred sectors – cont’d
10
Trends
 Clean tech & alternative energy investments will
continue to increase (US$700 billion over next 10yrs)
PE investments will accelerate (clear regulations for
foreign invested RMB funds will help significantly)
 Other locations in China will compete with Beijing,
Shanghai and Tianjin
 Environmental taxes and price on carbon (carbon
tax and domestic emissions trading) will emerge
 Opportunities will need to be carefully balanced
against risks
 Proper strategy, execution and continued
evaluation/adaptation required to ensure success
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Contact details and article
Christopher Tung, Partner
K&L Gates
44th Floor, Edinburgh Tower
The Landmark
15 Queen’s Road Central, Hong Kong
[email protected]
China & Hong Kong: Building Low
Carbon Economies
http://www.climatelawreport.com/2010/06/articles/fi
nancing-investing/china-and-hong-kong-buildinglow-carbon-economies/
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