Climate change measures evolve and converge

In the past two years, there has been a steady stream of regulations and public pronouncements from the governments of the People’s Republic of China and the Hong Kong Special Administrative Region concerning the need to address climate change.

Environmental and climate change issues are, increasingly, points of convergence and cooperation for the two governments.

National policy develops, exchanges start up

The PRC has been a significant beneficiary of international climate change incentives like the Clean Development Mechanism (CDM) under the Kyoto Protocol.

However, recent developments indicate that the country is diversifying its approach and looking increasingly at domestic measures to establish incentives for the reduction of greenhouse gases.

By August 2009 the National Development and Reform Commission (NDRC) had approved 2,172 CDM projects. CDM projects have clearly demonstrated the possibility of monetizing reductions of greenhouse gases emissions within the PRC. As a result, efforts are underway to establish, within the PRC, trading platforms relating to greenhouse gases.

Although still in their infancy, three exchange platforms have been established: the Shanghai Environment Energy Exchange, the China Beijing Environmental Exchange and the Tianjin Climate Exchange.

The first trade of voluntary emission reductions on one of these exchange platforms took place in August 2009: a sale of over 8,000 tons of carbon, under China’s carbon emission reduction target, on the China-Beijing Environmental Exchange.

Under its current 11th five-year plan (2006-2010), the PRC is aiming to reduce energy consumption per unit of GDP by 20%.

To support this effort, in the past three years the PRC has promulgated the PRC Renewable Energy Law and supporting regulations, revised the PRC Energy Conservation Law, and encouraged macro-level consideration of energy and environmental issues via its promulgation of the PRC Circular Economy Law.

In policy terms, the NDRC published the National Climate Change Programme on 4 June 2007, which was followed by a white paper on the PRC’s policies and actions on climate change.

These policy initiatives indicated that various technologies and industries should be promoted, not only for the purpose of achieving the above-mentioned 20% energy reduction per GDP unit, but also to reduce the emission of greenhouse gases.

As part of its RMB4,000 billion (US$585 million) stimulus package which was announced in November 2008 and revised in March 2009, the PRC government is currently revising its renewable energy targets, in particular those for solar and wind energy.

To support these new targets, the NDRC has announced benchmark pricing for feed-in tariffs for onshore wind energy.

The State Council has instructed provincial and local governments to consider climate change initiatives in their economic and social development policies.

Consequently, during July and August 2009, various provinces promulgated their own (draft) provincial climate change plans.

The State Council’s position is further reflected in the Resolution of the Standing Committee of the National People’s Congress Regarding the Positive Approach to Cope with Climate Change, whereby the Standing Committee of the National People’s Congress emphasizes the importance of combating climate change.

The Resolution not only calls for a reduction of energy use and for an increase in energy efficiency, but also for support for the use of clean coal technology, renewable energy sources (e.g. hydro-power, wind, solar and biomass), and for the construction of nuclear power stations.

It further stressed the need for strict implementation of the PRC Energy Saving Law, the PRC Renewable Energy Law, the PRC Circular Economy Law, and the PRC Clean Production Law, and indicated that existing legislation should, where appropriate, be amended or supplemented to strengthen the efforts to fight climate change.

National treatment for Hong Kong?

As a corollary to the PRC’s becoming eligible to participate in the CDM, the Arrangements for the Implementation of Clean Development Mechanism (CDM) Projects in the HKSAR took effect on 6 June 2008 to facilitate the commissioning of CDM Projects in Hong Kong.

In April 2009 the Hong Kong media reported that Hong Kong companies might soon receive national treatment for development of CDM projects in the PRC. Currently, Hong Kong companies are regarded under applicable PRC laws and regulations as foreign entities when developing CDM projects in the PRC. Therefore, among other restrictions, Hong Kong companies wishing to develop CDM projects must joint venture with a PRC company and cannot own more than a 49% equity interest.

Under the anticipated policy change, Hong Kong companies will no longer be restricted in their equity holding and could potentially hold up to 100% of the equity interest in CDM projects. This policy development is still awaiting further clarification and detail; however, it does indicate a willingness from both the NDRC and Hong Kong’s environmental regulatory authorities to continue their coordination of climate-change-related policies. The expected clarification of the proposed national treatment of Hong Kong companies is another indication of the extent to which the PRC and Hong Kong governments are prepared to collaborate in order to address climate change in a coordinated cross-border manner

Beatrice Schaffrath regularly advises on China-related environmental law and compliance matters, including projects involving renewable energy, climate change, and the Clean Development Mechanism under the Kyoto Protocol.

David Smith focuses on the development of major environmental, energy and infrastructure projects across Asia Pacific. His experience spans a variety of industry sectors including power, oil and gas, water and transportation.