Asia Moves to Balance Environmental Regulations and Greenhouse Gas Reduction Commitments With Economic Growth

March 31, 2016

I. Environmental Developments in China

A. Environmental Targets Set Out in China’s Thirteenth Five-Year Plan

On March 17, 2016, China released its Thirteenth Five-Year Plan for Economic and Social Development (the “Plan”).  The Plan strengthens several of the environmental priorities set forth in the prior plan (“12th Plan”) consistent with Premier Li Keqiang’s commitment to improve environmental protection while also assuring economic growth. The new Plan will have ripple effects in the world economic arena, including outreach for foreign investment in green infrastructure and pricing of carbon fuels as China significantly increases its export of coal.

Under the Plan, China will cut carbon emissions by 18 percent from 2015 levels by 2020 compared with 17 percent in the 12th Plan.  The plan also aims to limit energy use to five billion tons of standard coal equivalent by 2020 and to increase forest cover by approximately 1.5 percent.  For the first time, the Plan includes an air quality indicator requirement providing that air quality in large cities must meet “good” or “excellent” standards 80 percent of the time and meet China’s fine particulate matter standard on an annually averaged basis.  Whether the air quality is “good” or “excellent” has been made clear in the new Technical Regulation on Ambient Air Quality Index (for trial implementation) which came into effect on January 1, 2016.

In related developments, China has announced that it plans to triple solar power capacity by 2020.  China’s current solar capacity is 43 gigawatts, but it plans to add 15 to 20 gigawatts of solar power annually over the next five years for a total potential capacity of between 118 and 143 gigawatts.  Hydropower will increase from 300 gigawatts to 360 gigawatts during the same period, with a commitment to enact better plans for population relocation and watershed management.  At the beginning of the year, China authorized its banks to issue “green bonds” to cover $250 billion of the anticipated five-year costs for renewable energy and related infrastructure improvements.  The People’s Bank of China has recently estimated that the government will need to look to outside sources of investment for at least an additional $ 1 trillion over the same five-year period.  In that connection, World Bank has recently approved a $1.4 billion lending facility (in collaboration with Huaxia Bank Co.) for air pollution reduction projects during the next six years.

B. China’s Expanded Restrictions on Use of Hazardous Substances in Electrical and Electronic Products (China RoHS)

China’s Ministry of Industry and Information Technology (“MIIT”), along with seven other authorities, recently issued the Administrative Measures for the Restricted Use of Hazardous Substances in Electrical and Electronic Products (the “Hazardous Substances Measures”) to replace the previous regulation issued in 2006, which did not cover products manufactured in China for export (this exemption does not apply to the Hazardous Substances Measures).  The Hazardous Substances Measures will be effective as of July 1, 2016 and will impact the sale, production (including design), and import of electronic and electrical products in China that will be listed in a catalogue to be established by MIIT.  Similar to RoHS regulation in the European Union, the Hazardous Substances Measures regulate and restrict the use of six hazardous substances contained in electrical and electronic products.1

Under the Hazardous Substances Measures, products containing lead, mercury, cadmium, hexavalent chromium compounds, polybrominated biphenyls, and polybrominated diphenyl ethers, will be subject to hazardous substance content limits and a “conformity assessment system” that will evaluate compliance with these limits (the conformity assessment system replaces a compulsory certification approach under the 2006 regulation and likely provides more flexibility with regards to compliance with the limits).  The Hazardous Substances Measures also create labelling and information-disclosure requirements for electrical and electronic products, including disclosure relating to an “Environmentally Friendly Use Period” (life of the product over which there is no risk of exposure).

C. China’s Tightened Environmental Impact Assessment Qualification Measures

In November 2015, the Ministry of Environmental Protection (“MEP”) implemented the Measures for the Administration of the Qualification for Environmental Impact Assessment of Construction Projects (the “EIA Measures”), repealing predecessor regulations put into effect in 2005.

The EIA Measures are an effort by the Chinese government to fight corruption in firms that perform Environmental Impact Assessments by establishing minimum qualifications for such firms and providing for periodic unannounced audits of the firms.  The new law provides for sanctions where non-compliance practice is found.

II. Other Environmental Developments in Asia

D. Japan

The Japanese government plans to finalize a climate action plan by May 2016, with a commitment to reduce greenhouse gas emissions by 26 percent by 2030 and 80 percent by 2050 using 2013 levels as a baseline.  The plan is expected to vest local authorities with the ability to create programs to reduce emissions and provide broader strategies to protect Japan’s food supply from extreme weather conditions.  In addition the government is expected to require power producers to increase the efficiency of power plants and power retailers to sell electricity generated from lower carbon intensive sources of energy.  Japan's initiatives also include energy-efficiency programs, changes to the incentive program for clean-energy, and programs aimed at the use of hydrogen to reduce greenhouse gas emissions (including a goal of 40,000 hydrogen-power cars on the road by 2020).  Commentators see these commitments as ambitious given Japan’s current reliance on coal-fired power plants, including the opening of 41 new coal-fired power plants planned over the next ten years.  In addition, the emission reduction targets rely on the use of nuclear power, despite the closure of all nuclear plants in Japan after the Fukushima disaster in 2011, with only a few reactors reopening since August 2015.

E. South Korea

On January 1, 2015, the Registration and Evaluation of Chemicals (“K-REACH”) program, originally approved in 2014 (see OMM May 28, 2014, Client Alert, Korea Enacts Chemical Safety “REACH” Program), came into effect in South Korea.  K-REACH is similar to its European Union counterpart and is aimed at ensuring chemical safety through a system of chemical registration and reporting.  Manufacturers, importers, and sellers of any new chemical or designated existing chemicals in quantities of one ton or more per year must submit registrations or receive an exemption from registration.  Foreign manufacturers and exporters will be required to observe K-REACH through appointment of a local representative.  After the expiration of an initial six-month leniency period, under which companies could supply information related to hazardous chemicals without facing a penalty, enforcement efforts for violations under K-Reach are expected to increase.  In July 2015 a list of 510 existing chemicals that must be registered prior to July 1, 2018 was published, including publication with English names and unique K-REACH registry numbers.

F. Trans-Pacific Partnership Agreement

After execution on February 4, 2016 and the release of the full text of the Trans-Pacific Partnership Agreement (“TPP”) (a 12-member trade agreement that includes the Pacific rim countries and the United States), various stakeholders have weighed-in on the sufficiency of supply-chain related environmental provisions in the TPP.  The Obama Administration has stated that the TPP provided tools for addressing environmental issues and threats to various species and ecosystems, such as illegal logging and fishing, marine pollution, and wildlife trafficking.  Environmental groups have criticized TPP for lacking strong obligations, using broad language that is not legally binding, and for failure to mention the phrase “climate change.”  In addition, environmental groups are critical of TPP provisions that allow foreign companies to challenge environmental laws that allegedly hinder trade in TPP member countries.  In contrast, the American Chemistry Council stated in testimony to the U.S. International Trade Commission that the TPP will provide as much as a $1.2 billion increase in chemical exports from the United States “while maintaining high levels of protection for human health and the environment.”  It remains to be seen how environmental provisions of TPP will be interpreted as the agreement enters into force.

1 “Electrical and electronic products” refers to devices and accessory products with rated working electrical voltages of no more than 1,500 volts direct current and 1,000 volts alternating current which function by means of current or electromagnetic fields, and generate, transmit and measure such currents and electromagnetic fields.  Power generation, transmission and distribution equipment are excluded from the law.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Eric Rothenberg, an O'Melveny partner licensed to practice law in New York, Jesse Glickstein, an O'Melveny associate licensed to practice law in the District of Columbia, New Jersey, and New York, and Alan Bao, an O'Melveny associate licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted. 

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