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Stimulus Package Boosts Green Efforts

Matthias Voss and Matthew Bisley, SCMP – Updated on Jan 05, 2009

The 4 trillion yuan (HK$4.55 trillion) stimulus package announced last month by the central government gives impetus to energy efficiency development and opportunities on the mainland.

The 2007 Energy Conservation Law came into force on April 1 last year against a backdrop of a fast-growing economy and rise in demand energy and fuel prices, a growing awareness of environmental issues and increasing world pressure on developing economies including China to use environmentally friendly and technologically advanced energy sources. While economic circumstances have since changed, the stimulus revitalises opportunities in the energy sector arising from the Energy Conservation Law.

The law has three principal goals: to promote policies for energy conservation and environmental protection; to restrict the development of high-energy consumption and high-pollution industries; and to encourage the development of energy-saving and environmentally friendly industries.

It proposes many policy initiatives to achieve energy conservation ranging from passive measures – education, energy efficiency labelling, accreditation systems for products, publication of energy use statistics and awards systems for energy conservation achievement – to more direct measures such as government funding, tax incentives, subsidies, prohibitions on the use of high energy consuming or polluting technologies, introduction of maximum emission standards for motor vehicles and focused government procurement of energy-saving products.

The law is supported by regulations in specific sectors. Banks, for example, are required to monitor and actively support energy-efficiency projects while developers must incorporate energy-efficient technologies into new projects.

The present economic environment is vastly different from that existing when the law was introduced, threatening the opportunities expected to arise from the new law. There has been a general slowdown in the Chinese economy and oil prices have dropped, making the introduction of energy-efficient technologies relatively more expensive.

However, the State Council’s announcement that one of the 10 measures of the stimulus package is the enhancement of environmental and ecological development makes the prospects of this sector brighter.

The law supported by the stimulus package creates opportunities for participants in the energy sector, including manufacturers of energy-efficient products and technologies, real estate developers, architects, banks, leasing companies, project sponsors, consultants and advisers.

The new regulatory environment should also foster collaboration. For example, manufacturers may link up with financiers or leasing companies to promote sales of their products, and manufacturers and financiers may co-operate with government entities for particular government initiatives. Independent of the new regulatory environment, the energy-efficiency market has already started to develop with support from international financial organisations such as International Finance Corp and Asian Development Bank.

Matthias Voss is a partner of the banking practice at Allen & Overy in Shanghai and Matthew Bisley is a counsel of the banking practice in Shanghai

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