Based on petitions filed by a consortium of Chinese auto producers, China’s Ministry of Commerce (MOFCOM) recently initiated investigations into alleged dumping and subsidization of U.S.-made autos.  The investigations, which according to MOFCOM’s initiation notices cover “saloon and cross-country cars” with engine displacement above 2,000 cc, could result in the imposition of antidumping and countervailing duties on imports of covered U.S. autos exported to China.  Some trade analysts view these investigations as a politically motivated response to the recent U.S. announcement of special “Section 421″ safeguard duties on Chinese-made tires, pursuant to a China-specific provision of U.S. trade law that allows the President to restrict imports of Chinese goods found to be causing market disruption.

MOFCOM’s countervailing duty investigation is notable because it is the first to target U.S. government funding to automakers intended to spur the development of next-generation clean energy drive-trains.  The programs subject to MOFCOM’s investigation include the U.S. Department of Energy’s Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, the Troubled Asset Relief Program (TARP), the “Cash for Clunkers” program and various tax incentives related to hybrid and electric autos.  Of the thirty-one distinct U.S. federal and state programs under investigation by MOFCOM, most are related to U.S. government efforts to stimulate the U.S. auto industry’s transition to the production of more efficient and greener vehicles.

The investigation also highlights a tension between the Obama Administration’s energy policies and international trade rules.  On the one hand, the Administration is concerned that U.S. global leadership in green technology innovation is waning and has launched a series of initiatives - including financial assistance programs like ATVM - intended to restore U.S. leadership in this area.  Speaking at a recent energy conference, U.S. Energy Secretary Steven Chu suggested that the U.S. is behind other countries in high-tech green manufacturing areas such as solar photovoltaic technology, hybrid vehicle batteries and high-voltage transmission lines, and he urged aggressive action to promote these and other emerging green technologies.  U.S. Rep. Bobby Rush (D-IL) sounded similar themes in opening a recent hearing before the House Subcommittee on Commerce, Trade and Consumer Protection, on the topic “Growing U.S. Trade in Green Technology,” where he exhorted the U.S. to adopt “a strong long term export promotion policy to turn our economy toward what will make us a global leader.” 

On the other hand, government assistance programs intended to stimulate production and export of specific technologies may fall within the definition of “subsidy” in the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement).  Such subsidies, when found to be conferred on specific industries (and when other conditions set out in the SCM Agreement are satisfied), may be countervailed through the imposition of import duties that offset the competitive advantage bestowed by the subsidies.  The SCM Agreement contains no exception for subsidies that purport to advance environmental purposes.  In 1995, when the SCM Agreement became effective, it included exceptions for certain environmental subsidies.  These exceptions lapsed in 2000, however, leaving subsidy programs with purported environmental purposes vulnerable to countervailing duty actions.

The U.S. and its major trading partners - many of whom are actively promoting emerging green energy technologies - will need to remain cognizant of the risk that their promotion of domestic champions could also spur trade friction.

For further information about this topic, please contact Akin Gump.

In their article “The U.S.-China Clean Tech Opportunity,” co-authors Mario Mancuso and Asma Chandani of Akin Gump describe the opportunity for the United States and China to collaborate on clean energy technologies and assess some of the current challenges to a transparent and level-playing field in clean tech trade and investment between the two countries.  In particular, the authors examine the implications of (i) export controls, (ii) enforcement of intellectual property rights and (iii) regulatory barriers and protectionism.  The authors propose concrete steps that the United States and Chinese governments can take to create the framework and conditions for an open, functioning and competitive clean technology market.  Such an approach would lay the foundation for a clean tech future that the world wants and needs and introduce the next constructive chapter in one of the most important bilateral relationships in the world.

The Hon. Mario Mancuso is a partner at Akin Gump Strauss Hauer & Feld, LLP, an international law firm that opened its Beijing office in 2007.  He previously served as a senior U.S. Defense Department official (2005-07) and as U.S. Under Secretary of Commerce (Industry and Security), U.S. Chair of the U.S.-China High Technology and Strategic Trade Working Group, and member of the Committee on Foreign Investment in the United States (2007-09).

For further information about this topic, please contact Akin Gump.

While United States and Chinese diplomats are working to forge cooperation between the countries on climate issues, the Chinese government’s huge clean tech investments may help that country pass the U.S. as the worldwide clean technology leader.  Could this “competitiveness crisis,” as one group terms it, have implications for the U.S. economy and the clean tech industry?  The results of this global race for dominance in the cleantech sector could significantly impact not only the national economy, but also the condition of the global environment.

Chinese Energy Investments

The Chinese are investing approximately 3% of their GDP on cleantech and renewable energy, as compared to less than half a percent of GDP in the U.S.  During early summer, the Chinese government floated plans to spend at least $440 billion in another stimulus package-all of that money going toward new cleantech investment.

The Chinese government also set a number of demanding goals for renewable energy and clean tech production and installation, including-

• Increasing renewable energy production from wind to 150GW by 2020, from an earlier goal of 100GW, and solar production from 1.8GW to 20GW by the same year
• Increasing production of plug-in hybrid electric vehicles to 500,000 by the end of 2011, up from 2,100 in 2008
• A raft of transportation spending initiatives and policy reforms, including $1 trillion for increased railway infrastructure, tax programs to incentivize the purchase of fuel-efficient cars and increased fuel economy standards
• Strict energy-efficiency standards in building codes, home appliances and amongst China’s top 1000 energy consuming businesses.

China is also moving full speed ahead in the race to dominate nanotechnology research, a likely source for many of the cleantech industry’s future breakthroughs.  These investments, combined with what some see as a willingness to use border measures and anti-competitive bidding practices to discourage foreign participation in the Chinese cleantech market, position Chinese manufacturers to be a dominant player in the global cleantech market.  Indeed, China’s rise in the cleantech space has prompted some U.S. analysts to question the wisdom of investing in domestic cleantech manufacturing capacity, versus simply ceding manufacturing to China and focusing on domestic installation of less expensive Chinese equipment. 

When Cleantech Doesn’t Mean Cleanup

While China has made significant strides in cleantech investment and implementation, it has continued to resist international calls for binding emissions caps or reductions.  Instead, citing its prerogative as a developing nation, China has focused its pledges on reducing energy intensity-a measure of carbon emissions in relation to GDP.  This poses several challenges for international efforts to stabilize carbon levels.  First, with China becoming the world’s largest net emitter of CO₂, internationals effort to freeze global emissions will be an exercise in futility without China (and other large developing countries) making binding commitments.  Second, even under China’s current emissions-rate based goals, China has yet to meet any of the benchmarks necessary to achieve its efficiency goals of reducing emissions 20% by 2010.

China’s aggressive investment in the cleantech sector, combined with its continued refusal to reduce its net emissions, illustrates a major flaw in the assumption that investment in clean energy infrastructure and manufacturing capacity will automatically lead to both a cleaner environment and more robust national economies.  If, as some critics argue, China has opted for the robust economy while leaving the cleaner environment to others, China could reap disproportionate economic benefits from global cleantech investment, while shifting a disproportionate economic and environmental burden to other counties.  This, in turn, could undermine other countries’ efforts to fund today’s environmental cleanup efforts through long-term economic growth in their domestic cleantech industries. 

American cleantech companies are poised between a radical expansion of their potential markets into China and other cleantech-hungry developing countries and the specter of foreign companies, energized by concerted investment in their home nations, outcompeting them both overseas and at home.  This high-stakes race for cleantech hegemony will be hard fought, with China and the U.S. just two of the countries competing.  The race to be a global leader in actual emissions reductions, however, remains any country’s to win.

For further information about this topic, please contact Akin Gump.

This past weekend, Secretary of State Hillary Clinton wrapped up her first foreign diplomatic trip with a visit to China. While a number of issues crowded the Secretary’s plate on this trip—including staving off the global financial crisis—Sec. Clinton placed climate change issues in the center of her diplomacy. Joined by her top climate envoy, Todd Stern—profiled by ClimateIntel here—the Secretary reiterated her, and the U.S.’s, commitment to engagement on climate change issues at every stop on her diplomatic tour.

Especially notable was Sec. Clinton’s schedule in China, where she visited a new cogeneration plant using high-efficiency gas turbines built for the Chinese by General Electric, and made a speech promoting sustainable growth and urging the Chinese to not “make the same mistakes [the United States] made, because I don’t think either China or the world can afford that.” Sec. Clinton also stressed that while the United States had long been the world’s largest emitter of heat-trapping gasses, the Chinese had recently taken that position. While China’s per-capita emissions remain significantly lower than the United States’, much of the world continues to express serious concerns on the growth in China’s absolute emissions.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

In the run-up to the fourth session of the Ad Hoc Working Group on Long-Term Cooperative Action (AWG-LCA), China, India and Brazil have sharply reiterated their views that the burden of reducing greenhouse gas (GHG) emissions lies, in the first instance, with developed countries.  The AWG-LCA, convened as part of the U.N. Framework Convention on Climate Change (UNFCCC) Bali Action Plan of December 2007, is charged with facilitating agreement on principles for long-term action to reduce GHG emissions, extending beyond the current Kyoto Protocol obligations, which are set to expire in 2012.  This agreement on principles is, under the Bali Action Plan, expected to be reached in time for the December 2009 UNFCCC Copenhagen summit.  In preparation for the fourth session of the AWG-LCA, scheduled to occur in Poznan, Poland during the first two weeks of December 2008, governmental parties to the UNFCCC are currently staking out their negotiating positions in formal submissions to the AWG-LCA.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

The Agreement for Cooperation between the Government of the United States of America and the Government of India (123 Agreement), which will allow U.S. nuclear suppliers to trade with India for the first time since 1974, passed comfortably in the Senate last Wednesday (86 for, 13 against). The Bush Administration has hailed it as a virtually “done matter.” U.S. Congressional approval removed the last significant barrier to the signing of the 123 Agreement, following the approval of India’s nuclear inspection plan by the International Atomic Energy Agency (IAEA) on August 1, 2008, and the waiver granted to India to participate in global nuclear commerce by the 45-member Nuclear Suppliers Group (NSG) on September 6, 2008. 

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

India’s Ministry of New and Renewable Energy recently implemented a Generation Based Incentive (GBI) program for grid-interactive wind power projects, which will be implemented by the Indian Renewable Energy Development Agency (IREDA). The program encourages investments in wind power projects by participants unable to claim accelerated depreciation under the Income Tax Act, including financial institutions, trusts, public/private-sector project developers, and foreign players lacking a balance sheet in India. The GBI scheme also encourages a new brand of investors by excluding from the program all those who self-consume the electricity produced by their wind projects, thereby ruling out applicability of the program to leading domestic power utilities.

The new GBIs provide significant incentives to grid-interactive wind power generation plants of certain minimum capacity that have obtained the requisite certifications/validations, and will be in addition to the tariffs provided by various State Electricity Regulatory Commissions. Estimates predict an increased internal rate of return (IRR) of 1.5-2% on wind power projects in India as a result of the new incentive scheme.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

Last week, the World Bank priced the first bond linked to prices of certified emissions reductions (CERs), known as the World CO2L Bond, with Japanese stock brokerage firm Daiwa Securities Group serving as lead manager. The Uridashi bonds will be offered to individual Japanese investors during the period June 9-24, with June 26 as the issue date, and will mature on September 30, 2013. The total amount of the bond issuance is US$25 million with a minimum denomination of US$100,000. After an initial 15-month period with a fixed coupon of 3%, the interest rate will be linked to the future performance of CER market prices, and specifically to the price of CERs from a hydroelectric power plant project in the Guizhou province in China.

The project has been registered with the United Nations’ Clean Development Mechanism (CDM) Executive Board in April 2008 and is being jointly implemented by China’s Guizhou Sanhe Hydro Power Development Co., Ltd. and Daiwa Securities SMBC Principal Investment Co., the investment arm of Daiwa Securities Group. The project is expected to reduce greenhouse gas emissions by over 23,000 tonnes CO2-equivalent per year.

Daiwa Securities Group expects that sales of the World CO2L Bond will help support demand for greenhouse gas emissions trading because investors will be indirectly participating in the market for greenhouse gas reductions. Trade in CERs more than doubled to $13 billion last year, according to a World Bank report published in May.

For further information about this topic, please contact Akin Gump.

China’s wind power generation rose 95.2% to 5.6 billion kw hours in 2007, from a year ago, reported the Xinhua News Agency. A report released by the government said that China had wind power facilities with a combined installed capacity of 6.05 gigawatts at the end of 2007, up from 2.67 gigawatts in 2006. The country achieved the goal set for the 2010 three years ahead of schedule. Wind power projects under development will make up for a combined installed capacity of 4.2 gigawatts.

According to the Medium and Long-Term Development Plan for Renewable Energy in China published by the National Development and Reform Commission (”National Development Plan”), China will generate 15% of its energy from renewable sources such as wind by 2020. To achieve the goal, the government plans to increase its wind power equipment to a combined installed capacity of 10 gigawatts by 2015, and to 30 gigawatts by 2020. Shanghai Daily reported that the 2020 target is likely to be increased by the government to as much as 100 gigawatts, which, according to WSJ Environment Capital, would be greater than the total global current installed wind capacity.

The rapid increasing utilization of wind power for electricity generation has been driven by the following factors:

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

Further demonstrating its leadership on climate change response, California’s Secretary for Environmental Protection signed an agreement with the United Nations Development Programme (UNDP) to support China’s efforts to address climate change. Pursuant to the agreement, California will share valuable information, such as academic research, effective policy initiatives, lessons learned and technological innovations, with the Chinese provincial governments to support their efforts to develop strategies and actions to mitigate global climate change. California is currently developing its own program to cut greenhouse gas emissions by 30% by the year 2020.

Governor Schwarzenegger issued the following statement about the agreement: “California alone cannot solve climate change - this is a global problem that requires a global solution. America has to lead, and we are doing so even with or without Washington. California is not waiting for the federal government to take action but instead we are forming agreements and building relationships with countries like China to fight climate change.”

For further information about this topic, please contact Akin Gump.