Christian Liu, Legal Director, Clyde & Co
Investors have previously been wary of entering the energy market in China, and for good reason. China’s energy sector is highly regulated, with rigid licensing regimes and exclusive rights for state-owned enterprises. However, that environment is changing as China ushers in rapid renewable energy expansion and fossil fuel replacement. In 2023, according to the International Energy Agency (IEA), China commissioned as much solar PV as the entire world did in 2022, while its wind additions also grew by 66% year-on-year. This article looks at the trajectory of renewables arbitration in China.
Renewable Energy in China
On 22 September 2021, the Chinese Central Government issued the “Opinions on Comprehensively, Accurately, and Fully Implementing the New Development Philosophy and Doing a Good Job in Carbon Peaking and Carbon Neutrality Work.“ These opinions set out the overall goals and arrangements for carbon peaking and carbon neutrality efforts, proposing three important time nodes: the years 2025, 2030, and 2060.
It is envisaged that,
- by 2025, a green, low-carbon, circular economic system will be established, with a significant increase in energy efficiency in key industries;
- by 2030, carbon dioxide emissions will peak and then stabilize with a gradual decline; and
- by 2060, a green, low-carbon, circular economic system and a clean, low-carbon, safe, and efficient energy system will be established. This would be accompanied by energy efficiency reaching an internationally advanced level; the proportion of non-fossil energy consumption exceeding 80%, and the smooth achievement of the carbon neutrality goal.
It is hoped that the establishment of carbon peaking and carbon neutrality goals will set the tone for China’s energy transition theme for coming decades, with a comprehensive green transformation of socio-economic development, in-depth adjustments in industrial structure, and accelerated development of a low-carbon energy system. The Chinese government consider foreign investment to be key to the realisation of these goals.
In the 2022 Industry Catalog of Sectors (the “Catalog”), encouraging foreign investment was expanded to include several sectors in the renewable energy industry. It explicitly highlighted the encouragement of foreign investment in new solar, wind and renewable energy power stations. The Catalog also emphasises the importance of foreign investment in developing technology and infrastructure for the renewable energy industry, an area that China currently seeks to improve on.
Renewables Arbitration in China
The welcoming of foreign investors to participate in the development of the renewable energy industry has arguably elevated arbitration as the main form of dispute resolution in the Chinese renewable energy industry. For example, the Changzhou Arbitration Commission revealed that, over the past two years, it received a total of 83 arbitration cases relating to renewables, amounting to a total of RMB 410 million. The cases involved parties from many countries including Thailand, Germany and Serbia, in disputes over construction contracts, contracting contracts, and contracts for the transfer of the right to use construction land.
Renewable energy disputes in China are typically resolved through arbitration because arbitration is considered to be an internationally accepted dispute resolution process, with the advantages of being efficient, confidential, and not restricted by geographical targets. China has well-established arbitration institutions and rules. The Chinese Arbitration Law, supplemented by the arbitration rules of major institutions such as the China International Economic and Trade Arbitration Commission (CIETAC), Beijing Arbitration Commission (BAC), Shanghai International Arbitration Center (SHIAC), and the Shenzhen Court of International Arbitration (SCIA) provide the main arbitral framework.
In addition, the Chinese government has been proactive in responding to developments in the energy sector generally. For example, recognising that climate change litigation and ESG litigation are increasingly becoming real risks for energy companies, the Supreme People’s Court, in the revised “Regulations on the Causes of Civil Actions” which took effect on 1 January 2021, added new categories of energy dispute cases to the list of civil actions, including carbon emission trading disputes and carbon mining trading disputes.
In 2021, the Beijing Arbitration Commission improved the supporting measures for international investment dispute resolution mechanisms, publishing the “Handbook for International Investment Dispute Arbitrators,” the “Code of Conduct for International Investment Dispute Arbitrators,” and issued interpretations of the “International Investment Arbitration Rules,” preparing the mechanisms and personnel for future international investment dispute resolution.
China has also created specialist energy arbitration centres. On 8 December 2023, the Jiangsu New Energy Dispute Arbitration Center was established in Changzhou. The objective is to provide commercial arbitration and mediation services for domestic and foreign new energy companies in the fields of international trade, investment and financing, mergers and acquisitions, project contracting, and intellectual property protection.
These developments are seemingly in response to the increasing number of energy disputes from the renewable energy sector in China and demonstrate China’s desire to enhance the renewable energy arbitration environment in China. Indeed, promoting a culture of renewables arbitration is timely as there is an increasing number of arbitration cases outside of China involving Chinese renewable energy manufacturers.
Recently, a US Court confirmed a Brazilian renewable energy company’s USD 73 million ICC award against a leading Chinese manufacturer of solar panels. In this case, the disputes involved two contracts on supply of modules for solar projects in the northern Brazilian state of Bahia. Due to the dramatic rise in the price of silica, the contracts were terminated, and arbitration was commenced for breach of contract (including damages for procuring replacement modules, loss of profits and increased financing costs) as well as gross negligence or acting in bad faith. Therefore, the exposure for Chinese renewable energy stakeholders is international as well as domestic, emphasising the need for the continuing development of specialist renewable energy arbitration and expertise in the same, in China.
Overall, renewable energy development is a primary focus of the Chinese government and foreign investment has been recognised as a tool in achieving China’s renewable goals. This has arguably put international arbitration at the forefront of renewable energy dispute resolution in China and will be a key practice area for Chinese law.
ABOUT THE AUTHOR:
Christian Liu is a Legal Director in Clyde & Co’s Shanghai Office. He represents both local and international clients and advises on a wide range of insurance and shipping-related disputes. He also has experience in handling disputes relating to road and air carriage, affreightment and international trade. Christian is a Member of the Chartered Insurance Institute and holds the Diploma in Insurance issued by the Chartered Insurance Institute.