As China moves towards cleaner energy sources, there will be a lot of work ahead for the legal sector in the energy industry.

With the Trump administration nullifying previous climate change efforts and cutting back on World Bank funding by $650 million, China may well lead the charge for greener energy now.

Zhu Hongwen, a partner of Sunshine Law Firm and director of the international department, believes that the Chinese government will stay committed to the green cause.

“I do notice a trend towards clean energy sources. The past seven years have had an impact on traditional energy industries, particularly coal, as people are becoming increasingly aware of its effects and the government works towards protecting citizens from it,” she says.

In March, President Trump started the legal process of undoing and rewriting Obama’s Clean Power Plan to bring back jobs for miners. The Clean Power Plan, which was aimed at moving the US towards more sustainable energy sources with wind and solar energy, would have closed down hundreds of coal power plants.

Back in 2014, President Xi Jinping and President Obama came to a historic climate agreement between the two biggest polluting countries in Paris.

President Obama vowed that the US would cut climate pollutants by 26 to 28 percent below 2005 levels by 2025. President Xi Jinping of China promised that China’s CO2 pollution would peak around 2030 or possibly earlier, and that the country will increase its share of non-fossil fuel energy to around 20 percent by that time.

So far, China has showed no signs of straying from the plan despite the US reneging from the agreement.

“All signatories should stick to it instead of walking away from it, as this is a responsibility we must assume for future generations,” Xi declared at the Davos economic summit meeting in January.

A GREEN FUTURE

Zhu believes in a green future for China. Not just for the environment, but also for the legal industry.

“I definitely see more work opening up for the legal sector in the clean energy industry as it becomes more established and commonplace in China. There’s also a lot of outbound investments in renewable energy, like solar and wind. That will provide a lot of work for legal professionals, as it covers everything from due dilligence to negotiation and agreements,” she says.

With the US stepping away from the green energy movement, China has become the largest source of energy finance for governments around the globe.

Two  of  China’s  global  policy banks have already become the largest sources of energy funding for governments. In 2016 alone, the China Development Bank and the Export- Import Bank of China provided $43.2 billion to foreign governments. This brings the total to be upwards of $160 billion since 2000, with 60 percent of it spread across the Asian region.

To put it into perspective, that amount is close to triple the average annual energy financing of the World Bank and all the multilateral development banks from the West combined.

“Climate initiatives are offering various new opportunities for businesses, particularly around increased investment in renewable energy projects,” says Luke Devine, Asia Pacific head of the EMI Practice at Baker McKenzie. “These investments certainly hold the potential for more legal work. 

China’s 13th Five-Year Plan, announced in 2016, specifically mentioned green production as a focus area.

The country’s One Belt, One Road (OBOR) initiative also places energy as a key component in the plan. The economic framework proposed by China focuses on developing connectivity and cooperation between China and the rest of Eurasia through land and maritime routes.

The intiative has spawned a few financial institutions, such as the Asian Infrastructure Investment Bank and the Silk Road Fund, which prioritise  the development of green projects and energy infrastructure.

Despite promising policies and a flow of funds from China, investing in countries participating in the OBOR initiative remains tricky. Differing environmental policies in associated countries could be a legal minefield  for investors and green energy companies. But this could create more opportunities for legal professionals to step into consultative roles.

Hilary Lau, a partner at Herbert Smith Freehills who specializes in the energy and natural resources sector, believes that legal professionals need to upgrade their skills to match the changing needs of the energy industry.

“A lot of the new energy sources, like solar energy, are in the fundraising stage at the moment. So there will be a whole host of needs to meet ahead, from intellectual property and financial law to environmental disputes and M&A related work,” he says.

“Lawyers in the oil, coal and gas industries will find their existing skillsets useful with the emerging renewable energy industry. But they will need to learn new industry terms and structures of these emerging sectors to stay relevant enough to meet their needs,” he adds.

STRONG TRADITIONS

Despite a clear trend towards sustainability, China remains invested in traditional energy for now. The country’s portfolio of overseas energy finance is still heavily invested in fossil fuel operations, especially coal.

Chinese banks have provided more than $40 billion in financing for global coal projects.

Late last year, China also set out to create a more open and transparent market for non-residential gas trading in two to three years. Under this new arrangement, prices will be determined by buyers and sellers and reported to the Shanghai Petroleum and Natural Gas Exchange.

Lau believes that existing demand for legal work by traditional energy companies will remain strong.

“Coal currently constitutes 66 percent of China’s energy. Now  that prices in the coal industry have dropped, people are actually doing more projects. So legal needs are still in demand in the near future,” Lau says.

“Oil is looking stable in short, median and longterm views, because it is not as easily replaceable as other traditional energy sources. I foresee the gas industry to continue growing at a steady pace and so will its legal needs,” he adds.

A recent survey by global law firm Baker McKenzie revealed that the majority (87 percent) of energy, mining and infrastructure (EMI) businesses expect the need for legal help with M&A to rise.

Two-thirds (69 percent) of the EMI respondents also foresee an increase in dispute resolution/litigation in the next two years.

The survey found that the three key areas of focus for solving immediate complexities for EMI businesses operating in Asia Pacific are regulatory change, raising capital and optimizing tax structures.

NEW TRENDS IN OLD INDUSTRIES

“Fresh opportunities and new legal needs will present itself to the traditional energy industry as these established companies face changes within the industry and cope with challenges from emerging ones,” Zhu predicts.

The numbers from Baker McKenzie’s recent survey on the EMI industry seem to reflect that. More than half of the respondents (51 percent) expect that EMI sectors will see major technological disruption in the next two years.

Corporate leaders believe that cloud computing and big data are the top technological innovations that will matter most in the future, as companies look to use technology to boost growth and cut down on inefficiencies.

Investment trends seem to reflect that belief. A quarter (24 percent)  of the respondents say that they are already investing in big data, while almost one-third (31 percent) say that robotics receive the most investments.

“The world of business is more complex than ever. Identifying where companies and industries see predicted complexities emerging can help both governments and businesses themselves better prepare for this rapidly changing environment,” says Gary Seib, the Asia Pacific chair of Baker McKenzie.

“That technology is at the top of the list is probably not a surprise to many, but the number of companies that expect disruption by competitive technology in just the next two years should give pause to any corporates that see themselves as immune to these forces,” he adds.

Given such changes in investment focus, legal professionals in the oil, coal and gas energy industry could see their job scope being expanded to cover these shifts into technology.

As the energy industry evolves, so will the legal sector revolving around it. The opportunities in traditional energy industries like oil, coal and gas look set to be stable for now given that China’s financial portfolio and energy requirement have yet to match its green direction. But the country is taking steps towards a greener practice, environmentally and legally, with their global policies and  funding.

Lau believes that both traditional and new energy industries are growing in parallel with each other at the moment.

“The shift towards green energy is energizing new opportunities for the legal sector. If legal professionals are able to learn, upgrade and adapt to the renewable energy industry, they can certainly capture opportunities in both the old and new,” he says.