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Will China be Green in the Arctic?

Yamal LNG

By MarEx 2018-04-22 00:18:29

For Chinese investment under the Belt and Road Initiative to succeed in the Arctic, it is crucial to protect the vulnerable environment and ensure sustainability, says Dr. Nengye Liu, senior lecturer in law at Australia's University of Adelaide.

In an analysis published in the Review of European, Comparative & International Environmental Law, he states that apart from respecting Arctic countries’ regulations, the Chinese government appears willing to take responsibility to regulate Chinese activities along the Belt and Road. This is demonstrated by various forms of industry self-regulation as well as non-binding government documents that have been published to guide Chinese business in the Arctic. For example, the Vision for Maritime Cooperation under the Belt and Road Initiative states that China is keen to ensure the health of the ocean, safeguard the marine ecosystem and biodiversity, promote the protection of the regional marine environment and strengthen cooperation in addressing climate change.

However, what is missing so far is hard law and an effective compliance regime for Chinese companies to maintain high environmental standards in the region. This is perhaps surprising, says Liu, given that it is estimated that China will become one of the world’s biggest cross-border investors by the end of this decade, with global offshore assets tripling from $6.4 trillion now to nearly $20 trillion by 2020. 

In 2013, the Ministry of Commerce, together with the Ministry of Environment, published the Guidelines on Environmental Protection for Overseas Investment. This is a voluntary guide that requires Chinese businesses to follow environmental regulations and standards in host countries. 

Additionally, in 2014, the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters adopted a set of voluntary Guidelines for Social Responsibility in Outbound Mining Investments, which was updated in 2017. These Guidelines apply to all mineral exploration, extraction, processing and investment cooperation projects, including related activities such as mining-related infrastructure development in foreign countries in which Chinese companies have invested. Measures include development of an environmental risk contingency plan and response mechanism and proactively reporting to local authorities, Chinese headquarters and the public about potential environmental impacts of the mining operation.

“The problem is that they are not legally binding and there is no compliance regime, apart from host countries’ legislation,” says Liu. “So far, it is unclear whether Chinese mining companies follow these guidelines along the Belt and Road.” 

In 2017, the Ministry of Commerce, The People’s Bank and the Ministry of Foreign Affairs jointly published their view that projects that fail to meet host countries’ environmental standards be restricted. “This is potentially a positive measure to encourage high environmental standards for Chinese investment in the Arctic,” says Liu. 

He says China's involvement in Russia's Yamal LNG project is an opportunity for China to demonstrate its capacity to successfully balance environmental protection and economic development in the Arctic. China's Silk Road Fund holds a 9.9 percent share in the project, and the first LNG train comprising 5.5 million tons per annum commenced LNG production in the fourth quarter of 2017.

Additionally, the Chinese government is currently drafting a regulation on overseas investment. If strict environmental standards can be integrated into domestic Chinese law as a criterion for approving overseas investment, this would be an opportunity to improve the Belt and Road Initiative's green image in the Arctic, says Liu.