Introduction

Clean Technology, or "Cleantech", has become a key issue for industries and Japanese businesses, as consumers and governments across the world push for cost-effective yet environmentally-friendly business practices.

As an indication of the size of the market, total investment in clean technology in 2010 reached a record US$243 billion – an increase of 30% from 2009. This was helped by substantial growth from China, which was up 30% to US$51.1 billion.1

As a result, the Cleantech market represents a significant, worldwide opportunity for Japanese manufacturers and investors: successful technologies can be rolled-out in many jurisdictions, often benefiting from significant regulatory incentives as well as increasing consumer and business demand.

Importance of Clean Technology to Japanese Companies

The increasing role of national and international policy and regulation in response to climate change, resource scarcity and other environmental concerns is a key driver in the Cleantech market, shaping both innovation and investment. Whilst such regulations have been instrumental in generating a worldwide market, the need to ensure regulatory compliance across different and changing legal regimes will be potentially difficult and burdensome for Japanese companies looking to operate in the market.

It is therefore important that Japanese manufacturers, retailers and investors keep up to date with the key regulatory and legal Clean Technology developments. In this newsletter, we focus on the legal regime in place in the European Union ("EU"), where Clean Technology implementation is gaining momentum.

What is "Clean Technology"?

Clean Technology includes any technology-focused product or service which reduces energy or other natural resource consumption, waste or pollution.

Examples include: technology for renewable alternative energy and energy efficiency, storage and transmission systems, powering/cooling data centres and base stations, eco-friendly electronic products and systems and nanotechnology.

Overall Regulatory Trend

Over recent years, the EU has implemented a series of environmental and energy-related proposals and directives. These include:

  • EU Integrated Product Policy, which is aimed at reducing the environmental impact of products (including their energy consumption) and requires products to be assessed from the manufacturing stage through to their use and end-of-life management.
  • EU Climate Change and Energy Strategy, which sets out the EU's strategy to: (a) reduce greenhouse gas emissions in the EU by 20% by 2020; (b) ensure that 20% of the EU's overall energy needs are met by renewable sources by 2020; and (c) by increasing efficiency, to reduce energy consumption by 20% by 2020.
  • EU 2020 Flagship Initiatives, which are designed to ensure "smart, sustainable and inclusive growth for Europe" and are based around themes including a resource-efficient Europe.
  • EU Low Carbon Economy Roadmap, which aims to transform the EU into a competitive low carbon economy by 2050.
  • EU Energy Efficiency Directive, which is a draft proposal, announced in June 2011, designed to increase efforts to use energy more efficiently at all stages of the energy chain.

What are the key issues for Japanese manufacturers?

Product Design

  • The Eco-design for Energy-Related Products (ErP) Directive is aimed at ensuring that products are designed to be as energy-efficient and as environmentally-friendly as possible.
  • This requires Japanese manufacturers to consider factors such as energy consumption, waste generation, water consumption and recycling capabilities.
  • The Directive focuses on "energy-related products", which include "any good that has an impact on energy consumption during use".
  • So-called "implementing measures" are made under the Directive to set detailed energy efficiency requirements for specific product groups.
  • Implementing measures have so far been adopted for 12 product groups including televisions, set-top boxes, domestic lighting and electric motors.

Use of Hazardous Substances

  • The Restriction of Hazardous Substances (RoHS) Directive targets businesses that are involved with electrical and electronic equipment.
  • This includes Japanese manufacturers, importers, exporters and business that re-brand goods.
  • The Directive limits the use of hazardous substances such as lead and cadmium in the manufacture of new electrical and electronic equipment placed on the market anywhere in the European Union. Similar limits for car components apply under the EU End-of Life Vehicles Directive.

Labelling

  • The EU Energy Labelling Directive requires Japanese suppliers (meaning manufacturers, their EU representatives or importers) of household "energy-related products" to display products' energy consumption so that customers can compare efficiency with other makes and models. Japanese suppliers must also provide technical and standard information to support their labelling.
  • The European Commission also has the power to set specific energy labelling requirements for particular energy-related products. Regulations have already been passed setting requirements for products such as televisions, dishwashers, freezers and washing machines.

Batteries

  • The Batteries Directive aims to minimise the impact of batteries on the environment, by making battery manufacturers responsible for the cost of collection, treatment, recycling and disposal of waste batteries.
  • The Directive also set limits on certain heavy metals that can be used in the production of batteries.

Packaging

  • The Packaging and Packaging Waste Directive seeks to reduce the impact of packaging and packaging waste on the environment.
  • The Directive contains provisions on the prevention of packaging waste, on the re-use of packaging and on the recovery and recycling of packaging waste. It also introduces recovery and recycling targets for packaging waste.

Waste Recovery

  • The EU Waste, Electrical and Electronic Equipment (WEEE) Directive aims to reduce the environmental impact of electrical and electronic equipment (EEE) waste.
  • This is to be achieved by changes throughout the EEE product cycle, including improved product design to ease dismantling, recycling and reuse. For example, EEE must be marked with information explaining the correct disposal procedure by the end user.
  • The Directive also requires Japanese EEE manufacturers to provide for and finance the proper disposal of EEE waste that they put on the market.

Penalties

  • EU directives require EU countries ("Member States") to implement their requirements into national laws. There can, therefore, be significant variations between the precise requirements adopted by each Member State and some may have enacted additional and more stringent controls.
  • In particular, directives do not specify the penalties that must be applied for any breaches by companies or individuals, but generally require Member States to adopt penalties that are "effective, proportionate and dissuasive".
  • Penalties for breaches of the directives above will therefore vary between Member States, but in the UK, for example, can include unlimited fines or the withdrawal of non-compliant products from the market.

Business Opportunity

Cleantech represents a significant global market for Japanese technology manufacturers and investors, and the alignment of political and economic drivers suggest that the market will keep growing.

Given the global nature of the Cleantech market, the most successful Japanese companies will be those which respond to the opportunity by combining innovation with successful international roll-out and partnership strategies.

Importantly, a good understanding of the regulatory drivers behind the market is fundamental to determining the right strategy for technology development, implementation and international roll-out.