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CONTRACTING FOR CARBON
Legal Framework for JI Projects under the Kyoto Protocol
A Major Legal Challenge
• First Bank Private Public Fund to Fund to provide returns to donors/contributors
• Designed to buy something that does not exist
• From people who may not be able to sell it
• Which Bank cannot own
• Rules keep changing
Joint Implementation
Requirements for Participation:
• National inventories and registries
• Project baselines and inventories
• Additionally of the project
• Credit sharing
• Host country approval
Art. 6 KP
6 (1) For the purpose of meeting its commitments under Article 3, any Party included on Annex I may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources […]
6 (3) Any Party included in Annex I may authorize legal entities to participate, […], in actions leading to the generation, transfer or acquisition under this Article of emission reduction units.
Emission Reductions Generated by JI projects before 2008
Forward selling of creditsAdvantage: e.g. market development, providing start-up
capital for mitigation measures.Condition:Transparent registries for recording and tracking
forward sales, as well as transparent emissions inventories
The Multiple Lives of an Emission Reduction
Emission Reduction
•Generated by a Project
•Verified by an independent entity
Assigned Amount Units
National Registry
Emission Reduction Units
Adding a Project Identifier
Emission Reduction Units
Account of Parties or Private Entities
converted
converted
transferred
ERs-AAUs-ERUs
• Selling Party issues ERUs by converting AAUs previously issued by that Party and held in its national registry
• AAUs will be converted in an ERUs by adding project identifier to the serial number and changing the type indicator to indicate ERU
• Upon such issuance the Party will transfer ERUs to account of project participants and Parties
• It also will notify the Secretariat transaction log
Selling Forward ERs I
2008 2012
ERUs
Emission Target
Hot Air
Selling Forward ERs II
Selling Forward ERs
20082008 20122012
PCF Legal Documents
Basic Approach
Emission Reductions
(Host Country + Project Entity)
Payments (PCF)
World Bank /PCF
UNFCCC rules
Host government (transferring
country)
Project entity
PCF : Actors involvedPCF : Actors involved
Annex 1 Government (acquiring country) –
PCF Participants (Gov. + Priv.)
Host Country
PCF Trustee
Project Entity
1. Letter of Project Endorsement
National Legislative Framework / Agreement / Authorization
3. Host Country Agreement
4. Emission Reductions Purchase Agreement
Legal Agreements for PCF Projects
2. Letter of Intent
PCF Key Legal Instruments
• Letter of Project Endorsement
• Letter of Intent
• Host Country Agreement
• Emission Reductions Purchase Agreement
Host Country
PCF Trustee
Project Entity
1. Letter of Project Endorsement
National Legislative Framework / Agreement / Authorization
3. Host Country Agreement
4. Emission Reductions Purchase Agreement
Legal Agreements for PCF Projects
2. Letter of Intent
16
Letter of Project Endorsement Host Country endorses further development of
the project for the purposes of the UNFCCC/KP
Host Country:
• Signals Commitment to render aid and assistance (e.g. registration of the ERs in any international or national regulatory regime)
• Approves projects for KP purposes
• Allows access to information
Host Country
PCF Trustee
Project Entity
1. Letter of Project Endorsement
National Legislative Framework / Agreement / Authorization
3. Host Country Agreement
3. Emission Reductions Purchase Agreement
Legal Agreements for PCF Projects
2. Letter of Intent
Letter of Intent
• Project Sponsor agrees– To reserve exclusive right to ERs generated by the
project– To recover project preparation costs in case project
sponsor decides not to negotiate an ERPA
• PCF Trustee agrees – To purchase ERs under specific terms
Host Country
PCF Trustee
Project Entity
1. Letter of Project Endorsement
National Legislative Framework / Agreement / Authorization
3. Host Country Agreement
3. Emission Reductions Purchase Agreement
Legal Agreements for PCF Projects
2. Letter of Intent
Host Country Agreement
PCF Trustee Host Country
Obligation to enter into an ERPA
Obligation to transfer ERs
Main Elements of Host Country Agreement (HCA)
PCF commits to
– buy ERs
Host Country commits to
– authorize the transfer of ERs by the Project Entity to the PCF
or
– transfer ERs to the PCF
Host Country
PCF Trustee
Project Entity
1. Letter of Project Endorsement
National Legislative Framework / Agreement / Authorization
3. Host Country Agreement
3. Emission Reductions Purchase Agreement
Legal Agreements for PCF Projects
2. Letter of Intent
Emission Reductions Purchase Agreement
PCF Trustee Project Entity
Purchase Price (net of costs)
Exclusive Right of Certification and Verification of purchased ERs (ERs)
Transfer of ERs
Main Elements of Emission Reductions Purchase Agreement (ERPA)
• Purchase of ERs from the Project Entity / Payment for achieving ERs
• PCF commits to arrange for initial and periodical verification, validation and certification.
• Transfer of ERs
Host Country
PCF Trustee
Project Entity
1. Letter of Project Endorsement
2. Host Country Agreement and ERPA
Legal Agreements for PCF Projects
3. Subsidiary Agreement
PCF Trustee
Project Entities
3. Letters of Project Approval
4. Standard Emission Reductions Purchase Agreements
Legal Agreements for PCF Projects
Model for Small Projects
Host Country
1. Umbrella Agreement
2. Letter(s) of Intent
PCF Trustee
2. Host Country Agreement
Legal Agreements for PCF Projects
Model for working with Intermediaries
Host Country
Intermediary
1. Intermediary Agreement
3. Standard Letters of Project Approval
Project Entities
4. Emission Reduction Purchase Agreements