PoAs and liability – the issue Presentation at UNFCCC PoA workshop May 2011

1. PoAs and liability – the issue Presentation at UNFCCC PoA workshop May 2011 by Felicity Spors (Fspors@worldbank.org) & MonaliRanade (Mranade@worldbank.org)

2. The Liability problem remains despite CMP.5 request and revision of Procedures Sept 2010 EB55 Current Rules: EB55 Revision did limit the request for review to "first" issuance and restricted the extent of error to "compliance with eligibility criteria". Situation: Not possible to find a business insurance or risk mitigation solution What are the issues with the current rules? • Emphasis on eligibility criteria: level of precision required is unclear therefore trigger for review is also unclear. • Open ended historic liability i.e. CPAs are never “registered” can be put under review 27 years (see Para 11) • Strict liability: DOEs responsible for all mistakes, made by them and others. • Limited time for transfer. DOEs are required to acquire and transfer CERs within 30 days Utilize natural difference between PoA types to identify realistic solutions: • PoA Type A: individual unit CPA e.g. hydro or wind or geothermal etc • PoA Type B: micro technologies e.g. efficient light bulbs or CPA ≤ 20 kt CO2/yr and located in LDC/SIDs/under developed regions or ≤ 600t and activities on household level or low income community or SME.

3. Solutions for PoA type A: i.e with individual unit CPA e.g. individual unit, hydro or wind or geothermal etc.

4. Solutions for PoA type B: i.e micro technologies as each unit e.g. efficient light bulbs Solution for PoA type B (micro CPAs): Only PoA PDD (i.e. not CPA-DD) to be prepared for registration. Units /CPAs do not need to be validated at inclusion. PoA PDD validated by DOE. Should contain check list of eligibility requirements and must comply with additionality requirements for micro scale CDM projects Monitoring periodically undertaken for representative sample of all units included in PoA. Verification - DOE ensure units comply with eligibility criteria i.e. verification = “quasi validation”. Risk of liability much less than at point of registration. Issuance of CERs with verification report once approved by EB.

5. Thanks for listening

6. Visualizing the problem. Year 1 1st issuance of CPA 1 & 2 Inclusion of CPA 3 & 4 Year 2 2nd issuance of CPA 1 & 2 1st issuance of CPA 3 & 4 Inclusion of CPA 5 Year 3 Further issuance of CPA 1, 2, 3, 4 1st issuance of CPA 5 Inclusion of CPA 6 Year 4 Further issuance of 1, 2, 3, 4, 5 1st issuance of CPA 6 Inclusion of CPA 7 Year 5 CPA 7, found to be “erroneously included” Sample check of CPAs 1 to 6 done; If CPA 4 found erroneously included : DOE to transfer CERs (A+B+C+D) C A B D PoA and CPA 1 & 2 registered in Year 0

7. How do the lawyers read it? • No matter how confident a DOE and the C/ME are of their due-diligence, a DOE can be held liable for every single CER issued by the PoA/CPA: • For “any error” • Review trigged by an EB member or by DNA • As “error” is not defined, how will DOE’s work be reviewed? • All CERs from the 1st issuance of the CPA are at risk • Liability risk is open till the end of POA lifetime • As penalty, required to acquire & transfer CER within 30 days C A B D PoA and CPA 1 & 2 registered in Year 0 The risk (even if an unlikely eventuality) is unacceptably high

8. Why this is excessive? • Liability is on the validating DOE and extends to all past-issuances, even after verification, which is done by a non-validating DOE and issuance of CERs goes through a full review process: • Prior to issuance of CERs - request review by Parties involved or three Board members shall be six weeks from the date of receipt of the request for issuance. • After issuance of CERs - If a Designated National Authority (DNA) in the PoA or a Board member identifies any error, within six (6) months after the “first” issuance of CERs for that CPA C A B D 5 separate entities have 7 opportunities to review a CPA within 6 months of the 1st issuance of CERs: Coordinating Entity DOE – @ validation/inclusion in POA DOE – @ verification/request for issuance Secretariat/EB – (i) after inclusion & (ii) at issuance Host country DNA - (i) after inclusion & (ii) at issuance

9. Adjusting with future ERs CERs in the next year (E+F+G+H) adjusted for issued “bad” CERs (A+B+C+D) B C A D E F G H No CERs issued for CPA 4 or 7