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CONTRACTING FOR CARBON Legal Framework for JI Projects under the Kyoto Protocol

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

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CONTRACTING FOR CARBON Legal Framework for JI Projects under the Kyoto Protocol

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  1. CONTRACTING FOR CARBON • Legal Framework for JI Projects under the Kyoto Protocol

  2. 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

  3. Joint Implementation Requirements for Participation: • National inventories and registries • Project baselines and inventories • Additionally of the project • Credit sharing • Host country approval

  4. 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.

  5. Emission Reductions Generated by JI projects before 2008 Forward selling of credits Advantage: 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

  6. The Multiple Lives of an Emission Reduction • Emission Reduction • Generated by a Project • Verified by an independent entity converted Assigned Amount Units National Registry converted transferred Emission Reduction Units Adding a Project Identifier Emission Reduction Units Account of Parties or Private Entities

  7. 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

  8. Selling Forward ERs I Emission Target Hot Air ERUs 2008 2012

  9. Selling Forward ERs II Selling Forward ERs 2008 2012

  10. PCF Legal Documents

  11. Basic Approach Emission Reductions (Host Country + Project Entity) Payments (PCF)

  12. PCF : Actors involved UNFCCC rules Annex 1 Government (acquiring country) – PCF Participants (Gov. + Priv.) Host government (transferring country) World Bank /PCF Project entity

  13. Legal Agreements for PCF Projects 3. Host Country Agreement Host Country National Legislative Framework / Agreement / Authorization 1. Letter of Project Endorsement 2. Letter of Intent PCF Trustee Project Entity 4. Emission Reductions Purchase Agreement

  14. PCF Key Legal Instruments • Letter of Project Endorsement • Letter of Intent • Host Country Agreement • Emission Reductions Purchase Agreement

  15. Legal Agreements for PCF Projects 3. Host Country Agreement Host Country National Legislative Framework / Agreement / Authorization 1. Letter of Project Endorsement 2. Letter of Intent PCF Trustee Project Entity 4. Emission Reductions Purchase Agreement

  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 16

  17. Legal Agreements for PCF Projects 3. Host Country Agreement Host Country National Legislative Framework / Agreement / Authorization 1. Letter of Project Endorsement 2. Letter of Intent Project Entity PCF Trustee 3. Emission Reductions Purchase Agreement

  18. 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

  19. Legal Agreements for PCF Projects 3. Host Country Agreement Host Country National Legislative Framework / Agreement / Authorization 1. Letter of Project Endorsement 2. Letter of Intent PCF Trustee Project Entity 3. Emission Reductions Purchase Agreement

  20. Host Country Agreement Obligation to enter into an ERPA PCF Trustee Host Country Obligation to transfer ERs

  21. 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

  22. Legal Agreements for PCF Projects 3. Host Country Agreement Host Country National Legislative Framework / Agreement / Authorization 1. Letter of Project Endorsement 2. Letter of Intent PCF Trustee Project Entity 3. Emission Reductions Purchase Agreement

  23. Emission Reductions Purchase Agreement Purchase Price (net of costs) PCF Trustee Project Entity Exclusive Right of Certification and Verification of purchased ERs (ERs) Transfer of ERs

  24. 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

  25. Legal Agreements for PCF Projects 2. Host Country Agreement and ERPA 3. Subsidiary Agreement Host Country Project Entity 1. Letter of Project Endorsement PCF Trustee

  26. Legal Agreements for PCF Projects Model for Small Projects Project Entities Host Country 2. Letter(s) of Intent 1. Umbrella Agreement 3. Letters of Project Approval PCF Trustee 4. Standard Emission Reductions Purchase Agreements

  27. Legal Agreements for PCF Projects Model for working with Intermediaries Host Country Intermediary Project Entities 2. Host Country Agreement 1. Intermediary Agreement 3. Standard Letters of Project Approval PCF Trustee 4. Emission Reduction Purchase Agreements

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