LEGAL ISSUES FOR JI COUNTRIES

LEGAL ISSUES FOR JI COUNTRIES

JI Workshop

Budapest, July 11 to 13, 2001

Part I

Legal Framework for JI Projects under the KP/UNFCCC

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.

Problem:

Forward Selling of Assigned Amount 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 inventoriesRisk:Emission Reductions generated before 2008 not eligible

under the KP

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

Pronk’s Proposal

FCCC/CP/2001/2/Add.2

Guidelines for the implementation of Art. 6 KP

The CoP

“…decides that projects starting as of the year 2000 may be eligible as Article 6 projects and may generate emission reduction units as of the year 2008 if they meet the requirements of the guidelines for the implementation of Article 6…”

Problem: Emission Reductions generated by JI projects before 2008

• Not eligible under the Article 6

• Written promise to transfer ERUs after 2008

• Tradable under the rule of Art. 17 KP

Art. 17 KP

…” The Parties included in Annex B may participate in emissions trading for the purposes of fulfilling their commitments under Art. 3….”

Selling Forward AAUs I

Emission TargetEmission Target

Hot AirHot Air

20082008 20122012

ArtArt..1717

ERUs Art. 6ERUs Art. 6

Selling Forward AAUs II

Emission TargetEmission Target

Hot AirHot Air

20082008 20122012

ArtArt..1717

ERUsERUsERsERs

Selling forwardSelling forward

Part II

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






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






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






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






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


2. Host Country Agreement and ERPA


3. Subsidiary Agreement

PCF Trustee

Project Entities

3. Letters of Project Approval

4. Standard Emission Reductions Purchase Agreements


Model for Small Projects

Host Country

1. Umbrella Agreement

2. Letter(s) of Intent

PCF Trustee



Model for working with Intermediaries

Host Country

Intermediary

1. Intermediary Agreement

3. Standard Letters of Project Approval

Project Entities

4. Emission Reduction Purchase Agreements

Questions ?