Breaking Legal Grounds…. Implementing a PCF Project Sao Paulo, Brazil - November 20, 2002 Charlotte Streck, PCF

UNFCCC/KP CONTEXT UN Framework Convention on Climate Change Kyoto Protocol Non Annex I Countries Annex I Countries Binding Emission Targets Domestic Policy Actions Emissions Trading Joint Implementation CDM

Presentation/Discussion of I.Role of the Host Country: Legal Framework, Project Approval II.Legal Structure of a CDM (PCF) Project

Role of the Host Country International Law: HC is party to the UNFCCC and eventually to the Kyoto Protocol HC represented in the COP [COP/MOP] For CDM participation: HC has to meet participation requirements HC approves CDM projects

The Host Country is not [unless the host country is also owning the project] Responsible for developing project documentation The guarantor for the environmental credibility of the project Liable for any action [or lack of action] with regard to the project

Who guarantees the environmental credibility? CDM First Track JI Host Country Operational Entity Host Country KP Compliance Operational Entity ER Verification

Flexible Mechanisms and Environmental Credibility Joint Implementation – a. Operates under the Annex I cap with a defined market volume where offer and demand determine the price b. Verification of ERs generated by the Host Country (first track JI) Clean Development Mechanism - a. CDM projects generate ERs but increase the Annex I cap b.Verification by the Operational Entities is key

Marrakesh Accords 40. The designated operational entity shall: (a) Prior to the submission of the validation report to the executive board, have received from the project participants written approval of voluntary participation from the designated national authority of each Party involved, including confirmation by the host Party that the project activity assists it in achieving sustainable development;

Host Country Approval Confirmation that the project contributes to the sustainable development of the country Voluntary participation Authorization of project participants

Institutional Aspects of the CDM Establisment of a National Authority for the CDM. Such National Authority: Evaluates projects Defines the priorities for the sustainable development of the host country Issues a Letter of Approval

Creation of a National Authority for the CDM Definition of mandate and mission Legal nature Notification of the UNCCC Secretariat Harmonization of the CDM with the priorities for the sustainable development of the country Evaluation of the legal framework in the host country Coordination with the UNFCCC focal point

Legal Structure of the National Authority Definition of the mandate Legal status Authorization for the sale and export of ERs Authorization to approve projects Guidelines for the approval of projects

The Catalytic Function of the National Authority Facilitator/broker between offer/demand Promoting renewable energy in the country Establishment of contacts between potential buyers and sellers Identification of projects Awareness raising, Capacity building

Prototype Carbon Fund World Bank administered multi-donor Trust Fund to finance projects in developed countries and countries with economies in transition to generate greenhouse gas emission reductions which could be transferred to the participants in the fund thereby assisting them in satisfying their obligations under the Kyoto Protocol.

Organizational Structure of the PCF World Bank As the “PCF Trustee ” PCF Participants - 17 companies and - 6 Governments PCF Fund Management Committee - 5 Sector Managers Fund Management Unit Fund Manager + Staff Participants Committee - 4 companies - 3 Governments Host Country Committee Host Country Steering Committee

A Major Legal Challenge First Private Public Fund administered by the World Bank 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 the World Bank cannot own and With governing rules that keep changing

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

World Bank /PCF UNFCCC rules Host government (transferring country) Project entity PCF : 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 4. Emission Reductions Purchase Agreement Legal Agreements for PCF Projects 2. Letter of Intent 3. Letter of Approval

PCF Key Legal Instruments Letter of Project Endorsement from the Host Country Letter of Intent Letter of Approval Emission Reductions Purchase Agreement + Letter of Approval from the Host Country

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

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

Letter of Approval Host Country: Formally approves the Project for the purposes of Article 12 of the Kyoto Protocol Authorizes the Participating Entities Confirms the Contribution of the Project to the Sustainable Development of the Country

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

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

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

Questions ?