1. Clean Development Mechanism abonidenobili@cplex.italdo@lehmanlaw.com June 23 th 2008Lehman Lee & Xu’s Beijing office Aldo Settimio Boni de Nobili Associate - China desk - Beijing

2. 2 2 GLOBAL WARMING Increase in the temperature of Earth’s surface and oceans 1990-2100 = 1.4° C – 5.8° C EFFECTS Sea level Precipitations and extreme weather events Agriculture Glaciers Species extinctions Established in 1998 by WMO and UNEP TASK: evaluate the risk of climate change ACTIVITY: reports about UNFCCC implementation IPCC DOING BUSINESS IN CHINA Clean Development Mechanism

3. 3 UNCED Rio de Janeiro 1992 Signed in 1992 by 154 nations Parties = 192 countries 1994 entered into force COP report annual emissions and sinks submit annual inventories Provide financial resources to Non-annex 1 Non-annex 1 Annex 1 Developed countries Developing countries NO RESTRICTIONS Aim: stabilizing GHG to prevent dangerous interference with the climate system “Common but differentiated responsibilities” Non-binding Annex 2 OECD DOING BUSINESS IN CHINA Clean Development Mechanism

4. 4 COP3 Kyoto 11 Dec 1993 In force 16 Feb 2005 June 2008: 182 parties 36 Annex 1 + EU = reduce GHG (61.6%) Cyprus, Malta and Kazakhstan intend to participate 137 Non-annex 1 ratified: no obligation US not ratified 1° committment period = 2008-12 reduce national emissions 5.2% below 1990 baseline Industrial entities other parties brokers carbon projects developers exchanges Governments Buy credits $60 billion in 2007 1.3 emission allowances in 2 nd commitment period for every ton of GHG exceeding suspension from transfers of credits 4 DOING BUSINESS IN CHINA Clean Development Mechanism Emissions cap Actual emissions Credits GAINING CREDITS BY UNDER-POLLUTING

5. 5 CO 2 emissions cap Emissions allowed Emissions exceeding Carbon credits OFFSET JICDM ET 5 DOING BUSINESS IN CHINA Clean Development Mechanism

6. 6 Emissions Trading (ET) Joint Implementation (JI) Clean Development Mechanism (CDM) Article 12 Kyoto Protocol Annex 1 – Non Annex 1 Article 6 Kyoto Protocol Annex 1 – Annex 1 Article 17 Kyoto Protocol Annex 1 – Annex 1 6 DOING BUSINESS IN CHINA Clean Development Mechanism

7. 77 7 Competitive labour and facilities costs 50% of CERs 2-8 bln US$ per year WORLD BANK SAYS: WHY POTENTIALITIES CURRENT STATUS 1197 projects nationally approved (April 2008): +400% 2006 210 projects internationally registered: + 500% 2006 1449 projects are being nationally approved 625 approved hydro projects: 50% of the total approved projects INTENDED CERs BUYERSPROJECT TYPES DOING BUSINESS IN CHINA Clean Development Mechanism

8. United Nation Conference on Environment and Development (UNCED) Rio de Janeiro 1992 China ratified 1993 The United Nation Framework on Climate Change (UNFCCC) COP3 11 December 1997 China ratified 2002 The Kyoto Protocol COP7 November 2001 way to ratify the Kyoto Protocol CDM issues The Marrakech Accords 8 12 October 2005 NDRC + MOST + MFA + MF CDM Measures 19 June 2002 – 1 January 2003 Promoting Clean Production Law November 1997 – 1 January 1998 Energy Conservation Law PRC Environmental Law Environmental Impact Assessment Law Renewable Energy Law financing, foreign investment, taxation Others INTERNATIONAL LEVEL NATIONAL LEVEL 8 DOING BUSINESS IN CHINA Clean Development Mechanism

9. 9 Host governments + Designated National Authorities (DNA) Designated Operational Entities (DOE) CDM Executive Board (EB) national approval validation (outset) making publicly available the PDD receiving public comments and stakeholders’ comments verification and certification of CERs (operation) recommendations to the COP/MOP approve new methodologies DOEs accrediting and suspending reviewing accreditation procedures make publicly available CDM activities and procedures CDM project registry reviewing CR and VR issuing CERs. 9 DNA NDRC NDRC - MOST National CDM Project Board National Coordination Committee on Climate Change (NCCCC) MOFA SEPA – CMA – MF - MA NDRC Chair Co-Chairs Vice Chair Board DOING BUSINESS IN CHINA Clean Development Mechanism reviewing national CDM policies, rules and standard approving Board’s members examination and approval reporting to NCCCC on progress in CDM activities making reccomendations on the amendments of the CDM Measures accepting applications final approval

10. 10 China’s legal system, sustainable development strategies and policies not introduce new obligations promote the transfer of environmentally sound technology PROJECT Funding for CDM projects from the developed countries shall be additional to their current official development assistance and their financial obligations under the Convention. Additionality (Marrakech Accords) “Chinese funded or Chinese-holding enterprises within the territory of China are eligible to conduct CDM projects with foreign partners” (art. 11 CDM Measures) 100% Chinese 51% Chinese (at least) FIEs? Hong Kong / Macau? 10 PROJECT OWNER DOING BUSINESS IN CHINA Clean Development Mechanism

11. 11 CERs purchaser Domestic company Foreign investor Broker Government Company Private company Governmental body Financial institution NGO 11 CERs RMB/tCO 2 100% Chinese FIE 51% Chinese (at least) CDM Project Project owner RMB/tCO 2 TAXES 2% (Priority areas) 65% (HFC – PFC) 30% (N2O) Other chinese taxes DOING BUSINESS IN CHINA Clean Development Mechanism

12. 12 Energy efficiency Methane recovery Agriculture Industrial process changes Cogeneration Transports Afforestation and reforestation Renewable energy priority areas PRC 12 DOING BUSINESS IN CHINA Clean Development Mechanism

13. 13 Approval Validation Registration Implementation and monitoring Verification Certification and issuance National level International level DNA + N Board DOE EB PIN PDD Project owner DOE Project owner EB LOA DOE ‘s designation consultation validation report stakeholders filing of VR and LOA 8 weeks (potential review) EB files decision to PO PO files decision to NDRC object modality: monitoring plan PDD submitting reports to NDRC and DOE DOE’s designation Verification Report Certification Report CERs: 15 days after reports send to participants’ accounts at request NDRC Documents: --application form --PDD --enterprise status --general information --project financing DOE’s designationProject review Validation Report to the EB Expert review procedure (30 days) LOA (20-30 days) Decision from National CDM Board DOING BUSINESS IN CHINA Clean Development Mechanism

14. 14 Aldo Settimio Boni de Nobili Associate - China desk - Beijing abonidenobili@cplex.italdo@lehmanlaw.com THANK YOU FOR YOUR ATTENTION June 23 th 2008Lehman Lee & Xu’s Beijing office Clean Development Mechanism