Transcript No Slide Title

Joint Implementation Projects –
Legal Background
Foresta Tropicana Hotel, Zelinograd Oblast
August 22, 2006
Dr. Bernd Beckmann
Rechtsanwalt /Attorney
Hogan & Hartson Raue L.L.P.
Overview

What is Joint Implementation (JI)?
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Background: Climate Change and Global Governance
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The Kyoto Protocol Climate Change Regime
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JI as a Flexible Mechanism
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Structure
Procedure
Legal Issues
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Excursus: EU Emission Trading Scheme
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Outlook
What is Joint Implementation (JI)?
The basic idea of Joint Implementation in a nutshell:

Joint Implementation is a programme under the Kyoto Protocol
that allows industrialized countries to meet part of their required
cuts in greenhouse-gas emissions by paying for projects that
reduce emissions in other industrialized countries.
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“Mutual Help for countries with emission targets”.
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In practice, this will likely mean facilities built in the countries of
Eastern Europe and the former Soviet Union - the "transition
economies" - paid for by Western European and North American
countries.
(Definition from the official UNFCCC web site, http://unfccc.int)
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Background:
Climate Change and Global Governance
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Climate Change Symptoms
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Growing Global Awareness
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Nations decide to take Action
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Term “Climate Change“ refers to various phenomena
Rising temperatures: “Global Warming“ and “Green House Effect“
Desertification
Melt-off of glaciers and pole caps
Rising water levels
United Nations Framework Convention on Climate Change (UNFCCC) in
1992
Kyoto Protocol in 1997
Global Warming – A Result of GHG Emissions
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Global Warming Predictions
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Global Warming is essentially consensus among scientists
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Depending on forecasting methodologies, predicted temperature
rise varies:
Framework Convention (UNFCCC) of 1992
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The United Nations Framework Convention on Climate Change
(UNFCCC) ”sets framework for intergovernmental efforts to tackle
climate change“.

Under the Convention, governments:
• Gather and share information on greenhouse gas (GHG) emissions, national
policies and best practices,
• Launch national strategies for addressing greenhouse gas emissions and adapting
to expected impacts, including the provision of financial and technological support
to developing countries,
• Cooperate in preparing for adaptation to the impacts of climate change.
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Main Problem: No binding GHG reduction targets!
Kyoto Protocol of 1997
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Strengthens UNFCCC by introducing legally binding targets to limit
or reduce greenhouse gas emissions
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Of 164 countries ratified until today, of which 35 countries and the
EC (EU) have accepted binding GHG reduction targets
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Countries with reduction targets are referred to as Annex I countries
Annex I countries are all industrialized countries or economies in
transition like Russia
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Important detail questions left open and later specified at member
state meetings (e.g. “Marrakech Accords”)
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Protocol came into force in February 2005 (after Russia ratified)
Kyoto Member States and Approval Status
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Kyoto Protocol Regime
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Legal Elements
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United Nations Framework Convention on Climate Change
(UNFCCC) 1992
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Kyoto Protocol 1997
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Decisions/Resolutions based on the Protocol (“COP/MOP”),
especially “Marrakesh Accords” (COP 7)
Institutions
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COP/MOP (Member State Conventions)
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UNFCCC Secretariat (Bonn, Germany)
Kyoto Protocol Regime
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Subject of Regulation
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Binding Climate Protection Obligations for States (not Private
Entities)
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Green House Gas (GHG) Reduction Targets for States (average 5,2
% with respect to base level year 1990), to be met within “Kyoto
Period“ (2008-2012)
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3 Flexible Mechanisms
 Inter-State Emission Trading (Trading of AAUs)
 CDM – Clean Development Mechanism (Generation of CERs)
 JI – Joint Implementation (Generation of ERUs)
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Countries operate National Registries, connected by International
Transaction Log (ITL), to execute flexible mechanism transactions
Flexible Mechanisms under the Kyoto Protocol
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Annex I States have limited “Assigned Amount Units” (AAUs),
according to their reduction targets
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Flexible Project Mechanisms represent way to generate needed
additional units
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Joint Implementation (JI)
 Project resulting in specific Emission Reductions in Annex I State (e.g. Russia)
 “Generation” of Emission Reduction Units (ERUs) through conversion of AAUs
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Clean Development (CDM)
 Project resulting in specific Emission Reductions in Non-Annex I State (e.g.
India, Brazil)
 Generation of Certified Emission Reductions (CERs)
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Complex Involvement of National Authorities and UNFCCC Secretariat
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Direct Private Sector Participation!
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JI Projects – Basic Facts
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JI mechanism is stipulated in Article 6 of the Kyoto Protocol
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Details specified in Decision 9/CMP.1 (2005)
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Participating parties: Annex I countries
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Private sector involvement (e.g. companies in need of extra credits)
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Responsible UNFCCC institution: JI Supervisory Committee (JISC)
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Projects can operate before 2008, but only “generate” ERUs from then on
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JI Projects – Basic Structure (I)
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Project is carried out between two Annex I countries
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Project in host country that reduces emissions and meets JI eligibility
criteria:
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Investor country: Needs extra credits
Host country: Has eligible project opportunity
Both countries need to meet eligibility criteria
Private companies (usually) carry out projects (“sponsorship”)
Approval by parties involved
Additionality („reduction … is additional to any that would otherwise occur“ Art. 6 Sec. 1 (b) Kyoto Protocol), not “business as usual”
Supplementarity (countries only rely on such projects to limited extent)
JI Projects – Basic Structure (II)
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Project goes through approval and verification procedures
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“Track 1” procedure:
 Approval only by countries’ authorities (“Designated Focal Points”)
 Easier when bilateral Memorandum of Understanding (“MoU”) between involved countries
exists
 Procedure (also) determined by national law
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“Track 2” procedure: Strong involvement of JISC
Project Initiator receives ERUs
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Host country registry converts AAUs to ERUs
ERUs are transferred to investor account in investor country registry
Transfer of ERUs
”through“ ITL
Host Country Registry:
Converts AAUs to ERUs
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Investor Country Registry
JI Project Types
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Projects need to be “aimed at reducing anthropogenic emissions by sources
or enhancing anthropogenic removals by sinks of greenhouse gases in any
sector of the economy” (Article 6 Sec. 1 Kyoto Protocol)
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Eligible project types include
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Methane Gas Capture (from landfills etc.)
Biomass and Biogas Energy Projects
Fuel Switch (e.g. Coal – Biomass)
Hydropower
Wind Power
Energy Efficiency (e.g. in industry, heating, and energy production)
JI Project Procedures – Country Eligibility
Project procedures depend on eligibility status pursuant to Guidelines (9 CMP.1):
„Track 1“ (Full eligibility) Criteria:
„Track 2“ eligibility (minimum requirements)
a.
Party to Kyoto protocol
a.
Party to Kyoto Protocol
b.
Assigned amount calculated
b.
Assigned amount calculated
c.
National system for estimating
emissions/removals in place
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National registry in place for tracking
assigned amount
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National registry for tracking assigned
amount in place
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Submission of most recent required
emissions inventory
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Accurate accounting of assigned
amount and submission of information
Russia is not yet qualified as a Track 1 country, aims for compliance by 2008.
For prior projects, Track 2 procedure will have to be used.
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JI Projects – Project Cycle / Procedure
Project Steps
Project
Development
Project Execution
Documents
Ex-ante-Data:
Project Design Document
(Monitoring Plan)
Ex-post-Data:
Monitoring Report
Project Cycle Steps
Project
Design
Project Participant
Validation
Independent Entity
Monitoring
Project Participant
Verification and
Certification
Independent Entity
Transfer of ERUs
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Responsible Entity
Host Country (Registry)
JI Projects – ERU issuance and transfer (Track 2)
International Transaction Log
at UNFCCC Secretariat
Report of ERU
Transfer
Country 1
(Investor Country)
Country 2
(Host Country)
Approval
ERU Purchase
(Country/Investor)
Project Entity
Investment Agreement
ERPA
National Registry
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+3
Purchased ERUs
5.000
AAUs
Assigned Amount
National Registry
Conversion of AAUs into ERUs
Assigned Amount
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AAUs
Reduction
JI Projects – Contracts (ERPA)
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The contract used to purchase ERUs is referred to as ERPA –
Emission Reductions Purchase Agreement.
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Such agreements, inter alia, stipulate:
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Obligation to deliver (including interval)
Price
Distribution of (regulatory) costs
Monitoring and Verification
Force Majeure
Use of standard documents or reference to such documents
• Sample ERPA by Danish Environmental Protection Agency (DEPA)
• IETA CDM Sample ERPA
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Excursus: EU Emission Trading Scheme
Overview
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Participants: Installation Operators from specific Sectors
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Energy
Production (Metal Industry)
Mineral Industry (Glass, Cement)
Certain Others (Paper etc.)
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Allocation of Certificates (EUAs) to Installations
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Participants can generate additional credits through JI and CDM
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EU-wide market place (leads to high liquidity)
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Excursus: EU Emission Trading Scheme
Overview
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Regulatory Background
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EU Emissions Trading Directive 2003/87/EC:
 Establishment of Cap-and-Trade System on Emissions (EU Emission
Trading Scheme - EU ETS) for Private Entities
 Green House Gas (GHG) Emissions Subject to Permission and
Monitoring
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Linking Directive (2004/101/EC):
 Links EU ETS to Kyoto Level Certificates generated from CDM and JI
Projects
 Creates incentive for companies to get involved in Kyoto project
mechanisms like JI!
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Excursus: EU Emission Trading Scheme Layers of Climate Change Regulation
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“Kyoto Level” Provisions: United Nations Framework
Convention on Climate Change (UNFCCC) and Kyoto Protocol
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EU Legislation: Implementation of Kyoto Goals (EU as Party –
“Bubble” Implementation)
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National Legislation (National Registry, Project Mechanisms,
National or EU Emission Trade Schemes)
EU ETS – Trading of Certificates
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Transaction Types
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Registries
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National Registry (registers both Kyoto and EU ETS units)
CITL (Community Independent Transaction Log)
Transaction Contracts: Use of Framework Agreements developed by
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Bilateral Trades by Installation Operators (No Financial Services Act –
KWG - License required for EUA Trades, but for Trades with Derivatives)
OTC Trades (Broker)
Exchanges (e.g. EEX)
IETA (International Emissions Trading Association)
EFET (European Federation of Energy Traders)
ISDA (International Swaps and Derivatives Association)
Excursus: EU ETS – Trading of Certificates
Effective Re-Allocation of Certificate through Market
Mechanisms
Situation
prior to
ETS
Installation
1
CO2-Emissions:
5.000 t
Installation 2
CO2 Emissions:
5.000 t
Alloctated Allowances
Allocated Allowances
4.500 t
4.500 t
Factual CO2 Emissions
Factual CO2 Emissions
4.000 t
5.000 t
CO2-Reduction
Trade
Sale
500 t
Purchase
500 t
Result: In total, CO2 reduction targets are met. Installation
1 profits from sale of allowances. Installation 2 saves
substantial investments in new technology.
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Outlook
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
A (Global) Climate Change Governance System is here to stay: ET and
Project Mechanisms will most likely remain a Key Instrument in
European and Global Climate Policies
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Project Mechanisms complement GHG Emissions Trading and provide
an effective Opportunity to enlarge Certificate Base, and therefore
provide a Business Opportunity for Companies
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The Russian Municipal Heating Sector can profit from JI Investments,
and should actively pursue such Opportunities.
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Thank you for your attention!
Spasiba!
For further information :: please contact . . .
Dr. Bernd Beckmann
Dr. Carl-Stephan Schweer
Hogan & Hartson Raue L.L.P.
Hogan & Hartson Raue L.L.P.
Potsdamer Platz 1
Potsdamer Platz 1
10785 Berlin
10785 Berlin
Germany
Germany
Tel: (+49) 30 726 115 330
Fax: (+49) 30 726 115 107
Email: [email protected]
Tel: (+49) 30 726 115 330
Fax: (+49) 30 726 115 107
Email: [email protected]
. . . or visit :: www.hhlaw.com
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