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CARBON CONTRACTS - the PCF experience September 30, 2002
CDM Projects – Art. 12 KP 12 (2) The purpose of the clean development mechanism shall be to assist developing countries • In achieving sustainable development • In contributing • to the ultimate objective to the UNFCCC • to assists developed countries in achieving compliance with their quantified emission reduction commitments. 12 (9) Participation under the clean development mechanism, including in activities resulting in certified emission reductions and in the acquisition of certified emission reductions may involve private and/or public entities.
CDM Projects – Marrakesh • Clarifies and augments the KP. • Requires all Host Country participants in CDM to have a National CDM Authority. • Sets out monitoring, verification, certification and registration requirements. • Outlines method of transfer of Certified Emission Reductions (CERs) via registry.
PCF – Basic Approach UNFCCC rules Annex 1 Government (acquiring country) – PCF Participants (Gov. + Priv.) Host government (transferring country) World Bank /PCF Project entity
Legal Agreements for PCF Projects Host Country National Legislative Framework / Agreement / Authorization 3. Letter of Approval 1. Letter of Project Endorsement 2. Letter of Intent PCF Trustee Project Entity 4. Emission Reductions Purchase Agreement
PCF Key Legal Instruments • Letter of Project Endorsement • Letter of Intent • Letter of Approval • Emission Reductions Purchase Agreement
Documents: 1. Letter of Project Endorsement Host Country endorses further development of the project for the purposes of the UNFCCC/KP Host Country: • Commits to render aid and assistance • Agrees in principle to approve projects for KP purposes • Allows access to information 16
Legal Agreements cont…. 3. Letter of Approval Host Country National Legislative Framework / Agreement / Authorization 1. Letter of Project Endorsement 2. Letter of Intent Project Entity PCF Trustee 4. Emission Reductions Purchase Agreement
2. Letter of Intent • Project Sponsor agrees • To give PCF exclusive right to negotiate for the purchase/sale of ERs generated by the project • To allow recovery of project preparation costs in case the project sponsor decides not to negotiate an ERPA • PCF Trustee agrees • To the basic commercial terms of the purchase/sale eg price and quantity
Legal Agreements for PCF Projects Host Country National Legislative Framework / Agreement / Authorization 3. Host Country Agreement 1. Letter of Project Endorsement 2. Letter of Intent PCF Trustee Project Entity 3. Emission Reductions Purchase Agreement
3. Letter of Approval Host Country commits to • Approve and support the development of the project as a CDM project • Do everything necessary to proceed with the registration and transfer of the ERs by the Project Entity to the PCF.
Legal Agreements for PCF Projects 3. Letter of Approval 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
4. ERPA Parties: PCF Trustee – Project Entity Content of ERPA: • Obligations of the Parties • Purchase of ERs: Price – Exclusive Right / [Transfer] • Additional obligations of the PCF Trustee • Additional obligations of Project Entity • Events of Default • Remedies • Conditions of Effectiveness
(a) Purchase of ERs • Purchase of an agreed amount of ERs • Agreed payment of $US [___] per ton of CO2 • Payment on delivery [annually] • Delivery: Submission of certificate issued by an independent third party • Biennial certification possible [payment annually/biennally] • All ERs /Minimum Amount of ERs /Additional ERs
(b) Recovery of Costs • Project preparation costs • Initial validation, verification, certification, periodic certification • Deduct from payment: Estimate [not more than ____]
(c) Obligations of the Trustee • Pay the installments of the purchase price (net of costs) • Arrange for the initial verification, and periodic verification and vertification • Others (e.g. exchange of information)
(d) Obligations of the Project Entity • Carry out the project with due diligence • Monitoring and data collecting according to the MP • Grant the PCF the exclusive right to arrange for initial and periodical verification and certification • Grant the validator, verifier and certifier access to the project • [Facilitate] transfer of ERs
(e) Events of Default Project Entity • Failure to deliver ERs • Significant delay in project construction • Other project financial not in place by a certain date Trustee • Failure to pay purchase price in time • Failure to arrange for validation, initial and periodic verification, and certification