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DOING BUSINESS IN CHINA

Lehman Lee & Xu’s Beijing office. June 23 th. 2008. Clean Development Mechanism. DOING BUSINESS IN CHINA. abonidenobili@cplex.it. aldo@lehmanlaw.com. Aldo Settimio Boni de Nobili Associate - China desk - Beijing. DOING BUSINESS IN CHINA. Clean Development Mechanism.

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DOING BUSINESS IN CHINA

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

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

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

  4. DOING BUSINESS IN CHINA Clean Development Mechanism Kyoto Protocol • 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 • 1.3 emission allowances in 2nd commitment period for every ton of GHG exceeding • suspension from transfers of credits GAINING CREDITS BY UNDER-POLLUTING Industrial entities Governments Emissions cap reduce national emissions 5.2% below 1990 baseline Credits other parties $60 billion in 2007 brokers Actual emissions carbon projects developers Buy credits Buy credits exchanges 4

  5. DOING BUSINESS IN CHINA Clean Development Mechanism Emissions offset Emissions exceeding OFFSET CO2 emissions cap Carbon credits Emissions allowed JI CDM ET 5

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

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

  8. DOING BUSINESS IN CHINA Clean Development Mechanism laws INTERNATIONAL LEVEL NATIONAL LEVEL 8

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

  10. DOING BUSINESS IN CHINA Clean Development Mechanism CDM requirements • China’s legal system, sustainable development strategies and policies • not introduce new obligations • promote the transfer of environmentally sound technology Funding for CDM projects from the developed countries shall be additional to their current official development assistance and their financial obligations under the Convention. PROJECT 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) PROJECT OWNER • FIEs? • Hong Kong / Macau? 10

  11. DOING BUSINESS IN CHINA Clean Development Mechanism Typical investment structure Government 65% (HFC – PFC) 30% (N2O) 2% (Priority areas) Broker Company TAXES CERs purchaser Other chinese taxes RMB/tCO2 CERs RMB/tCO2 CDM Project Private company Domestic company Foreign investor Governmental body 100% Chinese Financial institution FIE 51% Chinese (at least) NGO Project owner 11 11

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

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

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

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