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) –
Host
government
(transferring
country)
World
Bank
/PCF
PCF
Participants
(Gov. +
Priv.)
Project
entity
Legal Agreements for PCF Projects
Host Country
3. Letter of
Approval
PCF
Trustee
1. Letter of
Project
Endorsement
2. Letter of Intent
4. Emission Reductions
Purchase Agreement
National
Legislative
Framework /
Agreement /
Authorization
Project
Entity
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
1. Letter of
Project
Endorsement
PCF
Trustee
2. Letter of Intent
4. Emission Reductions
Purchase Agreement
National
Legislative
Framework /
Agreement /
Authorization
Project
Entity
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
3. Host
Country
Agreement
PCF
Trustee
1. Letter of
Project
Endorsement
2. Letter of Intent
3. Emission Reductions
Purchase Agreement
National
Legislative
Framework /
Agreement /
Authorization
Project
Entity
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
1. Letter of
Project
Endorsement
PCF
Trustee
2. Letter of Intent
4. Emission Reductions
Purchase Agreement
National
Legislative
Framework /
Agreement /
Authorization
Project
Entity
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
Questions ?