PoA Course CH5 L1

Module 2: PoA Management

Chapter 5: Legal Management

Lecture 1

Property Rights

Defining the Incentive Structure

Domestic Law Affecting PoA Activities

CDM Host Country Legal Requirements

Legal Aspects of PoAs

Congratulations on Completing Lecture 1

Letter of Approval

Approval Criteria and Supplementary Domestic CDM Laws

Carbon Rights Agreements

Mapping the Players and Relationships

Management of a large number of legal relationships

How the technology will be leased, licensed, sold or donated to end-users

International CDM legal requirements for Host Countries

Draw clear and simple agreements on the stakeholders' rights and obligations

Supplementary Domestic CDM Law

Host Country CDM Approval Criteria

Decentralized Right to CERs

LoA Revoking

LoA Issuance

CME Retains Control of Carbon Rights

Domestic laws can have an impact on projects implemented under a PoA. Such laws include those governing:

How end-users are going to benefit from the PoA, e.g.:

• Price discount on the technology
• Tax rebates
• Subsidies
• Lower interest rate / micro-financing
• Energy savings

Host Countries can introduce additional domestic laws, policies and regulations on CDM activities

If CME is responsible for marketing and selling all rights to CERs should be assigned to the CME

Bottom-up Programme

CMEs have to make sure that activities comply with the host countries approval criteria and supplementary CDM domestic laws

Top-down Programme

Foreign Ownership of Property

You should now have an understanding of the legal management complexity of PoAs, and the legal arrangements a CME will have to prepare

Property Laws Relevant to CDM Activities

Alternative Ownership Structures

Public Private Partnership

PoAs where CPAs are large and require complex micro-management, can use a decentralized approach

How technology providers and intermediaries will be remunerated

Letter of Approval is a pre-requisite for PoA registration

Ensure that end-users do not participate in other CDM PoAs and projects mitigation programmes to avoid double-counting

• CME ‘outsources’ parts of PoA design and implementation to independent CPA developers

Facilitate and promote the implementation of CDM activities

Driven by government as promoter and including :

A DNA has the right to revoke LoAs, although it would not affect the PoAs registration status

"Voluntary” command and control approach

Legal entitlement to property assets governed by the domestic law

Be aware of potential restrictions on foreign ownership of land and property

E.g.: Agricultural cooperative members organize a program to introduce biomass fueled boilers for members using fossil fuels

PoA with intermediaries require contracts between end-user and intermediary and intermediary and CME

Impose additional requirements upon CDM projects and programmes

Ownership can be structured to obtain the necessary approvals and consents

CPA developers can retain rights to CERs and sell CERs directly to a buyer or investor

Host Countries must comply with CDM Rules and Modalities:

Prepare and commit to agreements on:

• Sale and purchase of carbon credits
• Financing by sponsors and investors
• Purchase, licensing or lease of technology
• Installation and maintenance of equipment
• Contracts with end-users in the programme

CPA is implemented by a subsidiary entity of the CME

Property assets likely to be involved during CDM PoA implementation:

Who is responsible for the marketing and selling of CERs

Examples:

• CDM Consultants, to design the program and support the CME in PoA registration and CPA inclusion
• Facilitators, to bring potential partners together
• CPA implementers, to implement the programme's activities
• The CME, taking full responsibility of the PoA
• Technology providers needed to implement the CPAs

e.g. A PoA replacing inefficient refrigerators could use an electricity supplier between the CME and the end-user would require two types of contracts. One contract between the electricity supplier and the end-user, ensuring the electricity supplier to the rights to CERs. Another contract between the CME and the electricity supplier ensuring that rights to CERs are assigned to the CME

Sign a contract which defines the allocation of CERs and the CME and CPA developer's responsibilities

Host countries can have additional requirements:

• Require overview of the planned CPAs and their conformity with environmental and social standards
• Demonstrate that the CME has secured finance to implement the PoA
• Provide information to the beneficiaries of the activities on the sale of carbon credits
• Inform the DNA when a new CPA is added to the PoA
• Demonstrate that CPAs are in line with local environmental legislation
• Eventual benefit-sharing arrangements for community-based PoAs approved by the DNA

For example if:

Host country can take domestic legal action to make it illegal to operate certain activities, terminating the generation of CERs of the PoA

Contractual arrangements based on a trust fund financed by membership fees, or service contract with a company

• The CPA developers can also be required to pay an up-front inclusion fee to the CME

Also a useful tool to:

• Address potential issues and risks
• Increase investor confidence

The CME should retain the control over carbon rights under the whole PoA

How CPAs is outsourced to different developers and operators

Establish a company or equity joint venture owned by 51% by Host Country Entity

and 49% ownership by the foreign investor

• Gives carbon buyers confidence that the seller can fulfill its contractual obligations

Example:

• Buyers might perceive a risk of coordination problems and competing claims to CERs if several entities have access to carbon rights

Important to keep close contact with the DNAs and understand formal and informal requirements to:

Contracts will be bilateral between each party and the CME

Foreign entities are not allowed to own land

• Under any circumstances
• Only in specific areas
• Where they have obtained particular licenses such as foreign investment licenses

Foreign entities are not allowed to own certain types of assets such as major infrastructure assets, or can do so only under limited circumstances

To continue learning more about CME Legal Management and the specific agreements a CME needs to be prepared for, proceed to Lecture 2 by clicking the arrow below

• Be a Party to the UNFCCC and the Kyoto Protocol
• Have established a Designated National Authority for CDM (DNA)

capable of approving proposed CDM projects and programmes;

• Have developed CDM project approval criteria; and
• Issue Letters of Approval or LoAs for projects and PoAs approved by the DNA

If a PoA operates in several countries there can be different requirements for the PoA

Land on which the CPAs are developed

• Equipment, technologies and materials to construct and operate the CPAs

Resources and inputs in the CPA implementation

• e.g. water, wind or landfill gas for electricity generation, industrial materials, fuel and electricity

Products, materials or outputs generated by the CPAs

• e.g. electricity, industrial or manufactured products or landfill

Proprietary security interests in the assets comprising the CPAs

• e.g. mortgages over land or equipment benefitting financiers or creditors

GHG reductions achieved by the CPAs

• e.g. CERs issued from the CDM PoA, and revenues and taxation from their sale

Can provide a confirmation that legal title to CERs belongs to the CME

• Approvals for industrial, energy and other infrastructure projects
• Title to land including customary or traditional title to land
• Investment in projects by national and/or foreign entities
• Resources to be exploited

e.g. renewable energy resources, fossil fuels and vegetation

• Securities and financial products
• Regulations on receiving and spending foreign currencies
• Corruption and public sector transparency in relation to investment
• Employment and labour
• Use and trade of project outputs

e.g. electricity, industrial products and waste

Draw contract agreements with:

• End-users
• Installation operators
• CER buyer

Full ownership by Host Country Entity

and lease to the foreign investor

CME can be a private company and collect a fee or share of CERs

• Obtain authorizations
• Secure the approval of the PoA
• Be aware of further approval procedures and requirements for the inclusion and operation of CPAs

Specify time frames for the different stakeholders' to fulfill their obligations

Consider the following:

• DNA's willingness to approve a PoA where the first real case CPA is developed in another country;
• DNA's willingness to authorize a PoA with a non-resident programme manager / coordinator;
• DNA requirement to be informed on PoA modifications nationally and/or in other countries

Curnow and Hodes, 2009: "Implementing CDM Projects - A Guidebook to Host Country Legal Issues", UNEP Risø Centre

Define the incentive mechanisms for each stakeholder

Continue to Lecture 2

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