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Approval of Clean Development Mechanism Projects by the Host Country
Requisitos de postulación de un proyecto
de mecanismo de desarrollo limpio para el Fondo Protoripo de Carbono
(PCF) del Banco Mudial. El PCF es un programa del Banco Mundial
que busca contribuir al aprendizaje del funcionamiento del mercado
de bonos de carbono, apoyando proyectos que producen reducciones
de emisiones de gases de efecto invernadero, las cuales pueden ser
certificdas y transadas como Bonos de Carbono.
Prepared by the
Legal Vice Presidency
The World Bank
November 2003
1. Introduction
As Designated National Authority for [Host Country] (the "Host
Country"), your office has been appointed to act as the focus
point for any necessary approvals and communications with the United
Nations regarding Clean Development Mechanism ("CDM")
projects under the UNFCCC and the Kyoto Protocol.
Project approval by the Host Country is one of the
prerequisites of the international registration of a potential CDM
project with the United Framework Convention on Climate Change and
the Kyoto Protocol. The rules which govern the CDM require a letter
from the Designated National Authority of the Host Country (a "Letter
of Approval") which authorizes the Project as a CDM project
and provides the Project Participants with the confirmations required
under the rules of the Kyoto Protocol. Section 2 of this memorandum
outlines the rules of the Kyoto Protocol in relation to Host Country
Letters of Approval. Based on such rules we have drafted and attached
to this memorandum a pro forma Letter of Approval with the minimum
Host Country confirmations required to allow a project to create
Certified Emission Reductions.
While the Kyoto Protocol provides no further guidance
on what should be contained in a Host Country Letter of Approval,
the experience in undertaking emission reduction projects to date
has demonstrated that a number of other confirmations from a Host
Country which will assist project developers to achieve a successful
CDM project. These are set out below in Section 3 of this memorandum
and also incorporated in a second pro forma letter attached. These
confirmations are not mandatory requirements to achieve registration
of the Project. However, they will assist Project Participants to
assess the feasibility of the Project and to give the necessary
confidence that the Project runs smoothly and is in compliance with
the necessary regulations and policies of [Host Country]. If you
agree to issue a Letter of Approval for the Project, please consider
including these additional confirmations. However, we note that
these are general guidelines rather than mandatory requirements.
If you do not consider any of these additional confirmations to
be appropriate, please feel free to tailor them to the specific
requirements of [Host Country].
2. Registration Requirements Under the Kyoto Protocol
The Marrakesh Accords (the implementation guidelines of the Kyoto
Protocol) require certain confirmations to be made in the Letter
of Approval drafted by the Designated National Authority (DNA) to
enable a CDM project activity to be registered by the CDM Executive
Board . The following confirmations must be made in a Letter of
Approval for a Kyoto Protocol project:
(i) The DNA approves the voluntary participation
of the Host Country in the Project as a CDM project for the purpose
of Article 12 of the Kyoto Protocol;
(ii) the Project will assist [Host Country] to achieve sustainable
development; and
(iii) the DNA approves and authorizes the participation of the Project
Participants in the Project.
If the DNA decides to issue a Letter of Approval for the Project,
we ask that you please provide these confirmations in the form of
the letter. Without these confirmations, the Project will not be
able to be registered as an eligible project under the Kyoto Protocol.
For your information and assistance we have attached a draft Letter
of Approval, which contains only these minimum confirmations, to
this memorandum.
3. Additional Confirmations
For the purpose of ensuring that CDM projects achieve the maximum
chances of success and to protect the interests of project developers,
some CDM investors wish to see the inclusion of a range of additional
suggested confirmations in a Letter of Approval. The DNA may therefore
consider to include the following points in its standard model of
a Letter of Approval:
These are:
(i) the Host Country is a Party to the Kyoto Protocol
and is in compliance with its obligations under that agreement;
(ii) the Project, as proposed, is in compliance with all relevant
national laws;
(iii) the establishment of one of the Project Participants as the
focal point for the Project with respect to all communications for
the purpose of the United Nations Framework Convention on Climate
Change in particular with regard to instructions regarding allocations
of Certified Emission Reductions at issuance.;
(iv) the DNA authorizes the CDM Executive Board to issue and allocate
Certified Emission Reductions ("CERs") for any verified
greenhouse gas reductions from the Project in the method directed
by the Project Participants;
(v) the DNA acknowledges the Project Participants' right, title
and interest in an to all of the greenhouse gas emission reductions
generated by the Project (and any CERs which are created out of
the Project);
(vi) any public funding of the Project does not result in a diversion
of official development assistance [if applicable]; and
(vii) the DNA will cooperate with the Project Participants and the
CDM Executive Board to facilitate the CDM process and give assistance,
where necessary, for the issuance and transfer of CERs to the Project
Participants.
Set out below is a brief description of the reasons for suggesting
the inclusion of these confirmations in a Host Country Letter of
Approval. We hope this will assist you to decide whether these confirmations
are appropriate in the context of the Project.
3.1 Host Country Compliance with Kyoto Protocol
The Marrakesh Accords provide that the Government of a Kyoto Protocol
Party that authorizes legal entities (private or public Project
Participants) to trade or acquire CERs still remains responsible
for the fulfillment of its obligations under the Protocol. The Host
Country has few obligations under the Kyoto Protocol, but is required
to maintain a list of the entities that it has authorized to participate
in the Kyoto Protocol process and make this list publicly available.
If a Kyoto Protocol Party is out of compliance with the Kyoto Protocol,
any parties which have been authorized by that party are not eligible
to participate in emissions trading. Therefore, it would be useful
for the IBRD to have written confirmation from the DNA that at the
date of the Letter of Approval [Host Country] is in compliance with
its Kyoto Protocol commitments. This is particularly important if
one or more of the Project Participants is a national of the Host
Country.
3.2 Compliance with National Laws
Although the Project will be registered under the Kyoto Protocol,
ultimately it will be subject to a variety of [Host Country's] national
laws. Such laws potentially include:
(i) environmental laws;
(ii) laws regulating the establishment of corporations joint ventures
and other associations;
(iii) foreign investment laws; and
(iv) finance laws.
If the proposed Project is likely to come into conflict with any
national laws which will prevent or delay the implementation of
operations, it is beneficial to establish this at the earliest stage
possible. The Project Participants will attempt to ascertain that
all relevant national laws have been considered and that the Project
is not likely to encounter any significant legal obstacles. However,
ultimately it is the Host Country Government that is responsible
for enforcing any domestic laws which apply to the Project. It would
therefore be of great assistance to receive a preliminary confirmation
from the DNA that it has considered the feasibility of the Project
under national law and concluded that the Project, as proposed,
would be in compliance with such laws.
3.3 The Focal Point for Project Communications and
Authorisation of the Executive Board
In order to facilitate administrative processes, the international
rules require to nominate one entity (authorized Project Participant)
as the focal point for any communications with the United Nations
Convention on Climate Change with regards to the Project. This communication
includes any guidance to the Executive Board with respect to the
progress of the Project and any steps necessary for registration
or creation of CERs as well as the distribution of CERs among Project
Participants and/or other parties that have an established interest
in the CERs generated by the Project.
Under the Kyoto Protocol and the Marrakesh Accords rules in relation
to CDM projects, the CDM Executive Board is responsible for issuing
CERs in accordance with the Verification Reports from the Project.
The CDM Executive Board then allocates these CERs into the Kyoto
Protocol registry accounts, as directed by the communication focal
point on behalf of the Project Participants. A confirmation from
the DNA, at the beginning of the process, that it agrees that the
CDM Executive Board will do this from the Project assists to clarify
that the Host Country has an understanding of the roles of the various
parties involved.
3.4 Recognition of Project Participants' Title to Emission Reductions
As you will appreciate, the rules of the Kyoto Protocol and international
policies surrounding climate change are continuously developing.
The Project is expected to reduce the emissions of greenhouse gases
into the atmosphere. Due to changes in the international rules or
other circumstances, such reductions ("Emission Reductions")
from the Project may not necessarily ultimately become CERs. However,
the Emission Reductions may assist Project Participants to achieve
compliance under national or international emissions trading schemes
or may be traded into a market for such rights. In this case, they
may be transferred as contractual rights or as rights under another
regional emissions trading scheme. For this reason, it is important
to ensure that Project Participants are entitled to all Emission
Reductions from the project, under any legal or national scheme.
In the absence of legislation clarifying the legal status and rights
of Emission Reductions, a confirmation from the Host Country to
this effect will assist to achieve legal certainty with regards
to the ownership of the Emission Reductions from the Project.
3.5 No Diversion of Development Assistance
The rules of the Kyoto Protocol provide that CDM projects are not
to result in the diversion of development assistance in the form
of public funding of the Project. For the satisfaction of the Project
Participants and the UNFCCC it would be useful to have written confirmation
that there has been no such diversion for the purpose of the Project.
3.6 Agreement for Future Cooperation
At various stages of the Project, Government approvals from [Host
Country] may be necessary, including for the construction or operation
of the Project facilities or to transfer Emission Reductions to
Project Participants. It is desirable at this early stage of the
process to obtain written commitment from the DNA that it will cooperate
with Project Participants, the IBRD and the CDM Executive Board
to give assistance to the Project where necessary.
4. Conclusion
This Explanatory Memorandum endeavors to provide guidance to the
DNA in relation to the nature and form of a Letter of Approval.
It is ultimately a decision for the DNA as to whether it will issue
a Letter of Approval for the Project, and the terms upon which this
approval will be given. Under the rules of the Kyoto Protocol, the
confirmations provided in section 2 of this memorandum must be obtained
from the DNA before the Project can be registered as a Kyoto Protocol
project. However, the confirmations provided in section 3 are suggestions
and will not impact on the ability to register the Project. Please
review the suggestions and consider whether they will be appropriate
from the point of view of the DNA. Please note, however, that some
CER purchasers and/or Project Participants will require such additional
assurances before they engage into CDM investments.
Please do not hesitate to contact [World Bank contact
name and number] if you have any questions about this memorandum
or would like further clarification on any issue.
Annexure I
Draft Letter of Approval
[Letterhead of Designated National Authority]
To: Project Participant
[Insert Name and Address]
[Insert Date]
Letter of Approval for [project name] ("the Project")
As authorized representative of the Designated National
Authority for [Host Country] under the Kyoto Protocol, I hereby
confirm that:
(i) [DNA] approves the [Project] as a Clean Development
Mechanism (CDM) project for the purpose of Article 12 of the Kyoto
Protocol;
(ii) [DNA] confirms the [Host Country]’s voluntary participation
in the Project and the CDM;
(iii) [DNA] confirms that the Project will assist [Host Country]
to achieve sustainable development; and
(iv) [DNA] authorizes the participation of the [entities] as Project
Participants in the Project.
Yours sincerely
Authorized Representative of the Designated National
Authority for [Host Country]
[Name of Signatory]
[Title]
Annexure II
Draft Letter of Approval
[Letterhead of Designated National Authority]
To: Project Participant
[Insert Name and Address]
[Insert Date]
Letter of Approval for [project name] ("the Project")
As authorized representative of the Designated National
Authority for [Host Country] under the Kyoto Protocol, I hereby
confirm that:
(i) [Host Country] has ratified the United Nations
Framework Convention on Climate Change on [date]and the Kyoto Protocol
on [date]and is in compliance with its obligations under these instruments;
(ii) the Project, as proposed, is in compliance with all relevant
national laws;
(ii) the [Host Country] participates voluntary in the CDM and the
Project;
(iii) the Project will assist [Host Country] to achieve sustainable
development;
(iv) the DNA will cooperate with the Project Participants and the
CDM Executive Board to facilitate the CDM process and give assistance,
where necessary, for the issuance and transfer of CERs to the Project
Participants;
(vi) any public funding of the Project does not result in a diversion
of official development assistance [if applicable]; and
(vii) the establishment of [____] as the focal point for the Project
with respect to all communications for the purpose of the United
Nations Framework Convention on Climate Change in particular with
regard to instructions regarding allocations of Certified Emission
Reductions at issuance.
As authorized representative of the Designated National Authority
for [Host Country] under the Kyoto Protocol, I further authorize:
(i) the participation of the [entities] as Project Participants
in the Project; and
(ii) the CDM Executive Board to issue and allocate Certified Emission
Reductions for any verified greenhouse gas reductions from the Project
in the method directed by the Project Participants.
As authorized representative of the Designated National Authority
for [Host Country] under the Kyoto Protocol, I further acknowledge
the Project Participants' right, title and interest in an to all
of the greenhouse gas emission reductions generated by the Project
(and any CERs which are created out of the Project).
With this Letter I approve as authorized representative and on behalf
of [Host Country] the [Project] as a Clean Development Mechanism
(CDM) project for the purpose of Article 12 of the Kyoto Protocol.
Yours sincerely
Authorized Representative of the Designated
National Authority for [Host Country]
[Name of Signatory]
[Title]
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