Conducting Carbon Projects Presented by Adam Shepherd Regional Workshop on Legal, Institutional and Financial aspects of Carbon Finance Istanbul, Turkey January 2008

1 Presentation Outline Key participants & roles Structuring carbon projects Carbon project cycle Legal Status of carbon credits Taxation issues Legal Agreements

2 Participants in a Carbon Project ParticipantWhoRole Project Developer / Project Proponent - Private Company - Government owned entity - Develop project documentation - Implement project - Sell carbon credits Purchaser of Carbon Credits - Banks - Carbon funds - Governments - Private companies - Purchase carbon credits - May trade carbon credits - May provide finance Designated Operational Entity (CDM) Private Company accredited by UNFCCC - Validates project - Verifies & certifies emission reductions Designated National Authority (CDM) Government body notified to UNFCCC - Approves project by issuing Letter of Approval - Performs many other roles

3 Participants in a Carbon Project (cont…) Others participants Brokers Technology licensor Lawyers Translators ParticipantWhoRole Financier - Commercial lenders - Development Banks - Government - Various other lenders - Provide finance Carbon consultants / organisations - Private companies - Government departments - UNDP, World Bank etc… - Project documentation - Feasibility study - Structuring advice - Monitor emission reductions

4 Who is Buying? What are they Buying?

5 Structuring carbon projects What do we mean by “structuring” a carbon project Deciding who will play what roles? Legal and financial structuring Questions to consider Where is the project located? Finance requirements? Does the Project Proponent own the land upon which the project site is located? Does the Project Proponent own the underlying project assets? Market conditions, credit price fluctuations Host Country law and policy Foreign investment restrictions Host laws

6 Carbon Projects: Structuring options Bilateral project structure Project Proponent Buyer $$$ Credits Financier $$$ Technology licensor $$$ Technology

7 Carbon Projects: Structuring options Unilateral project Project Proponent Credits Financier $$$ Technology licensor $$$ Technology No buyer at time of issuance of carbon credits Credits are issued to an account of Project Proponent Why? Project proponent believes market price will rise; or Project proponent unable to find a buyer or negotiate a sale

8 Carbon Projects: Structuring options Carbon fund acting as Trustee Project Proponent Buyer (Carbon Fund) Buyer (Carbon Fund) $$$ Credits Financier $$$ Technology licensor $$$ Technology Fund Participant Credits

9 Project Developer DNA DOE CDM Executive Board Project Idea Note (PIN) Project Idea Note (PIN) Project Development Doc (PDD) Host country approval Project Validation Project Registration CER Issuance CER Issuance Project Verification Project Cycle of a CDM Project

10 Legal Status of Carbon Credits

11 Taxation issues: Domestic Taxation Carbon taxation – Taxation on revenues? Standard taxes Corporate Income Tax, Value Added Tax, Promoting carbon projects with tax exemptions or reductions To promote foreign investment (i.e. refunds for re-investment) To promote technologies Feed-in-tariffs Waiver of import taxes for materials

12 Taxation issues: International taxes Administration Share of Proceeds – Fee charged prior to issuance of carbon credits (CDM) USD 0.10 per CER for the first 15,000 tonnes of CO2 equivalent for which issuance is requested in a given year; and USD 0.20 per CER for the any amount in excess of the first 15,000 tonnes of CO2 equivalent for which issuance is requested in a given year. Adaptation Share of Proceeds – Deduction in carbon credits taken at the time of issuance – 2% of Carbon Credits upon issuance

13 Carbon Projects: Legal agreements Sale & Purchase Agreements Sale by tender process Sale by independent brokers of carbon credits Individual contracts Secondary sales agreements Buyer on-sells carbon credits Services Agreements Validation Monitoring of project Verification of emission reductions Other legal agreements Exclusivity agreements Confidentiality agreements

14 Example: Legal Agreements Project Proponent Buyer ERPA Financier Loan Agreement / Share Purchase Agreement Consultant Services Agreement Secondary Buyer Secondary ERPA EPC Contractor Construction Agreement