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Cooperation with Host Countries
CDM and JI projects can be developed as a private initiatives and implemented in cooperation with the investor and host
countries. Project developers should, however, integrate their projects into bilateral cooperation activities before the
project approval process gets under way. A bilateral cooperation agreement, often described as a Memorandum of Understanding
(MoU) assists the implementation of CDM and JI projects. Many states are now promoting activities that make it easier to use
the Kyoto Protocol mechanisms. The following looks at the various ways in which countries can cooperate on CDM and JI
The minimum requirements for implementing CDM/JI projects are largely prescribed by the decisions of the Conference of the Parties (COP) to the Kyoto Protocol, the EU and, where appropriate, supplementary national arrangements in the investor and host countries. While the CDM is adequately regulated by the COP/MOP decisions along with the implementation guidance from and decisions of the CDM Executive Board ( CDM Implementation), Germany’s ProMechG legislation governs the normal procedure for JI Track 1 projects. With the decisions made at COP/MOP 2 2006 in Nairobi, rules for JI Track 2 are now also available ( JI Implementation). Prior to implementing a project, it is advisable to find out if any national-level requirements apply in the host country. Host countries may determine a project’s suitability in terms of its own development goals and thus reject an otherwise acceptable project. This is why each individual project must be coordinated with the host country’s designated national authority (CDM) or designated focal point (JI) in advance. The respective national authority in the investor country can aid this process.
Memoranda of Understanding
Apart from clarifying the legal aspects of CDM and JI projects, it is desirable for countries to enter into memoranda of understanding (MoUs). These document the cooperation objectives, areas of activity and methods of cooperation in conducting CDM and JI projects. While MoUs are not prescribed under the Kyoto Protocol or the subsequent COP/MOP decisions, host countries may make it mandatory to draw up such documentation. This is the exception rather than the rule, however. In general, it makes sense to enter into MoUs with countries in which CDM and JI-relevant activities already exist or are planned for imminent implementation. The German Environment Ministry is currently in negotiations with a range of host countries. MoUs have been signed with Egypt, Israel, Mexico and Peru. The Baltic riparian states have entered into a multilateral agreement known as the Testing Ground Agreement. Follow this link for more on Germany’s MoUs with CDM/JI host countries. For project developers and investors, MoUs provide a helpful framework in which projects can be bindingly implemented. They do not, however, replace contractual agreements on the distribution and transfer of the emission reduction certificates (CERs/ERUs) generated by the project activity. For the CDM, the International Emission Trading Association (IETA) provides a standard agreement in the form of a CDM Emission Reduction Purchase Agreement (see www.ieta.org). For JI projects, comparable agreements should be entered into – including in cases where international agreements already exist with the respective host country.
Project Portfolios: Stimulating Supply and Demand
By developing project portfolios, businesses with no direct access to CDM and JI projects can participate in the emerging carbon market. Project portfolios can be developed strategically from either the supply or demand perspective. This provides an opportunity to match business interests with country-specific development goals.
A project conducted in Russia by the German Energy Agency (dena) on behalf of the German Environment Ministry highlights the available options. The idea, among other things, is to foster the creation of a supply market for JI projects and to improve German businesses’ chances of purchasing emission reduction certificates. The ultimate aim is to produce a list of at least 10 pre-checked potential German-Russian JI projects that can be offered to investors in Germany. Apart from the business-related activities, the project also contributes to capacity building in Russia. In the main, the German Environment Ministry wants to improve the bilateral process up to the project approval phase and facilitate the signing of an MoU with Russia.
The German Energy Agency is also involved in cooperation activities in Romania and Ukraine. A further example of the use of a project portfolio for project-matching activities can be observed in China. Experience gathered so far by the German Environment Ministry clearly shows that close involvement of German business in portfolio activities can ensure adequate German presence in the carbon market. More on BMU’s host country activities.