Attorney for Anderson & Anderson LLP Gives Speech at China Guangzhou International Symposium and Exhibition on Low Carbon Products & Technologies

China (Guangzhou) International Symposium and Exhibition on Low Carbon Products & Technologies, hosted by China Council for the Promotion of International Trade (“CCPIT”) and organized by CCPIT Guangzhou, was held at Dong Fang Hotel of Guangzhou on September 20th, 2010. The event’s objectives were to release information on low-carbon lifestyles, exchange professional expertise, and build-up cooperation platforms and broaden international vision. It’s themes are new concepts, new products, new technologies, and new business chances. The event is composed of an opening ceremony and thematic conference, a low-carbon CEO summit, international seminars and press releases on low-carbon products and technologies.


The Firm’s senior attorney, Mr. David C. Buxbaum, gave a speech entitled “Legal Protection of Private Rights in Carbon Emission Reduction Projects.” in it, he discussed the need for Annex One countries to the United Nations Framework Convention on Climate Change (“UNFCCC”) to have emissions rights into the atmosphere for greenhouse gases. There are various ways that Annex One countries can meet the requirements of the Kyoto Protocol, such as by undertaking projects in another Annex One country, including projects of Joint Implementation (“JTI”) and Clean Development Mechanism (“CDM”).


Private parties, pursuant to the Kyoto Protocol, can participate in reducing global emissions and earn Carbon Emission Rights (“CERs”). Legal persons can trade Emission Rights and engage in CDM and JTI projects to earn CERs that can be, in turn, sold to Annex One countries. Private parties can also certify CDM and JTI Emission reduction projects. Legal issues can arise between private parties involved in JTI or CDM projects regarding emissions trading and certification. Those disputes may involve other private parties, sovereign states or one of the United Nations organizations under the UNFCCC.


Designated Operational Entities (“DOE”) can be domestic legal corporations or international organizations. They certify and monitor the CDM projects. The Project Cycle of a CDM project begins with a Project Design Document (“PDD”). A PDD is submitted to a DOE, and if the DOE approves the project, it is submitted to the Executive Board for registration. The CDM institutions, such as the Executive Board and the Conference of the Parties (“COP”) Executive Board, make decisions not directly effecting the rights of the private parties. Disputes between private parties and the CDM institutions may arise when CDM institutions decide that the private parties have not met its obligations under the project. Furthermore, if the Executive Board refuses to certify a private company as a DOE, the COP can recommend the Executive Board withdraw its DOE certification. The Executive Board can also refuse the issuance of CER. Disputes over these matters can be resolved by the Kyoto Protocol’s Complain Mechanism, or by arbitration or litigation in national court.


JTI projects are developed in Annex One countries and permit an organization from one Annex One country to earn Emission Rights by investing in a project in another Annex One country. The Emission Rights created by a JTI project are called Emission Reduction Units (“ERUs”), which are based on the host country converting its Assigned Amount Units (“AAUs”) into ERUs. In most countries, AAUs are determined by using their 1990 emission level as a base.


Joint projects for the reduction or removal of greenhouse gases are permitted by the Kyoto Protocol, Article 6. The UNFCCC drafted Guidelines for JTI and for CDM projects. The COP adopted these CDM and JTI project Guidelines in 2001. A Joint Implementation Supervisory Committee (“JISC”) was established to verify emission reductions. The Rules of Procedure of the JISC were adopted in 2006. The Kyoto Protocol, Article 6(3) permits an Annex One country to enter into projects and to allow its legal persons to earn, transfer, or otherwise generate or acquire ERUs.


In order to participate in such a project, a private firm has to obtain a Letter of Approval from its country. Both the seller of ERUs, normally the project owner, and the buyer of ERUs must obtain this Letter of Approval. A private project investor or developer needs to obtain a Letter of Approval from the country where the JTI project is registered, and the purchaser of the ERUs must obtain approval from the country where it will receive the ERUs. The private investor, in order to obtain approval of a JTI project, need not be incorporated or registered in the country where the project is being established, unless required to do so by the laws of the country where the project is located.


To verify greenhouse gas emission reduction of a JTI project, the verification can either be by the government of the country where the project is located, or by an independent professional organization, hired by the project, and supervised by the Joint Implementation Supervisory Committee (“JISC”). Pursuant to JTI Guidelines, Paragraph 21, an Annex One country must meet certain standards to receive or transfer ERUs. It has to have a system in place for measuring emission and removal, and have accurate procedures to account for its designated amount of emissions. Under these procedures, which are called Track One procedures, the country where the project is located may verify emissions itself by use of the private corporations or a public entity. Once verified, said country can issue ERUs.


Track Two projects require verification of emission reductions by an independent agency under the supervision of the Joint Implementation Supervisory Committee. The Joint Implementation Supervisory Committee helps to supervise projects and certify independent organizations so as to permit verification of the issuance of ERUs. There is a JTI Accreditation Panel to accredited organizations and experts as well at to withdraw accreditation.


Entities accredited by the JISC are called an Accredited Independent Entity (“AIE”).


In Track Two procedures, the AIE reviews the project design document, which should have been approved by the country or countries involved. In addition, comments are permitted on a project design document, which document is made publicly available on the UNFCCC JTI website. There are procedures to review a project approved by an AIE.


During an implementation of an approved project, periodic reports must be submitted to the AIE to monitor the project, which reports are made publicly available by the UNFCCC Secretariat. Such reports can also be reviewed if a country involved in the project requests a review or, pursuant to JTI Guidelines, Paragraph 39, the JISC requests a review. The host country can issue and transfer ERUs for Track Two projects.


Disputes may arise between the Joint Implementation Supervisory Committee of the UN and private parties or between private parties and states or between two or more private parties. For example, the Transfer of ERUs and obtaining a Letter of Approval may give rise to a dispute. Disputes regarding the issuance and transferor of ERUs can arise due to a conflict between the parties to the project or the government agencies of the country where the project is located. As for the Letter of Approval, disputes can arise between private corporations regarding its authorization to participate in a JTI project in a specific country.


UNFCCC, Article 14, provides a dispute settlement procedure, which after 12 months of negotiation, can be submitted to conciliation. Furthermore, disputes can be submitted to the International Court of Justice and/or Arbitration. However, these dispute procedures are solely concerned with disputes between states and not private parties. Private parties must use the courts of the states involved to resolve disputes.


Private parties of JTI project investors may have disputes, and are typically resolved pursuant to the terms of the Joint Venture contract. The model International Emission Trading Association (“IETA”) agreement recommends arbitration at the Permanent Court of Arbitration of the Hague, which has special rules for arbitration of disputes relating to the environment.


Private corporations involved in Track Two projects may also disagree with decisions of the Accredited Independent Entity. It can ask for change of decision by requesting JISC to review the decision, however, this can only be done by a country, who can be encouraged by a private party to request a review. As for disputes between private corporation and the AIE regarding procedures, timing, fees, etc., these will normally be resolved by the terms of a contract between the parties.


As for private disputes with monitoring organizations as for JISC accreditation of projects or independent entities, there are no dispute settlement procedures in place. In addition, the courts of member states generally give international organizations broad immunity from suit for their governmental acts (“acta jure imperii”). Some writers have suggested that when acts of international organizations directly effect private corporations, they should not be immune from suit. The UN organization enjoys absolute immunity in national courts (see, “Conventions on Privileges and Immunities of United Nations”). Under the UNFCCC Headquarters Agreement, all officials of the organization that participates in its business are absolutely immune from suit with regard to all acts within their official capacity, at least in Germany.


Anderson & Anderson, LLP suggested two projects for carbon reduction at the conference: 1) reduction of SF6 from electrical grids, and 2) waste recycling. SF6 is commonly used as a cover gas in electrical power and transmission equipment. SF6 is 24,000 times more potent than CO2 in terms of its global warming potential and is typically released into the atmosphere from electrical girds due to improper gas handling procedures and leaks from old or faulty equipment. No investment is required on part of the project owner, and while the risks lie with the project developer. The cost of operation will be drastically reduced once it is running and will turn profit within 12 months. Regarding waste disposal, Anderson & Anderson, LLP proposes to solve local waste disposal problems by constructing and operating waste recycling plants on or near landfill sites. The plants will take in waste that would otherwise be disposed of in a landfill, treat the waste to make it sanitary, and convert the organic components into electricity and non-organic components into usual materials that can be sold to end-users.


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