The mechanism known as "joint implementation"
(JI) is established by Article 6 of the
Kyoto Protocol. JI enables an Annex B country with an emission
reduction commitment under the Kyoto Protocol to transfer or
acquire emission reduction units (ERUs)
to or from any other Annex B Party. ERUs are each equivalent to one
tonne of carbon dioxide, and they may be earned from a project that
removes or reduces carbon dioxide from the atmosphere.
JI is considered mutually beneficial to both the party acquiring
and transferring ERUs. That is, JI is a flexible and cost effective
means which assists Annex B Parties to adhere to their emission
reduction commitments under the Kyoto Protocol; and is also an
effective means of supporting host Parties by providing foreign
investment and technology transfer.
Russia has always been seen as a key potential jurisdiction for
JI projects with many international companies exploring
opportunities to develop projects there. However, with no projects
having been approved until now and uncertainty around the ability
to get such projects approved significant uncertainty as to when
and if JI would be formerly implemented existed.
First JI projects approved
On July 23, 2010, the Russian Ministry of Economic Development
approved 15 projects as joint implementation projects under Article
6 of the Kyoto Protocol to the United Nations Framework Convention
on Climate Change (as per its Order No. 326). This is the final
stage in the approval process; the first emission reduction units
(ERUs) are expected to be issued in November 2010.
The approvals were granted on the basis of recommendations
prepared by Sberbank - the Russian Government-appointed carbon
units operator. In total 37 project applications were considered
before making the final decision. Projects that were not approved,
and also new projects may be submitted for selection and approval
as joint implementation projects through a second tender to be
conducted by Sberbank.
Sberbank's role in further implementation of
Sberbank's ERPA approval methods and its "binding
recommendations" provoke discussion
Since completion of the first tender selection of Joint
Implementation Projects ("JI Projects"), the right of
Sberbank of Russia OJSC ("Sberbank") to sign off on
contracts ("ERPAs") governing the transfer of Emission
Reduction Units (ERUs) under JI Projects has become a major focus
As can be inferred from the "recommendations" it has
been giving to JI Project participants with regard to various
aspects of such contracts, Sberbank appears to contemplate linking
its approval of such ERPAs:
(i) to the sale price of ERUs;
(ii) to the terms and conditions of payments for delivered ERUs
as provided in such ERPAs; and
(iii) to some other criteria mentioned in Sberbank's
Whether such recommendations given by Sberbank are binding or
not is a cause for much discussion. Also, the effect of these
recommendations on the respective ERPAs is not clear. What is
clear, is that this effect will heavily depend on the provisions of
the respective ERPAs on the rights and obligations of the parties
in case of changes in the legislation. Negotiations between
participants of JI Projects on amendments to their ERPA can reduce
risks stemming from the ERPA's non-compliance with
Should negotiations prove difficult and not easily lead to an
agreement, each participant in a JI Project should develop its own
strategy for interaction with its counterparty in order to minimize
the legal and commercial risks connected with Sberbank's
possible refusal to sign off on the respective ERPA.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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