Study On Legal Issues Of Emission Reduction Agreement Under Clean Development Mechanism

The Clean Development Mechanism (’CDM’), together with Joint Implementation and Emissions Trading, are three market-based mechanisms introduced by Kyoto Protocol to assist the countries listed in annex I of United Nations Framework Convention on Climate Change (annex B of the Protocol) to meet their binding obligation to reduce or limit greenhouse gas emissions. It enables an annex I country to achieve its emission target via a CDM project in a developing country, while serves also as a means for the latter to promote its sustainable development, technology acquirement and foreign investment. The trade of the Certified Emission Reductions (’CERs’) generated from the CDM project, lies in the heart of the mechanism.China has continued to have a dominant market-share of the CDM since2004and been the largest seller of CER ever since. However, the CDM project developers from China have always been the price taker and exposed to buyers’repudiation of contracts in gloomy seasons. It poses a question of whether the sellers of CERs from China have excelled their possibilities in the CER transactions based on CDM projects, if the answer is negative, what the existing and potential legal barriers are.The research is unfolded in five parts.In the first chapter, the author firstly gives an overview of the international and (the Chinese) domestic legal framework that governs the CDM projects, as well as the cycle of the project and the boundary of it in the sense of distinctions and links with other emission reduction mechanisms. In the illustration of the legal framework and life cycle of CDM projects, the author intends to build up the basis for her argument in the next chapter, namely the foundation of CDM projects laid by the UNFCCC, Kyoto Protocol and the decisions regarding the modalities and procedures, renders its fruit, the CERs, regulatory rights. Additionally, the critical review of the domestic regulation touches the absence of provision on ownership and restrictive approach on qualification of project developers.The second chapter deals with the interplay between CERs sale and purchase transactions and CDM projects. The definition and characterization of both CERs and CERs sale and purchase transactions is necessary. The author analyzes the legal nature of CERs, proposes that it is a regulatory right which entitles the protection of property law. And the CERs contract is a long-term contract for sale and purchase of forward carbon credits with many actors involved. Then the author moves on a discussion of the potential role of the buyer in the CDM project in different transaction scenarios, and the pros and cons thereof. Particular attention is drawn to the’unilateral model’of the development of CDM projects, and how it hinders Chinese developers from more benefits in the projects.The third chapter focuses on the terms and conditions of a CERs contract. Three model contracts, namely’General Conditions Applicable to Certified Emission Reductions Purchase Agreement’,’IETA Emissions Reduction Purchase Agreement’ and’Certified Emission Reductions Sale and Purchase Agreement’ are referenced to respectively. Both the’Kyoto risk’ and the ’project risk’ are first checked before a clause-by-clause analysis. Then the main clauses and the related pitfalls are examined for sellers and buyers, with the law of England and Wales as the governing law.The author discusses the post-2012prospects of the CERs transactions in chapter four. Although the second commitment period will begin on January1,2013, the speculative atmosphere prevails on the CERs market. The author depicts the main concerns of the stakeholders and the tough time for CERs sellers, then shares her view on how to manage the risks and the possible way out.Then it leads to a short conclusion.