Contract ‘toolbox’ reduces transaction costs, emphasises greening

The EBRD, with funding provided by the Netherlands Government, has published a Green Investment Scheme (GIS) Model Agreement and an accompanying Guidance Manual that can be used by parties to the Kyoto Protocol that have committed to reducing or limiting greenhouse gas (GHG) emissions. The GIS Model Agreement provides for a toolbox of options from which parties can choose in contract negotiations for the sale and purchase of emission rights under a GIS.

A GIS transaction is a sale and purchase of Assigned Amount Units (AAUs) whereby AAUs are transferred in accordance with Article 17 of the Kyoto Protocol and the proceeds from the sale of a country’s AAUs are used to mitigate greenhouse gas emissions or support other activities agreed between buying and selling parties beneficial to the environment, thus providing environmental integrity to such trades.

The Kyoto Protocol does not impose greening obligations in trading AAUs, whereas the GIS Model Agreement, developed by law firm De Brauw Blackstone Westbroek, contains greening obligations on the part of the seller and provides for a benchmark increasing sustainable energy investments in the EBRD countries of operation.

The base year in calculating a country’s greenhouse gas emission limitation or reduction commitment under the Kyoto Protocol is generally set at 1990 after which former communist economies experienced serious contraction which subsequently lead to a significant fall in greenhouse gas emission levels. Russia, Ukraine and Poland have the largest surplus of AAUs available for sale although the combined potential surplus of Hungary, Latvia, Romania, Bulgaria and Lithuania is quite significant as well. Countries like Spain, Ireland, Japan and the Netherlands are projected to be short of emission rights over the Kyoto Protocol commitment period and have voiced an interest to purchase AAUs for compliance purposes.

Both potential buying and selling parties were involved in the development of this Model Agreement through a number of consultation sessions, a final one having been organised at the sidelines of the United Nations Climate Change Conference in Poznan, Poland, last year.

The availability of the model agreement lowers transaction costs and contributes to the further development of such trades under this largely untested Kyoto Protocol mechanism with a particular emphasis on greening, leveraging additional investments into climate friendly projects.

Both documents can be downloaded from the Bank’s internet webpage: http://www.ebrd.com/country/sector/energyef/carbon/mccf/index.htm#gis

The EBRD and the European Investment Bank jointly manage the €190 million Multilateral Carbon Credit Fund (MCCF), which procures carbon credits from Joint Implementation and Clean Development Mechanism projects and also facilitates the development of Green Investment Schemes through a separate Green Fund window with contributions from Ireland and Spain.