THE WORLD BANK CARBON FINANCE UNIT

PoAs and liability – the issue

PRESENTATION AT UNFCCC POA WORKSHOP MAY 2011

BY FELICITY SPORS (FSPORS@WORLDBANK.ORG) & MONALI RANADE (

MRANADE@WORLDBANK.ORG)

THE WORLD BANK CARBON FINANCE UNIT

The Liability problem remains despite CMP.5 request and revision of Procedures Sept 2010 EB55

Current Rules: EB55 Revision did limit the request for review to "first" issuance and restricted the extent of error to "compliance with eligibility criteria".

Situation: Not possible to find a business insurance or risk mitigation solution

What are the issues with the current rules?

i. Emphasis on eligibility criteria: level of precision required is unclear therefore trigger for review is also unclear.

ii. Open ended historic liability i.e. CPAs are never “registered” can be put under review 27 years (see Para 11)

iii. Strict liability: DOEs responsible for all mistakes, made by them and others.

iv. Limited time for transfer. DOEs are required to acquire and transfer CERs within 30 days

Utilize natural difference between PoA types to identify realistic solutions:• PoA Type A: individual unit CPA e.g. hydro or wind or geothermal

etc • PoA Type B: micro technologies e.g. efficient light bulbs or CPA ≤ 20 kt

CO2/yr and located in LDC/SIDs/under developed regions or ≤ 600t and activities on household level or low income community or SME.

THE WORLD BANK CARBON FINANCE UNIT

Solutions for PoA type A: i.e with individual unit CPA e.g. individual unit, hydro or wind or geothermal etc.

Eligibility criteria

More detailed guidance on what must be included in eligibility criteria.

Open ended

historic liability

a) Limit CPA liability to 6 months after 1st issuance OR

b) Allow adjustment of future streams of CERs.

Strict liability

Reduce liability to “professional” liability rather than “strict” liability

Limited time for transfer CERs

a) Reduce/Adjust future streams of CERs by number of CERs already issued.

OR

b) Extend to 100 days

THE WORLD BANK CARBON FINANCE UNIT

Solutions for PoA type B: i.e micro technologies as each unit e.g. efficient light bulbs

PoA type A

PoA & CPA PDD by CME

Validation by DOE

Registration EB

Monitoring of CPAs

Verification DOE

Issuance CERs

PoA type B

PoA PDD only - by

CME

PoA validated by

DOE

Registration EB

Monitoring of units

(sampling)

Verification DOE

Issuance of CERs

Solution for PoA type B (micro CPAs):

1. Only PoA PDD (i.e. not CPA-DD) to be prepared for registration. Units /CPAs do not need to be validated at inclusion.

2. PoA PDD validated by DOE. Should contain check list of eligibility requirements and must comply with additionality requirements for micro scale CDM projects

3. Monitoring periodically undertaken for representative sample of all units included in PoA.

4. Verification - DOE ensure units comply with eligibility criteria i.e. verification = “quasi validation”. Risk of liability much less than at point of registration.

5. Issuance of CERs with verification report once approved by EB.

THE WORLD BANK CARBON FINANCE UNIT

Thanks for listening

THE WORLD BANK CARBON FINANCE UNIT

Visualizing the problem.

Year 11st issuance of CPA 1 & 2Inclusion of CPA 3 & 4

Year 22nd issuance of CPA 1 & 21st issuance of CPA 3 & 4Inclusion of CPA 5

Year 3Further issuance of CPA 1, 2, 3, 41st issuance of CPA 5Inclusion of CPA 6

Year 4 Further issuance of 1, 2, 3, 4, 51st issuance of CPA 6 Inclusion of CPA 7

Year 5 CPA 7, found to be “erroneously included”Sample check of CPAs 1 to 6 done; If CPA 4 found erroneously included : DOE to transfer CERs (A+B+C+D)

PoA and CPA 1 & 2 registered in Year 0

1 2 3 4 50

10

20

30

40

50

60

70

80

CPA 6CPA 5CPA 4CPA 3CPA 2CPA 1Series1

A B C D

THE WORLD BANK CARBON FINANCE UNIT

How do the lawyers read it?

No matter how confident a DOE and the C/ME are of their due-diligence, a DOE can be held liable for every single CER issued by the PoA/CPA:

• For “any error”• Review trigged by an EB

member or by DNA• As “error” is not defined, how

will DOE’s work be reviewed?• All CERs from the 1st issuance of

the CPA are at risk• Liability risk is open till the end

of POA lifetime• As penalty, required to acquire

& transfer CER within 30 days PoA and CPA 1 & 2 registered in Year 0

The risk (even if an unlikely eventuality) is unacceptably high

1 2 3 4 50

10

20

30

40

50

60

70

80

CPA 6CPA 5CPA 4CPA 3CPA 2CPA 1Series1

A B C D

THE WORLD BANK CARBON FINANCE UNIT

Why this is excessive?

Liability is on the validating DOE and extends to all past-issuances, even after verification, which is done by a non-validating DOE and issuance of CERs goes through a full review process:1. Prior to issuance of CERs -

request review by Parties involved or three Board members shall be six weeks from the date of receipt of the request for issuance.

2. After issuance of CERs - If a Designated National Authority (DNA) in the PoA or a Board member identifies any error, within six (6) months after the “first” issuance of CERs for that CPA

1 2 3 4 50

10

20

30

40

50

60

70

80

CPA 6CPA 5CPA 4CPA 3CPA 2CPA 1Series1

A B C D

5 separate entities have 7 opportunities to review a CPA within 6 months of the 1st issuance of CERs:1. Coordinating Entity2. DOE – @ validation/inclusion in POA3. DOE – @ verification/request for issuance4. Secretariat/EB – (i) after inclusion & (ii) at issuance5. Host country DNA - (i) after inclusion & (ii) at issuance

THE WORLD BANK CARBON FINANCE UNIT

Adjusting with future ERs

Series1

-60

-40

-20

0

20

40

60

80

CPA 1 CPA 2 CPA 3 CPA 4 CPA 5 CPA 6 CPA 7

A B C D

EFGH

CERs in the next year (E+F+G+H) adjusted for issued “bad” CERs (A+B+C+D)

No CERs issued for CPA 4 or 7