Clean Development Mechanism: Untapped Potential
Under the United Nation's Framework Convention on Climate Change (UNFCCC), “developed country Parties should provide new and additional financial resources to support the transfer of technology and take all practical steps to promote, facilitate and finance the transfer of, or access to, environmentally sound technologies and know how to developing country Parties.” However, a UNFCCC report revealed that a large portion of developing nations do not take advantage of CDM projects to import technology.
As long as technology transfer from developed countries is a convenient low-cost means for China to reduce GHG emissions, why doesn't China have more CDM projects that involve technology transfer? [continue reading to see our analysis]
Wang Rui, Partner, International Trade
Lack of Policy Incentives
Currently, the 《清洁发展机制项目运行管理办法》[Measures for Operation and Management of Clean Development Mechanism Projects] (the “CDM Project Measures”) are the only specific “CDM project” related legislation in China. The CDM Project Measures have set out related procedures and requirements but with respect to technology transfer, however, these Measures only specified a general principle that “CDM project activities should promote the transfer of environmentally sound technology to China.” Notably, these provisions did not impose any mandatory obligations or incentives to the foreign party and Chinese project owner to include technology transfer factors in proposed CDM projects.
Economic Barriers
Many Chinese enterprises are not interested in introducing technology transfer into CDM projects. For most Chinese enterprises, equipment and technology provided by foreign parties indicate longer cooperation terms and are associated with bigger risks. In addition, project owners normally will consider the payment of operation fees and maintenance fees once the clean technologies and equipment are put into use. If the technology transfer is free of charge but the operation and maintenance fees are expensive (the assumption of Chinese companies is that technical teams from western countries charge very high fees for remedial services), this may not be a good deal for the Chinese party. For Chinese companies, it is important to make sure that technology transfer does not impose large up-front costs.
Intellectual Property Concerns
Companies from developed countries are also concerned whether their intellectual property rights can be effectively protected should the technology transfer be implemented. As such, “some of the technologies imported under the CDM projects are second or third class in exporting countries. It is not possible [for Chinese enterprises] to touch the newest emission reduction technologies.”
Solutions
The UNFCCC and Kyoto Protocol are subject to adjustments or even drastic change after 2012. Before the CDM system is rescinded in multinational negotiations on climate change, China should fully use these valuable opportunities to gain access to more advanced emissions reduction technologies from developed nations to achieve sustainable development through the following means.
(1) Legislation.
Amend the CDM Project Measures to mandate a certain degree of technology transfer involved in each of the CDM projects, unless the particular types are unsuitable for technology transfer. Technical standards and criteria should be set out to screen the out-dated technologies. More legislative efforts should also be made to promote the activities of technology transfer under the CDM projects, such as providing taxation incentives and favorable treatment to both Chinese and foreign participants.
(2) Provide incentives to the private sector both domestically and abroad.
From the standpoint of Chinese enterprises, the current mechanism for allocation of revenues from CERs under the CDM Project Measures can be adjusted by reducing the portion of the cake taken by the government. In addition, the Chinese government may require that, as a contractual condition, “the foreign companies executing CDM projects should be responsible for costs incurred until the anticipated improvement in emissions is achieved.” As such, the economic concern of Chinese enterprises may be largely eliminated.
In order to encourage more foreign companies to do technology transfer, in addition to the legislative efforts, the government may popularize a “bundled CDM project package”. In this way,“[a] consortium of advanced technology equipment manufacturers and the GHG emission reduction credits buyers may obtain the purchase order and GHG emission reduction credits respectively by providing advanced equipment and advanced technology transfer and carbon funds accordingly.” This is a new “kind of CDM cooperation mode with complementary advantages” - several examples in China proved its feasibility and popularity.
Renewable Projects in Hong Kong may Lead to Additional Reward?
1.Introduction
On 6 June 2008, the Government of the Hong Kong Special Administrative Region (the “HKSAR”) announced the “Arrangements for the Implementation of Clean Development Mechanism (“CDM”) Projects in the Hong Kong Special Administrative Region” (the “Implementation Arrangements”). The Implementation Arrangements have been developed following consultations between the National Development and Reform Commission (“NDRC”) of
By Andrew Tan
Partner Arculli Fong & Ng (in association with King & Wood, PRC Lawyers)
2. Background
With effect from May 2003, the UNFCCC and the Protocol were extended to Hong Kong after
3. Qualifications
(a) A
Companies which are incorporated or established according to HKSAR’s laws and have obtained a valid Business Registration Certificate are entitled to the benefits available under the Implementation Arrangements.
(b) CDM project located in
Emission reduction projects, including projects on energy efficiency improvement, development, utilization of new and renewable energy, as well as methane recovery and utilization, must be located in
4. Application for the implementation of CDM projects in HKSAR
(a) CDM project application shall be made to the EPD
EPD of the HKSAR is the liaison agency for CDM projects in
(b) Documents required for CDM project application
The following documents must be submitted for the application:
· Letter of Application for CDM project;
· Application Form for CDM project activity;
· CDM project design documents; and
· Relevant information on engineering, construction, and project financing (including the approval of the environment impact assessment report, if applicable).
The format of documents submitted must conform to the specific requirements of NDRC and Chinese versions must also be presented.
(c) Review of CDM project application
NDRC will engage relevant organization to provide expert review of the CDM project application. The CDM project application will also undergo review by the National CDM Board which will include representatives from EPD.
5. Operation of a CDM project
Project owners are requested to present to NDRC and the designated operation entity through EPD their project implementation and monitoring reports. EPD may also monitor the implementation of CDM projects in
In relation to CERs generated by CDM projects, if no foreign buyer of CERs is determined by the time a CDM project is submitted for approval and as a result the sale price of the CERs is not available, the emission reductions generated by the CDM project will be transferred into China’s national account. The project owner may transfer these credits from the national account upon notifying NDRC through EPD.
Currently, no charges will be levied by the governments of
6. Conclusion
Compared to
[1] 1992 Framework Convention on Climate Change,
[2] Kyoto Protocol was adopted on 11 December 1997 by the 3rd Conference of the Parties of the UNFCCC, , and it entered into force on 16 February 2005. As of June 2008, 182 countries have ratified the protocol.
