By: Andrew Tan, a Partner Arculli Fong & Ng (in association with King & Wood, PRC Lawyers)


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 China and the Environment Protection Department (“EPD”) of the HKSAR. The Implementation Arrangements sets out the specific procedures for Hong Kong companies to conduct CDM projects in Hong Kong…

2. Background

China has ratified the international legal regime created by the United Nations Framework Convention on Climate Change (“UNFCCC”)[1] and the Kyoto Protocol (“Protocol”)[2]. Under the Protocol, CDM is a project-based mechanism under which Annex 1 Parties cooperate with non-Annex 1 Parties, including China, to reduce green house gas emissions. CDM allows Annex 1 Parties to acquire “certified emission reductions (“CERs”) generated by CDM projects implemented in non-Annex 1 Parties as one of the means to meet green house gas reduction commitments under the Protocol.

With effect from May 2003, the UNFCCC and the Protocol were extended to Hong Kong after China’s notification to the United Nations. Until the issuance of the Implementation Arrangements, there was no clear regulatory mechanism for the creation of green house gas reduction projects in Hong Kong that qualify as CDM projects.

3. Qualifications


(a) A Hong Kong company

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 Hong Kong

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 Hong Kong to qualify as CDM projects under the Implementation Arrangements. Such projects must also conform to the requirements of the UNFCCC, the Protocol and relevant decisions by the Conference of the Parties to the UNFCCC.

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 Hong Kong. Any application, report and supporting information provided by project owner implementing CDM projects within Hong Kong must be submitted through EPD. EPD will forward the application to NDRC, which is the Central Government’s Designated National Authority, within 5 working days upon receipt of full documentations. NDRC will inform the project owner through EPD in case of any issue found.

(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 Hong Kong and present its findings to NDRC.

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 China or the HKSAR on the revenue generated from the transfer of CERs of CDM projects implemented in Hong Kong, unlike for those generated from a PRC CDM project.

6. Conclusion

Compared to China, the scope of greenhouse gas reduction projects that can be implemented as CDM projects in Hong Kong is smaller, given that most manufacturing activities have migrated to China for cost and other reasons. Nevertheless, the availability of CERs represents an additional revenue source and so could allow some otherwise marginal environmental projects to be implemented in Hong Kong. This should facilitate the improvement of the environment in Hong Kong. However, this is unlikely to be the only tool needed to address all the environmental challenges of Hong Kong but is one of the many measures that can and should be encouraged.

[1] 1992 Framework Convention on Climate Change, 9 May 1992, 31 I.L.M. 851 (1992) [UNFCCC]. [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.