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| C. Redemption, including verification and Environmental, Health & Safety and Social Criteria (EHS), and Integrity Criteria | |
|---|---|
| Question C.1 | How long will be an ERPA be effective? |
| The PAF is not offering ERPAs, rather tradeable put options to provide a price floor for emission reductions. These put options will expire at a given date, which will be specified with each put option.In the first auction, the PAF will auction a series of 5 put options. | |
| Question C.2 | Will bidders bid for put options expiring one particular year, or over multiple years? When can the put options be redeemed? |
| In the first auction, the winners will receive their allotment of put options as an equal share of put options with five different maturity dates which will be staggered annually for five years. Payments for the five put options maturities will be due shortly after the auction date. The first redemption date will be announced ahead of the auction and be at least one year from the auction date. A put option owner who does not need all the put options in a given redemption year can trade some or all of the put options to a counterparty (see question C.3.) | |
| Question C.3 | If I am an auction winner, what happens if my project / company is unable to deliver the emission reductions? |
| The put options will be fully tradable. If a put option owner is not able to deliver the emission reductions, he may be able to sell his put options to an interested counterparty. The put option owner also has the right to let the put option expire without the emission reductions being delivered. There is no penalty for non-delivery. | |
| Question C.4 | Will the EHS and Integrity Criteria be specified before the auction, and will it change? |
| The EHS and Integrity Criteria has been posted for the first auction and can be found here (link). To give clarity to bidders and project owners, the EHS and Integrity Criteria will stay fixed and not change over the life of the put option. | |
| Question C.5 | Will the EHS and Integrity Criteria include a standard on environmental sustainability? |
| Yes, the EHS and Integrity Criteria will include a review of environmental performance such as pollution prevention and the management of hazardous waste. | |
| Question C.6 | If I own more CERs than I have put options, can I redeem these CERs the following year? |
| The eligibility criteria for the first auction specifies the eligible generation and issuance periods for CERs and if they can be carried forward (link). The put option redemption dates will be fixed in the PAFERNs Final Bond Terms and the options themselves will not carry forward. | |
| Question C.7 | What role does the PAF expect the DNA to play in the EHS and Integrity process? |
| The PAF engages DNAs to support outreach efforts in their countries to make project entities aware of the PAF auctions. DNAs will not have a role in the EHS and integrity process. | |
| Question C.8 | What happens if you miss the deadline to redeem, do the options roll-over? |
| No. The options do not roll-over. Instead, the put options are tradeable. See questions C2 and C3. | |
| Question C.9 | What is the reason behind making the put options redeemable annually? |
| The PAF seeks to incentivize emission reduction projects to sustain their abatement activities over time. | |
| Question C.10 | What will be the verification audit requirements? |
| For the first auction eligible emission reductions must meet the requirements as announced with this link. | |
| Question C.11 | Can an auction winner in the PAF’s first auction redeem CERs that become eligible under rules for subsequent auctions? |
| Each auction sets out the eligibility for that specific auction. This eligibility doesn’t change over the life of the put options. The PAF doesn’t require to know upfront which CERs (from which projects) an owner of PAF put options plans to redeem. It is only at the time of redemption (when the put option matures) that the put option owner has to communicate the details of the CERs, which have to be eligible for that particular put option. | |
| Question C.12 | Who is responsible for paying the CDM share of proceeds, the put option owner or the PAF? What about the costs for the project validation and verification? |
| The put option owner is responsible to pay expenses relating to the verification and issuance of the CERs, including the share of proceeds. | |
| Question C.13 | Is there any restriction or preference regarding locations of projects? |
| The eligible countries are listed in the first auction criteria (link). | |
| Question C.14 | Who will be responsible for the EHS report and how long will it take for DOEs and Project participants to approve the EHS? Will any other additional report be needed? |
| The EHS report will be the responsibility of the put option owner. The report can be produced by any accredited DOE. The PAF estimates that it will take no more than a few days for a DOE to complete the report. This may be performed in conjunction with the site-visit of a CDM verification. Projects participants may contract the same DOE for the CDM verification and the production of the EHS report. No additional report will be needed. | |
| Question C.15 | When can the CERs be transferred to the registry account? |
| A specific timeline for the transfer of CERs is detailed in the PAFERNs Draft Final Terms that can be obtained by sending an e-mail to the PAF_Secretariat@worldbank.org. The email must contain disclaimer language cut and pasted from this webpage. | |
| Question C.16 | Let’s say I have put options for 110,000 CERs in total, can I deliver my CERs as follows: 30,000 1st vintage and 20,000 for the remaining 4 redemption periods? |
| At the auction, bidders will receive an equal quantity of each of the vintages. Any bid will be a multiple of 5. A successful bid for put options redeemable with 110,000 CERs in total in the auction would give you 5 put options of 22,000 CERs each. After the auction, the bond holders will be free to trade the put options on the secondary market and each vintage will trade separately. | |
| Question C.17 | What is the timeframe for issuance of the CERS? What about the monitoring period? Does my project needs to be validated at the time of the auction? |
| The timeframe of issuance of CERs and monitoring period can be found in the eligibility criteria (link). The project does not need to be validated at the date of the auction. | |
| Question C.18 | Is the EHS & Integrity report required once per project or every year? Is there a template? |
| The timeframe for producing the report has been published in the PAFERNs Draft Final Terms. | |
| Question C.19 | Can the options be traded? Will there be a market place? |
| Yes, each individual vintage can be traded separately. The winners of the auction will be made public in order to facilitate secondary trading. Put option holders will be able to trade the bond through their custodian bank. (For more details see D6) | |
| Question C.20 | Must the Stakeholder Consultation be conducted for every redemption? |
| Yes, please refer to the Stakeholder Meeting Guidance Note in the eligibility criteria document (link). | |
| Question C.21 | If a project has a monitoring period that starts before the eligibility period for CERs and continues such that some CERs are generated within the eligibility period, can I redeem only those CERs that were generated after the required monitoring period start date? |
| No, no CERs will be accepted from an issuance that has a monitoring period start date that starts before the eligibility period. | |
| Question C.22 | What is the estimated cost of the EHS report? |
| The cost of the EHS report will be charged to the project owner by the DOE. As mentioned in question C14, it is expected that the EHS would require no more than a few extra days to complete and could be completed in conjunction with a DOE’s CDM site-visit. The PAF does not have an estimate of the cost. | |
| Question C.23 | Is the stakeholder consultation as required by the EHS in addition to the normal CDM stakeholder consultation which is at the start of the CDM project? And who pays for the consultation? |
| Yes, this is in addition to CDM stakeholder consultation. The consultation is organized by CDM project developer, in consultation with the host site operator. The put option holder or project developer will contract the EHS auditor who is to lead the consultation. No payments or per-diems are allowed for stakeholder participants. | |
| Question C.24 | If a put option holder plans to redeem his option using CERs from a project that fails to obtain a passing EHS report because of issues highlighted at the stakeholder consultation, is the put option holder refunded the put option premium? |
| No, the premium is not refunded. | |
| Question C.25 | Is it intended that the scope of the stakeholder consultation includes all activities of the host site, e.g., the entire landfill OR is the scope limited to the CDM project site? |
| It is both the host site and the CDM project site. Please see the Stakeholder Meeting Guidance Note. | |
| Question C.26 | We understand that credits will be transferred to a specific PAF registry account under the Swiss registry and that option holders will have to have a registry account to forward the credits. Given this, can the CERs be forwarded from a non-Annex I registry i.e., a “permanent holding account”? Or we must have an Annex-I registry i.e., “individual holding account”? |
| In order for the CERs to be transferred in the specified timelines, the PAF requires that CERs be transferred from an account in a national registry from an Annex I country (e.g., European Union Registry, Swiss Emissions Trading Registry, etc.) to the registry account opened on the PAF’s behalf in the Swiss Emissions Trading Registry. | |
| Question C.27 | Is it right that the submission of the integrity due diligence questionnaire does not imply any legal obligations or costs? The bid registration along with the bid deposit will only happen after the announcement that a bidder is eligible to participate (IDD outcome), not in parallel? |
| The IDD Questionnaire is part of the Bidder Application Package and by submitting it a bidder will be signing a Bidder Agreement which commits the firm to pay the deposit and participate in the first round of the auction. In the first round the bidder may immediately drop out by signaling no demand at the starting price. | |
| Question C.28 | What type of agency/firm will the Verification Agent be? When will the name of the verification agent be announced? |
| Kommunalkredit Public Consulting GmbH (“KPC”), has been selected to be the Verification Agent. | |
| Question C.29 | Can you clarify the verification process? Will there be an onsite visit by the verification agent? What will be the cost for the project owner? |
| The verification process will happen in two separate Checks. To complete the First Check, the Verification Agent will perform a desk review to check that the CERs identified in the Redemption Notice are eligible as per the eligibility criteria (by reviewing the relevant CDM Verification Report on the UNFCCC website) and review the EHS & Integrity report (submitted together with the Redemption Notice) to confirm that it has a pass grade. As a Second Check, the Verification Agent will confirm that the CERs transferred to its account are the same CERs reviewed during the First Check. These two checks will be done as desk reviews and will not include any site visit. There is no cost for the project owner for these checks. | |
| Question C.30 | How does the CER delivery mechanism work? What if the second check is negative? Will the CERs be transferred back to the note-holder? |
| The note-holder will transfer the CERs directly to the Verification Agent's registry account. Should the Second Check be negative, the previously transferred CERs will be transferred back to the note-holder. | |
| Question C.31 | Is there a review procedure or dispute resolution mechanism to address any mistake made by the Verification Agent? |
| No, there will be no review or dispute resolution procedure to challenge the decision made by the Verification Agent. As highlighted in the PAFERNS draft terms, the holder faces a remote risk of loss in case a mistake is made. This risk is being mitigated by the nature of the task performed by the Verification Agent, who will check that the EHS & Integrity report has received a pass and that the CERs are eligible. The Verification Agent will not be required to exercise any judgment in performing either of the two checks. | |
| Question C.32 | Who is responsible for conducting the integrity report? |
| The integrity criteria is part of the “Environmental, Health & Safety and Social Criteria (EHS), and Integrity Criteria” report that will have to be conducted by a CDM accredited DOE. | |
| Question C.33 | Can CERs be delivered at different times during a given year? |
| No, there is only one Maturity Date per year. The timeline for transferring the CERs to the Global Agent has been published in the PAFERNs Draft Final Terms. The PAFERNs draft terms will be shared with interested parties that send an e-mail to the PAF_Secretariat@worldbank.org.The email must contain disclaimer language cut and pasted from this webpage. | |
| Question C.34 | I see that there is some flexibility to use the same vintages of CERs with different maturity dates of the PAFERNs (i.e., use different CERs from a single CER issuance for two different maturity dates). If I do that what are the requirements to have a fresh CDM Verification Report and EHS Inspection Report? |
| Eligible CERs can be used for different Maturity Dates (a.k.a., redemptions) from the same CER issuance so long as they meet the eligibility requirements for that Maturity Date in terms of their issuance date and monitoring period start date. In the case where the CERs from the same issuance are used for a subsequent maturity, another CDM Verification is not required. A second EHS Inspection Report would not be required so long as there was an EHS Inspection Report completed for the same project less than 608 days prior to the Maturity Date. If the original EHS Inspection Report that was used when the CERs were first delivered from the same issuance was dated more than 608 days from the Maturity Date, then a new EHS Inspection Report would need to be completed. In other words, the EHS Inspection Report is linked to a project, and not to a particular verification report for that project. | |
| Question C.35 | How does the official approval process looks like per project? |
| The PAF does not approve the projects or the CERs. To be delivered with the PAFERNs at the Maturity Date, CERs must meet the criteria specified in the eligibility criteria page. As described in the PAFERNs, a Verification Agent (Kommunalkredit Public Consulting GmbH (“KPC”)) will verify that the CERs bought forward are indeed eligible. | |
| Question C.36 | Before the maturity date, I understand that the CERs shall be transferred to the Verifying Agent. Why is it not possible to instruct the UNFCCC to transfer the CERs from a CDM Pending Account directly to the Swiss registry account? |
| Transferring CERs directly from the CDM Pending Account to the Verification Agent’s Swiss Emissions Trading Registry account would require the Verification Agent to become a Project Participant and obtain a Letter of Approval from the Swiss Designated National Authority for this purpose in a very short window of time. Such a process is not compatible with the timelines required for the maturity of the PAFERNs and will not be accepted. See Question and Answer C.26 to understand what is permitted. | |
| Question C.37 | According to question and answer C.26 a PAFERN holder must transfer the CERs to the Verification Agent’s Swiss Emissions Trading Registry from an Annex I country Registry. Does this require a Project Participant from an Annex I country be added to the project in order to obtain an LoA with an Annex I country? Can an entity, formally retained by the note-holder, transfer the CERs to the Verification Agent’s registry account on behalf of the Note-Holder? |
| The PAFERNs Draft Final Terms specify that the CERs which are identified in the Final Redemption Note and have passed the Verification Agent (VA)’s first check, must be delivered to the VA’s Swiss registry account no later than 15 business days prior to the Maturity Date. The PAFERNs Draft Final Terms do not specify how the CERs must be transferred. We encourage interested parties to contact an Annex I registry to familiarize themselves with the process of transferring CERs. | |
| Question C.38 | Does a DOE need to register under the PAF to provide the EHS Audit Report? |
| No. We refer interested parties to the PAFERN terms, which requires that DOEs need to be accredited by the CDM in accordance with Paragraph 20 of the CDM Modalities and Procedures at the time of the EHS Audit Report. | |
Disclaimer:
THE FOLLOWING IS A SUMMARY OF THE WORLD BANK’S PROPOSED PLAN TO ISSUE PILOT AUCTION FACILITY EMISSION REDUCTIONS NOTES (“PAFERNS”). IT IS NOT AN OFFER TO SELL PAFERNS OR AN INVITATION TO OFFER TO BUY PAFERNS. THIS SUMMARY IS SEPARATE FROM, AND SHOULD NOT BE READ IN COMBINATION WITH, ANY FUTURE OFFER OR SALE OF PAFERNS, WHICH WILL BE MADE IN COMPLIANCE WITH APPLICABLE LAWS AND UNDER ENTIRELY SEPARATE LEGAL DOCUMENTATION AND OFFERING MATERIALS. THIS SUMMARY IS VERY HIGH LEVEL FOR SIMPLICITY AND LEAVES OUT MATERIAL INFORMATION AND THE LEGAL DOCUMENTATION THAT IS EXPECTED TO GOVERN THE PAFERNS. FURTHER, IT IS CURRENT ONLY AS OF THE DATE OF POSTING TO THIS WEBSITE AND IS LIKELY TO BECOME OUTDATED AS THE PAFERNS LEGAL DOCUMENTATION IS DEVELOPED. THE STRUCTURE, TIMING AND MECHANICS OF THE ACTUAL PAFERNS, IF AND WHEN THEY ARE ISSUED, ARE SUBJECT TO CHANGE. POTENTIAL INVESTORS MUST OBTAIN A COPY OF THE COMPLETE LEGAL DOCUMENTATION PURSUANT TO WHICH THE PAFERNS WILL BE ISSUED, INCLUDING THE WORLD BANK’S MAY 2008 PROSPECTUS RELATING TO ITS GLOBAL DEBT ISSUANCE FACILITY AND THE FINAL TERMS FOR ANY ISSUANCE OF PAFERNS. POTENTIAL INVESTORS SHOULD NOT RELY ON THIS SUMMARY. BEFORE MAKING ANY INVESTMENT DECISION, POTENTIAL INVESTORS MUST REVIEW THE COMPLETE LEGAL DOCUMENTATION (ONCE AVAILABLE).
Last update -- July 2, 2015
