Climate Change Special Programme
Sale of AAUs2014-04-10
Kyoto Protocol of the United Nations Framework Convention on Climate Change (UNFCCC) provides for 3 flexible mechanisms which allow Annex B parties to the Convention - countries which are committed to achieve certain greenhouse gas (GHG) reductions - to use them in order to achieve assigned reduction goals. One of the flexible mechanisms is trading in Assigned Amount Units (AAUs), with one AAU equivalent to 1 tonne of CO2. Annex B countries, including Lithuania, may transfer surplus AAUs to other Annex B countries that lack these units.
Green Investment Scheme
In order to ensure that transferable surplus AAUs actually contribute to the “greening” effect, i.e. GHG reduction, countries with surplus AAUs have developed so-called Green Investment Schemes (GIS) - legal frameworks which regulate the usage of funds from AAU sale and purchase agreements for environmental projects. Throughout 2008-2012, Lithuania had about 80 million of surplus AAUs. In 2009, the approval of the Law on Financial Instruments for Climate Change Management along other legislation signified the creation of the Lithuanian GIS.
The list of legal acts > Climate Change Special Programme: general legislation (in Lithuanian)
According to that law, decisions regarding the closing of AAU sale deals are adopted by the Lithuanian Government, while the Ministry of the Environment provides suggestions for them. The process of the preparation and closing of AAU acquisition and transfer agreements, the rights and obligations of public institutions and other entities are regulated by the Manual for the preparation and closing of AAU sale and transfer agreements, approved by the order No. D1-274 of the Minister of Environment dated 6 April 2010.
The process of closing AAU sale and purchase agreements
The Ministry of Environment initiates and carries out meetings with potential AAU buyers - foreign countries (with the exception of Japan, which allows its companies to acquire AAUs) - negotiating the terms of AAU sale and purchase agreements as well as projected areas of GIS implementation.
The first stage of the deal-making is negotiation with all stakeholders and potential buyers and the signature of the Letter of Intent. This is a non-binding agreement between the parties regulating the sale of AAUs and the usage of funds generated from these deals, with the exception of a description of the buyer’s and seller’s rights and responsibilities. After signing the Letter of Intent the Ministry of the Environment continues negotiating with the buyer regarding crucial terms and conditions of the planned AAU agreement: the amount of AAUs to be transferred, transfer procedures, AAU price, payment method, requirements of the intermediary party (if necessary), types of planned projects/measures to be implemented from the received funds, requirements for the submission of reports on the implementation of projects/measures, and other key provisions of the draft contract. In coordination with the Ministry of Finance, the Ministry of Environment submits proposals and draft decisions on closing the agreement to the Lithuanian Government. The Minister of the Environment has also formed a working group which deals with AAU agreement questions, discusses them with the Ministry of Finance and, if necessary, with other ministries. This working group is made up of representatives from the ministries of Finance, Foreign Affairs, Transport, Energy, and Economy*.
Throughout the course of the arrangement of an agreement, the administrative unit of the Ministry of Environment introduces the working group’s proposals for the content of the agreement, including the Memorandum of Understanding (MoU), to the Minister. MoU is a written agreement between authorized institutions of the buyer and the seller and sets out the essential terms of the AAU agreement, the usage of obtained funds and the areas of planned greening projects. Once the Minister of Environment signs the Memorandum of Understanding, the second phase of the deal-making is completed.
Next, a draft Government decision on the AAU sale and transfer agreement is being prepared. The texts of the draft decision and the draft agreement are being coordinated with the Ministry of Finance and other ministries and then submitted to the Government, which takes a final decision on closing the AAU agreement. The agreement is signed by the Minister of Environment – this is the third and the last phase of the deal-making.
In 2011-2012 six AAU sale and purchase agreements for the total sum of 72,6 million EUR were closed. AAUs from the first commitment period of the Kyoto Protocol (2008-2012) could be transferred until the end of 2014. The transfer of AAUs from the second commitment period (2013-2020) is limited.
* In a situation where more than one country/company is interested in buying AAUs, to obtain the greatest economic, financial and environmental gain from the sale of Lithuanian AAUs the working group has to evaluate questions on AAU agreements as well as comments made by the Ministry of Finance. Taking these comments into account, the Minister of Environment decides which stakeholders (buyers) offer trade terms that correspond best to implementation areas of the GIS. Also, if there are more than five potential buyer’s and more than five letters of intent are signed, a selection of buyers is organised. Each party is invited to submit price and quantity proposals for the acquisition of AAUs. Based on the Manual of AAU buyer selection criteria and evaluation procedures, confirmed by the order of the Minister of Environment, selected buyers are then invited to participate in the negotiations on the Memorandum of Understanding.
Page updated: 3 Dec 2015