Introduction – Climate Change Crunch?
It is that time of year again when the Global Carbon Market prepares to come together at the CarbonExpo - this year for the first time in Barcelona. No doubt many will be evaluating the state of the market, what this means for business and how the next one or two years will develop.
As one reads through the latest edition of our Carbon market updater one can see clear signs for optimism that at last global action to address climate change is emerging. Slowly but surely across countries and continents a web of policy, regulation and fiscal incentives is emerging to tackle climate change and stimulate policies, measures and investments into clean technologies. This can clearly be seen in the Developed World:
- Europe builds upon its early start in the Carbon market with reform of the EU ETS now being implemented across European member states in domestic legislation.
- Added to this is the EU -wide commitment to: 20% of all energy coming from renewables by 2020; and €500 million to support offshore wind;
- Fiscal incentives in France, Germany, Netherlands, The UK and other EU member states for energy efficiency R&D , support for renewables and other clean tech investments and CCS ;
- In Poland a new draft law on a system of management for GHG s which includes rules on the sale of AAU s; and
- In Russia rules on JI and at long last movement in the Russian JI market.
Outside of Europe we see clear signs as to the emergence of cap and trade schemes in Australia, New Zealand, Japan and even the United States. Again in a number of these countries such developments are complemented by other polices and measures as well as fiscal incentives aimed at the emerging Green Economy.
However, the developing world is also increasingly playing its part. The following developments are just some of those covered in this updater:
- PRC generation companies being required to generate a certain percentage from renewables resources, where failure to do so will delay approval for new coal fired power plants;
- Promotion in Singapore of the clean technology sector;
- Indonesia inches towards a Ministerial decree on REDD ;
- In Thailand the National Energy Council approves a new feed-in tariff scheme for renewables.
But there is also plenty of stop start and clear policy and regulatory uncertainty based upon which one could be forgiven for thinking we are clearly facing a climate change crunch. One can see this in the recent delay to the Australian plans, review of the New Zealand scheme, the amount of regulation which is required through comitology to implement the recent reform of the Phase III of the EU ETS and delays in implementation of JI particularly in Russia.
Cap and trade legislative developments in Canberra and Washington amongst other places are a wake up call to those in Europe as to how difficult politically the process of developing a global carbon market will be. In Washington this has been described as the “mother of all” legislative battles because, quite simply, it involves so many interests. Whilst politics and lobbying was certainly not absent in Brussels there is a greater consensus in Europe which makes Brussels less exposed to such politics and lobbying.
Finally, when one turns to the international process, even with the international negotiations in Copenhagen now only six months away it still seems to be moving forward at a glacial pace. Perhaps the greatest worry is that there still seems to be scant agreement on the level of ambition which should be set, let alone how targets (if and when agreed) will be allocated and implemented.
Added to this there seems to be a real communication disconnect between the international policy makers and the carbon market. The market is jittery over perceptions that the future will be public sector and not private sector led, that CDM and offset projects will at best be consigned to being a boutique mechanism only and almost no detail on how new mechanisms floated such as sectoral trading or a new technology transfer mechanism will even work. When such concerns are played back to policy makers they are adamant that the future of climate change mitigation will very much be private sector led, CDM will continue and other private sector market mechanisms will be developed.
In light of all of this there is clearly a lot to talk about and discuss in Barcelona. In this spirit we are hosting a side event on 28 May at 10.45 am to debate one of these issues: The Big Debate: Do Offset Projects including CDM have a future role in a Post 2012 Global Carbon market?
We would like to thank our guest contributors from Clayton Utz (Australia), Bell Gully (New Zealand), Garrigues (Spain) and Ali Budiardjo, Nugroho, Reksodiputro (ABNR) (Indonesia).
We look forward to seeing you at the CarbonExpo in Barcelona. We will be at stand A-032.
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The Budget and implications for green investment and climate change in the UK
The Government has shown its commitment to building a low-carbon economy by setting a target to reduce greenhouse gas emissions to 20 per cent below 1990 levels by 2020. In the 2009 Budget the Government announced a raft of new measures and incentives to boost investment in the “green economy” and to decarbonise our energy profile. The Climate Change Act 2008 makes the UK’s voluntary national CO2 emission reduction targets legally binding and the act creates a system of carbon budgets to set the UK’s net carbon account. In the 2009 Budget the Government announced that it will set the UK’s first three five-year carbon budgets - covering the period from 2008 to 2022. These carbon budgets are expected to provide a credible long-term framework to incentivise investment in energy saving and low carbon technologies.
This summer, the Government will publish an energy and climate change strategy that will set out the policies for a low-carbon future that is prosperous and energy-secure.
Renewables will play a significant part in the progressive decarbonisation of power generation in the UK. The Government expects a ten-fold increase in renewable investment by 2020. Further details of the 2009 Budget are discussed below ‘Global clean technologies stimulus packages’.
The Government’s long-term strategy to support the CHP sector will be set out in the heat and energy saving strategy (which is due later in 2009). However, in order to bring forward future investment, the Government announced that it will extend the climate change levy exemption for indirect sales of CHP electricity to 2023 (subject to State Aid approval). The Government will also commit to continuing other existing levy exemptions for CHP.
The Energy Saving and Water Efficient Enhanced Capital Allowance schemes allow businesses investing in certain technologies designed to reduce energy consumption or to save water or improve water quality to obtain a tax deduction for 100 per cent of the cost against the taxable profits of the period during which the investment was made. The list of qualifying technologies will be revised to include uninterruptible power supplies, air to water heat pumps and close control air-conditioning systems. The changes to the schemes will have effect after a date to be appointed by Treasury order to be made prior to the summer 2009 Parliamentary recess.
The government announced that it will build up to four CCS demonstration projects, an increase from the previous policy of one. Much of this funding is likely to come from the European Commission. In addition, £90 million of support for research into CCS technology was announced in the Budget.
The shipping industry is becoming increasingly interested and concerned in equal measures about how future climate change laws, regulations and emission reduction targets or obligations may be imposed across the industry and what type of financial and practical consequences these may have. This is largely as a result of the European Commission recently announcing that unless the global shipping industry can introduce workable proposals for reducing emissions, then it is likely that shipping will be obliged to enter into the EU ETS .
Although shipping only contributes between 3 and 4.5 per cent of the world’s emissions of GHG s, only six countries emit greater amounts of GHGs. There is an enormous amount of political will in Europe, and increasingly in the rest of the world, to tackle climate change, given the scientific consensus surrounding its anthropogenic nature so an extension of emissions trading or similar regulation to shipping therefore appears to be a question of when, rather than if.
When the Kyoto Protocol was drafted, it was decided that emissions from shipping would be left to the IMO to consider.
Consequently, the UN mandated the IMO to come up with a workable solution for shipping to achieve the overriding aim of reducing emissions. However, the rate of IMO progress has been slow and the European Commission has warned that unless the industry reduces carbon emissions, it will require shipping to participate in the EU ETS.
The IMO’s critics insist that it has made little or no progress on the issue since Kyoto. Arguably, on the technical side, the IMO has considered in detail the practicalities of reducing emissions from ships and has commissioned various technical studies and suggestions for such a scheme. The failure of the IMO to legislate for GHG emission reductions is symptomatic of political difficulties that exist between developed and developing countries. Since emission reduction targets were not imposed on developing countries under Kyoto these countries object strongly to such targets being imposed on them ‘via the backdoor’ through the shipping industry. Consequently, the efforts of the IMO to come up with a workable and fair solution to the problem may be fatally undermined by a lack of political consensus. Last year the IMO drew up a set of nine principles which any emission reduction system must exhibit to be acceptable and the principles have widely been accepted as a sensible way forward by the industry.
In terms of schemes that might work for shipping, it is widely accepted by experts that a market based cap and trade system is likely to be the most effective, although other options are also being considered.
There are many unanswered questions regarding allocation in a cap and trade scheme for shipping including:
- which body should provide allowances for ships?; and
- to whom should these allowances be given?
Ship owners and operators are the obvious choice, but if such operators are spread across the globe, how is such allocation to be made? Such a system might be workable when looking at predictable trades such as ferry or short sea trades, but for tramp shipping, such as dry bulk, this is more problematic as some ships may visit a particular area only occasionally in one year and then frequently in a subsequent year.
A second significant problem is that of benchmarking. If any scheme is to work, it is vital to have reliable information on how much carbon is currently being emitted so that a benchmark can be established and used to determine the number of units of carbon that should be allocated to each ship. Studies on benchmarking have been underway for some time and the IMO has produced a CO2 Index (along with other alternatives) to address this problem.
A study in December 2006 found that on making calculations with such indexes the results would vary significantly - even between almost identical sister ships, the index could vary by as much as 33 per cent in the same year and this difference arose from operational rather than design issues. If this is correct, establishing the correct allocation levels is difficult and may lead to some ships being able to meet their targets easily and others finding they need to buy additional units of carbon.
If the IMO cannot come up with a solution, then the EU is likely to press ahead without heed to the objections of the developing states, although the move faces challenges from other states and industry bodies on the basis that such unilateral action would offend various conventions and agreements under the World Trade Organisation.
That said, the European Commission recently announced that it would not be issuing its proposals for legislation this year but instead plans to include these in its 2010 work programme. We think there are clear signals that regulation of CO2 emissions from ships will be introduced. Engagement by all sectors of the industry is necessary to achieve the best outcome, to capitalise on the opportunities that this new regime might offer and to ensure that those involved in the shipping industry ultimately control as best they can their own destiny in these uncharted waters.
Nuclear vs CCS
On 23 June 2009, Norton Rose LLP will be hosting The Big Debate: Nuclear vs. Carbon Capture and Storage at our London office.
The UK government has acknowledged the need for a range of low-carbon energy sources to meet the predicted increase in energy demand. Within the energy mix suggested by the Government both nuclear and carbon capture and storage feature.
In a credit crunch constrained environment prioritisation is almost inevitable. So if we had to prioritise one technology, which one would it be? Join the debate!
Carbon in cities
In March 2009, the Government issued a consultation on the introduction of a new mandatory emissions trading scheme - the CRC - which is due to come into force in April 2010.
It is proposed that the CRC will apply to organisations (not currently subject to other emissions trading schemes) which, in the 2008 calendar year:
- had at least one half hourly electricity meter settled on the half hourly market; and
- had a total half-hourly metered electricity consumption of more than 6,000 MWh .
Organisations meeting both criteria will be full participants in the CRC scheme. These participants are expected to include: large businesses; retailers; banks; landlords; supermarkets; hotel chains; restaurant chains; water companies; telecommunication companies; government departments; large local authorities and universities etc. Organisations meeting the first criterion only will be subject to certain information requirements.
The CRC , will require participants to set their own “carbon budgets” by predicting their carbon dioxide emissions for each compliance year and purchasing sufficient “allowances” from the Environment Agency (which will regulate the CRC) to cover them.
In order to keep within carbon budgets, participants will be encouraged to develop systems to manage their emissions and to deploy the use of energy efficient technologies. Failure to keep within budget will necessitate participants purchasing additional allowances on a secondary market (from other participants using fewer allowances than they budgeted for).
At the end of each compliance year, the Environment Agency will prepare a league table showing how all CRC participants have performed under the CRC scheme. The league table will “name and shame” poor performers, and reward the best performers who will be eligible to receive a share of the revenues received by the Environment Agency from the sale of allowances.
It is proposed that a participant found guilty of an offence under the CRC could be fined up to £50,000 in the Magistrates’ Court or receive an unlimited fine on conviction in the Crown Court. In addition, individual directors and officers may be subject to personal liability where an offence is proven to have been committed with their consent, connivance or neglect. In extreme circumstances, they could be subject to imprisonment for a term not exceeding three months on conviction in the Magistrates Court; or for a term not exceeding two years in a Crown Court.
Organisations identifying themselves as potential CRC participants can prepare for the imminent onset of the CRC by taking the following steps.
- Information gathering: Obtain information on electricity consumption for 2008 (the proposed base year) and predict how many allowances will be required based on current CO2 emissions.
- Organisational preparation: Identify a chain of responsibility for complying with the CRC by appointing a person to be responsible and accountable for CRC participation and requiring other appointed members of staff to report electricity consumption statistics back to him/her.
- Budget: Assess the likely costs of the CRC scheme (in terms of buying allowances and administration costs etc) and budget ahead.
- Consider energy efficiency: Start to plan ways in which CO2 emissions could be decreased.
Should you wish to discuss whether (and how) the CRC may affect your organisation, please contact:
Partner and Head of Environment, Safety and Planning Group (London)
Global clean technology stimulus packages
Despite the financial crisis, many governments remain committed to reducing carbon emissions and enhancing their energy security.
Unprecedented amounts are being allocated to clean technologies through stimulus packages (estimated at US$400 billion globally), loan guarantees and tax incentives, which will enable the clean tech industry to continue developing through the recession and beyond.
Government funding for this sector is essential in the current economic climate since, under normal circumstances, around 80 per cent of investment is provided by the private sector - so a higher proportion of Government spending is needed in the near future in order to sustain investment in the cleantech industry in the long term.
According to the most recent Stern Report (Towards a Global Green Recovery - Recommendations for Immediate G20 Action , 2 April 2009 (1.58 MB pdf)), G20 governments have dedicated around 15 per cent of their total stimulus packages to green measures. However, this Stern Report reveals that there are stark differences between countries. South Korea leads the world by earmarking as much as 81 per cent of its US$38.1 billion economic stimulus package for green measures (US$30.7 billion). China has set aside 34 per cent of its US$585 billion package for green measures (US$200.8 billion). Germany and France have allocated US$13.8 billion and US$7.1 billion, respectively, to green measures (representing roughly 13.2 per cent and 21.2 per cent of their total stimulus packages, respectively) and the EU has allocated nearly US$23 billion for green measures, amounting to 58 per cent of its total stimulus package. Although the US has only allocated 12 per cent of new spending on green measures, the massive overall size of its stimulus package means that a very significant amount of money (US$120 million) is being directed towards the sector.
President Obama has repeatedly advocated clean energy as being a central tenet of the USA ’s economic recovery efforts. Obama’s US$787 billion economic stimulus package, announced in February 2009, is a clear signal of sustained government support for clean tech - it allocated:
- nearly US$120 billion to the clean tech sector;
- including US$58.7 billion for clean energy spending;
- US$60.8 billion for clean tech infrastructure spending;
- US$11 billion for energy efficiency projects;
- US$11 billion for smart grid investments;
- US$3.4 billion for CCS demonstration projects; and
- US$2 billion for research into batteries for electric vehicles.
The American Recovery and Reinvestment Act includes grants for R&D , loans and loan guarantees for commercialisation, funding increases for government procurement, tax incentives for investment in clean energy (approximately US$22 billion in energy-related tax incentives) and tax credits for consumers purchasing clean-energy products. In addition, the stimulus package allocates US$872 million over 10 years for federal tax credits for distributed clean power generation like small wind. Other tax incentives include a provision that establishes a 30 per cent investment tax credit aimed at jumpstarting the struggling domestic renewable energy industry and designed to make the US a more attractive place to manufacture solar, wind and other green technologies.
By comparison, the UK government is allocating a relatively small proportion of its stimulus package to green fiscal measures. According to the Stern Report (published prior to the Budget of April 2009) the UK’s overall spend on green measures amounts to US$2.1 billion, representing 6.9 per cent of total government spending.
On the release of the Budget, Chancellor Darling announced a further £1.4 billion package (which represents 9.6 per cent of Darling’s total spending commitments in the Budget) to reduce carbon emissions and create a low-carbon economy. This funding includes:
- £375 million for home energy efficiency;
- £525 million support for offshore wind power (through the government temporarily raising subsidies);
- £405 million for the development of low-carbon technologies; and
- a new funding mechanism to finance at least two, and up to four, CCS demonstration projects.
Furthermore, loans totalling £4 billion will be injected by the European Investment Bank to benefit UK renewable and energy projects and remove blockages in project financing.
In addition, Darling announced that the high-tech industrial sector will receive an investment of £750 million through a fund focussing on advanced technology. The Strategic Investment Fund will be aimed at emerging technologies, advanced manufacturing and the life sciences. As part of the fund, £250 million will be earmarked for low-carbon investments, a further £50 million for the Technology Strategy Board to support research in advanced manufacturing, low carbon tech and life sciences and £10 million for UK Trade and Investment.
Prior to the Budget, the UK was allocating a very small percentage of its overall fiscal stimulus package to the clean tech sector and significantly below the 20 per cent recommended by Stern. It is fair to say that the Budget goes some way to addressing this pressing issue - however, some have voiced concern that it falls short in comparison with the large sums committed by other governments. Although the package was more than expected in the light of pre-budget reports, it could also be viewed as a missed opportunity to follow the lead of countries like the USA , South Korea and China and may put the UK’s clean tech sector at a competitive disadvantage.
Technology transfer and climate change
Ensuring the effective transfer and availability of proprietary climate change technologies to meet the challenge of global climate change, while maintaining proper incentives for private organisations to commit the time and costs of R&D into crucial new technologies, continues to be a topic of increasing debate.
As our team reported in December 2008, this debate featured in talks at the United Nations Climate Change Conference in Poznań, where discussions included consideration of whether there is a need for a fundamental shift in the way that intellectual property rights over climate change technologies should apply and operate in order to enable the challenge of combating climate change to be met.
More recently (late March 2009), the WIPO Standing Committee on the Law of Patents held an open discussion in Geneva organised by the International Centre for Trade and Sustainable Development, seeking to focus again on the requirement for policy decision making to ensure that proprietary climate change technologies are made available.
Analogies and distinctions continue to be drawn from the long-running and often acrimonious debate over circumvention of patent rights in order to protect public health that culminated in the WTO Doha Declaration of November 2001. Given the specifics of how the global pharmaceutical industry works and the relative importance of patents to that industry, it is questionable how relevant the public health debate might be to this current issue.
Turning to the means of making the technology available there are a range of technology transfer models that could be adopted. These include models based on patent pooling, compulsory licensing or “open source” technology platforms for example, and different models or combinations of models will be more appropriate in certain situations than in others.
We expect this debate to continue apace throughout 2009. We understand it is due to feature heavily at WIPO Conference on Intellectual Property and Public Policy Issues in mid July, and will no doubt be a hot topic at the COP/MOP in December. Ultimately, the models used to effect the transfer of technology will need to be innovative of themselves.
Fast-track for green patents
On 12 May, the UK IPO announced an initiative which will enable UK patent applications relating to environmentally friendly technologies to be fast-tracked on what the IPO has called the “Green Channel”. The fast-tracking of patent applications on the Green Channel could potentially reduce the application time from about three years to as little as nine months.
In order to access the Green Channel, applicants must make a written request confirming that the patent application relates to a green technology and stating which aspect of the process they wish to accelerate. The Green Channel is available for existing applications as well as those filed after 12 May 2009 and no additional fee is payable for its use.
The proposal comes as part of a move by the Government to implement a broader range of measures to tackle climate change. It is hoped that the availability of the Green Channel will promote investment in the clean tech sector. By speeding up its grant it should help inventors secure the investment required to take projects forward at an accelerated pace.
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As part of the revisions to the EU ETS which were decided upon last December, the EC Commission is to develop new legislation on the rules and conditions which will apply to auctioning in Phase III. These new rules are to be developed under the complex “Comitology” procedure, which, in summary, means that it will be the EC Commission, assisted by civil servants from the national administrations of the Member States who will be responsible for drawing up the provisions.
In order to allow stakeholders a say in this process, the EC Commission will shortly be launching a consultation on the development of Phase III auctioning rules. Although the final scope of the consultation is not yet clear, a number of issues are likely to be of particular significance. These include the timing of auctions, with operators of some of the larger installations keen to see these take place at least one year in advance of the start of Phase III. Another key question will be the number of platforms for auctioning. The EC Commission has already excluded the idea of a single platform, and it has been suggested that, at least in the initial stages, a number of regional platforms might be used. Finally, the thorny issue of reserve pricing, which is already being used by a number of Member States, is likely to attract much attention.
It is expected that the consultation, which will be available online, will begin shortly and is likely to last for between two and three months. The EC Commission will then review the responses and is expected to produce a legislative proposal by the end of this year, with adoption of the new rules to be completed by the end of June 2010.
Governmental response to the credit crunch: fiscal investment in renewables and climate change
On 6 Apr 2009, the EU ’s climate change package was given final approval with new measures to incentivise low carbon technology, dramatically boost clean green energy and provide billions in funding for vital CCS demonstration plants.
The highlights of the package include:
- use of 300 million EU ETS allowances, worth billions of pounds, to part-fund up to 12 CCS demonstration plants;
- commitment to a 20% reduction of GHG s emissions from 1990 levels, rising to 30% if a global deal is reached; and
- European wide commitment to 20% of all energy to come from renewable sources by 2020, with a UK target to source 15% of all energy by 2020.
On 20 April 2009, the Czech presidency of the European Union reached a compromise deal with the industry committee of the European Parliament regarding a £3.5 billion spending package intended for energy projects. Approximately £2 billion from the spending package will be used to boost gas and electricity transmission links between the EU Member States, with around £900 million for CCS projects and £500 million for offshore wind and grid projects. In order to qualify for the funding, projects will need to be classed as “investment ready” and should have already started to spend substantial sums by the end of 2010. It was also agreed that any sums not spent under the European Energy Programme for Recovery will be used for other energy efficiency or renewable energy projects.
The road to Copenhagen via Bonn
From 29 March to 8 April 2009 countries met in Bonn, Germany, to progress work on the development of the future international climate change regime, in two parallel work streams. The AWG-KP continued its work toward the establishment of new emission reduction targets for developed country Kyoto Parties for the post-2012 period. Meanwhile the AWG-LCA continued to consider ways to enhance implementation of existing Convention commitments in the four ‘Bali building blocks’ of: mitigation, adaptation, technology transfer, and finance and means of implementation. Key issues at the session included:
- the necessary scale of emission reductions and timeframe for reductions to be achieved through the climate change regime against the backdrop of worsening climate change impacts;
- how the burden of achieving these emission reductions might be shared among developed countries and between developed and developing countries; and
- what new mechanisms might succeed in mobilizing the funding needed to achieve the necessary scale of: emission reductions and to support adaptation in vulnerable developing countries.
Ad Hoc Working Group on Further Commitments for Annex I Parties (AWG-KP)
Within the AWG-KP, one contact group focused on the scale of emission reductions to be achieved by Annex I Parties in aggregate and the contributions of individual Annex I Parties to this overall goal. At earlier sessions, the AWG-KP’s conclusions had referenced the lowest stabilization range identified to date by the IPCC – a 25-40 per cent reduction for Annex I Parties below 1990 levels – without explicitly adopting this range to guide mitigation effort in the post-2012 period. The door was left open to a more ambitious range based on newer scientific information.
In Bonn, developing countries highlighted the need for ambitious mitigation effort from developed countries, given the increasing urgency of the climate challenge and recent scientific studies on accelerating climate impacts. Some called for aggregate reductions of at least 40 per cent below 1990 levels by 2020 (the top end of the IPCC 25-40 per cent range), others at least 45 per cent, others 50 per cent or more.
Countries that had already announced their levels of ambition for the post-2012 period largely restated these positions. These included: for Australia, a range of -5 per cent to -15 per cent below 2000 levels by 2020, with LULUCF included; Belarus, -5 to -10 per cent below 1990 levels by 2020 (under consideration); Canada, -20 per cent below 2006 levels by 2020 (officially announced); Norway, -30 per cent below 1990 levels by 2020 (officially announced); Switzerland, -20 to -50 per cent below 1990 levels by 2020, including LULUCF (consultations in progress); Ukraine, -20 per cent below 1990 levels by 2020 (under consideration).
The EU reiterated its earlier position that developed countries should commit to reducing their emissions of GHGs in the order of 30 per cent by 2020 compared to 1990 levels. The EU restated its unilateral commitment to reduce EU-27 GHGs by at least 20 per cent by 2020 compared to 1990 levels and by 30 per cent provided that other developed countries commit themselves to comparable emission reductions and that economically more advanced developing countries contribute adequately according to their responsibilities and respective capabilities consistent with staying below two degrees.
In response to the reluctance of developed countries to table ambitious individual and aggregate mitigation figures, South Africa and the Philippines proposed individual targets for all Annex B Kyoto Parties, tabling proposed amendment text that would reflect far greater ambition (FCCC/KP/AWG/2009/MISC.7 (309.20 KB pdf)).
Understandably no agreement could be reached, as Annex I Parties wait to see what numbers the United States will put forward, what level of effort can be put forward by major developing countries, what changes might be made to accounting rules for land use and land use change and what rules can be agreed for the flexible mechanisms in the post-2012 period.
A contact group on legal issues discussed the form that amendments to existing targets might take. Unresolved issues included the length of the commitment period, whether one or more commitment periods might be agreed, whether commitments should continue to be stated solely in percent reductions or whether they might also be stated in tonnes, and the nature of consequential amendments needed.
Accounting issues related to LULUCF were taken up in another contact group, where issues discussed included land-use flexibility, accounting for natural disturbances, treatment of harvest, inter-annual variability, incentives for sustainable forest management, non-permanence, accounting symmetry, ‘factoring out’ standing stocks in accounting, harvested wood products, reporting complexity and promotion of co-benefits.
On emissions trading and the project-based mechanisms, little progress was made on streamlining the number of proposals now under discussion. Contact group co-facilitators sought to identify proposals that could be deleted from the texts carried forward from the previous session. However, because any proposal that received the support of at least one Party had to remain, few issues came off the table. The proposal for ‘sectoral CDM for emission reductions below a baseline defined at a sectoral level’ was dropped as it overlaped with a proposal in the text for the measurement of additionality through multi-project baselines. A proposal for the development of positive or negative lists for JI projects was also dropped. Text regarding NAMA s by developing country Parties grew in length, as Parties sought to use the text to bring the two AWG negotiating strands (AWG-KP and AWG-LCA ) together. Parties were also given an opportunity to clarify the text of their proposals. (FCCC/KP/2009/L.2 (211.36 KB pdf)) please supply link.
The AWG-KP Chair will prepare two texts for the June session: (i) a proposal on amendments to the Kyoto Protocol pursuant to Article 3.9; and (ii) a text on other issues to: FCCC/KP/AWG/2008/8 (90.12 KB pdf) including those relating to emissions trading and the project-based mechanisms.
Ad Hoc Working Group on Long-term Cooperative Action (AWG-LCA)
At the Bali Conference of the Parties in 2007, the Parties agreed to launch “a comprehensive process to enable the full, effective and sustained implementation of the Convention through a long-term cooperative action, now, up to and beyond 2012, in order to reach an agreed outcome and adopt a decision at its fifteenth session.” Decision 1/CP.13 (257.91 KB pdf), referred to as the Bali Action Plan, is the central document in the negotiations under this work stream. Parties have put forward various ‘ideas and proposals’ on Bali Action Plan elements over the course of preceding AWG-LCA sessions, largely through written submissions and in-session workshops.
In Bonn three in-session workshops took place, addressing:
- subparagraphs 1 (b) (i) and 1 (b) (ii) of the Bali Action Plan;
- the economic and social consequences of measures taken to mitigate GHG emissions; and
- opportunities and challenges for mitigation in the agricultural sector.
The long-awaited workshop on subparagraphs 1(b)(i) and 1(b)(ii) had two parts. The first addressed developed country mitigation commitments and actions, and centred on how comparability of effort might be measured among developed countries (Parties to the Kyoto Protocol and non-Parties, including, importantly the United States). The United States highlighted President Obama’s proposal for a reduction in emissions of ~5 per cent by 2020 (relative to 2005 emission levels) and ~80 per cent by 2050 through a nation-wide cap and trade programme, and its plans for investments in clean energy and in research and development. It compared its long-term goal for 2050 to that put forward by the EU. The second part of the workshop discussed what form mitigation efforts from developing countries might take and how these efforts might be monitored, reported and verified. Proposals for REDD , sectoral crediting and sectoral no-lose targets were discussed, among other ‘nationally-appropriate mitigation actions’ for developing country Parties.
Discussions continued on the other three Bali building blocks of adaptation, technology transfer and finance. The AWG-LCA Chair will now prepare a draft negotiating text for the June session based on all inputs received to date, including negotiating text received from the Parties by 24 April.
In Bonn, Parties agreed to add two additional sessions to what is already a very full negotiating schedule for 2009. The full schedule of remaining negotiating sessions in 2009 is now as follows:
- June 1-12 (Bonn);
- August 10-14 (Bonn);
- September 28-October 9 (Bangkok);
- November 2-6 (location TBD); and
- December 7-18 (Copenhagen)
EKF and “climate guarantees”
Given the new and often unproven nature of climate technology and the current credit market conditions financing for climate technology transactions can often be difficult to obtain, especially given the greater risks associated with unproven technology. On 18 March this year, EKF announced the provision of DKK 200 million (roughly €27 million) in “improved climate guarantees” to support Danish climate technology exports and increase the security and stability of climate change projects.
These guarantees are viewed by EKF as inherently more risky than their usual export credit guarantees but EKF is willing to provide this support in order to aid Danish exporters and project developers with an expertise in this area.
In order to qualify for an “improved climate guarantee” the transaction must involve a Danish economic interest although we expect this to be in a very broad sense and that for these types of guarantees EKF is likely to take a less stringent view than usual as to what constitutes a “Danish Economic Interest”.
The types of guarantees on offer are as follows:
- guarantees against non-issuance of carbon credits;
- guarantees for down payments to climate projects under the Kyoto Protocol;
- guarantees against breach of contract on sale of carbon credits;
- guarantees against non-payment in carbon credits;
- energy and water-saving guarantees;
- guarantees for export of new technologies; and
- guarantees for financing of Energy Service Companies.
Further details can be found at http://www.ekf.dk/EKF climate
The European Commission and the road to Copenhagen
At a British Chamber of Commerce Brussels breakfast meeting which Norton Rose Group attended, the European Commission confirmed that it is engaged in detailed talks with the US over the design of a future emissions trading scheme. As well as attending hearings in Washington D.C., EU officials are working intensively with their US counterparts to provide targeted input into the Waxman/Markey Bill. Discussions are also taking place about the use of sectoral credit mechanisms and the future of Kyoto credits. Worries have been expressed in the US over the use of market based mechanisms to pursue environmental aims, in what is widely seen as negative spill-over from the current financial crisis.
Despite the general optimism of the EU, there are still key areas of divergence with the US, in particular on the issue of the use of price floors and ceilings. In a separate but related development, the EU has expressed disappointment with the decision of the Australian government to postpone the introduction of their emissions trading scheme and hopes to use the momentum at Copenhagen to facilitate the development of a global carbon market.
Meanwhile, the EU has stepped up its negotiation efforts with both developed and developing countries as Copenhagen approaches. We understand that discussions took place at the recent G8 meeting and at the Major Economies Forum, as well as through official UNFCCC meetings in Bonn. The EU is pushing for a radical review of the current CDM, but its future remains unclear.
Governmental response to the credit crunch: fiscal investment in renewables and climate change
The French Government has recently announced measures in favour of renewables including simplified administrative procedures, implementation of a €1 billion fund for renewable heat, and increased public investments including:
- a solar energy power station in each administrative region of France;
- tenders for biomass power stations; and
- state buildings to be revamped with photovoltaics.
Successful CDM/JI-initiative of the Federal Ministry of Environment
The Federal Environment Ministry has recently confirmed that its CDM/JI -initiative has been a success. Within just a few months the initiative has led to more than 100 potential emission reduction projects getting off the ground and which are now looking for German investors. The initiative focuses on emerging and developing countries like China, India, Brazil and Mexico, and also on the important JI partner countries like Russia and the Ukraine. Furthermore, the initiative will foster the cooperation with countries with which Germany has already signed memoranda of understanding (Egypt, Azerbaijan, Israel, Mexico, Peru and Tunisia).
The initiative has been set up by BMU and its partners (GTZ, KfW, Dena, Wuppertal-Institut and Perspectives GmbH), who are working to create networks in the selected countries in order to cultivate close and regular contacts with local businesses, government agencies and other stakeholders. These networks draw on the experience of and contacts maintained by local practitioners such as GTZ, the overseas German chambers of commerce, and German businesses who operate in the area. They are designed to help businesses who develop CDM projects, invest in them or supply the necessary technology to obtain a better insight into local conditions and assess available investment opportunities.
First draft of German European Union Allowance auction law
In April 2009, the German government issued a first draft of a EUA auction law. It was sent to several organisations for review and comment. From 2010, 40 million EUAs will be sold yearly by way of auction pursuant to the German Allocation Act 2012, the ZuG 2012. Furthermore, an additional amount of EUAs will be auctioned to cover the allocation costs of the DNA in Germany, the Deutsche Emissionshandelsstelle.
It is planned that an amount of 870,000 EUAs will be auctioned on a weekly basis. The auctioning will take place at an existing CO2 exchange in the EU, for example the European Energy Exchange, Climex or Bluenext. It has not yet been decided whether the auctioning will take the form of spot trades or future trades.
Potential participants have to be registered at the relevant exchange. The lowest bid must amount to 1,000 EUAs and higher amounts must be in increments of 1,000 units. The auction procedure consists of one bidding round per auction and follows the “flat price procedure” ( Einheitspreisverfahren ). This means that all successful bidders are obliged to pay the same price which does not necessarily have to be their placed price.
The price will be determined as follows: all bids will be ranked in order of offer price. If there are several bids with the same price, they will be ranked according to the time of their respective placement. Starting from the highest rank the subsequent bids will be assigned their respective amounts of EUAs. The offer price of the last bid to be considered (completing the total auction amount of 870,000 EUAs) will be determined as the final bid price.
In order to avoid EUA auction prices deviating markedly from prices on the secondary market, the German government is considering introducing a limited bidding price range.
With regard to clearing and settlement, the usual clearing rules of the relevant exchange will apply. In particular, the exchange may not request higher costs for the bidding procedure than the usual costs of trading allowances on the exchange.
The law requires consent from the German Parliament, but it is expected that the law will come into force before the next Parliament elections in September 2009.
Governmental response to the credit crunch: fiscal investment in renewables and climate change
One of the measures under the second stimulus package launched by the German government is the so-called “ KfW-Sonderprogramm-Projektfinanzierungen ”, a programme forming part of a scheme supporting projects which are being financed on a non-recourse or limited-recourse basis. Under this programme KfW will offer finance either by providing funds to banks which lend these funds on to the project or by directly participating in a banking syndicate lending to the project. Eligible projects are those which require a total debt finance of €50 to €200 million. The programme applies to any type of project, including renewable energy projects, investing in Germany and with a privately-owned majority. KfW funds passed through by a bank may be provided in an amount of up to 70 per cent of the total debt finance required. For the direct lending option KfW’s participation is capped at 35 per cent of the total debt finance and no participation of the other members of the banking syndicate may be less than KfW’s participation.
Furthermore, KfW provides finance under its programmes focussing on renewable energy. Again, such funds will be made available to the banks lending the funds on to the project or as direct loans to the project itself. Such projects can apply for a loan in amount of up to €10 million under the basic programme and between €10 and €50 million under the programme extension, which is only applicable to projects located in Germany.
Implementation of the Directive 2003/87 EU
In order to meet Italy’s obligations under the Kyoto Protocol, the Italian market for carbon dioxide emission permits was launched on 1 April 2007 on the basis of the Legislative Decree no. 216 of 4 April 2006 which implements Directive 2003/87 EU (the Directive) on GHG emissions.
The Mercato volontario delle unità di emissione di CO2 (the Italian Emissions Trading Market (ETM)) is an exchange for trading greenhouse gas emission units, where both Italian and non-Italian operators can market and manage their emission units.
The Italian National Allocation Plan
The Ministero dell’ambiente e della tutela del territorio e del mare (Ministry for the environment and the protection of the territory and the sea (MAE)) approved the allocation of Italian EUAs for the second EU ETS phase by a decree of 28 February 2008 (amended and implemented by the Decision of MAE of 27 November 2008). This allocation is based on Italy’s second national allocation plan (NAP), which was approved by the EU Commission on 20 October 2008.
The annual cap of EUAs for Italy in the second EU ETS phase amounts to 195 Mt per year, of which 177 Mt per year are to be granted to existing installations whereas 16.82 Mt per year are to be granted to new installations.
Decision no. 1/2009 of the Committee provided that additional combustion plants shall also be entitled to EUAs in relation to the second phase, by allocating to such plants an additional amount of 7 Mt per year.
The Italian Carbon Market
The ETM is managed by the Gestore del Mercato Elettrico (GME), a company established by the Gestore dei Servizi Elettrici and is tasked with managing transactions in the electricity market, promoting competition between producers and ensuring the availability of an adequate level of reserve capacity. In particular, the GME manages the “Day-Ahead Market”, the “Adjustment Market”, the “Ancillary Services Market” and the “Green Certificates Market”.
Generally speaking, operators may rely, inter alia , on the anonymity of trades, transparency and security of transactions.
Operators are required to open a holding account in the national registry or in other European registries in order for them to be admitted to negotiations.
The GME acts as the central counterparty in all transactions made in its ETM . The role of central counterparty assigned to GME completely eliminates counterparty risk and simplifies the administrative-accounting tasks associated with participation in a regulated market.
The GME will promote the development of one or more market-makers on the ETM to ensure a certain degree of market liquidity. Such market-makers will act so to make sure that minimum volumes during the negotiation phases are guaranteed.
In order to trade in the market, buying market participants are required to make a single payment to the GME as initial deposit guaranteeing all of their purchases. The trading system will accept trading orders only if they are completely covered by the available deposit. These measures should encourage the participation in negotiations also of small/medium size enterprises, which do not have specific professional and negotiation skills.
Rules issued by the GME set out the technical procedures for participation in GME’s ETM and how to notify the amount of the initial deposit and the quantity of EUA s provisionally transferred to GME’s account in the Registry run by the Agency for the Protection of the Environment and for Technical Services.
The trading system will automatically compute the value of the transaction (including VAT ) in order to update the available deposit during the session, confirm the execution of transactions and perform administrative-accounting tasks.
After the market session, sellers will issue a single invoice to the GME, acting as purchaser and purchasers will receive a single invoice from the GME.
The Italian and ETM trading fees are among the lowest in Europe. No annual fixed fee is payable for the first year for the following years the annual fixed fee is equal to about €2,500.00 and the floating fee is equal to €0.0025 per emission allowances EUA traded.
Due to the ongoing recession, a surplus of EUAs currently exists in Italy. Nevertheless, a return to growth is expected in 2010.
Future issues and opportunities
Italy has an ambitious emission reduction target which would be difficult to achieve through domestic measures without exorbitant investments.
In order to comply with the Kyoto Protocol, Italy must reduce its CO2 emissions by 476 Mt per year. As Mr. Zecchini, the president of the GME , declared during the international conference “Zero Emission Rome 2008” that was held in Rome, this target appears to be hard to reach.
The ICF provides an additional instrument for Italian emissions producers to meet their emissions reduction targets.
The ICF was created to purchase emission reduction units (issued under mechanisms such as the Kyoto Protocol’s CDM and JI from projects) from projects in developing countries and countries with economies in transition. The ICF is open to private and public sector entities which, in contributing to the ICF, can benefit from the pro rata distribution of emission reduction credits.
Stefano Maria Zappalà
Governmental response to the credit crunch: fiscal investment in renewables and climate change
On 6 March 2009, the Regulation Guarantee for Company Financing came into force. Under this Regulation, the Dutch Government has earmarked €2.4 billion to guarantee loans made by banks to large companies which are engaged in renewable energy projects. The Minister of Economic Affairs has urged banks to provide funds for such projects with the incentive of being able to rely on a government guarantee of up to 50 per cent (max. €1.5 billion budgeted) resulting in funding potential of up to €3 billion of the amount loaned. The regulation applies to loans of up to a maximum of €50 million per company.
On 25 March 2009, the Dutch Government introduced a set of measures designed to stimulate entrepreneurship on a short term basis, whilst stimulating innovation and renewable energy projects in the long term. A total of €6 billion has been made available for 2009 and 2010, of which €2.4 billion has been allocated for offshore wind projects, comprising an extra production capacity of 500 MW on top of the initially scheduled 450MW.
The existing tax incentives such as the environment investment deduction (MIA) and random depreciation (VAMIL) for companies investing in qualifying environmental friendly assets will be widened. The budget for these regulations will be raised to €30 million for 2009 and 2010.
A start up facility for small and medium sized companies has been made available under which financiers are offered a guarantee for accommodated venture capital. The amount available for this facility is €119 million.
Lines of strategy for combating climate change
In a meeting held on July 17, 2008, the Government’s Standing Committee on Climate Change identified six key lines of strategy for reducing GHGs :
- Waste and Manure Management;
- Sustainable Transport;
- Sustainable Building;
- Energy Sustainability;
- Forest Policy and Drains; and
Task forces for each of these lines of strategy have formally been set up, in which all of the ministerial departments with powers in this area are involved, and are coordinated by the Spanish Climate Change Office.
On March 12 2009, the Spanish Climate Change Office issued an Information Memo (49.50 KB pdf) on each of the lines of strategy for combating climate change, setting out the objectives, the actions they intend to carry out to achieve those objectives and their degree of progress.
Some examples of those actions are as follows:
- preparation of a comprehensive National Waste Plan
- preparation of a national strategy for sustainable transport
- establishment of a procedure for certifying the energy efficiency of existing buildings
- establishment of a renewal program for homes with incentives and subsidies making it attractive to developers
- approval of a law on energy efficiency and renewable energy
- review and update of the Energy Saving and Efficiency Program for 2013 - 2020 and of the Renewable Energy Program for 2011 - 2020
- planting 45 million trees
- the creation of a Climate Change Research Institute.
View Information Memo (49.50 KB pdf)
Strengthening international operations in industries associated with climate change
On March 27, 2009, the Secretaries of State for Trade, Economy, Climate Change, Research and Foreign Affairs approved the plan to strengthen the international operations of the Spanish economy in Industries associated with Climate Change.
The Plan is divided into four sections:
- the international framework and objectives of the Plan
- the situation of Spanish foreign trade with respect to climate change policies
- analysis of action opportunities in each industry (reduction and adaptation to climate change)
- measures and actions in the Plan
- mechanisms for monitoring the Plan.
The Plan seeks to include climate change as an integrated component of the international operations and policies of Spanish businesses, with 3 basic objectives:
- to strengthen the presence and ability to compete in the international arena of Spanish companies in the renewable energy industries and industries for advanced technology for combating climate change by fostering and fuelling their progress through national R&D and increasing their technology capacity.
- to identify and develop new opportunities for Spanish companies to operate abroad.
- to contribute to achieving both the emissions reduction targets set globally and those undertaken by Spain, by taking all available opportunities for Spain to set up CDM projects and acquire the emissions reductions they create.
The measures and steps noted in the Plan include most notably:
- steps geared towards reinforcing the climate change component in financial support instruments.
- steps relating to non financial instruments (such as improving information instruments, performing promotion activities or carrying out training programs).
- activities geared towards maximizing the participation of Spanish companies in projects associated with climate change performed by international financial institutions (Spain participates both in funds related to climate change and in funds generating emission allowances).
- cross-cutting measures (such as setting up a specific Web site on opportunities for action in industries associated with climate change, the technical support of the Spanish Climate Change Office or participation in Carbon Fairs).
View the Plan (303.76 KB pdf)
We would like to thank Juan Antonio de Lassaletta of Garrigues, Barcelona for the Spanish contribution to this edition of the Carbon market updater.
(+34 93 253 3700)
(+34 93 253 3750)
* Avda. Diagonal 654 - 08034 Barcelona
In Poland, the Government has recently approved a new draft law on a system of management of emissions of GHGs and other pollutants. The new legislation is intended to provide the framework for regulation of all related issues, although the functioning of the ETS in Poland will continue to be governed by a separate law.
The new law will, for the first time, provide rules on the sale of AAU s by Poland and for the use of proceeds coming from the sale of these AAUs. Under the new proposed legislation, a GIS will be created and proceeds from AAU sales will be used to finance subsidies for projects in the field of environmental protection, in particular projects related to the avoidance of greenhouse emissions and the absorption and sequestration of CO2. The areas that could be supported by subsidies from the Polish GIS may include investment in projects which:
- increase the energy efficiency of the industry;
- promote clean coal technologies;
- avoid or reduce GHG emissions;
- invest and improve access to renewable energy sources; and
- encourage sequestration of GHGs.
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Joint implementation in Russia in the light of the credit crunch: future development of JI legislation in Russia
In the light of the credit crunch it is likely that some of the JI projects already submitted for governmental approval will be suspended and that the number of new JI projects entering the pipeline will decrease. However, we expect that this year will also see significant growth for JI in Russia as projects reach the implementation phase.
As of 9 April 2009, 37 JI project applications had been registered and published on the website of the Ministry for Economic Development (MED). These are in the following industry sectors: 29 energy projects; four industrial processes projects; and five waste and disposal projects. The relevant Federal Executive Authority must now evaluate each project.
The MED website indicates that the third meeting of the MED Committee responsible for considering JI projects. Although this meeting was scheduled for 25 December 2008, as at the date of publication of this edition of the Carbon market updater, it had not taken place, is likely to see the approval of 7 JI projects.
What obstacles are still in the way? The taxation of the generation and sale of ERU s is an issue which still requires the attention of the legislators. Furthermore, Russian legislation does not determine how ERUs are to be analysed from a legal rights point of view and it is difficult to assess whether Russian law characterises an ERU as a commodity, a security or a financial instrument. Currently, there is no specific Russian legislation establishing the precise process and mechanics for issuing ERUs in respect of a JI project and the transfer of such ERUs from the Russian National Registry to a transferee’s account.
We understand that the Russian government has opened 10 accounts within the Russian carbon units registry. These accounts hold a current account balance of approximately 16 billion AAUs, of which about 10 billion AAUs are reserved and 6 billion are convertible into ERUs for the commitment period of 2008–2012.
Generally there is cause for optimism and Russia’s JI projects seem ripe for implementation. The legislation for JI project consideration procedure is in place, the approval committee is active and five expert organisations have been approved to work on the projects. Although no JI projects have been approved as yet, there are 37 projects going through the Russian government approval procedures. Nevertheless, Russian legislation does still require clarification, for the reasons outlined above, to ensure the smooth implementation of the JI mechanism in Russia.
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The People’s Republic of China
The PRC carbon market continues to decline as China continues to impose a floor price for the purchase of CER s that is close to secondary market prices. At the same time, the National Development and Reform Commission (NDRC) is not yet issuing Letters of Approval for the post-2012 period and uncertainties continue for purchasers looking at post-2012 value.
Despite this, a small number of buyers are purchasing post-2012 CERs from Chinese renewable projects and there is also a number of increasingly creative pricing structures coming into the market, many designed to minimise the impact of the floor. In addition, while many parties are re-negotiating existing terms and there were some signs of potential disputes earlier in the year, there has not yet been the flood of CDM litigation that many predicted.
51 per cent rule relaxation for HK companies
PRC rules provide that only PRC controlled companies are eligible for CDM. For two years there have been rumours of a relaxation for Hong Kong companies and the HK and mainland China authorities are now working on regulations which provide that genuine companies will be eligible to undertake CDM projects. The relaxation is still probably 12 months away, but if it does come through it could create opportunities for Hong Kong companies to partner foreign developers of renewable projects in China (as the inability to identify a PRC partner is a significant bottleneck in the sector).
Despite rumours to the contrary, the PRC continues to impose a floor price. Current floor prices are €8 for most projects and €10.5 for wind, although there is increasing flexibility amongst other asset classes. Notwithstanding this, some projects are going through at less than the floor.
New CDM Tax rules
China has introduced new tax rules which apply specifically to CDM projects. In practice the rules do little more than clarify the current practice for two aspects of CDM projects:
- PRC sellers are granted a tax exemption for revenues from HFC, N2O and certain other projects. These sellers have already paid the NDRC tax which is between 30 and 65% and the regulations simply avoid sellers facing double tax.
- PRC sellers are entitled to deduct the NDRC tax from their income as calculated under the Enterprise income tax law.
Governmental response to the credit crunch: fiscal investment in renewables and climate change
Unlike the US , debt is not in short supply in the PRC and, as a result, there is less pressure for official fiscal policies. Therefore, until very recently, the PRC authorities have simply used a mix of carrots and sticks as a means of encouraging investment. These have included:
- tax incentives, cheap access to credit (from state-owned banks) and subsidies; and
- the closure of inefficient energy intensive companies, taxes being imposed upon petrol and the fact that PRC generation companies are required to generate a certain percentage of their power from renewable sources. It should be noted that ironically, failure to hit those targets will delay them in gaining approval to build coal fired power plants (where they generate most of their returns).
Other unofficial and official methods used by PRC authorities to encourage investment have included:
- local officials being promoted conditional upon meeting energy efficiency targets;
- feed-in tariffs, which are generally low by international standards (apart from tariffs for wind, solar or biomass). Interestingly, a new solar tariff is being introduced, although there are no details as of yet as to how this will be applied;
- the PRC Government instructing PRC banks to lend more to renewable energy projects, which has resulted in banks lending approximately 30% more than they were prior to the crisis; and
- the PRC Government investing RMB 500 billion of the RMB 4 trillion package on a grid upgrade.
On 9 April 2009 however, it was announced by the NDRC that a new stimulus plan is being developed for renewable energy.
The stimulus plan will provide even more support for the industry than current policies offer, with the solar sector expected to receive the most financial support.
Singapore and Indonesia
Singapore published its blueprint for sustainable development at the end of April, setting out key initiatives and strategies to pursue the twin objectives of long term economic growth and environmental sustainability for the next twenty years. The Government has committed S$1 billion (US$685 million) to implement the recommendations, stressing the need for sustainable development to help combat climate change. The blueprint focuses on four key areas of: resource efficiency; enhancing the urban environment; new technologies and knowledge management; and encouraging environmental responsibility. Concrete goals have been set, including a 35 per cent improvement in energy efficiency from 2005 levels by 2030. This could provide increased scope for programmatic CDM projects.
One of the Singapore Government’s initiatives under its sustainability blueprint is the promotion of clean technology as a growth sector - including the development of the first business park to focus on R&D and testing of clean technologies. This builds on Singapore’s Clean Energy Programme Office’s existing S$350 million package to encourage R&D and capability development in the clean energy sector. Several prominent solar companies and leading wind turbine manufacturer Vestas have already set up their regional R&D centres in Singapore.
Indonesian Fast Track Programme
The Indonesian government could receive up to US$280 million in payment for carbon credits from the World Bank if it decides to sell carbon credits generated from low-emissions geothermal and hydroelectric plants set to be built in the second phase of the nation’s “fast-track” power generation programme to meet rising energy demand. The Ministry of Energy and Mineral Resources has said that Indonesia could trade credits from over 60 per cent of the power plants planned for the second phase of the government’s plan to generate an additional 10,000 MW of power.
Ocean carbon trading
The Indonesian government has floated a proposal for Indonesia to earn credits under the CDM for carbon absorbed by the ocean, quoting statistics that Indonesia’s ocean could absorb about 245.5 million tons of carbon dioxide per year. Promotion of ocean carbon trading as a potential additional component of CDM was one of the issues on the Indonesian government’s agenda at the World Ocean Conference hosted by Indonesia earler this month.
The Indonesian Climate Change National Council is less optimistic however, as the IPCC doubts whether or not the ocean could absorb or release carbon.
Indonesia became the first country to officially announce national rules implementing the UN-backed REDD scheme earlier this month.
The REDD regulations stipulate the types of forests which are eligible for the scheme and set out various licensing requirements. It is currently envisaged that these projects will run for 30 years, although it may be possible to extend this time period.
This greater certainty in relation to the REDD process in Indonesia is welcome, however the Indonesian government has yet to announce how it plans to deal with the revenue created by REDD projects. The much awaited regulations to establish a national REDD commission to approve the proposed projects, establish detailed arrangements for division of revenue and provide for the calculation of carbon emissions stocked in forests, which was due to be issued in February this year has still not yet been passed by the Indonesian Government. This means that the 20 plus REDD projects estimated by the World Bank to be in Indonesia are still in limbo as the Government will not issue any permits until the regulations are in effect. Furthermore, the Indonesian Ministry of Agriculture recently issued a decree to open up peat swamp areas for the development of palm oil plantations, which makes it less likely that Indonesia will receive support from REDD, as the emissions which REDD seeks to reduce are now likely to increase.
We would like to thank Ali Budiardjo, Nugroho, Reksodiputro (ABNR) in Indonesia for this contribution to the Carbon market updater.
New feed-in tariff scheme for renewable projects
The National Energy Policy Council, on 9 March 2009, approved a new feed-in tariff scheme for purchase of power from renewable projects. Under the new scheme, the additional tariff will be added to the price of power sold to the grid from the projects. The rate of the tariff depends on the types of fuel used for power generation in the project. These are summarised in the table below:
|Type of fuel||Feed-in tariff (Baht/ kWh )|
- Baht 0.50 for projects with installed capacity of not more than 1 MW
- Baht 0.30 for projects with installed capacity of more than 1MW
- Baht 0.50 for projects with installed capacity of not more than 1MW
- Baht 0.30 for projects with installed capacity of more than 1MW
|Waste energy (landfill gas)|
|Waste (thermal process)|
- Baht 4.50 for projects with installed capacity of not more than 50 kW
- Baht 3.50 for projects with installed capacity of more than 50kW
|Small hydro-power plants|
- Baht 0.80 for projects with installed capacity of 50kW or more but less than 200kW
- Baht 1.50 for projects with installed capacity of less than 50kW
In addition, there will be an extra Baht 1.00/ kWh (or Baht 1.50/kWh in case of wind and solar projects) for renewable projects that replace diesel consumption in power generation in the relevant areas of the Provincial Electricity Authority of Thailand. The tariff will be in effect for seven years from the commercial operation date of the project (COD), except for solar and wind projects which will enjoy the tariff for a period of 10 years from the COD.
This new scheme is intended to help boost the development of new renewable projects in Thailand. Investors for new projects are waiting to see this scheme adopted in detailed regulations. Questions also arise as to whether, and to what extent, those projects commenced under the old scheme will benefit from the more favourable rates provided for under the new scheme. We have consulted with the overseeing Government agency and been advised that this issue will be addressed in the regulations for the new feed-in tariff scheme.
Governmental response to the credit crunch: fiscal investment in renewables and climate change
In November 2008, the Thai Ministry of Energy set up the ESCO Fund to provide financial support for small and medium enterprises looking to invest in energy conservation and renewable energy projects, but having difficulties securing a bank loan for their projects.
The ESCO Fund (with an initial capital of Baht 500 million which can be increased to Baht 3,500 million by the end of 2012) can provide financial support to projects in various forms including;
- equity investment (of up to 50% of the investment cost but not exceeding Baht 50 million);
- equipment leasing (of up to 100% of the equipment value but not exceeding Baht 50 million); and
- finding a credit guarantee for the project.
It should be noted that, unlike the Loan Guarantee Program in the US , the ESCO Fund will only assist the project owner in finding the commercial bank or financial institution which could provide a guarantee facility. It will not itself provide a guarantee facility to the project owner and since its establishment in November 2008, it has yet to receive an application for its support.
Japanese Government Purchase of AAU s
On 18 March 2009, Japan entered into an agreement with the Ukraine government to acquire 30 million tons of AAUs, comprising 15 million AAUs in financial year 2008/2009 and 15 million AAUs in financial year 2009/2010. This transaction is the first binding agreement by the Japanese Government to acquire AAUs.
Following the purchase agreement entered into between Japan and the Ukraine, Japanese Government officials confirmed on 30 March 2009 that they had successfully negotiated another AAU purchase agreement with the Czech Republic. Pursuant to the purchase agreement, Japan will purchase up to 20 million AAUs in financial year 2008/2009, followed by a further 20 million AAUs in financial year 2009/2010.
The purchases of AAUs from the Ukraine and the Czech Republic total 70 million AAUs. Taking into consideration the approximate 23 million tons worth of Kyoto credits previously acquired by the Japanese government through NEDO , Japan will, subject to successful delivery, have obtained the majority of the 100 million tons of carbon credits which it is estimated it requires to meet its obligations for the first Kyoto Protocol commitment period.
Trial Voluntary Carbon Credit Trading Scheme
In order to further develop the trial carbon trading scheme that began on 21 October 2008, the Ministry of Environment has asked various firms from a wide variety of industries to participate. The second period for acceptance of applications for the trial carbon trading scheme will be held from 28 April until 30 June 2009. Companies who have set their carbon reduction goals may submit their applications during this period for the year 2009.
Carbon Emissions Reduction by Japanese Utilities
The Federation of Electric Power Companies, which comprises the 10 regional Japanese electricity producers, has announced a voluntary target to reduce carbon emissions by over 25 per cent by 2020. This will be achieved by reducing carbon emissions from the current 0.45 kilogram per kilowatt-hour of electricity generated to 0.33 kilogram per kilowatt-hour by 2020. In order to meet this target, substantial increases in the use of renewables and nuclear power are envisaged.
Governmental response to the credit crunch: fiscal investment in renewables and climate change
In January this year, Japanese Prime Minister Taro Aso demanded the compilation of a major program aimed at stimulating the Japanese economy through environmentally friendly initiatives, this being seen by many as Japan’s answer to US President Barack Obama’s “Green New Deal”. Mr Aso also stressed the necessity to build a low carbon society which accompanies economic growth and to advance environmental/energy related technologies.
On 18 March 2009, in response to Mr Aso’s call for a Japanese “Green New Deal”, the Ministry of Environment proposed their draft Revolution of the Green Economy and Society Plan. The Plan aims to boost the economy and provide jobs via upgrading social infrastructure, increasing consumption and promoting investments and technology cooperation with other Asian countries. The Plan is currently being reviewed by the Japanese Parliament.
The Plan will be funded by the budget for the 15 trillion yen stimulus package submitted to the parliament by the Japanese government which includes 1.5 trillion yen reserved for environmental activities. The governing coalition expects “green” government spending to increase to 120 trillion yen by 2020 and create up to 2.8 million new jobs.
Examples of other recent initiatives designed to help reduce greenhouse gas emissions include:
- Sumitomo Forestry is considering carbon offsetting by large scale afforestation in Indonesia. The company will plant trees in devastated regions at a pace of 400 thousand trees a year covering three million square meters. The trees will be managed for 10 years to eventually be cut down for wood panels, of which a portion will be exported to Japan. The project not only expects to offset its CO2 emissions released during domestic house building by Sumitomo Forestry but also to create 50 to 60 thousand jobs in Indonesia. Sumitomo Forestry intends to obtain certification by the UN as a CDM project;
- Coca-Cola Japan is introducing vending machines which will consume 40% less electricity than their current vending machines. Their vending machines currently emit 1.01 million tons of CO2 per year which amounts to 60% of Coca-Cola Japan’s total annual emissions. The new vending machines have a motion detector that will allow lights to dim down until a consumer approaches the vending machine. In addition, the heating emitted from the vending machines’ refrigerating system is used to heat hot drinks. Coca-Cola intends to distribute 3,000 such energy efficient vending machines within the year and eventually to use only such vending machines throughout Japan; and
- Japan Airlines held a trial flight using bio fuels, reducing flight weight (e.g. plates and cutlery) and conserving energy. This flight is part of Japan Airline’s aim to reduce its CO2 emissions from 1990 to 2010 by 20%.
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Carbon Capture Storage and the Clean Development Mechanism
Suitable storage locations for carbon dioxide are geological formations, depleted oil and gas fields and deep saline aquifers. Whilst CCS has yet to be demonstrated on a large commercial scale, the geological conditions in the Middle East are amenable to the development of CCS.
There are a number of CCS projects in the pipeline in the Middle East. Recent projects include the Hydrogen Energy project (a joint venture between BP and Rio Tinto), a two billion dollar 500MWt CCS project in Abu Dhabi, which is expected to reach full commercial operation by 2014.
At the 14th COP/MOP held in Poznan in December 2008 a hot topic of debate there was whether CCS should be allowed in the CDM . The group lobbying for inclusion of CCS was headed by Saudi Arabia, with opposition led by Brazil. The push for the inclusion of CCS from Saudi Arabia goes beyond support for a technology that would encourage investment from countries looking to reduce their emissions of GHG s. Saudi Aramco, the Kingdom’s state-owned oil company, also injects carbon dioxide into depleted oil fields to assist in the retrieval of additional oil.
Initial progress was made at Poznan, with the CDM Executive Board given the task to “consider the possible inclusion” of CCS in the CDM. The outcome will be reported at the next COP/MOP to be held in Copenhagen in December 2009.
The demand for energy across the world is increasing, with a large proportion of this increased demand being driven by Non-Annex I countries such as those located in the Middle East. It is anticipated that there will continue to be a strong reliance on fossil fuels to meet escalating energy needs. CCS projects have the potential to provide a solution to the need to reduce carbon dioxide emissions, whilst at the same time encouraging investment in Non-Annex I countries and contributing to such countries’ sustainable development objectives. The majority of the states across the Middle East are signatories to the Kyoto Protocol and accordingly are committed to reducing their respective carbon footprints.
The Middle East benefits from an abundance of sites that are suitable for the development of CCS so the inclusion of CCS in the CDM would go a long way to assisting in the development of the CDM in the region in addition to attracting further investment. To date, there are only two registered CDM projects in the Middle East: the Fuel Switching Project of the Aquaba Power Station in Jordan and the Al-Shaheen Oil Field Gas Recovery and Utilisation project in Qatar.
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CPRS – still no certainty
The future of Australia’s cap and trade emissions trading scheme (the Carbon Pollution Reduction Scheme or CPRS) still hangs in the balance despite the Government’s latest attempt to win sufficient support for its legislative package from opposition parties.
Currently Australia’s Labour Government does not have the requisite numbers in Australia’s upper house, the Senate, to secure passage of the CPRS legislation. The Government needs 39 out of 76 votes to pass the legislation in the Senate but only holds 32 votes. This means that the Government needs the support of either the five Green party senators plus two others, or the opposition Liberal/National Coalition parties.
So far, this support has not been forthcoming. Consequentially, the Government announced changes to the proposed CPRS on 6 May in an attempt to gain the support it needs to pass the legislation. These changes included:
- A one year delay to the CPRS start date to 1 July 2011.
- The introduction of fixed price permits for the first year of the scheme. In 2011-2012 each permit will cost $10 with the transition to full market trading from 1 July 2012. These fixed price permits will not be able to be banked for use in later periods.
- A new “Global Recession Buffer” to be provided as part of the assistance package for trade-exposed, emissions-intensive industries. Industries eligible for 60% assistance will receive a 10% buffer and industries eligible for 90% assistance will receive a 5% buffer.
- Funding for eligible businesses to undertake energy efficiency measures from 1 July 2009.
- An increase in Australia’s 2020 emissions reduction target to 25% below 2000 levels in the event of international commitment to limit CO2 concentrations to 450ppm.
- The establishment of the Australia Carbon Trust to allow households to invest directly to reduce emissions and improve energy efficiency in buildings.
Although these proposed changes have received the support of industry and environmental NGO s, neither the Greens nor the Coalition appear convinced. For the Greens, the increase in Australia’s 2020 emissions reduction target falls far short of their demands for an unconditional emissions cut of 25 per cent below 1990 level by 2020, with a commitment of 40 per cent in the event of international commitment at Copenhagen. Furthermore, the proposed first year cap on the price of permits and the increase in assistance to trade-exposed/emissions-intensive industries have not met favour with the Greens.
Realistically, the Government had little prospect of reaching a compromise with the Greens and other independent senators, but was hoping that with broad industry support, it might persuade the Coalition to drop its opposition to the scheme. The Coalition, however, has not budged. It considers the revamped scheme to remain “deeply flawed” with the changes neither dealing with the threat to the competitiveness of Australian companies nor delivering vital complementary measures to emissions trading. Instead, the Coalition has proposed a 12 month delay to allow a thorough investigation of the scheme and its alternatives to be undertaken.
With the Government determined to have legislation passed before Copenhagen in December 2009 and businesses craving legislative certainty, there has been discussion of the Government using any rejection of the CPRS by the Senate as a trigger for an early election. With the legislative package for the CPRS due to be introduced into Parliament in June, the next few months will certainly be interesting…
Green stimulus plans – current climate change initiatives in Australia
A number of commitments to fund climate change initiatives had been announced by the Australian Government as part of its policy paper on the CPRS. These commitments included the Climate Change Action Fund which is primarily geared towards providing transitional assistance to businesses and households which would be impacted by the commencement of the CPRS.
Like many other countries, the Australian Government has in the last 12 months been seeking to moderate the impact of the global economic crisis on the Australian economy through the introduction of various stimulus packages. Some of the initiatives in those packages include funding or loans for energy efficiency programs, such as the installation of insulation and solar hot water systems in homes. More recently, as part of its amendments to the CPRS package to obtain support from opposition parties, the Government announced further initiatives such as the establishment of the Australian Carbon Trust.
Current climate change initiatives in Australia include:
The Australian Carbon Trust
This was introduced as part of the Government’s revised emissions trading scheme package (and is modeled on the UK ’s Carbon Trusts. Its intention is to support individual actions by households and businesses to reduce Australia’s carbon pollution and to drive energy efficiency in commercial buildings and businesses. The Government intends to commit A$75.8 million from 2009-10 over 5 years to the Australian Carbon Trust. This will consist of two parts - a A$50 million Energy Efficiency Trust and a A$25.8 million Energy Efficiency Savings Pledge Fund.
The Government will provide A$50 million in seed funding for the Energy Efficiency Trust to promote energy efficiency in the business sector. It is intended that the Trust will put proposals to eligible businesses to undertake energy efficiency measures that will save money over time and will then provide loans to those businesses to enable them to cover their upfront capital costs of undertaking such identified energy efficiency investments. Repayments would be made at a commercial rate from the energy cost savings.
The Energy Efficiency Savings Pledge Fund is intended to help households and small businesses understand the emission reductions and monetary savings to be gained from cutting energy use. Web based tools will enable households and businesses to calculate their energy use and the energy savings that could be made by installing, for example, energy efficient appliances. Individuals may then use those savings or other amounts to buy and retire carbon pollution permits under the CPRS. All contributions will be pooled and will be tax deductible.
In addition, to promote the supply of renewable energy, the Government has pledged to take into account any additional accredited Green Power purchases above 2009 levels made by households, businesses and other organisations when setting the CPRS caps.
The Climate Change Action Fund
This forms part of the original CPRS proposal. It is intended that this fund will provide targeted assistance to businesses, community sector organisations, workers, regions and communities to smooth the transition to a carbon constrained economy by helping to address both distributional impacts of the CPRS and persistent market failures that impede the uptake of lower emission technologies and processes. Details of the allocation of the first tranche (2009-10) of the Climate Change Action Fund were released with the Government’s proposed changes to the CPRS. The A$200 million tranche is allocated to support businesses and community organisations that do not receive assistance by virtue of being emissions intensive and trade-exposed but who nevertheless have significant energy costs and assist them in taking action to reduce carbon pollution through energy efficiency before the CPRS starts. The A$200 will include:
- A$20 million for a business information package to provide advice to businesses on how the CPRS will work and what impacts and opportunities may arise.
- A$100 million for Early Action Energy Efficiency Strategies for Business including energy audits and capital investment.
- A$80 million for capital investment grants for businesses and community organisations.
The Green Loans Program
This is intended to assist households to install solar, water saving, and energy efficient products. It is scheduled to commence on 1 July 2009 and consists of free energy and water efficiency assessments for 360,000 households plus interest free loans available for 75,000 households to make the changes recommended in the assessment. Each loan is for a maximum of A$10,000 available for four years. This program has been recently cut by more than fifty percent with the Government originally proposing that A$10,000 low-interest loans over five years would be available for 200,000 households.
Energy Efficient Homes Package
This is a A$3.9 billion package intended to improve the energy rating of homes by cutting their energy waste, making them more comfortable and helping households save up to 40 per cent on their electricity bills. Under this program, the Government will offer ceiling insulation worth up to A$1,600 to all home owner-occupiers with limited or no ceiling insulation or a A$1,600 rebate on the costs of installing a solar hot water system. Landlords and tenants are also eligible for help with the costs of insulating rental properties. It is believed that more than 300,000 households would be eligible for the solar hot water rebate with a further 2.9 million being legible for free ceiling insulation. This program is due to commence on 1 July 2009 although allowance has been made for early action with households able to claim against installation of insulation or solar hot water systems that took place after 3 February 2009.
National Renewable Energy Target (RET)
This scheme is intended to expand upon the existing Mandatory Renewable Energy Target scheme (MRET) and absorb existing and proposed State and Territory renewable energy schemes into a single national scheme. It is the mechanism by which the Government aim to ensure that 20 per cent of Australia’s energy is generated from renewables by 2020 by increasing the legislated target more than four times from 9,500GWh to 45,000GWh in 2020. The RET scheme guarantees a market for additional renewable energy generation using tradable certificates backed by legislative obligations on large energy users to purchase a certain proportion of renewable energy. Trade-exposed, emissions-intensive industries will receive exemptions in line with those they will receive under the CPRS. The design of the RET scheme was approved by The Council of Australian Governments in their communiqué on 30 April 2009 and the relevant legislation will be introduced in mid 2009 with the new targets to commence in 2010.
We would like to thank Brendan Bateman at Clayton Utz, Sydney for this contribution to the Carbon market updater.
1 O’Connell Street
+61 2 9353 4224
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Status of the NZ ETS
New Zealand’s Emissions Trading Scheme (NZ ETS) came into effect on 1 January 2008 pursuant to the Climate Change (Emissions Trading) Amendment Act (NZ Act). Unlike the emissions trading schemes in place in the European Union and Switzerland, the NZ ETS is an economy-wide, all-gases scheme, where participants with compliance obligations have a responsibility to surrender emission units equivalent to all emissions calculated to arise from specified activities. Those participants carrying out one of the limited removal activities specified in the Act will be awarded units for emission reductions.
The primary unit of trade and compliance under the NZ ETS is a New Zealand Unit (NZU). Each NZU is backed by a Kyoto-compliant unit, primarily an AAU . NZUs may be traded internationally, in which case they would be converted into AAUs. The following Kyoto-compliant units may also be traded and surrendered under the NZ ETS:
- CER s – except CERs from nuclear projects and ICERs from developing countries.
- Removal Units – although in reality this is unlikely to occur.
- ERU s.
- AAUs – although AAUs originating outside of New Zealand may only be used for compliance purposes until 2012, and must be of a type specified in regulations (which have yet to be released but are likely to have an associated environmental integrity requirement).
Future international linking with other emissions trading schemes is foreshadowed in the NZ Act by the inclusion of “approved overseas units” as a type of unit that may be surrendered for compliance purposes in the NZ Act.
A relatively unique feature of the NZ ETS is the fungibility of emission units allocated to forestry owners under the scheme. Unlike long-term certified emission reductions (lCERs) and temporary certified emission reductions (tCERs) awarded for emission reductions arising from forestry-related CDM projects, any NZUs or AAUs allocated or awarded to forestry owners will not be temporary in nature. Such units have the same features as non-forestry NZUs/AAUs and are available for trading and for compliance use on the same basis.
Although the NZ ETS remains in effect, it is currently under review, with the centre-right led government having announced its expectation to amend the Act by September 2009 following the findings of an NZ ETS Parliamentary review committee. We consider the NZ ETS framework is likely to remain in place, but it is possible in the current economic climate and in light of the volatile carbon market that the Government may seek to provide greater financial protection for business, notably around the price of carbon, by providing for a price cap or a greater allocation of free units to specific industries.
Such features would also assist with aligning the NZ ETS and the proposed CPRS , and it is no secret that the New Zealand and Australian Governments continue to discuss this as a real possibility, particularly with the recently established joint working group of Australian and New Zealand officials to work through options for harmonising the NZ ETS and the CPRS. The findings of this group have the potential to significantly alter the NZ ETS if adopted. Specific areas most likely to be the focus of change for harmonising the schemes are the inclusion of a price cap, aligning the types of units acceptable to trade in the schemes, the method for allocating free units to trade-exposed industry, and the timing of sector entry into the schemes. However, with the recent announcements out of Australia as to the further delay of the CPRS to mid-2011, with a proposed price cap of AU$10 for the first year, the alignment of the schemes may well not occur prior to 2013.
New Zealand emissions trading
International trading is recognised and permitted by the NZ ETS. There is no restriction under the current form of the NZ Act on the number of units that may be traded internationally (subject to the commitment period reserve), and although we expect a number of units to be sold internationally, the New Zealand market is expected to be short and participants will be looking to trade with international entities to obtain sufficient units for compliance purposes at the end of each annual compliance period under the NZ ETS.
To date, there has been some selling by New Zealand to international entities, including both ERU and AAU trades, and New Zealand entities have also been in discussions with Eastern European entities to acquire Green Investment Scheme AAUs.
Early ERU trades have arisen from the Government’s Projects to Reduce Emissions (PRE) tender rounds in 2003 and 2004. The PRE programme was designed to support initiatives that would reduce emissions, with all successful PRE projects from the 2003/2004 tender rounds eligible to become JI projects, following Government approval after investment in the project from an entity in another Annex 1 country. There are 40 projects in the PRE scheme, a number of which are now designated JI projects, which have resulted in the following ERU trades:
- Dutch Government agency SenterNovem has acquired 530,000 ERUs from the Te Apiti Wind Farm.
- Swiss industry initiative Climate Cent Foundation has acquired 642,469 ERUs from Project White Hill.
- Electrabel S.A. has acquired 228,000 ERUs from Tararua Wind Farm Stage II.
- Kansai Electric Power Co. Inc. has acquired 300,000 ERUs from Tararua Wind Farm Stage III.
- British Gas Trading Ltd has acquired 200,000 ERUs from the Burwood Landfill Gas Utilisation Project;
- Kommunalkredit Public Consulting GmBH has acquired 149,006 ERUs from the Awapuni LFG to Energy Project.
- Barclays Capital PLC has acquired 300,000 ERUs in the Putauaki Geothermal Development.
A number of New Zealand and Japanese entities have been negotiating the acquisition of AAUs, primarily from New Zealand forestry participants in the NZ ETS or in the Permanent Forest Sink Initiative. The first trade under New Zealand’s emissions trading scheme occurred in March 2009, and involved the sale of 50,000 tonnes of NZUs at NZ$20 per tonne (approximately €9). The NZUs can be converted to internationally tradable AAUs on application. We are expecting the finalisation of other NZU and AAU trades to both domestic and international entities shortly.
Fiscal initiatives that are, or may be, introduced by the Government
The NZ ETS contemplates a number of fiscal initiatives to assist with the transition to the NZ ETS, including the free allocation of units to the forestry and agricultural sectors, as well as to trade-exposed entities (although only for the proportion of their production which is trade exposed), with a phase-out of free allocation to the agricultural sector and trade-exposed entities expected to start in 2018.
There are also some more unique fiscal initiatives to New Zealand that have been, or may be, introduced by the Government, including:
- The NZ ETS legislation created a fund to promote energy efficiency and renewable energy technologies in the home. A total of NZ $1 billion has been allocated over the next 15 years, starting July 2009. The details of the programme have not been finalised yet, but the NZ Act states that the fund can be used for household insulation, energy efficient appliances and lighting, and space and water heating efficiency improvements. Already we have seen the introduction of Government funding for the insulation of homes and expect further initiatives to be developed throughout the year.
- New Zealand’s emissions profile is heavily skewed towards agricultural based emissions (agricultural greenhouse gases make up at least 49% of New Zealand’s total emissions). In recognition of the difficulties in abating such emissions and the need to address abatement in this area, an agricultural research and development fund has been established, with the aim of driving research and development of technological solutions for agricultural emission abatement.
Businesses have been lobbying Government for further PRE tender rounds (as discussed above), which would incentivise the development of further emission reduction projects. Until now the Government has been reluctant to introduce further PRE rounds, as a result of the projected deficit for 2012. However, with the recent Government announcement that New Zealand is now estimated to have a 9.6 million tonnes surplus at the end of 2012 – which is a surplus worth an estimated NZ $241 million – we consider that there is a real possibility that the Government may revisit the PRE programme, and instigate another tender round for PRE projects.
We would like to thank Kate Radka and Simon Watt from Bell Gully, Wellington for this contribution to the Carbon market updater.
171 Featherston Street
+64 21 304 909
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Governmental response to the credit crunch: fiscal investment in renewables and climate change
In 2005, the US Department of Energy introduced a Loan Guarantee Program under the Energy Policy Act of 2005 which aimed to encourage early commercial use of new or significantly improved technologies in energy projects. However, since its inception in 2005, only three project solicitations were issued and not a single renewable energy project received a loan guarantee. This was largely because the Loan Guarantee Program charged a borrower for the guarantee and projects only qualified if they related to new and innovative renewable technologies.
Yet, with the inauguration of President Obama, substantial changes have been made to the Loan Guarantee Program under the American Recovery and Reinvestment Act of 2009.
Firstly, a new ‘clean energy guarantee stimulus plan’ has been introduced for projects that commence construction prior to 30 September 2011. The plan provides no-cost federal loan guarantees to finance commercial renewable energy projects and manufacturing facilities for products used in the production of renewable energy, including wind turbines or components.
Furthermore, loan guarantees provided under the American Recovery and Reinvestment Act have been extended to three further categories of projects:
- Renewable energy systems, including incremental hydropower, which generates electricity or thermal energy and facilities that manufacture related components.
- Electric power transmission systems including upgrading and reconductoring projects.
- Leading-edge biofuel projects that will use technologies performing at the pilot or demonstration scale that the Secretary of Energy determines are likely to become commercial technologies and will produce transportation fuels that substantially reduce life-cycle greenhouse gas emissions compared with other transportation fuels.
On 20 March 2009, the Department of Energy and Department of Treasury issued the first $535 millon guarantee to Solyndra Inc. which will support the company’s construction of a commercial-scale manufacturing plant for its proprietary cylindrical solar photovoltaic panels.
Under the American Recovery and Reinvestment Act, there are a number of energy related programs which, in addition to the Loan Guarantee Program are eligible for approximately $43 billion in funding. These include (amongst others):
- A State Energy Program - this provides grants to state energy offices for them to improve energy efficiency and renewable energy programmes.
- An Energy Efficiency and Conservation Block Grant Program - this assists local governments in implementing energy efficiency and conservation programmes.
- A Research, Development, Demonstration and Deployment Program - this is to advance research projects in relation to energy efficiency.
- Qualified Energy Conservation Bonds for Biofuels and Biomass projects.
- Renewable Energy Production Tax Credit for renewable energy producers.
- Renewable Energy Investment Tax Credit for developers of wind, geothermal and biomass technologies.
- An Energy Efficiency Appliance Rebate Program for solar, wind and geothermal energy projects.
Climate Change Bill
On 12 May, Democrats on the House Energy and Commerce Committee approved a plan to cut US GHG emissions by 17 per cent by 2020. Along with the introduction of free pollution credits to kick start reductions in emissions, the plan requires increased use of electricity generated from renewable sources.
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26 May 2009
In-house lawyers symposium
27-29 May 2009
Carbon Expo 2009, Barcelona
Platinum sponsors at Carbon Expo, please visit us on stand A-032
Side Event details: The Big Debate: Do Offset Projects including CDM have a future role in a Post 2012 Global Carbon Market?
May 28th, 10.45am.
23 June 2009
Seminar and debate: Nuclear vs. CCS /Climate Change
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|AAU||Assigned Amount Unit|
|Annex I Country||An industrialised country/ economy in transition which has ratified the United Nations framework on Climate Change|
|Annex B Country||An industrialised country that made legally binding commitments to reduce GHG emissions under the Kyoto Protocol|
|AWG-KP||Ad Hoc Working Group on further commitments for Annex I Parties under the Kyoto Protocol|
|AWG-LCA||Ad Hoc Working Group on Long-Term Cooperative Action under the Convention|
|CCS||Carbon Capture and Storage|
|CDM||Clean Development Mechanism|
|CER||Certified Emission Reduction|
|CHP||Combined Heat and Power|
|Comitology||Short hand for the work of committees in implementing European Community laws and policies|
|COP/MOP||Conference of the parties or a meeting of the parties to the Kyoto Protocol|
|CPRS||Carbon Pollution Reduction Scheme, Australia|
|CRC||Carbon Reduction Commitment, UK|
|DNA||Designated National Authority|
|EKF||Danish Export Credit Agency|
|ERPA||Emissions Reduction Purchase Agreement|
|ERU||Emission Reduction Unit|
|ESCO||Energy Service Company|
|ETM||Italian Emissions Trading Market|
|EU ETS||European Union Emission Trading Scheme|
|EUA||European Union Allowance|
|GIS||Green Investment Scheme|
|lCER||Long-term Certified Emission Reduction|
|ICF||Italian Carbon Fund|
|IMO||International Maritime Organisation|
|lPCC||Intergovernmental Panel on Climate Change|
|IPO||The UK Intellectual Property Office|
|Issuance/non-issuance||This is the physical creation of CERs equal to the number of GHG emission reductions generated, verified and certified in respect of a CDM project activity and issuance is carried out by the CDM registry administrator acting on behalf of the Executive Board.|
|LULUCF||Land-Use, Land-Use Change and Forestry|
|MRET||Mandatory Renewable Energy Target Scheme, Australia|
|NAMA||Nationally Appropriate Mitigation Action by Developing Countries|
|NAP||National Allocation Plan|
|NDRC||National Development and Reform Commission, China|
|NZ Act||Climate Change (Emissions Trading) Amendment Act, New Zealand|
|NZ ETS||New Zealand Emission Trading Scheme|
|NZU||New Zealand Unit|
|PRE||Projects to Reduce Emissions, New Zealand|
|REDD||Reducing Emissions from Deforestation and Degradation in developing countries|
|RET||National Renewable Energy Target Scheme, Australia|
|tCER||Temporary Certified Emission Reduction|
|UKIPO||UK Intellectual Property Office|
|UNFCCC||United Nations Framework Convention on Climate Change|
|WIPO||World Intellectual Property Organisation|
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