23 August 2004 Media Statement
New Zealand and the Netherlands sign agreement to promote emissions trading

The governments of New Zealand and the Netherlands will today sign an emissions trading co-operation arrangement. The arrangement builds on the two countries' common interesting in the promotion of emissions trading and the New Zealand government's Projects to Reduce Emissions (PRE) programme.

Under the PRE programme, successful projects that contribute towards a net reduction in greenhouse gas emissions are awarded tradable emissions units.

SenterNovem, an agency of the Dutch Government, is about to run its fifth procurement tender round for the purchase of emissions units under a progamme it calls ERUPT. The Dutch Government's target is to purchase 34 million units to be counted against its emissions reduction targets.

Last week the New Zealand Climate Change Office hosted representatives of the Dutch government as they visited PRE programme participants to encourage their involvement in ERUPT. ERUPT enables sellers to be paid up to 50 per cent of the agreed price for units in advance of completion of the project. Earlier this year, Meridian Energy became the first company from any industrialised nation to sell emissions through ERUPT.

"Today's agreement clearly demonstrates the determination of both governments to tackle climate change. This government's pro-active approach to climate change is good news for the economy and the maintenance of our clean and green environment. The PRE programme and today's agreements are innovative examples of how New Zealand businesses can gain a real competitive advantage from tackling climate change," says Convenor of the Ministerial Group on Climate Change, Pete Hodgson.

The second tender round of the PRE programme opens on Monday, 30 August. It brings the total number of emissions units offered under the programme to ten million. Applications are invited from parties based in New Zealand, overseas or under the Joint Implementation provisions of the Kyoto Protocol. All projects must contribute to a reduction in emissions in New Zealand. Pre-tender briefings will be held in Christchurch, Auckland and Wellington this week. Tender and briefing information is available at www.climatechange.govt.nz.

www.climatechange.govt.nz

Questions and Answers

What is the Projects to Reduce Emissions programme?
The Government has developed the Projects to Reduce Emissions programme to support initiatives that will reduce emissions of greenhouse gases. The programme is a key plank in the Government¡¦s climate change policy package.
The first Projects tender round was held last year and offered a pool of four million emission units. Businesses, organisations and individuals were invited to submit proposals for projects that would reduce emissions of greenhouse gases in return for a share of the pool of emission units.
A further six million emission units is being made available in the second Project tender round, which will take place between late August and mid October.

What are Projects?
Projects are specific activities that reduce greenhouse gas emissions in the Kyoto Protocol¡¦s first commitment period (2008 ¡V 2012) in return for an incentive of Kyoto Protocol emission units. For an initiative to qualify as a project, it must achieve quantifiable reductions in greenhouse gas emissions beyond that would otherwise occur.

Projects must also be additional to business-as-usual, i.e. the project owner must demonstrate that without the award of emission units the project would not otherwise proceed.

What is the incentive provided by the Government for a successful bid in the Projects tender?
Projects that are successful through the tender process that provide additional emission reductions will be rewarded with emission units. These units are expected to be internationally tradable when the Kyoto Protocol comes into force.

For the purposes of the Projects tender, project participants can elect to receive either Assigned Amount Units (AAUs) or Emission Reduction Units (ERUs), which are assigned to Joint Implementation projects.

Can overseas companies apply under the Projects to Reduce Emissions programme?
Yes. The tender is open to participation from any parties, either from New Zealand or overseas, provided that the emission reductions from the project take place in New Zealand.

How much is an emission unit worth?
The international market sets the price for future emission units. Any tenderer will have to make their own assessment of the value of emission units. Greenhouse gas emissions trading is already underway through emerging national-level emissions trading schemes and on a voluntary level.

For example, last December, Meridian Energy¡¦s Te Apiti wind farm, one of two early projects the Government supported, was offered a contract under the Dutch ERUPT programme to sell its emission units to the Netherlands Government. This was the first international sale of New Zealand emission units.

The average price in the tender round in which Meridian Energy agreed to sell its units to the Netherlands Government was NZ$10.50 a unit. Emerging prices under the European Union Emissions Trading Scheme also provide indications of what emission units are currently worth.

What are the key differences between the first and second tender rounds?
The key differences are that there are six million rather than four million credits available and that the ranking approach to qualifying projects has been revised.

In the first tender round, priority was given to electricity generating projects and those that would deliver reductions in emissions prior to the first Kyoto Protocol commitment period (CP1) i.e. before 2008. In the second round, these weightings have been removed.

For the second tender round, eligible projects will be ranked and selected on the following basis:

„h The ratio of the number of emission units requested by the tenderer divided by the tonnes of CO2-equivalent emissions expected to be reduced by the project during the first commitment period of the Kyoto Protocol (2008 ¡V 2012).

„h Risk assessment of the project.

Subject to the assessed risk of a project, projects offering the most reduction in emissions in exchange for the least number of emission units requested will be ranked highest. Projects will be selected in order of their ranking until the six million emission units available in the second tender round have been allocated.

Why has the way projects are selected changed from the first tender round?
The changes to the ranking approach are designed to broaden the potential involvement of different sectors and encourage a wider range of projects. The changes are expected to make it easier for sector groups such as agriculture, forestry, energy efficiency, transport and bio-energy to be successful in the tender process.

Are projects only for large businesses?
No. Projects are considered on their own merits, independent of the tenderer¡¦s size or structure. Small businesses, individuals and local government can take part in the tender. The size eligibility criteria is that the project must provide a minimum reduction in emissions of 10,000 tonnes of CO2-equivalent in the first commitment period of the Kyoto Protocol (2008 ¡V 2012). For example, in the first tender round:

- Esk Hydro Power Limited, a small privately owned company from the Hawkes Bay, was awarded 12,000 emission units for its mini-hydro project.

- Palmerston North City Council was awarded 149,006 emission units for its Awapuni landfill project.

- Auckland water supply company, Watercare Services Limited, was awarded 10,829 emission units for a series of mini hydro projects.

If a project was unsuccessful in the first tender round, can it be considered in the forthcoming tender rounds?
Yes. However it would still need to pass the eligibility tests in the forthcoming tender round.

What types of projects are likely to be successful in the tender?
It is difficult to predict what types of projects will be successful in the second tender round. A project¡¦s success will depend upon its relative ranking against other projects, rather than its project type.

A variety of electricity generation projects may be successful, including wind farms, gas / bio-energy co-generation plants, geothermal electricity generation, hydro electricity generation and electricity generation from the collection and combustion of landfill gas. Projects that use bio-energy to displace the use of fossil fuel, for example using waste wood in an industrial boiler to generate heat or steam, may also be successful. Demand side energy projects and projects from the agricultural and transport sectors are also capable of being successful.

What information will need to be supplied as part of a project tender?
The tender documentation in respect of the second tender round is not currently available. The documentation that applied in the first tender round is available on the Climate Change Office website www.climatechange.govt.nz. These documents provide a general indication of the types of information that tenderers will be required to submit in the second tender round.

How can I find more information about the programme or register interest in the tender and the pre-tender briefings?

Email the Projects to Reduce Emissions programme email team at: projects@climatechange.govt.nz.

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