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Climate-friendly projects awarded carbon credits

8 December 2004

Twenty-four climate-friendly projects awarded carbon credits

Twenty-four projects, including wind farms, hydro-electricity generation, geothermal-electricity generation, bio-energy and landfill gas projects, have won a share of Kyoto Protocol ‘carbon credits’ or emission units from the Government for reducing emissions of greenhouse gases.

These credits, or Kyoto Protocol emission units, have been awarded in the second tender round for Projects to Reduce Emissions, a key part of the Government’s climate change policy. The Government received a total of 51 bids for the six million emission units on offer.

The emission units will be internationally tradeable when the Kyoto Protocol comes into force in February next year. Forward trading is already occurring and project owners will be free to trade their units as they wish.

"This second tender round, has produced another great result for the environment, the project owners and New Zealand," says Barry Carbon, Chief Executive of the Ministry for the Environment. “If all these proposals proceed as envisaged, then by 2008, they will add just over 450 megawatts of electricity generation capacity. Over 99% of this additional generation will be from renewable energy sources like wind, hydro and geothermal.”

"The first tender round held last year, resulted in 15 projects being awarded a share of four million emission units. These climate-friendly projects, made possible through the Projects to Reduce Emissions programme, will make New Zealand’s energy supply more secure as well as reducing emissions of greenhouse gases. The award of emission units through the programme, offers tangible rewards for those who wish to be involved in more environmentally-friendly innovative developments and take advantage of opportunities created by the Kyoto Protocol."

"The successful projects in this second round include large and small organisations in both the private and public sectors." Mr Carbon said. “There is also a good geographical spread, with successful projects coming from many different regions throughout New Zealand.”

The Government expects to sign the first agreements with project owners this month, at which stage further information about each project will be available.

All 51 tenders were assessed by an independent panel, chaired by company director, Rick Christie, while the final decisions were taken by the Chief Executive of the Ministry for the Environment, Barry Carbon.

Questions and Answers

What are Projects? Projects are specific activities that reduce greenhouse gas emissions in the Kyoto Protocol's first commitment period (2008 - 2012) in return for an incentive of Kyoto Protocol emission units.

For an initiative to qualify as a project is 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 are greenhouse gas emissions? Greenhouse gases trap some of the heat the earth radiates back into space. This is referred to as "global warming" or the "greenhouse effect", hence the term, "greenhouse gas". The greater the concentration of greenhouse gases in the atmosphere, the greater the projected temperature rise and associated climate change. The greenhouse gases included in the Kyoto Protocol are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and a group of synthetic gases - hydrofluorocarbons (HFCs), sulphur hexafluoride (SF6) and perfluorocarbons (PFCs).

What part do Projects play in the Government’s climate change policy package? Projects are a key component of the Government’s confirmed policy package on climate change. The package was announced in October 2002, to enable New Zealand to meet its targets under the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The Projects policy, together with the emissions charge planned from 2007, and Negotiated Greenhouse Agreements (NGAs for firms whose competitiveness will be at risk from the charge) are expected to play key roles in reducing emissions. The Projects to Reduce Emissions programme is administered by the Ministry for the Environment’s Climate Change Office.

What is the incentive provided by the Government for a successful bid in the Projects tender? Projects that provide additional emission reductions will be rewarded with emission units. These units are expected to be internationally tradeable 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.

Emission units will be transferred to project owners annually according to the emissions they reduce in that year. The awarded units are for reductions that will be delivered during the first commitment period of the Kyoto Protocol (2008-2012).

How much is an emission unit worth? A number of New Zealand firms have entered negotiations to forward sell emission units awarded under the Projects to Reduce Emissions programme to European buyers. The current price on the international market is around $NZ15 a unit.

What is the status of the Kyoto Protocol? The Kyoto Protocol will enter into force in February 2005.

How were the successful tenders selected? To be eligible for the Projects to Reduce Emissions tender, a project had to: achieve a minimum reduction in emissions of 10,000 tonnes of CO2-equivalent during the first commitment period of the Kyoto Protocol (2008-2012); be additional to “business as usual”; achieve reductions in emissions that would not occur without the project; and achieve reductions equal to or greater than the number of emission units requested from the Government.

What are the key differences between the first and second tender rounds? The key differences are that six million rather than four million credits were 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 were removed.

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

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 – 2012).

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 were ranked highest. Projects were selected in order of their ranking until the six million emission units available in the second tender round had been allocated.

Who decided which tenders would be awarded emission units? Tenders were evaluated by the New Zealand Climate Change Office and then assessed by an independent panel. The panel was chaired by company director Rick Christie, and included PricewaterhouseCoopers partner, Suzanne Snively, company director and dairy farmer Hilary Webber and chemical process engineer, Dr Bill Wakelin. The final decisions, based on the recommendations of the assessment panel, were made by the “Decision Maker” Chief Executive of the Ministry for the Environment, Barry Carbon.

Were all eligible tenders awarded emission units? There was extremely strong competition for the six million emission units available which means not all eligible tenders were awarded units.

Will there be more tender rounds in the Projects to Reduce Emissions programme? It is expected that Projects tender rounds will be held annually.

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


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