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A Publication of the Emissions Marketing Association
Serving the International Emissions Trading Community
VOLUME 6, ISSUE 3, AUGUST 2002
Carbon Market Developing,
but at a Slow Pace
Egbert Liese
Senter International
Rules on the use of the flexible mechanisms under the Kyoto protocol, particularly Joint Implementation (JI) and Clean Development Mechanism (CDM), are becoming clearer every day. While much work remains to be done to provide buyers and sellers in this emerging market with more certainty, the Netherlands government is already taking the risk and is buying emission reductions at large. The market for carbon credits (in units of Carbon dioxide equivalent-CO2eq) is a nascent one and still needs to prove itself. This article will describe what motivates different market participants and highlights some obstacles encountered by the Netherlands government. The Government is using bilateral (Carboncredits.nl) and multilateral approaches (IBRD, IFC, CAP, and possibly others) to purchase GHG reductions. This article will describe lessons learned from the Carboncredits.nl experience.
The Buyer
The Dutch Government has an obligation to reduce its
GHG emissions by 6 percent from base year 1990 under the Kyoto Protocol.
This amounts to a reduction of approximately 40 million tonnes per year
for a 5 year period, a total of 200 million tonnes. While at present
domestic reductions are realised for up to 6 Euro/tonne, it is expected
that the costs of the last tonnes can be as high as 130 Euro/tonne. It is
therefore in the interest of the Dutch government to contribute to the
development of an international market for emission reductions, and accept
the risk as an early mover. In addition, starting the process to use such
mechanisms now will give us an opportunity to set the standards and
influence price setting.
The Seller
Carboncredits.nl has completed one tender for the
Netherlands government, called ERUPT for JI, and is in the process of
executing two more programmes, issuing the CERUPT programme for CDM
countries. The first ERUPT program has resulted in 4 contracts totalling
3.25 million tonnes of CO2eq credits. For example, we contracted
reductions resulting from a 55 MW hydropower plant, to be implemented by
Harza Engineering (USA) and Hidroelectrica (Romania) in Romania. It is
expected that this project will reduce 612,000 tonnes of CO2eq in a
five-year period. The sale of the carbon credits will account for 5% in
the total investment costs.
The other two tenders are still pending, but 27 expressions of interest potential were submitted for ERUPT-II for a total reduction of 31 million tonnes of CO2eq. Interest for Carboncredits.nl’s CDM programme was even larger: 80 expressions of interest with a reduction potential of 90 million tonnes. Investors are clearly keenly aware that this new carbon market offers ample opportunity to them.
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