Analysis of the carbon offset opportunities in
the Netherlands
1.
Electricity Market
A NL company with a larger use than 2 Mwatt can
import electricity, under the Electricity Act, from abroad. That can be done
direct from the utility, or for example via a broker or at an exchange such as
the Amsterdam Power Exchange (APX) that cooperates with Nord Pool (this
situation will be the same for gas soon).
With regard to renewable energy policy, the
Netherlands uses green electricity certificates. Dutch utilities have an
agreed target to reach a certain renewables or green electricity percentage
(3% in 2000). EnergieNed (Dutch Utilities Organisation) registered in 1998
7000 sales more than purchases, meaning that also others than utilities were
buyers. General feature of the green certificate trading is the split between
physical electricity and a green certificate that is created by production of
renewable energy. The demand for green certificates comes from green products
but can also come from renewables.
2.
Benchmarking Covenant Energy Efficiency
As energy intensive company (that is more than
0,5 PJ per year will have signed the Covenant on Benchmarking Energy
Efficiency, under which the company commits itself to try to belong within
the top of the world with respect to the energy efficiency of process
installations amongst comparable companies. The top energy efficiency level is
specified as having 90% of the best installation or at least 10% less energy
efficient than the top. The company commits itself to do that as soon as
possible, but at ultimately 2012. For that purpose the company will make
an energy efficiency plan and forward that to the authorities. Authorities
will have to figure out what the world top level is and what comparable
companies are to check the ultimate measure. This whole process can take 1.5
year. This covenant will than enter into force for the company in 2001. It is
the follow-up of the Long Term Agreement on energy efficiency.
The implementation schedule is envisaged to begin 2006; benchmark companies
that are not yet among the best in the world, will have to take all energy
conservation measures that generate enough savings to cover the costs of
borrowed capital. This ROI-timing will be evaluated; as well as other elements
will be evaluated in 2004. The use of the Kyoto Mechanisms will then also be
considered (Article 18 of the Covenant). If the company is not in the world
top in 2008 I can choose between take additional energy efficiency measures or
to find trade offs through the Kyoto Mechanisms.
The Government commits itself in return not to
come with additional climate measures such as efficiency or CO2
targets or CO2 caps and no specific national CO2 tax
will be triggered to this company.
It is allowed in principle to make use of trade
offs coming from other business units within one company. This means more
investment in energy efficiency in unit A than in unit B, in order to make
unit A reach the top of the world in energy efficiency.
3.
Emission Reductions Purchasing Tender
In order to promote and to start the transfer of
credits through Joint Implementation, the Ministry of Economic Affairs has
developed the Netherlands Emission Reduction Unit Purchasing Tender (ERUPT).
The Netherlands wants via that instrument to implement JI by providing funds
for acquisition for ERUs and by providing a framework for approval and
reporting obligations. This procedure has been set up according EU directive
93/36/EEC for procurements of supplies.
The Netherlands wants to buy claims on ERUs to
be realised in the period 2008/2012 (unless there is international agreement
about JI banking before 2008) from companies that develop and implement such
JI projects. The claims on ERUs will be exchanged for real ERUs, in a
transaction between the Investing State and the Host State.
The government will give, in return for the
credits, financial support for the project. The purchase price cannot be
determined yet. It will depend partly on the validation of the project and on
the development of the market prices.
The government will start working with this new
procedure for JI in 2000. Operational savings, positive environmental effects
and necessary stimulus for JI justify this early start.
4.
Future development: National Emissions Allowances or Emission
Reductions Credits Trade (Foreseen Experiments in the period 2000-2008))
In June'1999, The Dutch Government submitted to
the Parliament the Netherlands' Climate Policy Implementation Plan, Part 1,
Domestic Measures. This involves the preparations for the implementation (after
ratification) of the Kyoto Protocol. Regarding energy intensive industry the
government remains to address that through the Long Term Agreements and now
the Covenant Benchmarking. In general, Emissions Trading and Joint
Implementation will be used to achieve 50% of the 6% reduction commitment of
the Netherlands, this is 50% of 50 Mton CO2 equivalents[1].
This depends on further international decisions and on agreements within the
EU. The second part of the Climate Note: International Measures will appear in
December.
The innovation package of the Climate Plan
contains considerations of emissions trade or reductions trade. A commission
with wide representation will be appointed to study the feasibility of
variants for CO2 emissions ceilings for the sheltered sector. An
option is to link an emissions trading system with an emissions cap to energy
distribution; the supplier of receiver should than need emission rights
involved with the energy use.
There will also be an experiment carried out in
order to acquire experience with trade in reductions on a small scale. The
Environment Ministry would like to test a reduction emissions experiment,
people in the sheltered sector could than buy or finance CO2
reduction certificates. These certificated could then be sold to the companies
as a way to collect cheaper reduction measures. Also forestation certificates
will be part of such plan. The Economic Affairs ministry would like to see a
pilot emissions trading and is searching for participants to run such a pilot.
6.
Contributing to Third Party's Green Energy Commitments
In the Netherlands several companies, utilities,
municipalities and organisations have committed themselves to achieve certain
renewable energy use percentages in a certain year. There is at the moment a
rather fragmented market in green electricity labels and green certificates.
Some labels come with green electricity, some come with the aim to promote
such or accompanied with offsets, such as CO2 storage in trees.
There is a free market for carbon credits. Prices for green certificates can
vary 60%! Agreements on what green electricity is, take shape at the moment (see
for more about the liquidity of the green certificates market above under 1).
7.
Preliminary Conclusion
Based on the above assumptions and developments,
the following options are available for company B, I order to get credits for
the offsets B brings in into the new Group C.
1)
Transfer the green certificates on the APX or
Nord Pool exchange to interested utilities;
2)
Bring the CO2 credits in, as options
for credits in the event that the top ten amongst comparable companies (according
the Benchmarking Covenant) has not been reached or in the event that the
management decides that it is better to forward existing carbon credits than
to aim for the international energy efficiency top ten;
3)
Apply for a project under the Purchasing Tender;
the project should be in place at least between 2008-2012; Tendering starts in
2000.
4)
Offer the credits to the participants on the
(experiment) market of domestic emission allowances or emission reduction
credits trading. If there will be in fact such a market, depends on
developments in the EU and on the questions if governments want to have early
actions (before 2008).
5)
Try to sell via brokers the carbon credits to
any interested party that needs green certificates against its green
electricity commitment
Jos Cozijnsen
Consulting Attorney
[1] The prognoses for 2010 is 256 Mton, 6% 206; the gap is 50Mton