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ERUPT New Style
After completion of five rounds of ERUPT tender programmes, now a different way of contracting JI projects has been announced by the Dutch government agency SenterNovem on behalf of the Dutch Ministry of Economic Affairs: ERUPT New Style. JIQ spoke with Ms Iemy Brand, project officer with SenterNovem, on this change of course.
The Netherlands is purchasing emission reductions from JI projects up to 34 Mt of CO2-eq. to achieve its Kyoto Protocol commitments. About half of this amount has been contracted directly through ERUPT (Emission Reduction Unit Procurement Tender); all five concluded ERUPT tenders have resulted in 23 contracted JI projects, totalling over 16 Mt CO2-eq.1
More flexibility
The Ministry of Economic Affairs’ initial goal to contract a total amount of 16 Mt CO2-eq. through the ERUPT tenders has been reached. Nevertheless, based on an evaluation of the Ministry’s JI policy executed by research institute CE (see p. 5), it was concluded that the Netherlands should build in safety margins in its portfolio.
According to Ms Iemy Brand, project officer with SenterNovem, “the amount to be purchased under ERUPT New Style is flexible and depends on the performance of the ERUPT portfolio. Moreover, the amount can be adjusted upwards as required by the upcoming assessment of the Netherlands position to achieve its Kyoto target, expected in February 2006.
JIQ: Why has a different approach been chosen?
Ms Brand: “The changes have been instigated by the needs of the emerging carbon market and are, amongst others, enabled by the fast growing Kyoto-skills of project developers and increased worldwide competition for emission reductions under the Kyoto Protocol. With this change from a tender procedure to a bilateral approach it is intended to meet the expectations of many suppliers. In fact, project developers have been asking on a regular basis whether we would be able to act more flexibly in the tendering procedure.”
JIQ: ERUPT New Style claims to be more flexible in comparison to ERUPT ‘old style’. On average, how much time was needed previously to assess and scrutinise project proposals?
Ms Brand: “Indeed, ERUPT New Style keeps the advantages of the ERUPT tenders, but adds flexibility. For example, in the ERUPT rounds, projects had to be rejected in case a Letter of Approval (LoA) was submitted, say one day after expiration of the deadline. Moreover, it took at least one year before a contract could be signed. Now, projects are considered on a ‘first come, first served’ principle and as soon as the PDD is validated, projects can be contracted, whereby half a year can be saved.”
JIQ: It is specifically emphasised that projects are sought after in countries that have operational JI approval procedures. Does this imply that Russia and Ukraine might be less attractive in this regard as these countries’ draft regulation implementing the rules and regulations on JI has still not been decided upon?
Ms Brand: “The host country should have operational JI approval procedures. Only projects that receive a LoA from host country governments will be contracted. However, projects from Russia and Ukraine are not excluded beforehand. In ERUPT- 5 we contracted projects from both countries. The eventual transfer of emission reduction units is conditional upon receiving host country approval for projects under consideration.”
Risk management
The already mentioned Evaluation Study by CE has concluded that given the uncertainties concerning post-Kyoto and the short time left between now and 2008, there might be a risk that carbon prices may increase during the next two years, especially when other players, such as Japan and Canada will enter the market with clear targets (e.g., if Canada would apply a similar 50-50 rule for the Kyoto mechanisms as the Netherlands does, it would need almost 3 times as many credits from abroad as the Netherlands).
JIQ: How does SenterNovem envisage the management of this price risk?
Ms Brand: “An average price of €5.13/tCO2-eq. was negotiated for the last ERUPT round. The actual price to be paid under ERUPT New Style typically depends on the supply of projects and the quality thereof. Most certainly, with the coming to market of these countries, worldwide competition is intensifying and will have its effects on price developments. Therefore, ERUPT New Style is believed to allow us to act more swiftly on a market that increasingly shows features of a seller’s market.
Under such conditions, we need to distinguish ourselves amongst buyers coming to market. Earlier ERUPT rounds allowed us to draw on some widely appreciated features such as high advance payments (compared with other governmental purchase programmes), close relations with host country institutions, and a solid understanding of their JI policies.”
At the latest, projects should become operational by the end of 2007 and should minimally generate 100,000 tCO2-eq. in the period 2008-2012. Projects in an advanced development stage are being solicited to submit a proposal before 16 January 2006, the first cut-off date. The second cut-off date will be on 1 April 2006.
For further details, please contact:
Ms Iemy Brand - project officer
Carboncredits.nl
SenterNovem
Juliana van Stolberglaan 3
P.O. Box 93144
2509 AC The Hague
the Netherlands
tel.: +31 70 373 5495
e-mail: I.Brand@senternovem.nl
Internet: www.carboncredits.nl
1 Other (indirect) means by which the target is projected to be reached include the World Bank and its Prototype Carbon Fund (PCF), the International Finance Corporation (IFC), the International Bank for Reconstruction and Development (IBRD), and a framework contract with the European Bank for Reconstruction and Development (EBRD).
Interviews in JIQ Issue October 2005
Mr Ash Sharma on the Testing Ground Facility
Interviews in JIQ Issue July 2005
Ms Tine Heyse on the first Belgian JI/CDM Tender Programme
Interviews in JIQ Issue April 2005
Mr Nikolaus Müllebner on the Austrian JI/CDM Tender Programme
Interviews in JIQ Issue October 2004
Ms Ulla Blatt Bendtsen on the Danish - Russian cooperation
Mr Sünnen on the KfW Carbon Facility
Interviews in previous JIQ Issues
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