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EBRD/EIB Climate Change Initiative
At the end of last year, the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) jointly announced a ‘Multilateral Carbon Credit Fund’ (MCCF) to which 12 participants have committed e165 million for investments in the Kyoto Protocol’s flexibility mechanisms with a geographic focus on the countries in transition in Central Europe and Central Asia.
The objective of the MCCF is to help EBRD and EIB shareholders and other parties to meet their mandatory or voluntary GHG emission reduction targets. The Fund will source and purchase carbon credits from projects financed by the EBRD or EIB in those countries in which either institution is active.1 The market in countries in transition is potentially significant and could account for as much as 20% of global project-based carbon credit transactions, compared to a mere 3-4% that was actually reported in 2005.
According to Mr Jan-Willem van de Ven (EBRD), a number of reasons are responsible for the low participation degree. First, appropriate legislation and appropriate institutional arrangements through which the national authorities could approve of JI projects were not in place. Still, the country with the biggest potential, Russia, is not prepared to engage actively in JI. However, such needed legislative framework seems to be moving forward.
Second, there is a lack of awareness about the Kyoto mechanisms and its workings amongst both authorities and companies. Moreover, the transition to a full market economy is not completed in many EBRD countries of operation, let alone the readiness of companies in the region to become involved in state-of-the-art emissions trading.
Third, the problem was not helped by sharp increasing EUA prices during 2005 and the first quarter of 2006 as these created high revenue expectations. Only few recognised that to be able to sell under JI, such projects had to be developed, financed and implemented. Hence, it should be acknowledged that CERs, ERUs and EUAs are different in terms of risks and hence prices. However, some await better carbon prices, thus risking missing the opportunity to implement the project in time.
Fourth, on the demand side, doing business in Eastern Europe and Central Asia is still perceived of as being difficult and risky. For example, Eastern European companies have problems accessing financing of the tenure needed for the investment due to their low investment grades. On the other hand the marginal abatement costs are low and there is considerable existing potential, most notable in increasing energy efficiency. EBRD and EIB can help to mitigate such risks.
Fifth, the unfamiliarity with climate change and energy efficiency remains an issue. More should be done to demonstrate to stakeholders that even if the state has sufficient headroom under the Kyoto Protocol, projects can be executed to reduce GHG emissions, whilst at the same time saving energy, local environment and costs. EBRD’s Sustainable Energy initiative, amongst others, addresses the need for capacity development in the region.
Purchase of EUAs
Apart from procurement of CERs and ERUs, EUAs will be purchased from projects with installations in economies in transition, capped by the EU ETS. However, in such cases, such a purchase should result in real emission reductions. Van de Ven: “To be of interest for the MCCF, the EUAs should come available as the result of the emission reduction project financed by EBRD and/or EIB. With this approach, we hope to help those EBRD and EIB clients who are subject to the EU ETS to enable long term investment projects that have interesting emission reduction potential and, where we can, to help address barriers to such implementation.”
Mode of operation
ICF International, Royal Haskoning and GreenStream Network have been contracted to secure the Fund’s target size set at 20 Mt. CO2-eq. However, each participant in the Fund decides in which carbon credit transaction it wishes to participate (see Box 1 for MCCF participants). Hence, each participant can apply its own policy criteria in relation to every single project it chooses to purchase credits from. In addition to this, projects would have to comply with both institutions’ criteria in terms of credit, integrity and environment.
GIS
In addition to and separate from the MCCF, Green Investment Schemes (GIS) will be facilitated for direct trading of carbon credits between shareholder countries (sovereign participants). GIS basically facilitate trade in carbon credits between governments whereby trade revenues are used to support investments in climate friendly projects in the selling country. Since 1990 (the Kyoto Protocol reference year), emissions have dropped sharply in countries such as Russia and Ukraine, as a result of a substantial contraction of the economy. As a result, it is expected that the 14 Annex I countries in transition will remain below their agreed maximum GHG emissions and accordingly have a surplus of emission allowances (AAUs).
Van de Ven: “Only sovereign participants can acquire credits under GIS. The MCCF role would be to structure and supervise disbursements of the funds to be ‘greened’ in connection with the institutions’ financing facilities, such as dedicated credit lines for sustainable energy, through which the greening process may take place.”
At this stage, market research is to analyse which countries will be targeted for GIS. The following four considerations are important in determining such a potential:
‘Greening’ potential;
Willingness to trade;
Likelihood of Kyoto Protocol compliance; and
Appropriate legislation in place or advancing to sell AAUs.
With a first session organised with the Fund’s shareholders on 11 December 2006, the Fund is now fully operational.
For further information, please contact:
Mr Jan-Willem van de Ven
Head of the MCCF Secretariat, EBRD
tel.: +44 20 7338 7821
e-mail: vandevej@ebrd.com
Internet: http://www.ebrd.com/mccf
Interviews in JIQ Issue December 2006
Mr Malik Amin Aslam on Pakistan’s CDM policy and the opportunities for CDM in the country
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Ms Sascha Bloemhoff on ACX-Climex
Interviews in JIQ Issue December 2005
Ms Iemy Brand on ERUPT New Style
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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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