CO2: European Emissions Trading Scheme
Headline news
EC slashes Bulgarian, Romanian CO2 plans for 2008-12
October 26, 2007
Phase 2 EUA price to rise from €18/mt to €20/mt by 2012: study
August 29, 2007
EC restores additional Phase 2 EUAs to Latvia, Ireland
June 18, 2007
EU Council seeks more auctioning, wider coverage in EU ETS Phase 3
June 8, 2007
G8 leaders compromise on greenhouse gas
June 8, 2007
CDM board 'timid' on incompetent validators
June 5, 2007
EU CO2 market prospects brighten for cogeneration
May 25, 2007
Industry execs distinguish voluntary and Kyoto offset projects
May 3, 2007
No place for 'carbon cowboys' in voluntary offsets market: DNV
March 16, 2007
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EC slashes Bulgarian, Romanian CO2 plans for 2008-12
October 26, 2007 (Emissions Daily) -- The European Commission on October 26 announced its decisions on the final two National Allocation Plans for Phase 2 of the EU Emissions Trading Scheme (2008-12).
Friday's decisions completed the approval process for all 27 EU member states, and revealed that the EU ETS will have a total annual cap on CO2 emissions of 2.08 billion mt/year in Phase 2.
In 2005, verified emissions from the 27 member states totaled 2.123 billion mt/year (including unverified data from Bulgaria and Romania, which were not EU members at the time).
EC Environment Commissioner Stavros Dimas said "We have now fixed the EU-wide cap for 2008 to 2012 at 2.08 billion allowances per year after reducing the number of allowances allocated in the second period by more than 10%. We have assured a robust market with real emission reductions which will constitute an important contribution to meeting our Kyoto target."
Bulgaria's proposal cut back over one third
The Commission approved an annual Phase 2 allocation for Bulgaria of 42.3 million metric mt/year of EU emissions Allowances.
The decision represents a 37.4% cut in the country's proposed allocation which had totaled 61.92 million mt/year of CO2 equivalent, with an additional 4.64 million mt/year set aside as a New Entrants Reserve.
The EC said that the allocation must also include a reserve for credits to be issued for emissions-reducing projects in Bulgarian installations covered by the EU ETS sector and carried out under the Kyoto Protocol's Joint Implementation mechanism. The allocation to installations carrying out the relevant activities must be lowered correspondingly, the Commission said.
The Commission also ruled that Bulgaria's allocation for 2007 may not exceed 42.3 million mt of EUAs. In addition, the EC ordered Bulgaria to supply more information on the manner new entrants will be treated, as well as a complete list of all installations covered in the NAP, with the quantity of allowances intended to be allocated to each installation.
The Commission set a limit on the use of Certified Emission Reductions and Emission Reduction Units which may be used by Bulgarian installations for compliance purposes to 12.55% of each installation's allowance allocation.
Romania cut back over a fifth
The EC also cut Romania's proposed Phase 2 NAP by 20.7% to 75.9 million mt/year of EUAs.
The Commission added that Romania must supply a proposed limit on the use of CERs and ERUs during Phase 2, and also limited the country's 2007 allocation to 74.8 million mt of EUAs.
Germany can raise cer/eru limit
The Commission also approved a proposal by Germany to raise its limit on the use of CERs and ERUs from 12% to 22%. The German government amended its planned limit after cutting its overall EUA allocation in late 2006.
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Phase 2 EUA price to rise from €18/mt to €20/mt by 2012: study
August 29, 2007 (Emissions Daily) -- The price of EU emission Allowances under the EU Emissions Trading Scheme is likely to average €18 per metric ton in 2008, rising to €19/mt in 2010 and €20/mt in 2012, according to a study released on August 23.
The report, by non-profit research group Cambridge Econometrics, did not provide a rationale for its Phase 2 price forecast, but Sudhir Junankar, manager for the group's energy and environment service told Platts that it was based on "an assumption."
"When we have a European model we will be able to do projections based on the cap. Within the UK model this is essentially an assumption," he said, adding that the price forecast was close to that used by the UK's Department for Business, Enterprise and Regulatory Reform, formerly the DTI.
"You could have a higher number, but that depends really on the credibility of the overall cap, and of course not all the countries' National Allocation Plans have been approved," he said.
Another key factor is the amount of abatement that takes place in Europe during Phase 2, he said, noting that the main abatement option lies in switching from coal to gas-fired power generation. That itself is dependent on the relative price of coal, gas and EUAs.
Junankar said the group had looked at historical EUA prices and factored in the relationship between energy activity and prices. It also assumed a EUA price increase to €25/mt by the end of the scheme's third phase in 2020.
Crucially though, Cambridge Econometrics did not take into account the effect of EU ETS installations importing Certified Emission Reductions and Emission Reduction Units from the Kyoto Protocol's project based mechanisms.
"We haven't taken that into account. This is more through domestic efforts," said Junankar.
Since some forecasts have calculated that the overall EU compliance shortfall of EUAs may be met entirely by importing CERs and ERUs, it is possible that Phase 2 results in no domestic abatement. This potentially casts doubt on any price forecast that ignores the impact of imported credits and assumes that domestic abatement will take place.
Junankar said Cambridge Econometrics will be carrying out a more detailed price analysis of the EU ETS later in 2007.
In the group's twice-yearly UK Energy and the Environment report released on August 23, it also warned that the UK government's target to cut CO2 emissions by 20% from 1990 levels by 2010 is likely to be missed, in what the authors described as a "reality check on the rhetoric of climate change."
"While there was a reduction in allocation of allowances of over 13% between Phases 1 and 2 of the EU ETS, the forecast suggests that is not sufficient to achieve the 20% domestic goal by 2010," the group said.
The study found that a projected fall in CO2 emissions over 2005-2010 will not be enough to achieve the government's 20% domestic carbon-reduction goal.
"Following a 3% decline in 2002, CO2 emissions rose by around 2% in 2003, and increased slightly over 2004-05, but rose by an estimated 1% in 2006 as high gas prices led to a shift from gas to coal in power generation. CO2 emissions are now forecast to be 139.8 million tons of carbon (512 million mt of CO2 equivalent), 12.8% below the 1990 level, in 2010," the study said.
"This implies a fall over 2007-2010 far steeper than the estimated 4% reduction achieved between 1990 and 2006," it said.
The figures mean that although the UK is likely to miss its own CO2 target for 2010, it is likely to meet its Kyoto target of a 12.5% cut in a wider basket of six greenhouse gases by 2008 to 2012.
The group estimated that after 2010, total carbon emissions will stabilize in the period to 2015, "as the modest decline in emissions from power generation and industry is broadly offset by the continued growth in the transport and commerce sectors."
"Over 2015-2020, however, total carbon emissions are expected to decline by around 0.5% per year as emissions from power generation fall more quickly by 1.5%/yr, as a result mainly of a phasing out of coal-fired generation not fitted with [flue-gas desulfurization] end-of-pipe filters and the slower growth in emissions from gas-fired generation," it said.
UK to miss renewables target
Cambridge Econometrics also warned that the government will miss by a "wide margin" its near and mid-term targets to generate a higher proportion of total power from renewable sources.
"Our forecasts suggest that the government will miss its renewables electricity target for 2010 and 2015 by wide margins, but will nearly meet its target for 2020," the group said.
The group estimated that renewables will account for only 5% of total electricity generation by 2010, well short of its 10% target.
"However, if electricity demand grows at around 0.5-1%/year over 2010-2020 in line with our latest projections, and fossil fuel prices remain relatively high, the share of renewables in total electricity generation is expected to increase to around 12.5% by 2015, short of the 15% target set by the RO [Renewables Obligation], but reach 19% by 2020, almost meeting the government's aspirations of a 20% share," it said.
Paul Ekins, senior consultant to Cambridge Econometrics and co-editor of the report said: "These forecasts provide a reality check to the rhetoric on climate change that is now standard government fare."
"We consistently forecast that the government's 20% carbon reduction goal by 2010 would be missed by a wide margin, but the necessary policy measures were not put in place and the government itself now accepts that it will miss the goal. We are now forecasting that the goals for 2020 will also not be achieved without stronger policies than have yet been put in place."
Report lacks important detail, says Defra
A spokesman at the UK's Department for Environment, Food and Rural Affairs hit back at the criticisms in the report, saying the group's forecasts had ignored important policy measures currently being put in place to help meet the UK's targets.
"The Energy White Paper and the other ambitious measures the government has already put in place put us on track to meet our carbon emission goals -- cutting UK emissions by more than a quarter by 2020 relative to 1990 levels, even though the economy will have doubled in size in the same period," the spokesman said on August 22.
"This report does not take account of a number of these measures, such as the carbon reduction commitment and the zero carbon homes initiative, which will help us meet this target," he said.
"We intend to put the 2020 target into legislation through the Climate Change Bill, and the Energy White Paper provides a strong foundation for a range of policies and programs that will help us reach it. The UK's got a good record on tackling climate change and is already on target to meet and exceed its greenhouse gas reduction targets under the Kyoto protocol," the spokesman added.
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EC restores additional Phase 2 EUAs to Latvia, Ireland
June 18, 2007 (Emissions Daily) -- The European Commission said on July 13 that it has increased the total allocation of EU emissions allowances to Ireland and Latvia for Phase 2 of the EU Emissions Trading Scheme (2008-2012).
However, the limit on Irish installations' use of project-based credits from the Kyoto Protocol flexible mechanisms was cut by more than 50%, resulting in a net reduction to Ireland's overall Phase 2 cap.
The Commission had also been due to rule on Cyprus' proposed NAP on July 13, but this decision was delayed for "technical reasons."
In a statement published on the Commission's website, the EC said "the total number of allowances for the 2008-2012 trading period for both Ireland and Latvia has been increased by 1.18 and 0.14 million metric tons, respectively."
These amendments mean the Irish EUA allocation will now total 22.33 million metric tons per year. The Irish government had originally sought an allocation of 22.6 million mt/yr, but the Commission cut this back to 21.15 million mt/yr in its original decision.
The Latvian EUA allocation will now total 3.44 million mt/yr, compared to the EC's original decision of 3.3 million mt/yr. The Latvian government had first proposed an allocation totaling 7.7 million mt/yr.
Irish CER/ERU limit, overall cap both cut
In addition to the changes to the overall allocation, the Commission said on July 13 it was reducing Ireland's ceiling on the use of Certified Emission Reductions and Emission Reduction Units from 21.9% to 10% of its EUA allocation.
These decisions mean that Ireland's extra EUAs are more than offset by its lowered CER/ERU ceiling, which drops by 2.4 million mt/yr to 2.23 million mt/yr. The net effect of this and the extra EUA allocation is a reduction of 1.22 million mt/yr.
The Commission increased Latvia's CER/ERU ceiling from 5% to 10% of its EUA allocation.
Latvia's CER/ERU ceiling therefore increases by 170,000 mt/yr to 340,000 mt/yr. Taking into account the increased EUA allocation, the overall increase in the country's emissions cap is 310,000 mt/yr.
The Commission also said it had decided that Lithuania's CER/ERU limit could be increased from 8.9% to 20%, representing an increase in real terms from 780,000 mt/yr to 1.76 million mt/yr.
A decision was also announced that Luxembourg would not be permitted to auction any EUAs during Phase 2, and, since it had withdrawn a number of installations from the EU ETS, its total allocation would be cut by 200,000 mt/yr.
"No amendments were approved for Sweden's NAP," the Commission statement said.
The decisions are a result of amendments proposed by member states before the deadline of 31 December 2006. According to the Commission, further amendments from Germany and the Slovak Republic are being considered and will be decided upon at a later date.
Austria submits revised NAP
Austria also was reported to have submitted its amended NAP to the Commission on June 15.
The Commission in April ordered a cut of 2.07 million mt/yr in Austria's proposed allocation of 32.08 million mt/yr to 30.73 million mt/yr for the second trading period.
At the same time, the Commission required Austria to reduce the ceiling on the use of project-based carbon credits from 20% to 10% and directed the government to scrap what the Commission called unjustifiable preferences in allocation to the refinery, integrated steel and heating sectors.
The reduction in Austria's allocation was to be split evenly between the energy and industrial sectors.
The Austrian government's allocation directive, which details the precise allocations to all participating installations, is scheduled to undergo review next week.
Amendments "a bad precedent:" trader
The emissions market showed little reaction to the decisions, with sources pointing out that the Irish decision had been leaked June 14 and was largely priced into the market by June 15, while the Latvian decision represented a very small proportion of the overall EU ETS allocation.
However, one continental trader pointed out that the decision to amend its own rulings could cost the Commission considerable credibility.
"If the Commission starts to change its own decisions, then other member state governments such as Poland will not feel bad about asking for an amendment to their NAPs," the trader said. "The impact of today's decisions on the market is zero, but the [ramifications] are large."
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EU Council seeks more auctioning, wider coverage in EU ETS Phase 3
June 8, 2007 (Emissions Daily) -- The European Council of environment ministers on June 7 called on the European Commission to harmonize the rules governing emissions trading in Europe in its review of the EU Emissions Trading Scheme.
The Council voiced its support for increasing the role of auctioning in the allocation of EU emissions Allowances in the third and subsequent phases of the EU Emissions Trading Scheme.
The European Commission is presently working on its review of the EU ETS, and is expected to produce a legislative proposal to amend the Emissions Trading Directive by the end of this year.
In its conclusions on the review of the EU ETS the Council concluded that "the review should seriously consider an increased level of auctioning and greater harmonization, delivered either through establishing a minimum rate of auctioning or through a mandatory uniform rate of auctioning."
During Phase 1 of the EU ETS, member states have been allowed to auction no more than 5% of their total allocation, while in Phase 2 this limit is to be raised to 10%.
Germany, which has held the EU presidency for the last six months, has spoken in favor of 100% auctioning while environmental groups have also lent their support to the idea.
The Council also called on the Commission to ensure that the setting of caps is done in a "more transparent and predictable way," and to propose a harmonized methodology to determine caps.
Additionally, the Council asked the Commission to "harmonize access to and the use of the project-based Kyoto mechanisms for installations covered by the EU ETS." This, it said, should include a clearer definition of the "supplementarity" criterion.
Supplementarity enshrines the notion that the use of credits from the Kyoto projects-based mechanisms should not constitute the entire effort of an installation in achieving its cap, but that it should supplement abatement efforts taken at home.
The Council also reiterated its intention to include aviation in the EU ETS, but also asked the Commission to consider the inclusion of surface transport and land-use, land-use change and forestry in a future phase of the scheme.
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G8 leaders compromise on greenhouse gas
June 8, 2007 (Emissions Daily) -- The leaders of G8 countries reached a compromise accord on cutting greenhouse gas emissions on June 7 by citing carbon trading as one way to cut GHGs and pledging to "seriously consider" a proposal pushed by German Chancellor Angela Merkel to reduce GHGs 50% by 2050.
The G8 leaders gave a vote of confidence to the emissions market in the final "Summit Declaration." Countries should use trading and a "wide range of policy instruments" to encourage the use of low-carbon technologies, the statement says. "Market mechanisms, such as emissions trading within and between countries, tax incentives, performance-based regulation, fees or taxes, and consumer labeling can provide pricing signals and have the potential to deliver economic incentives to the private sector," the declaration says. "Fostering the use of clean technologies, setting up emissions trading systems and, as many of us are doing, linking them are complementary and reinforcing approaches," it adds.
The declaration also calls on the international community to "strengthen and extend [carbon] market mechanisms."
Merkel had made climate protection the centerpiece of her G8 leadership, and was pressing, together with the UK, for a firm commitment to emissions reduction targets on a global scale.
The summit did not result in the binding agreement sought by Merkel, but she said the G8 leaders had shown willingness to compromise in moving towards setting a global target.
"In terms of targets, we agreed on measures that recognize that rises in CO2 emissions must first be stopped and then followed by substantial reductions...Many countries moved on this issue," she said.
Even though the talks failed to resolve US resistance to committing to specific GHG, Merkel said the accord shows there is common ground.
"We are therefore committed to taking strong and early action to tackle climate change in order to stabilize greenhouse gas concentrations at a level that would prevent dangerous anthropogenic interference with the climate system," the leaders said in the declaration.
"In setting a global goal for emissions reductions in the process we have agreed today involving all major emitters, we will consider seriously the decisions made by the European Union, Canada and Japan which include at least a halving of global emissions by 2050," the declaration says.
"We commit to achieving these goals and invite the major emerging economies to join us in this endeavor," it adds.
All the G8 countries are committed to using the United Nations as the forum to reach a new global warming pact to succeed the Kyoto Protocol, which expires in 2012, Merkel said.
"By the end of the year the environmental ministers of all participating countries will be able to start with the necessary work," she said.
The declaration said the world's biggest emitters needed to "agree on a detailed contribution for a new global framework" for a post-Kyoto deal by the end of 2008.
Earlier on June 7, US President Bush said his country is ready to take a leading role in an international initiative to fight climate change, but insisted that China and India must be involved in any deal to cut emissions.
"Nothing is going to happen in terms of substantial reduction unless China and India participate," he said.
The declaration notes "that the efforts of developed economies will not be sufficient and that new approaches for contributions by other countries are needed. Against this background, we invite notably the emerging economies to address the increase in their emissions by reducing the carbon intensity of their economic development."
British Prime Minister Tony Blair described the agreement as "a great push forward" in terms of the world's industrialized countries' means of curbing emissions. "Now we've got the principles written down and everybody agrees," Blair said. "That's exactly what we need."
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CDM board 'timid' on incompetent validators
May 25, 2007 (Emissions Daily) -- The Executive Board of the United Nations Clean Development Mechanism is failing to clamp down on incompetent project validators because it fears legal action, an expert said on June 4.
Speaking to Platts, Axel Michaelowa, CEO of consultancy Perspectives Climate Change and an official with the CDM, said the Executive Board is registering a large number of projects that fail to meet the mechanism's requirements.
Projects can only be registered by the UN following a lengthy process that involves host country approval and independent validation by a third party -- so-called Designated Operational Entities.
But research conducted by Michaelowa and others has revealed what appears to be serious and widespread incompetence among some DOEs. Furthermore, the Executive Board is reluctant to clamp down on these failing validators because it fears lawsuits, Michaelowa said.
An article in The Guardian newspaper on June 2 said failures by validators include serious errors such as "conjuring up numbers when projects on the ground failed to provide them; giving the green light to commercial projects which make no contribution to reducing greenhouse gases; and approving existing projects which cannot claim to be part of the drive to cut emissions."
Michaelowa told Platts he felt the Guardian's article carried "a negative tone," but stood by the points it raised.
"I fully subscribe [to the view] that there is a strange lack of willingness of the CDM Executive Board to suspend a DOE," he said.
"I am a member of the [CDM] Registration and Issuance Team, and what I get on my table, under my assignment, sometimes is still very bad quality. It would have been a good sign for the market to suspend one of these DOEs to show the others that they should finally get serious about doing the validation," he said.
While the majority of the 17 validation companies involved with the CDM are seen as competent, the work of three in particular has been called into question.
The board imposed spot checks on selected DOEs in order to assess their competence, and three companies failed those checks. But the EB has chosen not to reveal their identities, and made a decision not to suspend them, Michaelowa said.
"People who are well into the market know the names of these three candidates," he said.
"I think [publishing the names] would add a lot to the transparency, and that would get rid of all these stupid rumors," he added.
Michaelowa said the integrity of the CDM as a scheme to tackle greenhouse gas emissions remains intact, but that the EB needs to take action to ensure that continues.
"Formally, the rules are extremely good in terms of transparency, giving all the stakeholder consultation, etcetera. I would still uphold formally the CDM as the most sensible and international mechanism that exists," he said.
"I think the reason the EB has been so timid is that it fears some lawsuits from validators," he said. "Otherwise, why should the board not either suspend or at least publish the names of those undergoing the spot checks?" he added.
Michaelowa and a consultant from a developing country were jointly assigned by the United Nations Framework Convention on Climate Change to investigate all CDM projects that were registered up until the spring of 2006, he said.
Specifically, they were asked to look into how projects had conducted tests to ensure "additionality" -- effectively to demonstrate that projects would not have occurred in the absence of the CDM. Additionality is a key requirement for a project to qualify under the CDM because projects must make genuine cuts to GHG emissions.
The research found incompetence among a small number of validators, particularly with regard to additionality, but the UNFCCC chose not to publish the resulting report, Michaelowa said.
"As we as authors had been using only publicly available material, I thought it would be interesting to have a publication on these aspects," he said.
Michaelowa said up to a third of Indian CDM projects are not additional, but cautioned that India is a specific case, particularly with regard to the wind sector.
"India has a very lavish subsidy regime for renewable energy, especially wind power. For any industrial energy company in India it is very attractive to invest in windmills. They can reduce electricity costs and they can get high tax benefits, so it's a win-win option for them," he said.
"I would think the overwhelming majority of Indian wind projects are not additional, which is a substantial share of the Indian portfolio," he said.
But he said the lack of additionality in many cases was the result of India's subsidy regime, rather than faulty methodologies at individual projects.
"If the Indian state had not set all these incentives, then anybody doing wind in India would probably be additional. India was too early in setting up its policy regime, if one is very cynical," he said.
UNFCCC defends CDM
A senior figure at the UNFCCC on June 4 told Platts the Guardian's article of June 2 "fell a little short" in characterizing the CDM.
"One can do a better assessment than this," said Halldor Thorgeirsson, Deputy Executive Secretary at the UNFCCC, adding that the article "leaves the reader with only a partial view."
Thorgeirsson confirmed that the EB has performed spot checks on DOEs but declined to comment on their results. "This is a very normal part of a thorough system, and so I think it's important not to characterize it as something out of the ordinary," he said.
"The DOEs play a very important role in the integrity of the system -- they do know that, and the Executive Board takes its role very seriously in that regard," he said.
He said the CDM process contains checks and balances which are designed to uncover and remedy any shortcomings.
"The way [the EB] deals with this, is that they recommend corrective measures. Guidance is provided in terms of what steps need to be taken and there are panels that work for the Executive Board that follow up on these things," he said.
"It perhaps would be more of a surprise if issues would never arise. That would then raise questions about whether the Executive Board is doing its job. The fact that it's doing this [performing spot checks] should be read as an indication of a strong regulatory system, rather than any indications of incompetence which is the word used by The Guardian," he said.
"The fact that the Executive Board has been looking at issues does not mean they have been investigating abuse or fraud," he said.
Thorgeirsson emphasized that the CDM has made significant achievements in its short life.
"This has never been done before. This is a grand experiment involving the private sector, governments, and an intergovernmental process. I would never say that the integrity of the system is guaranteed once and for all. It's a continuous process and we have to be always on guard to ensure that credibility is maintained," he said.
"The power of the DOEs to operate comes from the accreditation they receive from the Executive Board. On top of that, their reputation is one of their most important assets," he said.
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EU CO2 market prospects brighten for cogeneration
May 25, 2007 (Emissions Daily) -- The prospects for combined heat and power are set to improve in a number of European markets under Phase 2 of the EU Emissions Trading Scheme (2008 to 2012), consultant Delta Energy and Environment said on May 11.
In new analysis, Delta says the brighter outlook for CHP plants covered by the EU ETS (facilities with thermal input exceeding 20 MW, equivalent to a 7-MWe power plant with electrical efficiency of 35%) is due to the greater use of certain pro-cogeneration measures in a number of Phase 2 National Allocation Plans.
The key measure is double benchmarking, Delta's Simon Minett told Platts. Already used in Germany and the Netherlands in Phase 1 of the EU ETS (2005 to 2007), now Italy is to introduce the incentive, under which the separate heat and electricity outputs of CHP plants are each allocated allowances based on emissions from reference power plants and boilers.
In other words, CHP plants will receive allocations based on the combined allocations of separate (and less efficient) heat-only or power-only generation, rewarding cogeneration directly for its efficiency gains.
"The scheme should reward the cleanest plants, so double benchmarking is logical," Minett said. "Most countries recognize this, but our research suggests that there is an increasingly diverse variety of mechanisms used by member states to reflect the efficiency of CHP, so we suspect some are making a mess of the policy."
Minett argues that there is a lack of firm guidance from the European Commission on how combined heat and power should be treated. The resulting complexity makes it harder for CHP owners and developers to track the changes.
Italy is a good example. Its Phase 1 National Allocation Plan was deemed unhelpful to CHP, but its Phase 2 NAP proposal includes a combination of double benchmarking and favourable compliance factors that represent a complete turnaround in potential for CHP.
For existing plants the electricity benchmark is fixed at 358 mt of CO2 per GWh for both CHP and non-CHP natural gas plants (equivalent to power plant efficiency of just over 50%).
For CHP plants, the heat benchmark is set at 350 mt CO2 per GWh (equivalent to boiler efficiency of 51.4%). "This is a generous benchmark for CHP," Minett said. "To compensate for this, the overall allocation is to be reduced by 15%."
Another measure being used to encourage cogeneration is a more generous use of compliance factors. This mechanism is used to determine the extent to which emissions of plants must be reduced over time, with CHP plants sometimes being given more generous CFs and therefore less stringent reduction targets.
A CF of 1 requires no reduction; a CF of less than 1 requires some reduction, with the level of reduction increasing as the CF value decreases.
"In the UK's Phase 2 NAP, CHP has a compliance factor of one, and CFs are good in Germany and the Netherlands too," Minett said. "There is a sting in the tail in the UK, however. The government is to use an average load factor for CHP in Phase 2, which comes out at around 80%. If you are running a CHP plant at an oil refinery your load factor can be 95%, so in effect your allocation could be 15% less than your needs."
Minett said a third post-2012 phase in the ETS could "tip the field further in the right direction" if governments continue to give cogeneration "what it needs in terms of carbon allocation, while forcing power-only participants to buy more credits via an increase in auctioning."
For now, however, the cogeneration sector continues to argue that not enough is being done to encourage a technology that has fuel-to-energy conversion efficiency of up to 90% compared to power-only efficiencies of 58% for state-of-the-art combined cycle gas turbine plant.
"In the UK market signals do not reflect efficiency properly," Minett said. "A number of large new [combined cycle gasification projects] are being built quite close to industrial heat loads, yet there is a surprising lack of engagement in what is likely to happen on the carbon front in future."
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Industry execs distinguish voluntary and Kyoto offset projects
May 3, 2007 (Emissions Daily) -- The Clean Development Mechanism should not fear the same questioning of its integrity that is currently assailing the voluntary offset market, according to senior industry executives.
At a panel discussion during the Carbon Expo meeting in Cologne, industry participants agreed that the CDM's robust and transparent procedures should shield the mechanism from the negative publicity that has recently built around emissions markets, but that the market itself needs to communicate better, both with media and with the public.
A recent series of reports in the media have cast doubt over the integrity of a number of voluntary carbon offset schemes, and industry sources have expressed concern that these doubts over largely unregulated schemes could spill over into the highly regulated CDM offset market.
"I think it's time to clarify the difference between the markets in terms of the incredible level of detail and regulations," said Climate Change Capital's Ken Newcombe. He expressed alarm at what he called the "explosion" of voluntary carbon offset standards. "It is time to draw a distinction between Kyoto and the emerging voluntary standards, which don't have the same additional element of security as the CDM."
Imtiaz Ahmad of Morgan Stanley expressed concern that the recent articles have not made sufficient distinctions between the voluntary and Kyoto markets. "There's an awful lot of regulation in the [Kyoto] market. If anything, participants have complained at the complexity involved in getting projects approved."
Garth Edward of Shell said the CDM "is pretty well placed to defend itself. Everything in the CDM is in the public domain, so if we're going to open a debate on that, I think we're on pretty good ground."
But he acknowledged there may be a problem of public trust, or understanding, and the questions that are being asked in the media are fair ones.
Fiona Harvey of the Financial Times pointed out that even the World Bank itself has identified issues of reputational risk for the Kyoto market. In its report on the state of the carbon market, published on May 2, 2007, the World Bank said "the integrity of a market rests on the clarity and simplicity of its rules, the transparency of information and on institutions that guard against fraud and manipulation."
"The level of scrutiny that you can put in place is really important in building confidence in the market," she said. "If the voluntary markets stood up to that same level of scrutiny, then we probably wouldn't be [discussing this issue]."
Newcombe pointed to the efforts that are underway to create global standards for the voluntary market that are credible, global and that can be distinguished from the wealth of standards that are causing such concern. "We need to be careful not to let this issue hang."
Edward noted that large energy companies are increasingly being asked to provide offsets to their customers. "Do they pay for something that is cheaper than the CDM, but doesn't have the same overall level of scrutiny, or do they pay up and go for the CDM?" he asked.
"Unless the voluntary market pulls up its socks and reaches the [same] standards of scrutiny, there may not be a market left for all of us."
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No place for 'carbon cowboys' in voluntary offsets market: DNV
March 16, 2007 (Emissions Daily) -- Voluntary offsets are expected to play a key role in helping countries reduce their greenhouse gas emissions, although experts are yet to agree on how standards should be developed amid what some observers say could become a 'wild west' market.
In a discussion at the Carbon Market Insights conference in Copenhagen on March 14, 2007, a panel of experts agreed that voluntary offsets can neutralize emissions which are not caught by cap-and-trade systems or the Kyoto Protocol's project-based mechanisms.
But without recognized standards, this emerging market could become something of a lawless frontier, according to some participants.
"If voluntary projects fail, the public will lose confidence. What we don't want is a load of carbon cowboys," said Einar Telnes, director of DNV Certification's international climate change services.
Voluntary offsets allow consumers to negate emissions which cannot be avoided, for example from personal transport, through emissions reductions projects implemented on their behalf. But the extent to which those reductions are properly carried out, monitored and verified, is likely to vary from one project to the next.
In a market where consumers have more access to information than ever before, and are likely to become more carbon-savvy, offset developers need standards in order to maintain the public's trust.
"The Clean Development Mechanism is a start but it's only part of the measures we need to work on. We see hardly any of the big emitting industries engaged in CDM and we'd like to see that change," said Telnes.
"But the public has started to engage [through voluntary offsetting] and we will see a lot more of that in the future," he added.
Telnes said he was not necessarily against having a multitude of offset standards. "I don't mind competition as it will drive better standards," he said.
Liam Salter, head of environmental group WWF Hong Kong's climate program, agreed that voluntary offsets can cut emissions other schemes have not reached.
"We need to see rapid penetration into the Chinese market of a number of technologies. We need the CDM to help kick-start it -- we see a number of good opportunities here. But we've got to look beyond the technical carbon issues and see how we can really engage with consumers [using voluntary offsets]. We think using that is potentially very valuable," he said.
Salter said the benchmark for offsets standards should be set high. "The higher the standard, the lower the risk of project failure," he said.
Meanwhile, Jonathan Shopley, chief of the Carbon Neutral Company, said a minimum standard is desirable but would not in itself be sufficient.
"I think we need a minimum global voluntary offset standard against which other standards can be measured, and the bars could be set at various levels according to the audience. I see value in a number of standards," he said.
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