These are indeed turbulent times in the global carbon market with CER prices falling and EUA prices reaching unanticipated lows and growing concerns about the long term-viability of the market itself. It is easy to be pessimistic as the market is hit by policy uncertainty, with the end of the Kyoto commitment period fast approaching and by a global financial crisis affecting the worldwide economy. For a number of participants in the market who have only known the good times over the last four years or so, this may look catastrophic, and they can be forgiven for believing that this is the end of the carbon market.
However, many experienced participants in the carbon market, will remember the situation before 2005. In the early days of this decade, CDM deals were signed for €2, €3 or €4 per CER and there were many discussions about whether the carbon price would ever reach the levels of €5 or more. Prices of €7, €8 or €9 were unimaginable.
In many ways, in 2009, the future and vibrancy of the carbon market could be said to be much more secure and much clearer than it was in the early days when it was by no means certain that the Kyoto Protocol would ever come into force and many were still questioning the science of global warming. Increased scientific certainty about the anthropogenic causes of climate change and the popularisation of climate change issues should encourage those currently doubting the future of the carbon market. Hilary Clinton’s recent visit to Japan and Asia is a reminder of the increased engagement of the United States of America in the climate change debate.
What is not clear are the specifics of the mechanisms: whilst it is highly likely that CDM will continue post-2012, there is uncertainty as to which type of CDM projects will be eligible for compliance within the EU ETS — the, so-called, quality debate.
Another lesson which can be learned from the start of the carbon market is that in a period of regulatory and policy uncertainty participants in the market need to be fully aware of the policy debates. Many of those early CDM deals at €2 to €3 suffered, as the projects did not qualify as CDM or JI projects. However, those who made particularly successful early investments, benefited, no doubt, from their good insights into the emerging policy and regulation of climate change. This approach remains critical and there will be handsome returns and rewards for those who are aware of and who make the right decisions in respect of future policy.
As we move from a transactional to a regulatory phase within the carbon market, we are also seeing the emergence of more aggressive corporates, who are prepared to challenge the position of the funds and banks. These are companies who clearly predict the important role of future climate change regulation and realise the need to build their capacity to respond to this now.
The outlook for the global carbon market, therefore, may not be as negative as many would think. 2009 and 2010 are going to be tougher years than the 2005—2008 period — although, potentially, not as tough as 2000—2004.
Focus on Japan
Trading of Assigned Amount Units
One of the areas of carbon finance in which we have been closely involved is the sale and purchase of AAUs. The Japanese Government has consistently supported the purchase of AAUs in the context of international emissions trading under article 17 of the Kyoto Protocol. Faced with growing greenhouse gas emissions in Japan, it has recognised that around 100 million carbon credits will need to be purchased by the end of the first Kyoto commitment period if Japan is to meet its obligations under the Kyoto Protocol.
In 2006, the Kyoto Mechanisms Acquisition Programme was launched. This gave NEDO - the New Energy and Industrial Technology Development Organisation set up to function as an independent administrative agency by the Ministry of the Environment and the Ministry of Trade and Industry - the authority to acquire, either directly or indirectly, Kyoto Protocol credits, including AAUs. By 2008, NEDO’s annual budget for the purchase of Kyoto Protocol credits had risen to around 80 billion yen.
The Japanese Government has, through NEDO, purchased (according to estimates) over 24 million Kyoto Protocol credits. To date, most of these credits are CERs from Clean Development Mechanism projects. However, it is recognised that CERs alone will not be available in sufficient quantities to meet the shortfall and, therefore, a large number of AAUs will also need to be purchased.
The cost savings represented by the purchase of AAUs has also been raised both within and outside the Government as a further reason for purchasing AAUs in preference to CERs and ERUs.
In recent years, the Japanese Government has taken steps to purchase and encourage the purchase of AAUs. In particular, it has entered into bilateral agreements with various states agreeing the framework for the sale and purchase of AAUs (and ERUs from JI projects). Examples include Hungary, Ukraine, the Slovak Republic and, most recently — in October 2008, Poland. The Ukrainian Government has also recently passed a bill approving the sale of AAUs to Japan; a deal is expected soon. Negotiations have also been entered into with Russia, although no memorandum has yet been signed.
However, despite the presence of willing sellers, a structure for the purchase of AAUs and the active support of the Japanese Government, the number of AAU trades involving Japanese buyers remains small. As a result of our experience advising potential purchasers of AAUs, we consider that there are various reasons behind this:
- Negotiations with governments and their agencies are required in order to agree the exact terms and price of the transactions (regardless of the presence of bilateral agreements);
- There is no market standard yet. This is due to the lack of AAU trades and the different approaches taken by states; this situation is likely to improve over time. There have already been attempts — such as the model AAU sale and purchase agreement developed by the EBRD (European Bank for Reconstruction and Development) — to develop a standard;
- There is still debate over the extent to which the proceeds of the purchase of AAUs need to be invested in a Green Investment Scheme in order to ensure that the purchase of AAUs results in emission reductions;
- The debate over “greening” has led purchasers to concentrate on the other Kyoto Protocol mechanisms of CDM and JI, which have a clearly identifiable environmental benefit; and
- Buyers who decide to purchase “greened” AAUs need to decide what form the greening should take and how they should monitor greening. This needs to be negotiated with the seller, taking into account the applicable greening legislation and regulation, which differs between states.
As the end of the First Commitment Period approaches, purchases of AAUs (as a means of meeting shortfalls in targets) are likely to increase globally. As a result, a market standard is likely to emerge which will, in turn, help to resolve these issues and accelerate the purchase of AAUs, in Japan and abroad.
Trial voluntary carbon credit trading scheme
The trial voluntary carbon credit trading scheme announced by the Japanese government in October 2008 continues to grow. By the end of 2008, over 500 companies had signed up to participate in the scheme. Almost 50 will act as trading middlemen.
A domestic CDM scheme was introduced as part of the voluntary scheme. Seven additional proposals (amounting to an annual reduction of 46 million tonnes of greenhouse gas emissions) had been submitted to the domestic credit certification committee by 20 January 2009. These proposals, which include the first application to be submitted from the agriculture/forestry sector, should be approved this spring.
Japanese companies continue to purchase Kyoto Protocol credits. Recent transactions include the purchase by Toyota Tsusho and TEPCO of 180,000 tonnes of CERs from a Thailand biomass joint venture by 2012 and the investment by Mitsubishi Corporation in nitrous oxide abatement at three chemical plants in Uzbekistan, generating an estimated 1.1 million tonnes of CERs per year.
Examples of other recent initiatives designed to help reduce or raise awareness of greenhouse gas emissions include:
- The launch of the H2A rocket No. 15 by Mitsubishi Heavy Industries on 23 January: the rocket contained satellite Ibuki, a co-operative effort by the Japan Aerospace Exploration Agency and the Ministry of Environment which will monitor CO2 and methane in the atmosphere;
- The offer by Ogaki-Kyoritsu Bank and Nishi Nihon City Bank of investment in their “emission rights special non-monies trust” (for small- and medium-sized purchasers of emission rights who intend to invest in emission rights for CSR purposes and to contribute to the reduction of CO2);
- The introduction of consumer products each labelled with its own carbon footprint (indicating the CO2 emissions generated);
- The agreement between TEPCO and Yamanashi Prefecture to construct a solar energy power plant (10,000 KW) in Kofu City (expected to reduce CO2 emissions by 5,100 tonnes per year); and
- The plan by Sanyo to construct a solar battery factory by 2010 in Osaka (which will help double its production to 700,000 KW per year).
The Japanese delegation in Poznan
For further details on our coverage of the Poznan climate change negotiations and for our analysis of the Japanese delegation’s negotiation positions please read Poznan, December 2008.
Report on China
The steep decline in secondary market prices has had a significant impact on CDM projects in China. In other countries, operators are able to hedge against a fall in prices to some extent by investing in a project and accessing both CDM and power or other revenue income streams from the underlying project. In China, the 51 per cent rule — preventing foreign investors from having more than a 49 per cent stake in certain projects — makes these structures more difficult.
At the same time, the renewables market continues to remain strong. China’s banks have increased their lending since the outset of the credit crisis, and the renewables sector and the national power grid are key beneficiaries of the PRC Government’s RMB 4 trillion stimulus package spend.
Growing opportunities are also emerging for private equity and venture capital in the clean tech sector. Previously, medium-sized PRC companies looked to tap the capital markets for funds to expand, but, with this option now closed, these companies are now looking for other funding sources. Any projects that involve a mix of funding and technology transfer are strongly supported by the Chinese authorities.
Fuel prices and tax reform
Despite the significant drop in oil prices, China has decided not to pass these price reductions on to consumers and has imposed a tax on oil in an effort to stem consumption.
RMB 4 trillion stimulus package
At the end of 2008, the PRC central authority announced a RMB 4 trillion (US$586 billion) stimulus package to be spent on infrastructure projects over the next two years. Despite the headline-grabbing figure, the package is, in reality, a RMB 1.2 trillion contribution from central government with the remaining RMB 2.8 trillion contributed by China’s banks, the provincial authorities and the private sector.
Included within the package is around RMB 1.2 trillion set aside for the development of the PRC grid. To date, the grid has proved to be one of the key weaknesses in China’s renewables sector; around one in five Chinese wind projects is, it is thought, not grid-connected.
Floor prices for CDM projects
The Chinese floor price for CDM projects ranges from €8 for small hydro to €8.5 for medium and large hydro, and €9 for coal mine methane and waste heat recovery to €10 for biomass and €12 for wind. Officially, the floor price continues to remain in place, even though secondary market prices have dropped below €8. Unofficially, the NDRC is approving projects at up to €1 below the floor price.
Solar power development
Chinese policy-makers are looking to develop a framework for the development of solar power in China. To date, China has only a few plants in the early stages of construction — but it is the world's manufacturing base for solar panels. With international demand for solar panels falling off sharply, China is hoping to mop up some of the excess local supply through the development of new plants. A new solar law is being planned and there have been some rumours of a RMB 60 billion subsidy for development of new plants (although this has been denied by officials). At the same time, solar tariffs for the two projects that have been approved are RMB 4 per kilowatt hour; there are reports that approved tariffs will drop, given lower costs in the sector.
Administration of foreign debt registration
At the end of last year, the State Administration of Foreign Exchange issued the “Circular on Issues Relevant to Implementing the Administration of Foreign Debt Registration in Respect of Trade in Goods of Enterprises” which requires registration procedures for advance payments on export contracts. The Chinese authorities have confirmed that these registration requirements do not apply to advance payments in ERPAs.
Report on Thailand
CDM project approval
In December 2008, Thailand’s DNA, the Board of Thailand Greenhouse Gas Management Organisation (Public Organisation) (the TGO), announced new rules for the approval of CDM projects in Thailand. Under these rules, there are four main categories of projects which the TGO will consider approving as CDM projects: energy, environment, transportation, industry.
The rules set out the maximum time frame for the approval process. This time frame is 170 business days from the date of receipt by the TGO of the request (with all supporting documents) for project approval from a project participant. Once the TGO has reached its decision, it must notify the participant within 10 business days. The entire process should take no longer than 180 business days.
Although the new 180-day time frame is much shorter than the original one (pre-dating the TGO), it is still seen as too long by many investors in the market.
(As at 17 February 2009, 39 projects had been approved by the TGO Board and received letters of approval.) Renewables and climate change projects
The new Government of Thailand, in its policy statement of 29 December 2008, stated that renewables and climate change projects were very much on the national agenda.
The Thai Government’s policies on energy and environment include encouraging development of CDM and renewables projects (particularly small power plant and very small power plant projects) as well as providing tax incentives and other investment privileges for participants in climate change projects. The announcement of the policies is a positive sign for the Thai market. Investors are looking to see how these policies will be implemented by the new government.
Report on Singapore
First CDM project registered
Singapore has now joined the ranks of CDM host countries with registered CDM projects. A wholly owned subsidiary of a local environmental solutions company, ecoWise Holdings Limited, has had its waste heat recovery CDM project registered on the UNFCCC's website. The project involves the recovery of waste steam from its wood and tree waste biomass co-generation plant for heating and drying services. Japan's Kansai Electric is the CER buyer. The project is in line with Singapore's Green Plan 2012 objective to achieve a 25 per cent reduction in carbon intensity by 2012.
Project Finance International: Unlocking revenues from CDM projects
We have contributed an article on carbon revenues to PFI's special report, published 25 February 2009, on Clean Energy & Carbon. Tom Luckock (Of counsel, Beijing, Norton Rose LLP) and Hannah Logan (Associate, Singapore, Norton Rose (Asia) LLP) examine how the current financial and political climate is shaping ways of developing and funding carbon projects in Asia.
Report on Indonesia
Awaiting REDD regulations
The Government of Indonesia has announced plans to issue a decree regulating business mechanisms and financial incentives for REDD projects. Under the REDD mechanism, countries that are successful in reducing their emission levels through improved forest protection and sustainable production methods are eligible to receive carbon credits. The Government will not issue permits for Indonesia’s 20 REDD-related projects until regulations are in place.
The Ministry of Forestry is expected to issue the decree in spring 2009. The decree will determine how to calculate carbon emissions stocked in the forests and how to share portions of the financial incentives among central government, local authorities and the communities affected by the projects. In the meantime, REDD projects face a further delay and potential conflict between communities and local and national authorities in the absence of clear regulations.
Report on the UK
CDM update from UNEP Risø
At a recent CDM workshop, Jørgen Fennhan of the UNEP Risø Centre on Energy, Climate and Sustainable Development gave an update of the current state of play in the CDM (88KB, PDF), based on the status of projects in the formal CDM project cycle. This has revealed some interesting trends.
There are 4,586 CDM projects in the pipeline at the moment; this does not include projects which are pre-PIN. That number could well be inflated by those projects which are still on the books of various DOEs but are unlikely to ever be registered. From 31 March, DOEs will, however, be required to report on the exact number of CDM projects in the validation backlog and how long these have been in backlog. This may allow the market to get a clearer idea of how many such projects may never come to registration.
Of the 4,586 projects in the pipeline, 1,370 have been registered and 87 rejected. These figures are heavily influenced by the industrial projects to date; the number of renewable energy projects is rising most quickly at the present time.
The timelines shown for projects to reach the various stages in the CDM cycle are interesting in themselves. The average is 660 days from the start of validation to registration. This does not take into account the period from the project idea to the development of the final PDD necessary to begin the validation process; estimates on this vary from 6 months to 18 months.
UNEP Risø are projecting a total of 286 million CERs per year up until 2012, and 666 million CERs a year for the period 2013 to 2020. This represents around 1.3 billion CERs for the period up until 2012 — assuming that all projects in the pipeline go onto registration and issuance in accordance with the PDD projections for numbers of CERs.
However, looking at the figures for issuances, there is an apparent disparity between the different types of project: there are low rates of issuance for some types (such as landfill or coal mine methane projects) compared to the projected CER volumes in the PDDs. Current projections for issued CERs are:
The spread between registered and unregistered projects in the pipeline, and the number of projects which still need to bring forward requests for issuances, indicates that the CDM Executive Board and the UNFCCC Secretariat have a heavy workload ahead of them.
Turning to methodologies, 296 are registered: transport and energy efficiency methodologies are lagging behind other types.
Our thanks to Jørgen Fennhan of the UNEP Risø Centre on Energy, Climate and Sustainable Development for his contribution.
EUA auctions: lessons learnt from the UK
The design, timing and harmonisation of approaches across Europe to the auction of allowances in Phase III will have a significant impact on the secondary market. The auction of Phase II EUAs by the UK Government in late 2008 provides some lessons for that process (as will the upcoming auction of 24 March).
A key element of the UK approach was the approval of primary participants that were required to meet certain criteria, including their capacity to offer access to the auction at no cost to entities with compliance obligations (indirect participants).
In effect, this limited potential primary participants to large financial institutions. The access each primary participant was obliged to offer indirect participants was provided at no cost but brought with it a number of obligations. Those included identity checks; performance obligations; document retention for two years; the establishment of internal information barriers; and, importantly, potentially managing credit risk in respect of indirect participants.
While the auction managed to attract four primary participants, the lack of a cost recovery mechanism for the obligations imposed on them limited the attractiveness of the role. There was also no positive incentive to locate indirect participants and the lack of cost recovery could be seen as a disincentive.
As a result, a mechanism designed to grant widespread access to an auction did not achieve all its goals. The range of primary participants available to indirect participants was too limited.
This issue will have to be addressed during development of the regulation for Phase III auctions.
Climate Change Act and the CRC
On 26 January, the remaining unimplemented provisions of the Climate Change Act came into force in the UK. The Act is the flagship of the UK Government’s domestic climate change policy through which, it is hoped by the Government, that the UK will take a global lead in finding a suitable post-2012 environmental solution. With President Obama’s recent environmental announcements in the US indicating a dramatic and ambitious shift in the United State’s climate change policy, officials in the US, as well as in other industrialised countries, will be looking with interest at the progress of the CRC, a domestic initiative introduced by the Act creating a cap-and-trade system to function alongside the existing EU ETS and CCA schemes, targeting large, non-intensive energy consumers in the UK.
The CRC should, initially, affect over 5,000 organisations at 50,000 sites around the UK, with the aim of reducing the carbon output of these installations by around 1.2 million tonnes of CO2 per year by 2020. Commentators have already signalled that some operators are inadequately prepared to meet the demands to be imposed by the CRC upon implementation in April 2010. The preparations of operators likely to fall within the scope of the CRC are not helped by the slippage of the timetable. The draft CRC regulations and stakeholder consultation — scheduled for publication in autumn 2008 — have now been rescheduled for February of this year, although this time frame could slip further.
The initial delay has already caused the registration period of the CRC to run concurrently with the first six months of the scheme. It remains to be seen if this further delay will have any significant impact on the CRC’s implementation.
When the draft regulations and public consultation are released, climate change secretary, Ed Miliband is likely to face particular pressure over the relationship between the CRC and ROCs, the tradable credits issued by Ofgem certifying power generated by a clean source. Under the present CRC proposal, businesses are entitled to trade their ROCs or claim their reduced carbon footprint under the CRC regulations but they are not entitled to do both, because of claims that this would lead to double counting.
Recent reports in the British press have highlighted how this has put multi-million renewable investments in wind farms throughout the UK in jeopardy as investors would have to choose between paying financial penalties under the CRC for failing to meet energy reduction targets or forgo valuable ROC income streams. Report on Europe
Comitology and the EU climate-energy package
In December 2008, the European political institutions reached agreement on a package of directives on climate change and renewable energy (the climate-energy package). The climate-energy package includes significant amendments to the EU ETS Directive that will take effect in Phase III of the trading scheme.
Significant details about the EU ETS Directive, as amended under the climate-energy package, were not included in the package itself but are now being fleshed out by a European process of decision by committee known as “comitology”. Once these decisions are made, the full impact of the climate-energy package on the carbon markets can be assessed.
These major decisions will include quotas for CDM and JI in the ETS; quality criteria for JI and CDM projects; and rules on the centralised or “harmonised” allocation of EUAs in the EU in Phase III.
Please let us know if you would like to receive details of the 14 measures being decided upon by comitology. There are different forms of comitology in Europe, but the procedure being used for the climate-energy package is the “regulatory” comitology procedure. This procedure follows these steps:
- A committee of experts considers the European Commission’s proposal;
- If the committee fails to agree on implementation, the dossier is passed to the Council of Ministers, which has three months to agree with or amend the proposal; and
- If the Council fails to agree on what action to take, the power to make a decision reverts to the Commission.
European Commission: new climate change vision
On 28 January, the European Commission published its vision for the road towards a comprehensive climate change agreement at Copenhagen in December 2009. Central to this vision is its proposal that developed countries take the lead in combating climate change, with a commitment to reducing emissions in the range of 25 to 40 per cent by 2020. Alongside this, all developing countries, with the exception of least developed countries, should commit to adopting a low carbon development strategy by the end of 2011.
The European Commission would also like to see a global market for carbon by 2020, and has proposed establishing an OECD-wide carbon market by 2015. There is also a push for the UN to set targets for aviation and maritime transport sectors.
In terms of financing, the EU recognises that, in order to deliver climate change goals, finance and investment must be significantly scaled up, redirected and optimised. The EU envisages a mix of public and private funding, essential to meet the estimated €175 billion increase in investments required by 2020.
Report on Germany
Opportunities for JI project developers and investors
Over the last 6 months we have seen increased interest and activity in JI projects in more established jurisdictions like France and Germany. For example, although only two JI projects were approved in Germany in the first commitment period (with France being the investor state for both projects) six new JI projects have now received approval from the German DFP (DEHSt) and the validation of a further project is pending.
These new JI projects have been issued with their German Letter of Approval but, at present, no investor state has been identified. It appears that the DEHSt will approve proposed JI projects in Germany without the investor state being named. It is sufficient for the project developer of the proposed JI project to confirm to DEHSt that the future investor state will be one of those in compliance with the requirements of the German act implementing the Project Based Mechanisms of the Kyoto Protocol.
JI project developers interested in Germany are therefore able to market pre-approved JI projects to potential investors. We expect this opportunity to lead to an increased interest in the German market by JI project developers and investors.
Report on Russia
Renewable energy plan launched
On 8 January, the Russian Government published its “Guidelines of state policy in the sphere of increasing the energy efficiency of the electric power sector through renewable energy sources for the period until 2020” (No.1-r).
These guidelines set the following targets for the share of renewable energy in electricity generation:
- 1.5% in 2010;
- 2.5% in 2015; and
- 4.5% by 2023.
As Russia currently generates under 1 per cent of total electricity industry output from renewable sources, to meet these targets, the Ministry of Energy will be responsible for a large number of measures, including:
- Deciding on pricing for electricity produced from renewables;
- Attracting private investment for new and existing projects;
- Liaising with domestic industrial sectors and services;
- Improving statistical reporting on the use of renewables in electricity generation; and
- Raising public awareness about renewable energy sources.
The Ministry is to take on the role of liaising with federal agencies and utilities and seeking their cooperation to fulfil the tasks. Regional authorities will, it is hoped, include measures in their development programmes in support of the guidelines and this, in turn, will make Russia more attractive for JI investment.
Poznan, December 2008
Japan’s negotiating position at Poznan
On national emission targets
Japan made it clear from the outset of the COP/MOP climate change negotiations that it would not set out its proposed national mid-term emission reduction target at Poznan. As for the “Shared Vision” under the Bali Action Plan, the Government expressed its view that emissions must peak within the next 10 to 20 years and fall by 50 per cent before 2050 (though no specific baseline year has been confirmed) and that all parties to the UNFCCC must take action to achieve this goal. A transition to a low carbon society should be made through technical innovation, lifestyle innovation and infrastructure innovation.
On the CDM
Japan’s position is that projects done under the CDM are an inefficient way to create emission reductions. It therefore urged the CDM Executive Board to speed up the process of CDM project registration.
On sectoral approaches
Japan takes the view that any mid-term emission reduction targets for a country are best decided by a bottom-up approach being adopted, the use of sectoral reduction potential and with given indicators for each sector. Japan submitted a paper on its sectoral approach to the AWG-LCA in May 2008.
Japan’s sector paper (297KB, PDF) can be summarised as follows: each country (whether Annex 1 or otherwise) would calculate its potential sectoral reduction volume — based on the use of advanced future technology — and apply this to the emission potential and size of future productive activities; the whole process could be subjected to peer review; emission reduction amounts by sector would then be aggregated to arrive at a quantified national greenhouse gas emissions reduction target.
The Japanese approach was not widely supported in Poznan, where, despite the Japanese negotiators repeated revisiting of its sectoral approach, only Norway, Columbia and Canada supported the proposal. Japan has urged that sectoral approaches be considered in the International Workshop on Methodologies to be held in Bonn in March 2009.
Japan’s position is that adaptation funding should only be given to the “most vulnerable” countries and that adaptation funds should be raised by private finance initiatives and not donated by governments.
Post Poznan developments in Japan
On 6 February, the Japanese government submitted its new post-Kyoto proposal to the United Nations Framework Convention on Climate Change. The proposal recommended that:
- UN advisory groups be set up, organised by industry segment, to promote technology transfer from developed countries to developing countries (building on the Cool Earth Partnership, a 10-billion dollar financial mechanism announced by the government in January 2008 to help developing countries to achieve emission reductions and economic growth through technology and know-how transfer);
- Developing countries voluntarily prepare an action plan for reduction of GHG emissions;
- All nations adopt the long-term goal of cutting GHG emission levels to 50 per cent of current levels; and
- Major developing countries, such as China, control the growth of their emission levels by setting an “energy conservation index” by industry.
China’s negotiating position at Poznan
China discloses little about its position on climate change negotiations, but certain trends are emerging: China would like to see relaxation on intellectual property rights protection for clean technologies;
- China supports the development of a multilateral fund — to be funded by contributions from the developed countries and used to encourage the transfer of clean technologies to Chinese companies; and
- China would like the CDM to incorporate a mechanism to encourage the transfer of clean technologies to developing countries.
Developments in the market
Challenges against the Commission reach the European Court of First Instance
Before the recent collapse in market prices, the European Commission was seen to have been successful in its allocation of EUAs to create a sufficient level of scarcity by rejecting a number of European states' proposed allocations of EUAs for Phase II. A number of countries commenced legal proceedings against the Commission's decisions. Some of these challenges are now reaching the European Court of First Instance (CFI). On 10 and 11 February, the CFI heard the submissions of Poland and Estonia. Similar cases involving Bulgaria, the Czech Republic, Estonia, Hungary, Lithuania, Latvia and Romania also await their day in court.
Although EU ETS reforms agreed for Phase III give power to the Commission to set Member States' caps, these challenges are likely to generate further guidance on the scope of the Commission's mandate in implementing the EU ETS.
Template Modalities of Communication approved
At its meeting on 11 February, the CDM Executive Board (finally) approved the template MOC for use on all CDM projects. The template clarifies the choices that project participants can make regarding the different roles of the Focal Point.
There is now a grace period of one month in which projects can submit MOCs which do not comply with the template MOC — if they were signed before the adoption of the template by the Executive Board.
DNV's CDM accreditation reinstated
The Executive Board has announced the reinstatement of DNV's CDM accreditation. To confirm the effectiveness of the corrective measures taken by DNV, CDM-AP will monitor five randomly chosen projects as a means of ensuring DNV's competence for undertaking validation/verification activities.
Responding to the reinstatement, DNV's CEO Henrik O. Madsen noted that DNV had taken the initial findings, which led to the suspension of their CDM accreditation, extremely seriously and had allocated their best resources to correct those findings.
DNV is now also allowed to continue its JI and Voluntary Carbon Standard work.