Summary of other countries’ restrictions and preferences

European Union Emissions Trading Scheme (EU ETS)—multilateral scheme

The EU ETS is the largest emissions trading scheme in the world and has been operating since 2005. Its objective is to reduce the emissions from EU member states by setting an absolute limit on emissions. This ‘cap’ covers around 50 per cent of EU-wide emissions—about 11,000 factories, power stations and other installations with a net heat excess of 20 MW in all 28 EU member states plus Iceland, Norway and Liechtenstein.

The EU ETS allows liable operators to use a limited number of eligible flexibility mechanisms to meet their compliance obligations. (CERs from the CDM and ERUs from JI).

Operators used 1.058 billion international credits in the period 2005 to 2012, with about 500 million more expected to be used for the period 2013–20.

The EU ETS Directive is set in legislation agreed by the European Parliament. The majority of rules guiding the operation of the EU ETS are set out in Directives that are agreed by the European Parliament and the European Union Member States.

The European Commission administers the scheme, including operational matters such as proposing registry rules, issuing allowances and other provisions.

The EU ETS imposed several qualitative restrictions on international units used for compliance. In previous phases of the EU ETS, the following project types were:

• nuclear
• agriculture and land use, land use change and forestry
• hydropower generation where generation capacity exceeds 20 MW and is not consistent with the World Commission on Dams
• RMU units, temporary CERs( tCER) or long-term CERs (lCER).

From 2013, additional restrictions were placed on projects involving:

• Trifluoromethane (HFC-23)
• Nitrous oxide (N2O) emissions from adipic acid production.

There are additional restrictions in the third phase of the EU ETS (from 2013 to 2020)—the only units allowed are:

• existing CDM projects that were eligible in the previous phase, and were registered by 31 December 2012
• new CDM projects that are undertaken in least developed countries (LDCs) or small island developing states, and were registered after 31 December 2012
• Track II JI projects from countries with an emissions reduction target under the second commitment period of the Kyoto Protocol.

European Union Effort Sharing Decision—multilateral scheme

The Effort Sharing Decision establishes binding annual greenhouse gas emission targets for EU member states for the period 2013–20. It covers most sectors not included in the EU ETS, including transport (except aviation and international maritime shipping), buildings, agriculture and waste.

The Effort Sharing Decision allows governments to use CDM and JI units for compliance, to an annual limit up to 3 per cent of their annual emissions in 2005.

The Effort Sharing Decision allows certain member states to use an additional 1 per cent of credits from LDCs or Small Island Developing States. The member states concerned are Austria, Finland, Denmark, Italy, Spain, Belgium, Luxembourg, Portugal, Ireland, Slovenia, Cyprus and Sweden.

Total emissions for the EU 27 in 2005 were 5,177 Mt CO2-e. This means EU governments can access approximately 153 Mt CO2-e of CDM and JI units annually for compliance with the EU Effort Share.

Directives for the Effort Sharing Decision are agreed by the parliament and administered by the European Commission. The Commission proposes rules, undertakes reviews and provides a range of operational support but allows members states ultimate flexibility to determine how they achieve their target.

Member states meet their own targets by reducing emissions in the covered sectors and/or by using Kyoto offset units up to their allowable limit.

EU member states can use any CER or ERU that is eligible under the EU ETS.

In addition, tCERs and lCERs from afforestation and reforestation projects can be used by member states provided they are replaced with eligible Kyoto units prior to expiry.

Where member states opt to purchase units for compliance, they are encouraged to purchase CERs from projects in LDCs and small island developing states.

Carbon Fund for Europe (CFE)—multilateral fund

The CFE is a trust fund designed to help some EU countries and private firms meet their commitments under the Kyoto Protocol and the EU ETS. The CFE was launched in March 2007 once the target funding of €50 million was reached from participants.

The CFE is funded by governments and the private sector. Contributor governments include Portugal, Ireland, Luxembourg and the Flemish Region of Belgium.

The CFE purchases emissions reduction units from the CDM and JI from either the World Bank’s existing portfolio of projects, or standalone CDM or JI projects. Units were sourced from projects in the primary market.

The CFE has signed eight Emissions Reduction Purchase Agreements to a total amount of 3.2 Mt CO2-e.

The fund is closed to new entrants.

The CFE was established and administered by the World Bank, in cooperation with the European Investment Bank (EIB).

Participants devolve all administrative and operational control to the World Bank, which undertakes all project assessment, purchasing, contractual and other arrangements. The credits generated by CFE-funded projects are then apportioned to fund participants.

EU ETS-compatible emissions reduction units were purchased from CDM and JI projects.

The fund focuses on projects that cover:

• renewable energy
• energy efficiency
• methane recovery
• recovery of natural gas.

Prototype Carbon Fund (PCF)—multilateral fund

The PCF was the pioneering carbon fund established and managed by the World Bank and became operational in 2000.

Its mission is to pioneer the market for project-based greenhouse gas emissions reductions while promoting sustainable development and offering a learning-by-doing opportunity to its stakeholders.

The PCF piloted the production of emission reductions within the framework of JI and the CDM prior to their ratification under the UNFCCC.

Participants included Japan, Canada, Netherlands, Norway, Sweden, Finland and a number of private sector entities.

The PCF had a total capital of about US$220 million, and signed emissions reduction purchase agreements for over 28 Mt CO2-e in emissions reductions from 24 projects.

The PCF operates as a trust fund established and administered by the World Bank.

Participants devolve administrative and operational control to the World Bank, who undertakes all project assessment, purchasing, contractual and other arrangements. Any CDM or JI credits generated by PCF-funded projects are apportioned to fund participants.

The PCF invested in a range of projects prior to the CDM and JI frameworks being ratified by the UNFCCC. The fund was operational when these were ratified and many existing PCF projects transitioned to CDM and JI projects.

Most of the portfolio’s geographic distribution was in the East-Asia and Pacific region (65 per cent), followed by Latin America and the Caribbean, Europe and Central Asia, and Africa.

The PCF portfolio was heavily concentrated in projects promoting mitigation of industrial GHG emissions, renewable energy technology, afforestation/reforestation and energy efficiency.

BioCarbon Fund (BioCF)—multilateral fund

The BioCF was established in 2004 as a way to channel investment into projects that reduce greenhouse gas emissions from the land sector, from deforestation and forest degradation in developing countries, and from sustainable agriculture, as well as smarter land-use planning, policies and practices.

The BioCF is a multilateral fund, supported by governments and private firms, and is managed by the World Bank.

It was the first global carbon fund to focus on land use and has pioneered new methodologies for afforestation/reforestation in the CDM as well as voluntary standards.

The BioCF is a public–private sector initiative.

There have been three tranches of projects since inception. The BioCF Tranche 1 and Tranche 2 (T1/T2) focus mainly on afforestation and reforestation activities in the primary market projects.

T1 started operations in 2004 and had funding of about US$54 million; T2 began in 2007 with funding of about US$30 million. These tranches financed 20 land-use change, REDD+ and agriculture projects. The participants in T1 and T2 included Canada, Italy, Luxembourg, Spain and Ireland, and private sector entities. It is closed to new fund participation.

Tranche 3 (T3) is known as the Initiative for Sustainable Forest Landscapes. Beginning in 2013, it has total funding of US$311 million. Current participants include Norway, the US and the UK, and it is open to new participants.

The BioCF operates as a trust fund established and administered by the World Bank.

Participants devolve administrative and operational control to the World Bank, who undertakes all project assessment, purchasing, contractual and other arrangements. Any credits generated by BioCF-funded projects are then apportioned to fund participants.

While the LULUCF sector is not currently eligible to generate emission reductions under the CDM, some Afforestation and Reforestation projects are.

Most of the BioCF resources under T1 and T2 (about 80 per cent) have been earmarked to Afforestation and Reforestation projects under the CDM. There are also agricultural and REDD+ projects in the T1/T2 portfolios.

T3 projects are selected according to a jurisdictional landscape approach (where the trade-offs and synergies between different competing land uses in a jurisdiction are identified and integrated solutions can be offered. Currently, there is expected to be a portfolio of about four jurisdictional programs with country and regional diversity.

Spanish Carbon Fund—sovereign fund

The Spanish Carbon Fund was created in 2004 in an agreement between the Spanish Government and the World Bank.

This fund was established to purchase greenhouse gas emission reductions from projects developed under the Kyoto Protocol to mitigate climate change while promoting the use of cleaner technologies and sustainable development through the CDM and JI.

The fund, which started operations using financial resources provided by the Spanish Government, is also open to participation by Spanish private entities.

The fund has invested in projects in two tranches since inception. Tranche 1 (T1) commenced in 2005 and tranche 2 (T2) in 2008. The fund has a total capital of about US$280 million to purchase a minimum of 34 Mt CO2-e.

The Spanish Carbon Fund was formed by the Spanish Government, together with representatives of the Spanish industry linked to the energy sector, and the World Bank.

The World Bank operates and administers the fund in trust for the Spanish public and private sector participants.

Participants devolve administrative and operational control to the World Bank, who undertakes all project assessment, purchasing, contractual and other arrangements. Any Kyoto credits generated by the fund projects were then apportioned to participants.

The Spanish Carbon Fund purchased a range of units in its two tranches, including CERs, ERUs, AAUs and EUAs.

The fund had purchased units from projects including industrial energy efficiency, fugitive emissions, energy distribution, transport, hydropower, HFC23 destruction, landfill gas, wind and methane avoidance.

It includes projects from many regions, including Latin America, North Africa, East Asia, South Asia, Eastern Europe and the Russian Federation.

Asia Pacific Carbon Fund (APCF)—multilateral fund

The APCF was established and managed by the Asian Development Bank (ADB) in 2007. The APCF invested in CDM mitigation projects in the ADB’s developing country members. It also assisted participants to comply with their emissions reduction commitments.

It achieved this by providing up-front finance for eligible CDM projects in exchange for a portion (between 25 and 50 per cent) of the expected future CERs.

The fund received a total of US$152 million from seven governments—Belgium (on behalf of the Flemish Region), Finland, Luxembourg, Portugal, Spain, Sweden and Switzerland.

The fund provided project developers with marketing, project development, validation and registration, project implementation and monitoring, and broader capacity development.

The fund purchased CERs up to 2012. It will not continue into the second Kyoto commitment period.

Participants devolved all administrative and operational control to the ADB, who undertook all project assessment, purchasing, contractual and other arrangements. The credits generated by APCF-funded projects were then apportioned to participant countries.

The APCF maintained a roster of technical experts in a Technical Support Facility to assist developers produce high-quality projects and reduce the risk of non-delivery.

The fund invested only in CDM projects.

Projects prioritised by the fund included energy efficiency, renewable energy, and methane capture and utilisation projects.

CERs from these projects were required to generate permanent not temporary reductions.

Austrian JI/CDM Programme—sovereign fund

The Austrian JI/CDM Programme was established in 2003 to purchase Kyoto units to meet its emission targets under the first Kyoto commitment period. Currently, there are no plans to extend the fund to purchase units for the second commitment period.

The programme had a maximum funding of US$579 million.

The overall target of the programme was to purchase a maximum 80 Mt CO2-e of emissions reductions.

Currently, the portfolio consists of 76 projects in more than 29 countries.

The programme was established under legislation with the Minister for the Environment the responsible authority. The minister was supported by an advisory board made up of representatives from relevant ministries and key Austrian stakeholder groups.

Management of the programme was devolved entirely to a private company, Kommunalkredit Public Consulting GmbH. The company has specific competencies, experience in environmental protection and financial expertise. The management team comprises technical, commercial and legal experts who:

• carry out all purchases of units
• control and actively manage the performance risk of the portfolio.

The programme purchased units from the CDM and JI, as well as from Green Investment Schemes (GIS-based AAUs).

The priority areas included:

• renewable energy
• energy efficiency
• recovery of landfill gases.

The programme did not purchase from any industrial gas (HFC-23) or large hydro-electric projects not covered by the World Commission on Dams report.

All host countries for the CDM and JI are eligible.

The programme has also established an independent initiative called CDM in Africa, in order to develop projects in sub-Saharan Africa.

French Global Environment Facility (FGEF)—sovereign fund

The FGEF was created by the French Government in 1994. Its remit is broad, ranging from developmental objectives to financing mitigation action via the CDM, JI and REDD+ projects.

The facility invested approximately €65 million between 2003 and 2009 in 51 projects across 20 countries.

The facility directly finances new projects in primary markets. It also co-finances with other parties including multilateral banks and private institutions.

The FGEF is involved in French foreign aid, as a part of French Official Development Assistance.

The FGEF operates through three interacting bodies.

An inter-ministerial Steering Committee, which is made up of five government departments and is chaired by the French Treasury, makes decisions on

• general policy
• timeliness of projects
• financial commitments.

The Scientific and Technical Committee, a consultative body comprising about 10 experts:

• makes recommendations and observations on projects
• conducts and leads work dealing with the scientific, technical and socioeconomic issues
• participates in capacity-building for stakeholders.

The Secretariat comprises about 10 permanent staff members and performs the following functions:

• project appraisals and follow-ups
• preparation and implementation of decisions made by the Steering Committee
• sectoral relations with institutional, scientific, economic and associate partners, bilateral and multilateral donors and other stakeholders.

The FGEF supports mitigation through:

• financing projects via UNFCCC schemes including the CDM, JI and REDD+
• providing lines of credit or guarantees
• providing specialised investment funds for energy efficiency and renewables.

The FGEF encourages projects for climate change mitigation projects that reduce or curb the use of fossil fuels and greenhouse gas emissions by promoting:

• uses of renewable and low-emissions energy
• biomass-to-energy systems
• energy-efficient production systems
• improved energy efficiency in housing, transport, industry and agriculture
• carbon storage in forests, soils and subsoils.

The FGEF co-finances projects across Latin America, Africa and Asia.

Norway—sovereign fund

The Norwegian Government has been active in the market since 2000, prior to the CDM and JI rules being ratified. In the first phase Norway participated through multilateral funds, and as from 2007 as a direct market participant.

As from 2007 the purpose of the Norwegian Procurement Program was to exceed Norway’s commitment in the first Kyoto Period (2008-2012) by 10 per cent

Norway’s purchase program is not linked to the EU ETS but Norway is a participant in the EU ETS. In the second phase of EU ETS (2008-2012) Norway exchanges a certain number of AAU for EUAs, and EUAs surrendered by the installations regulated by the EU ETS are used in the Norway’s Kyoto accounts. In the third phase of EU ETS this arrangement is yet to be negotiated between the EU and Norway.

The Norwegians have engaged carbon markets in a variety of ways including:

• direct purchasing through brokers and tenders
• contributing to multilateral carbon funds such as the Prototype Carbon Fund and Nordic Environment Finance Corporation (NEFCO)
• purchasing via the NEFCO Norwegian Carbon Procurement Facility.

Norway is likely to require 120 Mt CO2-e of emissions reductions for the second commitment period, and is looking to purchase this via tender and NEFCO funds. This includes the ‘NEFCO Norwegian Carbon Procurement Facility’, which is seeking about 30 Mt CO2-e of emissions reduction units.

The Norwegians have been pioneers in the carbon market and participated in innovative multilateral funds such as the Prototype Carbon Fund, which invested in projects before the CDM was established. This pioneering approach continues via its participation in the BioCarbon Fund, which invests in schemes such as REDD+ under the new market mechanisms.

The Norwegian purchase program has involved many governance arrangements and administrative structures over the years.

These have included self-managed funds, partially outsourced projects and fully outsourced initiatives, including the projects managed by the World Bank.

Currently, the Norwegian program is run internally by a small number of staff. Most of the core procurement and legal services are outsourced.

Historically, Norway has accepted all types of units for purchase in order to meet its Kyoto targets including CERs, EUAs and AAUs.

However, for the second commitment period, Norway unilaterally decided to implement the same quantitative limitations on its purchase program as applied in the ETSs, including:

• HFC projects
• N2O credits from adipic acid production
• some large hydro-electric projects over 20MW.

Norway excludes coal projects that do not involve Carbon Capture and Storage technologies.

For the second commitment period, Norway will restrict unit purchases to those projects that are:

• at risk of discontinuing their operations due to lack of financial support
• newly developed.

Norway may consider further investment in new market mechanisms via multilateral funds including the Carbon Partnership Facility.

Belgium—sovereign fund

Under Belgium’s 2007 burden sharing agreement to meet its Kyoto target, the three regions of Belgium: Wallonia, Flanders and the capital Brussels have separate emissions-cutting goals. Each region had its own credits purchase policy for the first Kyoto Protocol commitment. The Federal state also contributed to the reduction by undertaking domestic reductions and purchasing additional international units from the market.

The Flanders region has participated in World Bank funds such as the Carbon Fund for Europe to obtain units. They have also run tenders.

The Walloon and the Brussels-Capital regions have contributed to the World Bank’s Carbon Fund for Community Development to procure CDM units.

The Walloon region will soon establish a fund that will address a range of climate objectives, including the purchase of international units.

At the Federal level, a ‘Kyoto Fund’ was established in 2002, which is primarily financed by consumer contributions on electricity bills in the order of €25 million per annum. This fund was set up to finance the federal climate policy and was therefore also used to finance the federal carbon credit purchase program. The fund had a purchase target of 12.2 million units, however almost 15 million units were purchased due to low prices.

Federal purchases have been made via 2 tenders targeting the primary market, 1 tender targeting the secondary market, a bilateral carbon fund with the German development bank KfW, an investment in the Hungarian Green Investment Scheme, and a partnership agreement with the Chinese province of Hunan.

The Belgian programme has been varied as both the Federal and individual regions have participated in the market for international units.

The Belgium burden sharing agreement in 2007 established a National Climate Commission which was the focal point for JI projects and also the Designated National Authority for CDM projects.

The regions have mostly devolved purchasing to multilateral funds. The exception to this is Flanders who has engaged the market directly through tender programs.

Belgium uses, ERUs and CERs units for compliance with both the EU ETS and the EU Effort Share Decision. AAUs are also used in Belgium for compliance under the Kyoto Protocol

Units purchased for compliance must now comply with EU ETS restrictions: no HFC-23 projects, N2O credits from adipic acid production, and some large hydroelectric projects over 20MW.

Similarly, as the Belgium is party to the EU Effort Share Decision, units purchased for compliance must comply with EU Effort Share restrictions. However, while the Effort Share does not exclude HFC-23, Belgium has voluntarily restricted the purchase of these units.

Individual regions have also imposed additional restrictions. For instance, in a recent tender, the Flanders region also excluded coal projects that do not involve Carbon Capture and Storage technologies.

The Federal government has also applied strict criteria based on the Gold Standard to evaluate the projects’ contribution to the sustainable development of the host country. The inclusion of this criteria meant that these units attracted a premium over others units.

The Swedish CDM and JI Programme—sovereign fund

The Swedish CDM and JI Programme has been operational since 2002 and has a total budget of about €300 million.

The objectives of the programme are to further develop the flexible mechanisms to help lay the foundation for continued and expanded international climate cooperation, achieve cost-effective greenhouse gas reductions and contribute to sustainable development in the host countries of the projects.

The programme is administered by the Swedish Energy Agency and operates through Sweden’s International Climate Investment Programme (SICLIP).

To date, SICLIP has participated in over 80 CDM and 2 JI projects in 47 countries in Asia, Africa, Latin America and Eastern Europe, as well as through a number of multilateral funds. More than a fifth of the contracted volume comes from projects in LDCs.

Sweden has also contributed to several multilateral CDM and JI funds, including the Prototype Carbon Fund, Nordic Environment Finance Corporations Carbon Fund and Asia Pacific Carbon Fund, and has invested about US$95 million in these funds.

SICLIP will fund up to 40 Mt of CO2-e emissions reductions through the CDM and JI as part of Sweden’s national target for 2020. To date, more than half of that volume has already been committed.

The Swedish Energy Agency has been responsible for the Swedish CDM and JI Programme.

The agency administers projects and undertakes policy work internally for most things (to undertake procurement, project management normally associated with bilateral tenders) but also engages consultants for specific tasks in relation to due diligence or legal services

Other parts of the Swedish Programme were devolved entirely to third parties, including participation in the multilateral funds.

CER and JI units purchases are intended for Sweden’s national target and do not need to comply with the EU ETS restrictions.

Sweden chooses, however, to adopt similar restrictions in the bilateral part of the portfolio including no HFC-23, nuclear, or large-scale hydro.

The Swedish purchase programme has also not engaged in purchases of palm-oil related CDM projects.

The programme has focused on renewable energy, improved energy efficiency and more recently methane utilization (waste management).

The purchases have focused on small and medium-sized projects.

To encourage broader geographical distribution of CDM and JI activities, the units are purchased from a range of regions.

Temporary CERs (tCERs) are allowed if renewed or replaced by an eligible unit prior to expiry. To date, the programme has bought tCERs from one afforestation sequestration project in the form of a string of tCERs.

Netherlands—sovereign fund

The Netherlands Government has operated a purchase program since 2001–02. Its initial target of 100 Mt was gradually reduced to only 30 Mt for compliance in the first commitment period of the Kyoto Protocol.

The Netherlands is not looking to purchase units in the second commitment period.

The Netherlands has engaged in carbon markets in a variety of ways, including:

• direct purchasing through tenders
• contributing to multilateral carbon funds (via the World Bank and other organisations) such as the Prototype Carbon Fund, the Netherlands CDM Facility and the Netherlands European Carbon Facility
• private institutions (via Rabobank)
• a bilateral agreement with Indonesia.

The Netherlands program has involved many governance arrangements and administrative structures over the years.

These have included self-managed funds, partially outsourced projects and fully outsourced initiatives, including the projects managed by the World Bank.

The funds purchased units from most types of UNFCCC-eligible project types, and from the CDM and JI, including HFC23 credits.

The program has also purchased some HFC23 units; however, these have not been retired against Kyoto commitments and are still sitting on the national registry.

The Netherlands has a pioneering history in the carbon market. For instance, through the Prototype Carbon Fund it contributed to projects before the CDM and JI rules were ratified. The Netherlands is also supporting capacity-building in developing countries in their efforts to reduce emissions. This is being achieved via REDD+ projects and the Forest Carbon Partnership.