Intervention by State Secretary Geir Axelsen, Ministry of Finance

Miniseminar on CDM
22 May 2008-05-21

Thanks to the speakers for very valuable input to our analysis of the Clean Development Mechanism.

To start with I would just like to recall the elements of the Government’s climate strategy of relevance to the Ministry of Finance operation in the carbon market.

Norway has decided to outperform its Kyoto-obligation by 5 million tons of CO2 equivalents annually in the 2008 to 2012 period. By 2020 Norway will overfulfill by 30 per cent and in 2030, subject to an acceptable international agreement, Norway will become carbon neutral.

Massive measures are, and will be, implemented to reduce greenhouse gas emissions at home. In addition we have committed substantial amounts to measures in other countries through the flexible mechanisms of the Kyoto Protocol. 

Accordingly, we have a program of purchases of 30 to 35 million tons of CO2 equivalents during the first Kyoto Commitment Period (2008-2012). On the margin, this program is actually equivalent to the overfulfilment of Norway’s Kyoto-obligations.

Whereas the Ministry of Environment is responsible for the regulatory side, working through the UN Framework Convention on Climate Change, the Ministry of Finance is the market participant. As a participant the Ministry of Finance can contribute to the development of a market that is just about to mature, and which during its infancy has been subject to serious criticism.

We take a keen interest in the development of the UN regulated market. We will not only act as a responsible participant, we will on the basis of our insight give input to the Ministry of Environment so that it can be better positioned to contribute to the development of a regulatory framework that will support the objectives of the CDM. We are confident that today’s seminar will add to our analysis of issues at stake.

As a responsible market participant we live by the book. Our first purchase was based on an international tender, in accordance with the rules for public procurement.  The decision to negotiate an agreement on a Chinese hydropower project is based on the parameters of the tender and we have made a decision upon a thorough analysis of the environmental element of the project. We have not been able to fully analyse the issue of additionality. This is the key element in the analysis of the Executive Board and the jury is still out. There is of course a possibility that the EB will decide that this project is not additional.

We chose to do it in a different way in our second round this March. We have lowered the threshold for submitting projects and have a more flexible approach than the formal. We have accordingly received offers from the whole spectrum of the market. It is particularly encouraging that there are several proposals from smaller countries, including countries in Africa. China and India are the main producers of CDM projects today, and will probably continue to be so for good reasons. Still, we would like to see more projects from smaller countries and from Africa in particular. We are therefore actively looking for potential projects in countries that have no or little experience with CDM projects.

A major part of the proposals we have received are in an early stage of project development. The Ministry can enter into contracts also for projects in an early stage - for the delivery of future Certified Emission Reductions against a fixed price. This may be important for a project developer in order to secure investment funding for a project.

In assessing the proposals we  use consultancy from Point Carbon – based on their large data base on CDM – to assess the commercial risks of the proposals and to indicate what may be a fair price in the emission trading market. In assessing the delivery risk, we also take into account factors like

• Social and environmental impact in the host country
• Thrustworthiness and experience of project counterparties
• Host country status (investment climate and CDM institutions)
• Expected revision and performance
• Methodology and project approval outlook
• Project construction, implementation outlook

We regard ourselves as an attractive buyer in the emission trading market: The way we operate, contribute in our view to the development of an internationally recognised system for emission trading.

How the system is being practiced is, however, still not perfect. It is therefore important that we participate in the international debate on how to further improve the system. This Ministry will cooperate closely with Ministry of Environment in this regard, and feed in our experiences from working on CDM project proposals.

Together we have a responsibility to make sure that the system contributes to maximise emission reductions of Green House Gases – as the primary aim of the Clean Development Mechanism. I welcome critical voices and discussion on how to achieve this through further improvement of the practice of the system.