Climate Change Leadership Forum report number: 10

Opportunities for New Zealand businesses via the Clean Development Mechanism

Briefing for the Climate Change Leadership Forum

Prepared by the Ministry for the Environment
Date: 13 June 2008

Background to the Clean Development Mechanism

The Clean Development Mechanism (CDM) under the Kyoto Protocol provides for ‘emission reduction’ projects. These projects assist developing countries (non-Annex 1 countries) in achieving sustainable development and generate Certified Emission Reductions (CERs).  The CERs are transferred to the investing developed country (Annex I countries), or company within the country, and are used to help meet greenhouse gas emission targets. 

Projects that reduce greenhouse gas emissions must meet specific conditions set out by the UNFCCC CDM Executive Board and must be additional, ie beyond business as usual.  Opportunities for CDM projects are virtually unlimited as long as reductions remain additional.

What are the opportunities for business?

The CDM is a market-based mechanism and was designed with the private sector in mind.  It is within the private sector that emissions reductions will be made and traded.  Commercial opportunities through the CDM for New Zealand businesses are outlined in the table below:

Business

Opportunities

Compliance buyers – companies that will be points of obligation in an Emissions Trading Scheme

Reduce compliance costs by purchasing CERs on the primary or secondary market

Traders

Profits from buying and selling CERs

Support services: brokers, lawyers, consultants, financers

Provision of time and expertise

Technology providers: equipment sellers, technical consulting/engineering design

Provision of products to new or existing markets, provision of  time and expertise

Limited uptake of opportunities through the CDM by New Zealand businesses has occurred to date.  Some companies that will be points of obligation in an Emissions Trading Scheme have started to invest in the CDM primary market for compliance, trading and technology provision.  Traders of CERs remain dominantly European.  Some New Zealand brokers, lawyers and engineering companies are involved in CDM project development.  Limited technology providers are involved in CDM projects, but more are investigating involvement.

Types of CDM projects

Annex A of the Kyoto Protocol specifies categories for emissions reduction activities:

  • Supply-side and end-use energy efficiency improvement
  • Renewable energy
  • Fuel switching
  • Agriculture
  • Industrial processes
  • Solvent and other product use
  • Waste management
  • Sinks (afforestation and reforestation).

What is the government currently doing?

Ministry of Agriculture and Forestry

Under the Climate Change Business Opportunities work programme1 MAF is investigating how they can assist in developing CDM methodologies for innovative New Zealand agricultural technologies.  

By assisting development of CDM methodologies for grazing agriculture it is intended to remove ‘first-mover’ barriers and help position New Zealand as a world leader.  Potential technologies could include nitrification inhibitors, pasture improvement, digestibility of forage, protein levels in forage and increased soil carbon uptake.

MAF is identifying parties, such as research institutions and Governments, through LEARN (Livestock Emissions and Abatement Research Network) interested in developing methodologies. There will be discussions at the Bonn climate change meeting and at the LEARN Uruguay workshop on grazing livestock systems.

The MAF programme could offer opportunities for New Zealand businesses already expanding farming operations into South America, to consider agriculture-related CDM projects.

Ministry for the Environment

Role as Designated National Authority

All countries wishing to participate in the CDM must appoint a Designated National Authority (DNA). The DNA serves as a point of contact for CDM in a country and evaluates and approves investor involvement in CDM projects.  MfE is the DNA in New Zealand and is currently preparing guidelines on the application process for New Zealand companies wishing to invest in CDM projects.  As DNA MfE will evaluate and approve this investor involvement in CDM projects.

Involvement with UNFCCC fora
MfE is involved in various UNFCCC fora, including input into the international negotiations on the CDM post-2012, and the DNA Forum, which allows DNA to exchange views and bring issues to the attention of the CDM Executive Board.

Facilitating engagement in the CDM
MfE is involved in raising the awareness of businesses of the opportunities through the CDM.  This is being undertaken through:

  • Contributing funding towards a CDM rulebook developed by the international law firm Baker & McKenzie.  The CDM rulebook is a highly valued CDM resource and is available free to the public at www.cdmrulebook.org
  • Providing clear information about what the CDM is for and what businesses need to do to be involved
  • Facilitating buyers and sellers of emission units to meet through Carbon Market workshops
  • Promoting the CDM through New Zealand’s Environmental Agreements with developing countries.  This has involved promoting private sector engagement in CDM projects in Chile.  Funding was given to representatives from ANZ and Contact Energy to attend a CDM conference in Chile and to meet project developers and technology providers.

Further work

Future work under MAFs work programme will focus on raising awareness and understanding of carbon market opportunities, developing industry project development expertise, and providing the structures and guidance to enable informed participation by land-based sectors in the carbon market.

MfE will continue to look at how the government can support business opportunities through the CDM.  This could include supporting technology firms in the energy efficiency, renewable energy or industrial sectors and would complement MAF’s work for the agricultural sector.

1 Sustainable Land Management and Climate Change Plan of Action