Jon Queen – Alternative Energy And Climate Change Policy Advisor
Mr. Queen is a “result oriented” alternative energy and climate change advocate with a diversified experience in finance, law, project development, policy consultancy and corporate strategy. He has been a private businessman in the Kyoto Protocol space since 2006. Mr. Queen is a Board Member of the Foundation for the Development of Environmental and Energy Markets (FDEEM) in Ukraine. All inquiries can be directed to http://www.fdeem.org.ua.
Mr. Queen and his FDEEM colleagues are have significant experience with Kyoto Protocol and alternative energy deals. FDEEM team members offer comprehensive services to alternative energy and climate change business market makers, such as:
- Investment Negotiation Support
- Project Conceptual Design
- Policy Support/Lobbying
- Technical Research/Analysis
- Risk Management
- Transaction Legal Services
What is The Kyoto Protocol?
The Kyoto Protocol was adopted at the Third Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) on December 11, 1997. It represents a binding commitment by developed countries to reduce emissions and combat climate change as well as a forward thinking catalyst for new finance and technologies in the clean and renewable energy sector.
Industrialized nations that have both signed and ratified the Kyoto Protocol – referred to as “Annex 1″ countries – must cap their total greenhouse gas emissions to 5.2% below 1990 levels within 2008-2012.
The Kyoto Protocol contains 3 market mechanisms to tackle climate change and to trigger new technology and capital transfer opportunities:
- Joint Implementation: Carbon credit trading (Emission Reduction Units, or ERUs) between Annex 1 countries, such as between Ukraine and the European Union;
- Clean Development Mechanism: Carbon credit trading (Certified Emission Reductions, or CERs) from non-Annex 1 to Annex 1 Countries, such as between China and Japan; and
- International Emissions Trading: Trading national government registry assigned amounts for greenhouse gas emission under the Kyoto Protocol (Assigned Amount Units, or AAUs) between Annex 1 governments to offset their total emission levels as part of their emissions target commitments under the Kyoto Protocol.
FDEEM focuses on items 1 and 3 above, promoting green energy development and climate change business markets in Eastern and Western Europe, particularly Ukraine.
What Is Joint Implementation?
Joint Implementation (JI) permits parties in Annex 1 countries to offset their own greenhouse gas emissions by purchasing ERUs generated by emissions reducing projects in other Annex 1 countries. These ERUs are then used by purchasers to meet their emissions targets set under the terms of the Kyoto Protocol. JI involves projects between Annex 1 countries only, as opposed to the Clean Development Mechanism (CDM) which applies to carbon credit trading between Annex 1 and Annex 2 countries.
Projects must gain approval from Designated National Authorities (DNAs), set up by each participating country. For example, Ukraine’s DNA is the National Environmental Investment Agency and it coordinates its activities with the Cabinet of Ministers of Ukraine and the Ministry of Environmental Protection. For a project to obtain DNA approval, it must clearly reduce greenhouse gas emissions below levels where there had been no project in place.
JI projects in countries like Ukraine can apply for approval and carbon credit issuance under two different processes, referred to as Track 1 and Track 2. Until recently, all JI projects had to go through Track 2 which involves monitoring and review by the Joint Implementation Supervisory Committee (JISC) within the UNFCCC (see below).
Track 2 JI Project Cycle (Source: The World Bank)
Now, however, JI project owners in countries like Ukraine can avoid the international level of JISC involvement by applying for Track 1 JI approval and ERU issuance. Track 1 is similar to Track 2 except that there is no JISC involvement and all monitoring, supervision and issuance is handled at the project’s domestic government level. Many market participants believe that Track 1 will soon become the dominant JI form in eligible host countries.
How Does AAU Trading Work?
Assigned Amount Units are covered by Article 17 of the Kyoto Protocol. Under Article 17 of the Kyoto Protocol, Annex 1 countries can buy and sell parts of their allocated national emissions caps – typically countries will do this as a means to address expected national greenhouse gas cap shortages or excesses between 2008 and 2012.
AAU trades are primarily conducted at the national government level through a sovereign Green Investment Scheme (GIS). Seller countries establish plans whereby the AAUs to be sold are linked to greenhouse gas reducing and climate change related activities. In this way, AAUs transactions can be “greened” or linked to direct climate change improvement activities.
Due to the fact that the Kyoto Protocol is based on 1990 greenhouse gas emissions levels, and the former Soviet Union (and its large energy infrastructure) ceased in 1991, Ukraine and other Eastern European countries are the world’s natural AAU suppliers. Countries like Japan typically purchase AAUs as part of large international investment, lending and green energy initiatives in target seller countries. These AAU transactions are greened by using part of the proceeds to finance climate change and clean/renewable energy related projects between the buyer and seller.
In effect, greened AAU transactions are a new way for nations to invest and develop business in each other’s energy and industrial sectors while simultaneously reducing global greenhouse gas emissions by significant levels. These deals are a leading mechanism for new technology transfer, energy infrastructure refurbishment, and environmental improvement in Eastern Europe. Importantly, AAU trading provides incentives for new general investment in supplier countries and new lines of business during economic downturns.
Typical Questions That Arise During Carbon Credit Transactions
- What type of greenhouse gas emission reduction activities create the subject matter for the transaction? For instance, what is (are) the project name(s), description(s) and location(s)?
- What technical documentation stage is each project at?
- What legal and permit approval stage is each project at?
- Who is the project owner and the project developer, and what track record do they have for undertaking this type of business?
- What is the financing source for the project’s construction and equipment costs? Is financing secure or complete?
- When is the (expected) commissioning date for each project?
- When is the (expected) final approval/registration date for each project, whereby the project can begin generation and delivery of carbon credits?
- What are the volumes of greenhouse gas emission reductions (e.g., ERUs and/or AAUs) for each project? What portions of these volumes are available for sale? If not 100%, then who has rights to the remainder and what priority status is the piece available for sale?
- What are the “get it done” deal transaction terms … whereby if the buyer agrees then everyone can cut the small talk and proceed directly into exclusive contract negotiations?
What Are Green Tariffs?
Green Tariffs are an important complement to carbon credits in the alternative investment space. Countries seeking to promote new alternative energy investment, such as European Union countries and Ukraine also, establish electricity sales price tables that list higher tariffs (and therefore revenues) for alternative energy power producers compared to traditional fossil fuel based power producers.
From a project investor’s point of view, an alternative energy facility business plan must be financially secure and “stand on its own two feet” financially aside from any carbon credit component. Carbon credits are expected and documented, but an investor does not typically invest into an energy power project merely to collect carbon credits prior to 2012. Green Tariffs increase the sales revenues from alternative energy power projects; most importantly, they reduce the payback period and investment risk for such projects in emerging market economies.
Alternative energy projects that were traditionally viewed as difficult or risky for technology, cost or country risk reasons can experience a refreshed level of interest and activity due to higher Green Tariff revenues. It is clear, for instance, that Ukraine’s new Green Tariff has sustained foreign investors’ interest in its clean and renewable energy markets during the present financial downturn.
Countries develop Green Tariffs on an independent basis. In Ukraine the Green Tariff is set by the National Electricity Regulatory Commission (NERC). This Green Tariff covers alternative energy production facilities such as wind power plants, hydropower, biomass, biogas, and other methane utilization projects (except blast-furnace and coking gases). There is no present capacity cap on Ukraine’s Green Tariff except for hydropower plants, where an eligible facility cannot exceed 10 MW in capacity.
Alternative Energy Investment Conditions Have Rarely Been Better
Carbon credits and Green Tariffs present excellent incentive conditions for new alternative energy project finance. In countries like Ukraine, where the Green Tariff roughly doubles historic project revenues and a streamlined Track 1 JI approval process eliminates international bureaucracy, such conditions have never been better.
Please contact either the National Agency for Environmental Investments of Ukraine or the Foundation for the Development of Environmental and Energy Markets to discuss specific opportunities and to become involved in this exciting growth industry.