A handful of New Zealand companies are early participants in the Emission Reduction Unit (ERU) market, with four windfarms and two landfill gas site projects receiving 616,000 ERUs from 4.5 million issued so far worldwide.

Based on a price of $NZD25 a unit, they are worth $15.4 million.

Hungarian-based Vertis Environmental Finance expects a further 140-150 million ERUs to be generated by 2012, said chairman James Atkins.

After that, emission reduction projects in committed countries (including New Zealand) will not be able to generate compliance credits under the joint implementation (JI) mechanism that arose from the Kyoto Protocol.

Interest was building in the units, although most international markets had been trading EU Allowances (EUAs) and Certified Emission Reductions (CERs), Mr Atkins said.

Last week, industry players told NBR most New Zealand companies would “stick to their knitting” and wait until carbon trading was more widespread before participating and outstanding legislation related to the ETS was passed.

ERUs

Issued as a result of investment projects under a Kyoto Protocol mechanism called joint implementation (JI), ERUs were starting to come on to international carbon credit markets as projects achieved verified reductions, generating ERU credits.

Governments, institutional carbon funds or Japanese companies have bought most of the ERUs issued so far, under bilateral deals.

In the next three years, about 100 JI projects are expected to reach the maturity needed to issue ERU credits, mostly in Central and East Europe, along with New Zealand, France and Germany.

So far, ERUs have been issued from 27 projects in the Czech Republic (3), France (2), Germany (2), Hungary (6), Lithuania (1), New Zealand (6), Poland (1) and Ukraine (6).

Vertis, which completed the first ever ERU exchange transaction on September 30th, selling 1,000 at €11.95 each ($NZD25.14), said ERU-generating projects were likely to significantly increase, with Russia deciding on its climate change strategy.

Most developing countries without any binding emission reduction commitments used the clean development mechanism (CDM), as opposed to the JI.

“JI projects are happening in countries where it is often very difficult to make changes to existing infrastructure,” Mr Atkins said.

“These countries had to establish their own regulations and authorities for managing JI projects – whereas CMD is centrally managed by a body of the UN. For this reason, among others, JI projects are now only starting to generate emission reductions, which can now be sold on the markets in the form of ERUs.”

Copenhagen and beyond

But Vertis said the incentive to start new JI projects was fast disappearing, because 2012 was the last year credits could be issued from the projects.

“The market is no looking to the Copenhagen Summit to see what happens next,” Mr Atkins said.

“If developing countries agree to come on board and commit to reductions, CDM will not be relevant for them anymore; this is why there should be something like a JI mechanism after 2012.

“We urgently need an agreement by the politicians in Copenhagen to continue the process into the future.”