issue 5.0, New Values Newsletter

To read the English version of the New Values Newsletter follow the link below.

In this issue:

1. Is CO2 overtaking NOx?
CO2 was already looking more like a teacher’s pet. But now that Secretary of State Van Geel plans to unlink NOx legislation and CO2 legislation, NOx seems to be getting a place at the back of the class.

2. New Values News
We have renewed our websites, are setting up the CO2 platform and have developed demo applications for our platforms. Take a look.

3. COOs go international
A major step was recently taken towards international trading in COOs. A new trading system and a new standard entered the trading stage almost simultaneously.

4. Jos Cozijnsen keeps track of Europe
You are probably already familiar with him: Jos Cozijnsen, the man behind emissierechten.nl and guest speaker at various meetings on emissions trading. Starting from today he will be sharing his opinions with us in a monthly column. To begin with: keeping track of Europe.

5. CO2 and NOx transaction registers
On 19 March the Ministry of Housing, Spatial Planning and Environment organized a workshop on the hows and whys of transactions registers for CO2 and NOx emissions trading. New Values was there and presents a report.

6. Diary
It’s important to stay up to date in a market that is continually subject to change. New Values keeps you informed about interesting congresses and workshops in the Netherlands and abroad.

7. Glossary
English jargon, endless abbreviations and acronyms. What do they stand for and in what context are they used? Every month New Values turns the spotlight on a new term.

1. Is CO2 overtaking NOx?

During the general assembly of the Lower Chamber on 31 March this year, Secretary of State Van Geel of the Ministry of Housing, Spatial Planning and Environment announced that the NOx legislation will be unlinked from the CO2 legislation. This move is intended to ensure that the new section of the Environment Management Act that governs emissions trading, the CO2 permit, the appointment of the Emissions Authority and the decision on CO2 allocation will be completed first. The provisions governing NOx will be dealt with later.

The reason for this delay is that the CO2 legislation must be in force by 1 October 2004. Indeed, the allocation orders must have been sent to the companies by this date. Moreover, there are said to be unsolved legal problems regarding NOx. Van Geel is asking the Lower Chamber to do its utmost to give this legislation priority. The publication of the recommendations by the Council of State and the amended legislative bill are expected to appear during the summer. As a consequence of these developments NOx trading is in danger of being sidelined.

2. New Values News

Renewed websites
In recent weeks we have been busy updating our websites. The sites of EEeXchange, CertiChange and New Values are now fully bilingual and ready for an international public. What’s more, we have geared the information contents of EEeXchange and CertiChange to one another and to New Values as well. And it’s not just the shop front that has been renewed – we have adjusted the technology in the background too. This enables us to better coordinate the sites with each other and thus to respond faster to new developments and to your needs.

It is possible that your computer still has the old sites in its memory. You can remedy this by clicking on ‘Refresh’ while keeping the Shift key pressed down. This will reload the entire website.

Do the demo
New Values gives you access to low-threshold trading platforms. If you would like to see for yourself how such a platform works, then use our demo applications. There’s one for EEeXchange and one for CertiChange. In order to view the demos you need log-in data – which you can receive from us. Click on one of the following links for more information:

EEeXchange
CertiChange

Development of the CO2 platform
The development of the new New Values CO2 platform is in full swing. The name is almost ready, the product identity is being created and interesting foreign contacts have been made. If everything goes according to plan, then the first transactions will be possible in October 2004.

You can already register for one of the workshops for the CO2 platform. Check the diary for the exact workshop dates.

3. European standard for COOs
Events move fast within the world of renewable energy certificates. While last month we reported that it was high time for a European standard for trading in Certificates of Origin, this month a first international transaction has already taken place on the basis of a new system. In the week of 22 March a Finnish trader got the ball rolling with a transfer of foreign Certificates of Origin, via the Finnish Transmission System Operator, to the E-certificates system of CertiQ. This involved some 88,500 MWh, generated by biomass installations. Since then more than 325,000 Certificates of Origin have already been traded.

The international transfers could be easily effected because, simultaneous to the international implementation of the E-certificates system, on 18 March in Lausanne the Association of Issuing Bodies (AIB) – of which the New Values partner CertiQ is a member – reached agreement on a European standard. The new international standard is known as the European Energy Certificate System. And because the Issuing Bodies are all part of national governments, legal support is immediately guaranteed. “The agreement is an important step forward”, according to Jan Vorrink, the director of CertiQ. “Prior to this the European Directive on Renewable Electricity lacked standards and thus compatibility of systems was virtually impossible.”

The next step towards a European market for green electricity is the use of Certificates of Origin for calculating standards for renewable energy within the EU member states. “The European Commission is a major proponent of this plan,” explains Peter Niermeijer, president of RECS International. “But before such a system can be implemented the member states have to conclude an agreement. Only when the country exporting the certificates no longer regards these as part of its standards can the other importing country credit the green electricity to its account“, says Niermeijer.

Imported Certificates of Origin can, under certain conditions, be eligible for the partial ecotax exemption as is also granted to Dutch Certificates of Origin. In order to be granted this exemption the COOs must originate from an installation that is known to CertiQ. To this end the producer and the importer must submit an import declaration.

Only installations in countries where the same degree of liberalization applies can be eligible for the ecotax exemption. Moreover, the produced quantity of electricity must be physically fed into the Dutch grid.

4. Jos Cozijnsen’s column

Keeping track of Europe. But who’ll keep Europe on track?

Who else than the former professor, lawyer for public law and EU negotiator Brinkhorst could be better suited to inform members of parliament and the public about the rules of the Internal Market? During the assembly in the Lower Chamber on 31 March, the VVD and the CDA advised the government to add a clause to the National Allocation Plan (NAP), which is to be sent to the European Commission by 16 April at the latest. This clause would mean that if we don’t like the Allocation Plans of other member states the party will be off: then no NAP at all.

Brinkhorst explained that this wasn’t possible. After all, in a number of fields – including emissions trading – the EU should be regarded as our own territory: “We have transferred the authority to assess Allocation Plans and the entire translation of the Emissions Trading Directive into national legislation to the European Commission”; gulp.

But it got even worse: Van Geel waved a letter from European Commissioner Wallstrom in which she wondered what the Netherlands was up to: “the entire European economy is shrinking and the PLC Netherlands is very generously allocating emission rights: that looks like unlawful State assistance”. The PvdA agreed with her: “The Netherlands is right on the brink with the allocation plan; we can just about permit that; but you can also fall off the edge.”

Personally I too assume that, because we have a European Market, European emissions trading can work well. The Internal Market rules and rules on competition ensure that the ‘level playing field’ is not disrupted. This means that the allocation of emission rights to, for instance, a Finnish, a Dutch and a Polish paper company should ultimately not diverge too far.

But the Emissions Trading Directive specifies that with regard to the first NAPs (2005-2007) the ‘level playing field’ check will be carried out by the Commission after the NAPs have been submitted. For the second period (2008-2010) the European Commission will standardize the allocation method beforehand.

We can already see that the translation of the term ‘installation’ varies quite a lot within the EU and that some members states are keeping their chemical or steel sectors outside the emissions trading system; I don’t actually know whether that is favourable or not for companies. But if a bail-out clause is not an option, then the Netherlands should stand up for the Dutch interpretation in Brussels, in word and in writing, and keep Europe on track. On this basis then indeed let the Commission deal with differences in competition through allocation.

5. NOx/CO2 emissions trading registers
The transaction register is an important component of emissions trading. The Netherlands Emissions Authority enters transactions in NOx and/or CO2 emission rights in the register, and a transaction is not legally valid until it has been recorded in the system. The design and the functioning of the registers thus occupy a crucial position in the process of emissions trading in general. Indeed, without working registers it would be impossible to transfer emission rights. This prompted the Ministry of Housing, Spatial Planning and Environment to devote a workshop to the theme on 19 March this year. New Values was there and has summarized a number of key points.

According to the draft directive of the European Commission as now available, the CO2 register must work according to the following basic principles:

- Each EU country must have a National Register by 30 September 2004;
- The National Register in the Netherlands is managed by the NEA;
- The National Register is a digital web-based Register;
- Account holders can carry out online transactions, but no financial transactions take place in the National Register, nor registration of sums of money either;
- All transactions between and within countries are checked and recorded by a European Community Independent Transaction Log (CITL).

Five forms of account are represented within the CO2 register:

1. National Holding Account – for holding rights in NL
2. National Cancellation Account – for the cancellation of rights
3. National Retirement Account – for surrendered rights
4. Operator Holding Account – previously created accounts for the organizations
5. Persons Holding Account – persons may have accounts opened by the NEA

The NOx register operates as far as possible parallel to the CO2 register within the framework conditions created by the system of NOx emissions trading. The differences between the two systems can be summarized as follows:

NOx trading system CO2 trading system

Trading only between recognized organizations Trading between recognized organizations and third parties
In effect, rights assigned subsequently (PSR) Rights assigned beforehand (allocation)
Trade before assignment within set limit Trade after assignment within account balance
Rights applicable to specific year Rights applicable to period
Loans and savings possible within set limit Loans and savings impossible
Rights not numbered Rights assigned unique numbers
National checks National checks and EU checks

Following the presentation of the intended functioning of the transaction register, a discussion arose among the participants. Various subjects were touched on. Among other aspects, questions were asked about the degree to which the register is open to third parties, the speed with which a transaction takes place, the reason why the transactions are double-checked (both nationally and internationally), the liability if something goes wrong in the sequence of steps and the requirements set for a ‘persons holding account’. It was also concluded that it is difficult to obtain a good indicator for market liquidity from the register because the register does not record any prices.

Many of the discussed points will be included in the discussion of the directive in Brussels. There are also a number of points that cannot be answered at the moment. However, there is now more clarity on the processing speed for a transaction: this will probably be between 1 and 15 seconds. With regard to the openness of information, the directive of October 2003 will be observed: daily disclosure of contact persons with an account in the register and annual disclosure of information regarding acquired and transferred emission rights per account holder.

In a few months’ time the Ministry of Housing, Spatial Planning and Environment will be arranging a new discussion of the transaction register. In addition a large-scale demonstration will be initiated, enabling practice of all aspects of emissions trading. New Values will keep you informed!

6. Diary

Carbon Market Insights
On 20 and 21 April Point Carbon is organizing the Carbon Market Insights congress in the Meervaart in Amsterdam. The congress features speakers from such organizations as Shell, PWC and the European Commission.

Climate Change Conference
On 11 and 12 May 2004 the second annual Climate Change Conference is being held in Brussels.

Kluwer Study Day
On 18 May 2004 Kluwer is organizing a Study Day on Trading in Emission Rights, to be held in the NH Atlanta Hotel in Rotterdam. The gathering will deal with such subjects as the Kyoto Protocol, European aspects, national implementation and contracts.

New Values Workshops
New Values regularly organizes workshops for CertiChange and EEeXchange.
Later this year these will be joined by workshops for the CO2 platform, currently still under development. All practical and legal aspects of trading in Certificates of Origin or emission rights are dealt with at these events. You can also carry out pilot trading through the platform, and thus experience for yourself how simply it works!

The New Values workshops are free of charge and take place in Media Plaza Utrecht from 9.30 am to 12.30 am.

Would you like more information, or to register? Then contact Monique Broekhoff,
tel. 020 - 305 40 73 or monique.broekhoff@newvalues.net
Please don’t forget to state your name and company details in the mail.

The next workshops will take place on:

CertiChange
Thursday 6 May 2004

EEeXchange
Tuesday 1 June 2004

CO2 trading (name of platform to be announced)
Wednesday 7 July 2004

7. Glossary

Clean Development Mechanism (CDM)
The purpose of the Clean Development Mechanism is to assist third-world countries with sustainable development. Moreover, companies can set off the results against their own domestic obligations for greenhouse gas reduction when this involves a project that would otherwise not be carried out. This is attractive because achieving reductions of greenhouse gases in third-world countries is often significantly cheaper than in, for instance, the Netherlands. The difference can quickly amount to between three and five euros per ton.

Monitoring methods are being developed in order to make the CDM reliable and practicable. The CDM Executive Board supervises the process and issues the certificates, following verification. The World Nature Fund is developing a Gold Standard for CDM projects that meet an extra requirement (such as renewable energy, innovation, etc.).

Companies will soon be able to acquire extra emission rights by carrying out CDM projects or by buying CDM certificates. The European Council, the European Parliament and the European Commission are currently engaged in negotiations. A new directive, to be formulated before the start of the summer, will create a link between the European emissions trading system and the CDM.

CDM projects that are chiefly government funded are already being carried out. Once the new directive has been issued, companies can enter the market themselves to buy emission rights. Such a directive may well lower the European market price for a ton of CO2 and increase the size of the market.