Meridian sells $5m credits to Dutch

By BRIAN FALLOW economics editor

Meridian Energy has secured a $5 million deal with the Dutch Government to sell it carbon credits arising from its planned wind farm at Te Apiti, one of the first carbon trades by a New Zealand company.

Subject to milestones being reached, Meridian should see the first Dutch cash within the next year or two.

The Kyoto Protocol allows one member country, in this case the Netherlands, to earn carbon credits by providing finance for some climate-friendly development in another Kyoto country.

The Dutch Government could later use those credits towards covering any excess in the Netherlands' greenhouse gas emissions over their agreed target.

Meridian calculates that in the Kyoto Protocol's first commitment period, 2008 to 2012, its 90MW wind farm at Te Apiti would avoid about 1 million tonnes of CO2 emissions.

But Meridian can only sell units issued to it by the Government, which is accountable for New Zealand's emissions and is reluctant to take the risk that emission reductions might be less than that.

It has agreed to issue Meridian up to 530,000 units. The Dutch Government has agreed to pay about €5.5 ($10.40) a tonne.

It carries the risk that the Kyoto Protocol will not come into force, which could reduce, possibly to zero, the value of the credits.

It is the first such deal the Netherlands has done with a country outside central or eastern Europe.

One of the attractions of the Dutch approach to developers such as Meridian is that up to 50 per cent of the value agreed can be released to the company before the start of Kyoto's first commitment period in 2008.

That increases the value compared with trades which will be settled only when, and if, the first commitment period begins, said Tracy Dyson who has headed the project for Meridian. Meridian calculated the emission savings by first taking the existing mix of electricity generation in New Zealand and calculating how much carbon dioxide is emitted on average for every kilowatt hour generated.

The ratio is low by international standards because most generation is from hydro dams or geothermal fields with no CO2 emissions.

But by 2030, with Maui gas almost exhausted, future gas supplies uncertain and electricity demand continuing to grow, the generation mix would probably include coal-fired power stations.

By drawing a straight line between the status quo and that scenario, the likely emission factor in 2008-2012 can be worked out, and the CO2 discharges avoided by the wind farm can be calculated.

The World Bank reported this month that about 70 million tonnes of CO2 equivalent have been traded in the global carbon market this year, compared with 30 million tonnes last year.

Trading system

* Carbon credits - tradeable rights to emit greenhouse gases - are the currency of the Kyoto Protocol.

* If the protocol comes into force the Government will have to hold enough credits in 2013 to cover New Zealand's emissions of greenhouse gases in the period 2008 to 2012.

* It starts with enough to cover national emissions in 1990 and will earn more for the CO2 taken up by forests planted since then.

* Wind farms reduce the emissions the Government will have to account for. It has agreed to issue some of its credits to wind farm generators, Meridian and Trustpower so they can sell them on the international market.

* The Dutch Government is to pay Meridian around $10 a unit for the credits, and is taking the risk that Kyoto may fall over.