AAU%20trading%20standards:%20the%20Latvian%20Approach

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AAU trading standards the Latvian Approach

• Ilze Pruse
• Head of the Pilot Projects Implementation
  Division of the Climate and Renewable Energy
  Department
• Ministry of the Environment, Republic of Latvia

2
Introduction

• Latvia intends to sell 8 10 million of its
  Assigned Amount Units (AAUs) through pilot
  transaction in 2008.
• The Ministry of the Environment has started
  negotiations with a limited number of reputable
  buyers with the intention to sign the pilot
  forward AAUs sale by June 2008 to gain experience
  and establish transaction standards for future
  deals.

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Main points of presentation

• Latvias participation in IET under Article 17 of
  the Kyoto
• Market position of Latvia
• Legal framework and earmarking of revenues from
  AAU sale
• GIS fund structure and institutional arrangements
• Environmental integrity monitoring, auditing
  and reporting of greening results
• Indicative greening programmes
• Conslusions

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Implementation of the Kyoto Protocol by Latvia

• Current state of affairs
• Eligibility
• Cabinet of Minister decision on April 12, 2006 of
  participation in IET under Article 17 of the
  Kyoto protocol
• Earmarking 40 million of AAUs to be potentially
  available during the first commitment period
• Mandate to Ministry of the Environment to work
  out legal, institutional system of IET by May
  2008.

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Decision about strategic allocation of AAU assets
Buyer country
Host country
Actual emissions
Domestic actions
Kyoto target
Traded Green Investment Scheme
Purchase of ERUs
Surplus AAUs (potentially tradable)
Purchase of AAUs
Mln ton CO2E
Kyoto target
Reserve
Reserve for JI projects
Actual emissions
Compliance (Including commitment period reserve)
Mandatory set-asides (non tradable
1990 1995 2000 2005 2008
2010 2012 2015
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Market position of Latvia (1)

• Latvia can be a fast track provider of credibly
  greened AAUs with low risk and low transaction
  costs
• Comparative strengths of Latvia
• Robust surplus estimates
• Advanced in compliance with Kyoto eligibility
  criteria
• Low reputational risk
• Solid legal background
• Strong political commitment to efficient,
  transparent and accountable GIS
• Efficient institutions of public and private
  sector
• Terms tailored to buyer expectations

7
Market position of Latvia (2)

• Comparative weaknesses of Latvia
• Relatively small size of tradeable headroom
• Limited opportunities for greening with direct
  reductions of GHG

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Key elements of the Law (1)

• Ownership of AAUs
• Authorisation to the Cabinet of Ministers to make
  decisions on each sale of AAUs, including the
  price and specific conditions
• Authorisation to the Ministry of Environment and
  Ministry of Finance to prepare the sale of AAUs,
  including
• Participation in negotiations
• Drafting of an AAU Purchase Agreement
• Authorisation to the Minister of Environment to
  sign the AAU Purchase Agreement after the
  approval of the Cabinet of Ministers is received

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Key elements of the Law (2)

• Principles for using the revenues from the sale
  of AAUs, including a clear provision stating that
  all income from the sale of AAUs shall be
  earmarked for greening projects
• Special budgetary arrangement
• Money from the sale of AAUs is transferred to
  income budgetary account in State Treasury
• Disbursements are organised under the budget
  programme Climate change financial instrument
• In annual budget the financing for the Climate
  Change financial instrument is ensured in amount
  of received and unused proceeds from AAU sales in
  previous years (carry-over provision)

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Key elements of the Law (3)

• Institutional set up for managing GIS fund
• Principles for environmental and financial
  monitoring, and reporting
• Provisions for supervisory function performed by
  the Ministry of the Environment on behalf of the
  Government
• Provisions for transparancy and accountability to
  public ensured by Advisory Council
  (representation by relevant stakeholders,
  including state institutions, non-governmental
  organisations and buyers)
• Delegation to the Cabinet of Ministers to pass
  secondary legislation on the implementation of
  IET (establishing a green investment scheme)

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Implementation model

• Latvia will propose a programmatic model for the
  GIS.
• Most GIS programs will consist of a large number
  of small projects.
• Therefore Latvia would propose to buyers
  wholesale greening programs backed by a
  transparent, accountable and efficient national
  mechanism to retail AAUs revenues to multiple
  project owners.
• Latvia can offer robust GIS implemented by
  competent national institutions that require only
  minor and targeted institutional strengthening.

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Contract and Payment Structure
State treasury (budget income account)
Buyer (AAU PA conditions)
Commercial Banks
Instruction on Release of Payment
Budgetary programme Climate change financial
instrument
Loan Agreement
Service payment
GIS Fund Manager
Project Beneficiary
Ministry of the Environment
Financing agreement
Management contract
Legal agreement
Performance-based grants paid to projects upon
delivery of verified milestones and results
Payment flow
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Environmental integrity monitoring, auditing
and reporting

• Monitoring will be undertaken in accordance with
  relevant standards under the International rules
  and GIS rules and regulations pursuant to the
  Monitoring principles
• Monitoring principles (applied annually)
• (1) financial audit
• (2) procedural conformity of GIS
• (3) assessment of greening results
• Report to the Government by April 1 every year,
  to buyers by June 1.

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Use of revenues (greening)

• The Latvian government will ensure that every AAU
  sold
• will be used for greening purposes which
  means
• increase of renewable energy use
• improvement of energy efficiency
• application of innovative low carbon technologies
• capacity building for climate change policy
  design an implementation

15
Sectoral breakdown of greenhouse gas emission
sources in Latvia in 2004
EU ETS opertaors represent 27 of total emissions
16
Climate and energy indicators, Latvia
Avots LIAA
17
Energy intensity (2005)
Source IEA
18
Source IEA
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Indicative greening pipelines (1)

• Energy supply-side management
• Promotion of biomass use including CHP plants
• Biogas recovery and use
• Solar heat, geothermal, small hydropower plants
• Energy demand-side management
• Improved energy efficiency in buildings
• Efficient public lighting
• Heat distribution in DH systems
• Industrial power intensity
• Integrated projects Heat production
  distribution final use

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Indicative greening pipelines (2)

• Other
• Lower carbon transportation systems
• Other low and zero- carbon emission technologies
• Capacity building for climate policy development
  and implementation
• Capacity building for GIS management

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Conclusions and the way forward

• Climate change is environmental and economic
  prerogative and a huge task of political
  engineering
• GIS as an instrument for structural change to
  deliver deployment and scaling up of climate
  change mitigation technologies
• In countries with limited possibilities of direct
  GHG reductions it is a leverage for low carbon
  economy
• GIS brings co-benefits of mitigation and opens
  new business opportunities
• GIS can be a testing ground for new generation of
  post-Kyoto flexible mechanisms
• more programmatic
• lower transaction costs
• relying more on certified host country systems

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Further information

• Ministry of the Environment
• Republic of Latvia
• Phone [phone]
• valdis.bisters_at_vidm.gov.lv
• www.vidm.gov.lv