The Netherlands EBRD Carbon Fund

The government of the Netherlands and the EBRD have created one of Europe’s first carbon trading funds. In 2004-2006 the fund will invest €32 million in climate-friendly projects.

Through the fund, signed on 27 October 2003, the EBRD will purchase greenhouse gas emission reductions, known as carbon credits, for the Netherlands. This will be done using the Joint Implementation mechanism of the Kyoto Protocol.

Carbon credits

The temperature of the earth has risen significantly over the last decades. There is worldwide consensus that man-induced emissions of greenhouse gases are causing this temperature rise. Agreements were made at the UN Climate Conference in Kyoto in 1997 to reduce emissions of greenhouse gases.

Carbon credits are created when a project reduces or avoids the emission of greenhouse gases, such as carbon dioxide (CO2) and methane (CH4). The carbon credits are measured against a baseline.

Credits can be created, for example, by:

• Rehabilitating a district heating system, reducing the amount of fuels used or CO2 emitted.
• Creating a landfill that captures and uses methane, which previously was emitted into the air.  

The Kyoto Protocol Joint Implementation mechanism allows industrialised countries to trade these project-based credits.

Benefits of undertaking a Joint Implementation project

By selling carbon credits, a company can attract additional revenue to the project. This, in turn, makes the project more bankable and/or enhances the equity returns. The EBRD and other providers of financing may consider these additional cash flows when evaluating a company’s capacity to repay debt and/or provide a return on equity.

Eligible types of projects include:

• Renewable energy projects such as solar, biomass, wind, and geothermal initiatives.
• Energy efficiency projects, on both the supply or demand side, that reduce consumption of fossil fuels.
• Recovery and use of methane from, for example, waste landfills and waste-water treatment.
• Switching to fuels with lesser greenhouse gas intensity, for example from coal to natural gas.

Eligibility criteria include, but are not limited, to:

Location
Projects can be located in Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, the Slovak Republic, Slovenia and Ukraine.

EBRD financing
The EBRD must have financial participation in the company or project.

Contract volume
The contracted volume must be between 250,000 and 1,500,000 tonnes of CO2 equivalent per contract or portfolio of projects.

Payments from the fund

Through the fund, an Emission Reduction Purchase Agreement will be established with the project company. This will provide for the forward purchase of credits, at a fixed price. The price will be negotiated on a case-by-case basis and will be a function of the country and project risk.

The fund may make advance payments of up to 50% of the contract value. The remaining 50% will be paid on delivery of verified carbon credits according to UN Framework Convention on Climate Change standards in 2008-2012. With approval from the host country, carbon credits generated before 2008 can also be sold.

Developing a Joint Implementation project

From concept through to implementation there are many steps involved in establishing an Emission Reduction Purchase Agreement. All along this process the EBRD can assist with the development of the project.

Step 1: Project identification

• Preparation of a Project Idea Note  (0.1Mb).
• Obtaining a Letter of Endorsement  (0.1Mb) from the host country.
• Signing a Project Mandate Letter for the further development of the JI part of the project.

Step 2: Project design

• Preparation of a Project Design Document
• Validation of the Project Design Document by an independent entity.
• Obtaining Letter of Approval  (0.1Mb) from the host country.

The EBRD can financially assist with project design.

Step 3: Contracting

• Negotiation and signing of an Emission Reduction Purchase Agreement with the Netherlands EBRD Carbon Fund.

Development of the Joint Implementation part of a project may take a couple of months to half a year. Clients of the Bank are not obliged to sell their carbon credits to the Netherlands Carbon Fund.

Information leaflet

An information leaflet  (0.5Mb) about the Netherlands EBRD Carbon fund is also available.

Contacts

• EBRD contact
• Companies  (0.1Mb) that can assist you with the Project Design Document and the validation.
• Host country  (0.1Mb) contact points for obtaining a Letter of Endorsement and a Letter of Approval.