The Government is offering 4 million carbon credits as a subsidy for projects that reduce emissions of greenhouse gases, but businesses have to jump through a lot of hoops to get their hands on them, and cannot be sure what the credits will be worth if they do.

The uncertainty limits the usefulness of the programme, because one of the key tests a project must pass to claim the subsidy is to show that it would not go ahead without it.

This will be hard to prove since the value of the credits is unknown - and may be zero.

About 200 people have attended briefings from climate change officials this week before the first of what are expected to be annual tender rounds.

To be eligible, a project must deliver verifiable savings of at least 10,000 tonnes of carbon dioxide or its equivalent in other greenhouse gases during the first commitment period of the Kyoto Protocol, 2008 to 2012.

Emission savings before 2008 will not attract a subsidy but may improve a project's ranking if the 4 million carbon credits have to be rationed.

To cross the 10,000 tonnes threshold would involve savings of the order of 3000MW/h of electricity or 40,000 gigajoules of natural gas or 750,000 litres of diesel or 1000 tonnes of coal.

A project which avoided the releases of a million cubic metres of methane into the atmosphere, from a landfill or coal seam, could qualify. But forest sinks or emission savings arising from land use changes do not.

A project does not have to be at one site. A better way of controlling electric motors so that they consumed less electricity could be a project, said Bruce McLean, who heads the programme within the Climate Change Office.

Crucially, the project will have to satisfy Kyoto's "additionality" test, that is it will be necessary to satisfy the Government that the project will go ahead if it gets the credits but not otherwise.

Atmosphere-friendly investments or projects which would have occurred anyway under a business-as-usual scenario will not qualify.

Officials seem to assume that businesses will have the necessary information anyway, so the compliance costs will be low.

It's not only financial information and forecasts that would be required.

For example, a project's emissions saving is net of the embedded energy used (and therefore emissions generated) in producing any cement, steel or aluminium used in the project.

A carbon credit is a creature of the Kyoto Protocol and will have no value unless it comes into force.

That will happen if and only if Russia ratifies it.

If Russia does ratify the question then will be how much of its "hot air" credits get released into the market.

Kyoto's baseline year is 1990 and since then a lot of chimneys have gone cold in the former Soviet bloc, leaving those countries with a lot of excess units to sell into the international carbon market - potentially flooding it.

Offsetting that is European Governments' desire to hold the carbon price up so that it provides meaningful incentive to reduce emissions.

In the meantime, carbon credits have been trading in the $7 to $20 range, Bruce McLean said.

It is envisaged that the first crop of successful tenders will involve comparatively large projects which are close to viability without the credits.

The tender round closes late next month and it it is hoped the first agreements will be signed before Christmas.

Herald Feature: Climate change

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