The Projects Mechanism Questions and Answers

What is a Project?

A A Project is a specific activity that reduces greenhouse gas emissions in return for a Government incentive. An activity cannot be a Project unless it would be uneconomic without payment of an incentive. The incentives for the first round of Projects will be promissory notes for Kyoto Protocol emissions units (these units, often referred to as ‘carbon credits’, will be internationally tradeable when the Kyoto Protocol comes into force).

What part do Projects play in the Government’s climate change policy package?

A Projects are an important new policy together with the emissions charge planned from 2007 and Negotiated Greenhouse Agreements (NGAs) for firms whose competitiveness will be at risk from the charge. Projects are expected to play a key role, prior to the introduction of the emissions charge, as a tool to begin to reduce emissions.

When will Projects commence?

A The first round of the Projects mechanism (the ‘exploratory’ round) is planned for early in the June 2003/2004 financial year. It is expected that Projects rounds will be held at least annually thereafter.

What are the key differences between the model presented at the Projects workshop in late January and the final policy?

A The key differences identified are as follows: the size threshold for eligibility has been reduced from 100,000 tCO2 (equivalent) to 10,000 tCO2 (equivalent) over the first commitment period, reflecting concerns expressed at the workshop the core criterion for assessment has been simplified and clearly recognises pre-2008 abatement benefits the incentive for the exploratory round will be promissory notes for future delivery of emission units, but the use of a direct financial incentive will be considered for future rounds (for more details, please refer to ‘Projects Mechanism – Recent changes and further technical details’ on www.climatechange.govt.nz).

Treasury is leading further policy development to cover the nature of Projects agreements and promissory notes and the tax treatment of units and notes.

Who is responsible for the Projects mechanism and what are the key administrative functions?

A The New Zealand Climate Change Office is responsible for the Projects mechanism. There are several key elements involved: a programme management role that prepares material for and administers the round assessment by a panel independent from but supported by the programme manager. The panel will recommend the proposals that should be considered for support by a final decision maker a concluding agreements role, where the commitments of both parties are incorporated into a Projects agreement ongoing management of Projects agreements, which will be required before and during the first commitment period.

What arrangements are in place for the programme management role?

A The New Zealand Climate Change Office (NZCCO) is in the process of scoping the programme management function and is considering options for delivery. The NZCCO hopes to be able to announce who will undertake this role shortly and indicate a timetable for the exploratory round at the same time.

Who will assess the proposals?

A A panel independent from, but supported by, the programme manager will produce a list of recommended Projects. The final decision on these recommendations will be made by the Chief Executive of the Ministry for the Environment.

Are firms that are eligible for an NGA also eligible for Projects, and vice versa?

A The policy allows firms with an NGA to submit a Projects proposal (and vice versa), but a ‘no double dipping’ principle will apply. ‘No double dipping’ means that Projects incentives cannot be used to help meet an agreed NGA target. A firm in the process of concluding an NGA with the Government will not be eligible for a Project until the NGA is finalised. This is necessary to enable proper consideration of competitiveness-at-risk status for NGAs and to provide clarity about the NGA boundaries (i.e. what specific activities are covered by the NGA).

How are the proposals for the two wind farms, which the Government recently agreed to support, related to the Projects mechanism?

A The Government has been considering proposals from Meridian Energy Ltd and Trustpower for well over a year. It has agreed that the benefits to electricity security and to the development of a Projects mechanism justified proceeding with these proposals prior to the Projects exploratory round. The one million emission units potentially available to these two proposals has not influenced the quantity of units available for the Projects exploratory round.

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