Carbon credits

The Clean Development Mechanism

The Clean Development Mechanism (CDM) allows for investments in specific projects in developing countries that contribute to reducing greenhouse gas emissions and to a sustainable development. CDM is also a quota system in which emission reductions in developing countries may be used to cover emission commitments under the Kyoto Protocol.

CDM is established under the Kyoto Protocol and is thus an international mechanism under the UN. The mechanism contributes to technology transfer, skills development and modernisation in developing countries. In addition, the projects may also give significant environmental and health gains.

CDM is a project-based system. Each individual project is evaluated and approved by a committee under the UN. The UN issues carbon credits based on a thorough documentation of the emission-reducing effect of the project. The UN requires that the emission reductions be verified by an independent third party approved by the UN.  The implementation of projects is also systematically monitored through measurements and reporting relevant data. The regulations for approving projects have been tightened several times in recent years.

Use of the Clean Development Mechanism is a cost-effective way of reducing global emissions. CDM enables countries to take on more ambitious goals than they would otherwise have done. The projects that have been completed under CDM have delivered 1.5 billion tonnes of documented emission reductions to date. For comparison, Norwegian emissions in 2012 were 52.7 million tonnes.

State purchase of carbon credits

The climate problem is global and must find its solution through international cooperation. Norway has therefore chosen to support the Clean Development Mechanism, at the same time as we are also working to come to an agreement on a better and broader international quota system. Purchasing carbon credits is a supplement to national measures to reduce greenhouse gas emissions. The access to fund reductions in other countries enables Norway to take on more ambitious emission commitments than if all the emissions were to be made domestically.

In order to ensure that Norway would manage to meet its emission commitments under the Kyoto protocol a separate government programme for purchasing carbon credits was set up in 2007. The responsibility for this carbon credit purchasing programme was originally assigned to the Ministry of Finance but was transferred to the Ministry of Climate and Environment on 1 January 2014.

In the first commitment period under the Kyoto Protocol (2008-2012) it was not necessary for the Norwegian state to purchase carbon credits to meet the commitments. However the state chose to go beyond the commitments by 10 per cent, by purchasing UN-approved carbon credits. During this period the state signed agreements with a total expected delivery of about 23 million carbon credits, of which about 21 million carbon credits are necessary to reach the goal of going beyond the commitments.

In the second commitment period (2013-2020) Norway will need to purchase carbon credits in order to meet its commitments under the Kyoto Protocol. The purchase requirement is not completely clarified, it will depend on for example the connection between the EU's quota system and the Kyoto Protocol.

In principle Norway will only purchase carbon credits from newly developed projects and from projects that are at risk of suspending operations due to low current market prices on carbon credits, known as vulnerable projects.

Example of a project under the CDM

Norway has signed an agreement to purchase carbon credits from a rubbish dump in Manaus, which is situated in the state of Amazonas in Brazil. The agreement concerns purchasing 1.4 million carbon credits that are expected to be generated in the period from 2014 to 2020. The rubbish dump is owned and operated by local authorities, but the project itself i.e. the collection of the greenhouse gas methane, is run by a private company. The sale of carbon credits is the only source of revenue for this company, and the project has been at risk of suspending operations due to the low market prices for carbon credits being insufficient to cover the operating costs. As a greenhouse gas, methane is 25 times more damaging than CO2, and the Norwegian purchase of carbon credits from this project ensures that the collection of this extremely hazardous greenhouse gas continues.