Norway plans to more than double its spending on CERs next year, a move analysts said could signal a sustained jump in the country’s offset purchases to 2020 as it struggles to cut emissions domestically.
Norway’s centre-right coalition government plans to spend NOK 270 million (€29 million) on buying CERs in 2016, according to a budget proposal presented Wednesday, as part of the country’s strategy to meet its emissions target under the Kyoto Protocol’s second commitment period (2013-2020).
The oil-rich country earmarked nothing in its 2015 budget, but carried forward NOK 138 million from 2014. It expects to spend NOK 120 million on CERs this year, government documents show.
The Scandinavian nation has a binding Kyoto target to reduce GHG emissions 16% below 1990 levels by 2020, but its annual output has barely changed in the past six years at around 53 million tonnes, leaving it off course towards meeting its goal.
Norway has already secured more than 26 million CERs towards its original purchase plan to buy 30 million by 2020, and has held a separate tender for new projects in Least Developed Countries, which is expected to result in purchases of an additional 3 million units.
The 2016 budget increase could be a sign that the government will break its pledge to meet two-thirds of its required Kyoto goal domestically, meaning Norway would need to double the number of CERs it had aimed to buy, according to Oslo-based carbon market analyst Stig Schjolset of Thomson Reuters.
“To comply with the Kyoto target, Norway will likely need to buy around 60 million CERs over the 2013-20 period … The 2020 target will clearly not be met, so the volume of purchased CERs will likely be at least twice as large as initially planned,” said Schjolset.
This would represent a rare boost to demand in the vastly oversupplied CER market, but it is unlikely to impact European exchange-traded prices of around €0.60/tonne because Norway is willing to pay a premium for new and vulnerable CDM projects, often in very poor countries, through bilateral deals.
It buys via the Nordic Environment Finance Corporation (NEFCO), which attracted average offer prices between €2-4, depending on the tender.
Norway is one of only a handful of Annex I governments still buying CERs to meet Kyoto targets.
With almost all of its power generated from hydroelectric facilities, Norway faces costs of well over €100 per tonne to substantially reduce emissions at home.
GREEN BUDGET?
In the budget, Norway’s government also proposed to inject NOK 14.25 billion into its climate and energy fund, taking the fund’s total size to NOK 67.75 billion.
But this failed to appease environmental campaigners angered over Norway’s move to give more cash to heavy industry to compensate them for indirect CO2 costs under the EU ETS and a NOK 70 million cut in rainforest protection cash.
“When it comes to climate and environment, this is one of the worst budgets I’ve ever seen. The budget increase is mainly for the CO2 compensation arrangement and buying offsets. Other measures presented are employment policies that have nothing to do with nature conservation,” said Nina Jensen of WWF Norway
“You cannot say this is a budget for a green shift in Norway.”
By Stian Reklev and Ben Garside – stian@carbon-pulse.com
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