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AAU trading
standards: the
Latvian Approach
Ilze Prūse
Head of the Pilot Projects Implementation Division
of the Climate and Renewable Energy Department
Ministry of the Environment, Republic of Latvia
Introduction

Latvia intends to sell 8 – 10 million of its
Assigned Amount Units (AAUs) through
pilot transaction in 2008.

The Ministry of the Environment has started
negotiations with a limited number of
reputable buyers with the intention to sign
the pilot forward AAUs sale by June 2008
to gain experience and establish
transaction standards for future deals.
Main points of presentation

Latvia’s participation in IET under Article 17 of the Kyoto

Market position of Latvia

Legal framework and earmarking of revenues from AAU
sale

GIS fund structure and institutional arrangements

Environmental integrity – monitoring, auditing and
reporting of greening results

Indicative greening programmes

Conslusions
Implementation of the Kyoto Protocol
by Latvia
Current state of affairs
 Eligibility
 Cabinet
of Minister decision on April 12, 2006 of
participation in IET under Article 17 of the Kyoto
protocol
 Earmarking
40 million of AAUs to be potentially
available during the first commitment period
 Mandate
to Ministry of the Environment to work out
legal, institutional system of IET by May 2008.
Decision about strategic allocation of AAU
assets
Buyer country Actual
Host country
emissions
Domestic
actions
Mln ton CO2E
Kyoto target
Traded:
Green
Investment
Scheme
Surplus AAUs
(potentially
tradable)
Purchase of ERUs
Purchase of
AAUs
Kyoto target
Reserve for JI projects
Reserve
Mandatory setasides (non
tradable
1990
1995
2000
Compliance
(Including
commitment
period reserve)
2005 2008
2010
2012
2015
Market position of Latvia (1)
Latvia can be a fast track provider of credibly greened
AAUs with low risk and low transaction costs
Comparative strengths of Latvia:







Robust surplus estimates
Advanced in compliance with Kyoto eligibility criteria
Low reputational risk
Solid legal background
Strong political commitment to efficient, transparent and
accountable GIS
Efficient institutions of public and private sector
Terms tailored to buyer expectations
Market position of Latvia (2)
Comparative weaknesses of Latvia:
 Relatively
 Limited
small size of tradeable headroom
opportunities for greening with direct
reductions of GHG
Key elements of the Law (1)

Ownership of AAUs

Authorisation to the Cabinet of Ministers to make
decisions on each sale of AAUs, including the price and
specific conditions

Authorisation to the Ministry of Environment and Ministry
of Finance to prepare the sale of AAUs, including
 Participation
 Drafting

in negotiations
of an AAU Purchase Agreement
Authorisation to the Minister of Environment to sign the
AAU Purchase Agreement after the approval of the
Cabinet of Ministers is received
Key elements of the Law (2)

Principles for using the revenues from the sale of AAUs,
including a clear provision stating that all income from
the sale of AAUs shall be earmarked for “greening”
projects

Special budgetary arrangement
 Money
from the sale of AAUs is transferred to
income budgetary account in State Treasury
 Disbursements
are organised under the budget
programme “Climate change financial instrument”
 In
annual budget the financing for the Climate
Change financial instrument is ensured in amount of
received and unused proceeds from AAU sales in
previous years (carry-over provision)
Key elements of the Law (3)

Institutional set up for managing GIS fund

Principles for environmental and financial monitoring,
and reporting

Provisions for supervisory function performed by the
Ministry of the Environment on behalf of the Government

Provisions for transparancy and accountability to
public ensured by Advisory Council (representation by
relevant stakeholders, including state institutions, nongovernmental organisations and buyers)

Delegation to the Cabinet of Ministers to pass
secondary legislation on the implementation of IET
(establishing a ‘green investment scheme’)
Implementation model




Latvia will propose a programmatic model for the GIS.
Most GIS programs will consist of a large number of
small projects.
Therefore Latvia would propose to buyers “wholesale”
greening programs backed by a transparent,
accountable and efficient national mechanism to “retail”
AAUs revenues to multiple project owners.
Latvia can offer robust GIS implemented by competent
national institutions that require only minor and
targeted institutional strengthening.
Contract and Payment Structure
State treasury
Buyer
(budget income
account)
Ministry of the
Environment
Commercial
Banks
Instruction on Release
of Payment
Service
payment
Management
contract
GIS Fund
Manager
Performance-based grants paid to projects
upon delivery of verified milestones and results
Loan
Agreement
Budgetary
programme
Climate change
financial instrument
(AAU PA conditions)
Financing
agreement
Project
Beneficiary
Legal agreement
Payment flow
Environmental integrity – monitoring,
auditing and reporting
Monitoring will be undertaken in accordance with
relevant standards under the International rules
and GIS rules and regulations pursuant to the
Monitoring principles
Monitoring principles (applied annually):
(1) financial audit
(2) procedural conformity of GIS
(3) assessment of greening results
Report to the Government by April 1 every year, to
buyers by June 1.
Use of revenues (“greening”)
The Latvian government will ensure that every AAU sold
will be used for “greening” purposes which means:




increase of renewable energy use
improvement of energy efficiency
application of innovative low carbon technologies
capacity building for climate change policy design an
implementation
Sectoral breakdown of greenhouse gas
emission sources in Latvia in 2004
Agriculture
17%
Waste
7%
Transport
27%
Solvent and Other
Product Use
1%
Industrial
Processes
2%
Energy
46%
EU ETS opertaors represent 27% of total emissions
Climate and energy indicators, Latvia
2.5
IKP / GDP
Kopējā primāro energoresursu piegāde / TPES
Bruto elektroenerģijas patēriņš / Gross Electricity Consumption
2.0
SEG emisijas / GHG emissions
1.5
1.0
0.5
1990
1992
1994
1996
1998
2000
2002
2004
2006
Avots: LIAA
Energy intensity (2005)
1.3
KPEP/IKP / TPES/GDP - 2005, (toe/000 $2000)
1.0
0.8
0.5
EU-27
0.3
0.0
0.3
EU-27
0.5
0.8
1.0
1.3
Elektroenerģijas patēriņš* / IKP /
Electricity consumption* / GDP - 2005, (kWh/$2000)
1.5
1.8
GR
AT
IT
GB
IE
DK
NL
OECD
FR
SE
DE
MT
CY
PT
BE
ES
LU
PL
HU
Latvija
SI
FI
BG
RO
SK
CZ
EE
LT
2.0
Source: IEA
CO2/Iedzīvotāju / CO2/Pop, 2005 (tCO2/capita)
CO2/KPEP / CO2/TPES, 2005 (tCO2/toe)
CO2/IKP / CO2/GDP, 2005 (kgCO2/2000$)
100.0
10.0
EU-27
EU-27
1.0
EU-27
SE
FR
DK
GB
IE
AT
IT
FI
DE
BE
NL
OECD
LU
ES
GR
PT
Latvija
CY
SI
MT
LT
HU
PL
SK
CZ
RO
EE
BG
0.1
Source: IEA
Indicative greening pipelines (1)
Energy supply-side management
 Promotion
of biomass use including CHP plants
 Biogas recovery and use
 Solar heat, geothermal, small hydropower plants
Energy demand-side management
 Improved
energy efficiency in buildings
 Efficient public lighting
 Heat distribution in DH systems
 Industrial power intensity
Integrated projects: Heat production –
distribution – final use
Indicative greening pipelines (2)
Other
 Lower
carbon transportation systems
 Other
low and zero- carbon emission technologies
 Capacity
building for climate policy development and
implementation
 Capacity
building for GIS management
Conclusions and the way forward

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


Climate change is environmental and economic
prerogative and a huge task of political engineering
GIS as an instrument for structural change to deliver
deployment and scaling up of climate change mitigation
technologies
In countries with limited possibilities of direct GHG
reductions it is a leverage for low carbon economy
GIS brings co-benefits of mitigation and opens new
business opportunities
GIS can be a testing ground for new generation of postKyoto flexible mechanisms:



more programmatic
lower transaction costs
relying more on certified host country systems
Further information
Ministry of the Environment
Republic of Latvia
Phone: +371-7026 417
[email protected]
www.vidm.gov.lv