Carbon Credit Watch

Chinese Power Giant to Sell Carbon Dioxide to Spain under CDM Contract

Yingling Liu
Worldwatch Institute
January 23, 2006

The Chinese electric utility Huaneng and the Spanish National Power Corporation Endesa have unveiled a pioneering initiative for purchasing emissions credits generated under the Kyoto Protocol’s Clean Development Mechanism (CDM), according to the 21st Century Business Herald. The deal, announced January 19 in Beijing, is the first in China’s power sector to be put into implementation. This initiative will generate roughly 3 billion RMB (US $375 million) for Huaneng and benefit the utility’s fledgling wind power projects.

Under the carbon credit purchasing contract, Endesa will buy 2.6 million tons of carbon dioxide (CO2) generated by three wind energy farms operated by Huaneng. The wind farms have a total capacity of 195 megawatts. The deal is a ten-year fixed term with a negotiated price of $8.70 per ton, compared with a European market price of around 20 Euro per ton (approximately $25).

Compared with coal-fired power plants of the same size, the wind energy projects will generate far fewer CO2 emissions. This CO2 reduction becomes a “virtual” commodity for trading under the Kyoto treaty. The flexible CDM mandates that an industrialized country with a specific greenhouse gas reduction target can invest in a project in a developing country that doesn’t have such a target, and claim credit for the emissions the project offsets.

Perhaps most significantly, the Endesa deal, along with future CDM projects, will benefit China’s fledgling wind energy industry, which has seen pervasive losses in recent months. Since September, prices for equipment and steel have increased dramatically, and interest rates on loans are rising as well. Against this background, wind power plants in China are struggling to make ends meet.

China has the second highest CO2 emissions in the world and is projected to surpass the United States as the top emitter by around 2025, according to the Worldwatch Institute’s State of the World 2006 report. China thus has significant potential for CO2 reductions.

By December 2005, 18 CDM projects in China had received approval, and some 100 more were in the pipeline. Following the deal with Endesa, Huaneng filed CDM applications for its 14 other wind energy projects, and the utility is exploring the possibility of similar projects for its clean coal-fired and thermal power projects.

Under the Kyoto Protocol, industrialized countries are required to purchase 200-400 million tons (CO2 equivalent) of greenhouse gas emissions annually through CDM projects between 2008 and 2012.

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Categories: Carbon Credit Watch

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