Emissions Programmes: Alternative carbon finance for Turkey

Carbon markets have become an important source of finance for clean energy worldwide. Turkey has been unable to generate revenue through UN-supervised schemes, but has found alternatives outside the UN framework.

The 135 MW Rotor Electrik Uretim wind farm is set to be Turkey's largest when completed

Global carbon markets have become an enormous economic force. In 2008, the total market for the financial instruments funding global carbon reduction doubled from the previous year to $126 billion, according to the World Bank. Revenue generated by clean technology projects represents a small but significant part of that total, enabling host countries to cut emissions while boosting economies.

Yet Turkey is in a peculiar position. It has been excluded from the two channels of carbon revenue available through UN-supervised mechanisms under the Kyoto Protocol: certified emission reduction credits generated by clean tech projects in developing countries; and emission reduction units - credits from projects in industrialised countries. Even after ratifying the protocol in February, Turkey remains unable to participate in either scheme because it is not categorised as a developing country and did not take on a reduction target when the Kyoto Protocol was adopted.

So Turkish clean technology projects have sought alternative revenue by generating voluntary emissions reduction credits (VERs) produced outside the UN framework. These are traded on voluntary carbon exchanges around the world and between individual investors.

VERs are a mixed bag. They cannot be traded on the UN-regulated markets for emissions credits, as there is no hard-and-fast regulation on voluntary carbon credits and quality control is not as stringent as that for credits issued under the UN mechanism.

Yet several quality standards are emerging. Some, like the Gold Standard - a certification scheme run by a non-profit organisation, which requires that carbon credits adhere to stringent standards of emissions reduction and environmental sustainability - seek to apply the rigour of the UN mechanism to voluntary credits. Although there are other non-UN-regulated standards, the Gold Standard has established itself as the benchmark.

Among Gold Standard VER projects, Turkey leads the way by several measures. Of the ten clean tech projects in the pipeline expected to generate the largest number of voluntary credits, six are Turkish. Three of those are wind power projects, while the others involve waste management and gas extraction. To date, more than 120 projects worldwide have applied for Gold Standard voluntary credits, together representing more than ten million credits annually. Estimated yearly credits from projects that have reached certification top 1.1 million - primarily wind farms in Turkey.

Credit due

One project likely to generate voluntary credits is the 135 MW Rotor Elektrik Uretim wind farm in Osmaniye, Turkey. The project is expected to become the country's largest wind farm when all 54 General Electric 2.5 MW turbines are running next year. It registered in May to receive Gold Standard VERs, according to Ireland-based EcoSecurities, a leading carbon credit firm guiding Rotor Elektrik's owner-operator Zorlu Enerji through the process of generating and selling its carbon credits. "This project is considered to be the first of its kind and would not have been viable without carbon credit financing," says EcoSecurities.

Growing demand

Fifteen turbines at Rotor Elektrik are running so far. The remainder cannot come online soon enough. Turkey's demand for electricity is rising and may soon exceed supply. The country is considering increasing the minimum price that state distribution companies must pay for electricity generated from clean energy sources from EUR0.05/kWh to a possible EUR0.06/kWh or more for the first five years of operation. (Windpower Monthly, March 2009). The necessary amendment to a 2005 renewable energy law has yet to be finalised.

EcoSecurities, acquired by JP Morgan in October, expects the project to prevent annual emissions of 300,000 tonnes of CO2. Should the project pass the next hurdles towards certification, each tonne will produce one Gold Standard VER and, at current market prices, the project as a whole would generate annual revenue of just over EUR3 million. EcoSecurities has agreed to pay Zorlu Enerji a fixed amount per tonne of avoided carbon, helping offset Zorlu's annual operating costs of about EUR2.5 million. The first verification of emissions reductions achieved is scheduled within weeks and EcoSecurities hopes to begin issuing credits in the first quarter of 2010.