One of the government's core climate change policies over the last few years was the Projects to Reduce Emissions program, AKA the Projects Mechanism. This was basically a system of subsidising emissions-reductions, particularly investments in renewable energy, with carbon credits. There were some restrictions - the project had to result in a reduction of at least 10,000 tonnes of CO2-equivalent, be additional to "business as usual", and result in reductions which would not occur unless credits were awarded in order to qualify - but there were plenty of projects which met these criteria. All told, 41 projects were subsidised in this way, including 13 wind farms and 4 geothermal projects. These were expected to cover at least 4 year's demand growth in electricity.
So, was it successful? Last year's climate change policy review (s4.2.5) cited a report by Allen Consulting and argued that emissions reductions through the program had been "achieved at a cost (on average) greater than the Kyoto price". An analysis done earlier this year noted that the Projects Mechanism had resulted in expected emissions reductions of 11.85 MT CO2-e during CP1, at a cost of 10.6 MT CO2-e of emissions units. A 10% payoff seems pretty poor, considering the administrative overhead of multiple tender rounds involved, as well as the uncertain nature of the reductions. Several of the projects (for example, the proposed Wainui Hills Wind Farm, which was awarded 378,000 emission units) seem to have sunk without a trace, while others have been delayed, meaning their reductions may be less than expected. OTOH, this means the government will simply hand out fewer credits, so it has no overall effect on the success of the scheme except insofar as it drives up administrative costs.
While this seems to be a fairly gloomy assessment, there are two good reasons for regarding the Projects Mechanism as a success:
- It is credited (by Pete Hodgson and others) with "kick-start[ing] wind energy in this country". When the Projects Mechanism was started, we had two wind farms (Hau Nui and Tararua 1). Now we have 3 more, and another 10 planned or under construction, and many more proposed (check out the list on the last page of this report [PDF]). Many of the early wind farms received emissions units through the Projects mechanism - but not all have. For example, Meridian Energy's Project West Wind - a 210 MW monster at Makara - was a purely commercial proposition, and it is likely that future wind farms will be too. The experience gained in construction and operation through those early subsidies has helped wind across the "technology valley of death" and turned it into a serious commercial proposition in New Zealand.
- Emissions units were only handed out for reductions over CP1, but those reductions will continue well into the future. At the time, it made sense to only look at CP1 - after all, it was uncertain whether Kyoto would even come into effect, let alone survive. Now it is looking like there will be a post-Kyoto emissions control regime, and that it will in one way or another include or create an international price on carbon. So the emissions reduction payoff from any project can be measured over the lifetime of the asset (or at least the expected lifetime of a post Kyoto regime), rather than just CP1. If we assume that there will be a similar 5-year CP2, the payoff for the government effectively doubles. More generally, the projects have helped shift New Zealand towards a lower emissions path than otherwise would have been taken, and the government will be able to reap the benefits of that in future.
But while it has IMHO been successful, the Projects mechanism may not have much of a future. Now that wind doesn't need assistance, there's not much left that does; landfill gas, microhydro and cogen are all worthy, but at the same time mostly kibble around the edges. The cost of supporting such schemes in this manner (both to the government and the companies in question, who remember must find a buyer for the carbon credits) may not be worth it. While I think there's a case to be made for reduction subsidies where there's a decent payoff, it may be easier just to cut out the carbon credit "middleman" in future and pay in cash.