MELBOURNE Mexico will earn a royalty on carbon credits generated from energy-saving light bulbs through a world-first deal that could pave the way for other developing countries to fund emissions cuts, the investor said on Monday.
Under the project, an Australian company, Cool nrg International, advised by Bank of America Merrill Lynch, will distribute 45 million energy efficient lightbulbs supplied by Philips Electronics to 6.5 million low-income households in Mexico City.
The aim is to generate energy savings of 33,000 gigawatt hours, cutting annual emissions by the equivalent of about one-third of auto emissions in a city renowned for its smog.
In total, the project aims to reduce 16 million tonnes of carbon dioxide (CO2), the main greenhouse gas, over 10 years.
The deal was announced on the sidelines of a carbon conference in Melbourne.
Every tonne of CO2 saved will generate a credit, or certified emission reduction (CER), which Cool nrg and Merrill Lynch will sell to companies in rich nations, such as those in Australia which face a A$23 a tonne carbon tax from mid-2012 under legislation due to be passed on Tuesday.
CERs traded on the secondary market in Europe closed on Friday at 6.50 euros ($9).
The scheme switches to full emissions trading from July 2015, allowing Australian firms to buy carbon offsets from approved projects overseas.
The Mexican government will earn a royalty out of the credit sale proceeds, including a fixed amount plus a variable component tied to the market price of the CERs.
The project is seen as a possible model for other developing countries looking for ways to fund the promotion of energy saving and less-polluting technologies.
"Governments in the emerging markets who are putting in place their own low-carbon technology strategies can do so while receiving some financial benefit," said Abyd Karmali, Merrill Lynch's global head of carbon markets.
Australia's carbon pricing scheme will allow companies to meet up to half of their carbon reduction targets from 2015 by using carbon offsets.
"We are anticipating that the larger (Australian) emitters will recognize that there is a huge opportunity to limit their long term exposure on price, to be more proactive," Karmali said.
While complex to carry out and monitor, the Mexican project could result in significant emissions cuts, help low-income households save money on energy and generate funds for the government, said Cool nrg chairman Nic Frances.
At the same time carbon emitters could benefit from the cheap credits, a concept he said Australian companies had yet to grasp.
A light-bulb project by Cool nrg and its partners in 2009 was the first of its type to be approved under an expanded form of the United Nations' Clean Development Mechanism. The CDM allows clean energy project developers to earn CERs from projects in poorer countries.
Under the project, also in Mexico, Cool nrg would distribute 30 million compact fluorescent light bulbs over several years with the aim of generating up to 7.5 million CERs.
Dutch firm Eneco Energy Trade B.V. agreed to buy the CERs in a deal brokered by TFS Green at the time.
(Reporting by Sonali Paul; Editing by David Fogarty)