Finland utility buys emissions credits from Russian utility

Finnish utility Fortum has signed a pioneering deal to buy more than 5 million carbon dioxide (CO2) emissions credits from Russia’s Territorial Generation Co. No. 1 (TGC-1), operator of a dozen hydropower projects.

After two years of delays, the Russian government last month put in place the legal mechanisms for companies to create and sell carbon credits in Russia, which has the potential to become the second biggest source of the credits after China. (HNN 2/4/08) Fortum’s deal with TGC-1 is the first to take advantage of these mechanisms.

TGC-1 is to reconstruct hydropower plants, expand and renew its combined heat and power generation plants, and improve the efficiency of its district heating network. ECF Project Ltd. is acting as consultant responsible for preparing technical documentation for the Kyoto Protocol’s Joint Implementation (JI) projects and for acquiring all necessary approvals from the Russian side.

The market value of the credits — to be created under the JI scheme — is about 70 million euros (US$103 million), making it the largest such deal in Russia, Fortum said. Fortum said the deal covers about half of its annual emissions of carbon dioxide.

Under the Protocol’s JI and Clean Development Mechanism (CDM) programs to fight climate change, firms in rich countries can invest in emissions-cutting projects in developing and former communist nations and count the cuts as their own.

“We are talking about massive reductions in greenhouse gases, during the Kyoto period of 2008-2012, we estimate reductions of 5 million tons of CO2,” Fortum Senior Vice President Tapio Kuula said. “These reductions will not end after that period, but will continue at 1.6 million tons annually.”

“The agreement is extremely important for the Russian energy sector and the Kyoto Protocol in general,” said Andrei Gorkov, head of the carbon fund at former Russian energy monopoly Unified Energy Systems.

TGC-1, which operates in northwestern Russia, is effectively controlled by Russia’s gas export monopoly Gazprom. Fortum owns about a fourth of TGC-1. (HNN 12/4/07)

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