Use of revenues from the sale of Kyoto units - Green Investment Scheme

The Kyoto Protocol of the UN Framework Convention introduced international quota trade, i.e. the trade in greenhouse gas emission allowances, between the joinedindustrial countries. Hungary has a substantial quota surplus. Hungary was the first one to sell quotas in the world in 2008, assuming a pioneering role in the shaping of the scheme.

Pursuant to Act LX of 2007, to Government Decree 323/2007 (XII. 11.) on particular rules on the implementation of the law, and to the quota contracts, the revenue originating from the sale of Kyoto units is used for climate protection purposes in the framework of the so-called Green Investment Scheme (GIS).

Thus, the areas where quota revenues are used are defined by statutory regulation and quota contracts. The specific use of quota revenues is carried out on the basis of continuous consultation with quota buyers, thereby ensuring the full implementation of the provisions of the quota sale contracts. Hungary has agreed to implement “hard greenification”, i.e. it uses quota revenues exclusively to finance projects reducing greenhouse gas emissions.

As a basic principle of the GIS, funding is provided only for measures that are most effective in reducing the emission of greenhouse gases. These are measures that could not be implemented without GIS funding or not in the appropriate quality (i.e. they would not result in such a degree of emission reduction) – this is called the principle of additionality. As an additional important criterion, the emission reduction realised with the funded projects should be accounted for toward the partners purchasing the Kyoto units. It follows that it is necessary to verify and prove the direct emission reduction realised through each project. The country’s future possibilities to sell quotas are significantly influenced by the extent of correctness and efficiency in terms of using the revenue originating from the quotas already sold.

Pursuant to statutory regulation (Section 22 (4) of Government Decree 323/2007 (XII. 11.)) and to the provisions of quota contracts, a maximum of 5% of the revenues originating from the sale of Kyoto units may be used to cover the costs required to management and operate the Green Investment Scheme, to the collect its revenues, to verify the use of its funds, as well as to use the revenues, as tender funds, from the Green Investment Scheme based on the contract concluded with the Buyer, to implement, monitor the tenders and to quantify the emission reduction achieved, as well as to arrange for the financial and technical evaluation (audit) of the fulfilment of statutory requirements.

So far four sub-programs have been announced in the framework of the Hungarian GIS, with a primary focus on the building energy sector: over three-fourths of quota revenues collected so far have been allocated to the funding of energy efficient buildings. This area is of particular importance, as emissions related to buildings account for 30% of total national carbon dioxide emissions. (See the GIS Sub-Programs site for details.)

Although the GIS is currently the most radical system in Hungary supporting the reduction of carbon dioxide emission, we have set the target of setting up a reformed, innovative GIS tendering system with a view to optimally exploiting the existing opportunities. The planned new tenders, based on deep renovation, may enable a more effective reduction of carbon dioxide emission in the longer term. The plans allso include the establishment of an innovative financing solution, the GIS Credit Guarantee Fund, enabling applicants to draw state guaranteed credit to pay their own funds. (See the GIS Portfolio site for details.)

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