A stakeholder meeting in Jeddah will mark the first application by a Saudi project for registration and eventual permission to trade Certified Emission Reductions (CERs) — also known as carbon credits — under the Clean Development Mechanism (CDM) of the Kyoto Protocol. The meeting is a prerequisite part of the complex process for registration by the UN that will allow trading.

“The meeting is of great symbolic importance,” said Rachard Itani and Tobias Koch of Xenel-Balderrie, a joint-venture company that specializes in CDM enhanced project finance.

“The project we accepted and are submitting for approval is very small but of enormous symbolic significance. It will demonstrate to people here the tremendous importance and potential for financial gain from energy efficiency.”

The stakeholder conference, which is open to the public, is the first step before registering a project that reduces greenhouse gas emissions with the Saudi Designated National Authority (DNA) in order to be able to apply for registration at the UN level.

The Kingdom ratified the Kyoto Protocol in 2006. However, before projects can apply for certification under the Kyoto Protocol, the Saudi DNA had to be established, along with the relevant regulatory environment. The DNA was finally achieved in January. When an energy efficient project that reduces greenhouse gas emissions, or is more energy efficient than business as usual is UN certified, then the Clean Development Mechanism (CDM), a by-product of the Kyoto Protocol, through the Kingdom’s DNA, can begin to trade in CERs.

Itani explained that a foreign company in a joint venture energy project wished to generate quasi-equity through emission reductions and approached Xenel-Balderrie to help with the process of validation, registration and certification under the CDM. The project will recycle heat gathered from a cooling system and use that to run air conditioning systems.

The net reduction in energy use by using waste heat will reduce energy consumption and, through the domino effect, reduce the carbon footprint of the project. The reductions achieved can be quantified in terms of tons of CO2 not emitted, resulting in the issuance of the famous emission credits that can be sold either on the spot or the futures market. The finance raised can then be used to reduce costs or raise income, thus improving the project’s internal rate of return.

“The trick to seeing the picture is to think of the domino effect that efficiency produces and the integration of finance with efficiency improvement,” said Itani.

A further benefit accrues to the government in that it does not need to provide extra electrical capacity on the grid. This in turn saves on capital expenditure, production and maintenance costs, which when multiplied across the economy if many companies followed the same route could result in billons of riyals in savings.

This projec shows the way for the future development of energy in the Kingdom. It is the first time that a project and the stakeholder meeting under the CDM has been registered and organized in Saudi Arabia, although one in Dammam has been announced.

A significant feature of the meeting is that the UN demands that the whole process has to be in public and transparent. The public has to be informed and given a chance to comment and the relevant stakeholders, such as environmental NGOs, invited.

Both the process and applications as well as the project is scrutinized and checked by a UN approved auditor before being forwarded to the UN for registration as a project that can attract all all important permission to trade in the CER futures market.

“Saudi Arabia has enormous potential to produce efficiencies in its current energy technology,” said Itani. “Even more exciting is the potential offered by solar energy and the development of a very significant amount of emission credits that could derive from it. It could help diversify the economy away from oil in the foreseeable future.”

Members of the public and environmental NGOs interested in attending the stakeholder meeting, which is taking place at 6 p.m. on Saturday, are invited to call Xenel-Balderrie’s Jeddah office at 604-8270 to register.