Under the agreement, companies will determine, within a year and a half, a "benchmark" world-best energy efficiency level for each particular process installation. They will then pledge to meet it in their own installations within twelve years, by which time they will be saving between five and nine million tonnes of carbon dioxide annually, according to government estimates. Firms using over 0.5 petajoules of energy annually will be eligible to sign the covenant, which in practice will mean companies in the chemicals, basic metals, oil refining, pulp and paper and power plant sectors.
The government says that firms participating in the scheme will probably be exempted from a planned national tax on energy, and that it would seek similar exemptions from any future EU-wide energy tax.
Once the covenant is signed, companies' progress towards achieving their commitments will be evaluated every four years. Within the first four-year period, they will be obliged to take all available measures to increase energy efficiency which yield a return on investment (ROI) of over 50%. If this fails to meet the benchmark levels, further measures must be taken by 2008, regardless of their ROI. If performance is still lacking by this time, the covenant envisages the use of Kyoto mechanisms of joint implementation and emissions trading to make up the difference.
Although the cost of meeting the targets is as yet unquantified, Jan van den Broek of the Dutch Confederation of Industry said it was "by far the most cost-effective way" of reducing emissions and said he expected virtually all of the hundred or so eligible companies to sign the covenant.
Under the deal, companies will be able to determine their energy efficiency targets in any of three ways. Under the first, firms can work to match the average energy efficiency in a geographical area deemed to have the best performance. In the case of oil refineries the target area will probably be North Rhine Westphalia, according to Mr van den Broek. Secondly, firms can rate themselves against the average energy efficiency of the world's top 10% installations. The third will mean targeting a performance no less than 10% worse than the world's most efficient individual installation.
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