Document of THE WORLD BANK

FOR OFFICIAL USE ONLY

Report No. 39667 - CO

PROJECT APPRAISAL DOCUMENT

OF A

PROPOSED PURCHASE OF EMISSION REDUCTIONS BY THE ITALIAN CARBON FUND

IN THE AMOUNT OF US$3,628,810

FOR THE

REPUBLIC OF COLOMBIA CARTAGENA LANDFILL GAS RECOVERY PROJECT

May 3, 2007 Environmentally and Socially Sustainable Department Colombia and Mexico Management Unit Latin America and Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENT (Exchange Rate Effective December, 2006)

Currency Unit = US$ Colombian Pesos (COP) = US$0.0004

US$1.3 = €1

Fiscal Year 2007

ABBREVIATIONS AND ACRONYMS

CARDIQUE Corporación Autónoma Regional del Canal del Dique (Regional Environmental Authority) CAS Country Assistance Strategy CDM Clean Development Mechanism CERs Certified Emission Reductions CF Carbon Finance CO2e Carbon Dioxide Equivalent DNA Designated National Authority (Autoridad Nacional Designada) DOE Designated Operational Entity (Entidad Operacional Designada EOD) EIA Environmental Impact Assessment EMP Environmental Management Plan ERs Emission Reductions ENVCF Carbon Finance Unit ERPA Emission Reduction Purchase Agreement FOD First Order Decay GEF Global Environment Facility GHG Greenhouse Gas GODC Government of the District of Cartagena (Alcaldía Distrital de Cartagena) GOC Government of Colombia GWP Global Warming Potential IPCC Intergovernmental Panel on Climate Change IRR Internal Rate of Return LCSEN World Bank Latin America and the Caribbean Environmentally and Socially

Sustainable Development – Environment Family LDLC Loma de los Cocos LFG Landfill Gas LoI Letter of Intent MAVDT Ministerio de Medio Ambiente, Vivienda y Desarrollo Territorial (Ministry of

Environment, Housing, and Territorial Development) MP Monitoring Plan MSW Municipal Solid Waste NGO Nongovernmental Organization NMVOC Non-methane Volatile Organic Compounds NPV Net Present Value OCMCC Oficina Colombiana para la Mitigación del Cambio Climático (Colombian

Office for Climate Change Mitigation, the country’s Designated National Authority)

PCF Prototype Carbon Fund PDD Project Design Document SWM Solid Waste Management tCO2e Tons of Carbon Dioxide Equivalent UNFCCC United Nations Framework Convention on Climate Change VERs Verified Emission Reductions

Vice President: Pamela Cox Country Manager/Director: Isabel M. Guerrero

Sector Manager: John H. Stein Task Team Leader/Task Manager: Horacio Terraza

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

COLOMBIA

Landfill Gas Recovery Umbrella Project

CONTENTS

A. STRATEGIC CONTEXT AND RATIONALE ....................................................... 1 1. Background............................................................................................................. 1 Solid Waste Management in Colombia....................................................................... 1 2. Project Eligibility .................................................................................................... 2 3. Rationale for Bank Involvement............................................................................. 3

B. PROJECT DESCRIPTION....................................................................................... 5 1. Overall Description................................................................................................. 5 2. Project Development Objective .............................................................................. 6

C. IMPLEMENTATION ............................................................................................. 10 1. Institutional and Implementation Arrangements .................................................. 10 2. Monitoring and Evaluation of Outcomes and Results .......................................... 11 3. Critical Risks and Possible Controversial Aspects ............................................... 12 4. ERPA Conditions and Covenants ......................................................................... 13

D. APPRAISAL SUMMARY ...................................................................................... 13 1. Technical Analysis................................................................................................ 14 2. Financial Analysis................................................................................................. 15 3. Social Analysis...................................................................................................... 17 4. Environmental Analysis........................................................................................ 18

................................................................................................................................... 20 Annex 1: Detailed Project Description ........................................................................ 21 Annex 2: Implementation Arrangements...................................................................... 30

Annex 3: Financial and Economic Analysis................................................................. 32 Annex 4: Safeguard Policy Issues................................................................................ 38 Annex 5: Project Preparation and Supervision ............................................................. 45 Annex 6: Emission Reduction Purchase Agreement and Term Sheet .......................... 46 Annex 7: Carbon Finance Risk Assessment ................................................................. 47

List of Tables Table 1: Key Performance Indicators for the Cartagena Landfill Gas Recovery Project .............................. 6 Table 2: Annual estimated ERs (tons of CO2e/year) in the........................................................................... 9 Table 3: Comparison of conditions in LoI and ERPA................................................................................. 10 Table 4: Risk Ratings of the Cartagena Landfill Gas Recovery Project .............................................. 12 Table 5: Fixed costs..................................................................................................................................... 15 Table 6: Variable Costs ............................................................................................................................... 15 Table 7: Percentage of the base ER scenario............................................................................................... 16 Table 8: Purchasing period: 2008–2016 (LDLC) ........................................................................................ 17 Table 9: Applicability of safeguard policies to the Cartagena Landfill ....................................................... 19 Table 10: Estimated and actual methane capture......................................................................................... 23 Table 11: Estimated ERs in the Loma de los Cocos landfill, base scenario ................................................ 24 Table 12: History and projection of waste disposal at LDLC landfill .......................................................... 26 Table 13: Baseline emissions at LDLC according estimations of potential methane generation ................. 27 Table 14: Methane data monitoring.............................................................................................................. 28 Table 15: Financial assumptions .................................................................................................................. 33 Table 16: Financial analysis of project cash flow for LDLC, 2007–2016 (10 percent discount rate, US$10.4 per CER, and US$9.1 per VER, base scenario)............................................................................................ 35 Table 17: Financial analysis for purchasing period 2008–2016, LDLC....................................................... 36 Table 18: Recommendations of the Environmental Audit for LDLC .......................................................... 39 Table 19: Trace Components in LFG ........................................................................................................... 42 Table 20: Components of LFG Flaring Exhaust Gas .................................................................................. 43 Table 21: Emission Standards from LFG Flaring in Germany and England............................................... 44

COLOMBIA

Cartagena Landfill Gas Recovery Project

PROJECT APPRAISAL DOCUMENT

Latin America and Caribbean Region (LCR) Environmentally and Socially Sustainable Development (ESSD)

World Bank CFU

Date: March 23, 2007 Country Director: Isabel M. Guerrero Sector Manager/Director: John H. Stein Project ID: P103015 Lending instrument: World Bank Italian Carbon Fund

Team Leader: Horacio Terraza Sectors: Solid Waste (100%) Environmental screening category: B Safeguard screening category: S2 Theme: Climate Change and Pollution Management and Environmental Health

Project Financing Data

[ ] Loan [ ] Credit [ ] Grant [ ] Guarantee [X] Other: Emission Reductions (ERs) Purchase For Loans/Credits/Others: The Project does not involve Bank financing. Total Bank Carbon Financing amounts to US$3,628,810 Proposed terms: €8 per ton CO2e for 220,325 CERs and €7/tCO2e for 146,883 VERs for the period 2007–2016

Financing Plan ($m.) Source Local Foreign Total

Borrower: Not a lending operation IBRD/IDA: Others: Italian Carbon Fund Total:

US$3,628,810 US$3,628,810

US$3,628,810 US$3,628,810

Borrower: Not a lending operation Responsible for Implementation: Caribe Verde S.A.E.S.P.

Estimated disbursements 2007–2016 (FY/$) US$3,628,810 FY 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annual 680,000 9,366 260,812 358,229 448,834 534,134 657,457 679,179 0 0 Cumu-lative 680,000 689,366 950,178 1,308,407 1,757,240 2,291,375 2,948,832 3,628,010 3,628,010 3,628,010

Project implementation period: FY2007 through FY2016 Expected effectiveness date: June 30, 2007 Expected closing date: December 31, 2016

Does the project depart from the Country Assistance Strategy (CAS) in content or other significant respects? No

Does the project require any exceptions from Bank policies? Have these been approved by Bank management? Is approval for any policy exception sought from the Board?

No Yes No

Does the project include any critical risks rated “substantial” or “high”? No Does the project meet the Regional criteria for readiness for implementation? Yes

Project development objective: Ref. PAD page 5 The objective of the Cartagena Landfill Gas Recovery Project is twofold. At global level, the project will help mitigate climate change through the reduction of greenhouse gas emissions caused by methane generated at the newest landfill in Cartagena. At local level, the project aims to improve public health through the installation of a landfill gas (LFG) flaring system at the landfills. The flaring system will improve air quality through the reduction of hazardous trace gases contained in LFG and reduce the risk of uncontrolled fires and explosion at the landfills. Indirect development objectives include raising awareness of climate change and demonstrating the feasibility of better solid waste final disposal practices aligned with Clean Development Mechanism (CDM) and carbon finance possibilities in Latin America. The main beneficiaries will be both formal and informal workers at the landfills and the people living in the surrounding communities.

Project description: Ref. PAD Annex 1

The purpose of the Cartagena Landfill Gas Recovery Project is to capture and destroy methane generated in Loma de los Cocos landfill that belongs to the District of Cartagena and sell the resulting emission reductions (ERs) to the Italian Carbon Fund. The project consists of the design, implementation, and monitoring of LFG extraction, treatment, and flaring facility at this landfill. Such facility will allow the capture and destruction of methane generated through the anaerobic decomposition of organic matter disposed in the landfill. A detailed project description is found in annex 1.

Which safeguard policies are triggered, if any? Ref. PAD annex 4 O.P. 4.01 – Environmental Assessment

Significant, non-standard conditions, if any, for: Board presentation: None, as no World Bank lending is involved Effectiveness: Effectiveness will be achieved upon execution (signature) of the Emission Reductions Purchase Agreement (ERPA), as there are no conditions precedent. Covenants applicable to project implementation: None

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A. STRATEGIC CONTEXT AND RATIONALE

1. Background

Solid Waste Management in Colombia

Waste management in Colombia faces many challenges. As in most developing countries, waste is far from being disposed of adequately, and landfills share serious problems. Colombia produces approximately 28,800 tons of solid waste per day. It is estimated that approximately 20 percent of the waste generated in the country is disposed of in open dumps with no daily or final coverings and that approximately 40 percent is disposed of with inadequate final disposal practices. Inadequate disposal results in environmental and health problems such as surface and groundwater contamination, air pollution, and increased transmission of illness by vectors such as flies and rodents.

The Ministry of Environment, Housing and Territorial Development (Ministerio de Medio Ambiente, Vivienda y Desarrollo Territorial, or MAVDT) is committed to the improvement of the final disposition of urban solid waste. Landfills are beginning to replace open-air dumps as a result of recent action by the Ministry. In 2002 the MAVDT dictated Decree 1713, which mandated the closing of open-air dumps beginning October 3, 2005. Decree 838 of 2005 promoted and facilitated the localization, planning, and operation of solid waste management final disposal systems. Based on these decrees, the MAVDT has initiated the process of promoting the regionalization of final disposition and complementary activities.

The waste management situation in Cartagena is similar to that in the rest of the country. Cartagena has two main landfills, Henequén, which is closed, and Loma de los Cocos (LDLC), the district’s current landfill, opened in January 2006 and located in a rural area. Henequén, which is located in a predominantly urban area, was the district’s landfill from 1993 to 2002. Most of the waste disposed of in this old controlled landfill was of residential and industrial origin. It is not clear whether hazardous materials have been disposed in the area. Leachate has not been properly monitored, and some kind of control and monitoring is required. The operator of LDLC obtained an environmental license, but many of the requirements of this license are not being met. Landfill operation is weak, specifically related to the lack of instruments to monitor the landfill’s stability, lack of information about the management and effectiveness of the leachate recirculation system, and lack of information about control and monitoring of the aquifer.

The Government of the District of Cartagena (GODC), via a mandate to the LDLC landfill operayor, Caribe Verde S.A.E.S.P., will address the issues in both landfills described above through the implementation of a methane capture and flaring facility in LDLC. Methane will be eliminated, and the equivalent tons of avoided carbon dioxide (CO2) emissions will be sold to the Italian Carbon Fund. Part of the earnings of this project will be used to improve the environmental management conditions at the site of the already closed Henequen landfill. The latter will contribute to the fulfillment of the requirement set by the Designated National Authority (DNA) that calls for contribution of the project to sustainable development. The mandate issued by the GODC, which is based on a business plan agreed upon by both parties, provides incentives to the operator of LDLC to improve the management of the landfill by

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making it a direct beneficiary of the earning of the project. Moreover, a clear time-bound action plan, to ensure that LDLC is operating in accordance with requirements set out in the environmental license, will be prepared and presented as part of the ERPA. This plan of action will be based on the recommendations made by the environmental audit hired by the Bank for LDLC, and will be monitored by a third party verifier hired for periodic verification of ERs and verification of compliance with Bank safeguards.

2. Project Eligibility

Climate Change and the Kyoto Protocol

The third session of the Conference of the Parties (COP-3) to the United Nations Framework Convention on Climate Change (UNFCCC) resulted in the Kyoto Protocol, by which industrialized countries and economies in transition (Annex I countries) committed themselves to greenhouse gas (GHG) emission reduction (ER) targets. Under this international agreement, which entered into force in February 2005, countries committed to reducing an average of 5 percent of their 1990 GHG emissions during the first commitment period (2008–2012). In order to help Annex I countries achieve compliance in a cost-effective manner, the Kyoto Protocol established three market-based instruments—the Clean Development Mechanism (CDM), Joint Implementation (JI), and International Emissions Trading (IET)—that allow countries to buy and sell ERs in a global market. Colombia signed the Kyoto Protocol and ratified it on November 30, 2001.

The CDM allows Annex I countries to buy emission reductions generated in developing countries. Article 12 of the Kyoto Protocol established the CDM, whose main goal is to assist Annex I countries in achieving their emission reduction targets while contributing to sustainable development in developing countries.

Consistency with the UNFCCC and Kyoto Protocol

Capturing and flaring methane generated in landfills reduces GHG emissions. Municipal solid waste (MSW) usually contains a high degree of organic matter. Anaerobic decomposition of such matter generates methane (CH4). While other gases, such as carbon dioxide (CO2), are also present in the landfill gas (LFG), the largest proportion (50 percent) is usually methane. Because methane is combustible, emissions can be avoided by flaring this gas in a controlled manner. Even though the result of this combustion will be mainly CO2 (another greenhouse gas), emissions are reduced because of the destruction of methane, which is 21 times more powerful than carbon dioxide in trapping heat in the earth’s atmosphere.

The Cartagena Landfill Gas Recovery Project is in compliance with the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol. The project will reduce GHG emissions, generating ERs that will be sold to industrialized countries represented under the Italian Carbon Fund. The project will also contribute to sustainable development in Colombia by contributing to better quality of life and air quality in the area of influence of the landfill, as well as improving solid waste final disposal practices through flaring LFG generated at the landfill.

Consistency with Relevant National Criteria

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National Climate Change Criteria

The Government of Colombia (GOC) has assigned a high priority to climate change. Colombia has been a party to the UNFCCC since 1995 and has signed and ratified the Kyoto Protocol (Law 629, enacted November 30, 2001). The country has been a leading participant in discussions on the provisions and regulations of the CDM, in the context of the international negotiations under the auspices of the UNFCCC, and has developed a detailed negotiations agenda on items leading to the definition of the rules for the CDM.

The government has undertaken several activities as part of its commitment to maximize the benefits offered by the international carbon market, including a national assessment for the optimal use of the CDM, undertaken and completed in 2000 with Bank support. The study assessed the Colombian market for GHG reductions and designed a specific action plan to maximize the potential benefits of the CDM in Colombia. The government also has taken steps leading to the further development of institutional capacity through a) organizing an inter-institutional committee under the auspices of the Office of the Vice-President to ensure full coordination on climate change issues and b) setting up a Climate Change Office (Oficina Colombiana para la Mitigación del Cambio Climático, or OCMCC), which has been in operation for the past 4 years. On the basis of the studies sponsored as part of the National Strategy Studies (NSS), other inputs, and the development of institutional capacity, the government has defined the following main thrusts of a National Climate Change Plan:

• Strengthen capacity to adapt to the anticipated impacts from climate change; • Promote reduction of emissions and increase the sequestration capacity for greenhouse

gases; • Minimize the adverse impacts on the nation’s exports of fossil fuels; • Promote scientific capacity and the availability of information on the impacts of

climate change on the nation’s economy and ecosystems; and • Promote financial mechanisms for the adoption and funding of response actions.

National Solid Waste Management Criteria As described in section A.1, the government, through the MAVDT, has shown a clear political, legal, and economic commitment to improving final disposition of urban solid waste.

3. Rationale for Bank Involvement

The CDM is a valuable source of income and contributes to local sustainable development. It therefore is an important tool for achieving rapid and sustainable growth, one of the pillars of the Country Assistance Strategy (CAS) for Colombia, released in 2003. The other pillars of the CAS are sharing the fruits of growth and building efficient, accountable, and transparent governance. Assistance has centered on four programmatic development policy loans to support the government’s reform agenda in the fiscal, financial, environmental, and social sectors. Complementing this assistance, the Bank has also provided investment lending and grants in education, water, transportation infrastructure, rural development, renewable energy, urban services, assistance for forcibly displaced populations, and environment and natural resource management.

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CDM projects for LFG capture and flaring contribute to sustainable development. Domestically, they contribute by (i) improving living standards through better air quality and reduced risk of uncontrolled fires and explosion at the landfills (flaring system reduce not only the flammability level but also the hazardous trace gases contained in LFG) and (ii) contributing to the adoption of a more sustainable SWM system through re-investing ER revenues to improve the existing system. At the same time, the project contributes to global sustainability by reducing GHG emissions from LDLC landfill in Cartagena.

The Bank is currently discussing with the GOC the preparation of a SWM investment project called Colombia sin Botaderos a Cielo Abierto (Colombia without Open Dumps), to finance landfill construction and closure of open dumps. The proposed Cartagena Landfill Gas Recovery Project complements this project by providing an example to other landfills throughout the country of an additional source of income to finance the proper operation of landfills.

The project is economically feasible solely through the commercialization of greenhouse gas ERs, demonstrating alignment with the Bank’s strategy of fighting climate change through market-based mechanisms, among other initiatives. Specifically, the project is in tune with the following main strategic objectives of carbon finance:

1. High-quality ERs to show how project-based GHG emission reduction transactions can promote and contribute to sustainable development and lower the cost of compliance with the Kyoto Protocol;

2. Knowledge dissemination to provide the Parties to the UNFCCC, the private sector, and other interested parties an opportunity to “learn by doing” in the development of policies, rules, and business processes to achieve ERs under the CDM; and

3. Public-private partnerships to demonstrate how the Bank can work with the public and private sectors to mobilize new resources for its borrowing member countries while addressing global environmental problems through market-based mechanisms.

Finally, the project is expected to continue to raise awareness of the role of carbon finance in the solid waste sector and other sectors that are CDM compatible in Colombia and the region.

The Bank’s Comparative Advantage

The World Bank is uniquely positioned to support this project because of its extensive experience and expertise in LFG capture and management through the implementation of several LFG-to-Energy and LFG flaring projects in the region,1 both under the CDM framework and sponsored by the Global Environment Facility (GEF).

1 The Bank implemented the first LFG-to-Energy project in Monterrey, Mexico, sponsored by the GEF, the LFG-to-Energy GEF-sponsored project in Maldonado, Uruguay, and the Carbon Finance project Nova Gerar in Brasil, as well as other Carbon Finance LFG flaring projects in Olavarría, Argentina, and Montevideo, Uruguay. Of these, methane is currently being recovered from Monterrey, Olavarría, and Maldonado, while for Montevideo and Nova Gerar an ERPA has been signed but no ERs have been generated yet.

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How the Project Fits into the Carbon Finance Strategy of the Bank

The Bank’s engagement in Carbon Finance began in 1999 and since has multiplied by almost 10 times. Bank-administered Carbon Funds have grown quickly since the establishment of the US$180 million Prototype Carbon Fund in 1999, from US$413.6 million on July 1, 2004, to approximately US$914.7 million on July 1, 2005. With the Umbrella Carbon Facility, Bank-administered Carbon Funds reached US$1,638.9 million by July 1, 2006.

Although the Bank’s initial role was to catalyze the market for carbon emission reductions, carbon finance is now emerging as part of the Bank’s mainstream lending program. In light of various external developments, not the least of which is the entry into force of the Kyoto Protocol on February 16, 2005, the following objectives have emerged for the Bank’s carbon finance activity as it matures:

1. To ensure that carbon finance contributes substantially to sustainable development beyond its contribution to global environmental efforts;

2. To assist in building, sustaining, and expanding the international market for carbon emission reductions and its institutional and administrative structure; and

3. To further strengthen the capacity of developing countries to benefit from the emerging market for emission reduction credits.

In addition to contributing to sustainable development, as explained above, the project will help build the capacity of the District of Cartagena and foster important technology transfer, enabling the country to position itself as a player in the carbon market.

B. PROJECT DESCRIPTION

1. Overall Description The purpose of the Cartagena Landfill Gas Recovery Project is to capture and destroy methane generated in LDLC landfill in Cartagena, which began operations in January 2006, and sell the resulting ERs to the Italian Carbon Fund. The project consists of the design, implementation, and monitoring of LFG extraction, treatment, and flaring facilities at the identified landfill. Such facility will allow the capture and destruction of methane generated through the anaerobic decomposition of organic matter disposed in the landfill.

The proposed project is expected to displace an estimated 553,721 metric tons of carbon dioxide equivalent (tCO2e) by 2016 and about 2.2 million tCO2e by 2028. The World Bank’s ENVCF intends to buy approximately 367,208 tCO2e over a period of 9 years (2008–2016). The investment cost is estimated at U$800,000, to be invested throughout the duration of the contract with the Bank. Additional costs include U$180,000 for World Bank and CDM due diligence, U$20,000 annually for verification, plus supervision costs of U$20,000 per year for the first four years of the project. Financial resources equal to the minimum between the initial construction costs, or 25 percent of expected revenues, will be available on an up-front basis through the World Bank’s ENVCF, if requested by the project sponsor. A detailed project description is found in annex 1.

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2. Project Development Objective

The objective of the Cartagena Landfill Gas Recovery Project is twofold: at global level, to help mitigate climate change through the reduction of greenhouse gas emissions caused by methane from LDLC landfill in Cartagena, and at local level, to improve public health through the installation of an LFG flaring system at the landfill. The flaring system will improve air quality through the reduction of hazardous trace gases contained in LFG and reduce the risk of uncontrolled fires and explosion at the landfill. Indirect development objectives include raising awareness of climate change and demonstrating the feasibility of better solid waste final disposal practices aligned with CDM and carbon finance possibilities in Latin America. The main beneficiaries will be the formal workers at the landfill and the people living in the surrounding communities.

Indicators for Achievement of Development Objective

Key performance indicators to measure the results of the project’s intervention are listed in Table 1.

Table 1: Key Performance Indicators for the Cartagena Landfill Gas Recovery Project

Indicator type Outcome indicator

Fulfillment of the Carbon Development Mechanism (CDM) project cycle

The emission reductions attained during the period 2008–2012 have to comply with CDM rules. In order for Annex I countries to use emission reductions (ERs) generated under the CDM framework toward their Kyoto Protocol obligations, ERs need to be certified under the rules set by the CDM Executive Board. The task team will provide the necessary technical support to ensure that all steps in the CDM project cycle are completed and that ERs become CERs (Certified Emission Reductions): development of the project design document (PDD), validation, registration and certification. This will allow the eventual transfer of CERs to the Italian Carbon Fund.

Timely delivery of ERs The project in Loma de los Cocos (LDLC) will deliver to the Bank estimated tCO2e in the range of 176,260 and 312,127 by 2012, and in the range of 117,507 and 208,085 from 2013 to 2016.

Project Benefits and Main Beneficiaries

The main global benefit is the reduction of GHG.

Locally, the project will improve air quality, reduce the risk of uncontrolled fires and explosion in the landfill, and contribute to the improvement of the local labor market by creating jobs in the construction, operation, and maintenance stages of the LFG recovery and flaring plant. Improved air quality (see annex 4 for detailed information) and reduced risk of

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uncontrolled fires and explosion mainly will benefit people who work in the site and people working and living nearby. Other municipalities in the landfill vicinity also will benefit from the project because wind can blow hazardous trace substances far from their source.

The project in LDLC also will help remediate a long-term environmental problem at Henequen, the landfill used by the District of Cartagena from 1994 to 2002. Part of the profits from the sale of ERs will be used to improve the closure management conditions at the Henequen landfill.2 Key environmental issues will be addressed including the improvement of leachate and rainfall management.

Monitoring of Global and Local Environmental Benefits

The main global benefit, ERs, will be monitored directly on site through the following variables:

1. LFG flow from the landfill 2. Methane content in LFG

The risk of uncontrolled fires and explosions at the site will be reduced significantly as a result of the capture system operation. The number of incidents will be monitored. Better air quality may result in fewer cases of respiratory diseases, although it will not be possible at this point to link the project outcome directly to such an improvement because of the lack of baseline information and the high costs involved.

Additional direct benefits are the improvement of the environmental management of the LDLC final disposal site. LDLC management will be monitored by a third party verifier hired for periodic verification of ERs and verification of compliance with Bank safeguards based on a clear time-bound plan of action also referenced in the ERPA. Additional indirect benefits are associated with the upgrading conditions of the closed Henequen controlled landfill. These benefits will be assessed by the Bank, based on the fulfillment of activities identified as contributing to sustainable development, as required by the DNA. These activities will be identified by the GODC, with the no objection of the Bank, and will be implemented by the LDLC landfill operator.

3. Carbon Finance Component

ERs will be the project’s sole source of income because the project does not aim to pursue electricity generation. Generation of electricity from LFG is not competitive compared to the prevailing mix of electricity generated in the country. The Carbon Finance revenue is therefore essential for the profitability of the project.

Expected Amount of Emission Reductions to be Generated over Time

2 Activities to be addressed for improving the environmental management conditions of this site can be summarized in the following categories: (i) Fencing the landfill property; (ii) Improving leachate management; (iii) improvement rainfall management; and (iv) Improving monitoring (e.g., providing necessary instruments to asses the stability of the landfill mass, leachate, and pollution of underground water).

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ERs are generated in LFG projects by flaring the methane produced in the landfill. Estimating ERs involves calculating the amount of methane that is likely to be generated (baseline) and the extraction and flaring efficiencies of the installation to determine the amount of methane that will be captured and flared.

Estimations of ERs for LDLC were estimated by the task team and are congruent with the results obtained by an international engineering company with extensive experience and solid international reputation in the LFG field. Three methane recovery scenarios were run: with high, medium, and low potential. Because similar projects in the region that currently generate ERs have shown that ERs have usually been overestimated, the most conservative of the three methane recovery scenarios was defined as the base scenario for this PAD.

Methane capture potential goes hand by hand with the design and management quality of the landfills. Differences between real and estimated gas extraction could indicate either that the models used are deficient or that the model as designed is not appropriate for the specific reality it is trying to model—that is, poorly designed and managed landfills where waste is still deposited in open dumps.

ERs—avoided methane emissions expressed in CO2 equivalent terms3—are estimated by discounting from the baseline estimation the extraction and flaring inefficiencies, i.e., methane emissions that are neither captured nor destroyed. Table 2 shows the number of ERs the LDLC project is expected to generate annually,4 achieved under the high and low recovery scenarios.

Under the low methane recovery scenario, the LDLC project will result in a reduction of approximately 220,325 tCO2e from 2008 until 2012 (the end of the Kyoto Protocol’s first commitment period) and up to 2,199,177 tCO2e by the year 2028.

3 The Global Warming Potential value for methane for the first commitment period is 21 tCO2e/tCH4. 4 The estimated number of ERs to be generated by the LDLC for the period 2013–2016 differs from the number of ERs expected to be delivered to the Bank (Table 1). ERs expected to be delivered to the Bank correspond to those that the Bank is considering to purchase in the ERPA. As explained in the following section, the number of ERs that the Bank may purchase from those generated since 2013 is restricted by a rule that limits the number of verified emission reductions, or VERs (in this case those generated and verified between 2013 and 2016) to the number of certified emission reductions, or CERs (those generated and certified between 2008 and 2012) generated by the project.

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Table 2: Annual estimated ERs (tons of CO2e/year) in the Loma de los Cocos landfill

Year tons of CO2e/year

High Low 2008* 19,802 13,978 2009 54,053 38,155 2010 67,323 47,522 2011 79,665 56,234 2012 91,284 64,436 2013 102,352 72,248 2014 113,012 79,773 2015 123,382 87,094 2016 133,565 94,281 2017 143,644 101,395 2018 153,69 108,487 2019 163,766 115,600 2020 173,926 122,771 2021 184,216 130,035 2022 194,678 137,420 2023 205,348 144,951 2024 216,259 152,654 2025 227,444 160,548 2026 230,978 163,044 2027 226,76 163,771 2028 200,465 144,780

Total under Kyoto’s first commitment

period 312,127 220,325

Total estimated reductions 3,105,612 2,199,177

% of Kyoto ERs generated by the

project 10.1 10.0

Only includes ERs generated from July 2008

Proportion of ERs to be Purchased by the Bank Carbon Fund and Purchase Price

A LoI with the GODC was signed on July 5, 2006. Several conditions set in this LoI are being reconsidered in the ERPA. These changes are summarized in Table 3: Comparison of conditions in LoI and ERPA.

The Bank will purchase 367,208 ERs from LDLC generated during the period 2008–2016. Sixty percent will correspond to CERs generated before 2012, to be purchased at a price of €8 (US$10.4), and the remaining 40 percent will correspond to verified ERs (VERs) generated after 2012 and before the end of the contract in 2016, to be purchased at a price of €7 (US$9.1). The 60/40 proportion of CERs to VERs is a restriction set by the Italian Carbon Fund. CERs to be purchased correspond to 100 percent of the ERs estimated in the base

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scenario for the period 2008–2012, while VERs to be purchased correspond to 47 percent of the ERs estimated in the base scenario for the period 2013–2016.

Table 3: Comparison of conditions in LoI and ERPA

Conditions LoI ERPA

Project Sponsor GODC Caribe Verde S.A.E.S.P.

Landfills LDLC and Henequen LDLC

ERs and duration To buy the first 400,000 ERs

(tCO2e) generated in each landfill between 2007 and 2012

To buy CERs and VERs until 2016 in a proportion of 60% CERs and

40% VERs, translates into 220,325 CERs and 146,883 VERs for a total

of 367,208 ERs

Price Minimum €6 (US$7.8) per ER €8 per CER and €7 per VER

Up-front payment Maximum €600,000 for each project (U$780,000), equivalent to 25% of

expected revenues

Minimum between the construction cost and 25% of expected revenues,

approximately US$500,000 based on current estimates

Flow of Funds

A special account in Colombian pesos will be established to receive the up-front resources, if requested by the project sponsor, and ER payments.

The Carbon Finance Group intends to provide, if requested by the sponsor, an advance payment for the project to kick-start project design and construction. If this payment is made available, it will be disbursed only against reasonable and verifiable milestones (e.g., plant design, equipment purchase, civil works, and equipment installation). The advance payment would be the minimum between the construction cost (approximately US$500,000) and 25 percent of the expected revenues of the LFG flaring project.

If provided, the advance payment to finance initial investment costs will be paid by discounting the ER payment to be made to the project sponsor in the same amount. The Bank will be reimbursed for both external and Bank administrative preparation costs by discounting the project sponsor’s ER payments by an equivalent amount. Only after the advance payment and preparation costs are fully paid will ER payments be proportional to the ERs delivered, based on the ER price defined in the ERPA minus supervision and verification costs.

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C. IMPLEMENTATION

1. Institutional and Implementation Arrangements

The project will be implemented by the project sponsor, Caribe Verde S.A.E.S.P., the landfill operator of LDLC. The District of Cartagena, who is the owner of the site where the landfill is located and of the waste disposed off in LDLC, has granted a mandate to the landfill operator by which it authorizes it to negotiate and sign the ERPA.

The task team has made clear that it favors an international bidding process for the design and construction, leaving the operation of the plant under the responsibility of the current landfill operator. Experience from previous LFG projects implemented by the Bank indicates that an international firm will provide the technology. Most of the experience in LFG project design is concentrated in Europe, the United States, and Canada.

Procurement Issues

Because the Cartagena Landfill Gas Recovery Project is not a standard Bank operation (i.e., loan or grant), the procurement process will not follow Bank guidelines. Instead, it will follow municipal procurement procedures or a private process in case to be carried out by the operator. In this case, the Bank shall be satisfied that the project will fulfill the project sponsor’s expectations under the ERPA.

The World Bank-administered Carbon Funds only buy emission reductions. If provided, any up-front payment through the ERPA is regarded as an advance payment for the purchase of a commodity (ERs), and there is no procurement involved in this operation.

Nevertheless, advance payments expose the Bank-administered Carbon Fund to higher risk related to the project completion risk and project under-performance. Therefore, if an advance payment is requested by the project sponsor, ENVCF will require an acceptable letter of credit or other form of bank guarantee to cover the financial risk of lack of reimbursement as a result of project non-completion or under performance.

Institutional Capacity Constraints to be Addressed

Because this kind of project represents a relatively new concept in Latin America, the project needs to address the following capacity constraints:

1. Design of the bidding document. Because of a lack of specific qualifications and experience for the commercial and technical aspects of the bidding documents, if required, the Bank will provide technical assistance to the LDLC landfill operator for the design and elaboration of the bidding document;

2. Selection process and award of contract. Guidance may be needed because the availability of specific technical skills necessary to complete this stage is unknown. The Bank will assess whether an engineering firm has to be hired to carry out this activity; and

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3. CDM project cycle. Guidance for the different stages may be needed to complete the process in a timely manner.

2. Monitoring and Evaluation of Outcomes and Results

Because the main indicator for this project is the timely delivery of ERs, performance will be evaluated according to achievement of the expected ERs (CERs and VERs), as described in the monitoring plan included in the ERPA. The ERPA also will determine how often the Italian Carbon Fund should be informed of the ERs achieved.

To satisfy the requirements of the CDM Executive Board, the Bank will hire the services of a Designated Operational Entity (DOE) to validate i) project design, ii) baseline estimate, iii) ERs to be achieved, iv) contribution to sustainable development, v) stakeholder consultation, and vi) monitoring plan laid out in the Project Design Document (PDD). Another DOE to be hired for periodic verification and certification of ERs will issue a verification report consisting of at least the following:

• A statement of the amount of ERs the project has generated in the relevant period, typically 1 year;

• Verification of compliance with Bank safeguards (if safeguard policies are violated, carbon payments will stop immediately); and

• Other matters as may be required by the UNFCCC or Kyoto Protocol.

Project performance also will be measured by comparing the contracted ERs delivered under the project against the target set during project design, with a margin of error of 20 percent.

3. Critical Risks and Possible Controversial Aspects

Table 4 lists the project risks, mitigation measures, and risk ratings. Overall project risk is low.

Table 4: Risk Ratings of the Cartagena Landfill Gas Recovery Project

Risk Risk mitigation measure Risk rating with mitigation

Baseline risk Baseline methodologies used in this type of project have been approved by the CDM Executive Board. Low

Additionality The project would be implemented only under the CDM framework because there is no regulation in Colombia requiring the flaring of landfill gas.

Low

Procurement risk The project is not a standard Bank operation and procurement fiduciary responsibilities are not applicable.

None

Environmental management

Based on the results of the environmental audit of LDLC, the Bank will set conditions in the ERPA to ensure that the district improves environmental management practices in the landfill. Similar conditions will be included in the ERPA for other

Low

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landfills if necessary. In the case of LDLC, the GODC has also, via a mandate based on a business plan agreed upon by both parties, provided incentives for the landfill operator to improve the management of the landfill by making it a direct beneficiary of the earning of the project.

Technical risks

Companies bidding for the design, construction, and operation of capture and flare facilities will be required to have extensive experience in these activities. Experience from similar Bank projects such as in Monterrey (Mexico), Maldonado (Uruguay), and Olavarría (Argentina) will also be taken into consideration.

Medium

ER non-delivery risk

Undertaking pre-feasibility studies and adopting a conservative ERs scenario generation for the assessment of the project Potential methane generation estimates were obtained from an adapted version of the LandGem model, originally developed by the U.S. Environmental Protection Agency (EPA). In addition, the project is being assessed on a conservative scenario of ER estimates. With the up-front payment from ENVCF, the sponsors are unlikely to breach the contract.

Medium

Financial risk

Because the project does not include lending, financial risk is limited to the Bank’s preparation costs and advanced payment, if the latter is requested by the project sponsor. In case the sponsor decides to ask for an advance payment, it will provide a letter of credit to cover the risk associated with it. Moreover, Carbon Finance will make its payments only on delivery of ERs, limiting the risk of non-recovery of preparation costs.

Because the project’s financial sustainability depends on the ERs agreed on in the ERPA, the baseline and ER estimates were based on conservative assumptions.

Low

Overall risk rating Low

4. ERPA Conditions and Covenants

The ERPA stipulates that written approval by the Colombian Designated National Authority is the condition for Article V of the General Conditions on Certified Emission Reduction Purchase Agreement to take effect.

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D. APPRAISAL SUMMARY

The section below analyzes the project’s technicalities, financial components, potential social and environmental impacts, and applicable Bank safeguard policies.

1. Technical Analysis

The proposed project in Cartagena will capture and destroy methane that is estimated to be generated at the LDLC landfill in the range of 176,260 and 312,127 by 2012, and in the range of 266,717 and 472,311 from 2013 to 2016.

LFG can leak from a landfill by two natural pathways: migrating into the adjacent sub-surface and venting through the landfill cover system. In both cases, without capture and control, the LFG (and methane) ultimately will reach the atmosphere. The volume and rate of methane emissions from a landfill is a function of the total quantity of organic material buried in the landfill and its moisture content, compaction techniques, temperature, waste type, and particle size. While methane emissions decrease after a landfill is closed (as the organic fraction is depleted), landfills typically continue to emit methane for 20 years or more after closure.

Internationally recognized technology for capturing and flaring LFG consists of connecting the landfill’s gas wells to pipes, which are ultimately connected to blowers. This configuration can create negative pressure inside the landfill that forces the gas to leave the site through the pipes.

Sites equipped with wells to allow for passive venting (passive collection of LFG for release into the atmosphere), as is the case with LDLC, allow quicker implementation because the structure is designed to allow LFG collection. The collection is passive rather than active. In this scenario, part of the project design will be to determine where to drill additional wells in the landfills to achieve maximum extraction performance. After the gas is extracted, it is sent to a treatment unit where humidity is removed to avoid corrosion and other problems in the upstream equipment (flow meters, gas analyzer, and flares). After the gas is analyzed, it is sent to the flares, which usually operate at temperatures above 1,000oC to eliminate all traces of methane, non-methane volatile organic compounds (NMVOC), and hazardous air pollutants.

This technical structure, which is applied elsewhere in the world, will be used in the Cartagena Landfill Gas Recovery Project. Careful design and operation will be necessary, but not necessarily sufficient, if the project is to achieve the expected outcomes. Because field experience from similar projects around the world has shown that ERs generally have been overestimated, there is a risk that expected outcomes would not be achieved independent from the technology used.

Baseline and Additionality

The baseline represents the GHG emissions that would occur if the project were not implemented, that is, “the amount of methane that would be emitted to the atmosphere during the crediting period in the absence of the project activity.” According to the CDM Modalities and Procedures, “A CDM project activity is additional if anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered

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CDM project activity.” Thus the proposed project is additional, as ERs from capturing and flaring methane in Cartagena would not occur without the CDM, simply because there is no legal framework in Colombia requiring LFG collection and flaring.

2. Financial Analysis

The financial evaluation of LDLC is based on financial projections only for the duration of the contract with the Bank, as there are no guaranteed revenues after the end of this contract.

Project investment costs for the capture and flare plant are estimated at US$800,000. Based on the experience of similar projects in the region, initial construction costs are estimated at approximately US$500,000; the remaining US$300,000 is assumed to be equally distributed over the remaining period the Bank is expected to purchase ERs from the project. Additional up-front CDM and World Bank due diligence costs are estimated at U$180,000. Also based on field experience, operation and maintenance costs are estimated roughly as 5 percent of accumulated project investment costs.

Table 5: Fixed costs

Landfill

Investment in extraction and flaring unit (US$)

CDM and World Bank

due diligence

(US$)

Total (US$)

LDLC 800,000 180,000 985,000

Table 6: Variable Costs

Landfill Operation and maintenance

costs/year (US$)

Verification of emission

reductions (US$)

Supervision Costs (US$)** Total (US$)

LDLC 25,000 * 20,000 20,000 65,000

*Initial investment costs are estimated at approximately US$500,000. Additional investments will be made during the lifetime of the project as the landfill increases in size. Therefore, operation and maintenance costs are expected to increase annually starting at a level of 5 percent of the initial construction cost. ** Supervision costs are only considered for the first four years of the project.

The analysis assumes that ENVCF will provide an advance payment of approximately US$500,000 to cover the initial investment costs, which together with the CDM and World Bank due diligence cost in principle will be recovered in five equal installments. However, if deduction of advance payment installments and/or CDM and World Bank due diligence costs for any reporting year would make the annual payment to the sponsor for that reporting year a negative number, the Bank will carry forward any amounts not deducted in that reporting year to the following reporting year.

The financial analysis considers the following assumptions:

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• Base scenario of ER estimation; • 2007 as the first year of investment and generation and purchase of ERs starting in July

2008; • Purchase of CERs and VERs at a ratio of 60/40; • CER price of €8 (US$10.4) and VER price of €7 (US$9.1), with a sensibility scenario

for a higher price of €10 (US$13) per CER and €9 per VER included; • 10 percent annual discount interest rate;5 and • No income tax or value added tax taken into account, based on formal consultation.

Because ERs are the sole source of income for such a project, profits are extremely vulnerable to variations in methane capture potential. Therefore, overestimation of ERs could risk the financial viability of the project. To assess this risk, the analysis also considers a sensibility analysis for lower methane capture potential: 70 percent and 50 percent of the base scenario.

The results of the financial analysis for LDLC show that the project is financially viable at the base price of U$10.4 for CERs and U$9.1 for VERs. Despite project sensitivity to different methane capture potential scenarios, the percentage of ERs of the base scenario at which the project breaks even is less than 45 percent, indicating that the project is financially viable within a wide range of methane capture. Initial investment costs would always be covered by the advance payment under the scenarios analyzed.

Table 7: Percentage of the base ER scenario at which the LDLC project would break even

Price Percentage $10.4 45% $13 36%

5 Similar to the approximately 9.3 percent yield of a Colombian treasury bond with annual payments for 9 years.

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Table 8 summarizes the main results of the financial analysis for LDLC.

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Table 8: Purchasing period: 2008–2016 (LDLC)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TotalERs 0 13,978 38,155 47,522 56,234 64,436 72,248 74,635 0 0 367,208

Cash Flow ($10.4 tCO2e, 100% inv. cost)

0 -106,066 142,809 237,654 325,687 428,416 549,167 568,339 0 0

Advanced payment $500,000IRR 181.95%NPV $1,290,253

Sensitivity analysis to capture potential ERs (CERs at U$10.4 and VERs at US$9.1) 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total NPV (10%) IRR

ER Estimated 13,978 38,155 47,522 56,234 64,436 72,248 79,773 87,094 94,281 553,721ERPA 100% 13,978 38,155 47,522 56,234 64,436 72,248 74,635 0 0 367,208 $1,290,253 181.95%ERPA 70% 9,784 26,709 33,265 39,364 45,105 72,248 30,570 0 0 257,045 $590,392 69.55%ERPA 50% 6,989 19,078 23,761 28,117 32,218 72,248 1,194 0 0 183,604 $118,345 20.96% ERPA values for 2014, 2015 and 2016 are restricted by the rule of 60/40 of CERs/VERs

Capture PotentialBreak Even

Price (U$/tCO2e)

AP/TI ($10.4) AP/TI ($13)

ERPA 100% 5.1 100 100ERPA 70% 7 100 100ERPA 50% 9.6 95.47 100

Price NPV IRR$10.4 1,290,253 181.95%$13.0 1,907,607 390.36%

ER Price Sensitivity

AP/TI: advance payment as a percentage of total investment

Further detailed information is presented in Annex 3.

3. Social Analysis

Overall, social impacts from the Cartagena Landfill Gas Recovery Project are expected to be positive. The construction, operation, and maintenance of the LFG recovery and flaring plant will generate employment. While a few positions will be filled by skilled labor, e.g., engineers and technicians, most of the jobs created will be filled by low-skilled laborers, many expected to come from the neighboring communities. Some will work building the plant, including drilling the gas wells and others will work as operators collecting data, checking pipelines, and playing other roles under the supervision of a chief operator or local manager.

There are no informal waste pickers at the LDLC landfill, so no negative impacts are expected from project implementation.

Public participation was taken into consideration during project preparation. On October 3, 2006, the GODC organized a presentation to introduce the proposed project activity to local stakeholders in Cartagena. The meeting gathered representatives and individuals from a number of organizations and institutions, including private companies, nongovernmental organizations (NGOs), public institutions, and community representatives, among others. Overall, most comments during the meeting concerned the social and environmental impacts of the project on the local and neighboring communities of the already closed Henequen landfill, and were taken as lessons learned and as a way to improve management at the LDLC landfill. LDLC does not have a neighboring community directly affected by the project, nor has any people living in the premises or surrounding areas. Some of the main comments received are listed below.

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• Both the local community associations (recycling organizations) and the ombudsman (veedor público) made formal requests to engage in project activities in a comprehensive way. According to the participants in the meeting, the development of the GHG capture and flare project should not take place in isolation, but should incorporate the objectives of other current initiatives at the already closed landfill (Henequen). These activities include the environmental management plan at LDLC and the improvement of the environmental management conditions at the site of the already closed Henequen landfill, which address a number of environmental and social aspects relevant to the local communities.

• Another request was made by the local community organizations from the Henequen area (recycling) to analyze the feasibility of using the gas generated at the sites not only for capturing and flaring purposes but also for electricity generation and particularly for providing gas to the local communities that currently are not serviced. Since this meeting, however, the scope of the project has changed, and Henequen no longer is being considered for extraction of gas.

• Representatives of the neighboring communities expressed the need to address the needs of families living close to both landfills through the implementation of the project. These families lack health and other basic services that should be addressed appropriately by the GODC.

The GODC received all comments and expressed its willingness to use some of the proceeds from the sale of ERs to address the specific concerns of the local community.

4. Environmental Analysis The project will help finance the installation and operation of methane recovery and flaring equipment, technical assistance to improve gas collection capacity as a result of proper waste management, and equipment and labor to monitor and verify gas capture and flaring. Based on experience in similar LFG flaring projects, the project should have no adverse environmental impacts. On the contrary, LFG flaring will help mitigate potentially negative environmental impacts resulting from i) methane flammability and the risk of explosion, ii) trace components that can be toxic and carcinogenic under long-term exposure conditions, iii) lack of oxygen as a result of increased methane presence in the vegetation root system, iv) odorous emissions that may disturb nearby neighborhoods and attract insects and related vectors of infection, and v) the larger global impact of methane released onto the atmosphere, as this gas is 21 times more powerful than carbon dioxide in contributing to global warming. In addition, the project will have an additional positive environmental impact derived from the improvement of the environmental management conditions at the site of the already closed Henequen landfill, using part of the project proceeds. The only possible negative impact could arise from the air emission pollutants associated with flaring combustion. These pollutants include nitrogen oxides, sulfur oxides, acid gases, non-methane volatile organic compounds, and particulate matter. However, this risk can be mitigated by proper technical specifications for well design and technologically proven flares, which would guarantee insignificant concentrations of these pollutants in terms of potential environmental effects.

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The installation and operation of an LFG gas capture and flaring facility, however, are associated with minimal works that may cause some nuisance and low environmental impact during the construction phase, including noise (mainly during construction), odor (during well drilling), particulate matter (from vehicles during construction and maintenance), soil disturbance (minimal impacts during the installation phase), and the visual impact of the facility. These impacts will be mitigated through Environmental Management Plans (EMPs), which will have to be produced by the contractor and acceptable to CARDIQUE and the Bank. In addition to the EMP, the Bank hired local consultants to undertake an environmental audit of the site to better understand current environmental conditions and the environmental compliance of the controlled landfill and its implications. The audit checked for i) a closure plan, ii) the landfill compliance with environmental and sanitary permits, (iii) the existence of mitigation measures at the landfill design stage, iii) the site location according to existing land use plans, and iv) the monitoring plan in place. The preliminary audit report concluded that the landfill management requires improvement. In particular, the landfill design can be improved to better fill the cells and achieve better leachate and rainfall drainage so that the nearby aquifer (the Gravas de Rotinet hydrological formation), which is not used yet, will not be polluted as the landfill expands. 5. Safeguard Policies Table 9 shows that the project is expected to trigger only one project safeguard policy, OP4.01 on Environmental Assessment. In addition to the completed environmental audit, which was disclosed through the Bank’s Infoshop on March 5th and the district’s Web site on February 23rd, the project will need an EMP acceptable to the Bank. The EMP will be produced during implementation by the contractor in charge of installing the LFG’s capture and flaring system, and will be disclosed through the GODC.

Table 9: Applicability of safeguard policies to the Cartagena Landfill

Gas Recovery Project

Policy Applicability

Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) Yes

Natural Habitats (OP 4.04, BP 4.04, GP 4.04) No

Forestry (OP 4.36, GP 4.36) No

Pest Management (OP 4.09) No

Cultural Property (OPN 11.03) No

Indigenous People (OD 4.20) No

Involuntary Resettlement (OP/BP 4.12) No

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ANNEX 1: DETAILED PROJECT DESCRIPTION

CARTAGENA Landfill Gas Recovery Project

The proposed project will capture and destroy methane that is currently generated in Loma de los Cocos landfill, which belongs to the District of Cartagena in Colombia, thereby reducing greenhouse gas (GHG) emissions and generating emission reductions (ERs) that will be purchased by the Bank on behalf of the Italian Carbon Fund. The objective of the Cartagena Landfill Gas Recovery Project is twofold: at global level, to help mitigate climate change through the reduction of greenhouse gas emissions caused by methane from the landfill and at local level to improve public health through the installation of a landfill gas (LFG) flaring system at the landfill. The flaring system will improve air quality through the reduction of hazardous trace gases contained in LFG and reduce the risk of uncontrolled fires and explosion at the landfill. The project activity will improve solid waste final disposal practices in LDLC through the installation of active recovery system, which will enhance the management of the landfill. Between 3.1 and 2.2 million tons of carbon dioxide equivalent (tCO2e) emitted to the atmosphere are expected to be avoided over a period of 21 years, beginning in 2008.6 This reduction will be achieved by flaring methane, which has a warming potential of 21 times that of CO2. Locally, the project also will contribute to improving the local labor market by creating jobs in the construction, operation, and maintenance stages of the LFG recovery and flaring plant. The project will encourage local supply of equipment and other components for the construction and operation of the LFG plant, increasing local knowledge. Similarly, it will help attract new players with the capacity to implement a new technology. Finally, the project will have an important replication potential, which will trigger environmental awareness of climate change and demonstrate the feasibility of better solid waste final disposal practices aligned with Clean Development Mechanism (CDM) and carbon finance possibilities, in addition to demonstrating the advantage of the GHG emission market and Kyoto mechanisms to finance new technologies in the Southern Cone. The project also will help remediate a long-term environmental problem at Henequen, the landfill used by the District of Cartagena from 1994 until 2002. Part of the profits from the sale of ERs will be used to improve closure management of the Henequen landfill. The latter will contribute to the fulfillment of the requirement set by the Designated National Authority (DNA) that calls for contribution of the project to sustainable development. Key environmental issues will be addressed including the improvement of leachate and rainfall management.

6 These numbers correspond to the low and high recovery scenario emission estimates.

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Capture and Flaring of Methane in LDLC, Cartagena Landfill Background The project will be implemented at LDLC, the district’s current landfill. The landfill site, Parque Ambiental los Cocos, covers 65 hectares and is located approximately 15 kilometers from the city of Cartagena, the capital of the Department of Bolívar. Bolívar is the largest of the eight departments that form Colombia’s Caribbean Region and the seventh largest in the country. Cartagena faces the Caribbean Sea to the west and has a tropical climate with average temperatures between 26ºC and 30ºC and 90 percent humidity. There are two seasons: April to November, during which the district receives 80 percent of the annual rainfall, and the dry season between December and March. According to the 2005 census, the total population of Bolívar was 2,090,323, while that of the district of Cartagena was 1,030,149. Of the population of Cartagena, 92.5 percent lives in urban areas, while the remaining 7.5 percent is primarily rural. LDLC receives all of the district’s waste, including commercial and industrial waste, as well as waste from some neighboring cities. Although overseen by the Government of the District of Cartagena (GODC), the operation of the LDLC landfill was contracted to a private company, Sociedad Caribe Verde S.A. E.S.P., under a contract signed in April 2005. The DOCG gave Sociedad Caribe Verde the responsibility for the design, administration, operation, maintenance, and closing of the landfill through a 20-year concession. Waste disposal in LDLC began in January 2006, and the site is expected to receive about 7.6 million tons over the 20-year concession period. Currently the landfill receives approximately 700 tons of waste per day, and 171,887 tons had accumulated during the first 8 months of operation. At present, LDLC does not have active landfill gas collection or treatment systems. LFG is passively released to the atmosphere. LDLC has a basic LFG well system built of wood and loose rock and covered in metal nets that run vertically through the landfill. The 35 LFG chimneys are 9–16 feet high and approximately 35 meters apart. Technology The technology to be used in the Cartagena Landfill Gas Recovery Project includes LFG extraction, suction, and flaring systems, as well as monitoring systems. The technology and equipment involved have been employed for many years in a number of landfills all over the world, including the LFG recovery plant in Olavarría, Argentina (a carbon finance project of the Bank). The technology basically will recover LFG, dehumidify it, and then burn it in a closed flare. Parts, equipment, and plant construction, operation, and maintenance will be procured through a bidding process. Investment costs for the extraction and flaring plant in LDLC are estimated at approximately US$800,000. Of this amount, US$500,000 is estimated for initial construction, including an enclosed flaring station, the wellheads and piping system required initially, and engineering

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costs. The remaining investment cost will be distributed during the lifetime of the project (conservatively assumed as the duration of the contract with the Bank) and be used mainly to finance additional wellheads and piping. Emission Reductions ERs are generated in LFG projects by flaring the methane produced in a landfill, which otherwise would flow naturally into the atmosphere. Estimating ERs involves calculating the amount of methane likely to be generated (baseline) and the amount that will be captured and flared, discounted by the estimate of emissions from electricity used to meet the project requirements. The level of capturing and flaring is determined by the extraction and flaring efficiencies of the installation. Field experience in similar projects has shown that ERs generally have been overestimated. Table 10 summarizes expected and actual methane capture from several projects registered by the CDM Executive Board. The estimates are conservative to minimize the risk of non-delivery of ERs. The most conservative of the three ER recovery scenarios (high, medium, and low) was taken as the base scenario for the purpose of the analysis presented in this Project Appraisal Document (PAD). Table 10: Estimated and actual methane capture

PDD Verification ∆ PDD Verification ∆ PDD Verification ∆2003 - - - - - - 36,661 21,954 -40%2004 564,310 45,988 -92% - - - 45,267 30,656 -32%2005 614,392 269,863 -56% 387,303 106,185 -73% 47,764 40,988 -14%2006 - - - 880,800 96,076 -89% - - -

PDD Verification ∆ PDD Verification ∆ PDD Verification ∆2003 - - - - - - - - -2004 - - - 748,624 469,752 -37% - - -2005 187,776 16,706 -91% 1,086,919 585,957 -46% - - -2006 198,175 31,279 -84% 1,364,960 646,687 -53% 9,424 1,436 -85%

Argentina Brazil

China Brazil Argentina

Salvador de Bahia Villa Dominico Tremembé

Nanjing Tianjingwa Bandeirantes Olavarría

Brazil

Source: Calculated based on information available at the UNFCCC Web site The following assumptions were used to estimate ERs under the base scenario:

• LFG recovery efficiency (RE) of 60 percent; • Methane generation rate (k) of 0.2 for fast decay material, 0.04 for medium decay

material, and 0.01 for slow decay material per year; • Methane generation potential (Lo) of 73 m3 per ton of municipal solid waste (MSW); • Methane content of 50 percent; • Global Warming Potential7 (GWP) for methane of 21;

7 The approved Global Warming Potential value for methane (GWPCH4) is 21 tCO2e/tCH4 according to Miscellaneous Parameters in ACM0001/Version 1 of the Approved Consolidated Monitoring Methodology ACM0001 CDM, EB, September 3, 2004.

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• Waste disposal growth of 4 percent per year until site closure, expected at the end of 2026; and

• Waste disposal growth at a rate of 4 percent per year. Table 11 presents the estimated ERs under the base scenario.

Table 11: Estimated ERs in the Loma de los Cocos landfill, base scenario

Year LDLC (tCO2e/year) Low

2008 13,9782009 38,1552010 47,5222011 56,2342012 64,4362013 72,2482014 79,7732015 87,0942016 94,2812017 101,3952018 108,4872019 115,6002020 122,7712021 130,0352022 137,4202023 144,9512024 152,6542025 160,5482026 163,0442027 163,7712028 144,780

Total under 1st commitment period of Kyoto 220,325

Total estimated reductions (tCO2e)

2,199,177

% of Kyoto ERs to total generated by the project 10

Baseline The baseline was estimated by using an adapted version of the LandGEM model, which was developed by the U.S. Environmental Protection Agency (EPA). The model requires the site’s waste disposal history and employs a first-order exponential decay function, which assumes

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that LFG generation is at its peak following a time lag representing the period prior to methane generation. The EPA model assumes a 1-year time lag between placement of waste and LFG generation. The model assumes that LFG generation decreases exponentially after 1 year, as the organic fraction of waste is decomposed. The following equation represents the maximum expected LFG generation rate:

∑=

−=n

1i

ktiM

iekLoM2Q

where:

∑: Sum from opening year (i=1) through year of projection (n); QM: Maximum expected LFG generation flow rate (m3/yr); k: Methane decay rate constant (1/yr); Lo: Ultimate methane generation potential (m3/ton); Mi: Mass of solid waste disposed in the ith year (ton); and ti: Age of the waste disposed in the ith year (years).

The methane generation rate (k) value reflects the fraction of waste that decays in a given year and produces methane. Based on their relative decay rates, different k values can be assigned to different portions of the waste stream. The k value considers the organic content, temperature and moisture conditions of the area where the landfill is located. Because landfill moisture content significantly affects decay rates, the values of the decay rates for the fast, medium, and slow decay waste fractions will vary with moisture as well. The procedure for developing k values for LDLC was based on an average precipitation level of 900 mm per year, the waste characterization in Barranquilla8, and used the following methane generation rates:

(i) Fast-decaying waste: k = 0.2 per year; (ii) Medium-decaying waste: k = 0.04 per year; and (iii)Slow-decaying waste: k = 0.01 per year.

The Methane Generation Potential (Lo) for LDLC was estimated in 73 m3 of methane/ton of waste.

8 The waste characterization for Cartagena was not available at the time the estimates were obtained. However, the waste characterization of Cartagena is similar to that of Barranquilla. Both are coastal cities with similar characteristics.

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LDLC Waste Filling History According to the information provided by the GODC and the operator of LDLC, the landfill is filling at a rate of about 680 tons per day, or approximately 250,000 tons per year (Table 12). Filling rates are measured daily using an on-site scale. At this current filling rate and total volume, the LDLC landfill is anticipated to reach capacity in 2026. The majority of the MSW filled at the landfill comes from the district of Cartagena, with a small fraction coming from the nearby villages.

Table 12: History and projection of waste disposal at LDLC landfill

Year Waste disposed (tons)*

Cumulated waste disposed

(tons) 2006 250,000 250,000 2007 260,000 510,000 2008 270,400 780,400 2009 281,220 1,061,620 2010 292,470 1,354,090 2011 304,170 1,658,260 2012 316,340 1,974,600 2013 328,990 2,303,590 2014 342,150 2,645,740 2015 355,840 3,001,580 2016 370,070 3,371,650 2017 384,870 3,756,520 2018 400,260 4,156,780 2019 416,270 4,573,050 2020 432,920 5,005,970 2021 450,240 5,456,210 2022 468,250 5,924,460 2023 486,980 6,411,440 2024 506,460 6,917,900 2025 526,720 7,444,620 2026 220,180 7,664,800 2027 0 7,664,800

*Projected tonnage according to historic levels of operation and forecast waste production and disposal at landfill

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Table 13 presents the baseline emissions for LDLC. Table 13: Baseline emissions at LDLC according estimations of potential methane generation

Year Baseline emission (tCO2e/year) Cumulated baseline emissions (tCO2e) 2008 46,592 46,592 2009 63,592 110,184 2010 79,203 189,387 2011 93,723 283,110 2012 107,393 390,503 2013 120,413 510,916 2014 132,955 643,871 2015 145,157 789,028 2016 157,135 946,163 2017 168,992 1,115,155 2018 180,812 1,295,967 2019 192,667 1,488,634 2020 204,618 1,693,252 2021 216,725 1,909,977 2022 229,033 2,139,010 2023 241,585 2,380,595 2024 254,423 2,635,018 2025 267,580 2,902,598 2026 271,740 3,174,338 2027 251,955 3,426,293 2028 222,739 3,649,032

Monitoring Plan

The Monitoring Plan for the LDLC landfill gas capture and flare project describes the requirements for the collection, processing, and auditing of data from the project for the purpose of calculating and verifying the ERs produced. According to the CDM-approved consolidated monitoring methodology ACM0001 (Version 04) applied for this project activity, the monitoring methodology is based on direct measurement of the amount of landfill gas captured and destroyed at the flare platform. The monitoring plan will provide for direct measurement of the quantity and quality of LFG flared and the non-combusted methane in the flare, as well as for continuous monitoring of the on-site electricity consumption for project requirements. Table 14 summarizes the procedure for monitoring ERs.

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Table 14: Methane data monitoring

Indicator Key data Monitoring procedure

LFG captured (Nm3) Flow meter installed in the capture system

Methane fraction in LFG

Gas analyzer to determine LFG composition prior to flaring

LFG temperature and pressure (to calculate methane density)

Thermometers and barometers installed in the capture system

Flare efficiency

LFG flared in the flaring facility through analysis of methane concentration in exhaust gases

Flare hours of operation Number of hours the flaring facility was in operation through a timer

Avoided methane emissions

Quantity of electricity used to meet the requirements of the project activity

Continuously monitored through an energy counter

Both the LFG volumetric flow and the fraction of methane in the LFG will be monitored continuously on site to calculate the amount of methane captured. LFG temperature and pressure will be measured and recorded daily to calculate the methane density and therefore mass flow. Finally, methane content in the exhaust gases will be monitored to verify the flare efficiency and correct the amount of methane actually destroyed by the project activity. The combustion efficiency in terms of the percentage of combusted methane will be calculated from the difference between the amount of captured methane in LFG (before flare) and the non-combusted methane (from the sampling ports in the flare). This value will be verified monthly through spectrometry analysis during the first 6 months of operation and quarterly thereafter if results are stable to determine the methane content in the exhaust gas. Thus, actual reduction of emissions will be obtained from i) discounting the amount of methane in the exhaust gas from the product of the LFG captured (flow meter) and the methane content (gas analyzer), ii) multiplying the resulting amount of methane by the methane density (t/m3) at the corresponding temperature and pressure to obtain the methane emission reductions of the project activities in tCH4, iii) multiplying the tons of CH4 by the methane Global Warming Potential (21) to obtain the result in tCO2e, and iv) discounting the emissions from the on-site use of electricity to meet project requirements.

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According to the applied methodology, leakage -defined as the net change of anthropogenic emissions by sources of GHG that occurs outside the project boundary that is measurable and attributable to the CDM project activity- will not be considered.

The monitoring plan also includes periodic monitoring of updates in Colombia’s legislation and regulatory requirements through the official Web sites of the Ministry of Environment, Housing, and Territorial Development (Ministerio del Medio Ambiente, Vivienda y Ordenamiento Territorial) at www.minambiente.gov.co and the Regional Environmental Authority (Corporación Autónoma Regional del Canal del Dique, or CARDIQUE) at www.cardique.gov.co.

Expected Outcome

It is expected that between 568,000 and 804,000 tCO2e of emissions to the atmosphere will be avoided through the project in LDLC from 2008 through 2016.9 Moreover, if the project runs for the 21 years for which it will be registered, it is expected that emissions of between 2.2 and 3.1 million tCO2e will be avoided.10 As the adverse impacts of climate change daily become more obvious and intense, this reduction will be a major environmental benefit.

Locally, the project will result in a clear improvement in living standards. By reducing the release of landfill gas to the atmosphere, the project will alleviate emissions of gases that are carcinogenic, pollute the air, and may increase respiratory diseases.

The project will contribute to technology transfer and may result in the availability of local technology in the future. Technology for this sort of project is not widely available in the developing world and is likely to be provided by international firms.

The project will generate employment for skilled and low-skilled labor, enhancing its contribution to economic development in the region. Construction of the facility will require trained as well as low-skilled labor. Local engineers and technicians will be needed to work on equipment procurement, quality assessment, and other tasks that are usually better performed by local people. For the operation of the plant, both technicians/engineers and low-skilled operators will be needed.

9 These numbers correspond to the high and low recovery emission estimates. 10 These numbers correspond to the low and high recovery emission estimates.

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ANNEX 2: IMPLEMENTATION ARRANGEMENTS

CARTAGENA Landfill Gas Recovery Project

The parties involved in the activities of the projects that will be part of this umbrella and their roles in the implementation of these projects are listed below.

• The GODC is responsible for providing governance and multiple public services, including the management of municipal solid waste (MSW). Operation and management of the landfill was given on concession to a private entity. As the owner of the site where the landfill is located and of the waste disposed off in LDLC, the GODC has granted a mandate to the landfill operator by which it authorizes it to negotiate and sign the ERPA

• Italian Carbon Fund. This trust fund is maintained and operated by the World Bank in its capacity as trustee on behalf of the public and private participants;

• Builder of the landfill gas (LFG) recovery system. To be designated through a bidding process; and

• Caribe Verde S.A. E.S.P. is the operator of LDLC landfill. Via a mandate issued by the GODC, it is the entity responsible of negotiating and signing the ERPA; and

• Operator of the LFG recovery system. The task team has made clear that it recommends leaving the operation of the plant under the responsibility of the current landfill operator.

Payment and Flow of Funds

A special account in Colombian pesos will be established to receive the up-front resources, if requested by the project sponsor, and ER payments. For the up-front payments, transfers will be made only after the Bank’s non-objection against project execution achievements such as the award of a bidding contract, delivery of an engineering study, and advances for project construction.

At the time of the signing of an ERPA, an anticipated schedule of payments will be prepared based on the delivery of emission reductions (ERs). The project sponsors will make requests to the Bank for payment as agreed in the ERPA. The payment schedule will consider any advance payment that might have been provided and Clean Development Mechanism (CDM) and World Bank due diligence costs disbursed by the Bank. Apart from perhaps financing up-front costs, the