introduction to the cdm, port louis, march 28th 2008 - rober
TRANSCRIPT
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The CDM:Setting the Scene
Robert Kelly
Regional Coord inator, CDM Capacity Developm ent,
Southern & Eastern Africa
robert.kel [email protected]
March 28th, 2008
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Agenda
The CDMwhat & how?
Types of CDM projects
The CDM project cycle
Energy efficiency in the CDM
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The role of the Clean Development Mechanism (CDM)
Developedcountries can
reduce emissionsanywhere in the
world
They can countthese reductions
towards their owntargets
CDM allows
developed countries
to generate carboncredits (Certified
Emission
Reductions, CERs)
in developing
countries
Advantages for developed
countries:
relatively low-cost &
politically acceptable
Advantages for developing
countries:
inward investment,
environmental & technologybenefits
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How a CDM project generates carbon credits
Greenhousegasemissions
Historical Trend
Project start
Carbon credits (CERs)represent the difference
between the baseline andactual emissions
Time
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Kyoto gases that can earn credits
There are over 30 atmospheric greenhouse gasesBut only 6attract carbon credits:
Carbon dioxide (CO2)
Methane (CH4)
Nitrous oxide (N2O)
Relevant to bio-
carbon & industrialprojects
Relevant toindustrial projects
Perfluorocarbons (CxFx)
Hydrofluorocarbons (HFCs)
Sulphur hexaflouride (SF6)
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Each of these gases has a different warming potential
Each of these gases has a different radiative forcingcapability and a different atmospheric residence time
Need for a common currency, so that all carbon credits are
denominated in the same way
Solution: develop a relative scale, using CO2as a reference gas
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Global warming potential
Greenhouse Gas(GHG)
Global WarmingPotential (GWP)
Carbon dioxide 1
Methane 21
Nitrous oxide 310
Perfluorocarbons 6,5009,200
Hydrofluorocarbons 14011,700
Sulphur hexafluoride 23,900
Relative scaleeverything ismeasured relative to CO2
e.g. methane is 21 times morepotent as a greenhouse gas
than CO2
e.g. sulphur hexafluoride is
24,000 more potent!
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Global warming potential
Greenhouse Gas(GHG)
Global WarmingPotential (GWP)
Carbon dioxide 1
Methane 21
Nitrous oxide 310
Perfluorocarbons 6,5009,200
Hydrofluorocarbons 14011,700
Sulphur hexafluoride 23,900
Carbon credits are alwaysexpressed in terms of carbon
dioxide equivalence (CO2e)
e.g. 1 tonne of CO2= 1 tCO2e(= 1 carbon credit = 1 CER)
e.g. 2 tonnes of CH4= 42 tCO2e(= 42 carbon credits = 42 CERs)
e.g. 2 tonnes of SF6= 47,800 tCO2e(= 47,800 carbon credits
= 47.8 kCERs)
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Additionality
It is essential that the project achieve environmentaladditionalityotherwise, it will not generate any carbon
credits!
However, the project developer must also usuallydemonstrate that, without carbon revenues, the project
would not be viable and/or commercially attractivethisis known as financial additionality
Environmental additionalitythe project produces fewergreenhouse gas emissions than the baseline scenario
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Additionalitybenchmark analysis
Project withoutcarbon revenueis profitable
but not
sufficientlyprofitable
compared withalternatives
Project withoutcarbon element
Project withcarbon element
Carbon revenuemakes the
projectattractive
relative toinvestmentalternatives
Investmentthreshold
Revenue/NPV/
IRR
Choose an appropriate financial indicator and compare it with a relevantbenchmark value: e.g. required return on capital or internal company
benchmark
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Some examples of additionality
Capturing methane from an urban landfill and flaring it Carbon credits represent the only source of income
for undertaking this activity
Capturing methane from an urban landfill and utilising it to
generate electricity
Project developer would have to demonstrate thatthe electricity revenue alone would not make thisproject attractive
Building a large hydro project for the grid in Ethiopia
Questionable additionality: there is already plenty ofhydro activity in Ethiopia
?
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Crediting period
CDM mitigation projects
Project developers have two crediting period options:
A maximum of 7 years, which can be renewed up to 2 times(i.e. a potential total crediting period of 21 years)
A maximum of 10 years, with no option for renewal
CDM sequestration projects (forestry)
Project developers have two crediting period options:
A maximum of 20 years, which can be renewed up to 2 times(i.e. a potential total crediting period of 60 years)
A maximum of 30 years, with no option for renewal
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Crediting period
Greenhousegasemissions
Emissions under the project scenario
Starting date ofthe crediting
period10 years No renewal
A maximum of 10
years with nooption of renewal
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Why not maximise the crediting period?
Greenhousegasemissions
Emissions under thebaseline scenario
Emissions under theproject scenario
7 years
The baseline
scenario maybecome lessfavourable
Baseline must
be reassessedby DOE at each
renewal
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Why not maximise the crediting period?
Greenhousegasemissions
Emissions under thebaseline scenario
Emissions under theproject scenario
7 years 7 years 7 years
Baseline must
be reassessedby DOE at each
renewal
The baseline
scenario maybecome lessfavourable
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Programmatic CDM offers new opportunities
Installation / unit size
Numberofinstallations
/units
Regular CDM
Single site, stand-aloneprojects
Carbon upgrades
Bundled CDM
Bundling severalprojects under a singlePDD
All projects must be
identified ex ante, andmust start at the sametime
Programmatic CDM
Addresses the long tailof small units
Permits sector-widetransition to low-carboneconomy
Particular relevance toAfrica
Size-Distribution of Potential CDM Project Sites
smalllarge medium
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Agenda
The CDMwhat & how?
Types of CDM projects
The CDM project cycle
Energy efficiency in the CDM
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In 3 years, the CDM has sparked a $5 billion/year market
Number of Projects in the CDM Pipeline,January 2005February 2008
Compound MonthlyGrowth Rate = 13%
Approximately 3 billionCERs by 2012
67 83 118171 275
440554
647749
883
1,1411,311
1,495
1,759 1,885
2,285
2,593
2,8383,035
Jan05
Mar05
May05
Jul05
Sep05
Nov05
Jan06
Mar06
May06
Jul06
Sep06
Nov06
Jan07
Mar07
May07
July07
Sep07
Nov07
Jan08
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CDM project
Avoiding newemissions
Reduce emissionfactor
Reduceenergy
consumption
Land-usemitigation
Reduce energylosses duringtransmission/distribution
End-of-pipe
Destruction Storage
Gasrecovery
&utilization
Emission reductionAtmospheric
removal
Bio-sequestration:
Afforestation /Reforestation
Mangrove / wetland
Animal wastemanagementHuman sewageUrban landfillHFCdecomposition
Agriculturalpractices(e.g. reducedfertilizer use;zero tillage)
Renewableenergy
Fuel Substitution
Wasteheat/gas
utilisation
Fuelswitch
Reduce emissionfactor
Energyefficiency atgeneration
GHG efficiency atproduction
EnergyefficiencymeasuresCookstovesCFLs
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Avoiding newemissions
Reduce emissionfactor
Reduceenergy
consumption
Land-usemitigation
Reduce energylosses duringtransmission/distribution
End-of-pipe
Destruction Storage
Gasrecovery
&utilization
Renewableenergy
Fuel Substitution
Wasteheat/gas
utilisation
Fuelswitch
Reduce emissionfactor
Energyefficiency atgeneration
GHG efficiency atproduction
Renewable
biomass Wind power Hydro Solar Geothermal
Bio-fuel
substitution(e.g.ethanol,bio-diesel)
Cement
manufacture Brick-
makers Bakeries Sawmills
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Agenda
The CDMwhat & how?
Types of CDM projects
The CDM project cycle
Energy efficiency in the CDM
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6 to 12 months 1.5 months Crediting period of the project
Project
Develope
r
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Develope
r
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Develope
r
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Developer
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Developer
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Developer
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Developer
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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6 to 12 months 1.5 months Crediting period of the project
Project
Developer
DNA
DOE
CDM
Executive
Board
Projectfeasibility
assessment/ PIN
CDM projectdevelopment
/ PDD
Host countryapproval
Projectvalidation
Projectregistration
CERissuance
Projectverification
The CDM project cycle
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Costs of a typical CDM project
Assumes a 10-yearproject.
Recurrent costsdiscounted at 3%
annual rate to expressin present-value
terms.
Registration costs,Administration Fee
and Adaptation FundLevy not included.
Indicative CDM Cost ProfileFor A Typical CDM Project
13,000
38,000
16,500
10,000
34,000
53,000
PDD
Validation
InitialMonitoring
OngoingVerification
ByDOE
Ongoing
AnnualMonitoring
Pre-RegistrationCDM Costs
Post-RegistrationCDM Costs
US$
51,000
67,500
77,500
111,500
164,500
PIN
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Agenda
The CDMwhat & how?
Types of CDM projects
The CDM project cycle
Energy efficiency in the CDM
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The CDM project pipeline
Hydro26%
Biomass energy
16%
Wind12%
Energy efficiency(own generation)
9%
Landfill gas, 8%
Biogas, 7%
Agriculture, 6%
Energy efficiency(industry), 4%
Fossil fuel switch3%
N2O2%
Other
7%
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Energy efficiency in the CDM
Energy efficiency (households)
Only 9 household energy efficiency projects havebeen registered. The atomised nature of thesesectors has tended to act as a barrier to projectdevelopment. This should be less of an obstaclewith programmatic CDM
e.g. compact fluorescent lightbulbs, cookstove roll-outs
Energy efficiency (service sector)
12 CDM projects
Primarily demand-side measures, including in hotels
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Energy efficiency in the CDM
Energy efficiency (supply)
31 projects
Conversion of thermal power stations from open
cycle to combined cycle, thermal efficiencyimprovements
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CER volumes from energy efficiency projects
970,000
520,000
318,000
206,000170,000
83,000 79,000 74,000 54,000 26,000 18,000
4.5m
Average Annual CER Production by CDM Project-Type
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Carbon revenues also vary on a project-by-project basis
379
928
543
234
1,228
0
661
330762
1,711
4,128
7,934
3,039
1,101
1,179
0 91
1,811
13
827
0
Standard deviation(kCERs by 2012) Markers
indicatemaximum,mean andminimumproject
size withineach
technology
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End
Robert KellyRegional Coord inator, CDM Capacity Developm ent,
Southern & Eastern Africa
robert.kel [email protected]