Energy Efficiency under the CDM – update of progress and issuesGrant A. Kirkman Team Leader | CDM Methodologies

The role of energy efficiency Wednesday, 12:00 - 13:00Carbon Forum AmericaFebruary 26 - 27, 2008San Francisco, CA

United Nations Framework Convention on Climate Change

COP/MOP

EB

UNFCCCsecretariat

SSCWGA/RWG

MP APRIT

DOE

superviseselects

accredits supportsrecommends

supportsapproves

supportsrecommends

CDM Regulatory Bodies| the basics

• CDM the largest CO2 offset system in the world– > 948 projects registered to date– 49 countries– 192,724,874 certified emission reductions (CERs) issued– approx. additional 3000 projects in pipeline– 2.7 billion CERs expected to end of 2012

• The mechanism has a legal basis in the Kyoto Protocol– Regulated by an Executive Board (EB) answerable to KP Parties– EB back-stopped by UNFCCC secretariat with support for:

• Registration of projects & issuance of CERs• Accreditation of third-party validators• Methodologies for project emission reductions, baselines & monitoring

CDM | global reach, international mandate

• CDM projects that entered pipeline in 2006 are expected to result in $ 25 billion in capital investment

(almost double the 14 billion USD in total investment leveraged through GEF in the climate change area since it started)

• CDM renewable energy & energy efficiency projects registered in 2006 are expected to result inca. $ 6 billion in capital investment

(about triple the ODA support for energy policy and renewable energy projects in the same countries. Almost as much as private investment in renewable energy and energy efficiency (USD 6.5 billion in 2006) in the same countries)

Condensed from the report of the CDM Executive Board to the COP/MOP 2007 <http://unfccc.int/resource/docs/2007/cmp3/eng/03p01.pdf>, page 4.

CDM general overview | investment, financial flows

What is Energy Efficiency| one of many definitions!

“Energy efficiency involves products, systems or practices using less energy to provide the same or improved level of service in an economically efficient way as compared to a conventional approach”

3 types of energy efficiency, requiring distinct approaches, technologies, regulatory frameworks and methods for evaluation

• Energy supply (supply side)– Improvements in the equipment or techniques used to generate

electricity, either at central station plants or onsite facilities• Transportation

– Improvements in efficient transport technologies or systems• End use (demand side)

– Improvements in buildings, facilities or other stationary sources that use energy to accomplish activities in the industrial, commercial, residential and service infrastructure sectors

• The potential for using energy efficiency as a strategy for climate change mitigation is large

• Since end use energy efficiency currently accounts for only a small fraction of projects in the CDM pipeline

• CDM-EB is currently exploring possibilities for creating an environment to enable the provision of qualified energy efficiency projects & programmes under CDM in particular demand side (end use) EE in the industrial, commercial, residential and services sectors

• There are methodological challenges for verifying reductions from energy efficiency projects and assessing the requirements for additionality….

The CDM EB | response to EE

Number (%) of CDM projects in each category

Renew ables62%

Demand-side EE5%

Supply-side EE10%

Fuel sw itch3%

HFCs, PFCs & N2O reduction

3%

CH4 reduction & Cement & Coal

mine/bed17%

Afforestation & Reforestation

0.5%

Transport0.2%

Percentage share of the total number of projects of 4 largest CDM categories in numbers

0%10%20%30%40%50%60%70%80%90%

Q1-

04

Q3-

04

Q1-

05

Q3-

05

Q1-

06

Q3-

06

Q1-

07

Q3-

07

CH4 reduction &Cement & Coalmine/bed

Energy Efficiency

Fuel sw itch

Renew ables

Approved Methodologies | Energy Efficiency

• AM0017 EE refining industry (EE improvement of steam use at a refinery)• AM0018 EE ammonia industry (EE in ammonia fertilizer plant)• AM0031 EE Transport services (Expansion of the bus system in Bogota)• AM0038 EE metals industry (EE in electric arc furnaces in SiMn alloy production)• AM0044 EE power industry (EE improvement, boiler rehabilitation or replacement in

industrial & district heating sectors)• AM0056 EE power industry (EE improvement of fossil fuel-fired steam boiler

(systems) by boiler replacement or rehabilitation)• AM0058 EE heating services (New primary district heating system)• AM0020 EE water services (Water pumping efficiency improvement)• AM0046 EE Home services (Large scale replacement of incandescent lamps by

compact fluorescent lamps)• AM0060 EE refrigeration services (Power saving through replacement by energy

efficient chillers) • AM0061 EE power industry (Rehabilitation and/or energy efficiency improvement in

existing power plants • AM0062 EE power industry (Energy efficiency improvements of a power plant

through retrofitting)

Baseline Scenario

88 small low-efficiency coal-fired boilers

Old Power plant

HEAT

HEAT

HEAT

HEAT

POWER

Project Activity

Substations

New power Station

Primary district heating network

Secondary network

New buildings

New buildings

New buildings

i

HEAT

POWER

Heat Only Boilers

Heat Only Boilers

i

i

i

i = point of measurement

New primary district heating system |AM0058

Approved SSC methodologies | Energy Efficiency

• AMS II.C Specific technologies (Demand-side energy efficiency programmes for specific technologies)

• AMS II.D (Energy efficiency & fuel switching measures for industrial facilities)

• AMS II.E Buildings (Energy efficiency & fuel switching measures for buildings)

• AMS II.F Agriculture (Energy efficiency & fuel switching measures for agricultural facilities and activities)

• AMS III.S Transport (Introduction of low-emission vehicles to commercial vehicle fleets)

Some challenges for EE | CDM• Signal to Noise Ratio - measuring energy savings and GHG reductions with adequate

accuracy & precision, against independent factors that affect energy consumption that are unrelated to energy efficiency improvements (e.g., weather, energy prices, operation and maintenance practices)

• Free riders and leakage - equipment changes & investments that would occur without the project activity

• Exogenous factors - distinguish from the project activity • Autonomous Energy Efficiency Improvement - that would happen in absence of the

project activity • System boundaries - isolate outside effects on efficiency of process/equipment• Differentiation between project-related gains and BAU gains• Efficiency variations due to load variations and changes in capacity of equipments• Theoretical models to estimate energy saved that can not be confirmed against

measurements• Equipment lifetime for retrofit, replacement and new construction projects• Establishing appropriate baseline scenarios that account for historical usage,

changes in operation, technology degradation and naturally occurring conservation and changes in system characteristics

• Balancing the convenience of using ex ante measurements against increased accuracy and transaction costs associated with ex post measurement

• Identify solutions for key issues, to develop guidance & or improve proposed methodologies

• Development of a framework for analysis of the EE programmes, covering issues of estimating reductions, monitoring, verification procedures & other issues

• Review the EE programmes identified out there to provide a summary of key good practices & how these practices ensure reductions in energy consumption are real

• An analysis of how key issues, such as free riders, gross to net adjustment, rebound effects and suppressed demand in EE programmes are addressed to ensure real reductions in energy consumption

Progress to date| CDM

Figure 3Type of Technology Transfer by Project Type

(as % of annual reductions)

0% 20% 40% 60% 80% 100%

Agriculture

Biogas

Biomass energy

Cement

Coal bed/mine methane

EE Households

EE industry

EE ow n generation

EE Service

EE supply side

Energy distribution

Fossil fuel sw itch

Fugitive

Geothermal

HFCs

Hydro

Landfill gas

N2O

PFCs

Reforestation

Solar

Tidal

Transport

Wind

No Technology Transfer Equipment Only Knowledge Only Equipment and knowledge

CDM as a EE TT enabler| initial results

ca. 56% of projects both equipment and knowledge (47% of reductions)

Programme of Activities | the basics

Voluntary coordinated action by a private or public entity which implements any voluntary or mandatory policy/measure or stated goal which leads to GHG emission reductions

– 2 levels: a program of activities (POA) & program activity (CPA)

– Cross national borders (all CPAs must comply to SD)– Unlimited no. of CPAs at any time up to duration end– 1 methodology, with 1 tech. or measure in the facility – 28 yr. CPA duration (60 yr. for A/R) time– 3 x 7 yr. or 10 yr. crediting period– CP renewal procedure apply every 7 yrs.

Programme of Activities| possible POA constellations

such as improved insulation in buildings.

Single technology, single location

Set of measures, single location

such as a set of EE measures applied to multiple boilers in the same

industrial facility

Single technology, many locations

such as replacement of inefficient light bulbs, to many locations

such as a city or suburb, where a group of efficiency measures e.g. efficient

lamps,air conditioners, fans are applied to homes in the area

Set of measures, many locations

set of

set of

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CDM Bazaar:http://www.cdmbazaar.net

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CDM UNFCCC website:cdm.unfccc.intUNEP RISOE:

http://cdmpipeline.org

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