programme of activities: challenges and opportunities
DESCRIPTION
Programme of Activities: Challenges and Opportunities. IV Seminario Internacional: Mercado del Carbono Presented by Alberto Carrillo Pineda South Pole Carbon Asset Management Ltd. Lima, Perú, October 22 nd , 2009. Introduction. - PowerPoint PPT PresentationTRANSCRIPT
Lima, Perú, October 22nd, 2009
Programme of Activities: Challenges and Opportunities
IV Seminario Internacional: Mercado del Carbono
Presented by Alberto Carrillo PinedaSouth Pole Carbon Asset Management Ltd.
Introduction
The programmatic approach under the CDM has been received with great optimism among stakeholders in the carbon market for a number of reasons:
Potential to increase the contribution of the CDM to the global mitigation efforts
Possibility of achieving economies of scale Potential to capitalise policy instruments and programmes
aimed at reducing emissions Potential to reach a number of actors that otherwise would
have very limited access to the carbon market (e.g. households, small industry, etc.).
Potential to increase the number of projects in regions and countries underrepresented in the carbon market (e.g. Africa)
However...
The programmatic CDM has taken too long to take off and realise its large potential...
Since EB 32 CDM PoA
# of projects that started validation 3425 14
# of projects that requested registration
784 1
# of projects that got registered 530 1
EB 47 - Modification of procedures and guidelines for the registration of
PoAsEB 32 - Fist adoption of procedures
and guidelines for the registration of PoAs
2007 2008 2009Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Abstract
Aim of this presentation
Drawing from the market experience accumulated by South Pole and other market participants, introduce the audience to the main administrative, financial and operative challenges to be potentially faced when implementing Programmes of Activities (PoAs) under the Clean Development Mechanism (CDM)
To discuss what has been done and what needs to be done in order to overcome such challenges
Content
Challenges inherent to the nature of a Programme of Activities
Regulatory and operative challenges Economic and commercial challenges Conclusions
Content
Challenges inherent to the nature of a Programme of Activities
Regulatory and operative challenges Economic and commercial challenges Conclusions
Challenges inherent to the nature of PoAs
Challenges inherent to the nature of PoAs
Logistics of implementation Documentation
– Centralised data storage– Access to user information (e.g. For monitoring)
Sampling / Monitoring– Usage / adoption patterns– Guidelines on sampling not yet available. Will have to be
followed during verification once they have been issued by EB– Remote sensing
Maintenance / Follow up / Replacement– Intensive field work– Disposal?
Ownership of carbon credits
Capacity building / education
Incentive scheme Free supply Discount Grant Subsidized loan
Mid and long-term management Effectiveness off programmes in the long term is still
uncertain
Selection of appropiate coordinating entities
Challenges inherent to the nature of PoAs (cont.)
Challenges inherent to the nature of PoAs (cont.)
OEMOEM
Development bank
Development bank
RetailerRetailer
Power UtilityPower UtilityEnergy saving agency
Energy saving agency
HouseholdHousehold
Destruction facility
Destruction facility
Freight companyFreight
company
Carbon developer
Carbon developer
Develops and purchase CERs
Coordinating entity
$
CERs
$
Provides subsidized loan
Pays back through
power bill
$
Commercialisation of fridge
Commercialisation of fridges
Delivery of new fridge and collection
of old fridge Destruction of old fridge
Content
Challenges inherent to the nature of a Programme of Activities
Regulatory and operative challenges
Economic and commercial challenges Conclusions
Regulatory and operative challenges
The main regulatory and operative challenges faced by PoAs can be summarised as follows:
DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date
The main regulatory and operative challenges faced by PoAs can be summarised as follows:
DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date
Regulatory and operative challenges
Regulatory and operative challenges
DOE liability for erroneous inclusion of CPAs
ProjectIdeaNote
ProjectIdeaNote
PoA DD&
CPA DD
PoA DD&
CPA DD
Host CountryApproval
Host CountryApproval Validation Validation Registration Registration
Inclusionof
furtherCPAs
Inclusionof
furtherCPAs
Monitoringand
Verification
Monitoringand
Verification
= services provided by South Pole
can be done by any DOE
Needs to be done by a DOE which hasn’t
performed PoA validation or inclusion
of any CPA
Regulatory and operative challenges
DOE liability for erroneous inclusion of CPAs
ProjectIdeaNote
ProjectIdeaNote
PoA DD&
CPA DD
PoA DD&
CPA DD
Host CountryApproval
Host CountryApproval Validation Validation Registration Registration
Inclusionof
furtherCPAs
Inclusionof
furtherCPAs
Monitoringand
Verification
Monitoringand
Verification
= services provided by South Pole
can be done by any DOE
Needs to be done by a DOE which hasn’t
performed PoA validation or inclusion
of any CPA
DOE performing inclusion of any CPA is liable for erroneous
inclusion for 1 year after inclusion of the CPA and for 6 months after
each PoA verification
Regulatory and operative challenges
DOE liability for erroneous inclusion of CPAs
Traditional CDM Programmatic CDM
DOE is liable for
Significant deficiencies limited to issues of
fraud, malfeasance or incompetence
Any error that disqualifies a CPA from
inclusion in a PoA
DOE is liable for 15 days after the date of receipt of the request for
issuance,
1 y after inclusion and 6 months after issuance
(i.e. all the crediting period)
Penalty
DOE has to pay the amount of CERs
estimated to have been issued in excess
DOE has to pay the total amount of CERs generated by the CPA
Regulatory and operative challenges
DOE liability for erroneous inclusion of CPAs
ProjectIdeaNote
ProjectIdeaNote
PoA DD&
CPA DD
PoA DD&
CPA DD
Host CountryApproval
Host CountryApproval Validation Validation Registration Registration
Inclusionof
furtherCPAs
Inclusionof
furtherCPAs
Monitoringand
Verification
Monitoringand
Verification
= services provided by South Pole
•Several DOEs are including CPAs only if they performed validation.
•Inclusion is almost as detailed as traditional validation and hence no real economies of scale are happening.
The main regulatory and operative challenges faced by PoAs can be summarised as follows:
DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date
Regulatory and operative challenges
Regulatory and operative challenges
ProjectIdeaNote
ProjectIdeaNote
PoA DD&
CPA DD
PoA DD&
CPA DD
Host CountryApproval
Host CountryApproval Validation Validation
= services provided by South Pole
Only at validation stage are project owners allowed to request for approval of multiple methodologies
– Risk of no approval cannot be minimised. In case the request is not approved by the EB, the project developer would have lost the money invested in taking the project up to validation
Approval may take more than a couple of months Request of approval can only be done by DOEs
– Requesting approval of multiple methodologies implies an additional external fee The combination of methodologies has to be used for each and every
CPA!!!– Not practical– e.g. Programm of biodigestors with and without energy use. Each component needs
a different meth combination
Request for approval of the application of multiplemethodologies to EB
Request for approval of the application of multiplemethodologies to EB
The main regulatory and operative challenges faced by PoAs can be summarised as follows:
DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date
Regulatory and operative challenges
Regulatory and operative challenges
If a methodology, subsequent to being placed on hold or withdrawn, is revised or replaced by inclusion in a consolidated methodology, the PoA shall be revised accordingly. The changes shall be subsequently documented in a new version of PoA (e.g Version 1.1), validated by a DOE and approved by the Board.
It is highly probable that in 28 years, a small-scale methodology will undergo at least one revision
Hence, the project developer will have to incur more than once in validation / revalidation fees for the PoA
– Most widely used SSC-Meths• AMS.I.D Version 14
• AMS.I.C Version 15
• AMS.III.D Version 15
The main regulatory and operative challenges faced by PoAs can be summarised as follows:
DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date
Regulatory and operative challenges
Regulatory and operative challenges
CPA start date Time gap between CPA start date and PoA registration can be
considerable. Potential loss of significant carbon income for 1st CPA may discourage project owners to be the 1st CPA
Given that CPAs cannot start before beginning of validation (e.g. once CPA-DD has been made) encourages work on projects in very early stages increasing the risk of working on projects that don’t happen in the end
ProjectIdeaNote
ProjectIdeaNote
PoA DD&
CPA DD
PoA DD&
CPA DD
Host CountryApproval
Host CountryApproval Validation Validation Registration Registration
Inclusionof
furtherCPAs
Inclusionof
furtherCPAs
Monitoringand
Verification
Monitoringand
Verification
= services provided by South Pole
Earliest start date of any CPAEarliest beginning of crediting period
for any CPA
Content
Challenges inherent to the nature of a Programme of Activities
Regulatory and operative challenges Economic and commercial
challenges Conclusions
Economic and commercial challenges
Some of the most relevant economic and commercial challenges that PoAs face today are:
Lack of experience in the market Upfront costs associated with the development of a
PoA Coordinating entity selection and taxation issues
Economic and commercial challenges
Some of the most relevant economic and commercial challenges that PoAs face today are:
Lack of experience in the market Upfront costs associated with the development of a
PoA Coordinating entity selection and taxation issues
Economic and commercial challenges
Lack of experience in the market
- Lack of experience among DNAs, DOEs, CDM developers and the EB, which makes it impossible to predict the time it will take to register a PoA
- Only one programme registered so far- No availability of stories of success in the long term- Limited availability to experienced DOEs
- Only one DOE has completed validation of a PoA- In our experience, of 23 DOEs approached for quotation of
validation services for a PoA- Only 6 DOEs showed interest/capacity to undertake this project- Only 3 DOEs presented an offer
- Only 2 offers were serious enough (e.g. in terms of completeness, detailed proposal of services, etc.)
Economic and commercial challenges
Some of the most relevant economic and commercial challenges that PoAs face today are:
Lack of experience in the market Upfront costs associated with the development of a
PoA Coordinating entity selection and taxation issues
Economic and commercial challenges
Upfront costs associated with the development of a PoA
As previously discussed, the potential for economies of scale hasn’t been fully realised due to
– High validation fees from DOEs due to high-perceived risks and regulatory uncertainties (e.g. Liability for erroneous inclusion of CPAs)
– Lack of experience in the market• So far no single project developer has submitted more than one
CPA-DD for a PoA There is a high risk associated with not being able to
include enough CPAs into a PoA or not being to reach a volume that is high enough to reach breakeven point or expected IRR
There are not many international funds for financing of PoAs
Economic and commercial challenges
Upfront costs associated with the development of a PoA
Traditional CDM(000 EUR)*
PoA(000 EUR)**
PIN 3 - 10 8 - 15
PDD / CPA-DD / PoA-DD
10 – 30 50 – 150
Validation 7 – 27 50
Administration N/A 100
Monitoring 3 – 6 30 – 100
Verification 10 - 17 10 - 30
* SNV, 2009** KfW, 2009
Economic and commercial challenges
Critical size needed for different type of programmes *
Project TypeSize needed for
breakevenSize needed for IRR
of 15%
Distribution of CFL105,000 – 830,000
CFLs139,000
Cooking Stoves13,500 – 145,000
Stoves13,900 – 180,000
Stoves
Household biodigesters1,100 – 8,000 Biodigesters
1,300 – 21,000 Biodigesters
* KfW, 2009
Economic and commercial challenges
Some of the most relevant economic and commercial challenges that PoAs face today are:
Lack of experience in the market Upfront costs associated with the development of a
PoA Coordinating entity selection and taxation issues
Economic and commercial challenges
Coordinating entity selection and taxation issues
Tax treatment and other liabilities for PoAs are unclear and may vary from country to country.
Unclear if and which host countries will issue LoAs and which restrictions will be imposed on the Coordinating Entity
Unclear how international PoAs will – be approved by host countries– be approved by the EB (what happens if
the EB rejects the PoA for one country? Will the whole process start again?)
Content
Challenges inherent to the nature of a Programme of Activities
Regulatory and operative challenges Economic and commercial challenges Conclusions
Conclusions
Programmatic CDM is promising but still many hurdles need to be removed if PoAs are to play a significant role in the global mitigation efforts
Our current learning curve is in very early stages. More changes are expected to come based on on-going learning
Costs are expected to go down as project developers and DOEs develop a better understanding on the risks involved in developing a PoA
More funding mechanisms are needed particularly for programms which are not viable on a pure commercial schemes
South Pole Carbon Mexico
Alberto Carrillo,Country Director
Campeche 290 -402Col. Hipódromo CondesaMexico06100Tel. (55) 5531 9013 (55) 5564 6793
Thank you for your attention
South Pole Carbon Asset Management Ltd.