Introduction to the Clean Development Mechanism

Transcription

1 Introduction to the Clean Development Mechanism A presentation by Shailendra K. Joshi 23 December 2006

2 Sessions Outline Background of CDM; CDM Process and steps involved; Small Scale/ A&R projects Sectoral potential Conclusions

3 Background of CDM

4 Kyoto Protocol Parties adopted in COP-3 in 1997 Commits developed countries to reduce GHG emissions by 5.2% below 1990 levels during the first commitment period KP came into force on February 16, Required ratification by at least 55 Parties and amounting to 55 % emissions Till date ratified by 132 Parties and amounting to 61.6 % emissions USA & Australia major countries who have not ratified yet

5 The six Greenhouse gases The six GHGs covered under the KP are not equal either in their abundance or in terms of their global warming potential (GWP). GHGs GWP Carbon dioxide 1 Methane 21 Nitrous oxide 310 Hydroflurocarbons Perflurocarbons Sulfur hexafluoride 23900

6 Three Flexible Mechanisms Clean Development Mechanism Joint Implementation Emissions Trading

7 How does the CDM work? In the CDM, any entity (foreign, domestic, joint venture, public, corporate, non-profit) may set up a projec to produce any good (e.g. steel) or any service (e.g. transportation), and C, in a non-annex I Party Certified Emissions Reductions [CERs] (to be issued by an operational entity ) may be traded in a global market The projects must contribute to sustainable development in the host country

8 How does the CDM work? Contd.. -C produced by the project is thus a joint product, of that enterprise with the conventional goods or services Returns to the project thus accrue from (i) sale of main good/service; (ii) sale of C; (iii) less costs of production of both

9 GHG emissions [t CO 2-eq ] Baseline and Additionality of CDM Projects Validation of project design, baseline and monitoring plan Additional emission reductions Emissions baseline Verification/ Certification of emission reductions Emissions with project Project implementation Year

10 CDM Process and Steps Involved

11 CDM Set Up CDM Executive Board Supported by Secretariat Meth panel Accreditation Panel Working groups Designated Operational Entities

12 Project Cycle of CDM Project Design & Formulation Host Country Approval Validation/ Registration Project Monitoring Verification/ Certification Issuance of Certified Emission Reductions (CERs)

13 Steps towards certified emission reductions (CERs) Project Owner Project Idea Registration CDM Executive Board Project Owner Project Design Document Monitoring of Emission Reductions* Project Owner DNA Host Country Approval Verification & Certification of Emission Reductions* Operational Entity CDM Executive Board Approval Baseline Methodology* * CER Issuance * CDM Executive Board Operational Entity Validation * periodically during crediting time * * unless approved method. is used

14 Eligible project activities under CDM CDM project activities must result in reducing emissions or sequestering the GHGs that are real and measurable; That it would not have occurred in the absence of the proposed project activity (Emissions additionality). CDM project activities must demonstrate their contributions to environmental integrity and the host country s sustainable development goals.

15 CDM Project Design Normal project report Add Carbon chapter Adopt approved methodology or make a new one Prove that it is not BAU project Negotiate with Developed Country Party for sale of CERs

16 Project Design Document Main document in the CDM project cycle Standardized format: General description of project activity Baseline methodology Crediting period Monitoring methodology and plan Estimation of GHG emissions Environmental impacts Stakeholders comments Format available at

17 Host Country Approval Formal confirmation by the designated national authority (DNA) of the hosting country that the project meets sustainable development objectives In India, Ministry of Environment & Forests is appointed as the Designated National Authority (DNA) for CDM

18 Facilitating CDM Implementation Designated National Authority National CDM Authority Inter Ministerial Committee Single Window clearance Regular meetings Host country approval

19 National CDM Authority Secretary (E&F) Foreign Secretary Finance Secretary Secretary, DIPP Secretary, MNES Secretary, MOP Chairman Secretary, Planning Commission Joint Secretary (CC), MoEF Director (CC), MoEF Member Secretary

20 Host Country Approval Emissions Additionality Sustainable Development Parties should have ratified Kyoto Protocol Voluntary participation

21 Single Window Clearance PCN as per MoEF format PDD as per UNFCCC format Project promoter to give a presentation in the DNA meeting

22 Sustainable Development Criteria Prerogative of the Host Party Economic well being Social well being Environmental well being

23 Project Steps DOE thoroughly vets the proposals and puts on UNFCCC website for one month for comments from public Meth panel for new methodology CDM Executive Board for Registration

24 Validation Designated Operational Entities JQA DNV Certification TUV GmbH SGS UK

25 Validation Independent assessment by DOE that project meets criteria of the Kyoto Protocol DOE shall : Review the PDD and supporting documentation Conduct site visits Interact with stakeholders Source other relevant additional information from various sources Publish the PDD in the web for 30 days for international stakeholders comments A successfully validated project can be submitted to CDM EB for registration.

26 Registration Automatic registration of submitted projects unless 3 members of the CDM EB or one of the Parties involved file a request for review within: 4 weeks for small scale project activities 8 weeks for large scale project activities Registration fees are payable to the Executive Board by the project participants depending on the quantity of emission reductions

27 Verification/Certification DOE does the verification based on inspection of records, field visits Certification to CDM EB Issuance of CERs by EB to Party s account and Project participants as per sharing agreement

28 Crediting Periods CERs can be generated as from now: Banking by buyer for use towards compliance in Banking by project proponent for sale in later years Duration of crediting periods: Fixed crediting period of up to 10 years, or Renewable crediting periods of up to 7 years (maximum = 3 x 7 years) Start of crediting period: The later of (i) CDM registration, and (ii) start of project operation Possibility to claim CERs retroactively for emission reductions achieved since 2000 has expired at the end of 2005

29 Issuance of CERs On request to issue CERs, the CDM EB issues the certified amount of CERs within 15 days, unless a party involved in the project activity or at least three members of the CDM EB request for a review. A 2% administrative expenses is charged and is kept aside from the amount of CERs issued. Aforestation and Reforestation projects are exempted from administrative expenses.

30 Additionality CDM is an incentive to achieve additional emission reductions CDM is NOT a reward for past or BAU emission reductions A project activity (and the resulting emission reductions) is additional if it is not the baseline scenario i.e., the project activity should not occur anyway Goal is to make projects happen which without CDM revenues would not be viable. Without additionality, CDM will lead to global increase in emissions In comparison with a Kyoto without CDM world Avoid that business-as-usual efficiency gains in developing countries are used to fulfil commitments of Annex 1 Countries

31 Additionality Tool (Adopted by CDM Executive Board, Oct. 2004) Step 0: Eligibility for early CDM Step 1: Identification of lawful project alternatives Step 2: Investment analysis, or Step 3: Barrier analysis Step 4: Common practice analysis Step 5: Impact of CDM Registration For small-scale projects, sufficient to demonstrate that barriers would have led to higher emissions (in the absence of CDM)

32 Transaction Costs (Large- Scale) Methodology: 20 50(+) k$ (only if required) PDD: k$ Validation: k$ Monitoring & Verification: k$/yr (large range) CDM Administration Fee: 0.2 $ per CER 0.1 $ on first 15,000 CERs in each year CDM Adaptation Levy: 2% of CERs

33 Transaction Costs (con.t) No formal size threshold or limit for projects Practical threshold due to transaction costs: If approved methodology available: (10 -) 20 kt CO 2 e/yr If no approved methodology available: 30 kt CO 2 e/yr

34 Small Scale and A&R CDM projects

35 Small-Scale CDM Projects Size limits for for small-scale projects: Electricity generation from renewable sources, up to 15 MW Energy efficiency projects saving, up to 15 GWh p.a. Projects reducing, and emitting themselves, up to 15,000 t CO 2 e p.a. SSC projects benefit from simplified rules : Simplified PDD 15 pre-approved baseline methodologies (as per Jan. 2006) Same operational entity may undertake validation and verification / certification

36 Small Scale A/R Projects A & R Sequestration of 8 kt CO2 Approved Simplified Procedures by CDM EB Same DOE can undertake validation, verification and certification Bundling of projects feasible

37 Bundling of Small Projects Solar units Hydro units GHG offsets CERs CER buyers Bundling Agent Carbon finance Biomass units CER revenue

38 Status of CDM Projects

39 CDM Status (19/12/2006) Projects under pipeline >1300 with 150 million CERs; Registered 451 with 70 million CERs ( million CERs/year); CERs Issued 2.4 million, applied 2.8 million;

40 Baseline and Monitoring Methodologies Different for large scale, A/R and small scale projects; Approved (49, consolidated 10), and proposals related to new methodologies;

41

42

43 Number of Projects (451) India 29.49%; Brazil 18.18; Mexico 15.3; China 7.76;

44

45

46

47 Potential for CDM Projects in India

48 Type of projects Renewable energy (Wind, Biomass, Solar) Switching to Alternate Fuels Energy Efficiency Waste Management Oil & Gas Agriculture Carbon Sequestration in Forests

49 Types of Projects approved Biomass/ Cogeneration Industrial Processes/ Energy Efficiency Municipal Solid Wastes Fuel Switching Renewables

50 Potential Areas Average Specific Energy Consumption Sector Best Steel(G.cal/ton) Aluminum(kWh/ ton) Cement(kWh/ton) Caustic Soda(kWh/ton) Paper(MWh/ton) Urea(kWh/ton)

51 Potential in Renewables Technology Wind Power Small Hydropower (< 25 MW) Biomass Energy from Waste Solar photovoltaic Potential MW MW MW 1700 MW Cum. Installation upto March 31, MW 1509 MW 484 MW 26 MW 121 MWp

52 Renewable energy Solar Power, Hydro power,wind power, Tidal wave power. Renewable energy for the grid For electricity generation by households or commercial users like solar home systems, solar water pumps. For mechanical energy by households or commercial users such as wind powered pumps, solar water pumps, water mills etc. Thermal energy for household or commercial users. Biomass combined heat and power systems.

53 Fuel switching For industrial facilities From steam or compressed air to electricity; From oil to gas; For vehicles from diesel to LPG or CNG

54 End use energy efficiency improvements Energy efficient equipments and appliances such as: Motors, Lamps, Refrigerators, Fans, Air conditioners, Appliances etc.

55 Supply side energy efficiency improvements GENERATION Efficiency improvements at power stations and district heating plants and co-generation. TRANSMISSION AND DISTRIBUTION Upgrading voltage on a transmission line. Replacing transformer Increased insulation of pipes.

56 Agriculture Reducing emissions from agricultural fields Use of ammonium sulphate instead of urea. Use of Phosphogypsum in combination with urea instead of urea. Reducing methane emission from livestock Agricultural land management practices.

57 Industrial processes Methane recovery Cement production Electric equipment manufacturing PFC emissions from aluminum production Nitrous oxide emissions from adipic acid and nitric acid manufacturing.

58 Carbon Sink projects Afforestation Planting trees on the land that has not been forested for a period of at least 50 years. Reforestation Planting trees on denuded/degraded/cleared forest land. However, only that reforestation activity will be taken into account that is forested after January 1, 1990.

59 Beneficiary Sectors-Potential INDIAN INDUSTRIAL SECTOR : CARBON DIOXIDE EMISSIONS Others 15% Cement 4% Paper 1% Steel 10% Chemicals 3% Power 51% Power Transportation Chemicals Paper Cement Steel Others Transportation 16% Carbon Dioxide emission as of the year 1995 SOURCE : HANDBOOK OF STATISTICS 1998

60 Power Installation of super critical boilers in thermal power stations Improve heat rate by Renovation and Modernisation of old thermal power stations Conversion of LT to HT feeders in rural areas Reduction of Auxiliary power consumption, use of variable speed drives

61 Power Contd.. Improving heat rate through various technological measures Micro/Small and Large Hydro power stations De-centralized power generation

62 Oil and Gas Reduction of gas flaring Improving energy efficiency through various technological measures Reduction in steam consumption Recovery and use of contaminated waste process steam Recovery of process waste heat Switching of fuel to less carbon intensive

63 Cement Increased blending by mixing fly ash Energy efficiency improvement by up-gradation of pre-heater, clinker cooler etc. Partial substitution of fossil fuel with alternative fuels like agricultural byproducts and MSW Recovery of process waste heat

64 Steel Use of blast furnace gas for power generation Utilization of heat of combustion of blast furnace gas in reheating furnace of Wire rod mill etc. Recovery of process waste heat

65 Chemical industry Energy efficiency and fuel switching measures by GACL Recovery of process waste heat

66 Conclusions

67 The CDM today Market heating up. Till KP came into force there were few buyers Effect of EU ETS on CDM yet to be assessed with the coming of ITL High transaction costs Bundling of small projects to be encouraged Continuation of CDM in the second commitment period

68 Thank You