GOLD STANDARD VALIDATION REPORT BK ENERGIA ITACOATIARA PROJECT IN BRAZIL REPORT NO G REVISION NO. 01 DET NORSKE VERITAS

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1 GOLD STANDARD VALIDATION REPORT BK ENERGIA ITACOATIARA PROJECT IN BRAZIL REPORT NO G REVISION NO. 01 DET NORSKE VERITAS

2 Date of first issue: ConCert Project No.: 10 August 2011 PRJC CCS-BRA Approved by: Trine Koppenrud Client: BK Energia Itacoatiara Ltda. Organisational unit: DNV Climate Change and Environmental Services Client ref.: Martin Jenk DET NORSKE VERITAS CERTIFICATION AS Veritasveien 1, 1322 HØVIK, Norway Tel: Fax: Org. No: NO MVA Summary: Project Name: BK Energia Itacoatiara Project UNFCCC Reference Number: 0168 UNFCCC Project Registration Date: 12 May 2006 Gold Standard Reference Number: G765 Country: Brazil Methodology: AMS-I.D Version 17 Methodology: AMS-III.E Version 16 GHG reducing Measure/Technology: GHG emission reductions from electricity generation from biomass residues ER estimate: tco 2 e per year (average) Size Large Scale Small Scale Validation Phases: Desk Review Follow up interviews Resolution of outstanding issues Validation Status Corrective Actions Requested Clarifications Requested Full Approval and submission for registration Rejected In summary, it is DNV s opinion that the project activity BK Energia Itacoatiara Project in Brazil, as described in the PDD, version 4.6 of 23 August 2011, and in the GS Passport version 4 dated 16 August 2011 meets all relevant Gold Standard requirements for CDM projects. DNV thus requests the registration of the project as a Gold Standard CDM project activity in the Gold Standard Registry. Report No.: Subject Group: G Environment Indexing terms Report title: BK Energia Itacoatiara Project in Brazil Work carried out by: Fernando Sasdelli, Luis Filipe Tavares, David Freire da Costa Work verified by: Felipe Lacerda Antunes Date of this revision: Rev. No.: Number of pages: Key words Gold Standard GS CER Additionality Sustainable Development No distribution without permission from the client or responsible organisational unit free distribution within DNV after 3 years Strictly confidential Unrestricted distribution 2009 Det Norske Veritas AS All rights reserved. This publication or parts thereof may not be reproduced or transmitted in any form or by any means, including photocopying or recording, without the prior written consent of Det Norske Veritas AS. Head Office: Veritasvn. 1, N-1322 HØVIK, Norway GS Validation Report Template, version 01,

3 Table of Content Page ABBREVIATIONS...II 1 INTRODUCTION Objective Scope GHG Project Description 1 2 METHODOLOGY Desk review of the project design documentation Follow-up interviews with project stakeholders Resolution of outstanding issues Internal quality control Validation team 6 3 GOLD STANDARD VALIDATION FINDINGS PROJECT ELIGIBILITY ACCORDING TO GS REQUIREMENTS ADDITIONALITY SCREEN ACCORDING TO GS CRITERIA Public announcement Conservative approach check of the baseline scenario Technology transfer and/or technology innovation 9 6 SUSTAINABILITY ASSESSMENT GOLD STANDARD CRITERIA FOR STAKEHOLDER CONSULTATION PRE-FEASIBILITY ASSESSMENT AND DISCUSSION OF GOLD STANDARD FEEDBACK SUSTAINABILITY MONITORING PLAN VALIDATION OPINION Appendix A Validation Protocol Appendix B Curricula Vitae of the Validation Team Members Page i

4 Abbreviations CAR CDM CEAM CER CL CO 2 e DNA DNV DOE DRC CDM-EB EIA EPB ER GHG GS GS-TAC GS-VVM KP MP MoU NGO PDD LSC UNFCCC Corrective Action Request Clean Development Mechanism Companhia Energética do Amazonas / Amazonas Energetic Company Certified Emission Reduction Clarification Request Carbon dioxide equivalent Designated National Authority Det Norske Veritas Designated Operational Entity Development and Reform Committee CDM Executive Board Environmental Impact Assessment Environmental Protection Bureau Emission Reduction Greenhouse gas(es) Gold Standard Gold Standard Technical Advisory Committee The Gold Standard Validation and Verification Manual for CDM Projects Kyoto Protocol Monitoring Plan Memorandum of Understanding Non-governmental Organisation Project Design Document Local Stakeholders Consultation United Nations Framework Convention on Climate Change Page ii

5 1 INTRODUCTION BK Energia Itacoatiara Project has commissioned Det Norske Veritas Certification AS (DNV) to perform a validation of the BK Energia Itacoatiara Project in Brazil (hereafter called the project ) in relation to the Gold Standard (GS). The project has been registered as a CDM project on 12 May 2006 /26/. Hence, all the UNFCCC requirements have been met as set by the Kyoto Protocol, the Marrakech Accords and relevant guidance by the CDM Executive Board. The project furthermore meets all relevant host party criteria and correctly applies the baseline and monitoring methodologies. This report summarises the findings of the validation of the project performed on the basis of GS requirements for CDM projects. 1.1 Objective The objective of the validation in accordance with the GS for CDM projects is to have an independent third party assess that the project design of a GS CDM project fulfils the requirements set out by the GS. The GS validation seeks premium quality carbon credits, by ensuring that the CDM project meets the additionality requirements posed by the GS and that the project results in real and measurable benefits to local stakeholders. Hence, the validator will confirm that the project design is sound and reasonable and meets the relevant criteria. This implies that the project, its baseline and the monitoring plan must be in compliance with relevant UNFCCC and host party criteria, as well as the GS specific criteria. 1.2 Scope The validation scope is defined as an independent and objective review of the project design document (PDD) and other relevant documents. The information in these documents is reviewed against the GS requirements based on the recommendations in the Gold Standard Requirements and Toolkit version 2.1 /16/. The validation is not meant to provide any consulting towards the project participants. However, stated requests for clarifications and/or corrective action requests may have provided input for improvement of the project design. 1.3 GHG Project Description The project activity is a renewable energy project, which consists in the generation of electricity with a 9.0 MW thermoelectric power plant using wood residues from wood processing companies, located in the city of Itacoatiara, State of Amazonas, Brazil. Following the implementation of this project, BK Energia Itacoatiara Project was able to sell electricity (generated by GHG neutral biomass) to the local isolated grid. The project activity also involves the avoidance of methane emissions by avoiding the disposal of the biomass residues from decaying in open field stockpiles. In the absence of the project, the fresh wood residues (wood chips and sawdust), which are used in the thermoelectric plant, would continue to be decay under anaerobic conditions, thus emitting methane. The other Page 1

6 wood residues (road & forest cleaning) used as biomass were not considered for calculation of methane avoidance, once this biomass was not considered as decay on anaerobic conditions. The project was implemented as described on the PDD and the plant includes a boiler (model 45 V-2-S) manufactured by Equipalcool with a steam capacity of 45 tonnes/h at 42 kgf/cm 2 /28/, a steam turbine manufactured by Dresser-Rand (model ET1HB7, serial number ET-103, installed capacity 9.0 MW ( KVA at rpm) and a electrical generator manufactured by Toshiba (type TABL RCC, serial number , rated capacity kva at 13.8 kv, 60 Hz), as confirmed through a visual assessment of the equipment s nameplates during the site visit. Page 2

7 2 METHODOLOGY The validation consisted of the following three phases: I II a desk review of the project design documents follow-up interviews with project stakeholders III the resolution of outstanding issues and the issuance of the final validation report and opinion. The following sections outline each step in more detail. 2.1 Desk review of the project design documentation The following tables list the documentation that was reviewed during the validation Documentation provided by the project participants /1/ BK Energia Itacoatiara Ltda.: CDM-PDD for project activity BK Energia Itacoatiara Project in Brazil, Version 4.6 dated 23 August 2011 /2/ BK Energia Itacoatiara Ltda.: CDM-PDD for the first crediting period of BK Energia Itacoatiara Project registered on 12 May 2006 /3/ EQAO: Emission reductions calculation spreadsheets: BK Energia Itacoatiara_CERs estimation_v4.5_02sep2011.xls, dated 2 September 11. /4/ EQAO: Gold Standard Passport for project activity BK Energia Itacoatiara Project in Brazil, version 4 dated 16 August 2011 and version 3 dated 25 April /5/ BK Energia Itacoatiara Ltda.: Declaration of non-use of Official Development Assistance (ODA) by Project Owner, BK Itacoatiara_Annex D.pdf, dated 03 December 2009 /6/ BK Energia Itacoatiara Ltda.: Documents related to the initial stakeholder consultation for the proposed CDM project activity BK Energia Itacoatiara Project. Public consultation was held during the validation of the first crediting period from 04 May 2005 to 03 June /7/ BK Energia Itacoatiara Ltda.: Documents related to Stakeholder Feedback Round for the proposed Gold Standard project activity BK Energia Itacoatiara Project : Invitation letter requesting stakeholders feedback sent on 28 and 31 January 2011; Mail receipts from letters sent to stakeholders, dated 2, 7 and 14 February 2011 Response from stakeholders Spreadsheet GS - LSC Itacoatiara tracking.xlsx with compilation of responses from the stakeholders /8/ CEAM: Electricity Quality Index, from year 2000 to 2008 and website with up-to-date information /9/ Human Rights Council: Brazilian Human Rights, A/HRC/WG.6/1/BRA/1, dated 7 March 2008 Page 3

8 /10/ EQAO: communications between EQAO and The Gold Standard Foundation, related to the project process: GS765: Have you heard about the new GS 'fast-track' process for retroactive projects?.msg dated 28 May 2010 Re: BK Itacoatiara GOLD - Stakeholder Feedback Round.msg dated 18 January 2011 Re RES Documents GS.msg, about the Fast-tracking option for retroactive project activities feedback, dated 11 October 2010 /11/ Precious Woods: Annual Report 2009 /12/ Precious Woods: Code of Conduct 2011 /13/ Rainforest Alliance and Imaflora: Forest Stewardship Council Certification, document SW-COC , issued on 25 March 2005 and audited on 5 May /14/ Rainforest Alliance and Imaflora: Forest Management Certification, document SW- FM/CoC , issued on 1 December 2007 and audited from 9 to 13 November Methodologies, tools and other guidance by The Gold Standard /15/ The Gold Standard Requirements Version 2.1, 01 July 2009 /16/ The Gold Standard Toolkit (and annexes) Version 2.1, 01 June 2009 /17/ The Gold Standard Pre-feasibility Assessment Checklist for GSv2.1 Retroactive Projects, version 1.0 /18/ The Gold Standard: Fast-tracking option for retroactive project activities, dated 17 May 2010 /19/ The Gold Standard: Feedback based on pre-feasibility assessment, dated 11 October 2010 /20/ The Gold Standard: Memorandum of Understanding (MoU), dated 5 October Methodologies, tools and other guidance by the CDM Executive Board /21/ CDM Executive Board: Baseline and monitoring methodology AMS-I.D, Grid connected renewable electricity generation, Version 17 /22/ CDM Executive Board: Baseline and monitoring methodology AMS-III.E, Avoidance of methane production from biomass decay through controlled combustion, gasification or mechanical/thermal treatment, Version 16 /23/ CDM Executive Board: Tool for the demonstration and assessment of additionality, version 1, adopted at EB16 /24/ CDM website link to registered project activity : Page 4

9 2.1.4 Other Documentation used by DNV to validate / cross-check the information provided by the project participants /25/ DNV: Revalidation report of BK Energia Itacoatiara Project, Version 01 Report Number , Dated 3 August 2011 and under approval at DNV /26/ TÜV Industries Service GmbH TÜV SÜD Group: Validation Report BK Energia Itacoatiara Project, TUV Report , Revision N. 5, 15 March /27/ IPAAM (Instituto de Proteção Ambiental do Estado do Amazonas / Environmental Protection Institute of Amazonas State): Operation License N 355/02-05, issued by IPAAM to BK Energia Itacoatiara Ltda. on 3 February 2009 and valid for 730 days (2 years). Operation License N 355/02-06, issued by IPAAM to BK Energia Itacoatiara Ltda. on 20 April 2011 and valid for 730 days (2 years). /28/ Equipalcool: Technical specification issued on 16 September 2002 by the biomass boiler s manufacturer, model 45 V-2-S, confirming the work pressure of 42 kgf/cm 2 and the type of fuel to be used (wood residues) in the biomass boiler of BK Energia Itacoatiara Project. 2.2 Follow-up interviews with project stakeholders On 13 May 2010, David Freire da Costa visited the BK Energia Itacoatiara Project, located in the city of Itacoatiara, State of Amazonas, north region of Brazil and performed interviews with project stakeholders /29/ /30/ /31/. Date Name Organization Topic /29/ 13 May 2010 Isac Barreto Operations Queiroz Coordinator and Power Plant Manager BK Energia Itacoatiara Ltda. /30/ 13 May 2010 Roger Luis de General Souza Noronha Coordinator and Operation Supervisor BK Energia Itacoatiara Ltda. /31/ 13 May 2010 Ana Paula Veiga Project Manager EQAO Conservative approach Technology transfer and knowledge innovation Assessment of environmental impacts, environmental licenses and legal compliance Stakeholders consultation process 2.3 Resolution of outstanding issues The objective of this phase of the GS validation was to resolve any outstanding issues which needed to be clarified prior to DNV s positive conclusion on the project design. The validation protocol consisted of two tables. The completed validation protocol for the BK Energia Itacoatiara Project is enclosed in Appendix A of this report. Page 5

10 Findings established during the validation can either be seen as a non-fulfillment of GS criteria or where a risk to the fulfillment of project objectives is identified. Corrective action requests (CAR) are issued, where: - Mistakes have been made with a direct influence on project results; - GS and/or methodology specific requirements have not been met; or - There is a risk that the project would not be accepted as a GS project or that emission reductions will not be certified. A request for clarification (CL) may be used where additional information is needed to fully clarify an issue. A forward action request (FAR) is raised during validation to highlight issues related to project implementation that require review during the first verification of the project activity. FARs shall not relate to the CDM requirements for registration. During the GSP validation, one CAR and 4 CLs were raised, all CAR/CL have been satisfactorily addressed by the project participant in the updated GS passport version 4 dated 16 August No FAR was raised. 2.4 Internal quality control The final GS validation report underwent the technical review by the technical reviewer Felipe Antunes that was qualified before requesting registration as a Gold Standard project activity. The validation team was leaded by Andrea Leiroz qualified with TA13.1 and MG 2. David Costa performed the desk review, site visit and wrote the CDM report. Luis Filipe Tavares contributed with his qualification in TA13.1 and Fernando Sasdelli wrote the present version of the GS report. The validation team is in accordance with DNV s qualification scheme for CDM validation and verification. 2.5 Validation team Type of involvement Role Last Name First Name Country Project manager Leiroz Andrea Brazil Technical team Leiroz Andrea Brazil leader (CDM validator) CDM Validator Tavares Luis Filipe Brazil CDM Validator Costa David Brazil Administrative Desk review Site visit / Interviews Reporting Supervision of work Technical review TA 1.1 competence Page 6 TA 13.1 competence

11 Assessor under training Technical reviewer Sasdelli Fernando Brazil Antunes Felipe Brazil Page 7

12 3 GOLD STANDARD VALIDATION FINDINGS The Gold Standard validation of the project must be seen in conjunction with the CDM revalidation report and protocol of the project (DNV Report No: , version 01 of 3 August 2011) /25/. The Gold Standard validation consists of the screening of the project eligibility, additionality and contribution to sustainable development and the sustainability monitoring plan according to GS requirements /15/: - Project eligibility according to GS requirements - Gold Standard criteria on additionality Public announcement Conservative approach check of the baseline scenario. Technology transfer and/or technology innovation - Sustainable development assessment - Gold Standard criteria for stakeholder consultation - Pre-feasibility assessment and discussion of Gold Standard feedback - Sustainability monitoring plan All of the requirements indicated above are elaborated in the following sections. 4 PROJECT ELIGIBILITY ACCORDING TO GS REQUIREMENTS The project BK Energia Itacoatiara Project is defined under the Simplified Modalities and Procedures for Small-Scale CDM Project Activities. Also the project is not a de-bundled component of a large project activity since there is no registered small scale CDM project activity by the same project proponents, in the same project category and technology / measure with project boundary within one kilometer radius of this project activity. Located in Brazil, the host country, it is classified under Renewable Energy Supply category, as biomass residues from forest management are being used to generate electricity, resulting in CO 2 and CH 4 emissions reduction. The biomass is a production residue supplied by the sawmill from company Precious Wood. The wood input is originated only from FCS-certified forests /14/. Previously to the project activity the biomass residues were not in use and in baseline would have been left to decay in a waste disposal site. Also the biomass residues in project activity are replacing thermal generation with diesel oil that is the common practice in the region /2/. The project activity does not co-fired fossil fuel to generate electricity. However a small amount of fossil fuel may be used during start-ups and maintenance of the power plants. This quantity of fossil fuel was verified through the CER spreadsheet calculation /3/ and was found to be less than 5% as required per the Annex C of The Gold Standard Toolkit /16/. The project does not involve public funding. A declaration of non-use of Official Development Assistance (ODA) was presented to the DOE under Annex 1 of the GS Passport /2/ /5/. Page 8

13 The project was validated and registered at UNFCCC on 12 May 2006 and is going thought revalidation process; therefore it is a retroactive cycle project. According to GSv2.1 Toolkit /16/, section 2.5 and the Fast-tracking option for retroactive project activities procedures, the project activity passed through a Fast-Tracking Prefeasibility Assessment /17/ /18/. A feedback of the project activity was provided by the GS Regional Manager on 11 October 2010 /19/. Comments presented on the feedback were properly addressed to GS Passport version 4 dated 16 August Therefore regarding the stated above the project BK Energia Itacoatiara Project is eligible under the Gold Standard activities. 5 ADDITIONALITY SCREEN ACCORDING TO GS CRITERIA The additionality was previously assessed as part of the CDM validation phase /26/. According to the Validation Report, the project proponent has applied UNFCCC Tool for the demonstration and assessment of additionality, version 1 /23/. The project participants have presented their case under investment barrier due to the difficulties in the Brazilian finance sector for project financing. The DOE responsible for validation /26/ has properly addressed this barrier. 5.1 Public announcement DNV was able to verify that there was no public announcement of the BK Energia Itacoatiara Ltda. GHG emission reductions from electricity generation from biomass residues project activity going ahead without CDM benefits. This claim has been verified through the registered validation report /26/. It has also been demonstrated that the incentive from CDM was seriously considered in the decision to proceed with the project activity. 5.2 Conservative approach check of the baseline scenario As indicated in the CDM Validation Report /26/ the project applies the simplified baseline methodologies proposed for the small-scale project activity category I.D, i.e., for renewable energy projects and category III.E, i.e., for other project activities. As per AMS-I.D /21/, the simplified baseline is the electricity consumption times the relevant emission factor calculated as the kwh produced by the renewable generating unit multiplied by an emission coefficient (measured in kgco 2 /kwh). As per AMS-III.E /22/, the simplified baseline is the amount of methane that would be emitted to the atmosphere from the biomass left to decay in stockpiles. As addressed under the Tool for the demonstration and assessment of additionality /23/, it has been established that the most plausible baseline scenario is the continuation of the current situation, i.e. the consumption of diesel oil at local power plants to supply electricity and the biomass residues being left to decay in stockpiles. The city of Itacoatiara in Amazonas State in which the project activity is located is not connected to the Brazilian Interconnected Grid System (SIN). The approved baseline methodology has been correctly applied to identify a complete list of realistic and credible baseline scenarios, and the identified baseline scenario most reasonably represents what would occur in the absence of the proposed CDM project activity. Page 9

14 All the assumption and data used by the project participants are listed in the PDD Version 4.6 /1/ and/or supporting documents. Assumptions and data used in the identification of the baseline scenario are justified appropriately, supported by evidence and can be deemed reasonable. 5.3 Technology transfer and/or technology innovation The project s technical design, encompassing the utilization of biomass residues from forest management /14/ to generate electricity generation is unique at the Amazon region. The woods are originated from FSC certified forest lands /13/ owned by the company Precious Woods /11/ and the technology used for electricity generation is well-known but complex to handle at a very remote area with lack of infrastructure. Therefore CDM will allow this innovative technology to be introduced in the region of Amazonas State as well as encourage other industries to apply this technology on their projects. 6 SUSTAINABILITY ASSESSMENT The Gold Standard sustainable development matrix addresses the development indicators as relevant for the project activity. The project is clearly contributing to sustainable development and the criteria identified are sufficiently substantiated. In DNV s opinion, the sustainable development criteria identification process and the subsequent results are in full compliance with the Gold Standard criteria Do no harm assessment The Do no harm assessment has been included in the GS Passport /4/ of the project activity BK Energia Itacoatiara Project as required. All safeguarding principles derived from the Millennium Development Goal were presented and described as follows: The project respects internationally proclaimed human rights including dignity, cultural property and uniqueness of indigenous people. The project is not complicity in Human Rights abuses: the project represents a low risk on this since the employees are contracted based on Brazilian laws that are in accordance to the Human Rights Council /9/. Also Precious Woods areas are certified under FSC norms that ensures human rights are respected /14/; The project does not involve and is not complicit in involuntary resettlement: this principle represents low risk for the project since it was built in private lands, owned by Precious Woods Amazon. Therefore, no mitigation measures are needed; The project does not involve and is not complicity in the alteration, damage or removal of any critical cultural heritage: this principle represents low risk for the project since as per Precious Woods Code of Conduct /12/ Precious Woods does not pursue forestry activities in forest areas where indigenous people demonstrably follow their own culturally distinct and original way of life. Therefore, no mitigation measures are needed; The project respects the employees freedom of association and their right to collective bargaining and is not complicit in restrictions of these freedoms and Page 10

15 rights: this principle represents low risk for the project since Precious Wood is regularly audited by FSC that has interviewed the local unions: Union of Rural Workers of Itacoatiara and Workers Union of Wood Industry /14/. Therefore, no mitigation measures are needed; The project does not involve and is not complicit in any form of forced or compulsory labour: this principle represents low risk for the project since the employees are contracted based on Brazilian laws. Also all direct employees have employment contracts, as confirmed in the Precious Woods Annual Report 2009 /11/. Therefore, no mitigation measures are needed; The project does not employ and is not complicit in any form of child labour: this principle represents low risk for the project since the company neither employs nor intends to employ children of any age. The country strongly applies the The Children and Adolescents Act (ECA), established by law 8069 on July 13 th, Therefore, no mitigation measures are needed; The project does not involve and is not complicit in any form of discrimination based on gender, race, religion, sexual orientation or any other basis: this principle represents low risk for the project since as per Precious Woods Code of Conduct /12/ There is no discrimination or harassment against an employee or an applicant for race, colour, religion, sex, age, disability, national origin; this is valid for all employees at all levels at any time. Therefore, no mitigation measures are needed; The project provides workers with a safe and healthy work environment and is not complicit in exposing workers to unsafe or unhealthy work environments: this principle represents low risk for the project since as per Precious Woods Code of Conduct /12/ The Company implements highest standards for health and safety. Precious Woods follows all state and local laws and regulations. Also as a mitigation measure BK Energia Itacoatiara Ltda. trained all employers and oriented the utilization of personal protective equipments; The project takes a precautionary approach in regard to environmental challenges and is not complicity in practices contrary to the precautionary principle. This principle can be defined as: When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically. : this principle represents low risk for the project since the company received the corresponding approval of the project through the Environmental License issued by IPAAM (Environmental Protection Institute of Amazonas State) on 20 April 2011 and valid for 2 years /27/. Therefore, no mitigation measures are needed; The project does not involve and is not complicity in significant conversion or degradation of critical natural habitats, including those that are (a) legally protected, (b) officially proposed for protection, (c) identified by authoritative sources for their high conservation value or (d) recognized as protected by traditional local communities: this principle represents low risk for the project since the forest managements is certified by FSC /14/. Annually the management plan has to be approved, assuring that the harvest only happens in permitted areas. As a mitigation Page 11

16 measures all residues used to generate electricity must come from FSC certified forest land; The project does not involve and is not complicit in corruption: this principle represents low risk for the project since as per Precious Woods Code of Conduct /12/ The Company is strongly committed to work with honesty and integrity, fully following all applicable laws. Therefore, no mitigation measures are needed; The project activity BK Energia Itacoatiara Project has presented only low impacts and none of them were considered as being a risk to the environment, social and economy of the region. Also mitigation measures were presented, therefore DNV states that the project activity will cause no harmful impact in the Amazon region Sustainable Development Matrix The project BK Energia Itacoatiara Project has used the Sustainable Development Assessment Matrix as required by the Gold Standard Toolkit, version 2.1 /16/. The result for each component is as follows, with impact under parenthesis: Air quality (neutral): In the baseline electricity would be supplied by the thermo power plant fueled with diesel oil. The project activity generates less NO x, SO x and CO. A cyclone filter was installed to reduce the emission of fly ash and particulate matter, therefore this indicator is not affected by the project implementation /2/. Water quality and quantity (neutral): A wastewater treatment plant was build to mitigate impacts. Water used to produce steam is treated previously and maintained in a close system where it is heated to produce high pressure and high temperature steam /2/. Soil condition (neutral): The project activity uses residues that otherwise would be left to decay in a wood waste disposal, causing positive and negative impacts on the soil. The project activity reduces these impacts and therefore is classified as neutral. This could be confirmed by the registered PDD /2/. Other pollutants (neutral): The project activity causes noise impact. In order to mitigate that all employees must use personal protective equipments. This procedure is regularly verified by FSC auditor /14/. Regarding the noise impact to the nature (surrounding forest, animals, etc.), the Environmental License issued by IPAAM on 20 April 2011 /27/ guarantee this impact as neutral. Biodiversity (neutral): Precious Wood, owner of BK Energia Itacoatiara Ltda. and responsible to provide the biomass residues to the project activity, is certified in forest management by FSC /14/. Therefore the biomass used is from sawmill residues from certified wood and having neutral impact to biodiversity. Quality of employment (neutral): Employees working in the project activity have proper salary, social insurance and good working conditions. This was confirmed by checking the company s annual report /11/ and the code of conduct /12/. Livelihood of the poor (neutral): The project activity has no impact in this indicator, since the conditions are the same as the baseline. Page 12

17 Access to affordable and clean energy services (+): The project activity results in increase of the reliability of electricity supply and the utilization of local biomass residues avoids the consumption of diesel oil imported from other regions. This could be confirmed by the registered PDD /2/. Human and institutional capacity (neutral): The project activity has no impact in this indicator, although operators training ensure an improvement of human capacities of the employees involved in the operation of the plant. Quantitative employment and income generation (+): The project activity implementation creates a long-term employment for 40 direct workers. Also due to the power plant implementation, the saw mill and forest management of the company Precious Woods is secured, what indirectly represents 500 jobs /11/. Balance of payments and investment (+): In the absence of the project activity electricity would be provided by the local thermo power plant from CEAM, that is fueled with diesel oil. The project activity is using biomass produced locally. The diesel oil is produced in other regions of the country, therefore transportation costs are being avoided within the project activity. This could be confirmed in the project design described in the registered PDD /2/. Technology transfer and technological self-reliance (+): The project activity is responsible to transfer a complex and well-known technology, i.e. biomass cogeneration, to a remote forest region of Brazil. This could be confirmed in the project design described in the registered PDD /2/. Data and opinions were presented in a sufficient degree of detail. The information presented is transparent and verifiable. No negative score has been given, which indicates that this project contributes to sustainable development locally, regionally and globally. In order to prove the project activity sustainability due to the positive indicators presented above the parameter to be monitored are: I.D. 1: System Average Interruption Duration Index; I.D. 2: Diesel oil consumption I.D. 3: Number of jobs created; I.D. 4: Average annual revenue from biomass sales; I.D. 5: Number of similar activities in the Amazon region; The assumptions used to define the score values have not been completed together with the stakeholders. The project has already been registered under UNFCCC requirements on 12 May 2006, is already operational and is now under revalidation. Therefore no Local Stakeholders Consultation was needed, as explained in an from The Gold Standard Foundation sent on 18 January 2011 /10/. Therefore the Sustainable Development Matrix has been correctly demonstrated by the project participants. Page 13

18 6.1.3 Environmental impact assessment (EIA) According to GSv. 2.1 an EIA should be performed according to local, regional and national requirements. The project participants have presented the Operational Licence N 355/02-05, issued by IPAAM (Environmental Protection Institute of Amazonas State) on 20 April 2011 and valid for 2 years /27/. The referred Operation Licenses confirm that BK Energia Itacoatiara Project is in compliance with the local applicable environmental laws and regulations. 7 GOLD STANDARD CRITERIA FOR STAKEHOLDER CONSULTATION The project has already been registered under UNFCCC requirements on 12 May 2006 /24/, it is already operational and is now under revalidation. Therefore no additional local stakeholders consultation was needed, as explained in an from The Gold Standard Foundation sent on 18 January 2011 /10/. The results, from the stakeholders consultation that was held during the CDM validation process of the first crediting period, can be found at the validation report from TÜV SUD /26/ and were properly assessed by DNV /6/ /7/. However, a stakeholders feedback round was done. s requesting opinions about the project activity were send on 28 and 31 of January 2011 /7/ to the following stakeholders: Comissão Interministerial de Mudança Global do Clima CIMGC, Fórum Brasileiro de ONGs e Movimentos Sociais para o Meio Ambiente e o Desenvolvimento, Local Gold Standard Expert / Latin America regional manager, Greenpeace Brazil, Greenpeace Brazil, WWF-Brazil, WWF International (represented through WWF Switzerland), REEEP the renewable energy and energy efficiency partnership, Mercy Coorps, Helio International, SEW Sustainable Energy Watch, Greenpeace International. No comments were received during the feedback round. 8 PRE-FEASIBILITY ASSESSMENT AND DISCUSSION OF GOLD STANDARD FEEDBACK The BK Energia Itacoatiara Project is classified as a retroactive cycle project, therefore a Pre-feasibility Assessment would be needed in order to assess if the project complies with the GS criteria and requirements. However in an from The Gold Standard Foundation, sent on 28 May 2010 to the project participants /10/, a new procedure was presented, Fasttracking option for retroactive project activities /18/ that is applicable to retroactive projects and replaces the Pre-feasibility Assessment. According to the Fast-tracking option for retroactive project activities /18/ a MoU was signed by parties, project participants and GS Secretariat, on 5 October 2010 /20/. Also as requested by the procedure Fast-tracking option for retroactive project activities /18/ a 2-hour consultation was done with the GS Regional Manager, Ivan Hernandez on 11 October 2010, at 11:00am, São Paulo time /10/. Comments presented on the feedback were properly addressed to GS Passport version 4 dated 16 August Page 14

19 9 SUSTAINABILITY MONITORING PLAN The monitoring of the emission reductions is described at the PDD version 4.6 /1/ and the CDM Revalidation Report /25/. The parameters to be monitored regarding the sustainability monitoring plan are listed below: Indicator Access to affordable and clean energy services Access to affordable and clean energy services Quantitative employment and income generation Balance of payments and investment Technology transfer and technological selfreliance Monitoring parameter I.D. 1: System Average Interruption Duration Index (Electricity supply quality index) /8/ I.D. 2: Diesel oil consumption I.D. 3: Number of jobs created I.D. 4: Average annual revenue from biomass sales (in BRL, local currency) I.D. 5: Number of similar activities in the Amazon region The determination of sustainable development indicators is transparent, the monitoring frequency is clearly stated and DNV considers the project participants able to implement the sustainable development monitoring plan. Page 15

20 10 VALIDATION OPINION Det Norske Veritas Certification AS has performed a Gold Standard validation of the BK Energia Itacoatiara Project on the basis of all the relevant Gold Standard requirements for CDM projects. The review of the GS Passport and the subsequent follow-up interviews have provided DNV with sufficient evidence to determine the fulfilment of stated criteria. The Gold Standard validation of the project must be seen in conjunction with the CDM validation report and protocol of the project. Being a GHG emission reductions from electricity generation from biomass residues project, the project is eligible for the Gold Standard. The project correctly applies AMS-I.D Grid connected renewable electricity generation, Version 17 and AMS-III.E Avoidance of methane production from biomass decay through controlled combustion, gasification or mechanical/thermal treatment, Version 16. The project BK Energia Itacoatiara Project consists of the generation of electricity with a 9.0 MW thermoelectric power plant using wood residues from wood processing companies, located in the city of Itacoatiara, State of Amazonas, Brazil. Therefore the project results in reductions of CO 2 and CH 4 emissions that are real, measurable and give long-term benefits to the mitigation of climate change. It is demonstrated that the project is not a likely baseline scenario. Emission reductions attributable to the project are hence additional to any that would occur in the absence of the project activity. The total emission reductions from the project are estimated to be on the average tco 2 e per year over the selected 7 year renewable crediting period. The emission reduction forecast has been checked and it is deemed likely that the stated amount is achieved given that the underlying assumptions do not change. The project meets the Gold Standard requirements pertaining to the contribution to sustainable development. The project meets the GS requirements pertaining to monitoring by monitoring the project s contribution to sustainable development, access to affordable and clean energy services, increase of jobs positions, balance of payments and technology transfer. The monitoring arrangements described in the sustainability monitoring plan are feasible within the project design and it is DNV s opinion that the project participants are able to implement the monitoring plan. In summary, it is DNV s opinion that the BK Energia Itacoatiara Project, as described in the GS Passport version 4 of 16 August 2011, meets all relevant Gold Standard requirements for CDM projects. The project has been submitted as a CDM project to UNFCCC on 12 May Hence, all the UNFCCC requirements have been met as set by the Kyoto Protocol, the Marrakech Accords and relevant guidance by the CDM Executive Board. DNV thus requests the registration of the project as a Gold Standard CDM project activity in the Gold Standard Registry. Page 16

21 Rio de Janeiro and Oslo, David Freire da Costa CDM Validator DNV Rio de Janeiro, Brazil Trine Koppenrud Regional Manager, Det Norske Veritas Certification AS - o0o - Page 17

22 APPENDIX A CDM VALIDATION PROTOCOL

23 Table 2 Requirements checklist CHECKLIST QUESTION * MoV = Means of Verification, DR= Document Review, I= Interview Ref. MoV* COMMENTS Draft Concl. Final Concl. A Project Eligibility According to GS Requirements A.1 If the project is located in a country part of the OECD Development Assistance Committee s ODA recipient list, has a written declaration of your project s Non-use of ODA been submitted to GS. (See Annex D of the toolkit for an ODA declaration template for comparison.) A.2 Project cycle. Has the correct project cycle been chosen, and are the necessary documents in place? (regular vs. pre-feasibility assessment) /4/ /5/ /4/ /16/ DR DR A written declaration of the project BK Energia Itacoatiara Project non-use of ODA has been presented to the DOE. However is has not been demonstrated that it was submitted to GS. It is unclear what the status is of the projects submission relation to no-use of ODA to the Gold Standard. The project participants shall provide additional information on the submission to the Gold Standard on its written declaration of BK Energia Itacoatiara Ltda. on the non-use of ODA The project was validated and registered at UNFCCC on 12 May 2006 and is going through revalidation process; therefore it is a retroactive cycle project. CL 1 CL 2 OK OK According to GSv2.1 Toolkit section 2.5 and the Fast-tracking option for retroactive project activities procedures, the project activity passed through a Fast-Tracking Pre-feasibility Assessment and received a feedback. MoV = Means of Verification, DR= Document Review, I= Interview, CC= Cross-Checking GS Validation Protocol Report No G, rev. 01 A-19

24 CHECKLIST QUESTION * MoV = Means of Verification, DR= Document Review, I= Interview Ref. MoV* COMMENTS Insufficient information available on the projects status to qualify for the Gold Standard Fast Tracking Pre-feasibility Assessment. The project participants shall provide additional information Draft Concl. Final Concl. B Sustainability Assessment B.1 Do no harm assessment. Has the assessment been included in the GS passport as required by GS? /4/ /13/ DR I The Do no harm assessment has been included in the GS Passport of the project activity BK Energia Itacoatiara Project as required. All safeguarding principles derived from the Millennium Development Goal were presented and described. The project activity BK Energia Itacoatiara Project has presented only low impacts and none of them were considered as being a risk to the environment, social and economy of the region. Also mitigation measures were presented, including the FSC certification of Precious Woods and the presence of trained employees and utilization of personal protection equipments by all employees. Therefore DNV states that the project activity will cause no harmful impact in the Amazon region. OK MoV = Means of Verification, DR= Document Review, I= Interview, CC= Cross-Checking GS Validation Protocol Report No G, rev. 01 A-20

25 CHECKLIST QUESTION * MoV = Means of Verification, DR= Document Review, I= Interview B.2 Sustainable development matrix. Check and confirm if the guidance provided under Ch has been applied to establish the sustainable development matrix. Assess the matrix according to the guidance in Ch and Annex I and Table 3.2. Check all data and statements used in the sustainable development matrix and discuss all indicators that received a positive and negative score in detail with regards to the following in this section: - Is the matrix based on existing sources of information which can include, but is not limited to, data from existing reports, results from stakeholder consultations, and experiences with similar projects in similar situations, etc.? If data is unavailable, is of poor quality or severely outdated, are independent opinions and expert judgements provided? - Is the data and/or expert opinions presented in a sufficient degree of detail, and is the information transparent and verifiable? - Are data uncertainties clearly stated? - Transparency; is the scoring reproducible and verifiable. - Which indicators are to be monitored (if any)? Are at least two of the sub-totals (categories) positive? Is the third sub-total at least neutral? Ref. MoV* COMMENTS /4/ /10/ /16/ DR Yes, the sustainable development matrix has been correctly applied to the project. The total score obtained is +3, and the result for each component is as follows: Access to affordable and clean energy services (+): The project activity results in increase of the reliability of electricity supply and the utilization of local biomass residues avoids the consumption of diesel oil imported from other regions. Quantitative employment and income generation (+): The project activity implementation creates a long-term employment for 40 direct workers. Also due to the power plant implementation, the saw mill and forest management of the company Precious Woods is secured, what indirectly represents 500 jobs. Balance of payments and investment (+): In the absence of the project activity electricity would be provided by the local thermo power plant from CEAM, that is fueled with diesel oil. The project activity is using biomass produced locally. The diesel oil is produced in other regions of the Draft Concl. Final Concl. OK MoV = Means of Verification, DR= Document Review, I= Interview, CC= Cross-Checking GS Validation Protocol Report No G, rev. 01 A-21

26 CHECKLIST QUESTION * MoV = Means of Verification, DR= Document Review, I= Interview Has the sustainability matrix has been completed together with the stakeholders? Ref. MoV* COMMENTS country, therefore transportation costs are being avoided within the project activity. Technology transfer and technological self-reliance (+): The project activity is responsible to transfer a complex and wellknown technology, i.e. biomass cogeneration, to a remote forest region of Brazil. Data and opinions were presented in a sufficient degree of detail. The information presented is transparent and verifiable. No negative score has been given, which indicates that this project contributes to sustainable development locally, regionally and globally. In order to prove the project activity sustainability due to the positive indicators presented above the parameter to be monitored are: I.D. 1: System Average Interruption Duration Index; I.D. 2: Diesel oil consumption; I.D. 3: Number of jobs created; I.D. 4: Average annual revenue from biomass sales; I.D. 5: Number of similar activities in the Amazon region; The assumptions used to define the score MoV = Means of Verification, DR= Document Review, I= Interview, CC= Cross-Checking GS Validation Protocol Report No G, rev. 01 A-22 Draft Concl. Final Concl.

27 CHECKLIST QUESTION * MoV = Means of Verification, DR= Document Review, I= Interview Ref. MoV* COMMENTS values have not been completed together with the stakeholders. The project has already been registered under UNFCCC requirements on 12 May 2006, is already operational and is now under revalidation. Therefore no Local Stakeholders Consultation was needed, as explained in an from The Gold Standard Foundation sent on 18 January Therefore the Sustainable Development Matrix has been correctly demonstrated by the project participants. Draft Concl. Final Concl. C Gold Standard Criteria for Stakeholder Consultation C.1 Does the project proponent fulfill the Gold Standard requirements regarding stakeholder consultations? Have the comments in the stakeholder report been verified? Has the following been checked? - an invitation tracking table has been filled out - copies of invitations published/sent out are available - a non-technical summary in local language has been included in the Local Stakeholder consultation report, as well as an English summary /4/ /10/ /26/ DR I The project has already been registered under UNFCCC requirements on 12 May 2006, is already operational and is now under revalidation. Therefore no Local Stakeholders Consultation was needed, as explained in an from The Gold Standard Foundation sent on 18 January The results from the first stakeholder consultation that was held during the CDM validation process of the first crediting period, and can be found at the validation report from TÜV SUD. OK MoV = Means of Verification, DR= Document Review, I= Interview, CC= Cross-Checking GS Validation Protocol Report No G, rev. 01 A-23

28 CHECKLIST QUESTION * MoV = Means of Verification, DR= Document Review, I= Interview - a participants list is available - minutes of the meeting(s) are available - due account has been made on comments received - if stakeholders required a revisit of the sustainable development assessment, this has been done - if the consolidated sustainable development matrix is presented based on own preliminary scoring and the matrix from the outcome of the blind stakeholder exercise - comments accepted and received by or by other means were actually considered Is the following information in place in the GS Passport? Which documents have been checked to verify the inclusion of the following information in the GS passport? - a description of the procedure followed to invite comments, including addressing all the details of the oral hearing such as place, date, participants, language, local or national Gold Standard NGO supporters, etc. - all written and/or oral comments received - the argumentation on whether or not comments are taken into account and the respective changes to the project design Ref. MoV* COMMENTS However a Stakeholders Feedback Round was done. Therefore s requesting opinions about the project activity were send on 28 and 31 of January 2011 to the following stakeholders: Itacoatiara s City hall, State attorney of the state, Itacoatiara s City council, IPAAM Instituto de Proteção Ambiental do Estado do Amazonas, Itacoatiara s Secretary of the Environment, Comissão Interministerial de Mudança Global do Clima CIMGC, Fórum Brasileiro de ONGs e Movimentos Sociais para o Meio Ambiente e o Desenvolvimento, Instituto de Conservação e Desenvolvimento Sustentável do Amazonas IDESAM, Centro Estadual de Mudança Climáticas CECLIMA, Local Gold Standard Expert / Latin America regional manager, Greenpeace Brazil, WWF- Brazil. No comments were received during the feedback round. Draft Concl. Final Concl. D Pre-feasibility Assessment and Discussion of Gold MoV = Means of Verification, DR= Document Review, I= Interview, CC= Cross-Checking GS Validation Protocol Report No G, rev. 01 A-24