CLEAN DEVELOPMENT MECHANISM PROPOSED NEW METHODOLOGY: BASELINE (CDM-NMB) Version 02 - in effect as of: 15 July 2005

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1 CDM Executive Board page 1 CLEAN DEVELOPMENT MECHANISM PROPOSED NEW METHODOLOGY: BASELINE (CDM-NMB) Version 02 - in effect as of: 15 July 2005 CONTENTS PROPOSED NEW METHODOLOGY: BASELINE (CDM-NMB) A. Methodology title and summary description B. Applicability/ project activity C. Project boundary D. Baseline scenario E. Additionality F. Baseline emissions G. Project activity emissions H. Leakage I. Emission reductions J. Changes required for methodology implementation in 2 nd and 3 rd crediting periods (if relevant) K. Selected baseline approach from paragraph 48 of the CDM modalities and procedures L. Other information

2 CDM Executive Board page 2 SECTION A. Methodology title and summary description Methodology title: Replacement of conventional continuous caster, reheating furnace and hot rolling mill in hot strip production by near net shape casting, new reheating furnace and in-line hot rolling in hot strip production in the steel industry where the hot strip is of un-alloyed, micro-alloyed or low-alloyed grade. Version Summary description: The steel production process can be divided into primary and secondary metallurgy. Primary metallurgy involves the production of liquid steel from iron ore. Secondary metallurgy involves further treatment of the liquid steel for purification and homogenisation purposes or adding of chemical components. After the secondary metallurgy process the steel is cast and is further processed into semifinished products and subsequently the finished products. Semi-finished products are steel products that have not reached the final dimensions but will be further processed to a finished product either in the plant the semi-finished product has been manufactured or at an external plant. According to the Stahlfibel (1980) 1, an internationally accepted steel manufacturing guide, semi-finished products are classified according to their thickness into: Blooms (>130mm) Billets (<130mm) Slabs (>40mm) Hot strips (>1.2 mm) In order to produce a hot strip the casted slabs are rolled in a hot rolling line. Near net-shape casting produces slabs/strips with thicknesses down to 1 mm compared to conventional thick slab continuous casting machines which produce blooms/billets/slabs of approximately 250 mm thickness. Near net shape casting processes can be classified in medium slab casting (slab thickness >70 mm), thin slab casting (40-70 mm) and thin strip casting (1-15 mm). Part of energy savings from near net shape casting accrue from electricity savings due to decreased hot rolling requirements of the steel as the slabs/strips are already cast with very low thickness. More importantly, a number of conventional casting process layouts currently used do not allow for in-line casting and hot rolling. This means that the slab cools down from around 900 C to lower temperatures (sometimes ambient temperature) in a slab yard before it is reheated in a walking beam furnace to around 1250 C for hot rolling. A process change to near net shape casting is always accompanied with in-line hot rolling of the steel as it comes off the caster. This yields considerable energy savings due to decreased reheating requirements as the slab enters the furnace which prepares the steel for hot rolling (usually a roller hearth furnace or induction furnace) with a temperature of 1000 C. Besides, tunnel furnace temperature, the preferred furnace type with continuous casting, is ~ 100 C lower than with a walking beam furnace. The methodology has been designed for project activities that replace a conventional continuous caster, reheating furnace and hot rolling mill in hot strip production by near net shape casting, new reheating furnace and in-line hot rolling in hot strip production in the steel industry. In the following the replaced and installed equipment will be referred to as hot strip production equipment. 1 Verlag Stahleisen (1980) (Ed.): Stahlfibel. Düsseldorf.

3 CDM Executive Board page 3 For identification of the baseline scenario the draft baseline scenario selection tool which is currently under consideration by the CDM Executive Board shall be used. The additionality of the project activity shall be demonstrated and assessed using the latest version of the Tool for the demonstration and assessment of additionality agreed by the CDM Executive Board, available at the UNFCCC CDM web site. Baseline emissions consist of direct CO 2 emissions of fossil fuel burned as well as indirect CO 2 emissions from electricity consumption. CO 2 emissions from fossil fuel use are calculated in the following four steps: Step 1: Technical analysis of the capacity of the existing hot strip production equipment before replacement or retrofitting Step 2: Determination of historic specific energy consumption (per t product) of each energy consuming device of the existing hot strip production equipment before replacement or retrofitting Step 3: Determination of theoretical energy consumption of the baseline hot strip production equipment Step 4: Determination of baseline emissions Calculation of baseline emissions is based on ex-post monitoring. Project emissions consist of direct CO 2 emissions of fossil fuel burned as well as indirect CO 2 emissions from electricity consumption of the project activity. Calculation of project emissions is based on ex-post monitoring. Leakage has to be taken into account if the project activity will require additional upstream energy consumption (outside the project boundary) for achieving the project activity tundish temperature which is usually higher compared to the situation before implementation of the project activity. Emissions due to leakage are therefore the indirect CO 2 emissions due to additional electricity consumption in the ladle furnace (LD) caused by the increase in steel temperature in the tundish after implementation of the project activity (if applicable). Calculation of leakage is based on ex-post monitoring. Calculation of emissions due to leakage follows the following procedure: Step 1: Determination of the average historic steel temperature within the tundish Step 2: Determination of the amount of steel cast after implementation of the project activity Step 3: Determination of the average steel temperature within the tundish after implementation of the project activity Step 4: Determination of the additional heat energy required after implementation of the project activity Step 5: Determination of the efficiency of the last furnace used before casting Step 6: Calculation of the additional amount of electricity and/or fuel required for providing the additional amount of heat energy required after implementation of the project activity Step 7: Determination of emissions due to leakage Emission reductions are calculated by subtracting project emissions and emissions due to leakage (if applicable) from baseline emissions. If this methodology is a based on a previous submission, please state the previous reference number (NMXXXX/AMXXXX) here:

4 CDM Executive Board page 4 Not applicable. SECTION B. Applicability/ project activity Only applicable to existing hot strip production lines If the hot strip is further processed in-line to a final steel product, this methodology is only applicable if the type of final product manufactured does not change after implementation of the project activity. The methodology is only applicable to project activities where the steel produced before and after the replacement is of un-alloyed, micro-alloyed or low-alloyed grade. Fuel switching is generally allowed to be part of the project activity. Blast furnace or basic oxygen furnace gas from outside the project boundary is only allowed to be used to fire the burners of the furnace and/or the tundish after the implementation of the project activity under the condition that the gas has not been previously used outside the project boundary Project activities which involve a diversion of energy streams from outside the project boundary into the project boundary for improvement of energy efficiency (e.g. waste heat recovery) are only applicable as long as the source of GHG emissions of this energy stream is inside the project boundary. Availability of data in order to determine the three-year average specific electricity consumption of all electricity consuming devices and the three-year average specific fuel consumption of all fuel consuming devices within the project boundary before the start of the project activity If the temperature of the smelted steel in the ladle furnace before implementation of the project activity has not always been higher than the temperature of the smelted steel in the tundish after the implementation of the project activity, this methodology is only applicable if data in order to determine operation-weighted three-year average steel temperature in the tundish before implementation of the project activity is available. The methodology is applicable to Scope 4 ( Manufacturing industries ) project activities. The methodology has been limited to existing hot strip production lines as identification of the baseline scenario for newly built hot strip production lines would need to follow a different rationale and different formulas than this methodology. Furthermore, changes of success (approval by the EB) for a methodology for newly built manufacturing plants has to be regarded as very slim as there does not exist sufficient guidance by the Meth Panel from evaluation of proposed methodologies how to deal methodologically with such kinds of project activities (e.g. it is almost impossible to determine which equipment would have been installed in the baseline scenario in case of newly built plants). If the hot strip is further processed in-line to a final steel product, this methodology is only applicable if the type of final product manufactured down-stream does not change after implementation of the project activity. A change in final product replacement would likely make the replacement of the host strip production system and the down-stream final product manufacturing system inseparable from a project perspective and would therefore pose additional methodological challenges concerning baseline scenario, baseline and project emissions as well as leakage that are not covered under this methodology.

5 CDM Executive Board page 5 The below table provides the standard classification of final steel product types according to the German Stahlfibel (1980). Only those project activities are applicable under this methodology: where the semi-finished product is sold to external companies where the final down-stream product on the integrated production line is one of the final steel products included in the table below and the type of product is not changed from one class to another class Classes of final steel products according to the Stahlfibel (1980): Class Final steel product in class 1 Steel shapes Norm profile (thickness >80mm) Rails Mine construction steel 2 Steel bar stock Steel bar stock Norm profile (thickness <80mm) 3 Wire rod Wire rod 4 Sheets and plates Sheets (thickness <3mm) Medium plate (thickness <3mm<4.76mm) Plate (thickness >4.76mm) 5 Sheet piling section Sheet piling section 6 Cold strip Cold strip (thickness <3mm) 7 Pipes Pipes Furnace fuel consumption is the major source of GHG emissions in both baseline and project emissions (see also Section F). Furnace fuel consumption besides the furnace equipment itself (which is replaced under the project activity), depends on the specific thermal capacity (cp) of the steel type heated in the furnace. Cp of steel depends on its chemical components and cp can vary significantly from one steel type to another. However, according to Richter (1973) 2 the cp of un-alloyed, micro-alloyed and lowalloyed grade is almost the same at different temperature levels. Hence, the methodology is only applicable to project activities where the steel produced before and after the replacement is of un-alloyed, micro-alloyed or low-alloyed grade. Fuel switching is allowed to be part of the project activity. Blast furnace or basic oxygen furnace gas is only allowed to be used to fire the burners after the implementation of the project activity under the condition that the gas is not diverted from other use. Otherwise leakage could occur if the diverted gas is (partly) substituted by energy originating from fossil fuel combustion. As the sources of such energy could be various and it might require a completely new methodology to determine the associated GHG emissions, this methodology is not applicable if the gas is diverted from other use. Project activities which involve a diversion of energy streams from outside the project boundary into the project boundary for improvement of energy efficiency (e.g. waste heat recovery) are only applicable as long as the source of GHG emissions of this energy stream is inside the project boundary. The rationale is similar to the above mentioned (blast furnace or basic oxygen furnace gas). If the source of GHG emissions of an energy stream entering the project boundary lies outside of the project boundary, the GHG emissions from producing this energy stream have to be accounted for as leakage. As sources of energy streams outside of the project boundary in this particular sector can be various and determination 2 Richter (1973): Die wichtigsten physikalischen Eigenschaften von 52 Eisenwerkstoffen. Verlag Stahleisen. Düsseldorf. Figure 9.

6 CDM Executive Board page 6 of GHG emissions of these sources might require an own (new) methodology, such project activities are not applicable. Data in order to determine the three-year average specific electricity consumption of all electricity consuming devices and the three-year average specific fuel consumption of all fuel consuming devices within the project boundary before the start of the project activity has to be available because otherwise some of the formulas contained in this methodology cannot be applied. If the temperature of the smelted steel in the ladle furnace before implementation of the project activity has not always been higher than the temperature of the smelted steel in the tundish after the implementation of the project activity, this methodology is only applicable if data in order to determine operation-weighted three-year average steel temperature in the tundish before implementation of the project activity is available. Otherwise some of the formulas contained in this methodology cannot be applied. SECTION C. Project Boundary Secondary metallurgy Ladle furnace Electricity Project Boundary Hot strip production Hot strip production equipment Final steel product manufacture Final steel production line Fuel Electricity A universally valid and detailed description of hot strip production equipment does not exist. The physical project boundary should encompass the ladle turret, the slab caster, the furnaces, the rolling mill and all associated technical equipment required to produce the hot strip (e.g. water utilities, drives, controls, etc.). For the purpose of determining GHG emissions of the project activity, project participants shall include CO 2 emissions from fossil fuel combustion in the tundish burners, slab cutters (if applicable) and oven burners, and CO 2 emissions from fossil fuel fired power plants connected to the electricity system and in the combined margin (CM) from the electricity consumption due to operation of electrical equipment (e.g. slab cutter if applicable -, water utilities, drives, controls, etc.) For the purpose of determining GHG emissions of the baseline, project participants shall include CO 2 emissions from fossil fuel combustion in the tundish burners, slab cutters (if applicable) and oven burners, and

7 CDM Executive Board page 7 CO 2 emissions from fossil fuel fired power plants connected to the electricity system and in the combined margin (CM) from the electricity consumption due to operation of electrical equipment (e.g. slab cutter if applicable -, water utilities, drives, controls, etc.) The spatial extent of the project boundary encompasses the physical, geographical location of the hot strip production equipment and all power plants connected physically to the electricity system that the project activity is connected to. The spatial extent of the of the project electricity system, including issues related to the calculation of the combined margin (CM), is as per that defined in ACM0002 Consolidated baseline methodology for grid-connected electricity generation from renewable sources. Emissions sources included in or excluded from the project boundary [add/delete gases and sources as needed] Baseline Project Activity Source Gas Included? Justification / Explanation Fossil fuel CO 2 Yes Main emission source consumpti CH 4 No Minor source on N 2 O No Minor source Power plants CO 2 Yes Mayor GHG emissions from power generation servicing CH 4 No Not applicable. the N 2 O No Negligible. electricity system Fossil fuel CO 2 Yes Main emission source consumpti CH 4 No Minor source on N 2 O No Minor source Power plants servicing the electricity system CO 2 Yes Mayor GHG emissions from power generation CH 4 No. Not applicable. N 2 O No. Negligible. It has become common practice to only account for CO 2 emissions in fuel combustion if not other types of GHG emissions are accounted for in the baseline. ACM0002 is an approved methodology for calculation of the grid emission factor.

8 CDM Executive Board page 8 D. Baseline Scenario For identification of the baseline scenario the project proponent should follow the following step-wise procedure: 1. Identification of possible and credible alternatives to the proposed project activity. Those may include for the particular circumstances the methodology has been designed for: Undertaking the project without CDM; A fuel switch to a less or GHG-intensive or zero emissions fuel (e.g. blast furnace gas) with or without modification of some parts of the existing semi-finished product manufacturing line; Revamping some parts of the semi-finished product production line with or without a fuel switch to a less or GHG-intensive or zero emissions fuel (e.g. blast furnace gas); If applicable, continuation of the current situation (no project activity or other alternatives undertaken). 2. Evaluation of the identified alternative baseline scenarios regarding their compliance with applicable legal and regulatory requirements taking into account CDM Executive Board decisions with respect to national and/or sectoral policies and regulations in determining a baseline scenario even if these laws and regulations have objectives other than GHG reductions. For example, such requirements could include regulation on energy efficiency norms for the manufacturing industry. Alternatives that are not in compliance with existing legal and regulatory requirements should be eliminated from further assessment. 3. The project proponent should conduct a barrier analysis on the alternative baseline scenarios following the latest version of the additionality tool considering the following types of barriers: Investment barriers; Technological barriers; Barriers due to prevailing practice If there is only one alternative that is not prevented by any barrier, then this alternative is the most plausible baseline scenario. If there are still several baseline alternatives remaining, either go to step 4 or choose the alternative with the lowest emissions as the most plausible baseline scenario. 4. Conduct investment analysis of the latest version of the additionality tool. Select the most attractive alternative as the most plausible baseline scenario. If investment comparison analysis is chosen, sensitivity analysis must confirm the result of the investment comparison analysis. 5. If investment comparison analysis is chosen, and the sensitivity analysis is not fully conclusive, select the baseline scenario alternative with least emissions among the alternatives that are the most financially and/or economically attractive. If a scenario other than continued operation of the existing hot strip production system is identified as the baseline scenario, this methodology is not applicable.

9 CDM Executive Board page 9 Special attention needs to be paid to the fact that in most of the project activities the thickness of the semi-finished product manufactured will be (considerably) lower than before implementation of the project activity. Additionally, the mechanical properties (e.g. strength, durability, weldability, etc.) of the steel might have changed as the cooling, re-heating and rolling process has been altered. The project participant will need to credibly demonstrate that despite these changes in thickness and mechanical properties, continuation of the use of the currently installed equipment is the most realistic scenario in the absence of the CDM. Project participants need to prove that the hot strip production equipment could have been operated longer than the duration of the chosen crediting period. This should be proven according to the following procedure: Step 1: Determination of age of the main technical components of the current hot strip production system (continuous caster, furnace and hot rolling mill) Step 2: Determination of average lifetime of the main technical components of hot strip production systems in the country by surveying at least 5 steel plants within the country if the number of steel plants that have been operating in the country exceeds 10 3 steel plants if the number of steel plants that have been operating in the country equals or exceeds 5 1 steel plant if the number of steel plants that have been operating in the country is below 5 Survey results may include steel plants that have operated a conventional continuous caster but have switched to near net shape casting or have been closed down. Step 3: Determination of the remaining lifetime of the main technical components of the current hot strip production system taken into account findings from Step 2 If the remaining technical lifetime of the main technical components of the current hot strip production system exceeds the duration of the crediting period, continued operation of the existing hot strip production system is the baseline scenario. The above procedure is based on a baseline scenario section of ACM0007, which is already approved by the CDM Executive Board, and the draft baseline scenario selection tool which is currently under consideration by the CDM Executive Board. Taking into account the Additional guidance on the methodologies involving the replacement or retrofit of existing equipment or facilities this methodology provides a transparent procedure for determining the remaining lifetime of the existing hot strip production system. It also takes into account the fact that gathering such information might not be straightforward due to stiff competition among steel producers and confidentiality issues, as it does not require a statistically representative analysis.

10 CDM Executive Board page 10 SECTION E. Additionality The additionality of the project activity shall be demonstrated and assessed using the latest version of the Tool for the demonstration and assessment of additionality agreed by the CDM Executive Board, available at the UNFCCC CDM web site. The Tool for the demonstration and assessment of additionality agreed by the CDM Executive Board has almost become common practice in determining additionality of proposed CDM projects. SECTION F. Baseline emissions Baseline emissions consist of direct CO 2 emissions of fossil fuel burned as well as indirect CO 2 emissions from electricity consumption. Baseline emissions (BE y ) To calculate the baseline emissions project participants shall use the following equation: BE y = BE thermal, y PRODy * ELECspecific, historic * EFCM, y + (1) where: BE thermal,y are the baseline emissions due to fossil fuel combustion in year y (t CO 2 e), PROD y is the total production of hot strip in year y (t), ELEC specific,historic is the three-year average specific electricity consumption of all electricity consuming devices within the project boundary before the start of the project activity (MWh/t), and EF CM,y is the combined margin (CM) of the project electricity system (in t CO 2 /MWh) calculated according to ACM0002. Baseline emissions due to fossil fuel combustion (BE thermal,y ) If the production capacity after implementation of the project activity does not exceed the capacity of the hot strip production system before replacement or retrofitting (see Step 1), BE thermal,y can be calculated according to the following formula: BE thermal,y = n PRODy * Qi, specific, historic * NCVi * EFi * 44 /12 * Oxid (2) i 1 where: PROD,y is the total production of hot strip in year y (t), Q i,specific,historic is the three-year average specific consumption of fuel i of the fuel consuming device n within the project boundary before the start of the project activity (t or m 3 /t), NCV i is the net calorific value per mass or volume unit of fuel i burned in the fuel consuming device n within the project boundary (TJ/t or m 3 ), EF i is the CO 2 emission factor of fuel i burned in the fuel consuming device n within the project boundary (tc/tj),

11 CDM Executive Board page 11 44/12 is the factor for converting tc to tco 2, and Oxid i is the oxidation factor of the fuel i burned in the fuel consuming device n within the project boundary (%). If the production capacity after implementation of the project activity exceeds the capacity of the hot strip production system before replacement or retrofitting (see Step 1), BE thermal,y needs to be calculated according to the following formula: BE thermal,y = BE thermal,capacity,y + BE thermal,+capacity,y (3) where: BE thermal,capacity,y are the baseline emissions due to fuel consumption of hot strip manufacture below or equal to the capacity of the hot strip production system before replacement or retrofitting in year y (t CO 2 e), calculated as in formula (2) with PROD capacity,y being the capacity of the hot strip production system before implementation of the project activity (t/a), and BE thermal,+capacity,y are baseline emissions due to fuel consumption of hot strip manufacture above the capacity of the hot strip production system before implementation of the project activity in year y (t CO 2 e). BE thermal,+capacity,y needs to be calculated according to the following formula: BE thermal,+capacity,y = PROD P * h 3.6 * Oxid (4) n n, y n, y + capacity, y * * EFi * 44 /12* 1 PRODy 1000 where: PROD +capacity,y is the production of hot strip that exceeds the capacity of hot strip production system before implementation of the project activity in year y (t), P n,y is the rated power of the fuel consuming device n within the project boundary in year y (MW), h n,y is the number of operating hours of the fuel consuming device n within the project boundary in year y (h), PROD y is the total production of hot strip in year y (t), 3.6/1000 is the conversion factor from MWh to TJ, EF i is the CO 2 emission factor of fuel i burned in the fuel consuming device n within the project boundary (tc/tj), 44/12 is the factor for converting tc to tco 2, and Oxid i is the oxidation factor of the fuel i burned in the fuel consuming device n within the project boundary (%). Illustrative ex ante baseline emission calculation: Assume pre-project activity hot strip production equipment with a maximum capacity of 2,000,000 t of hot strip per year. The three-year average specific natural gas consumption was 18.3 Nm 3 /t of hot strip and the three year average specific electricity consumption was MWh/t of hot strip. The ex-post measured production in the first year of operation of the project activity was 1,800,000 t of host strip. The ex-post measured grid emission factor was 0.5 t CO 2 /MWh. i

12 CDM Executive Board page 12 The resulting baseline emissions are calculated as follows: BE y = 1,800,000 t *39,5 Nm 3 /t * MJ/Nm 3 * 1/ * 56.1 t CO 2 /TJ * 44/12 * ,800,000 * 0.2 MWh/t * 0.5 t CO 2 /MWh = 462,902 t CO ,000 t CO 2 = 642,902 t CO 2 Baseline emissions consist of direct CO 2 emissions of fossil fuel burned as well as indirect CO 2 emissions from electricity consumption due to hot strip production were the project activity not implemented. With some project activities applicable to this methodology the annual hot strip output might increase compared to the previous situation due to the increased casting speed. The capacity of the existing hot strip production equipment would have only been able to partly supply the project activity output. It is therefore not adequate to assume that all project activity production would have been supplied with the existing equipment. For the additional production relative to the capacity of the existing equipment lower specific energy consumption should be used as it can be assumed that in the baseline scenario additional new and more efficient energy consumption devices would have been used to supply the additional output. This methodology proposes that the project proponent has to assume 100% efficiency of all fuel-fired energy consuming devices within the project boundary to calculate fuel energy consumption due to the additional output. This is expressed in the term P n,y * h n,y (see formula (4)) as this yields the annual fuel consumption assuming 100% efficiency. However, he project participant is allowed to use the specific electricity consumption of the project activity to calculate baseline electricity consumption due to the additional output. This simplification is due to the fact that sources of electricity consumption will be various and it can be assumed that for a number of the electrical appliances the rated power cannot be determined in practice. This seems reasonable when considering that the main source of GHG emissions in semi-finished product manufacture are emissions due to fuel combustion that have already been assumed to be very low (100% efficiency) in the baseline scenario (see illustrative ex-ante baseline emission calculation). For the amount of production within capacity limits it is assumed that the equipment before replacement would have been used. It is assumed that three-year average specific energy consumption per t of semifinished product appropriately determines with which energy consumption the steel would be produced were the project activity not to be implemented. From above it follows that the capacity of the existing equipment has a big impact on baseline emissions and therefore needs to be carefully monitored before the start of the project activity. It should be noted that the maximum installed capacity of the system is not necessarily determined by the capacity of the caster but by the capacities of other technical components, e.g. the capacity of the rolling mill (see related NMM for the procedure to determine maximum hot strip production capacity). SETION G. Project activity emissions Project emissions consist of direct CO 2 emissions of fossil fuel burned (PE thermal,y ) as well as indirect CO 2 emissions from electricity consumption (PE elec,y ) of the project activity.

13 CDM Executive Board page 13 PE y = PE thermal, y + PEelec, y (5) PE thermal,y are calculated as follows: PE thermal,y = n 1 Q i, y NCVi * EFi * 44 /12* * Oxid (6) i where: Q i,y is the total consumption of fuel i of the fuel consuming device n within the project boundary in year y (t or m 3 ), NCV i is the net calorific value per mass or volume unit of fuel i burned in the fuel consuming device n within the project boundary (TJ/t or m 3 ), EF i is the CO 2 emission factor of fuel i burned in the fuel consuming device n within the project boundary (tc/tj), 44/12 is the factor for converting tc to tco 2, and Oxid i is the oxidation factor of the fuel i burned in the fuel consuming device n within the project boundary (%). PE elec,y are calculated as follows: PE elec,y = ELEC y * EF CM, y (7) where: ELEC y is the total electricity consumption of all electricity consuming devices within the project boundary in year y (MWh), and EF CM,y is the combined margin (CM) of the project electricity system (in t CO 2 /MWh) calculated according to ACM0002. Illustrative ex ante project emission calculation: Assume the ex-post measured - grid emission factor was 0.5 t CO 2 /MWh, - annual natural gas consumption was 32,940,000 Nm 3, and - annual electricity consumption was 126,000 MWh The resulting project emissions are calculated as follows: PE y = 32,940,000 Nm 3 * MJ/Nm 3 * 1/ * 56.1 t CO 2 /TJ * 44/12 * ,000 MWh * 0.5 t CO 2 /MWh = 214,456 t CO ,000 t CO 2 = 277,456 t CO 2 Formulas used have become common practice to establish GHG emissions from project activity due to fossil fuel and grid electricity consumption.

14 CDM Executive Board page 14 SECTION H. Leakage In near net shape casting the steel is cast with higher temperatures than with conventional casting. The steel temperatures in the tundish after implementation of the project activity will be around 25 C to 45 C higher than the liquidus temperature (temperature level below which solidification begins) of the smelted steel whereas with conventional casting it is only 20 C to 30 C higher. As the energy required for heating up the smelted steel to the required temperature level is provided from the ladle furnace during secondary metallurgy which is not included in the project boundary, GHG emissions stemming from this particular source and originating from providing the additional heat energy to the steel have to be accounted for as leakage. However, if the project proponent can prove that the temperature of the smelted steel in the ladle furnace before implementation of the project activity has always been higher than the temperature of the smelted steel in the tundish after the implementation of the project activity, leakage does not need to be accounted for. Emissions due to leakage are calculated as follows equation: L y = CAST y * Cp * T T Eff project, y LF, y historic 1 * 3600 * EF CM, y (8) where: CAST y is the total amount of steel cast in year y (t), Cp is the specific thermal heat capacity of the steel set at a default factor of MJ/t*K, T project,y is the operation-weighted average steel temperature in the tundish in year y (K), T historic is the operation-weighted three-year average steel temperature in the tundish before implementation of the project activity (K), Eff LD,y is the electrical efficiency of the ladle furnace in year y (%), 1/3600 is the conversion factor from MJ to MWh EF CM,y is the combined margin (CM) of the project electricity system (in t CO 2 /MWh) calculated according to ACM0002. If T historic should not be available T project,y T historic may be substituted by the default temperature difference of 20 K. Illustrative ex ante leakage calculation: Assume the temperature of the smelted steel in the ladle furnace before implementation of the project activity has always been higher than the temperature of the smelted steel in the tundish after the implementation of the project activity. The historic tundish temperature is not available and therefore the default factor of 20K as temperature difference in the tundish applies. The amount of cast steel was 1,800,000 t in the first year of project activity operation. The electrical efficiency of the ladle furnace is 40%. The grid emission factor was 0.5 t CO 2 /MWh,

15 CDM Executive Board page 15 The resulting emissions due to leakage are calculated as follows: LE y = (1,800,000 t * MJ/t*K * 20 K)/0.5 * 1/3600 * 0.5 t CO 2 /MWh = 7,250 t CO 2 Ladle furnaces are part of every secondary metallurgy process. They are operated with electricity. The default factor of MJ/t*K for cp has been chosen because this is the maximum specific thermal heat capacity of the steel types covered under this methodology (see Richter 1973). This ensures conservative results for emissions due to leakage. If T historic should not be available T project,y T historic may be substituted by the default temperature difference of 20 K which is a conservative estimate (see Schrewe 1989) 3. SECTION I. Emission reductions The annual GHG emission reductions are calculated as follows: ER y = BE y - PE y - LE y (9) Illustrative emission reduction calculation: ER y = 642,902 t CO 2-277,456 t CO 2-7,250 t CO 2 = 358,196 t CO 2 Emission reductions are calculated by subtracting project emissions from baseline emissions. SECTION J. Changes required for methodology implementation in 2 nd and 3 rd crediting periods (if relevant / optional) Not relevant. Not relevant. SECTION K. Selected baseline approach from paragraph 48 of the CDM modalities and procedures Choose One (delete others): Existing actual or historical emissions, as applicable; Explanation/justification of choice: The baseline scenario is that the semi-finished product would have otherwise been manufactured by the existing hot strip production equipment. The proposed methodology fits the baseline scenario as it allows 3 Schrewe (1989): Continuous casting of steel: fundamental principles and practice. Verlag Stahleisen. Düsseldorf.

16 CDM Executive Board page 16 calculating of baseline emissions on the real and monitored energy consumption data of the existing equipment. In case of production exceeding the existing capacity baseline specific energy consumption is determined assuming 100% efficiency (fuel) or using specific energy consumption of the project activity (electricity). SECTION I. Other Information This methodology has been developed by Matthias Krey, Perspectives Climate Change, Hamburg, Germany The baseline methodology allows for the development of baselines in a transparent and conservative manner because: All sources of GHG emissions of the baseline scenario and the project activity are transparently accounted for. Leakage from operation of the ladle furnace has been transparently and appropriately identified. Other possible sources of leakage have been excluded via the narrow applicability conditions. Leakage can be transparently determined based on monitoring of efficiency of the ladle furnace or alternatively can be conservatively determined by the application of a conservative default factor. Assuming 100% efficiency for all fossil fuel consuming devices in the baseline scenario if output exceeds the existing capacity is very conservative. Calculation of grid emission factor is based on the approved methodology ACM0002. Strengths of the proposed methodology: - Methodology clearly distinguishes between baseline emissions within and above existing production capacity - All data required for calculation of emission reductions except for data for calculation of grid EF is under the control of the project developer Weaknesses of the proposed methodology: - Relatively narrow applicability conditions due to various potential sources of leakage