CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS

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1 CDM Executive Board page 1 CLEAN DEVELOPMENT MECHANISM PROJECT DESIGN DOCUMENT FORM (CDM-PDD) Version 03 - in effect as of: 28 July 2006 CONTENTS A. General description of project activity B. Application of a baseline and monitoring methodology C. Duration of the project activity / Crediting period D. Environmental impacts E. Stakeholders comments Annexes Annex 1: Contact information on participants in the project activity Annex 2: Information regarding public funding Annex 3: Baseline information Annex 4: Monitoring plan

2 CDM Executive Board page 2 SECTION A. General description of project activity A.1. Title of the project activity: Shanxi Datuhe Coal Mine Methane Utilization Project Version: 02 Date: A.2. Description of the project activity: The proposed project is located in the three mines belonging to Shanxi Datuhe Coke & Chemicals Co., Ltd. The three mines are Tanyaoping, Fujiayan and Xihecun. The designed production capacity of Tanyaoping coalmine is 600kt/y, Fujiayan is 1200kt/y and Xihecun is 900kt/y. There is a drainage pump station in each coal mine. The concentration of the gas drained by the current drainage systems is above 30%, which meet the requirement of the CMM power generation. Before the beginning of this proposed project, all the drained gas was vented into the atmosphere, which brought not only air pollution, but also the waste of resources. The total installed capacity of the proposed project is 17MW based on the unique characteristics of gas flow rate and methane concentration in each coalmine. Tanyaoping, Fujiayan, Xihecun mines will have an installations of 6*500kW, 20*500kW, 8*500kW units respectively. After the full operation of the proposed project, the annual CH 4 consumption volume could be 19.58Mm 3. The annual power generation is 68,000MWh, which will be supplied to the coal mines for self-usage. The waste heat generated by the engines will be recovered. The total recovered heat will be 171,360GJ each year. The heat will be mostly used for the mineworkers showers. The emission reduction will be achieved through the CMM combustion, substitution of coal fired power generation in North China Power Grid and waste heat recovery. In 7 years of the first crediting period, the proposed project could reduce 2,203,172tCO 2 e of green house gas (GHG) emissions. The contribution of the proposed project to local sustainable development includes: Take full advantage of clean energy that would have been released into the atmosphere for power generation; Reduce the environment pollution; Improve the coal mine safety; Reduce the pollutant emission from coal-fired power plants and coal-fired boilers, improve the local air condition; Provide job opportunities for the coalmine area. A.3. Project participants: Name of Party involved (*) ((host) indicates a host Party) The People s Republic of China Private and/or public entity(ies) project participants (*) (as applicable) Shanxi Datuhe Coke & Chemicals Co., Ltd. Kindly indicate if the Party involved wishes to be considered as project participant (Yes/No) No

3 CDM Executive Board page 3 A.4. (Host) The Netherlands Energy Systems International B.V. Technical description of the project activity: No A.4.1. Location of the project activity: A Host Party(ies): The People s Republic of China A Region/State/Province etc.: Shanxi Province A City/Town/Community etc: Luliang city A Detail of physical location, including information allowing the unique identification of this project activity (maximum one page): The coal mines included in the proposed project are all located in Luliang City, which is an western city of Shanxi province, 200 Km far from Taiyuan, with a coordinates of east longitude ' ', north latitude 36 43'-38 43'. Shanxi Province belongs to the North of China. Tanyaoping mine locates in Datuhe village, Lishi district, Luliang city. It is 5km away from the city. Fujiayan mine located in Fujiayan village, Zhangzishan town, Zhongyang County, 2.5 Km far from the national highway 307. Xihecun mine is in Xihe village, Jinluo town, 10Km away from Zhongyang county.

4 CDM Executive Board page 4 Figure A-1 Geographic position of the proposed project. A.4.2. Category(ies) of project activity: 8: mining/mineral production 10: fugitive emissions from fuels (solid, oil and gas) A.4.3. Technology to be employed by the project activity: 1) Gas Engines to Generate Electricity This proposed project will use the coal mine methane drained from Tanyaoping, Fujiayan, Xihecun mines to generate electricity. The adopted generator type of 500GF-RW is made by Shandong Shengli Oil field Shengli Power Machine Co., Ltd. The generator is one of the most commonly used equipment for CMM power generation domestically, which has mature technology, high efficiency and reliability, as well as low operating cost. This kind of generator is composed of W12V190ZLDD-2 gas fired engine and 1FC6454-6LA42 electrical machine. The gas handling system is controlled by the micro electric equipment, which can adjust the air-fuel ratio based on the gas concentration, avoiding the flameout, deflagration discharge pipe shot, etc. The specific parameters as shown in the table below:

5 CDM Executive Board page 5 Model Generator mark Phase number and connection mode Power coefficient factor 500GF1-RW 1FC LA42 Three-phase four-wire power cable and Y connection 0.8(delay) Standard power(kw) 500 Continuous power(kw) Electric voltage(v) 400 Frequency (Hz) 50 Rotational speed(rpm) 1000 Inlet water temperature of the postcondenser ( ) 32 Exhaust gas temperature( ) 550 Gas engine type W12V190Z L D K -2A Type Four-stroke,spark plug ignition,water cooling,electric controlled Cylinder number 12 Cylinder diameter*stroke(mm) Total air displacement delivery (L) Heat consumption rate (KJ/KWh) 11 Start mode Control flow model 24V direct current start PLT-500 Steady-state frequency scope (%) 1.5 Voltage settle time(sec) Steady-state voltage deviation(%) Steady-state frequency adjustment rate(%) Frequency settle time (sec) Frequency step down (%) 3 ± Total weight (kg) Length width height(mm) ) Waste heat recovery

6 CDM Executive Board page 6 The waste heat generated by the gas engines in this proposed project will also be recovered. The exhaust gas, generated by the gas engines, which has the temperature of approximately 450 emitted from cylinder of gas fuel internal combustion engine, will be sent to waste heat boilers through evacuation lines. Part of the waste heat will be recovered to heat the water, which will be sent to production and residential areas through pipelines in coalmine area. The waste heat boiler KNPT adopted as waste heat recovery equipment in proposed project is made by Qindao Kaineng boiler equipment Co, Ltd. The specific parameters of this boiler are shown in the table below: Rating quantity of heat exchange 350KW Gas temperature <150 Heat exchange area 60m 2 Gas resistance 150mmH 2 O A.4.4. Estimated amount of emission reductions over the chosen crediting period: It is expected that the project activities will generate emission reductions within the North China Power Grid for about 314,739 tco 2 e per year over the first 7-year crediting period from 2008 to Years Annual estimation of emission reductions in tonnes of CO 2 e , , , , , , ,908 Total estimated reductions (tonnes of CO 2 e) 7 Total number of crediting years 2,203,172 Annual average over the crediting period of estimated reductions (tonnes of CO 2 e) 314,739 A.4.5. Public funding of the project activity: No public funding from Annex I Parties involved in this CDM project.

7 CDM Executive Board page 7 SECTION B. Application of a baseline and monitoring methodology: B.1. Title and reference of the approved baseline and monitoring methodology applied to the project activity: ACM0008 Consolidated baseline methodology for coal bed methane and coal mine methane capture and use for power (electrical and motive) and heat and/or destruction by flaring (Version 03). ( ACM0002 Consolidated baseline methodology for grid-connected electricity generation from renewable sources (Version 06) is adopted for calculation of emission factor of North China Power Grid. Tool for the demonstration and assessment of additionality (Version 03) is adopted to demonstrate the additionality of the proposed project. B.2. Justification of the choice of the methodology and why it is applicable to the project activity: ACM0008 defines the applicability of this baseline methodology. The following tables B-1 and B-2 explain the reason why the methodology applies to this project: Table B-1 Comparison of the proposed extraction activities with applicability of the methodology ACM0008 Applicability Proposed extraction activities Underground boreholes in the mine to capture pre Included mining CMM Surface goaf wells, underground boreholes, gas Pipeline-burying in goaf, underground drainage galleries or other goaf gas capture boreholes, drainage galleries are adopted to techniques, including gas from sealed areas, to capture pre and post mining CMM capture post mining CMM Ventilation CMM that would normally be vented Excluded Table B-2 Comparison of the proposed utilization activities with applicability of the methodology ACM0008 Applicability Proposed CMM utilization activities The baseline is partial or total atmospheric release All the gas are vented into the atmosphere, no of the methane CMM utilization in the baseline scenario The methane is captured and destroyed through The methane is captured and destroyed through utilization to produce electricity, motive power combustion to produce electricity and/or thermal energy; emission reductions may or may not be claimed for displacing or avoiding energy from other sources The remaining share of the methane to be diluted Part of CMM is still vented in the proposed for safety reason may still be vented All the CBM or CMM captured by the project should either be used or destroyed, and cannot be vented project CMM collected in the project will be utilized for power generation. Besides the applicability, ACM0008 also defines the types of activities that could not be applied for this methodology. The proposed project does not involve any of those activities (Table B-3):

8 CDM Executive Board page 8 Table B-3 Comparison of the proposed project with inapplicable activities stated in the methodology ACM0008 Inapplicability Proposed project activities Operate in opencast mines Underground coal mines Capture methane from Both coal production and CMM extraction are under abandoned/decommissioned coalmines way in the coal mines Capture/use of virgin coal-bed methane, e.g. The proposed project activity does not capture virgin methane of high quality extracted from coal CBM seams independently of any mining activities Use CO 2 or any other fluid/gas to enhance No CBM extraction activities are involved in the CBM drainage before mining takes place Are not able to monitor the necessary parameters, as indicated in the relevant monitoring methodology, to provide a conservative and transparent estimate of emissions reductions achieved; project All necessary parameters can be monitored It can be concluded from the above analysis that the proposed project complies with both the baseline and the monitoring methodologies of ACM0008.Furthermore, ACM0002 is defined to calculate the emission factor of the regional grid and the additionality tool is designated to demonstrate the additionality of this proposed project in ACM0008. B.3. Description of how the sources and gases included in the project boundary: GHG emissions included in the project boundary: Baseline Project activities Source Gas Included? Justification / Explanation Emissions of methane CH 4 Included Main emission source as a result of venting Emissions from destruction of methane CO 2 Excluded No CMM utilization in the baseline scenario of this project in the baseline CH 4 Excluded According to ACM0008 Grid electricity generation (electricity provided to the grid) Captive power and/or heat, and vehicle fuel use Emissions of methane as a result of continued venting On-site fuel consumption due to N 2 O Excluded According to ACM0008 CO 2 Included Electricity generated from the project activity substitutes electricity from North China Power Grid CH 4 Excluded According to ACM0008 N 2 O Excluded According to ACM0008 CO 2 Excluded Waste heat recovery and utilization in the project activity CH 4 Excluded According to ACM0008 N 2 O Excluded According to ACM0008 CH 4 Excluded According to ACM0008 CO 2 Included Emission from the electricity used by the project activity the project activity, CH 4 Excluded According to ACM0008

9 CDM Executive Board page 9 including transport of the gas Emission from methane destruction Emission from NMHC destruction N 2 O Excluded According to ACM0008 CO 2 Included Emission from methane combustion CO 2 Excluded In this project, NMHC accounts for less than 1% by volume of extracted coal mine gas. CH 4 Included Small amount of methane will remain unburned in power generation. CH 4 Excluded According to ACM0008 Fugitive emissions of unburned methane Fugitive methane emissions from on-site equipment Fugitive methane CH 4 Excluded According to ACM0008 emissions from gas supply pipeline or in relation to use in vehicles Accidental methane CH 4 Excluded According to ACM0008 release B.4. Description of how the baseline scenario is identified and description of the identified baseline scenario: Step 1. Identify technically feasible options for capturing and/or using CMM Step 1a. Options for CMM extraction A. Ventilation air methane; B. Pre mining CMM extraction; C. Post mining CMM extraction; D. Combination of ventilation, pre-mining and post mining extraction. Shares are 70%, 24% and 6% respectively. This is the continuation of existing extraction practice in Datuhe coalmines. Step 1b. Options for extracted CMM treatment The CMM treatment options at the proposed coal mines include: i. Venting. This is the continuation of existing CMM treatment practice; ii. Using/destroying ventilation air methane rather than venting it; iii. Flaring of CMM; iv. Use for additional grid power generation; v. Use for additional captive power generation; vi. Use for additional heat generation; vii. Feed into gas pipeline (to be used as fuel for vehicles or heat/power generation); Step 1c. Options for energy production The alternatives for power generation include: 1. Electricity from North China Power Grid; 2. Electricity from captive coal-fired power plant of the same scale; 3. CMM power generation. This is the project activity not undertaken as a CDM project;

10 CDM Executive Board page 10 The alternatives for heat production include: 4. Continuation of current heat supply by coal-fired boilers; 5. Heat supply by CMM fired boilers; 6. Waste heat recovery from CMM-fuelled engines. This is the proposed project activity not undertaken as a CDM project. Step 2. Eliminate baseline options that do not comply with legal or regulatory requirements Currently, methane control measures only come under the requirements of health and safety regulations governing the maximum methane concentration at various sites within an underground coal mine. It is only required that methane concentrations in the air to be below 1% to avoid the risk of explosion. (National Coalmine Safety Regulation (2005 version), Section Two, item ). In CMM drainage process, solely adopting pre mining or post mining could not meet the underground safety requirement. Usually they are combined with ventilation. Thus, alternative B and C do not comply with the legal requirements. At present, solely adopting ventilation in three mines could not satisfy the 1% requirement, thus option A in CMM extraction does not comply with the legal requirements. Total volumes of methane released by the coalmines are not regulated in China. While the Chinese government promotes the utilization of CMM, especially in June 2005, National Development and Reform Commission (NDRC) announced the Coalmine Methane Treatment and Utilization Macro Plan to encourage the CMM drainage and utilization; it specifically called on the incentives from CDM to overcome barriers in the country to take such action. Therefore, we can deem it as an E- national policy according to EB 22 Annex 3. In China no legislation is known or is being considered to make CMM usage mandatory at coalmines, thus all of the options meet local and regulatory requirements. In energy production process, according to the Chinese power regulation, the construction of coal-fired power plant with a capacity of 135MW or below is prohibited in the national grid coverage area. 1 And it is strictly control the construction of coal fired generation with unit capacity less than 100MW. 2 Thus, alternative 2 does not comply with the local and regulatory requirements. Step 3. Formulate optional baseline scenario alternatives Baseline scenarios meet the regulatory requirements include: Step 3a. Alternatives for CMM extraction Alternative Scenario D Combination of ventilation, pre-mining and post-mining extraction. Shares are 70%, 24% and 6% respectively. This is the continuation of existing extraction practice in Datuhe coalmines. Step 3b. Alternatives for CMM treatment Alternative Scenario i CMM ventilation. 1 Notice on Strictly Prohibiting the Installation of Fuel-fired Generators with Capacity of 135 MW or below issued by the General Office of the State Council, decree no Temporary regulation of small scale coal fired units construction management (Aug, 1997)

11 CDM Executive Board page 11 Alternative Scenario ii VAM Utilization (methane concentration at < 0.75%). Alternative Scenario iii Recovered CMM could simply be destroyed through flaring. Alternative Scenario iv Recovered CMM power generation for the local grid. Alternative Scenario v Recovered CMM power generation for use directly at the coalmines. This is the project activity not undertaken as a CDM project. Alternative Scenario vi Recovered CMM could be combusted in gas boilers to produce thermal energy or heat at the coal mine. This thermal energy could be in the form of hot water, hot air or steam. Alternative Scenario vii Expand the supply of gas to the existing local pipeline for residential or commercial use. The low pressure-type pipeline system usually requires the delivered gas to be >30% CH 4 in concentration. Step 3c. Alternatives for energy production Scenarios for power generation include: Alternative Scenario 1 Continuation of power purchase from North China Power Grid. Alternative Scenario 3 CMM power generation. This is the project activity not undertaken as a CDM project. Scenarios for heat production include: Alternative Scenario 4 Continuation of the existing situation coal-fired boilers for heat supply. Alternative Scenario 5 Heat supply by CMM boilers. Alternative Scenario 6 Waste heat recovery from power engines. Waste heat from the engines will be used to supply hot water for the miners shower. This is the proposed project activity not undertaken as a CDM project. Step 4. Eliminate baseline scenario alternatives that face prohibitive barriers Several barriers would prevent the identified baseline scenario alternatives to occur in the absence of the CDM. In the following steps, we will assess the identified baseline alternative scenarios in CMM extraction, CMM treatment and energy production phases.

12 CDM Executive Board page 12 Step4a. Barrier analysis of the alternatives for CMM extraction: Alternative scenario D This is the continuation of CMM extraction practice at the project site, thus it has no barriers. Step4b. Barrier analysis of the alternatives for CMM treatment: Based on the discussion in step 4a, only those CMM treatment alternatives taken in alternative D are considered. The barriers analyses are as follows: Alternative Scenario i Air ventilation, no barriers exist. Alternative Scenario ii Utilization of VAM is just on pilot stage. The technology is immature. This scenario is eliminated. Alternative Scenario iii Flaring does not utilize the energy potential of CMM, but requires great investment without any revenues. The fact that flaring is not widespread leads to an immature technology. Thus, it faces barriers from investment, technology and prevailing practice. This scenario is eliminated. Alternative Scenario iv In China the tariff for grid power generation is very low, which leads to an even lower IRR than captive power generation (Alternative Scenario e below). Therefore this alternative faces significant problems. Alternative Scenario v Although the Chinese government encourages the implementation of methane drainage and utilization, there is no favorable regulation on tax reduction for CMM power generation. According to the financial analysis, the IRRs for such projects are quite low and the returning period is long, normally between ten to twenty years 3. The low IRR and long returning period will prevent any investors from developing such projects. As shown in Section B.5. Sub-step 2c, the IRR of the proposed project without CDM assistance is 5.24%, which is much lower than the benchmark of 11.8%. Thus, the low IRR makes the implementation of the proposed project financially not feasible if without CDM. Alternative Scenario vi The concentration of the drained gas in Datuhe coalmines will fluctuate sometimes, even lower than 30%, and the concentration of the CMM for gas boiler must be higher than 35%, then the gas boiler can supply 4 heat to the mines steadily, which is badly needed, so the current drained gas can not be used as the fuel for the gas boilers. This scenario is eliminated. Alternative Scenario vii 3 Juanyan Guo, CMM Power Generation Technology and Current Challenges in China, China Coalbed Methane, February, 2004

13 CDM Executive Board page 13 The project sites locate in the Taihang Mountainous district, the relief make it terrible difficult to construct the gas pipeline, meanwhile, for the scattered house location of the local residents, the construction of the long pipelines need a large investment Moreover, coalmines owner are lack of capability of management and gas fee charging work. This scenario is eliminated. Step 4c. Barrier analysis of the alternatives for energy production: Alternative Scenario 1 The coal mines continue to purchase electricity from North China Power Grid. No barrier exits. Alternative Scenario 4 Continuation of existing practice - coal-fired boilers for heat supply. No barrier exits. Alternative Scenario 5 The barriers are same as scenario vi in step 4b. The options i, iv in the CMM treatment process and alternative scenarios 1,3,4 in energy production process comply with legal or regulatory requirements and face no barrier, the economical analysis will be carried out in step 5. Step 5. Identify most economically attractive baseline scenario alternative (optional) As described in below B.5, the IRR benchmark of methane power generation project is 11.8%, while the IRR of the proposed project is only 5.24% which is far below benchmark. So Alternative Scenario vi and Scenario 3 are financially not feasible. In conclusion, the scenario of business as usual (continuation of the current CMM extraction practice with all of the extracted CMM to be released into the atmosphere, power purchase from North China Power Grid and heat supply from coal combustion) is the baseline scenario. B.5. Description of how the anthropogenic emissions of GHG by sources are reduced below those that would have occurred in the absence of the registered CDM project activity (assessment and demonstration of additionality): The proposed project activity will not occur without CDM assistance. Tools for the Demonstration and Assessment of Additionality (Version 03) will be used to test the additionality of the proposed project. According to ACM0008, Step 1 can be omitted. Step 2 Investment Analysis The purpose of investment analysis is to determine whether the proposed project is economically attractive. The following sub steps are adopted to assess the investment analysis: Sub-step 2a Determine appropriate analysis method Tools for the Demonstration and Assessment of Additionality provides three analysis methods: Simple cost analysis (option I), Investment comparison analysis (option II) and Benchmark analysis (option III). Considering that there are not only CDM revenues but also power and fuel substitution revenues in the proposed project, Simple cost analysis (option I) does not apply. Investment comparison analysis (option II) can only be adopted when the baseline is an investment project. However, the baseline

14 CDM Executive Board page 14 scenario of this project is not a construction project. So Option II is not applied either. The method of Benchmark analysis is adopted to assess the economic attractiveness of the proposed project. Sub-step 2b Apply benchmark analysis The benchmark or hurdle internal rate of return (IRR) is determined by individual project development or investment companies. This rate of return can be influenced by perceived technical and/or political risk and by the cost of money. International project developers or investors will not invest in projects that do not meet a minimum IRR, often referred to as hurdle rates. Internationally accepted hurdle rates in the energy industry vary but range from a low of 11% up to 24% and expected payout periods range from two to five years. The Confederation of British Industry (CBI) conducted a poll of 337 industrial investors in year 2001 and found that the average large industry used 13.5% for its hurdle rate. Another commonly used practice is to add a risk related factor to the prevailing cost of capital. New York University produced a survey that included the cost of capital in the energy related sectors (coal, petroleum, electric utilities). The average for this aggregate of energy industries is approximately 6.8% while the average cost of equity is approximately 8.4%. A survey found in the magazine Corporate Finance suggests that a risk premium that should be added to project investment in China should average to approximately five percent, which indicates the IRR requirements for such projects would be 11.8%, or considering the cost of equity, at 13.4%. Thus a hurdle rate that might be assumed for this project using this method is 11.8% Sub-step 2c Calculation and comparison of financial indicators According to the feasibility study of the proposed project, basic data required for financial indicators calculation are: Installation capacity: 17MW Operation hours: 5000hrs/y Annual power generation: 68,000MWh Total investment: 9,449,537$ Operation cost: 1,980,325$ Annual methane consumption: 13,118tCH 4 Estimated CERs price: 8Euro/tCO 2 e Operation period: 20years Income tax rate: 33% Table B-4 indicates that IRR for the proposed project without CDM assistance is 5.24%, which is lower than the benchmark value of 11.8%. With CDM assistance, the project IRR will reach 29.7% that is much higher than benchmark. Therefore, a conclusion can be made that the proposed project is not economically attractive without revenues from CDM. Table B-4 Project IRR with and without CDM IRR without CDM IRR with CDM Datuhe Project 5.24% 29.7% Sub-step 2d. Sensitivity analysis

15 CDM Executive Board page 15 The sensitivity analysis shall show whether the conclusion regarding the financial attractiveness is robust to reasonable variations in the critical assumptions. The following key parameters have been selected as sensitive elements to test the financial attractiveness for the proposed project. i. Total investment ii. Operation cost iii. Annual power supply iv. Electricity price Because the effect of Electricity price to IRR is same as that of Annual power supply and Electricity price in Chinese market will not be changed largely in the foreseen future, the Annual power supply is selected for sensitivity analysis. Firstly, the effect of changes in the Total investment, Operation cost and Annual power generation will be examined on the internal return rate (IRR). Assuming these three parameters to change within the range between (-10%~+10%), the outcomes of IRR sensitivity are presented in the following table. Table B-5 IRR Sensitivity Test -10% -5% 0% 5% 10% Investment -0.67% 2.50% 5.24% 7.86% 9.97% Operation Cost 8.26% 6.79% 5.24% 3.57% 1.76% Annual Power Supply 6.74% 5.96% 5.24% 4.57% 3.95% 12.0% Impacts of three major elements on IRR 10.0% 8.0% IRR 6.0% 4.0% 2.0% 0.0% -2.0% -10% -5% 0% 5% 10% Power Supply Operation Cost Investment Figure B-1 Impacts of three major uncertain elements on IRR It can be seen from Figure B-1 that the project IRR will vary to different degrees with these three uncertain parameters changing between -10% and +10%. It can be seen from Table B-5 that project IRR

16 CDM Executive Board page 16 does not exceed the benchmark value of 11.8% when the investment and operational cost decrease by 10% and annual power generation increases by 10%. Therefore, a conclusion can be made that the proposed project activity is still not financially attractive considering the key parameters sensitivity Step 4 Common Practice Analysis Sub-step 4a. Analyze other activities similar to the proposed project activity China discharges the greatest amount of CMM in the world. In 2000, China vented 12 billion cubic meters methane 5, which was nearly 37% of the world s CMM emissions. In 2002, there were only 196 coalmines adopt gas drainage, the average drainage rate was less than 10%, 6 whereas there was less than 50% of drained gas were utilized, 7 which means that only less than 5% of the total CMM emitted by China is being used at coal mines. The existing CMM usage in China is mainly the use of drained gas with a concentration of 60-70%, basically for the residential use of the mining areas workers 8. Currently, CMM residential usage exists in Fushun, Panjiang, Huainan, Huaibei and Jiaozuo coalmines. It is estimated that the total residential and commercial CMM demand will reach *10 10 cubic meters 9. However, the CMM used is still only a minimal fraction of the CMM vented. The CMM power generation is on the initial stage and small-scale power generation projects have been attempted, but often fail due to unpredictable gas supply and lack of financial and technical support. Moreover, there are no national laws or regulations that mandate use nor are there comprehensive policies that forge and sustain the successful implementation of CMM utilization projects. The resulting course of action is the continued release of methane to the atmosphere by coal mines. Sub-step 4b. Discuss any similar options that are occurring With growing awareness of CDM, the mine owners know the CDM can bring the technology and finance support for them to make use of the drained gas to generate electricity. Nowadays, the proposed project listed one of the CMM utilization projects to take advantage of CDM. Actually, Yangquan, Jincheng,Liulin and Yangcheng CMM utilization project are also being proposed at coalmines in Shanxi province and China, though only with CDM incentives. In conclusion, business as usual scenario (continuation of the current CMM extraction practise with all extracted CMM to be released into the atmosphere, power purchase from North China Power Grid and heat supply from coal combustion) is the baseline scenario. B.6. Emission reductions: 5 United States Environmental Protection Agency, Assessment of the Worldwide Market Potential for Oxidizing Coal Mine Ventilation Air Methane, Washington DC, July China Coal Information Institute (CCII), Optimal Projects for China s Coal Mine Methane Mitigation, 3 rd International Methane & Nitrous Oxide Mitigation Conference, Beijing, China, November China Coal Information Institute (CCII), Optimal Projects for China s Coal Mine Methane Mitigation, 3 rd International Methane & Nitrous Oxide Mitigation Conference, Beijing, China, November CDM- The chance of the CMM utilization. Ningchenghao etal. Clean Coal Technology,Vol 11(1), China Coal Information Institute (CCII), Optimal Projects for China s Coal Mine Methane Mitigation, 3 rd International Methane & Nitrous Oxide Mitigation Conference, Beijing, China, November 2003

17 CDM Executive Board page 17 B.6.1. Explanation of methodological choices: The emission reduction ERy by the project activity during a given year y is the difference between the baseline emissions (BEy) and project emissions (PEy), and also eliminates the leakage of CDM project activities (LEy) as follows: ER y = BE y - PE y - LE y where: ER y Emissions reductions of the project activity during the year y (tco 2 e) BE y Baseline emissions during the year y (tco 2 e) PE y Project emissions during the year y (tco 2 e) LE y Leakage emissions in year y (tco 2 e) In order to determine this value, we should firstly to determine the baseline emissions, the project emissions and the leakage emissions. 1. Project Emissions Project emissions are defined by the following equation: PE y = PE ME + PE MD + PE UM Where: PE y : Project emissions in year y (tco 2 e) PE ME : Project emissions from energy use to capture and use methane (tco 2 e) PE MD : Project emissions from methane destroyed (tco 2 e) PE UM : Project emissions from un-combusted methane (tco 2 e) 1.1 Combustion emissions from additional energy required for CMM capture and use PE ME Additional power energy may be used to capture, transport, compress and use the CMM. The calculation equation is: PE ME = CONS ELEC,PJ x CEF ELEC PE ME : Project emissions from power energy use to capture and use methane (tco 2 e) CONS ELEC,PJ : Additional electricity consumption for capture and use of methane (MWh) CEF ELEC : Carbon emissions factor of electricity used by coal mine that is the EF (emission factor of North China Power Grid) (tco 2 e/mwh) 1.2 Combustion emissions from use of captured methane PE MD When the captured methane is burned in a power plant, combustion emissions are released. In addition, if NMHC accounts for more than 1% of the coalmine gas, combustion emissions from these gases should also be included. In each end-use, the amount of gas destroyed depends on the efficiency of combustion of each end use. The proposed project activity doesn t involve CMM fuelled boilers, gas for residential or vehicle utilization, or flaring. Therefore, the formula will be as following:

18 CDM Executive Board page 18 PE MD = MD ELEC x (CEF CH4 + r x CEF NMHC ) with: r = PC NMHC / PC CH4 where: PE MD : Project emissions from CMM destroyed (tco 2 e) MD ELEC : Methane destroyed through power generation (tch 4 ) CEF CH4 : Carbon emission factor for combusted methane (2.75 tco 2 e/tch 4 ) CEF NMHC : Carbon emission factor for combusted non methane hydrocarbons (the concentration varies and, therefore, to be obtained through periodical analysis of captured methane) (tco 2 eq/tnmhc) r: Relative proportion of NMHC compared to methane PC CH4 : Concentration (in mass) of methane in extracted gas (%) PC NMHC : NMHC concentration (in mass) in extracted gas (%) MD ELEC = MM ELEC x Eff ELEC where: MD ELEC : Methane destroyed through power generation (tch4) MM ELEC : Methane measured sent to power plant (tch4) Eff ELEC : Efficiency of methane destruction/oxidation in power plant (taken as 99.5% from IPCC) 1.3 Un-combusted methane from end uses PE UM Not all of the methane sent to generate power and thermal energy will be combusted, so a small amount will escape to the atmosphere. Using the following equation to calculate PE UM in three coalmines: PE UM = GWP CH4 x [MM ELEC x (1 Eff ELEC )] where: PE UM : Project emissions from un-combusted methane (tco 2 e) GWP CH4 : Global warming potential of methane (21tCO 2 e/tch 4 ) MM ELEC : Methane measured sent to power generation (tch 4 ) Eff ELEC : Efficiency of methane destruction/oxidation in power generation (taken as 99.5% from IPCC) 2. Baseline Emissions Baseline emissions are given by the following equation: BE y = BE MD,y + BE MR,y + BE Use,y where: BE y : Baseline emissions in year y (tco 2 e) BE MD,y : Baseline emissions from destruction of methane in the baseline scenario in year y (tco 2 e) BE MR,y : Baseline emissions from release of methane into the atmosphere in year y that is avoided by the project activity (tco 2 e) BE Use,y : Baseline emissions from the production of power or heat replaced by the project activity in year y (tco 2 e) 2.1 Methane destruction in the Baseline BE MD,y

19 CDM Executive Board page 19 In baseline scenario, all the drained gas is vented without any utilization, thus BE MD,y = Methane released into the atmosphere BE MR,y All the extracted gas before the project activity was released into the atmosphere. However, only the portion of CMM sent to the project activity is accounted for in this calculation. The methane that still vented in the project scenario is not included in either the project emissions or the baseline emissions calculations, since it is vented in both scenarios. Because there are both pre-mining and post-mining drainage in the proposed project, using the following equation to calculate BE MR,y. BE MR,y = GWP CH4 x (CMM PJ,ELEC,y +PMM PJ,ELEC,y )= GWP CH4 x MM ELEC where: BE MR,y : Baseline emissions from release of methane into the atmosphere in year y that is avoided by the project activity (tco2e) GWP CH4 : Global warming potential of methane (21 tco2e/tch4) CMM PJ,ELEC,y : Pre-mining CMM captured, sent to and destroyed by power generation in the project activity in year y(expressed in tch 4 ) PMM PJ,ELEC,y : Post-mining CMM captured, sent to and destroyed by power generation in the project activity in year y (tch 4 ) MM ELEC : Methane measured sent to power generation (tch 4 ) 2.3 Emissions from power replaced by project BE Use,y The power generation in the proposed project will avoid the grid-connected electricity consumption. Using the following equation to calculate BEUse,y: BE Use,y = GEN y x EF ELEC +HEAT y x EF HEAT where: BE Use,y : Baseline emissions from the production of power or heat replaced by the project activity in year y (tco2e) GEN y : Electricity generated by project activity in year y (MWh) EF ELEC : Emissions factor of North China Power Grid (tco 2 /MWh) HEAT y : Heat generation by project activity in year y (GJ) EF HEAT : Emissions factors for heat production replaced by project activity (tco 2 /GJ) Grid power emissions factor EF ELEC The emissions factor for displaced electricity is ex-ante calculated using methodology ACM0002. The equation is: EF ELEC,y = 0.5 x EF OM,y x EF BM,y 1) Operation Margin (OM)

20 CDM Executive Board page 20 Based on Simple OM method, the Operation Margin EF OM,y is ex-ante calculated using following equation: F i, j, y COEF i, j i, j EF OM, simple, y = GEN j j, y Where F i, j, y is the amount of fuel i (in a mass or volume unit) consumed by relevant power sources j in years(s) y. COEF i, j, y is the CO 2 emission coefficient of fuel i (tco 2 /mass or volume unit of the fuel), taking into account the carbon content of the fuels used by relevant power sources j and the percent oxidation of the fuel in year y. GEN j, y is the electricity (MWh) delivered to the grid by source j. Where CO 2 emission coefficient COEF i, j, y can be calculated by following equation: COEF i = NCV i * EF CO2,i * OXID i where: NCV i : The net calorific value of fuel i per unit mass or unit volume (energy content). OXID i : Oxidation factor of the fuel. EF CO2,I : CO 2 emission factor per unit of energy. 2) Build Margin (BM) According to ACM0002, BM is calculated ex-ante as the generation-weighted average emission factor of a sample of power plants m, as follows: EF BM, y = i, m F i, m, y m GEN COEF m, y i, m where: F i,m, y is the amount of fuel i (in a mass or volume unit) consumed by plant m in years(s) y (tce); COEF i, j, y is the CO 2 emission coefficient of fuel i(tco 2 /tce), taking into account the carbon content of the fuels used by relevant power sources j and the percent oxidation of the fuel in plant m: GEN j, y is the electricity (MWh) delivered to the grid by plant m in year y. It is the difference between power generation and self-consumption. 3. Leakage Leakage is given by the following equation: LE y = LE d,y + LE o,y Where: LE y : Leakage emissions in year y (tco 2 e)

21 CDM Executive Board page 21 LE d,y : Leakage emissions due to displacement of other baseline thermal energy use of methane in year y (tco 2 e) LEo,y: Leakage emissions due to other uncertainties in year y (tco 2 e) B.6.2. Data and parameters that are available at validation: F i.j,y Data / Parameter: Data unit: Tce Description: Amount of fuel i consumed by power sources j in year y Source of data used: China Energy Statistical Yearbook Value applied: See Annex 3 calculation of emission factor Justification of the China Official Data of National Bureau of Statistics of China and National choice of data or Development and Reform Commission description of measurement methods and procedures actually applied : Any comment: - F i,m,y Data / Parameter: Data unit: Tce Description: Amount of fuel i consumed by plant m in year y Source of data used: China Energy Statistical Yearbook Value applied: See Annex 3 calculation of emission factor Justification of the China Official Data of National Bureau of Statistics of China and National choice of data or Development and Reform Commission description of measurement methods and procedures actually applied : Any comment: - GEN j,y Data / Parameter: Data unit: MWh Description: Electricity delivered to the grid by source j Source of data used: China Energy Statistical Yearbook Value applied: See Annex 3 calculation of emission factor Justification of the China Official Data of National Bureau of Statistics of China and National choice of data or Development and Reform Commission description of measurement methods and procedures actually applied : Any comment: - COEF i, j, y Data / Parameter: Data unit: tco 2 /kg(m 3 ) Description: the CO 2 emission coefficient of fuel i

22 CDM Executive Board page 22 Source of data used: China Energy Statistical Yearbook Value applied: See Annex 3 calculation of emission factor Justification of the China Official Data of National Bureau of Statistics of China and National choice of data or Development and Reform Commission description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: NCV i Data unit: MJ/t,km 3 Description: Net calorific value (energy content) per mass or volume Source of data used: China Energy Statistical Yearbook Value applied: See Annex 3 calculation of emission factor Justification of the China Official Data of National Bureau of Statistics of China and National choice of data or Development and Reform Commission description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: OXID i Data unit: - Description: Oxidation factor of the fuel Source of data used: Value applied: See Annex 3 calculation of emission factor Justification of the choice of data or description of measurement methods and procedures actually applied : Any comment: - Data / Parameter: EF i Data unit: - Description: Oxidation factor of the fuel Source of data used: China Energy Statistical Yearbook Value applied: See Annex 3 calculation of emission factor Justification of the China Official Data of National Bureau of Statistics of China and National choice of data or Development and Reform Commission description of measurement methods and procedures actually applied : Any comment: -

23 CDM Executive Board page 23 Data / Parameter: Data unit: Description: Source of data used: Value applied: EF CO2,i tc/tj CO 2 emission factor of coal used in heat generation IPCC default value See Annex 3 calculation of emission factor Justification of the IPCC 1996 choice of data or description of measurement methods and procedures actually applied : Any comment: - B.6.3. Ex-ante calculation of emission reductions: 1. Project Emissions 1.1 Combustion emissions from additional energy required for CMM capture and use PE ME North China Power Grid emissions factor EF ELEC,y Because the data to calculate OM and BM can not be obtained from a open channel, the proposed project will use the emissions factor in The Clarification of Determining Baseline Emission Factor for China Local Grid released by China s DNA, according to which, the OM is tCO2/MWh, BM is tCO2/MWh, EF is tCO2/MWh. Calculation details seen Annex 3. The North China Power Grid emissions factor will be upgraded before registration PE ME calculation Self power consumption of the proposed project accounts for 5% of the total power generated, thus the value of CONS ELEC,PJ can be estimated by the total power generation. The actual power consumption by the proposed project in the crediting period will be monitored by power meters. PE ME = CONS ELEC,PJ x CEF ELEC = 68,000*5%* = 3,341tCO 2 e 1.2 Combustion emissions from use of captured methane PE MD According to gas sample analysis in the proposed coalmines, the NMHC concentration is too low to be measured, thus the combustion emissions from non-methane hydrocarbons will be ignored. The NMHC concentration will be monitored annually in three coalmines respectively to checkout whether its concentration is below or above 1% to determine whether NMHC combustion to be included in the project emissions. According to the Feasibility Study of the project, MM ELEC = 19.58Mm 3

24 CDM Executive Board page 24 PE MD = 19.58* *10 6 *2.75*0.995 = 35,897tCO 2 e 1.3 Un-combusted methane from end uses PE UM PE UM = GWP CH4 *MM ELEC *(1- Eff ELEC ) PE UM = 19.58* *10 6 *( )*21 = 1,377tCO 2 e 1.4 The calculation results of project emissions According to the formulae in B.6.1 and calculation methods above, the project emissions are as follows: Table B-6 Project emissions at the proposed coalmines (tco 2 e) Year PE ME PE MD PE UM PE y ,095 33,257 1,276 37, ,341 35,897 1,377 40, ,341 35,897 1,377 40, ,341 35,897 1,377 40, ,341 35,897 1,377 40, ,341 35,897 1,377 40, ,341 35,897 1,377 40,615 Total 23, ,639 9, , Baseline Emissions 2.1 Methane destruction in the Baseline BE MD,y In baseline scenario, all the drained gas is vented without any utilization, thus BE MD,y = Methane released into the atmosphere BE MR,y BE MR,y = 19.58* *10 6 *21 = 275,499tCO 2 e 2.3 Emissions from power generation replaced by project BE Use,y GEN y in the formula of BE Use,y are obtained from the feasibility study of the project, and data during the crediting period will be acquired by monitoring. BE Use,y = 68,000* ,360* = 83,024tCO 2 e 2.4 The calculation results of baseline emissions The detailed baseline emissions in the crediting period are shown in Table B-7: Table B-7 Baseline emissions of proposed project(tco 2 e)

25 CDM Executive Board page 25 Year BE MD BE MR BE Use BE y ,242 78, , ,499 83, , ,499 83, , ,499 83, , ,499 83, , ,499 83, , ,499 83, ,523 Total 0 1,908, ,256 2,484, Leakage No CMM usage in the baseline scenario; No CBM drainage involves; No noticeable impact of CDM project activity on coal production since the baseline scenario is not ventilation only. No reliable scientific information is currently available to assess the risk of impact of CDM project activity on coal prices and market dynamics. Therefore, no leakage effects need to be accounted for under this proposed project. LE y =0. 4. Emission Reductions No obvious leakage occurs outside the project boundary, so the emission reduction (ER y ) by the project activity during a given year y is the difference between the baseline emissions (BE y ) and project emissions (PE y ). B.6.4. Summary of the ex-ante estimation of emission reductions: Year Estimation of project activity emissions (tonnes of CO 2 e) Estimation of baseline emissions (tonnes of CO 2 e) Estimation of leakage (tonnes of CO 2 e) Estimation of overall emission reductions (tonnes of CO 2 e) , , , , , , , , , , , , , , , , , , , , ,908 Total (tonnes of CO 2 e) 281,319 2,484, ,203,172

26 CDM Executive Board page 26 B.7. Application of the monitoring methodology and description of the monitoring plan: B.7.1. Data and parameters monitored: CONS ELEC, PJ Data / Parameter: Data unit: MWh/y Description: Additional electricity consumption by project Source of data to be used: Feasibility study of the project. Value of data applied for the 3,400 (After the project s full operation) purpose of calculating expected emission reductions in section B.5 Description of measurement Continuously measured by electricity meter methods and procedures to be applied: QA/QC procedures to be Power meters will be subject to a regular maintenance regime to ensure applied: its accuracy and measure errors not exceeding industry standard. Any comment: - MM ELEC Data / Parameter: Data unit: tch 4 Description: Methane sent to power plant Source of data to be used: Calculated based on methane calorific value, power production, generator s thermal efficiency, etc. Value of data applied for the 13,119 (After the project s full operation) purpose of calculating expected emission reductions in section B.5 Description of measurement Continuously monitored by gas flow meters adjusted by temperature and methods and procedures to be pressure applied: QA/QC procedures to be Flow meters will be subject to a regular maintenance regime to ensure applied: its accuracy and measure errors not exceeding industry standard. Any comment: - Data / Parameter: Data unit: Description: Source of data to be used: Value of data applied for the purpose of calculating expected emission reductions in section B.5 Description of measurement methods and procedures to be applied: CEF NMHC tco 2 e/mwh Carbon emission factor for combusted non methane hydrocarbons To be obtained through annual analysis of the fractional composition of captured gas. If the NHMC concentration is less than 1%, its emissions can be ignored. - Annually monitoring and analyzing NHMC concentration. If it is above 1%, determining each carbon emission factor of different components.