Carbon Finance and the Chemical Industry

Transcription

1 Carbon Finance and the Chemical Industry Workshop Exploring Linkages Between Chemicals and Climate Change Agendas Lasse Ringius. Carbon Finance Unit, ENV. World Bank. Washington DC. June 14, 2006

2 U.N. Framework Convention on Climate Change (UNFCCC) Ultimate objective of stabilizing global greenhouse gas concentrations in the atmosphere Developed countries (Annex I countries) aim to restore GHG emissions to 1990 levels Support capacity building in, and facilitate technology transfer to developing countries to mitigate, and to adapt to climate change

3 The Kyoto Protocol 36 Developed Countries and Economies in Transition (namely Canada, Japan, EU15 and economies in transition) agreed in 199 to: Reduce GHG emissions by 5.2 % below 1990 levels in the commitment period The total demand created for GHG Reductions: ~5 to 5.5 billion Marrakech Accords agreed in Nov sets the rules of implementation Status: Kyoto Protocol came into force in February 2005 Coming into force: requires ratification of 55 Parties to UNFCCC representing 55 % of CO 2 emissions (US constitutes 36 %; Russia 17% ) As of April 18, 2006, 163 states ratified, representing 66.1% of developed countries US / Australia will not ratify, but Australia will meet targets

4 How can Developed Countries/EITs meet their obligations under Kyoto? Domestic Reductions Carbon Sinks: direct human-induced land use change and forestry activities (limited to ~330 Mt/C02e) International Credits ( Flexible Mechanisms ): International Emissions Trading Project Based activities: Joint Implementation Project Based activities: Clean Development Mechanism Supplementarity:...domestic action shall constitute a significant element of th effort by each Party..

5 World Bank Carbon Funds & Facilities Total funds pledged = US$ 1.6 billion (13 governments, 56 firms) Prototype Carbon Fund. $180 million (closed). Multi-shareholder. Multi-purpose. Netherlands Clean Development Mechanism Facility. $249.2 million (closed). Netherlands Ministry of Environment. CDM energy, infrastructure and industry projects. Community Development Carbon Fund. $128.6 million (closed). Multishareholder. Small-scale CDM energy projects. BioCarbon Fund. $53.8 million (Tranche One closed). Multi-shareholder. CDM and JI LULUCF projects. Italian Carbon Fund. $45.4 million (open to Italian participation). Multishareholder (from Italy only). Multipurpose. Netherlands European Carbon Facility. $38 million (closed). Netherlands Ministry of Economic affairs. JI projects. Spanish Carbon Fund. $202.7 million (open to Spanish participation). Multishareholder (for from Spain only). Multipurpose. Danish Carbon Fund. $64.1 million (closed). Multi-shareholder (for from Denmark only). Multipurpose. Umbrella Carbon Facility. [$677.1 million] (Tranche One closed). 2 HFC-23 projects in China.

6 Key Features of Carbon Finance Both public and private capital new and additional sources for sustainable development financing Payment on Delivery payments are made upon annual independent verification that emissions reductions have occurred. Unlike most buyers in the market, Participants in Bank Funds agree to take Kyoto regulatory risk: Hence, our carbon fund contracts are bankable, allowing more projects to get financing than if regulatory risk remained open. Payment stream is in hard currency, reducing financing risk for foreign lenders

7 How Carbon Funds Work Technology Technology $ $ Finance Finance Industrialized Governments and Companies Bank Managed Carbon Fund Developing Countries and Communities CO Equivalent 2 Emission Reductions CO Equivalent 2 Emission Reductions yment on delivery of emissions reductions, not up-front capital costs

8 Emissions Trading under the KP Host Party which does not have an emission cap Annex I Party (e.g EU country) which has an emission cap Specific place in host party GHG emission projection Specific place in host party Emission Reduction GHG emission CER $ $ Host Party benefits from technology and financial flows Acquired CERs are added to the allowed emissions Baseline Scenario Project Scenario

9 Contents General overview of sources of GHG from chemical sector. Review of CDM Methodologies for the chemical sector Assessment of impact of carbon finance on investment costs for registered projects Conclusions and comments on Post 2012 Pushing the agenda forward

10 Sources of GHG Emissions from the Chemical Sector The chemical sector is energy intensive due to: Energy intensive processes e.g. steam cracking to produce ethylene, benzene, propylene etc. Feedstock choice: gas and increasingly coal due to high oil prices. Use of acetylene in VCM production. Refrigeration, heating, etc. Not energy efficient

11 Scopes: 1:Energy Industries 2: Energy Distribution 3: Energy demand 4: Manufacturing 5:Chemical Industry 6: Construction 7: Transport 8: Mining and Minerals 9: Metal 10: Fugitive emissions from fuels 11: Fugitive emissions from HFCs/SF6 12: Solvent Use 13: Waste handling and disposal 14: Afforestation/Reforestation 15: Agriculture CDM Status - Approved CDM Meths by Sector

12 Status of CDM projects l y t i c N 2 O d e s t r u c t i o n i n t h e t a i l g a s o f N i t r i c A c A M

13 Existing Methodologies for the Chemical Sector (Scope:5) AM0001 Incineration of HFC23 waste streams ( 6 projects registered, 1 under review) AM0021 Baseline Methodology for the decomposition of N20 from existing adipic acid production plants. (2 projects registered with method) AM0027 Substitution of CO2 from fossil or mineral origin by CO2 from renewable sources in the production of inorganic compounds. (0 projects registered with method) AM0028 Catalytic N20 destruction in the tail gas of Nitric Acid Plants. (2 projects at validation stage

14 Understanding CDM Methodologies: The Baseline Power sector projects and CERs depend upon an unknown counterfactual baseline: there is no right answer baseline emissions Certified emission reductions Project emissions The difference between the actual project emissions and the emission baseline constitute the volume of CERs time

15 Understanding CDM Methodologies: The Baseline Calculation In general baseline calculations: Production of chemical product X emission fact (tco 2 /MWh) Different possible methodologies to calculate emission factor (tco 2 e/mwh) The challenge NOTE: Exception to this approach when it is possible to measure GHG emissions directly e.g. for N20

16 Summary of Methodology Status There are few methodologies for the chemical sector. New methodologies are required Energy efficiency methodologies exist but more need to be submitted. Limited experience to date with the existing methodologies. (Only two projects registered unde chemical sector methodologies and three under one of the large scale energy efficiency methodologies)

17 CF impact on investment costs Registered Project Name N20 emission reduction in Paulina (adipic acid) Sao Paulo. N2O Emission Reduction in Onsan, Republic of Korea Total CO2eq crediting period (7 years) 41,700,000 64,050,000 Total Costs crediting period (Investment + Operation) 17,583,200 53,752,800 Average abatement co ( /t CO2eq) NOTE: Registered projects using AM0001 & AM0018 did not include investment information. Reasons: HFC23 destruction is end of pipe and clearly additional. The main barriers to EE projec are not financial.

18 Insights Regarding Submission of New Methodologies General Well-prepared chemical and E.E. sector methodologies ca receive CDM Executive Board approval Very few chemical and E.E. methodologies approved, despite huge potential. Need to assess what works and what doesn t (consistency, predictability) Quality of proposals submitted has varied widely

19 Rejected Methodologies - Common Problems Failure to: Provide method to select baseline scenario Justify appropriateness of benchmarking period Take into account factors unrelated to EE measures that can affe future emissions (e.g., product palette) Consider autonomous EE improvements, equipment lifetime Distinguish between discretionary retrofit and planned replacement ( lost opportunity ) or new equipment markets Justify/document assumptions (e.g., load factor, hours of operation) Give full consideration to leakage Provide adequate guidance on developing a monitoring plan

20 Pushing the agenda forward Need to overcome initial barriers, e.g. PINs, prefeasibility studies, development of methodologies Links with other MEAs like POPs Convention may broaden the financing scope in the short term, while CF provides long term revenues Strengthen capacity on these links at local level during preparation of chemicals management strategies Private sector expertise is critical Pilot projects for preparation of a menu of methodologie in the chemical sector

21 Lead Time and Uncertainty Constraints on CO2/CH4 Segment of CDM Market CDM Investment Window: 3years Wind, Efficiency, Waste to Energy and Small-scale projects Operating Large Hydro, Geothermal, Coal to Gas Power Operating You are here indow closes end 2006 unless there is a clear signal at a post-kyoto post 2012 regime will buy issions reductions from developing countries. = Start of Construction

22 THANK YOU For more information please contact: Lasse Ringius Roberto Aiello