Using CDM as a means to help promote investment in A&R projects

Transcription

1 Using CDM as a means to help promote investment in A&R projects EU-India A&R Workshop Dehradun, India June 2005 Adrian Stott Clean Energy Finance Committee

2 Main types of annex 1 companies likely to be involved in the CDM Power companies Oil/gas exploration companies and refineries Trading houses and other speculators Companies in the iron and steel sector Cement producers Chemical producers Other manufacturers e.g. electronics, etc.

3 Japanese government involvement in CDM Japanese DNA has accepted 16 CDM projects as of March 2005 Is proposing to buy 100 million tco 2 e through the Kyoto mechanism by 2012 Keidanren (industry association) voluntary emission reduction program Organizations are offering support for the promotion of CDM A&R projects e.g. JICA in Vietnam

4 Advantages of CERs over lcers/tcers CERs don t need to be replaced CERs can be used for compliance in the EU ETS, and no Kyoto compliance cap (currently max. of 1% for lcers/tcers) Experience up to verification of CERs e.g. Ulsan HFC project Will demand a higher price than lcers/tcers

5 Advantages of lcers/tcers over CERs Better for corporate responsibility than most types of CERs generated by standard CDM projects i.e. the green image Usually higher environmental value i.e. salinity and erosion control Longer crediting period for A&R projects

6 Involvement of Japanese companies in A/R CDM projects Japanese companies requiring large volumes of wood may invest in the underlying project e.g. a paper mill may need raw materials as well as lcers/tcers for compliance in the Keidanren voluntary program Japanese companies with a voluntary reduction target or with an environmental (green)/ socially responsible strategy which includes climate change Many of the main investors in the WB BioCarbon fund are Japanese companies e.g. Idemitsu Kosan, Okinawa Electric, Sumitomo Chemicals, Tokyo Electric Interest expected to increase upon CDM A/R procedures being decided and new methodologies being accepted by the CDM EB

7 Other considerations for CDM E/R Project developers Could get a higher price from buyers who want to use the carbon credits in an alternative ETS/ voluntary emission reduction programs which doesn t have a requirement for replacement Alternatively, if there are not enough lcer/tcer buyers, look to market credits as VERs to companies with voluntary reduction targets or possibly other ETS in the USA/Australia Market project in terms of environmental and social benefits - Environmental NGO`s become carbon investor - Environmentally conscious companies become equity/carbon investors If (at any stage) the next commitment period is doubtful, the price for lcers/tcers is likely to become similar to that of CERs.

8 CDM process and attracting equity investors Carry out a pre-feasibility study Prepare the CDM A/R PDD in consultation with CDM experts Employ a DOE who will post the PDD on the UNFCCC website for public comments and complete validation Submit the validated PDD for registration Look for financing: - debt from local or international institutions - can begin after public comments but the nearer to registration of the project the easier it is to attract equity investors (easiest after registration) Start the Project (be aware of potential additionality related complications if this procedure is implemented in a different order )

9 Hypothetical CDM A/R project Afforestation project in Dehradun, India covering 10,000 ha of degraded land which has not been forested for over 50 years due to high soil salinity. Salt resistant trees will be planted in stages over a number of years.

10 Likely scenario without CDM Project developer promotes the Project in order to procure funds (debt and/or equity) needed to allow project implementation. For reasons of high project risk and/or low returns, the required finances cannot be acquired. The project developer decides to utilize the CDM mechanism in order to make the project more attractive The project prepares a new methodology application which is accepted by the EB. Media attention associated with the new methodology and subsequent project registration attracts a large international equity investor(s).

11 Other assumptions The project developer chooses a 30 year fixed crediting period The project developer chooses to receive lcers The average amount of carbon sequestered (after project emissions and leakage) is 100,000 tco 2 e/yr Credits for sequestered carbon are sold in the form of lcers or VERs via forward (delivery) contracts and spot markets (once trading becomes possible)

12 Maximum potential revenue from credits Average price of credit $2/tCO 2 e $4/tCO 2 e $6/tCO 2 e $8/tCO 2 e $10/tCO 2 e Revenue (over 30 yrs) $6 million $12 million $18 million $24 million $30 million

13 Clean Energy Finance Committee s CDM services Initial project assessment Assistance in managing of the CDM process for the project Development of new methodologies and the Project Design Document (PDD) Assistance in gaining necessary approvals e.g. host country, validation and registration Assistance in the sale of CERs from the project

14 Examples of Asian CDM projects which CEFC is currently offering consultancy services Managed forestry and biomass generation project (Thailand) A.T. Biopower (Pichit) Rice Husk Power Project (Thailand) Bumibiopower Methane Extraction and Power Generation Project (Malaysia) PNOC EC Landfill Gas (LFG) Collection and Utilization Project (Philippines) Several CDM/JI projects for the World Bank (PCF) Large hydropower project (Vietnam)

15 For more information please contact: Adrian Stott