FAST-TRACKING LOW CARBON DEVELOPMENT IN SOUTH AFRICA

Transcription

1 FAST-TRACKING LOW CARBON DEVELOPMENT IN SOUTH AFRICA APRIL 2016

2 ACKNOWLEDGEMENTS This Report was produced by Promethium Carbon during the course of a Prosperity Fund project on Fast-Tracking Low Carbon Development in SA. This project was funded by the British High Commission in Pretoria, South Africa. The objective of the project is to support the unlocking of low carbon investment in South Africa in line with the National Development Plan. Promethium Carbon is a dedicated carbon and climate change advisory firm, based in Johannesburg South Africa. With a vision to making a difference in climate change in Africa and a focus on technical expertise, our team of climate change professionals assist businesses ranging from small businesses to multinational entities on their journey towards a low carbon economy since We also assist governments and government institutions in planning for the coming global carbon constrained environment.

3 Why? What? Implementation of government policy o National Climate Change Response Policy o SA Tax and Carbon Offset Scheme International Commitments o Paris Agreements o Sustainable Development Goals Streamline administrative process Remove barriers to carbon finance o Clean Development Mechanism o Verified Carbon Standard o Gold Standard International finance How? Streamline process o Standardised baselines o Automatic additionality o Positive lists Disseminate information Approach to fast-tracking of carbon offset projects

4 1. INTRODUCTION WHY? This booklet maps out potential pathways in which the carbon finance can be used to fast-track low carbon development in South Africa. The information presented focusses on two potential sources of finance: The developing South African carbon offset scheme will form part of the proposed carbon tax system, due for implementation in (See text box below). International funds such as the Green Climate Fund ($100 billion per year by 2020) and various outcome based donor funds. These increasingly use international carbon credit programmes as a vehicle for low carbon funding The fast-tracking of low carbon development is important because it will assist the country with the implementation of important policies such as the National Development Plan and the National Climate Change Response Strategy. Fast-tracking low carbon development will also assist South Africa in meeting its international obligations linked to the 2015 Paris Agreement and the Sustainable Development Goals. The Paris agreement committed to lowering greenhouse gas emissions to keep the average temperature increase well below 2 degrees Celsius, while the Sustainable Development Goal number 13 is to take urgent action to combat climate change and its impacts.

5 SA Carbon Tax and Offset Scheme: The unique carbon tax and offset scheme proposed for South Africa allows for carbon offsets to be used to mitigate a firm s carbon tax liability. Projects that qualify to generate credits for the scheme must use an internationally recognised programme approved by the government. Projects must furthermore be implemented inside the borders of the country and comply with the stated eligibility criteria. South African Carbon tax Relief mechanisms Relief for process emission Carbon offset scheme Relief for trade exposure Offset projects Low Carbon Development Clean Development Mechanism Proposed offset programmes for SA Verified Carbon Standard Gold Standard Link between the proposed carbon tax and offset scheme and low carbon development

6 WHAT? The booklet focusses on the streamlining of administrative processes that must be followed to obtain carbon finance. It also addresses the removal of barriers faced by smaller projects. Carbon finance is linked to specific carbon programmes such as the Clean Development Mechanism (CDM), Verified Carbon Standard (VCS) and Gold Standard (GS). The programmes proposed for the South African carbon offset scheme have a reputation as having large administrative burdens. In many cases these reputations are well deserved. It is however not that well known that many of these burdens have been significantly reduced through radical innovations in recent years. These innovations are designed to reduce the barriers to accessing carbon finance while maintaining the credibility of the programmes and the integrity of the carbon credits generated. Reducing costs and administrative burden has been a key area of development for many international offset programmes. Examples include the recent developments of standardised baselines in the CDM and the development of positive lists in the VCS. These developments are aimed at accelerating the access of specifically smaller projects to the potential sources of carbon finance. Many of the innovations in the carbon offset programmes require action from the government of the country in which the programmes are implemented. Examples include certain submissions that need to be made by the Designated National Authority of a country in order to utilise certain provisions for automatic additionality under the CDM. This booklet highlights where such actions are required.

7 Other barriers Remove barriers Fast-track low carbon development Provide incentives Barriers to carbon finance Carbon finance Other incentives Additionality Baselines Fast-tracking the registration of offset projects Additionality: Additionality is the effect of the offset project activity to reduce anthropogenic greenhouse gas emissions below the level that would have occurred in the absence of the project activity. It is also defined as whether an emissions reduction project would have occurred in the absence of incentives, such as a payment for emissions reductions. Baseline: The baseline scenario is the scenario for an offset project activity that reasonably represents the anthropogenic emissions that would occur in the absence of the proposed project activity. The baseline emissions are the greenhouse gas emissions that would occur in the baseline scenario.

8 HOW? Carbon offset programmes are designed with the primary aim of maintaining environmental integrity. When the systems were initiated in the early 2000 s, a substantial amount of checks and balances were put in place to ensure the integrity of the systems. The result was that the systems had very low risks of erroneous inclusion of projects but it came at a high price. The price was a high administrative burden, and a high risk of erroneous exclusion. Recent developments in both the CDM and the VCS have focussed on the easing of the administrative burden. Many of the changes in the system are however not automatically available. In the case of the CDM, it needs action from the Designated National Authority in a country in order to allow the country to make use of the changes. In the case of the VCS, methodologies need to be developed in order to access the potential benefits. The two main areas of innovation lie in the proving of additionality and the establishment of standardised baselines. All offset projects, irrespective of the programme used, need to prove additionality. Traditionally this step requires significant inputs from experts and auditors to ensure that the criteria are met. If projects can be deemed automatically additional, a huge burden of proof is removed from the project. Emission reduction is defined as the difference between the emissions in the baseline and the emissions of the projects. Proving the emissions in the baseline can be challenging as it mostly represent theoretical calculations. It requires inputs from experts and auditors and can be cumbersome to prove. The use of standardised baselines can make a big impact on the inputs required during project validation.

9 Conventional CDM Process CDM Programme of Activities (PoA) Process CDM PoA with automatic additionality Project Registration No Registration Inclusion No Inclusion Operation Operation Operation Verification of reductions Verified with PoA Verified with PoA Credit issuance Credit issuance Credit issuance Impact of fast-tracking interventions on the administrative requirements of CDM projects

10 2. PATHWAYS TO FAST-TRACKING The main pathways to fast-tracking are in streamlining of the administrative processes and in the removal of barriers. FAST-TRACKING ADMINISTRATION PROCESS The main administrative burden of any offset project lies in the upfront validation of the project. During this process a design document is drafted and audited. In the CDM this document is called a Project Design Document (PDD). The VCS refers to it as a Project Description (PD), while the GS requires a Project Passport in addition to the PDD. Fast-tracking of the administrative process occurs when validation requirements are reduced. This typically happens in cases such as automatic additionality, standardised baselines and programmes of activities where the time required to audit projects is drastically reduced. REMOVAL OF BARRIERS Much of the administrative burden in offset project registration lie in the steps of proving project additionality and establishing the project baseline. Two main tools are available in this respect: automatic additionality and standardised baselines. These tools are similar in nature in the CDM, the VCS and the GS. Automatic additionality in the CDM allows for either technologies or projects in specific geographic areas that comply with certain predetermined conditions to be deemed automatically additional. In the case of technologies the requirement is typically based on the rate of adoption of specific technologies in a region. Technologies that have low adoption rates are typically exempt from having to prove additionality during project registration. In the case of regions, small scale projects implemented in areas that are classified as special underdeveloped zones (SUZ) also do not have to prove additionality during project registration.

11 Baselines Southern Africa Power Pool Grid Emission Factor Approved Baseline Reference: ASB0001 Approved on: 31 May 2013 Valid Until: 30 May 2016 Technologies Large scale projects: More than 15 MW or 60,000 tons CO 2 e/yr Small scale projects: Less than 15 MW or 60,000 tons CO 2 e/yr Landfill gas Renewable energy Mass Rapid Transit Systems Composting of Municipal Solid Waste Renewable energy technologies Projects for households or communities or small/medium enterprises Rural electrification project Fast-track pathways already in place under the CDM

12 3. FAST TRACKING OPTIONS ALREADY IN PLACE LARGE SCALE CDM PROJECTS Landfill gas (Methodology ACM0001) - if prior to the implementation of the project the gas was only vented and/or flared but not utilized for energy generation. Electricity generation from renewable sources (Methodology ACM0002) - if the penetration rate of the technology are below 2%: o Solar photovoltaic and concentrating solar power technologies; o Off-shore wind technologies; and o Marine wave, marine tidal and ocean thermal technologies. Mass Rapid Transit Projects (Methodology ACM0016) - if expected emissions per passenger kilometer is less than or equal to 50 gco2/pkm for road based Mass Rapid Transit Systems and 0.1 kwh/pkm for rail based Mass Rapid Transit Systems. Compositing of municipal waste (Methodology ACM0022) if less than 2% of the collected MSW of the municipality are treated by composting SMALL SCALE CDM PROJECTS Positive list of technologies or measures that are defined as automatically additional covers: Grid connected or off-grid renewable electricity generation technologies (e.g. Solar, Off-shore wind, Wave/Tidal); Project activities solely composed of isolated units where the users of the technology/measure are households or communities or small and medium enterprises; Rural electrification project activities using renewable energy sources in countries with rural electrification rates less than 20%.

13 Conventional VCS Process Validation Additionality Baseline Project emissions Project on positive list with a positive list for additionality Validation Baseline Project emissions Project on positive list with a positive list for baseline and additionality Validation Project emissions Operation Operation Operation Verification of reductions Verification of reductions Verification of reductions Credit issuance Credit issuance Credit issuance Impact of fast-tracking interventions on the administrative requirements of VCS projects

14 POSITIVE LISTS UNDER THE VCS The VCS provides for projects that implement activities on a positive list to be deemed automatically additional. The procedure requires that methodologies should include the positive lists. A project developer that wants to develop a project that could potentially be on a positive list must propose a new methodology that incorporates the positive list. If such a methodology already exists, it can be used in the development of the projects. Positive lists can be either generic, or applicable to a specific country. Three options are available for qualification: Market penetration activities that contribute less than 5% of the service (example wind power expressed in MWhr) in a country; or Revenue streams project activities that have no significant revenue other that carbon income. Significant income is defined as 5% of capital expenditure. GOLD STANDARD The Gold Standard allows for the fast-tracking of microscale project. A microscale project is defined as a project that claims up to 10,000 tons of carbon dioxide equivalent per year. Microscale projects can be grouped together as a programme. Fast-tracking under the Gold Standard requires that project auditors that meet a specified set of criteria are used for the validation process.

15 Potential for fast-tracking based on current CDM projects in Africa portfolio

16 4. POTENTIAL FOR FAST-TRACKING AUTOMATIC ADDITIONALITY FOR TECHNOLOGIES A number of options are available to fast-track with respect to automatic additionality for technologies. The most important amongst these are the renewable energy technologies with market penetration rates of less than 2% of the installed capacity on the grid. Projects wanting to register in these cases will have to use official data to prove the rate of penetration. The Designated National Authority should obtain recent data from the National Energy Regulator of SA (NERSA) and make it available to project developers. STANDARDISED BASELINES Applications for standardised baselines on a country level must be submitted to the Executive Board of the CDM by the Designated National Authority in a country. The opportunity exists for South Africa to develop a number of standardised baselines. These could include: Default factors for baseline emissions from landfill gas projects; Energy efficiency projects not involving electricity, such as thermal energy projects; Fuel switch projects; and Thermal renewable energy such as solar water geysers In addition to these, the standardised baseline for the Southern African Power Pool grid emission factor expires in May 2016 and needs to be renewed. Methodologies under the VCS that make use of positive lists can be developed for the technologies listed above as well as for land based projects related to the restoration of degraded land. These standardised baselines will also benefit projects developed under the Gold Standard.

17 Province Wards Approx. population in the Wards Kwazulu Natal Eastern Cape Limpopo Mpumalanga North West Free State Northern Cape Gauteng Western Cape Total Total country Municipal wards in South Africa that meet the fast track criteria of special underdeveloped zones (2011 census data)

18 SPECIAL UNDERDEVELOPED ZONES The CDM deems small scale projects implemented in special underdeveloped zones (SUZ) to be automatically additional. As both the VCS and the GS allows for the CDM methodologies, this fast track option is, therefore, available under all three programmes considered. A special underdeveloped zone is an administrative unit where the proportion of the population with income less than US$ 2 per day, adjusted by purchasing power parity (PPP), is greater than 50 percent. In South Africa, the smallest administrative unit is a municipal ward. Where a large portion of wards in an area qualifies as special underdeveloped zones, the local municipality can qualify as a special underdeveloped zone. Even though South Africa is a high middle-income country, it is also the country with one of the highest levels of inequality in the world. South Africa can capitalise on the removal of barriers for projects implementation in specific areas if data for underdeveloped zones are provided and administrative steps followed. The criteria for underdeveloped zone applications can change over time, but it is linked to the income per person per month, based on data not older than three years. Taking the 2011 South Africa food poverty line of R321, the number of qualifying wards is 956, This includes 45 local municipalities which complies with the criteria in full. These 956 wards are spread across 117 different local municipalities. With the US$2 World Bank Purchasing Power Parity of R286, the number of qualifying wards is 911, including 37 local municipalities. In the respective long term Integrated Development Plans prepared and updated annually, the 37 local municipalities mentioned above linked climate change to disaster management and ecosystem preservation. Carbon finance can increase resilience in these areas and unlock investment for service delivery improvement. Carbon offset projects are well suited for municipal Integrated Development Plans as they are longer term initiatives with continuous benefits in local poverty alleviation.

19 Normal Procedure After fast tracking Impacts of automatic additionality and standardised baselines on time and costs of project registration

20 5. IMPACTS OF IMPLEMENTING FAST-TRACKING INTERVENTIONS The impacts of implementing the fast track options will take effect through reductions in time, effort and cost required to register carbon offset projects. Barriers to project implementation do not consist only of costs but also of skills and time. The implementation of the fast-tracking options will reduce all three. Promethium Carbon estimates that, in most cases, the availability of both standardised baselines and automatic additionality in a carbon offset project can reduce the costs of project registration by more than half. Project registration requires a specialised skill set. The skills required include technical expertise to estimate the baseline emissions and the emission reduction, regulatory skills with respect to the application of the programmes used (CDM, etc), financial skills for proving additionality and auditing skills for the project validation. At the current state of the CDM, VCS and GS in South Africa the country does not have sufficient skilled people to fast-track the implementation of these projects. The fast-track options described in this booklet can however significantly reduce the amount of skilled personnel required. This could lead to overcoming the barrier imposed by lack of skills in the country. The time delay in the registration of carbon offset projects has often been cited as a reason resistance to the implementation of offset projects. The implementation of standardised baselines and automatic additionality can cut the time required for project registration in half, thereby overcoming this barrier.

21 6. CONCLUSION AND WAY FORWARD It is widely recognised that an effective response to climate change requires an increased level of mitigation action. South Africa is in the process of implementing an innovative carbon tax and offset scheme in Offset projects provide valuable GHG mitigation and support low carbon economic development opportunities in South Africa while offering financial benefit to tax payers. Investment in these carbon offset projects should be fast tracked enabling implementation in 2016, in order to be ready for trading against carbon tax in The main challenges with carbon offset project development are that it is very time consuming and that significant upfront costs and effort are typically involved. It is only with data gathering, analysis, projections and verification that these baselines can be set. The fast track options described in this booklet can assist low carbon development through: Utilising recent developments in the three programmes identified in the South African offset scheme to reduce barriers to project registration through automatic additionality, positive lists and standardised baselines; and Streamlining the administrative process of project registration based on these interventions. Project implementers in South Africa can get access to these fast track options if the Designated National Authority takes certain actions, including: Making data on technology penetration rates required to prove automatic additionality available to project developers; and Updating the current standardise baseline for grid electricity which is expiring in May Low carbon development in underdeveloped regions in South African will not only assist to reduce extreme poverty in these regions, but also help to reduce migration of vulnerable people from these areas. This, in turn, will assist to alleviate inequality in South Africa. Obtaining the data supporting the identification of the underdeveloped zones could be funded through the adaptation part of the Global Environmental Fund.

22 Promethium Carbon is a dedicated carbon and climate major international clients gain global competitive advantage in the fast-emerging low carbon economy. CONTACT NUMBERS: 0861 CARBON ( ) Tel : +27 (0) CONTACT DETAILS: Robbie Louw Director +27 (0) robbie@promethium.co.za Harmke Immink Director +27 (0) harmke@promethium.co.za HJ Swanepoel Director +27 (0) hj@promethium.co.za OFFICE ADDRESS: Lacey Oak House 2nd Floor 35 Ballyclare Drive Bryanston South Africa Dissemination of the contents of this document is encouraged. Please give full acknowledgement of the source when reproducing extracts in other published work. No responsibility for any person acting or refraining to act as a result of material in this document can be accepted by Promethium Carbon.