Carbon Reduction Opportunities in the Energy Sector

Transcription

1 Reduction in the Helmut Schreiber Lead Environmental Economist THE WORLD BANK and Infrastructure Unit, Europe and Central Asia Region Outline the Gas the Gas 2 1

2 Use and Sustainable Development the Gas One of the key challenges that nations face today is scaling up industrial activities in an economically, socially and environmentally sustainable way: ENVIRONMENTAL SUSTAINABILITY => CLIMATE CHANGE MITIGATION => GHG EMISSIONS REDUCTIONS In Central and Eastern Europe and Central Asia, GHG emissions reductions will have to be achieved against a background of the increasing industrial demand for energy services accompanying economic recovery. Developing and EIT countries can't reduce their demand for the energy services necessary for development; still, the energy consumption - economic growth nexus must be weakened. 3 Kyoto Mechanisms can Assist the Gas the sector in becoming more energy efficient: Kyoto Protocol: Adopted at the Third Conference of the Parties to the United Nations Convention on Climate Change held in Kyoto, Japan in December 1997, the Kyoto Protocol commits industrialized country signatories to reduce their greenhouse gas (or carbon ) emissions by an average of 5.2% compared with 1990 emissions, in the period Flexible Mechanisms: Clean Development Mechanism (CDM) and Joint Implementation (JI): These mechanism provided by the Kyoto Protocol, designed to assist developing countries and countries in transition in achieving sustainable development by permitting industrialized countries to finance projects for reducing greenhouse gas emission in developing countries and receive credit for doing so. These mechanisms create new financial incentives for industries in developing and transition economy countries to accelerate their introduction of efficient energy systems. 4 2

3 Key Components of a JI the Gas Proposed - Defined in terms of outputs produced and GHG emissions over the life of the project Baseline The most probable future way of producing the same outputs absent the proposed project Emission Reductions The difference between baseline and proposed project GHG emissions by year Crediting Period Typically Boundary defined to include all GHG Emissions related to the proposed project that are under the control of the project participants Additionality Claimed emission reductions must be above and beyond those that would have occurred without the proposed project 5 The Current Global CDM Portfolio the Gas Globally there are over 1,500 projects in the UNFCCC's CDM portfolio (registered, registration requested or at validation phases) There are some 500 CDM projects registered 10.5% of all pipeline projects (166 out of 1584) is in the industrial energy efficiency sector with an average GHG reduction size of 100 ktco2eq/year. 6 3

4 Gas Global GHG Emissions Estimates the Gas IPCC Estimate (1996): 630 1,470 Million MTCO2eq/a $3.8 - $8.8 Billion $6.00/MT 55% are from Russia and FSU Countries Intensity estimates MT CO2e/Million CM of gas production Emissions growth of 60% expected from due to increases in production and longer transport distances 7 Gas Emissions by Source the Methane Emissions in O&G Gas Distribution Leaks 18% Maintenance Venting 8% Pneumatic Devices 14% Other 8% Associated Gas 27% Compressors 25% 8 4

5 Gas Emission Reduction Target Areas the Gas Activity Technical Potential Economic Potential % Reduction % Reduction Exploration 40 0 Associated Gas Venting and Flaring Maintenance Electricity and Fuel Use Compressors Pneumatic Devices System Upsets 70 0 Fugitive Emissions Gas Summary of the Gas GHG Emissions from this sector are very large FSU has a very large share of those emissions APG utilization, venting or flaring locations, compressor stations and pneumatic devices are large potential targets Looking for ways to increase use of gas that would otherwise be wasted or to reduce leaks or maintenance venting 10 5

6 Gas How Can Contribute? the Gas Case Study Kursk Gas Distribution System Leak Reduction Program 7,000 km of pipelines 229 regulator stations 1,431 pressure reduction stations 6,200 valves, 18,500 flanges Annual throughput 1.9 billion cubic meters Annual ERs 321,500 MT CO2e Annual sales = $1.9 MUSD May cover close to total project costs for inspection, monitoring, leak repairs & replacements 11 Gas Challenges (1) the Gas Baselines and Additionality Is busines as usual (BAU) really the baseline? Why is it not very profitable to use valuable gas that is now being wasted? If it is very profitable, why isn t recovery the most probable future? If the project is the most probable future, the project and the baseline are the same and there are no ERs to be claimed How To Demonstrate Additionality Investment Analysis show that BAU or another project is more attractive economically than the proposed project Prevailing practice show that proposed project is not a common practice Barrier analysis if the project is financially attractive, document the barriers that make the project an unlikely future without carbon payments 12 6

7 Gas Challenges (2) the Gas For System Leak Reduction s How to discover sources of leaks in a 7,000 km system? How to monitor leaks with and without the proposed improvements? How to demonstrate that leak reduction is not highly profitable and therefore likely without carbon payments? 13 the Gas Often Multiple EE Measures in Multiple Facilities District Heating Systems Production (Boiler Efficiencies/Fuel Choices, CHPs) Delivery System Loss Reduction End User (Metering, Control, Insulation, Windows) Standard Building Stocks Schools Hospitals Municipal Buildings Housing Investment Financing Is Often Very Limited Multiple Decision-Makers Often Are Involved Third-Party Investors Shared Savings May Be Attractive 14 7

8 District Heating Components the Gas Gas Coal Fuel Oil Biomass Fuel Supply Ex-Plant Boiler House B1 B2 B N Heat Production Space Space Delivery Losses Steam Process Hot Water Tap Water Primary Distribution Secondary Distribution Residential / Mixed Commercial Large Loads (> 2,500 GJ) Buildings End User Flats (# occ, m 2 ) SF Homes (# occ, m 2 ) Commercial (# occ, m 2 ) Large (# occ, m 2 ) End User Space Measurement? Standards A B C Waste Heat 15 Additionality the Gas Unit Abatement costs $/t CO2 Target Market Not Probable Without Are Additional Are Additional Not Likely Even With Revenue Least is Least Cost Probable Without Revenue Not Additional 16 8

9 Why is the Often Underdeveloped the Gas Heat or Electric Supply Company Does Not Want To Invest To Lose Sales Revenue End User May Face Subsidized Prices Inadequate Incentive To Conserve Many Low Cost Measures May Not Be Additional Aggressive Standards May Crowd Out Role Viable Higher Cost s May Face Financing Constraints Multiple Decision Makers = Uncertainty Transactions Costs Can Be High Need Bundling Mechanisms 17 Baseline Challenges the Gas Many s Include Very Profitable and Not So Profitable EE Measures - Need To Isolate The Additional Components Lack of Clear Decision Criteria Makes Baseline Definition Difficult Diversity of Measures Makes Standardization Difficult Interaction Effects Often Missed Lighting s Impact Heat Demands 18 9

10 How Can Contribute? the Gas Revenue Stream Can Enhance Access To Debt Financing Assessment Can Identify Other Emission Reductions That May Be Monetized Improved Sequencing EE Targets Desired Sequence Typical Seq. End User 1 3 Delivery 2 2 Production Summary the Gas EE Are Large But Often Underdeveloped Good Audits Are An Effective Way To Find Targets EE Standards Can Be Complimentary or Competitive With Financing Bundling Is Essential To Manage Transactions Costs Can Help But Not Eliminate Financing Barriers 20 10

11 the Gas Illustrative RE Technologies Wind Small Hydro Biomass or Biogas Geothermal Often Trading Higher Investment Costs For Lower Fuel Costs Benefits Include Avoided Fossil Fuel Costs (TEBS), Local Environment (LEBS) and Global Environmental Gains (GEBS) Heat And/Or Electricity Are The Most Common Outputs 21 World Bank Support the Gas Program Proposed for Russia (Global Environmental Facility, GEF) GeoFund Provides Risk Reduction for Geothermal s Regionally (GEF) Standardized Baselines For Electric Grid Displacement and For District Heating s (e.g., Czech Republic) Extensive Experience With Wind, Biomass, Geothermal, and Small and Large Hydro s Clear Vision on Coordinated And Other RE Policies 22 11

12 Additionality Testing the Gas Investment Analysis (IA) Is Most Common Method For Public Investments, Economic Analysis For Private Investments, Financial Analysis In Either Case, The Least Cost or Highest Return Option is The Baseline If Proposed Is Least Cost, Must ID Barriers That Make The Unlikely Prevailing Practice - Also Persuasive if Confirms Investment Analysis 23 Common Barriers the Gas Technology Viewed As Unproven and Risky New Technology Tough to Wind and Run Of River Hydro Are Sporadic, Not Firm Geothermal Has Large Upfront Risk Traditional Fuel Prices May be Subsidized Emissions Are Seldom Taxed by The Damage Caused Upfront Investment Often Large Future Support Policies Are Often Unclear 24 12

13 Additionality Issues the Gas Heavy Policy Influence on Baseline Mandated Portfolio Standards Emission Limits or Fines Guaranteed RE Prices Green Tagging and Green Pricing Too Little Support Compromises Investment Even With Too Much Support, Eliminates the Need for Revenues 25 Simple RE IA Additionality Model the Gas 26 13

14 Summary the Gas Typically Large Potential Support Need May Be Front Loaded Payments Are As Delivered. Can Use Payments To Secure Loans Worldwide Experience Is Large And Growing In Each Technology CDM Guidelines Provide Specific Baseline and Additionality Testing Methods 27 Bank s CFB Mission the Gas The Bank s overarching mission: poverty reduction The Bank is a key player in the global effort to combat climate change The Bank s carbon finance initiatives are part of this global effort Business: poor countries to benefit from international efforts to address climate change, including taking advantage of the emerging carbon market for GHG emission reductions The Bank s related mission: to catalyze a global carbon market that: reduces transaction costs supports sustainable development reaches and benefits the poorest communities of the developing world 28 14

15 Overview of CFB Instruments the Gas World Bank administered specific purpose carbon funds: Prototype Fund Community Development Fund Bio Fund World Bank administered OECD country funds: Italian Fund Netherlands Clean Development Facility Netherlands European Facility Danish Fund Spanish Fund Umbrella Facility (UCF) Including the China HFC-23 window of the UCF, total carbon funds being managed by the World Bank exceeds US$1.9 billion (of which 36 ERs purchase contracts for over $1.1 billion signed) 29 The JI Cycle the Gas 1. Idea Note (PIN) 2. Early Notification and Letter of Endorsement (LoE) 3. Host Country Committee Memorandum of Understanding (HCC MOU) 4. Document (CFD) 5. Letter of Intent (LoI) 6. World Bank Due Diligence 7. Baseline Study (BLS) and Monitoring Plan (MP) 8. Letter of Approval (LoA) 9. Design Document (PDD) 10. Validation 11. Registration 12. Pre-Negotiations Workshop / Consultations 13. Negotiations / Host Country Agreement / ERPA 14. Post-Negotiations Workshop 15. Initial Verification / project commissioning 16. Monitoring 17. Verification and Certification 18. Transfer of emission reductions 30 15

16 Minimum Requirements the Gas Type of : Greenhouse gases targeted should be those under the KP (CO2, CH4, N2O, HFCs, PFCs, and SF6) Adequate Emission Reductions (ERs) Volume: minimum threshold of 50,000 tco2e/year, but lower reductions also possible for small projects Demonstration of Additionality and Determination of Baseline Scenario and Emission Reductions Competent Participants and Clear Institutional Arrangement Viable Business and Operation Model that Helps Reduce Transaction Costs Ratification of Kyoto Protocol by the Host Country Expected Schedule: should be operational before January Sound Financing Structure Technical soundness Environmental additionality Safeguard Policies of the World Bank Group Contribution to Sustainable Development 31 Frequently Asked Questions the Gas What Documents Are Required To Qualify A For Payments From CFU of World Bank? Design Document (PDD) Monitoring Plan (MP) Emission Reductions Purchase Agreement (ERPA) WB Safeguards Clearance Who Prepares The PDD and MP? World Bank can hire and supervise experts sponsors must provide full cooperation Preparation costs are then deducted from future carbon revenue stream When are carbon payments received? PDD and MP Must be independently validated as appropriate methods for calculating ERs. Annual ERs achieved must be independently verified using the validated methods Payments are made annually for reductions achieved in the prior year following verification

17 World Bank Advantages In the Gas Deal volume (USD1.9 bln in total) Cross-Cutting experience in FSU World Bank vetting can mobilize non-carbon financing World Bank Safeguard regulations validate environmental integrity of projects Strength of World Bank projects for post 2012 potential carbon sales 33 Thank you very much for your attention! Contact in the World Bank: Helmut Schreiber Lead Environmental Economist THE WORLD BANK and Infrastructure Unit, Europe and Central Asia Region Headquarters 1818 H Street N,W, Washington, D,C, 20433, U,S,A, Phone Office: +1 / 202 / Cell Phone: +1 / 202 / Fax: +1 / 202 / World Bank Office Moscow 36/1 Bolshaya Molchanovka st, Moscow, Russia Phone Office: +7 / 495 / / 495 / Cell Phone: +7 / 985 / Fax: +7 / 495 / / 501 / hschreiber@worldbank.org 17