Fordham University School of Law February 22nd, 2010 A CASE STUDY: ASJA S BELO HORIZONTE CDM PROJECT BRAZIL / KYOTO PROTOCOL Agostino Re Rebaudengo President arr@asja.biz
INDEX KYOTO PROTOCOL AND EMISSION TRADING ASJA S PROJECTS AND ACTIVITIES CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) KYOTO PROTOCOL WEAKNESSES IMPROVEMENTS FOR THE NEW KYOTO PROTOCOL
KYOTO PROTOCOL INTERNATIONAL CARBON EMISSION CERTIFICATES Carbon Emissions Reductions: CERs, VERs Rivoli headquarters Belo Horizonte Annex I Technology, know-how, capitals 3 CERs: Certified Emission Reductions VERs: Verified Emission Reductions
EMISSION TRADING - BASIC CONCEPT Emission reductions should be achieved where they are the cheapest. Set a target and the market will work out the most cost-effective way to meet it. Price of the carbon credit will determine whether a participant will trade or reduce. 4
KYOTO MECHANISM KEY POINTS TO CONSIDER Baseline Emissions The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases (GHG) that would occur in the absence of the proposed project activity. Additionality= Emissions Reductions Additionality A CDM project activity is additional if GHG emissions are reduced below those that would have occurred in the absence of the registered CDM project activity. 5 CDM: Clean Development Mechanism GHG: Greenhouse Gases
CDM - ASJA S PROJECTS Asja works in foreign countries where it implements GHG emissions reduction projects in the framework of the Kyoto Protocol Flexible Mechanisms. It is the first Italian company to have one of its biogas-to-energy plants registered as a CDM project. Currently, 6 Asja projects are registered to the UNFCCC, with a further 15 ERPAs already signed for projects under validation. China (CDM projects already registered) Kunming Shenyang Taiyuan Shanzhuangtou Taiyuan Xingou China (CDM projects under registration) Handan Argentina (CDM projects already registered) Norte III (Buenos Aires) Puente Gallego (Rosario) Brazil (CDM projects under registration) Belo Horizonte 6 UNFCCC: United Nations Framework Convention on Climate Change ERPA: Emissions Reduction Purchase Agreement
CDM - ASJA S ACTIVITIES 3 STEPS: 1. Technical Involvement: Design and Feasibility Analysis Local Operation and Maintenance (O&M) Staff Direct Transfer of Technology 2. CDM Procedure Consultancy: Legal Analysis Local Specialized Staff Direct Contact with Certification (DOE), Host Country (DNA) and International (UNFCCC - Executive Board) Entities 3. CERs Trading: Internal Primary Trading Structure Asja CDM project / high-temperature flares 7 DOE: Designated Operational Entity DNA: Designated National Authority
CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) GENERAL INTRODUCTION TO THE PROJECT In May 2008 Asja Brasil bid successfully for a biogas exploitation contract concerning a landfill in the Belo Horizonte Municipality (Minas Gerais, Brazil) to seek for CERs Certified Emission Reduction. In August 2008, a concession contract was signed by the Municipality of Belo Horizonte and Asja Brasil for the right to exploit the landfill gas. The Project consists of a landfill gas collection, transport and treatment system with electricity production and sale to the national grid. Asja will take care of all the design, construction, operation and maintenance processes until 2024. Asja CDM project / general manifold 8
LANDFILL GAS PROJECT CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) Project Aim: the Project reduces GHG emissions into the atmosphere using biogas as fuel for power generation, thus displacing energy produced from fossil fuel sources. Legal framework to set the baseline: Brazil has no policy imposing mandatory landfill gas capture or destruction requirements. Asja CDM project / engine 9
ENERGY MIX OF BRAZILIAN NATIONAL GRID CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) 10
LANDFILL KEY-DATA CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) Asja CDM project / high-temperature flares Landfill site total area: 284 ac (114.9 ha) Area for municipal waste treatment and disposal: 160 ac (65 ha) Solid urban waste landfilled: more than 14,000,000 tons Landfill lifetime: 32 years - Sept. 1975/Dec. 2007 Crediting Period (CP): 10 years Total CERs claimed in CP (Est.): 2.885.165 tco 2eq Total electricity produced in CP (Est.): 416.500 MWh (which will power 65.200 people/year) 11
LANDFILL GAS PLANT LAYOUT CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) 12
CDM ECONOMICS CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) DRIVERS Costs: CAPEX: Belo Horizonte Municipality royalty: USD 8.000.000 already payed and USD 2.400.000 will be paid during the next ten years + annual operating costs USD 12.000.000 Revenues: CERs trading: USD 49.000.000 Electricity sale: USD 39.000.000 Pay back period: 5 years Book Cover / The End of Oil / Paul Roberts 13
CDM PROJECT CYCLE CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) 1 1 Project development 7 8 Verification & Certification Issuance Project Development 2 Validation 2 3 4 Validation By Designated Operational Entity Approval By Designated National Authorities Registration By CDM Executive Board Monitoring 3 5 Project Construction 6 Project Construction 5 Registration Approval 4 6 7 8 Monitoring By project participants Verification and Certification By Designated Operational Entity CERs Issuance By CDM Executive Board 14
VERY LONG CDM TIME-TABLE CASE STUDY CDM PROJECT IN BELO HORIZONTE (BRAZIL) 28 MONTHS FROM SIGNATURE TO THE FIRST CERS CASHING-IN! CDM Planning Contract with Municipality of B.H. Aug 2008 Design, Local Approval Environmental Permit Nov - Dec 2008 PDD Preparation PDD Preparation Nov 2008 DOE Validation Stakeholders Approval International stakeholders consultation period 06 Dec 08-04 Jan 09 Validation Report Apr 2009 Submission to DNA for Letter of Approval May 2009 Local Stakeholders Comments Oct 2008 Registration Date Plant Construction Start Dec 2008 Project Operation Start Oct 2009 EB Registration CERs Verification and Issuance Registration to UNFCCC and Beginning of CERs Production First CERs Issuance - Est. and CERs Cashing-in Apr 2010 Dec 2010 15
KYOTO PROTOCOL WEAKNESSES REASONS FOR A (PARTIAL) FAILURE Though the free-market based emission quotas exchange system (cap-and-trade) is a smart mechanism which works fine in theory, a number of factors have drastically reduced its efficacy, namely: 1. red tape affecting the project validation, registration and verification processes, leading to stiff schedules and modalities; 2. the predominance of purely financial operators in primary purchasing and trading, which altered (doped!) prices and expectations; 3. as a further consequence, an extremely limited use of technology transfer, reserved for the few operators that had both the specialized know- how and capitals needed to invest abroad; 4. a lack of guarantees for the post-kyoto period. 16
IMPROVEMENTS FOR THE NEW KYOTO PROTOCOL Advisably, new negotiations should take into account : streamlined, faster procedures (e.g. ex-ante evaluation of additionality by macro-sectors instead of a case-by-case approach); a wider involvement of insitutional players, especially for initiatives taken in slow-developing countries where food, health, and social sustainability also require urgent actions; gradual transition from the old to the new Protocol (for example, companies investing in China with a 10 year crediting period cannot have their projects stopped early at the end of 2012); massive incentives to real technology transfer: better integration of pollution reduction projects with fast technology development. 17
LOOKING FORWARD TO MEXICO CITY FOR A BETTER CO 2 REDUCTION SCHEME! 18