Carbon Finance a Catalyst for Improving Urban Solid Waste Management The Case of the Lahore Composting CDM BBL April 28, 2009 MC 10-100 Mihaly Kopanyi - Saima Qadir - Chuck Peterson
Outline The Saif Group Project snapshot Composting technology options Project salient features Lessons learned Challenges Pakistan at a crossroad of climate change
The Saif Group Pakistan Leading Industrial & Services Conglomerate in Pakistan since 1900s Corporate History/Culture of breaking into emerging opportunities Knowledge capital created as Minister of Environment Business Ambassador for Government of Pakistan Key Areas of Business include: Telecommunication Cement manufacturing Information technology Oil & gas exploration Textile manufacturing Real estate development Power generation Environmental management
Lahore Compost Plant Site
Timeline of events 2003: Tender for concession agreement with Lahore City 2003: Agreement challenged by NGOs favoring waste to energy July 2004: CDM consideration/feasibility study approved by BOD April 2005: High Court ruling: composting preferred option/bot November 1, 2005 (Project Start Date): 1 st significant payment made for plant machinery Winter 2006: Quotes sought from carbon brokers March 31, 2006: Inauguration and commencement of pilot operations April, 2007: LOI signed with World Bank August, 2008: Signing of ERPA January 2009: Validation initiated
Baseline situation in Pakistan
The composting process Collection & transportation of Solid Waste by CDGL to project site at weigh bridge Sorting & crushing of organic waste for composting Residue removed from the screening plant, re-use material Organic Waste for composting Temp, Moisture & CO2 Monitoring Composting Aerators Turning Integrated Quality Control Compost & Post Compost Processing Packing
The LCL Plant
Compost Technology Options Windrow - Self propelled - Towable straddle turner - Power Take-Off (PTO) Aerated Static Pile In-vessel - Enclosed aerated static pile - Agitated bed - Rotary drum Vermicomposting
Compost Technology Tradeoffs Windrow Aerated Static Pile In-Vessel Land Most Medium Least Primary: 30-45 Time (days) Curing: 30 Primary: 21-30 Curing: 30 Primary: 7-10 Curing: 30 Process Least Medium Best Environmental Least Medium Best Cost Least Medium Most
Windrow: Self Propelled Straddle Turner Pile dimensions limited by size of turner - Height: 2-3 m, Base: 4-5 m Equipment specs (motor) determine daily turning capacity CAPEX: $200,000 - $350,000
Cost of Disposal, Treatment methods Methodology Unit cost US$ per metric ton Composting: Landfill (with flaring): Landfill (electricity generation): EFW (low estimate): EFW (high estimate): EFW ( best case estimate): 19.66 75.14 49.37 76.72 142.72 62.72
LCL: Salient features of Emission reduction Years Annual Estimation of Overall Emission Reductions in tco 2 e 2008 11,930 2009 47,025 2010 80,994 2011 112,586 2012 141,971 2013 169,307 2014 194,739 Total 758,554 Total Number of Crediting Years (First Crediting Period) Annual Average Over the Crediting Period of Estimated Reductions 7 years 108,365
LCL Project is Financially Viable With Carbon Revenues
Timing of Carbon Revenues Allows for Time to Develop Compost Market 120.00% Revenue from Compost 100.00% Revenue from CDM 97.90% 80.00% 60.00% 81.01% 72.67% 73.61% 56.85% 48.70% 40.00% 20.00% 51.30% 43.15% 26.39% 27.33% 18.99% 0.00% 2.10% 2008 2009 2010 2011 2012 2013
LCL: Financial results of the project with and without carbon credit Values Total Investment (US$) 5,524,275 Operational Lifetime (Year) 25 Annual Average Price of Compost (PKR/ton Compost) 80.40 Running costs (US$/Year) 2,272,071 Income Tax 35% Organic Waste Quantity of Composting Process (t/day) 1,000 Benchmark Rate of IRR of Saif Group 20% Project IRR (without Carbon Finance) 13.18% Project IRR (with Carbon Finance) 20.28% Assumed price (US$ 11 per ton of CO2e, 7X3)
Lessons learned: Improvements attributed to the CDM Active Bank and CDM assistance is vital Environmental and Social impact Assessment Competent management turnaround Environmental Management Plan Standard Operation Procedure Advanced Sampling procedure Need competent/fully staffed management Adequate body of skilled staff Composting can create jobs for unskilled workers Health, work benefits to workers Recycling has value
Standard Operation Procedure in LCL
Challenges During project preparation Scale up production w good quality compost Standard operation procedure Financing gap till carbon credit paid Complying with CDM, safeguard requirements Future challenges Compost market Stable financing LCL till market builds up Maintain quality operations
Future Challenges Operational Management #1 End products of compost/cers are not automatically ensured, unlike in automated industrial production factories (e.g. textiles) Biochemical processes must be managed closely to ensure that they don t run away Once it becomes anaerobic, very difficult to reverse Requires special scientific skill set with experience in running waste to compost operations Continued quality operations management/maintenance is critical Cross learning from compost plants in the US, Malaysia, India etc recommended Quality and compatible machinery for physical setup is key to increasing output to meet ERPA
Future Challenges Operational Management #2 Upfront investment in machinery, operations, and marketing is needed to create future revenues Needs patience Getting carbon and compost revenues depends on maintaining daily operations under strict parameters that are monitored according to CDM methodology Summary: Creation of CER revenue stream is dependent on timely injection of investment and continued operations!
Future Challenges: Creating a Market for Compost #1 Need to create awareness in marketplace for compost through main selling points: Environmentally friendly for both land and water (uses 30% less water) Addresses saline soil issues Adds organic matter to regenerate depleted soils Is NOT a substitute for chemical fertilizer, but is a soil conditioner which can restore yields lost through excess use of fertilizers Subsidy: Pakistan government subsidizes chemical fertilizer (not organic soil conditioner) Organic products: Pakistan does not have a price differential between organic and non-organic products, unlike the USA and Europe Farmers not encouraged to go organic and use compost
Future Challenges: Creating a Market for Compost #2 Creating a market for compost takes many years Hard to change farmers psychology Farmers will only change behavior based on pilot experiences and watching results of their neighbors as examples Compost is a farm/nursery product Main revenues for LCL are generated during the time of soil preparation, which is dependent on seasonal planting cycle Two harvesting season in Pakistan helps smoothing seasonality, but realizing benefits requires targeted marketing
Validation and sale
Importance of Project for Pakistan s Climate Change Scenario Climate change hits Pakistan: Pakistan is one of the 12 hardest hit countries by climate change, mainly in agricultural sector Compost is a form of adaptation: to reverse falling yields in agricultural sector, which is key for Pakistan s survival given climate change
Conclusions Composting of municipal solid waste is undoubtedly an option in SAR with high organic content and moisture of waste Composting is not financially viable without carbon credits Building the compost market requires time, energy, and promotion with farmers, governments, and regulators. THANK YOU!
Climate Risks Are Higher for Poor Countries: Pakistan is in Danger Source: World Bank staff. Climate Risks and Development: The Poor Countries Danger 27
Six Climate Threats Top 12 Countries Most at Risk from Each: Pakistan is Included Low Income Middle Income High Income Drought Flood Storm Coastal 1m Coastal 5m Agriculture Malawi Bangladesh Philippines All low-lying Island States All low-lying Island States Sudan Ethiopia China Bangladesh Vietnam Netherlands Senegal Zimbabwe India Madagascar Egypt Japan Zimbabwe India Cambodia Vietnam Tunisia Bangladesh Mali Mozambique Mozambique Moldova Indonesia Philippines Zambia Niger Laos Mongolia Mauritania Egypt Morocco Mauritania Pakistan Haiti China Brazil Niger Eritrea Sri Lanka Samoa Mexico Venezuela India Sudan Thailand Tonga Myanmar Senegal Malawi Chad Vietnam China Bangladesh Fiji Algeria Kenya Benin Honduras Senegal Vietnam Ethiopia Iran Rwanda Fiji Libya Denmark Pakistan Source: World Bank staff.
It Will Get Worse: Pakistan is One of Hardest Hit Potential Impact on Agriculture Projected Percentage Change in Agricultural Productivity in 2080 Note: Scenario: SRES A2. Source: Cline 2007. 29