Baselines and Additionality

Baselines and Additionality

Lucio Pedroni - STC

World Bank Carbon Finance Business

This presentation is based on materials prepared by Lasse Ringius

Training Seminar for BioCarbon Fund ProjectsSeptember 12-14, 2005. Washington D.C.

Contents Contents

I. The basic concepts underlying the CDM

II. Approval process of new methodologies

III. Approaches to A/R CDM baseline methodologies

IV. Determination of the carbon benefits of an A/R CDM project activity

V. Additionality & Additionality tool

Concepts underlying the CDMConcepts underlying the CDM

• Reduce GHG emissions (or enhance removals by sinks) in one country to permit an equivalent quantity of GHG emissions in another country, without changing the global emission balance.

• The Clean Development Mechanism is a baseline-and-credit trade mechanism (not a cap-and-trade mechanism).

Basic requirements of emissions Basic requirements of emissions reductions or removals under the CDMreductions or removals under the CDM

• Create “real, measurable, and long-term benefits related to the mitigation of climate change” (KP, art. 12.5b)

• Be “additional to any that would occur in the absence of the certified project activity” (KP, art. 12.5c)

• Be certified by operational entities designated by the Conference of the Parties (KP, art. 5)

ImplicationsImplications

Key-word: Implication for A/R CDM:

– certified Validation, Verification and Certification by accredited operational entities, EB…)

– real, measurable Monitoring (methodology + plan)

– long-term Expiring CERs to deal withthe non-permanence of C

storage– additional BAU activities not eligible; must be direct human-induced

– in the absence of the Baseline (methodology + project activity assessment)

CoP-7 defined baseline for CDMCoP-7 defined baseline for CDM

MA CDM (44) The baseline is the scenario that:– “reasonably represents GHG emissions that would

occur in the absence of the proposed project activity”;– is derived using an approved baseline methodology.

MA CDM (45) The baseline shall be established:– (b) “in a transparent and conservative manner”

regarding the choices of approaches, assumptions, …”– (c) “on a project-specific basis”;– (d) in accordance with simplified procedures for small

scale projects.

CoP-9: CoP-9: Mutatis mutandisMutatis mutandis for A/R CDM for A/R CDM

MA CDM (44) The baseline is the scenario that:– “reasonably represents GHG emissions that would

occur in the absence of the proposed project activity”;– is derived using an approved baseline methodology.

MA CDM (45) The baseline shall be established:– (b) “in a transparent and conservative manner”

regarding the choices of approaches, assumptions, …”– (c) “on a project-specific basis”;– (d) in accordance with simplified procedures for small

scale projects

the sum of the changes in the carbon stocks in the carbon pools within the project boundary

(< 8 Kt CO2e/yr).

Approved methodologiesApproved methodologies

• So far, no baseline or monitoring methodology has been approved for A/R CDM project activities.

• 13 methodologies have been proposed, 5 have not been approved, 8 are under evaluation and 3 are rated B.

• The term “baseline methodology” is somewhat misleading as the EB actually requires to address the following items:

1. Eligibility of the activity and of the land 2. Baseline3. Additionality 4. Project scenario5. Leakage 6. Net anthropogenic GHG removal by sinks

Eligible activitiesEligible activities

C/ha

time

Deforestation

C/ha

time

Reforestation

C/ha

time

Afforestation

> 50 years

In the LULUCF sector during the first commitment period (2008-2012) only afforestation and reforestation are eligible project activities.

C/ha

time

Reforestation

31.12.1989

Reforestation

C/ha

time

31.12.1989

Not CDM eligible CDM eligible

Afforestation

First commitment period

Eligible activitiesEligible activities

Eligible landsEligible lands

A/R project activities are eligible for the CDM only if they occur on lands that were without forest on 31.12.1989 (= “Kyoto land”).

• Each host country decides, but must use these parameters

• Taking this decision is a CDM participation requirement.

• Assessment method is part of the baseline methodology.

What is a CDM forest?

- Area: 0.05 – 1.0 ha- Crown cover: 10 – 30 %- Tree height: 2 – 5 m

Preparation of (draft) PDD and (if the B or M methodologies are new) of AR-NMB + AR-NMM

Request for revision (8 weeks)

DOE: Checks the methodology

Approval of the methodology

EB evaluates methodology

Approval process of A/R Approval process of A/R NBM & NMM methodologies & PDDsNBM & NMM methodologies & PDDs

EB examines the validated PDD

A/R WG

Experts

DOE validates the full PDD

Approved methodology New methodology

NoYes

Yes No

DOE can finalize the validation of the PDD

EB registers the new methodology

EB reviews the PDD (max. 2 meetings)

Approval of the project

YesNo

EB registers the new project

Timing of the approval process of A/R Timing of the approval process of A/R NBM & NMM methodologiesNBM & NMM methodologies

4 months

Baseline approaches for A/R projectsBaseline approaches for A/R projects(Decision 19 CoP-9)(Decision 19 CoP-9)

(22a) “Existing or historical, as applicable, changes in carbon stocks in the carbon pools within the project boundary”

(22b) “Changes in C stocks in the pools within the project boundary from a land use that represents an economically attractive course of action, taking into account barriers to investment”

(22c) “Changes in carbon stocks in the pools within the project boundary from the most likely land use at the time the project starts”

A baseline methodology must be developed using one of the following approaches:

(22a) “Existing or historical, as applicable, changes in carbon stocks in the carbon pools within the project boundary”

(22b) “Changes in C stocks in the pools within the project boundary from a land use that represents an economically attractive course of action, taking into account barriers to investment”

Data are available to determine the existing or historical changes in carbon stocks.

It can be shown that the prevailing land use (BAU) is not expected to change in absence of the project (but carbon stocks can change!).

Predetermines a historical control group baseline methodology.

Data are available for economic comparison of different land-use alternatives.

It can be shown that land use decisions are mainly driven by economic factors, and that change in such factors may trigger a change in land use.

Predetermines an economic baseline methodology, such as investment analysis (IRR, least cost etc.)

How to select the baseline approach?How to select the baseline approach?

(22c) “Changes in carbon stocks in the pools within the project boundary from the most likely land use at the time the project starts” This approach is seen by many observers as similar to approach (a), but

applicable where land-use change is expected to occur (in absence of the project).

Could also be interpreted as a statistical approach, whereby the likelihood of prospective land uses within the project boundary is estimated (e.g. from a sample taken from a standard control group)

How to select the baseline approach?How to select the baseline approach?

• The baseline scenario is the most likely land use and land cover development over time within the project boundary. It includes a conservative and transparent estimation of the sum of the changes in the carbons stocks in the carbon pools accompanying any such LULC development.

• The baseline scenario can include development alternatives that may be realized during the project crediting period, if such developments can reasonably be anticipated.

• The baseline scenario is not a total quantity of carbon conserved, or an unit expression of sequestration (such as X tC/ha/yr), in the base case.

CFB definition of baselineCFB definition of baseline

Carbon

Time

= Estimation of what may occur under the CDM

ex ante

= Estimation of what would otherwise occur

Only the “additional carbon” has a potential market value.

Additional carbon

Project crediting period

Project carbon

Baseline carbon ex ante

PROJECTIONPROJECTION

PROJECTIONPROJECTION

BASELINE STUDY

Baseline study – Baseline study – ex anteex ante

Carbon

Time

Monitoring

ex ante

ex ante

Project crediting period

ex ante

ex ante

= Estimation based on ex post measurements in situ

Project carbon ex post

= Estimation based on ex ante (“frozen”) estimation or on ex post measurements in or ex situ (monitored baseline) - depending on the methodology.

Baseline carbon ex post

FACTFACT

COUNTER-COUNTER-FACTUALFACTUAL

Monitoring – Monitoring – ex postex post

Nearby the Project AreaProject Area

Leakage = Increased GHG emissions outside the project boundary attributable to the project activity (e.g. induced land use/cover change, increased consumption of fossil fuels) and measurable.

LeakageLeakage

2005 2005

2005+X CO22005+X

C

C

The method to be used to assess leakage is part of the “baseline” methodology.

Outside the project boundary, “attributable”

and “measurable”Within the project boundary

=“Actual net

GHG removal by sinks”

Carbon benefits Carbon benefits of A/R CDM project activitiesof A/R CDM project activities

Project scenario (changes in the carbon stocks in

the carbon pools)

increase in project emissions

=“Baseline net GHG removal

by sinks”

Baseline scenario (changes in the carbon stocks in

the carbon pools)

=“Leakage”

(decrease in the carbon stocks in

the carbon pools)

increase in emissions

emissions not

considered!

=

“Net anthropogenic G

HG

rem

oval by sinks”

“Not permanent”!

“Permanent”!

AdditionalityAdditionality

Two basic options for judging additionality:

1. Qualitative: A project activity is “additional” or “not additional”. Accordingly it gets 100% or 0% of the carbon credits.

2. Quantitative: Additionality is assessed probabilistically and carbon credits are awarded accordingly.

Under the Kyoto Protocol “additionality” is a “yes” or “no” judgment.

EB10: “Additionality Tools”EB10: “Additionality Tools”

Examples of tools that may be used to demonstrate that a project activity is additional and therefore not the baseline scenario include, among others:

(a) A flow-chart or series of questions that lead to a narrowing of potential baseline options.

(b) A qualitative or quantitative assessment of different potential options and an indication of why the non-project option is more likely.

(c) A qualitative or quantitative assessment of one or more barriers facing the proposed project activity (such as those laid out for small-scale CDM projects).

(d) An indication that the project type is not common practice (e.g. occurs in less than [<x%] of similar cases) in the proposed area of implementation, and not required by a Party’s legislation / regulations.

PASS

OR

Step 0. Preliminary screening based on the starting date of the project activity

Step 1. Identification of alternatives to the project activity consistent with current laws and regulations

PASS

Step 2. Investment Analysis Step 3. Barrier analysis

CDM Additionality Tool CDM Additionality Tool (EB 16, Annex 1)(EB 16, Annex 1)

PASS

PROJECT ACTIVITY IS ADDITIONAL

PASS

Step 5. Impact of CDM registration

PASS PASSStep 4. Common practice

PASS

OR



PASS


PASS


PASS


PASS PASSStep 4. Common practiceStep 4. Common practice

A/R CDM Additionality Tool A/R CDM Additionality Tool (AR WG 4, Annex 1 - Draft)(AR WG 4, Annex 1 - Draft)

PASS

OR



PASS



PASS



PASSPASS

Purpose and Role of the Purpose and Role of the Additionality ToolAdditionality Tool

• The purpose of the additionality tool is to check the claim of additionality and ensure that baseline activities do not receive CERs.

• The additionality tool is guidance that can be used for new methodologies: Project developers must either include the additionality tool in the new methodology, adapt it to the specific case, or propose alternative tools.

Additionality tool and approved methodologies:• In the future, the A/R additionality tool may have to be used in

conjunction with consolidated methodologies (as in the case of ACM0001 – waste, ACM0002 – renewables).

• Approved methodologies will not be affected by changes of the additionality tool.