Cdm Overview
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Transcript of Cdm Overview
CLEAN DEVELOPMENT MECHANISM:OVERVIEW
DENR Training CourseNovember 4-6, 2003
Climate Change Information CenterManila Observatory
Ateneo de Manila University
Contents
1. Problem of Climate Change
2. UNFCCC & Kyoto Protocol
3. Clean Development Mechanism
4. CDM Eligible Projects
5. Environmental Benefits of CDM
6. Mechanics of CDM
7. Basics of CDM Financing
8. Philippine Participation in CDM
1. Problem of Climate Change
Rising temperatures results in changing weather patterns
• Increased occurrence of dramatic weather such as hurricanes
• Melting polar caps, glaciers• Shifts in weather patterns
Historic Temperature Data
150 100 50 0
Thousands of Years ago
Tem
per
atu
re c
han
ge
(oC
)
Car
bo
n d
ioxi
de
(pp
mv)
Atmospheric CO2 Concentration and Temperature Change
Climate Change• Climate change is caused by both natural events (like
volcanic eruptions) and human activities
Human Sources of GHGs
Transportation
Energy GenerationIndustrial Processes
Land Use: Agriculture & Forestry
Carbon Dioxide (COCarbon Dioxide (CO22)) – Most prevalent GHGMethane (CHMethane (CH44)) – Second most common, 21x the potency of CO2
Nitrous Oxide (NNitrous Oxide (N22O)O) – 310x the potency of CO2
Other GasesOther Gases – HFCs, PFCs, and SF6 = range 600 – 23900x potency of CO2
Transport
GHG and Environmental ImpactsChanges in temperature, weather patterns and sea level rise
Agriculture: Changes in crop yields
Irrigation demands,Productivity
Forests: Change in Ecologies,
Geographic range of species, and
Health and productivity
Coastal Areas: Erosion and flooding
InundationChange in wetlands
Water Resources: Changes in water supply
and water qualityCompetition/Trans-border
Issues
Human Health: Weather related
mortality Infectious disease
Air quality - respiratory illness
Industry and Energy:
Changes in Energy demand
Product demand & Supply
Philippine Rice Production. Arrows indicate El Niño events. (source: Food and Agricultural Organization)
Vulnerability information
systems
El Niño - La Niña Vulnerability Map
Support for Greenhouse Gas Inventory
Sea level rise
3D modeling and visualization tools are used forvulnerability assessment, exact location and quantification of areas which are susceptible to floods due to rise in sea level.
Study area: Northern part of Navotas, Metro Manila
2. UNFCCC and KYOTO PROTOCOL
United Nations Framework Convention on Climate Change
Objective of the Convention“Stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened, and to enable economic development to proceed in a sustainable manner.”
United Nations Framework Convention on Climate Change
Commitments by the Parties to the Convention
Parties have common but differentiated responsibilities.
Division of Parties by Annex
Australia / Austria / Belgium / Canada / Denmark / EC / Finland
/ France / Germany / Greece /Iceland / Ireland / Italy / Japan /
Luxembourg / Netherlands / New Zealand / Norway /
Portugal / Spain / Sweden / Switzerland / Turkey / United
Kingdom / USA
Belarus / Bulgaria / Croatia / Czech Republic / Estonia /
Hungary / Latvia / Liechtenstein / Lithuania /
Monaco / Poland / Romania / Russian Federation / Slovakia /
Slovenia / Ukraine
Non-Annex I Countries = All the Rest of Ratifying Countries
Annex II
Kyoto Protocol
• The overall emission reduction target for Annex I Parties as a group is at least 5 percent below 1990 levels, to be achieved by the commitment period 2008 to 2012 (an average over the five years).
• The Protocol covers six greenhouse gases (Annex A) - CO2, CH4, N2O, HFCs, PFCs, SF6
• The negotiated targets for individual Annex I Parties are included in Annex B of the Protocol.
Selected Quantified Emission Limitation (%)
Industrialized Countries
• Australia 108• Canada 94• EC bubble 92• (Germany 75)• (Portugal 140)• Japan 94• Norway 101• New Zealand 100• USA 93 ???
Economies in Transition
• Bulgaria 92• Baltics 92• Croatia 95• Czech Republic 92• Hungary 94• Poland 94• Romania 92• Russia 100• Ukraine 100
Kyoto Protocol
• The Kyoto Protocol was adopted at COP-3 in December, 1997, in accordance with “Berlin Mandate” of COP-1.
• The Protocol will enter into force when not less than 55 Parties to the Convention, accounting for at least 55 percent of the 1990 total CO2 emissions of the Annex 1 Parties, have ratified the Protocol. – US: 34%; Russia: 16%; Japan: 8% ;EU: 23%; – Other Annex 1 Parties 19%
Kyoto Protocol:Flexibility Mechanisms
Present day
2012 (BaU)
Assigned Amounts
Joint Implementation
Annex I GHG EmissionsClean Development
Mechanism
2012 with KP
- 5%
1990 level
Domestic Actions
Emission Trading
3. Clean Development Mechanism
Clean Development Mechanism• Enables developed countries (known as
Annex B countries) to meet their emission reduction commitments in a flexible and cost-effective manner
• Assists developing countries (non-Annex B countries) in meeting their sustainable development objectives
• Investors benefit by obtaining Certificates of Emissions Reductions (CERs)
• Host countries benefit in the form of investment, access to better technology, and local sustainable development
What can the CDM do for developing countries
• Attract foreign investment to countries engaged in the trading of CERs
• Increase the profitability of cleaner more efficient technology in energy, industry, and transport sectors
• Clean up waste management operations• Improve land-use strategies and practice• Contribute to sustainable development of
the host country
What are the Criteria for CDM Projects?
• Sustainable development– Host country criteria– Environmental Impact Assessment– Stakeholder consultations
• Greenhouse Gas (GHG) emission reductions– Environmental additionality
• Project additionality• Project viability
– Technologically proven– Financially sound
• Host country approval• Project validation and registration
4. CDM Eligible Projects
CDM Eligible Projects
• Renewable energy• Fuel switching• End-use energy efficiency improvements• Supply-side energy efficiency improvements• Agriculture (reduction of CH4 & N2O
emissions)• Industrial processes (CO2 from cement,
HFCs, etc)• Sink projects (only afforestation &
reforestation)
Renewable energy
• Solar power
• Hydro power
• Wind power
• Geothermal
• Biomass
• Tidal / Wave power
Renewable energy
• Renewable energy for the grid• For electricity generation by households or
commercial users E.g., Solar home systems, solar water pumps,
photovoltaics, wind battery chargers
For mechanical energy by households or commercial users E.g. wind-powered pumps, solar water pumps, water
mills, wind mills
Renewable energy
• Thermal energy for households or commercial users E.g., solar thermal water heaters and dryers, solar
cookers, energy derived from biomass for water heating, space heating or drying
Biomass combined heat and power (co-generation) systems
Fuel switching
• For industrial facilities From steam or compressed air to electricity
For buildings From oil to gas
For vehicles From diesel to LPG or to CNG
End-use energy efficiency improvements
• Energy efficiency equipment Motors Lamps Ballasts
Refrigerators Fans
Air conditioners Appliances
Etc …
Supply-side energy efficiency improvements
• Generation– Efficiency improvements at power stations and
district heating plants and co-generation
• Transmission and Distribution– Examples: Upgrading voltage on a transmission line Replacing a transformer Increased insulation of pipes
Agriculture
• Reducing emissions from agricultural soils Use of ammonium sulfate instead of urea Use of phosphogypsum in combination with urea instead
of urea
• Reducing methane emissions from livestock• Conservation agricultural tillage• Agricultural land management practices
Use of composted rice straw instead of fresh rice straw
Industrial processes
• Methane (CH4) recovery and avoidance from landfills, coal mines, agro-industries, waste water treatment facilities– CH4 has global warming intensity 21-times that of CO2
• Cement production (CO2)• Electric equipment manufacturing (SF6)• PFC emissions from aluminum production
– PCF gases have global warming intensity over 6000-times that of CO2
• PFC and SF6 emissions from semiconductor manufacturing
• Nitrous Oxide (N2O) emissions from adipic acid and nitric acid manufacturing– N2O has global warming intensity of 310-times that of CO2
Sink projects
• Afforestation Planting trees on agricultural land
Reforestation Planting trees on denuded forest land
Clean Development Mechanism
Types of small-scale projects that could qualify for fast-track approval procedures
• Renewable energy projects up to 15 megawatts (MW) of output capacity
• Energy efficiency improvements that reduce energy consumption on the supply and/or demand side by up to 15 gigawatt-hours (GWh)/year
• Other project activities that both reduce emissions at source and directly emit less than 15 kilotons (kt) of CO2 equivalent annually
5. Environmental Benefits of CDM
CDM Project
• Achieves Sustainable Development objectives for the host developing country
• Reduces GHG Emissions
Simplistic numerical example
Provide electricity for a barangay• “Business-as-usual” (baseline): Diesel
generator sets– Cost of project $10– Emissions 1 tC
• Cleaner project (CDM-eligible): Micro-hydro– Cost of project $13– Zero Emissions
Simplistic numerical example
• CDM Investor (e.g. Japan)– Invests $3 ($13-$10, difference between
cleaner and business-as-usual project)
– Gains Certificate of Emissions Reduction of 1 tC, which it can meet some of its Kyoto Protocol commitments to reduce emissions
Simplistic numerical example
WIN – WIN – WIN
• WIN for the host country– Sustainable development benefit: Cleaner
energy production technology
• WIN for the Annex I country– Credits for emissions reduction
• WIN for the Global Environment– Emissions reduction
Additionality
• Additionality is the key eligibility criterion in CDM projectsYou must do something that you would not
have done without the CDM
• Two types of additionality Project Additionality Environmental Additionality
Project Additionality
• Without the ability to register under the CDM, the proposed project would be, or would have been, unlikely to occur
Project Additionality
• Baseline methodology evaluates whether or not the proposed CDM project activity would have gone ahead anyway.
• Baseline methodology assesses why the proposed CDM project activity is less likely to occur than one or more of the other possible scenarios.
Environmental Additionality
• If the proposed CDM project activity is not implemented, a less greenhouse gas friendly activity would have been initiated or continued instead.
Environmental Additionality• A CDM project activity is additional if
anthropogenic emissions of GHGs by sources are reduced below those that would have occurred in the absence of the registered CDM project activity.
-CDM M&P para. 43
Emission Reductions=
hypothetical baseline emissions – effective (project) emissions
Environmental additionality and baseline
CO2 Emissions
CDM project CO2 emissions (observable)
Real, measurable and long-termAdditional CO2
emissions reduction
Years
Baseline scenario CO2 emissions (that would occur)
6. Mechanics of CDM
Starting Point: Viable Project
• A potential CDM Project is a feasible project Technologically feasible Financially sound
• A potential CDM Project is a project which has an Environmental Compliance Certificate (ECC)
CDM Project Cycle
C D C D4 MICC C
Project Design & Formulation Project Design Document
Contents of CDM-PDD
A. General description of project activity
B. Baseline methodology C. Duration of the project activity/
Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions
by sources F. Environmental impacts G. Stakeholders comments
CDM Project Cycle
C D C D4 MICC C
Project Design & Formulation
National Approval
Project Design Document
National Approval
• Approval is by the Designated National Authority (DNA) for CDM
• Main Criteria for Approval: Does project contribute to the sustainable development objectives of the Philippines?
• Sustainable development indicators• Project type priorities
– Positive list– Negative list
CDM Project Cycle
C D C D4 MICC C
Project Design & Formulation
National Approval
Validation / Registration
Project Design Document
Operational Entity A
Validation
• Designated Operational Entity
• “External Auditor”
• Validates the PDD– Including the Baseline Study and the
Monitoring Plan
• Recommends whether the project should be registered as a CDM Project
Registration
• Registration is done by the CDM Executive Board (presently based in Bonn, Germany)
• CDM Project Registry
CDM Project Cycle
C D C D4 MICC C
Project Design & Formulation
National Approval
Validation / Registration
Project Financing
Monitoring
Verification / Certification
Issuance of CERs
Project Design Document
Monitoring Report
Verification Report / Certification Report / Request of CERs
Operational Entity A
Investors
Project Participants
Operational Entity B
EB / Registry
Verification
• Verification of monitoring report of emission eductions by the project
• Verification is done by another Designated Operational Entity
• Operational Entity certifies the actual emission reductions by the project
• Operational Entity submits certification to CDM Executive Board
Issuance of CERs
• Based on the certification by the Operational Entity, the CDM Executive Board issues the Certificate of Emission Reductions
• Official registry of CERs
• CERs are a tradable asset (like stocks or bonds)
7. Basics of CDM Financing
Total Project Costs and Sources of Finance
Total Project Cost Estimates • Investment costs, including development costs, up to
commissioning of project
Sources of Finance to be Sought or Already Identified
• Critical to identify other debt and/or equity finance• Typical sources of funding: international development
banks, government funding, private financing, supplier credit
• CDM contribution = typically 5-15% of total project costs
Financing Options in a CDM Project
Carbon Funds
• Annex I investors contribute to a mutual fund
• Mutual fund agrees to buy CERs as they are produced by the project
• Examples– WB Prototype Carbon Fund– Netherland’s CERUPT
How Carbon Funds Work..
Industrialized Governments
and Companies
Developing Countries and Communities
Carbon FundCarbon Fund
$$Technology
Finance $$Technology
Finance
CO EquivalentCO Equivalent22
Emission Reductions
CO EquivalentCO Equivalent22
Emission Reductions
Carbon Fund
Carbon Fund
$$ $$
22 22
Emission ReductionPurchase Agreement
BanksInvestor
DebtEquity
Power Purchase Agreement
$$
Electricity
$$
CarbonCredits
Nature of Carbon Financing Contract
Financing Options in a CDM Project
Emission Reductions Purchase Agreement
• Annex I investor agrees to buy CERs as they are produced by the project
Emission Reduction Purchase Agreement
• Will improve IRRs• Forward contract
– Payment upon delivery of verified ERs– Upfront payments are rare
• Will provide a hard currency revenue• Helps secure financing and reduce project risk
– Future ER payments as collateral for project loans– Can be paid into an escrow account, protecting
lenders from currency convertibility and transfer risks
How CDM can matter
Without CERs
implemented
With CERs not
implemented
No CDM
Without CERs not implemented;
with CERs implemented
CDM
FIRR
CER income
0
Technology IRR
Hydro, Wind, Geothermal 0.8-2.6
Methane Kick
Crop/Forest Residues 3-7
Municipal Solid Waste 5-10+
Impact of Carbon Finance on Impact of Carbon Finance on Project Financial Rate of ReturnProject Financial Rate of Return
•Revolution in Solid Waste Management
•Important impact on small-holder crop-processors and animal production
Lessons from PCF: Carbon Prices
Uganda small hydro (5&1.5 MW) remote area $3.00
Chile: 25 MW hydro run-of-river $3.50 [ +option]
Brazil sustainable charcoal replacing coal/coke $3.50
Poland District Heating Fuel Switch – Coal to Geothermal and Biomass
$3.50
C. America small wind/hydro $3.50
Romania Afforestation $3.60 [+option]
Colombia wind farm $3.50 + 0.5
South Africa Durban waste management $3.75 + 0.2
Czech small-scale energy efficiency $4.00
ODA and CDM Funding
• Public funding for CDM Projects be additional to Official Development Assistance (ODA), Global Environment Facility (GEF) provided by Annex I Parties
• Public funding for CDM projects must not result in the diversion of ODA
• ODA can be part of the project financing as long as ODA financing does not claim emission reduction credits (WB PCF)
Carbon Fund
Carbon Fund
$$ $$
22 22
Emission ReductionPurchase Agreement
BanksInvestor
DebtEquity
Power Purchase Agreement
$$
Electricity
$$CarbonCredits
Emission Reduction Purchase AgreementODA
Non-ODA
8. Philippine participation in CDM
Requirements for the Philippines to Participate in CDM
• Process of Philippine ratification of the Kyoto Protocol
• Senate Committee on Foreign Affairs has sponsored the ratification on the floor of the Senate, 2nd June 2003 (1st Reading)
• 2nd Reading, Interpellation, 21st October 2003• Need 2/3 majority of the Senate to concur in the
ratification of the Kyoto Protocol
• Kyoto Protocol ratified, 22nd October 2003• Senate concurred in the ratification by a
unanimous vote, 19 – 0 (3rd Reading)
Requirements for the Philippines to Participate in CDM
• Status of efforts to establish CDM Designated National Authority (DNA)
• Proposal to make the Inter-Agency Committee on Climate Change (IACCC) as the DNA
• IACCC is composed of: DENR, DOST, DOE, DFA, DTI-BOI, DOTC, NEDA, DPWH, PAGASA, FMB, EMB, Philippine Network on Climate Change (NGO)
Roberto C. Yap, S.J., Ph.D.
Environmental Economist
Climate Change Information Center
Manila Observatory
Ateneo de Manila University
Tel +63 2 426-6144
Fax +63 2 426-6070