Renewable Energy Promotion Policies:

Lessons from CDM/JI for NAMAs (and other new mechanisms)

Konrad Raeschke-Kessler

Emissions Reduction Projects – CDM (DNA) / JI (DFP)

German Emissions Trading Authority

Carbon Expo, 02 June 2011, Barcelona

main building located inDessau

Umweltbundesamt

Federal EnvironmentAgency (UBA)

German Emissions Trading Authority (DEHSt): Tasks

1. To provide the infrastructure for emissions trading in Germany

• controlling operators’ monitoring reports (in cooperation with the German states due to the federal system in Germany)

• operating the EU ETS and Kyoto Registry (Account management)

• drafting national and international reports; co-operating with EU / UNFCCC

2. To administer the project-based Kyoto mechanisms JI and CDM

• CDM DNA/JI DFP:approve CDM and JI projects

• JI DFP: to approve JI issuance requests and to issue ERUs based on JI monitoring and verification reports

Scoping Study “Linking RE Promotion Policies with International Carbon Trade”

Commissioned by IEA - Renewable Energy Technology Deployment

Study carried out by a consortium of

University of Zurich, Perspectives GmbH, Point Carbon

Disclaimer:

The presented proposals are based on the study in the IEA-RETD research context, preliminary and subject to discussion. They do not represent or prejudice in any way the position of the IEA or any of the governments or governmental agencies involved.

Presentation overview

- Barriers to RE promotion in CDM/JI: do they also apply to new mechanisms?

- Options to address the barriers

- What can be done in the short, medium and long term?

Will barriers to RE promotion under CDM/JI also exist under new mechanisms?• High upfront costs

• Revenues from credits cover only part of the cost gap to fossil fuels

• Limited country-specific data availability for baselines

• (CDM PoAs: DOEs have liability for mistakes)

• Conflict with policies that reduce emissions in the additionality demonstration:

• Projects in countries that reduced feed-in tariffs to a level that made the CDM necessary are currently rejected unless they can show that they would be commercially unattractive even with the initial tariff

• Unclear treatment of other renewables promotion policies such as renewables portfolio standards

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CDM/JI option: E- rule clarification

E- rule: policies that provide a comparative advantage to less emission intensive technologies or fuels over more emissions-intensive ones (E- policies), implemented after 2001, are not to be taken into account for defining a baseline.

=> Clarification that RE promotion policies introduced after November 2001 may be introduced and modified without prejudice to additionality

=> Definition of E- policies whose modification harms additionality: only those policies that were in place and systematically applicable before 2001

• no negative consequences of pilot (“lighthouse”) projects • highest feed-in tariff only has to be used if tariffs were systematically in

place before 2001

Linking renewables policies and CDM/JI

CDM/JI option: E- rule clarification

Application of the new E- rule interpretation to RE projects:

Renewable electricity generation: investment analysis with actually applied wholesale power tariff, excluding Feed-In tariff (FIT), investment subsidies, green quotas etc.

Other renewable projects: investment analysis with avoided cost of alternative service provision, e.g. heat generated by using fossil fuel

Host countries could set FIT or other support at level where CDM is still necessary to make RE projects commercially attractive

CDM/JI option: positive lists for additionality

Country, (region) and technology specific positive lists by objective indicators of additionality

• RE technology generation costs cannot (yet) be covered by current wholesale power tariffs in the country

• Positive lists would have to be regularly checked and updated, otherwise they should automatically lose validity

=> Burden of additionality proof shifted from project to country/region level.

Option: New market mechanisms instead of CDM

Sectoral approaches beyond the project by project approach

• e.g. crediting based on non-binding sectoral targets more stringent than business as usual

• Possibly lower crediting volumes per installation than in the current CDM, but scaled-up overall climate protection

• How to avoid free-riding, e.g. using domestic ETS systems for the power sector?

• How to close the cost gap for technologies where the CDM is not yet sufficient?

• National governance required - private sector risk perceptions compared to the CDM?

Option: Subsidized NAMAs instead of CDM

RE support policies that are hard to quantify

• Clear indication of substantial long-term impacts

• Sufficient capacity of public climate finance (e.g. ETS auction

revenues) for significant mitigation contributions?

Option: Credited NAMAs instead of CDM

RE support policies with quantifiable GHG impact

methodology for quantification

• e.g. by adapting CDM methodologies, e.g. RE mobilized by the policy multiplied by the grid emission factor

„mobilized by“: the return of the causality (additionality) problem?

• Cf. positive lists for the CDM/JI: objective indicators (cost gap analysis as generalized, sectoral investment analysis) could be defined

Option: Global emissions trading instead of CDM

In one or two decades, RE promotion could consist of integration of the power sector in advanced developing countries in the international carbon market, e.g. through linking of ETS

• CDM/JI project cycles have provided the MRV experience

• enforceable sanctions, allocation methodologies (auctioning,

technology-neutral benchmarking; otherwise ETS might become a

barrier to RE integration)

Þ Phase-out for CDM/JI for the covered sectors (e.g. CDM reserves

for rest of crediting period, no prolongation of crediting period once

the ETS takes over the incentive RE functions)

Þ will ETS prices close the cost gap (if any, given rapid RE cost

decrease)?

First steps: short term CDM/JI options

PoAs: limit DOE liability under CDM programmes to a specific period / shift liability to PoA owners by default

Standardized baselines (e.g. default emission factors => other presentations)

Additionality:

• Simplification of application of CDM E- rule to additionality determination

• Country- and technology specific positive lists based on objective indicators

• Close (only) part of the cost gap through support policies and the rest through the revenue from carbon credit sales, optimizing resource allocation and minimizing remaining additionality concerns

=> Renewed signal to host countries that RE promotion policies will not exclude CDM/JI projects.

Medium and long term options

International agreement on climate change including new mechanisms such as NAMAs

• e.g. second commitment period of the Kyoto Protocol with stringent, binding commitments

Long-term financing of higher-cost RE through carbon markets with adequate price building factors leading to prices reflecting external costs of CO2e emissions

• e.g. long term demand clarity via long term caps providing for direct transfers via carbon markets, leading to adequate mitigation paths

• e.g. by indirect transfers via international climate funds financed by sources such as auctioning revenues

• e.g. by a combination of the two options above

Thank you for your attention!

Konrad Raeschke-Kessler

E-Mail: German.DNA.DFP@uba.de

Internet: www.dehst.de; www.iea-retd.org