Carbon Finance: Opportunities and Challenges in Mauritius Dream Cazzaniga
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Transcript of Carbon Finance: Opportunities and Challenges in Mauritius Dream Cazzaniga
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Carbon Finance: Opportunities and Challenges in Mauritius
Dream CazzanigaUniversita’ L. Bocconi, Milano, Italy
UNDP Mauritius - [email protected]
03 September 2008
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Overview
1.1. Status of energy supply & demandStatus of energy supply & demand
2. The CDM and the Carbon Market
3.3. Opportunities & Challenges for Carbon Opportunities & Challenges for Carbon Market in MauritiusMarket in Mauritius
4. UNDP’s Carbon strategy
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Agenda
1.1. Status of energy supply & demandStatus of energy supply & demand
2. The CDM and the Carbon Market
3. Opportunities & Challenges for Carbon Market in Mauritius
4. UNDP’s Carbon strategy
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Republic of Mauritius:Dependence on Fossil Fuel
Year1992 1996 2000 2004 2008
Impo
rt D
epen
denc
y (%
)
65
70
75
80
85
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CO2 and non-CO2 Emissions
Year1990 1995 2000 2005 2010 2015 2020
CO
2 A
mou
nt (1
06 t)
0
1
2
3
4
5
6
7
RemovalsEmisisons (measured)Emisisons (forecast)
2.52 tonnes CO2 per capita (2006)
GAS 1000 tonnes(2006)
CO 64.8
NO2 16.6
CH4 13.0
N2O 1.7
NMVOC 17.7
SO2 33.0
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Sectoral CO2 Emissions (2006)
Electricity (57.1%)
Transport (25.2%)
Manufacturing (12.1%)
Residential (4.1%)
other (1.5%)
Electricity & Transport account for >82% of total emissions
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Electricity Demand - 1
Year1980 1985 1990 1995 2000 2005
Ele
ctric
ity G
ener
ated
(GW
h)
0
500
1000
1500
2000
2500
5-6% per year
Demand growing at 5-6% per annum over the past decade
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Electricity Demand - 2 (Sectoral Consumption)
Commercial (31%)
Industrial (34%)
Domestic (33%)
other (2%)
Commercial, Industrial and Domestic activities claim one third each of electricity consumption
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Electricity Supply (Fuel Input, 2006)
Fuel Oil & Diesel (43.5%)
Coal (34%)Bagasse (19%)
Hydro (3.3%)
~78% of electricity produced from fossil fuels
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Fueling Transport
• 100% dependence on fossil fuels
• Gasolene – 23%; Diesel – 41%; Aviation – 35%; LPG – 1%
• Claims almost 50% of final energy consumption
• Offers huge opportunities for emissions reduction, but may also be more challenging
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Agenda
1.1. Status of energy supply & demandStatus of energy supply & demand
2. The CDM and the Carbon Market
3. Opportunities & Challenges for Carbon Market in Mauritius
4. UNDP’s Carbon strategy
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The legal framework for the Carbon Market
Kyoto Protocol (COP 3 - 1997)The Protocol creates legally binding obligations for 38 industrialized countries (countries Annex I) to return their emissions of greenhouse gases (GHG) to an average of 5% below their 1990 levels by 2012
Marrakech Accords (COP 7 - 2001)Define the principles of the Kyoto Protocol’s flexible mechanisms:
- Clean Development Mechanism (CDM)
- Joint Implementation (JI)
- Emissions Trading (ET)
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The role of the Clean Development Mechanism (CDM)
Developed countries can
reduce emissions anywhere in the
world
They can count these reductions towards their own
targets
CDM allows developed countries to generate ‘Carbon
credits’ (Certified Emission
Reductions, CERs) in developing
countries
Advantages for developed countries (Annex 1):
relatively low-cost & politically acceptable
Advantages for developing countries (non-Annex 1):
inward investment, environmental & technology
benefits
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How does a CDM project generate Carbon credits
• Carbon credits (CERs) represent the difference between the baseline (Business as Usual scenario) and actual emissions.• CERs acquired by Annex 1 countries increase the national emissions cap.
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• Every Carbon project requires a baseline study
• The purpose of the baseline study is to determine the baseline scenario for each GHG component of the project
• In order not to exaggerate the emission reductions achieved by the project, the baseline study must adopt a conservative approach whenever assumptions about future developments need to be made (The principle of conservativeness)
• A baseline is calculated through a methodology which is an application of a baseline approach to an individual project activity, reflecting aspects such as sector and region.
Baseline study
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• The Kyoto Protocol states: “Reductions in emissions must be additional to any that would occur
in the absence of the project activity”
• Assessment of additionality is intrinsically linked with the baseline establishment
• We can articulate ‘additionality’ in:
– Environmental additionality – reductions in GHG emissions
(It is essential: otherwise, it will not generate any carbon credits!)
– Financial additionality – the project only happens because of the financial incentive offered by carbon credits
– Legal additionality – the project does more than what is required by local law
Additionality
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• Benchmark analysis
An appropriate financial indicator can be used for a comparison with a relevant benchmark value: e.g. required return on capital or internal company benchmark
Project without carbon revenue is profitable –
but not sufficiently profitable
compared with alternatives
Project without carbon element
Project with carbon element
Carbon revenue makes the
project attractive relative to investment alternatives
Investmentthreshold
Rev
enue
/ N
PV /
IRR
Financial additionality
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In 3 years, the CDM has sparked a $5 billion/year market
Jan05
Mar05
May05
Jul05
Sep05
Nov05
Jan06
Mar06
May06
Jul06
Sep06
Nov06
Jan07
Mar07
May07
July07
Sep07
Nov07
Jan08
Mar08
67 83 118 171 275440 554 647 749
883
1,1411,311
1,4951,759
1,885
2,285
2,5932,838
3,0353,265
Number of Projects in the CDM Pipeline,January 2005 – March 2008
Compound Monthly Growth Rate = 11%
Approximately 3 billion CERs by 2012
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There are over 45 Carbon Markets – but 3 principal regimes
Kyoto Mandatory Regime Non-Kyoto MandatoryRegimes
Voluntary Regimes
UNFCCC
Kyoto Protocol
CDMNon-Annex 1
Countries (Developing Countries)
Joint ImplementationAnnex 1 Countries
European Union Trading Scheme
(EU-ETS)
New South Wales
(Australia)
Individual US States
(East Coast, California, Oregon)
Chicago Climate Exchange (CCX)
Retail MarketLinkingDirective
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Agenda
1.1. Status of energy supply & demandStatus of energy supply & demand
2. The CDM and the Carbon Market
3. Opportunities & Challenges for Carbon Market in Mauritius
4. UNDP’s Carbon strategy
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Sub-Saharan Africa is struggling …
• 4 countries (China, India, Brazil and South Korea) account for 70% of CDM projects and 80% of CERs through to 2012
• Sub-Saharan Africa accounts for 2% of registered projects and 5% of CERs through to 2012
• Africa accounts for 11% of global GHG potential reductions by 2010
Number of CDM Projects In Selected Countries (May 2008)
(Registered projects)
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Electricity - How ‘dirty’ is Mauritius grid?
For Mauritius:
EFgrid,OM,y = 0.9243 tCO2 / MWh; EFgrid,BM,y = 1.0322 tCO2 / MWh;
EFgrid,CM,y = 0.9783 tCO2 / MWh
QUITE DIRTY
Much scope for CO2 reductions through the use of Much scope for CO2 reductions through the use of Energy Efficiency and Renewable EnergyEnergy Efficiency and Renewable Energy
EFgrid,OM,y : Generation-weighted average CO2 emissions net of electricity generated (excludes low-cost, must run plants & CDM projects).
EFgrid,BM,y : Generation-weighted average CO2 emissions net of electricity generated of either 5 most recently built plants or 20% of last power generated.
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Electricity - 1Demand Side Management (CFLs - Compact fluorescent lamps)
• Replacing incadescent lamps with CFLs• CEB 1million CFLs project (3 X 14W CFLs per
household in Mauritius by September 2008) Expected night demand reduction by up to 20 MW
• CEB already has a contractual agreement with Climate Care for looking into C-finance of project (VERs/CERs)
• UNDP working on a strategy to generate demand for an additional 1-2 million CFLs
• Also carrying out a detailed analysis of lighting needs / status in: (1) hotels (2) local authorities and (3) industrial estates
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Electricity - 2• Solar Hot Water Units
• The Government of Mauritius is providing an economic incentive to deploy Solar Hot Water (SHW) units for replacing existing electricand gas water heaters.
• This project can yield between 6,114 tCO2e/yr and 8,253 tCO2e/yr by the end of 2009 (for 20000 SHW units)
• Assuming 1 CER = Euro 10, carbon layer is in the range of Euro 61,140-82,530 by end of 2009
• Potential for further deployment: ~97800 SHW units 29,897-40,362 tCO2e/yr Euro298,970-403,620/yr.• CDM methodology for SHW systems is being developed by SouthSouthNorth
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Electricity – 3 Renewable Energy (Wind / PV)• Strong potential CO2 reductions: Electricity input/year x EFgrid
for a 25MWp --> 50,000 MWh/year x 0.9522 tCO2/MWh = = 48,918 tCO2/year (CERs) for 100 MWp --> 195,672 tCO2/year (CERs )•Challenges• Lack of wind and solar insolation maps prevent the
accurate determination of wind and solar (PV) energy potentials, as well as geographical distribution
• High upfront capital costs• Need a foreword looking Energy Policy for laying down
the right instruments (e.g. feed-in tariffs, portfolio standard; fiscal & economic incentives, etc.) for mkt development of renewables.
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Bio-fuel – fuel switch / bio-ethanol
• Mauritius capacity: 30 million liters/yr.• In 2006: used 89,000t gasolene [173,000t diesel oil] Equivalent to ~274,000 tCO2 / yr [3,070tCO2/t(fuel)]
• E10 (10%bioethanol:90% gasolene) ~27,400 tCO2 reduct. / yr• E25 (25%bioethanol:75% gasolene) ~68,300 tCO2 reduct./ yr• Bio-diesel [B10] ~54,600 tCO2 reductions / year
• No policy to date (legal, technical, financial, economic framework) for the promotion of E10-E25
• No baseline & monitoring methodologies
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Transport – Improving Efficiency in Bus Transit• Two projects being discussed:
- (P1) bus fleet renewal - (P2) bus lane modernization
• P1 – involves renewal of 2700 buses with more efficient buses, including diesel-electric hybrid vehicles
• Hybrid buses 77,100 tCO2 reductions / yr (start with only 200 buses – i.e. 5711 tCO2 reduct./ yr)Barriers: (1) Finance
(2) Fuel grade puts emissions standard at between Euro 0 and Euro 1, while new, efficient engine technologies would be rated above Euro 3
(3) Size of the project
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Bundling and Programmatic CDMs• Benefit/cost analysis does not favour small stand-alone projects.
I.e. Agalega Energy Efficiency project (CNO biofuel + 6 kWh/m2/day solar insolation) --> But only ~386 tonnes CO2/yr reduction
• Bundling:• Similar small-scale projects can be bundled into one CDM
project Each activity in the bundle is an individual CDM project activity
• Composition of the bundle does not change over time• All projects must be submitted and start at the same time
• Programmatic CDMs• The sum of all individual activities under the programme is
the CDM project activity• No pre-fixed composition (because, for example, uptake of an
incentive could be unknown)• Activities can be added on an ongoing basis
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Agenda
1.1. Status of energy supply & demandStatus of energy supply & demand
2. The CDM and the Carbon Market
3. Opportunities & Challenges for Carbon market in Mauritius
4. UNDP’s Carbon strategy
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UNDP’s objective
MD
G Im
pact
of C
arbo
n Pr
ojec
ts
Geographical & Sectoral Diversity of Carbon Projects
CurrentCDM Market
Objective for UNDP
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UNDP’s two-pronged Carbon strategy
Capacity Development
MDG Carbon FacilityProvides support to private-sector project developers
Through: provision of a comprehensive package of services to assist with the preparation and implementation of carbon projects.
Creating an ‘operational’ CDM framework in participating countries – an environment in which functioning public institutions are able to effectively interact with the private sector to jointly develop carbon projects.
Through: Workshops, tutorials, technical support, awareness-raising, scoping studies……for (DNA) Designated National Authorities, government, ministries & agencies, consultants, private sector, trade bodies, academics, project developers, etc.
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MDG Carbon Facility
Fortis
Project Proponents
UNDP
Carbon Banking Services
Project Development
Services
MDG Carbon FacilityCDM Activities
www.mdgcarbonfacility.org
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Many thanks for their contribution to :Mr. Prakash (Sanju) Deenapanray CDM National Project [email protected]
Mr. Robert KellyRegional Coordinator, CDM capacity developmentSouthern and Eastern Africa
Thank you