Creating the Carbon Asset: PCF Approaches to Baselines and Additionality
description
Transcript of Creating the Carbon Asset: PCF Approaches to Baselines and Additionality
![Page 1: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/1.jpg)
Creating the Carbon Asset:
PCF Approaches to Baselines and Additionality
Sao Paulo, Brazil
November 20-22, 2002
![Page 2: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/2.jpg)
Preparation and Review of the Project
Preparation of project documents
(PDD, BLS, MP, ERS)
Validation Process
Negotiation of Project Agreements
Periodic Verification and Certification
Construction and Start-Up
Project Completion
PCF Project Cycle
![Page 3: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/3.jpg)
Part IWhat is a Baseline?
![Page 4: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/4.jpg)
A Baseline…
…represents the most likely course of action and development in the absence of the project
…is a counterfactual future development that provides the same services as the proposed project
….can never be directly observed
…is the benchmark against which project CO2e emissions are compared to estimate reductions achieved
![Page 5: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/5.jpg)
It is not necessarily continuation of the status quo
CO2 Emissions
CDM project CO2 emissions
(observable)
Additional CO2 emissions reduction
Years
Baseline scenario CO2 emissions (that would occur)
![Page 6: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/6.jpg)
Kyoto Protocol Requirements
Emission Reductions (ERs) must:
Create real, measurable, and long-term benefits related to the mitigation of climate change. (Art. 12.5b)
Be additional to any that would occur in the absence of the certified project activity. (Art. 12.5c)
![Page 7: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/7.jpg)
Why is additionality important?
Country A Country B
Joint Implementation
Emissions Trading
CDM
Hot Air?
![Page 8: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/8.jpg)
Baseline and additionality:two related concepts
If the project equals the baseline scenario,
the project is not additional.
also:
The project is additional if it reduces the amount of emissions vis-a-vis the baseline scenario.
![Page 9: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/9.jpg)
Part II
Key Project Documents Required by the PCF
![Page 10: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/10.jpg)
Key Documents and their Objectives
Project Design Document (PDD)Project Activity Summary and Annexes:
• Baseline Study (BLS) What is the most likely future scenario? Why will the project not be implemented without carbon
finance, or without the participation of the PCF? (additionality)
• Monitoring Plan (MP) How will the emission reductions be measured? What will be measured during the course of the project?
• Emission Reductions Study (ERS) How may emission reductions are expected during the
crediting period?
![Page 11: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/11.jpg)
Baseline Study
![Page 12: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/12.jpg)
How to figure out what baseline emissions are?
• Beliefs about what would happen are a starting point Possible baseline scenarios
• but beliefs are not sufficient: a methodological approach is needed, which can be tested Various baseline methods
_____________________________________
Determine the relevant baseline scenario
![Page 13: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/13.jpg)
How to structure baseline studies?
Information about:
project
data
project context
Kyto Protocol
etc.
Possible baseline methodologies
Selection of baseline methodology
Possible baseline scenarios
Selection of baseline scenario
Criteria for baseline method selection,
In future: EB list of approved methodologies
![Page 14: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/14.jpg)
An Example
• Proposed Project: methane recovery at a landfill
• Possible Scenarios– BAU: no methane recovery– Installation of 10 landfill gas wells as safety curtain – Project: Installation of 100 landfill gas wells
• Possible Baseline Methodologies – Financial Analysis / inversión– Scenario Analysis
Selection of relevant baseline scenario
![Page 15: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/15.jpg)
What is a baseline methodology?
A baseline methodology is an application of one of the approaches outlined in para 48, Marrakesh Accords.
(48a) “existing actual or historical emissions”
(48b) “economically attractive course of action” and “taking into account barriers to investment”
(48c) “average emissions of similar activities, in previous 5 years, similar circumstance, top 20% performance”
Project proponents have to justify their approach…
![Page 16: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/16.jpg)
Which baseline methods has the PCF applied to date?
• Project-by-project methods– Investment / financial analysis Latvia, Chile,
Colombia, Costa Rica
– Scenario analysis Nicaragua, Uganda
– Control groups Latvia– Expert opinion Uganda
• Standard-oriented methods (small projects)– Technology penetration threshold El Salvador– Technology standard Mauritius
![Page 17: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/17.jpg)
Investment analysis is a rigorous approach ...
• Behavioral assumption: – Rational investor maximizes return on investment under given
constraints: financial analysis
– Public decision maker maximizes public benefit under given constraints: economic / cost-benefit analysis
• Baseline definition: – The baseline is the (time dependent) investment alternative
(scenario) with the highest IRR or the highest NPV or the lowest costs (all risk adjusted).
– not considering GHG emissions or the value of ERs.
![Page 18: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/18.jpg)
… and an established methodology …
• Distinguish between private and public sector projects.
• Create a menu of investment alternatives (scenarios)– that deal with the problem on hand / satisfy an identified
demand (service equivalence). – include only plausible scenarios (constraints)– include zero investment scenario (BAU) and proposed
project– Include alternative investment start times
• Determine investment constraints and parameters (regulatory policy, costs, risks, etc. – but not ERs).
![Page 19: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/19.jpg)
How has the PCF applied investment / financial analysis?
Example: Latvia – solid waste management• Treated as a private sector investment• Plausible investment scenarios were described and
analyzed by Task Manager in a feasibility study• Financial IRRs were provided• Ranking of alternatives with and without carbon value• Baseline: highest IRR without carbon value• Project: highest IRR with carbon value
![Page 20: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/20.jpg)
Liepaja: Economic Analysis of Alternatives
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
1 2 3 4 5 6
Options
Inte
rnal
Rat
e o
f R
etu
rn
IRR without C revenues IRR with C revenues
Baseline
PCF project
![Page 21: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/21.jpg)
Other Baseline Methodologies
Scenario Analysis • Attempt to understand and describe all aspects and
circumstances that contribute to an investment decision, in particular risks and other barriers
• Provide data and/or expert opinions and references that can be confirmed by a validator.
Control Groups • The selected control group is the baseline: Describe
the baseline!• Must be similar in all aspects but for the CDM
project
![Page 22: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/22.jpg)
Sections of the BLS• Project description and characteristics• Sector background etc.• Boundaries• Selection of baseline method• Possible alternative scenarios (to include BAU & project)• Legal and other constraints• Selection of plausible alternative scenarios• Application of selected baseline method and determination of the
most likely baseline scenario• Discussion of time dimension of baseline and crediting period• Leakage (and Permanence for sequestration projects)• Greenhouse gases covered• Environmental and social impacts• => Complete description of determined baseline scenario and its
development over time
![Page 23: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/23.jpg)
Monitoring Plan
![Page 24: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/24.jpg)
The Monitoring Plan…
… describes how to measure the emission reductions resulting from the project
… defines the monitoring obligations of the project operator
... becomes operational after project start
… serves as the basis for the verification of emission reductions
... is a legally binding document
![Page 25: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/25.jpg)
The MP also contains spreadsheets to calculate the ERs
Sub-Project Name:
Date: Hours Day
Unit Equation 1 … 24 Sum (hours)
Carbon Intensity Factor
t CO2 / MWh
A --
Reported Power Supply
MWh B
Emission Reductions
t CO2 C = (A * B)
![Page 26: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/26.jpg)
Emission Reduction Study
![Page 27: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/27.jpg)
The Emission Reduction Study…
… Uses MP calculation tool (spreadsheet) to calculate baseline emissions, project emissions and ERs.
… projects expected baseline and project emissions and ERs for each crediting year
… provides structured risk information by simulating ER calculation (sensitivity analysis)
… provides the basis for informed negotiations
![Page 28: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/28.jpg)
Baseline Exercise
![Page 29: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/29.jpg)
Annex I:
Kyoto Protocol and Marrakech Accord on baselines and monitoring
![Page 30: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/30.jpg)
COP-7 – defined baseline for CDM
(44) The baseline is the scenario that:– “reasonably represents GHG emissions that would
occur in the absence of the proposed project activity”,
– “covers emissions from all gases, sectors, sources in Annex A within project boundary”,
– is derived using an approved baseline method.
![Page 31: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/31.jpg)
How to develop CDM baselines?
(45) A baseline shall be established …(a) using approved and new methodologies,
(b) in a transparent and conservative manner,
(c) on a project-specific basis,
(d) using simplified procedures for small-scale projects,
(e) taking account of national and/or sectoral policies.
(48) Select baseline method …– that is deemed most appropriate,– that is consistent with guidance from Executive Board,– … and justify the choice.
![Page 32: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/32.jpg)
COP-7 on CDM baseline approaches
(48a) “existing actual or historical emissions” defines BAU as baseline scenario and a historic control group as monitoring concept(48b) “economically attractive course of action” and “taking into account barriers to investment” defines an economic baseline method, such as investment analysis (IRR, least cost etc.)(48c) “average emissions of similar activities, in previous 5 years, similar circumstance, top 20% performance” defines build margin as baseline scenario and a standard control group as monitoring concept
![Page 33: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/33.jpg)
What is the CDM crediting period?
Either:
(a) Either a maximum of ten years with no option of renewal.
Or:
(b) Three seven-year renewal periods (total of 21 years).
Condition for renewal:
Original project baseline is still valid or has been updated taking account of new data.
![Page 34: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/34.jpg)
COP-7 on Monitoring
The monitoring plan must provide for the collection of all data necessary for
(a) estimating or measuring project emissions
(b)determining the baseline of emissions
The monitoring plan must describe the formulae used to
(a) calculate and to estimate project emissions
(b)calculate and to project baseline emissions
![Page 35: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/35.jpg)
http://www.unfccc.org/cdm
The relevant COP7 texts and information on the sessions and decisions of the
CDM Executive Board are available at
![Page 36: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/36.jpg)
Annex II:
PCF approach towards projects at an advanced stage of preparation
![Page 37: Creating the Carbon Asset: PCF Approaches to Baselines and Additionality](https://reader036.fdocuments.in/reader036/viewer/2022062802/568144a0550346895db15f15/html5/thumbnails/37.jpg)
Criteria for project eligibility
A project will not be eligible for consideration for PCF
Financing unless the project sponsor is able to show that it has taken into account the opportunities presented by JI/CDM in the structuring of its financing and is aware of the requirements of these mechanisms including environmental additionality.
The project sponsor may demonstrate this by providing evidence of, among other things :
1. Contacts and substantive discussions with potential buyers of ERs prior to the conclusion of the financial package; OR
2. Exploration of the environment additionality of the project, e.g. by the initiation of a baseline assessment.