Greenhouse Gas Emission Monitoring of Development Projects: Issues and Options

Meeting “EU Practioners Network”Paris4 March 2009

Presented by:Jochen HarnischCoordinator Climate Change Policy KfW Development Bank

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Disclaimer

This presentation reports on work in progress.

It represents the views of the author and not necessarily those of KFW.

It is intended to stimulate an expert discussion among the members of the EU Practitoners Network.

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Outline

1. GHG Footprint Project at KFW

2. Monitoring Emission Reductions from Energy Efficiency Credit Lines

3. Monitoring of Reduced Emissions from Forest Protection

4. Outlook

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Outline

1. GHG Footprint Project at KFW

2. Monitoring Emission Reductions from Energy Efficiency Credit Lines

3. Monitoring of Reduced Emissions from Forest Protection

4. Outlook

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From KFW Annual Report:Energy Portfolio – GHG Impacts in 2006

FC-Energy projects help to avoid 1.5 m tons of CO2 per year.

Our projects secure energy supply for more than 3.3 million people per year.

Sector Indicator Results

Access/ Heating directly suppliedgreenhouse gases avoided

825,000 people160,000 t CO2/ y

Generation Indirectly supplied greenhouse gases avoided

2,500,000 people1,240,000 t CO2/ y

Credit schemes greenhouse gases avoided 150,000 t CO2/ y

Transmission/ Distribution greenhouse gases avoided 30,000 t CO2/ y

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GHG Monitoring @ KfW:What do we want to achieve?

Be able to quantify impacts of our projects and programmes for funding ministries, their stakeholders and general public

Be able to prioritise and refine our project portfolio in respect to climate impacts

Get ready to fund projects and programmes under the new UNFCCC climate finance mechanisms

Apply consistent and internationally accepted, cost-effective monitoring approaches

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Design Options for the UN Climate Finance Architecture

National Budgets & International Sources of Finance

MFIs RFIs BFIs

Developing Countries: National Budgets, Programmes, Projects, Companies, Civil Society

Tru

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Imp

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Option 1: ConventionalMultilateral Funds

Option 2: Global Climate Bank

Option 3: ClimateFinance Clearing House

MDB

Miti-gation

Adap-tation

Technol.Transf.

MDB

Miti-gation

Adap-tation

Technol.Transf.

Global Climate Bank

(direct access)UNFCCCClearing

House

MFIs RFIs BFIs

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Greenhouse Gas Emissions Monitoring

Objectives: Have quantitative greenhouse gas emission monitoring

in place for internal and external evaluation Get ready for use of CDM as source of finance where

appropriate

Principles: Cost-effectiveness, accuracy, transparency Consistency (with IPCC/UNFCCC-Reporting, ISO

14064, GRI, WBCSD/WRI GHG Protocol) Make use of CDM methodologies where available and

approriate

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Relevant Project Types (I)

Type Priority Methodology

Power supply: Renewables projects +++ simple

Power supply: Renewables credit lines +++ moderate

Power supply: Power plant modernisation ++ moderate

Energy efficiency: CHP / district heat + moderate

Energy efficiency: Eletricity T&D ++ complex

Energy efficiency: Demand side projects +++ moderate

Energy efficiency: Demand side credit lines +++ complex

Miscellaneous transport projects + complex

Miscellaneous waste projects + complex

Miscellaneous green projects (e.g. REDD) ++ complex

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Relevant Project Types (II)

Type Approach

Power supply: Renewables projects Electricity grid factor

Power supply: Renewables credit lines Basic programme statistics and grid factor

Power supply: Power plant modernisation CDM baseline data

Energy efficiency: CHP / district heat Alternative heat generation

Energy efficiency: Eletricity T&D Loss reduction & grid factor

Energy efficiency: Demand side projects Energy audits

Energy efficiency: Demand side credit lines Basic programme statistics and typical sector data

Miscellaneous transport projects ???

Miscellaneous waste projects ??? LCA approaches

Miscellaneous green projects (e.g. REDD) GHG Protocol LULUCF

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Scope 1 to 3 under the GHG Protocol

Source: GHG Protocol Initiative, 2004

Level 1: Emission changes resulting inside of project boundary

Level 2: Emission changes resulting outside of project boundary

Level 3: Emission changes resulting from demonstration and multiplication

Different Levels of Project Impacts on Emissions

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Process Flow: GHG Monitoring

3. Define Monitoring Plan

2. Establish Baseline

4. Periodic Reporting

5. Periodic Verification

6. Final Evaluation

1. Define Project BoundariesPlanning

Execution

Evaluation

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Relevance of Monitoring Plan

Frequently relevant quantitative GHG monitoring issues are not defined until the project is started

A number of GHG monitoring issues can have costly or politically undesired consequences

Make all relevant GHG monitoring issues part of the a priori negotiated project package

Define & document relevant aspects of baseline and monitoring approach before project is started

Monitoring plan and its annexes provide the central depository for all information on baseline and monitoring

Drafted by consultant as part of feasibility study based on guidance , final agreement as part of project appraisal

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Outline of Template for Monitoring Plan

A. Short description of the measure

B. Basic data for reporting

C. Basic data for quality assurance

D. Estimated annual emission reduction

E. Basic data for baseline for decreases of level 1 emissions as well as levels 2 and 3 emissions, if necessary

F. Corrective measures

A. Short description of the measure

1. Description of the project borders

2. Which greenhouse gases are regarded for the project?

3. Description of the emission trend without the project

4. Start/start-up of the project activity

5. Duration of promotional phase of the project activity

6. Estimated physical life span of the activity

Elements of Template for Monitoring Plan (I)

B. Basic data for reporting

7. How often are the emissions to be determined or for the reduction relevant data within the project borders?

8. How is this determination to take place? Which data are to be raised in addition regularly?

9. By whom and when are these data collected?

10. By whom and when is the reduction computed and reported?

11. How, where, by whom and how long is the relevant data become archived?

12 Who bears the cost of the reporting?

Elements of Template for Monitoring Plan (II)

C. Basic data for quality assurance

13. Which measures were taken for quality assurance with the determination of the baseline?

14. Which measures are to be taken for quality assurance during the reporting?

D. Estimated annual emission reduction

15. Level 1: Change of emission within the project borders

16. Level 2: Relevant changes of emission outside of the project borders (only if relevant)

17. Level 3: Changes of emission by demonstration and multiplication (only if relevant)

Elements of Template for Monitoring Plan (III)

E. Basic data for baseline for emission reduction on level 1 as well as levels 2 and 3, if necessary

18. Short description of the baseline to the emission development level 1 emissions

19. Which emission factors were used for the baseline for level 1 emissions?

20. Which activity data were used for the baseline for level 1 emissions?

21. Which other assumptions were made for the deriving the baseline for level 1 emissions?

Elements of Template for Monitoring Plan (IV)

22.-29. Same for level 2 and 3 emissions, where relevant

F. Corrective measures

30. Under which specific circumstances would the base line for level 1 have to be if necessary corrected?

31. Under which specific circumstances would reported emission reductions for level 1 have to be if necessary corrected?

32. Who examines the necessity for corrective measures?

32. Who bears the costs of corrective measures?

Elements of Template for Monitoring Plan (V)

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GHG Monitoring Project: Next Steps

Definition of baseline and monitoring approaches for selected project types

Definition of template for monitoring plan Road testing of approaches and templates Integration of monitoring requirements into new

contracts with partners

Questions: When and how to determine level 2 and level 3

emissions and with which cut-off criterion? Agreing the monitoring plan during the project cycle

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Outline

1. GHG Footprint Project at KFW

2. Monitoring Emission Reductions from Energy Efficiency Credit Lines

3. Monitoring of Reduced Emissions from Forest Protection

4. Outlook

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KFW

Intermediary Bank

SME 1 SME 2 SME 3

Auditor

Consultant

Investment 1 Investment 2 Investment 3

Reduction 1 Reduction 2 Reduction 3

Energy Efficiciency and Renewables Loans

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Energy Efficiency Credit Lines: Towards Standard Approaches (I)

Small scale industrial energy efficiency projects (typical approach): Typical criterion for industrial energy efficiency projects:

- 20 % reduction of product specific energy consumption- Project boundaries for small loans flexible

Consultant to establish baseline and to demonstrate compliance with 20% criterion of given measure ex-ante

Consultant checks ex-post execution of planned investment

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Energy Efficiency Credit Lines: Towards Standard Approaches (II)

Larger scale industrial energy efficiency projects (typical approach): Typical criterion for industrial energy efficiency projects:

- 20 % reduction of product specific energy consumption- Project boundaries is production line / site

Consultant to establish baseline and to demonstrate compliance with 20% criterion

Consultant checks ex-post execution of planned investment and change of energy consumption

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Energy Efficiency Credit Lines: Towards Standard Approaches (III)

Building energy efficiency (typical approach): Typical criterion for building energy efficiency projects:

- 30 % reduction of energy consumption per unit heated space- Project boundary: typically a larger apartment or office building or group

thereof Consultant to establish baseline based on building typology and established

reduction effect of pre-defined packages of measures Consultant checks ex-post execution of planned investments

KFW

Intermediary Bank

SME 1 SME 2 SME 3

Auditor

Consultant

Investment 1 Investment 2 Investment 3

Reduction 1 Reduction 2 Reduction 3

Monitoring of investments or of reductions?

What costs are acceptable?

Who bears monitoring

costs? Third Party Verification?

Use of spot-checks or macro-

indicators?

Who reports?

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Next Steps

Agreement on mandatory and optional elements of monitoring approaches

Determination of maximum threshold for monitoring costs (e.g. 10% of anticipated energy savings or 1 % of total investment…?)

Definition and development of standard TOR for project consultants

Integration of quantitative GHG aspects into project evaluation procedures

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Outline

1. GHG Footprint Project at KFW

2. Monitoring Emission Reductions from Energy Efficiency Credit Lines

3. Monitoring of Reduced Emissions from Forest Protection

4. Outlook

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Monitoring the Greenhouse Gas Emissions from Land Use Changes

?

Source: Houghton, 1999

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Monitoring GHG Emission Savings From Avoided Land Use Changes

Example: Since 1995, KFW has helped to protect 20 million hectars of tropical forest in Brazil with roughly 2 billion tonnes of carbons bound in the vegetation alone.

xAdditional effect of protection? Potential follow-up land use? When to report? What to report if protection fails?

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Issues in Relation to Reduced Emissions From Deforestation (RED)

C- stock monitoring and accounting needed for inclusion of forest protection into carbon markets

Consistency with other reduction projects Taking into account carbon in plants and soils Proper characterisation of status quo in relation to

potential vegetation Estimation of carbon content of alternative land uses Discounting of savings and emissions Combination of in-situ inventories and remote sensing

monitoring approaches Frequency and costs of monitoring efforts

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Case Study Brazil: Carbon Stock in Natural Vegetation

Souce: PIK, 2009

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Natural Fraction of Vegetation

Source: PIK, 2009

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Elements of a Pragmatic Approach(for discussion)

Obtain estimate for carbon stock (plants and soil) for existing vegetation, taking into account potential vegetation and real situation

Compare estimate of status quo with estimate with most likely status without protection

Report saving as a fraction of difference between status quo and most likely alternative e.g. 1/100 ?

If land-use change occurs, distribute over period of time e.g. 10 years to avoid extreme fluctuations?

How to link to IPCC LULUCF Good Practice Guidance and 2006 IPCC Guidelines?

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Outline

1. GHG Footprint Project at KFW

2. Monitoring Emission Reductions from Energy Efficiency Credit Lines

3. Monitoring of Reduced Emissions from Forest Protection

4. Outlook

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KFW GHG Monitoring Outlook 2009

Integration of carbon footprint approaches into „Climate Check“ mainstreaming initiative of German ministry of development

Management approval for full-scale application of carbon footprint methodology

Internal agreement:- standard approaches on project boundaries- acceptable baseline and monitoring methodologies- sources of standard emission factors- responsibilities - acceptable cost thresholds - cost-sharing provisions- contents and formats of monitoring plans and reports- standards provisions for TORs and consultant agreements

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Outlook: Questions for Discussion

Where do our approaches agree? Where and why do we fundamentally diverge? What are others planning, declaring & practically doing? Which existing procedures, documents and tools could

be shared? Where can we share the development of procedures,

documents and tools?

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Thank you!

Further information:

KfW Development Bank

Dr. Jochen Harnisch

Coordinator Climate Change Policy

Palmengartenstr. 5-9

60325 Frankfurt

Germany

Phone: +49 69 7431-9695

E-Mail: jochen.harnisch@kfw.de