Introduction to the CDM, Port Louis, March 28th 2008 - Rober

8/13/2019 Introduction to the CDM, Port Louis, March 28th 2008 - Rober

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The CDM:Setting the Scene

Robert Kelly

Regional Coord inator, CDM Capacity Developm ent,

Southern & Eastern Africa

robert.kel [email protected]

March 28th, 2008


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1

Agenda

The CDMwhat & how?

Types of CDM projects

The CDM project cycle

Energy efficiency in the CDM


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3

The role of the Clean Development Mechanism (CDM)

Developedcountries can

reduce emissionsanywhere in the

world

They can countthese reductions

towards their owntargets

CDM allows

developed countries

to generate carboncredits (Certified

Emission

Reductions, CERs)

in developing

countries

Advantages for developed

countries:

relatively low-cost &

politically acceptable

Advantages for developing

countries:

inward investment,

environmental & technologybenefits


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How a CDM project generates carbon credits

Greenhousegasemissions

Historical Trend

Project start

Carbon credits (CERs)represent the difference

between the baseline andactual emissions

Time


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Kyoto gases that can earn credits

There are over 30 atmospheric greenhouse gasesBut only 6attract carbon credits:

Carbon dioxide (CO2)

Methane (CH4)

Nitrous oxide (N2O)

Relevant to bio-

carbon & industrialprojects

Relevant toindustrial projects

Perfluorocarbons (CxFx)

Hydrofluorocarbons (HFCs)

Sulphur hexaflouride (SF6)


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Each of these gases has a different warming potential

Each of these gases has a different radiative forcingcapability and a different atmospheric residence time

Need for a common currency, so that all carbon credits are

denominated in the same way

Solution: develop a relative scale, using CO2as a reference gas


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Global warming potential

Greenhouse Gas(GHG)

Global WarmingPotential (GWP)

Carbon dioxide 1

Methane 21

Nitrous oxide 310

Perfluorocarbons 6,5009,200

Hydrofluorocarbons 14011,700

Sulphur hexafluoride 23,900

Relative scaleeverything ismeasured relative to CO2

e.g. methane is 21 times morepotent as a greenhouse gas

than CO2

e.g. sulphur hexafluoride is

24,000 more potent!


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Global warming potential

Greenhouse Gas(GHG)

Global WarmingPotential (GWP)

Carbon dioxide 1

Methane 21

Nitrous oxide 310

Perfluorocarbons 6,5009,200

Hydrofluorocarbons 14011,700

Sulphur hexafluoride 23,900

Carbon credits are alwaysexpressed in terms of carbon

dioxide equivalence (CO2e)

e.g. 1 tonne of CO2= 1 tCO2e(= 1 carbon credit = 1 CER)

e.g. 2 tonnes of CH4= 42 tCO2e(= 42 carbon credits = 42 CERs)

e.g. 2 tonnes of SF6= 47,800 tCO2e(= 47,800 carbon credits

= 47.8 kCERs)


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Additionality

It is essential that the project achieve environmentaladditionalityotherwise, it will not generate any carbon

credits!

However, the project developer must also usuallydemonstrate that, without carbon revenues, the project

would not be viable and/or commercially attractivethisis known as financial additionality

Environmental additionalitythe project produces fewergreenhouse gas emissions than the baseline scenario


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Additionalitybenchmark analysis

Project withoutcarbon revenueis profitable

but not

sufficientlyprofitable

compared withalternatives

Project withoutcarbon element

Project withcarbon element

Carbon revenuemakes the

projectattractive

relative toinvestmentalternatives

Investmentthreshold

Revenue/NPV/

IRR

Choose an appropriate financial indicator and compare it with a relevantbenchmark value: e.g. required return on capital or internal company

benchmark


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Some examples of additionality

Capturing methane from an urban landfill and flaring it Carbon credits represent the only source of income

for undertaking this activity

Capturing methane from an urban landfill and utilising it to

generate electricity

Project developer would have to demonstrate thatthe electricity revenue alone would not make thisproject attractive

Building a large hydro project for the grid in Ethiopia

Questionable additionality: there is already plenty ofhydro activity in Ethiopia

?


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Crediting period

CDM mitigation projects

Project developers have two crediting period options:

A maximum of 7 years, which can be renewed up to 2 times(i.e. a potential total crediting period of 21 years)

A maximum of 10 years, with no option for renewal

CDM sequestration projects (forestry)

Project developers have two crediting period options:

A maximum of 20 years, which can be renewed up to 2 times(i.e. a potential total crediting period of 60 years)

A maximum of 30 years, with no option for renewal


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Crediting period


Emissions under the project scenario

Starting date ofthe crediting

period10 years No renewal

A maximum of 10

years with nooption of renewal


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Why not maximise the crediting period?


Emissions under thebaseline scenario

Emissions under theproject scenario

7 years

The baseline

scenario maybecome lessfavourable

Baseline must

be reassessedby DOE at each

renewal


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Why not maximise the crediting period?


Emissions under thebaseline scenario

Emissions under theproject scenario

7 years 7 years 7 years

Baseline must

be reassessedby DOE at each

renewal

The baseline

scenario maybecome lessfavourable


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Programmatic CDM offers new opportunities

Installation / unit size

Numberofinstallations

/units

Regular CDM

Single site, stand-aloneprojects

Carbon upgrades

Bundled CDM

Bundling severalprojects under a singlePDD

All projects must be

identified ex ante, andmust start at the sametime

Programmatic CDM

Addresses the long tailof small units

Permits sector-widetransition to low-carboneconomy

Particular relevance toAfrica

Size-Distribution of Potential CDM Project Sites

smalllarge medium


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Agenda

The CDMwhat & how?





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In 3 years, the CDM has sparked a $5 billion/year market

Number of Projects in the CDM Pipeline,January 2005February 2008

Compound MonthlyGrowth Rate = 13%

Approximately 3 billionCERs by 2012

67 83 118171 275

440554

647749

883

1,1411,311

1,495

1,759 1,885

2,285

2,593

2,8383,035

Jan05

Mar05

May05

Jul05

Sep05

Nov05

Jan06

Mar06

May06

Jul06

Sep06

Nov06

Jan07

Mar07

May07

July07

Sep07

Nov07

Jan08


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CDM project

Avoiding newemissions

Reduce emissionfactor

Reduceenergy

consumption

Land-usemitigation

Reduce energylosses duringtransmission/distribution

End-of-pipe

Destruction Storage

Gasrecovery

&utilization

Emission reductionAtmospheric

removal

Bio-sequestration:

Afforestation /Reforestation

Mangrove / wetland

Animal wastemanagementHuman sewageUrban landfillHFCdecomposition

Agriculturalpractices(e.g. reducedfertilizer use;zero tillage)

Renewableenergy

Fuel Substitution

Wasteheat/gas

utilisation

Fuelswitch


Energyefficiency atgeneration

GHG efficiency atproduction

EnergyefficiencymeasuresCookstovesCFLs


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Avoiding newemissions


Reduceenergy

consumption

Land-usemitigation

Reduce energylosses duringtransmission/distribution

End-of-pipe

Destruction Storage

Gasrecovery

&utilization

Renewableenergy

Fuel Substitution

Wasteheat/gas

utilisation

Fuelswitch


Energyefficiency atgeneration

GHG efficiency atproduction

Renewable

biomass Wind power Hydro Solar Geothermal

Bio-fuel

substitution(e.g.ethanol,bio-diesel)

Cement

manufacture Brick-

makers Bakeries Sawmills


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Agenda

The CDMwhat & how?





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6 to 12 months 1.5 months Crediting period of the project

Project

Develope

r

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN

CDM projectdevelopment

/ PDD

Host countryapproval

Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Develope

r

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Develope

r

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Developer

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Developer

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Developer

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Developer

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Project

Developer

DNA

DOE

CDM

Executive

Board

Projectfeasibility

assessment/ PIN


/ PDD


Projectvalidation

Projectregistration

CERissuance

Projectverification



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Costs of a typical CDM project

Assumes a 10-yearproject.

Recurrent costsdiscounted at 3%

annual rate to expressin present-value

terms.

Registration costs,Administration Fee

and Adaptation FundLevy not included.

Indicative CDM Cost ProfileFor A Typical CDM Project

13,000

38,000

16,500

10,000

34,000

53,000

PDD

Validation

InitialMonitoring

OngoingVerification

ByDOE

Ongoing

AnnualMonitoring

Pre-RegistrationCDM Costs

Post-RegistrationCDM Costs

US$

51,000

67,500

77,500

111,500

164,500

PIN


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Agenda

The CDMwhat & how?





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The CDM project pipeline

Hydro26%

Biomass energy

16%

Wind12%

Energy efficiency(own generation)

9%

Landfill gas, 8%

Biogas, 7%

Agriculture, 6%

Energy efficiency(industry), 4%

Fossil fuel switch3%

N2O2%

Other

7%


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Energy efficiency (households)

Only 9 household energy efficiency projects havebeen registered. The atomised nature of thesesectors has tended to act as a barrier to projectdevelopment. This should be less of an obstaclewith programmatic CDM

e.g. compact fluorescent lightbulbs, cookstove roll-outs

Energy efficiency (service sector)

12 CDM projects

Primarily demand-side measures, including in hotels


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Energy efficiency (supply)

31 projects

Conversion of thermal power stations from open

cycle to combined cycle, thermal efficiencyimprovements


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CER volumes from energy efficiency projects

970,000

520,000

318,000

206,000170,000

83,000 79,000 74,000 54,000 26,000 18,000

4.5m

Average Annual CER Production by CDM Project-Type


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Carbon revenues also vary on a project-by-project basis

379

928

543

234

1,228

0

661

330762

1,711

4,128

7,934

3,039

1,101

1,179

0 91

1,811

13

827

0

Standard deviation(kCERs by 2012) Markers

indicatemaximum,mean andminimumproject

size withineach

technology


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End

Robert KellyRegional Coord inator, CDM Capacity Developm ent,

Southern & Eastern Africa

robert.kel [email protected]

Introduction to the CDM, Port Louis, March 28th 2008 - Rober

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