Programme of Activities: Challenges and Opportunities

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Programme of Activities: Challenges and Opportunities. IV Seminario Internacional: Mercado del Carbono Presented by Alberto Carrillo Pineda South Pole Carbon Asset Management Ltd. Lima, Perú, October 22 nd , 2009. Introduction. - PowerPoint PPT Presentation

Transcript of Programme of Activities: Challenges and Opportunities

  • Lima, Per, October 22nd, 2009Programme of Activities: Challenges and OpportunitiesIV Seminario Internacional: Mercado del Carbono

    Presented by Alberto Carrillo PinedaSouth Pole Carbon Asset Management Ltd.

  • IntroductionThe programmatic approach under the CDM has been received with great optimism among stakeholders in the carbon market for a number of reasons:Potential to increase the contribution of the CDM to the global mitigation effortsPossibility of achieving economies of scalePotential to capitalise policy instruments and programmes aimed at reducing emissionsPotential to reach a number of actors that otherwise would have very limited access to the carbon market (e.g. households, small industry, etc.).Potential to increase the number of projects in regions and countries underrepresented in the carbon market (e.g. Africa)

  • However...The programmatic CDM has taken too long to take off and realise its large potential...

    Since EB 32CDMPoA# of projects that started validation342514# of projects that requested registration7841# of projects that got registered5301

    EB 47 - Modification of procedures and guidelines for the registration of PoAs

    EB 32 - Fist adoption of procedures and guidelines for the registration of PoAs

    200720082009JunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSepOctNovDecJanFebMarAprMayJunJulAugSep

  • AbstractAim of this presentation

    Drawing from the market experience accumulated by South Pole and other market participants, introduce the audience to the main administrative, financial and operative challenges to be potentially faced when implementing Programmes of Activities (PoAs) under the Clean Development Mechanism (CDM)To discuss what has been done and what needs to be done in order to overcome such challenges

  • ContentChallenges inherent to the nature of a Programme of ActivitiesRegulatory and operative challengesEconomic and commercial challengesConclusions

  • ContentChallenges inherent to the nature of a Programme of ActivitiesRegulatory and operative challengesEconomic and commercial challengesConclusions

  • Challenges inherent to the nature of PoAs

  • Challenges inherent to the nature of PoAsLogistics of implementationDocumentationCentralised data storageAccess to user information (e.g. For monitoring)Sampling / MonitoringUsage / adoption patternsGuidelines on sampling not yet available. Will have to be followed during verification once they have been issued by EBRemote sensingMaintenance / Follow up / ReplacementIntensive field workDisposal?Ownership of carbon credits

  • Capacity building / educationIncentive schemeFree supplyDiscountGrantSubsidized loanMid and long-term managementEffectiveness off programmes in the long term is still uncertainSelection of appropiate coordinating entities

    Challenges inherent to the nature of PoAs (cont.)

  • Challenges inherent to the nature of PoAs (cont.)OEMDevelopment bankRetailerPower UtilityEnergy saving agencyHouseholdDestruction facilityFreight companyCarbon developerDevelops and purchase CERsCoordinating entity$CERs$Provides subsidized loanPays back through power bill$Commercialisation of fridgeCommercialisation of fridgesDelivery of new fridge and collection of old fridgeDestruction of old fridge

  • ContentChallenges inherent to the nature of a Programme of ActivitiesRegulatory and operative challengesEconomic and commercial challengesConclusions

  • Regulatory and operative challengesThe main regulatory and operative challenges faced by PoAs can be summarised as follows:

    DOE liability for erroneous inclusion of CPAsProgrammes with multiple methodologiesRevision of methodologiesCPA start date

  • The main regulatory and operative challenges faced by PoAs can be summarised as follows:

    DOE liability for erroneous inclusion of CPAsProgrammes with multiple methodologiesRevision of methodologiesCPA start date

    Regulatory and operative challenges

  • Regulatory and operative challengesDOE liability for erroneous inclusion of CPAsProjectIdeaNotePoA DD&CPA DD Host CountryApproval Validation Registration InclusionoffurtherCPAsMonitoringandVerification= services provided by South Polecan be done by any DOENeeds to be done by a DOE which hasnt performed PoA validation or inclusion of any CPA

  • Regulatory and operative challengesDOE liability for erroneous inclusion of CPAsProjectIdeaNotePoA DD&CPA DD Host CountryApproval Validation Registration InclusionoffurtherCPAsMonitoringandVerification= services provided by South Polecan be done by any DOENeeds to be done by a DOE which hasnt performed PoA validation or inclusion of any CPADOE performing inclusion of any CPA is liable for erroneous inclusion for 1 year after inclusion of the CPA and for 6 months after each PoA verification

  • Regulatory and operative challengesDOE liability for erroneous inclusion of CPAs

    Traditional CDMProgrammatic CDMDOE is liable forSignificant deficiencies limited to issues of fraud, malfeasance or incompetence Any error that disqualifies a CPA from inclusion in a PoADOE is liable for15 days after the date of receipt of the request for issuance,1 y after inclusion and 6 months after issuance (i.e. all the crediting period) PenaltyDOE has to pay the amount of CERs estimated to have been issued in excessDOE has to pay the total amount of CERs generated by the CPA

  • Regulatory and operative challengesDOE liability for erroneous inclusion of CPAsProjectIdeaNotePoA DD&CPA DD Host CountryApproval Validation Registration InclusionoffurtherCPAsMonitoringandVerification= services provided by South PoleSeveral DOEs are including CPAs only if they performed validation.

    Inclusion is almost as detailed as traditional validation and hence no real economies of scale are happening.

  • The main regulatory and operative challenges faced by PoAs can be summarised as follows:

    DOE liability for erroneous inclusion of CPAsProgrammes with multiple methodologiesRevision of methodologiesCPA start date

    Regulatory and operative challenges

  • Regulatory and operative challengesProjectIdeaNotePoA DD&CPA DD Host CountryApproval Validation= services provided by South PoleOnly at validation stage are project owners allowed to request for approval of multiple methodologiesRisk of no approval cannot be minimised. In case the request is not approved by the EB, the project developer would have lost the money invested in taking the project up to validationApproval may take more than a couple of monthsRequest of approval can only be done by DOEsRequesting approval of multiple methodologies implies an additional external feeThe combination of methodologies has to be used for each and every CPA!!!Not practicale.g. Programm of biodigestors with and without energy use. Each component needs a different meth combination Request for approval of the application of multiplemethodologies to EB

  • The main regulatory and operative challenges faced by PoAs can be summarised as follows:

    DOE liability for erroneous inclusion of CPAsProgrammes with multiple methodologiesRevision of methodologiesCPA start date

    Regulatory and operative challenges

  • Regulatory and operative challengesIf a methodology, subsequent to being placed on hold or withdrawn, is revised or replaced by inclusion in a consolidated methodology, the PoA shall be revised accordingly. The changes shall be subsequently documented in a new version of PoA (e.g Version 1.1), validated by a DOE and approved by the Board.

    It is highly probable that in 28 years, a small-scale methodology will undergo at least one revisionHence, the project developer will have to incur more than once in validation / revalidation fees for the PoAMost widely used SSC-MethsAMS.I.DVersion 14AMS.I.CVersion 15AMS.III.DVersion 15

  • The main regulatory and operative challenges faced by PoAs can be summarised as follows:

    DOE liability for erroneous inclusion of CPAsProgrammes with multiple methodologiesRevision of methodologiesCPA start date

    Regulatory and operative challenges

  • Regulatory and operative challengesCPA start dateTime gap between CPA start date and PoA registration can be considerable. Potential loss of significant carbon income for 1st CPA may discourage project owners to be the 1st CPAGiven that CPAs cannot start before beginning of validation (e.g. once CPA-DD has been made) encourages work on projects in very early stages increasing the risk of working on projects that dont happen in the end

    ProjectIdeaNotePoA DD&CPA DD Host CountryApproval Validation Registration InclusionoffurtherCPAsMonitoringandVerification= services provided by South PoleEarliest start date of any CPAEarliest beginning of crediting period for any CPA

  • ContentChallenges inherent to the nature of a Programme of ActivitiesRegulatory and operative challengesEconomic and commercial challengesConclusions

  • Economic and commercial challengesSome of the most relevant economic and commercial challenges that PoAs face today are:

    Lack of experience in the marketUpfront costs associated with the development of a PoACoordinating entity selection and taxation issues

  • Economic and commercial challengesSome of the most relevant economic and commercial challenges that PoAs face today are:

    Lack of experience in the marketUpfront costs associated with the development of a PoACoordinating entity selection and taxation issues

  • Economic and commercial challengesLack of experience in the market

    Lack of experience among DNAs, DOEs, CDM developers and the EB, which makes it impossible to predict the time it will take to register a PoAOnly one programme registered so farNo availability of stories of success in the long termLimited availability to experienced DOEsOnly one DOE has completed validation of a PoAIn our experience, of 23 DOEs approached for quotation of validation services for a PoAOnly 6 DOEs showed interest/capacity to undertake this projectOnly 3 DOEs presented an offerOnly 2 offers were serious enough (e.g. in terms of completeness, detailed proposal of services, etc.)

  • Economic and commercial challengesSome of the most relevant economic and commercial challenges that PoAs face today are:

    Lack of experience in the marketUpfront costs associated with the development of a PoACoordinating entity selection and taxation issues

  • Economic and commercial challengesUpfront costs associated with the development of a PoAAs previously discussed, the potential for economies of scale hasnt been fully realised due toHigh validation fees from DOEs due to high-perceived risks and regulatory uncertainties (e.g. Liability for erroneous inclusion of CPAs)Lack of experience in the marketSo far no single project developer has submitted more than one CPA-DD for a PoAThere is a high risk associated with not being able to include enough CPAs into a PoA or not being to reach a volume that is high enough to reach breakeven point or expected IRRThere are not many international funds for financing of PoAs

  • Economic and commercial challengesUpfront costs associated with the development of a PoA* SNV, 2009** KfW, 2009

    Traditional CDM(000 EUR)*PoA(000 EUR)**PIN3 - 108 - 15PDD / CPA-DD / PoA-DD10 3050 150Validation7 2750AdministrationN/A100Monitoring3 630 100Verification10 - 1710 - 30

  • Economic and commercial challengesCritical size needed for different type of programmes ** KfW, 2009

    Project TypeSize needed for breakevenSize needed for IRR of 15%Distribution of CFL105,000 830,000 CFLs139,000Cooking Stoves13,500 145,000 Stoves13,900 180,000 StovesHousehold biodigesters1,100 8,000 Biodigesters1,300 21,000 Biodigesters

  • Economic and commercial challengesSome of the most relevant economic and commercial challenges that PoAs face today are:

    Lack of experience in the marketUpfront costs associated with the development of a PoACoordinating entity selection and taxation issues

  • Economic and commercial challengesCoordinating entity selection and taxation issues

    Tax treatment and other liabilities for PoAs are unclear and may vary from country to country. Unclear if and which host countries will issue LoAs and which restrictions will be imposed on the Coordinating EntityUnclear how international PoAs will be approved by host countriesbe approved by the EB (what happens if the EB rejects the PoA for one country? Will the whole process start again?)

  • ContentChallenges inherent to the nature of a Programme of ActivitiesRegulatory and operative challengesEconomic and commercial challengesConclusions

  • ConclusionsProgrammatic CDM is promising but still many hurdles need to be removed if PoAs are to play a significant role in the global mitigation effortsOur current learning curve is in very early stages. More changes are expected to come based on on-going learningCosts are expected to go down as project developers and DOEs develop a better understanding on the risks involved in developing a PoAMore funding mechanisms are needed particularly for programms which are not viable on a pure commercial schemes

  • Thank you for your attentionSouth Pole Carbon Asset Management Ltd.

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