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Enhancing Attractiveness of Small-Scale CDM Projects in New Delhi - Insights and Recommendations

This presentation by Axel Michaelowa from the Hamburg Institute of International Economics explores the challenges and potential solutions for making small-scale CDM projects more appealing to investors. It analyzes the unattractiveness of these projects, focusing on high transaction costs, thresholds, and baselines. The discussion includes possible rule changes to lower costs and enhance project types. While current proposals alleviate some issues, significant barriers remain. Understanding these factors is crucial for optimizing small-scale initiatives aimed at reducing CO2 emissions.

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Enhancing Attractiveness of Small-Scale CDM Projects in New Delhi - Insights and Recommendations

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Presentation Transcript

  1. Side Event Small scale CDM projects New Delhi, Oct. 26, 2002 Options for making small scale CDM projects more attractive Axel Michaelowa Hamburg Institute of International Economics, Germany a-michaelowa@hwwa.de

  2. Structure of presentation • Why small scale projects are unattractive • Possible rules and their effects on transaction costs • thresholds • baselines • project cycle steps • What project types could be attractive? • Conclusions

  3. Why are small-scale projects not attractive? • CDM buyer‘s market: price 3-5$ / t CO2 • Transaction costs of full project cycleseveral hundred thousand $ • All projects reducing less than 20,000 t CO2 per year will not be attractive

  4. Thresholds for small-scale projects and transaction costs

  5. Thresholds • If a project has several components belonging to different categories each component will be treated as a single project • 15 GWh – average or peak savings? • 15 kt threshold can be interpreted creatively and lead to the acceptance of large-scale projects (see landfill gas example)

  6. Baseline options • Pre-defined parameters for project-specific baselines depending on project type • Proxies for project activity levelsthat influence baseline emissions • proof of existence • proof of functioning • Country-specific pre-defined baseline or benchmark • Global pre-defined benchmark for specific project types • Global pre-defined baseline for specific project types

  7. Additionality tests • No other project of the type exists in the host country • A specified number of pre-defined investment barriers exists • Project’s generation costs are higher than the generation costs of the country’s expansion plan in the case of grid-connected electricity generation projects

  8. Transaction costs on each step of the project cycle

  9. Options to reduce transaction costs

  10. Draft rules for small-scale projects • Bundling allowed, but only up to threshold • Same entity for validation and verification • Partial standardisation of baseline methodologies and barrier assessment • Exemption from leakage determination • Only influences limited share of transaction costs • Critical test comes when decisions on fees are made (5000 $ registration fee is still much too high) • The rules cannot decisively reduce the disadvan-tage of projects below 20,000 t CO2 annual reductions

  11. Conclusions • Small-scale projects have an inherent disadvantage due to high unitary transaction costs and will thus not be attractive to private investors • The suggested small-scale project rules alleviate, but do not solve the problem • Projects near the thresholds may have a chance, especially if rules are interpreted creatively • Subsidisation could make small-scale projects more attractive, but entails other problems.

  12. Thank you!Further information:www.hwwa.de/climate.htmor: climate@hwwa.de

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