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Introduction to CDM and project development

Introduction to CDM and project development. Dr. B.M.S. Batagoda Presented at the workshop organized by the Ministry of Environment and Natural resources and the World Bank on 16 th February 2007 in Colombo, Sri Lanka. Climate Change.

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Introduction to CDM and project development

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  1. Introduction to CDM and project development Dr. B.M.S. Batagoda Presented at the workshop organized by the Ministry of Environment and Natural resources and the World Bank on 16th February 2007 in Colombo, Sri Lanka

  2. Climate Change • CO2 concentration of the atmosphere in the year 1750 was 280 ppm and at present 360 ppm • By year 2100, projected CO2 concentration is about 540 to 970 ppm • Global average temperature is projected to increase by 1.4 to 5.80 C over the period 1990 to 2100 • Fossil fuel burning will be the dominant influence on the atmospheric concentration of CO2 • Source: IPCC

  3. What is global warming ? The effect of heat trapping due to the increasing presence of green house gases (i.e. Carbon dioxide, methane, nitrous oxides, chlorofluorocarbons, hydro-chlorofluorocarbons) in the earth atmosphere is known as greenhouse effect or global warming

  4. . . .

  5. Per capita emissions in South Asian countries in comparison to USA

  6. UN Climate Change Convention adopted at Rio Summit,1992 Objectives of the UNFCCC • Stabilize the atmospheric greenhouse gases at a level that would prevent dangerous anthropogenic interference with the climatic system. • Sri Lanka became a member in 1994. • Ratified 186 countries.

  7. Kyoto Protocol Major objective “Industrialized countries should reduce their combined GHG emission by at least 5% compared to their emission levels in 1990 , during the period 2008-2012”.

  8. Kyoto targets • Target is to reduce CO2 by 5%from the 1990 level Country Target USA 7% EU countries 8% Japan 6% Croatia 5% Russia 0%

  9. Clean Development Mechanism Implementing projects in developing countries, that reduce emissions of GHG or absorb GHG from the atmosphere and sell the amount avoided or absorbed to developed countries

  10. Potential sectors Two types of projects: Emission avoidance projects GHG Removal or sink projects Sectors • Energy • Industrial • Agriculture • Waste sector • Forestry

  11. Example - Power sector CDM project - Coal power plant generate 1140 g CO2/kWh - Natural Gas Plant generates 360 g CO2 /KWh • Difference is 780 g if power generated using Natural Gas instead of Coal • This 780 g can be sold as CDM credits

  12. Transport sector CDM project - Diesel Vehicle emits 3.14 kg CO2/kg Fuel • NG Vehicle emit 2.75 kgCO2/kg Fuel • Difference is 0.39 kgCO2/kg Fuel • This 0.39 kgCO2 can be sold as CDM

  13. Landfill gas recovery CDM project Baseline emissions = 1 tCH4 /year (without CDM) = 1 x 21(GWP) tCO2/ year = 21 tCO2/ year Project scenario = 1 tCH4 – After flared 2.75 CO2 (with CDM) = 2.75 tCO2 /year

  14. Example for forest CDM project • Agro-forestry sequester 2-5 t C ha-1 yr-1 • Restoration of degraded forest sequester 0.25 – 0.9 2-5 t C ha-1 yr-1 • Industrial plantation take up 12 – 15 2-5 t C ha-1 yr-1

  15. International Market

  16. Annual Volumes (tCO2) of Project-Based Emission Reductions Traded (Up to 2012 vintages)

  17. Sri Lanka Market

  18. Current CDM Buyers • Bio-carbon Fund –World bank $100 m • European Bank for Reconstruction and Development $ 100 m • Denmark JI/CDM Fund E 100 M • Development Bank of Japan $ 100 m • Japan Bank for International Corporation $ 100 m

  19. Current CDM Buyers World Bank- Prototype Carbon Fund $180M Dutch – ERUPT/CERUPT $250M The Netherlands – Carbon development Fund E 140 m Andean Development Bank E 40 m Community Development Carbon Fund – World Ban $100 m Deutsche Bank

  20. Lead time • The lead time for new CDM projects is four to five years • The ability to shorten project lead times appears to be very limited • Project developers have an economic incentive to get their project into operation as quickly as possible.

  21. Economic viability To be economically viable a CDM project should reduce emissions by at least 100 000 tC02e per year (IETA/World Bank 2005) The average size of existing and identified projects is over 150000 tCOze per year

  22. CER demand • Foreign direct investment (FDI) in developing countries averaged $140 billion per year during 1997-2002 and often varied by more than $10 billion from one year to the next. • The annual demand for CERs during 2008-2012 is estimated to be 250 MtC02e (range 50 to 500 MtC02e) and a market price for Kyoto units of about $11.40/tCOze in 2010 (range $1.00 to $33.00/tCOze). • Due to five year lead time the CDM would be limited to existing project ideas, which would yield an annual supply of 50 to 90 MtC02e. • A significant acceleration in the flow of new projects in 2008 could strain the capacity of the designated operational entities and the Executive Board.

  23. CDM transaction cost estimates

  24. CDM transaction cost • Fichtner, et al. (2003) - Transaction costs range from $0.05 to $26.11 tC02e and represent from 6% to 53% of the total project cost • to be viable as CDM projects were energy efficiency projects with total reductions greater than 20 000 tC02e per year and renewable energy projects with total reductions over 50 000 tC02e per year • Michaelowa, et al. (2003) estimate the minimum fixed costs for a CDM project at €150 000.

  25. Transaction cost • The Prototype Carbon Fund estimates the transaction costs at approximately $250 000. • Shell believes transaction costs should not exceed 25% of the price • Fichtner, et al. finds that transaction costs represent 13% of the total cost for energy efficiency projects and 20% for renewable energy projects • Michaelowa, et al. finds that transaction costs average 20.5% for energy efficiency projects and 14.4% for renewable projects with some decline over time

  26. Transaction cost –small project • De Gouvello and Coto (2003) estimates small-scale projects the transaction costs to between $8 000 and $80 000 • The PCF estimates the transaction costs for small-scale projects at $105000, a reduction from $250 000 for regular CDM projects

  27. An Applicant Entity Project Participants Design Accreditation /designation EB& COP/MOP Validation/registration Design Operational Entity (DOE) DOE Monitoring Executive Board of the CDM (EB) Designated National Authority for the CDM Verification/certification Project Participants Issuance DOE EB Certified Emission Reductions Figure 2 - CDM Project Activity Cycle

  28. CDM project development process • Project developer identifies a potential CDM project: • Identify project sector (e.g. grid-connected renewables, energy efficiency etc) • Decide whether small-scale CDM • Inform DNA of the host country (e.g. using PIN) • Prepare a Project Design Document (PDD) • Select baseline methodology (new or approved) • Select/designed monitoring plan • Decide project crediting period (10 or 3 *7) • Collect data from relevant national authorities • Calculate emission reductions and expected CERs • EIA for the project • Validate • Register • Verify CERs

  29. Key participants of a CDM Project Process • CDM project investor/Developer • Designated National Authority (DNA) • Designated Operational Entity (DOE) • CDM Executive Board (EB) • Conference of parties (COP) • Meeting of Parties (MOP)39

  30. CDM investor • Prepare Project Designed Document • Propose baseline methodology • Ensure additionality criteria • Calculate expected GHG reductions and CERs • Obtain all permits and approval from DNA • Secure financing

  31. Designated National Authority • A country level focal point for CDM, based in Ministry of Environment etc. • Issue the letter of approval confirming CDM projects contributes to sustainable development in the host country • Link between international CDM investors and potential projects in the country • May involve in marketing of CDM project pipeline • Establish national CDM regulations, strategy, and criteria for sustainability and approval • Monitor CDM sector in the country

  32. Designated Operational Entity (DOE) • Independent third party assigned by EB. Project developers choose the DOE they wish to deal with. • Responsibilities: • Validate proposed CDM project • Verify and certify GHG reductions from CDM projects • Maintain publicly available list of all approved and on-going CDM projects and amount of CERs approved for each project • Post the PDD for 30 days for comments before final approval

  33. CDM Executive Board (EB) • Ten members (fixed) and ten alternating all with specialized technical expertise • Key responsibilities: • Review & approve new methodologies related to baseline and monitoring plan. • Provision of simplified procedures for small scale CDM • Acceditation of Designated Operational Entities (DOEs) • Develop and maintain a CDM project registry • Establish panels (Acceditation panel and methodologies panel) • Issue CERs

  34. PDD contents • General description of the project activity • Baseline methodology • Duration of the project activity • Monitoring methodology and plan • Calculation of GHG emission by sources • Environmental impacts • Stakeholder comments Annex 1. Contact information on project participants Annex 2. Information regarding public funding Annex 3. New baseline methodology Annex 4. New monitoring methodology Annex 5. Table of baseline data Note 1. Small scale CDM requires only annex 1 & 2 Note 2. Annex 3 & 4 will be required for new methodologies

  35. A. General Description of Project Activity A.1. Title of the project activity A.2. Description of the project activity Purpose of the project A.3. Project participants A.4. Technical description of the project A.4.1 Location of the project activity A.4.1.1. Host country party(ies) A.4.1.2. Region/state/province etc. A.4.1.3. City/Town/community etc. A.4.1.4. Detail of the physical location A.4.2. Category of project UNFCCC CDM project categories

  36. A. General Description of Project Activity A.4.3. Technology to be employed by the project A.4.4. Brief explanation on how anthropogenic GHG emissions by source to be reduced by the proposed CDM project. A.4.5. Public funding of the project activity A.4.6. Problems and barriers being addressed by the project

  37. B. Baseline methodology B.1. Title and reference of the methodology applied to the project Give reference to approved methodology or fill annex 3 for new methodologies. Baseline data to be prepared in table in annex 5. B.2. Justification of the choice of the methodology B.3. Description of how the methodology is applied in the context of the project B.4. Description of how the anthropogenic emissions of GHG by sources are reduced below baseline - Why this project is additional and therefore not the baseline scenario B.5. Description of how the definition of the project boundary related to the baseline methodology is applied to the project B.6. Details of baseline development B.6.1. Date of completing the final draft of this baseline section (DD/MM/YYYY) B.6.2. Name of person/entity determining the baseline

  38. C. Duration of the Project/ Crediting period C.1. Duration of the project activity C.1.1. Starting date of the project activity C.1.2. Expected operational lifetime of the project C.2 Choice of the crediting period and related information C.2.1. Renewable crediting period C.2.1.1. Starting date of the first crediting period (DD/MM/YYYY) C.2.1.2. Length of the first crediting period (in years and months) C.2.2. Fixed crediting period C.2.2.1. Starting date of the first crediting period (DD/MM/YYYY) C.2.2.2. Length of the first crediting period (in years and months)

  39. D. Monitoring methodology and plan D.1 Name and reference of approved methodology applied to the project D.2. Justification of the choice of methodology and why it is applicable to the project

  40. D.3. Data to be collected in order to monitor emissions from the project activity and how this data will be archived

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