UNEP Collaborating Centre on Energy and Environment CDM developments Njeri Wamukonya Regional CD workshop, 3-4 March 2003, NBI

UNEP Collaborating Centre on Energy and Environment

CDM developments

Njeri Wamukonya

Regional CD workshop, 3-4 March 2003, NBI


Emission reduction credits

Industrialised country

Mitigation Project in developing country

CDM investment

$$

Definitions: How does the CDM work?Project based trading between industrialised and developing countries


How is CDM different from other investments?

CDM project

Equity investment

Financial returnsCarbon ‘investment’

Other development benefits

Carbon credits

• Additional investment based on potential credits

• Carbon credits and development benefits on top of financial returns


Origins of the CDM

• UNFCCC 1992 includes language that the parties may implement policies and measures “jointly with other parties”

• Combined with Brazilian proposal for a Clean Development Fund - to collect penalties and support development

• Late night decision at COP-3 in 1997 to include a Clean Development Mechanism in the Kyoto Protocol as a way to trade emissions reductions with the South

• Outline of rules approved in July 2001 - finalise over next year


Origins of the CDM

The Kyoto Protocol and the CDM :

• KP establishes binding individual emissions targets for each Annex 1(industrialised) country;

• commits Annex 1 Parties to reduce emissions of 6 GHGs by 5.2% below 1990 emissions levels between 2008 and 2012;

• includes significant flexibility to achieve targets, particularly the ‘Kyoto mechanisms’: Emissions trading, Joint implementation and the CDM– CDM is only mechanism with developing country

participation.


Objectives of the CDM

Article 12 of Kyoto Protocol:

– to assist Parties not included in Annex 1 in achieving sustainable development objectives;

– to assist parties included in Annex 1 in achieving compliance with their quantified emissions limitations and reduction commitments

in theory equal weight to Northern issues (emissions)

and Southern issues (development)


Rationale: Why GHG emissions trading?

• Greenhouse gases mix uniformly in the atmosphere - so it does not matter where you reduce them

•Abatement cost often lower in countries with lower economic development, less energy efficiency, or that are more dependent on fossil fuels

•The possibility of a ‘win-win’ situation?–investor: global cost-effectiveness- more emissions reduction for a given amount of investment

–host country: CDM bring clean technology and investment to developing countries


Rationale: economic basis for the CDM

Avoidedcost

Host cost

‘Surplus’

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40

60

80

100

Investor Host

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Marrakech Accords

• CDM project valid as of 2000

• Small scale CDM projects take precedence

• EB established a Small Scale expert group to elaborate on rules and modalities


Kyoto Protocol Status

• Ratification of the Kyoto ProtocolHow to reach 55% of emissions ??

– EU (24.2%) World Summit (Aug. 2002)

– Japan (8.5%) WSSD / End 2002

– Russia (17.4) Expected this year - to monetize ”hot air”

– Canada (3.3) Timed for WSSD but local opposition

– Australia (2.1) Seems to follow the Bush line

– Romania (1.2) & Czech R. (1.2) have ratified

– Poland (3%) Expected to follow EU

• Not attractive – but KP can enter into force in 2003 without US, Canada and Australia


What is happening now

• Market Development and Pilot Programmes– AIJ programme

– Baltic JI Testing – NEFCO

– Prototype Carbon Fund – WB

– NL ERUPT & CERUPT

– Other bilateral and private sector pilot projects

Mainly market development and gaining experience – total number ERU/CERUs limited and costs low due to KP uncertainty (range of 2 to 20 US $ pr t. CO2)

• Special status of small scale projects


Small Scale ProjectsTransaction Costs

• Small scale projects– Definitions

• 15 MW RETs

• 15 GWh EE

• < 15 kT CO2

– Simplified Procedures

• Baseline analysis

• Monitoring

• Validation

• Verification

– Bundling vs Divisions

• Transaction Costs

Estimates from pilot programmes

• Range : 40 k$ to 1 million

• PCF : 200 – 400k$

(½baseline, ½ verifi/certifi)

• Expected Average for smaller projects 75 – 100 k$


What is simple about a small-scale project?

• Projects can be bundled at the following stages of the project cycle Project Design Document, validation, registration; monitoring, verification, and certification.

• Project Design Document will be reduced;

• Baseline methodologies are simplified;

• Monitoring plans are simplified; and

• A single operational entity may perform validation, verification and certification.


Small-scale types

Type I: Renewable energy projects

A. Electricity generation by user e.g. shs, micro-hydro;

B. Mechanical energy for the user e.g. wind pumps;

C. Thermal energy for user e.g. solar water heaters; and

D. Electricity generation for systems e.g. hybrid systems.

(Missing biomass based liquid and solid fuels)


Small-scale types (cont.)

Type II: Energy Efficiency improvement technologies

E. Supply side energy efficiency improvements - transmission and distribution;

F. Supply side energy efficiency improvements – generation;

G. Demand-side energy efficiency programmes for specific technologies;

H. Measures for industrial facilities; and

I. Demand side programmes for buildings.


Small-scale types (cont.)

Type III: Other projectsJ. Agriculture e.g. manure management, rice farming;K. Switching fossil fuels e.g. retrofit fossil to fossil; changes

accompanied with increased efficiency;L. Energy saving in the transport sector;M. Methane recovery e.g. landfill gas, coal bed methane;

and


Small-scale projects; latest developments

• Standard baselines and monitoring methodologies defined for

– RE projects (electricity generation by user; mechnical energy for user; thermal energy for the user; Renewable electricity for the grid)

– EE improvements ( supply side efficiency improvements- transmission and distribution; supply side efficiency improvements-generation; demand side efficiency improvements for specific technologies eg motors; energy efficiency and fuel switching technologies for industrial facilities; EE and fuel switching measures for buildings; methane recovery; reductions by low emmiting vehicles)

Documents

UNEP Collaborating Centre on Energy and Environment CDM developments Njeri Wamukonya Regional CD workshop, 3-4 March 2003, NBI