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Evaluating Approaches to Aggregating GHG Offsets
Peter Weisberg
C-AggChicago, Il
July 21th, 2011
Disclaimer
• Research supported by the Electric Power Research Institute (EPRI)
• Does not reflect the views of the EPRI or its members.
C-Agg Round Table Purpose
Discuss• Inaccuracies• Gaps• Lessons learned• Next steps
Outline
• Introduction• Methods of aggregation
– Case Studies• Lessons learned• Next steps
Introduction: Definition of Aggregation• Aggregation groups
– geographically and/or temporally dispersed project activities
– that reduce emissions in a similar way– to streamline the process of qualifying
and quantifying those activities as offsets
CERs issued in each sector
Source: Fenhann, Jorgen. CDM Pipeline. July 2011.
Introduction: Why?
Source: Eagle et al. “Greenhouse Gas Mitigation Potential of Agricultural Land Management in the United States.” T-Agg Report. March 2011.
Introduction: Why?
Future of offsets:• Domestic
–Forestry–Agriculture
• International–Household scale
Photo Source: Adam Ferguson, The New York Times
Introduction: Why
• Reduce transaction costs– Simplify monitoring and verification– Facilitate financing at scale– Streamline commercialization
• Reduce risks– Project activity– Buyer
Outline
• Introduction• Methods of aggregation
– Case Studies• Lessons learned• Next steps
Methods of Aggregation
1. Programmatica) CDM PoA b) VCS Grouped Projectsc) CAR Forestry Aggregation Guidelines
2. Business Model Based3. Sectoral
Clean Development Mechanism’sProgramme of Activities (PoA)
PoA
Coordinating and Managing Entity
CPA
CPA CPA
CPA
PoA
DesignDocuments
Host Country Approval
Validation Registration Monitoring and Verification
Credits Issued
CPA Design Document Verification
Verification
Registration Issuing Credits
Registering the PoA
2nd CPA
3rd CPA
Including new CPAs
CPA Design Document
PoA: Key distinction from bundling
PoAs allow for• Temporal flexibility
– 28 years to include new CPAs • The use of small-scale methodologies
at scale– Scale measured at the CPA-level
PoA Pipeline• 8 registered PoAs, with 73 projects at
validation– 50% = “household scale”– 90% = small-scale methodologies
EE de-mand side
35.4%
Waste28.0%
Household Solar14.6%
Hydro6.1%
Other15.9%
Source: Fenhann, Jorgen. CDM Pipeline. March 2011.
PoA Barriers
• Enforcement– Verifier Liability for Erroneous Inclusion
• Additionality– CPA or PoA level?
PoA Case Study:Sadia Brazilian Swine Digester
• Sadia- Brazil’s largest meat producer• Scale: 1,050 swine digesters, delivering
1 million CERs/year– (25 swine digesters in US)
• Methodology: Small-scale CDM• Revenue: Carbon only
PoA Case Study:Sadia Brazilian Swine Digester
Financing-
Brazilian Development Bank lends
$38 million in debt
Carbon Market
-European
Carbon Fund purchased 2.7 million
CERs at fixed price
Swine Producers
PoA Case Study:Cool NRG CFL Distribution
• Cool NRG- Australian efficiency company
• Scale: 1 million CFLs distributed per CPA, delivering 24,000 CERs/year– 30 CPAs planned in Mexico, 720,000
CERs/year• Methodology: Small-scale CDM• Revenue: Carbon only
VCS Grouped Projects
Verifier Includes New Project in Geographic Area
Verifier determines project meets geographic area. New projects share crediting period and baseline scenario of initial project.
Initial Project Defines a Geographic AreaProjects in this area share same regulatory framework, emissions
factors, baseline scenario,
Project ValidationNormal VCS approval process, but ...
CDM PoA vs. VCS Grouped
• PoA– Program of
independent projects
• Grouped Projects – Many independent
projects working together as one
CDMPoA CPA
CPA CPA
CPA
VCSGrouped
CPACPA
CPACPA
VCS Pipeline
• 5 renewable projects in China and India
• 17,000 – 770,000 credits/year
CAR’s Aggregation Guidelines
• <5,000 acres• Transaction cost
reduction– Less frequent
verification– Statistical
certainty of inventory established at aggregated rather than individual project level
CAR’s Aggregation Guidelines
Transaction costs
Unaggregated Aggregated Rational
Preparing forest inventory
$30,000 $3,500 Unaggregated = 358 inventory plots Aggregated = 45 plots
Updating forest inventory
$100,000 $30,000
On-site verification from 2016 to 2070
$150,000 $75,000 Unaggregated = 10 on-siteAggregated = 5 on-site
Desk review from 2016 to 2070
$140,000 $50,000 Unaggregated = 55 desk reviews Aggregated = 21 desk reviews.
Total Cost $420,000 $158,500
Cost Savings: A 2,000 acre landowner joins a 9 project aggregation pool; nominal costs for 2016 through 2070
CAR’s Aggregation Guidelines
3,000 acre landowner generates 270,000 carbon credits at $6/credit• Carbon NPV Unaggregated: $800,000• Carbon NPV Aggregated: $950,000
Aggregation = 20% increase in carbon value
Source: “Aggregated price savings of CAR’s Forestry Aggregation Guidelines.” Steve Dettman, Ecotrust, Portland, OR: May 11, 2010.
CAR’s Aggregation Guidelines:Enforcement
CCX’s Soil Carbon Protocols
• CCX’s Conservation Tillage and Conversion to Grassland and Rangeland Protocol
• Minimal guidance to aggregators
CCX’s Soil Carbon Protocols• Simplified, streamlined process for
qualifying and quantifying a project• Permanence – five years, 10-20%
discount for later reversals– Essential to land leasers
CCX’s Soil Carbon Protocols• Monitoring – Standardized, practice-
based regional crediting
Case Study: North Dakota Farmer’s Union CCX Soil Carbon
• Aggregator for the National Farmers Union
• From 2006 to 2010, the NDFU aggregated 3,900 producers with 5.5 million acres
• Sold $7.4 million credits under CCX
Case Study: North Dakota Farmer’s Union CCX Soil Carbon
Landowners1. Implement
practice2. Map acres online3. Fax standard
contract4. 10% are verified
Business Model Approach:Ducks Unlimited
• Pilot with no methodology
• North Dakota in 2008• 100 landowners with
50,000 acres of avoided grassland conversion projects
• DU pays for perpetual grasslands easement with USF&WS
• Additionality:– Bio economic model – 26%, or 13,000 acres, are
additional– 384,000 mtCO2e over 10
years
Photo Source: Amy Taborski. Ducks Unlimited. Sheridan County, North Dakota. June 2010.
Performance Risk• Aggregator can eliminate
performance risk too:
Source: Steven De Gryze, C-Agg,. March 29-30, 2011 Sacramento, CA.
Business Model Approach:AgCert
• Swine digesters in Brazil and Mexico• Between 2002 and 2008, AgCert
bundled over 816 project sites into 92 CDM project activities
• 3.5 million CERs/year• Examinership in 2008
– Single crediting period limited temporally dispersed projects
– Methodology delays disrupted needed credit generation and sales
Governmental Approaches:International Sectoral Crediting
Developing country contribution to global emission reductions
(supported and non-supported)
Credits/allowances for sale
Business as usual
Emission baseline
Time
GH
G E
mis
sion
s
Actual emissions
Image Source: Diamant, Adam. Opportunities and Challenges of Implementing Sectoral GHG Emissions Offsets Programs. EUEC 2011. Jan. 31st, 2011. Phoenix, Arizona.
Governmental Approaches:Domestic Sectoral Crediting
• Operated by USDA or state agency• Target specific commodity/sector in
specific region• Regional adjustments for
additionality, leakage, permanence, • Credit commercialization
– Retired for US inventory?– Price control reserve?– Sold to regulated entities?
Outline
• Introduction• Methods of aggregation
– Case Studies• Lessons learned• Next steps
Lessons Learned:Consider Aggregation UpfrontAggregation enables• Proportional additionality
assessments- discounts credits according to that project type’s general level of common practice.
Lessons Learned:Consider Aggregation UpfrontAggregation enables• Modeling
Source: Salas, William. Using Biogeochemical Process Models to Quantify Greenhouse Gas Mitigation from Agricultural Management Projects. Nicholas Institute for Environmental Policy Solutions, Report NI R 11-03. Page 22.
Lessons Learned:Reduce Risks
Lessons Learned:Reduce Risks
Lessons Learned:Reduce Risks
Outline
• Introduction• Methods of aggregation
– Case Studies• Lessons learned• Next steps
Next steps
1. Registries develop programmatic rules for US projects– Temporal flexibility– Additionality rules
2. USDA/P-Agg/other pilot US sectoral crediting
Questions for C-Agg RoundtableReport Feedback• What are the major gaps (methods, case studies, etc.) in the
information presented? • What are other potential next steps for ensuring successful
aggregation?Market• How focused should next steps be on a system that works within the
cap-and-trade framework? • Will aggregators be willing to absorb carbon market risks and insulate
landowners and buyers from risks? If not, what can be done to reduce the risks that all market participants face?
Protocol• What methods of aggregation are you considering for methodologies
and protocols that are not yet public?• Is aggregation being sufficiently considered as new agricultural
protocols are designed? If not, what changes need to be made?Modeling and Quantification• What changes need to be made to existing and emerging models to
prepare them for aggregation?• What sectors work particularly well for practice-based standardized
crediting rates (like those in the CCX soil carbon protocols)? What sectors require performance-based monitoring?
Thank you!
Peter WeisbergSenior Project AnalystThe Climate Trust
[email protected](503)238-1915 x207