Basics of Carbon
Finance
Kyoto Protocol
• In force since February
2012.
• Annex I countries (most important: EU, Japan, Canada, Russia,
Ukraine): commitment to reduce GHG emissions in total by 5.2% in
2008-12 in relation to 1990 (USA: out of KP; different individual
targets e.g. EU:-8%, Russia: 0%).
• Compliance Instruments: domestic action, international emissions
trading (emission rights: AAUs), project based mechanisms: CDM and
JI (emission reduction credits: CERs, ERUs)
GHGs covered by the KP
• Carbon Dioxide CO2:
GWP: 1
• Methane CH4:
GWP: 21
• Nitrous Oxide N2O:
GWP: 310
• Hydroflurocarbons HFCs:
GWP: > 10,000
• Perfluorocarbons PFCs:
GWP: > 10,000
• Sulphur hexafluoride SF6:
GWP: > 20,000
(GWP: metric tons of CO2e per metric ton of GHG)
→ ODS (CFCs, HCFCs) are not covered
by the KP
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Clean Development
Mechanism CDM
• 860
projects representing > 1billion tCO2e emission reductions by 2012
in UNFCCC pipeline
• Registered Projects: 225 with 445 Mio tCO2e by 2012; issued CERs:
10 Mio tCO2e
• CDM is expected to deliver more than 30% of Annex I compliance gap
• Price per CER (tCO2e) in pipeline: about US$ 6
• CDM is transferring about US$ 1billion p.a. in developing
countries by 2012 if pipeline is realized
CDM: host
countries
| |
2012 CERs |
Projects |
|
China |
33% |
8% |
|
India |
20% |
38% |
|
Brazil |
15% |
18% |
|
Korea |
8% |
13% |
|
Mexico |
5% |
6% |
|
Others |
19% |
17% |
|
Total |
100% |
100% |
CDM:
project types
| |
2012 CERs |
Projects |
|
Industrial Gases HFCs, N2O |
52% |
2% |
|
Waste management CH4 |
20% |
20% |
|
Renewable Energy |
19% |
58% |
|
Energy Efficiency |
6% |
13% |
|
Cement |
2% |
3% |
|
Fuel Switch |
1% |
4% |
|
Total |
100% |
100% |
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World Bank Carbon
Funds
• Currently
9 World Bank carbon funds, one (PCF) in “maintenance” phase.
• Total capitalization reaches approximately US$ 1.6 billion.
• 50 projects already under contract: US$ 0.5 billion
• Blend of public and private capital.
• Partnership with 13 governments and 56 private sector entities.
• Partnership with host countries (Host Country Committee).
• Synergies with World Bank capacity building programs, in
particular “CF Assist”.
Impact of carbon
credits
• Payment on
delivery: fixed price, fixed quantity, hard currency (USD or EUR);
long term contract (ERPA, 10yrs) → improves cash flow.
• Big impact on end-of-pipe projects: HFCs/NO2 destruction, CH4
flaring: CDM only revenue.
• Renewable power: up to US$ 6/MWh.
• Energy efficiency: CDM revenues often low compared to savings in
energy bill but important role of CDM to overcome barriers: CDM can
fund incentive schemes or labeling programs.
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How to do a CDM
project ?
• Check
project eligibility and viability: host country has ratified KP,
project type is eligible, project generates enough ERs to cover CDM
transaction costs (in most cases: > 50.000 CERs p.a.).
• Find a buyer for the ERs (if World Bank: PIN).
• Preparation of CDM documentation (PDD, Monitoring Plan) possibly
new CDM methodology.
• Host country approval; Approval of Annex I Party.
• Get the Project through the CDM regulatory process.
• CDM process: 6-12 month, new methodology + 12
CDM
Regulation
• CDM
Executive Board elected by COP/MOP: 10 members, non-professional
body, 4-6 meetings per
year decides on approval of methodologies and project registration.
• DOEs: validation of projects, verification of emission reductions.
• So far 57 approved CDM methodologies (including simplified
methodologies for small-scale project activities and methodologies
for A/R projects).
• Development of new methodologies: bottom-up process.
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CDM
Methodology
for Chiller Replacement
Project 1
• Power savings through accelerated replacement of old CFC chillers
by more efficient HFC chillers.
• Baseline power consumption:
– BAU remaining lifetime of old chillers (manufacturers).
– Power consumption of old chillers under operational conditions of
new chillers (power consumption function for old chillers through
measurement procedure).
– Applies up to capacity of old chillers.
• Project power consumption: measured (as well as operating
conditions: output delivered).
Project 2
• Power savings translate in avoided CO2 emissions from power
generation: approved combined margin approach (average of grid
emission factor and build margin, most recent 20% capacity
addition).
• CO2-equivalent of HFC losses out of new chillers has to be
deducted (default values).
• (Core elements of) old chillers needs to be scrapped in order to
avoid leakage.
• Additionality: project is not least cost option or prevented by
barriers.
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CDM
Requirements
on the Project Implementation level
• Chiller
owners transfer property rights to ERs to program implementing
agent.
• Chiller owners agree to monitor new chillers (use of data locker
systems) and to determine power consumption function for old
chillers.
• Old chillers are scrapped. Chillers owners agree to provide
evidence for scrapping (scrapping certificates).
• Independent third party (DOE) has to verify these requirements
before CERs can be issued.
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Carbon Finance Basics
