(A few personal words:
Recently, I got an opportunity to attend a seminar on CDM Project. Many environment related matters like Kyoto Protocol, Climate Change etc. were also discussed there. I tried to collect something for my Dada friends. In sideline of the seminar I became closed to a faculty member. He called me to his hotel room after dinner. The 30 yr old beautiful bachelor greeted me breathtaking hugs, kisses & love in his room. Then giving some slides, he told, “Anita, some of my collections are here; world’s future is very dark, try to increase the awareness on environment amongst people.” His words are still resonating my ears. Some parts of those materials are reproduced here.      - Anita)

INTRODUCTION

• CDM is a market based mechanism intended to achieve emission reductions with cost effectiveness by taking up environmental friendly projects in developing countries

• Through CDM, it was intended to achieve the twin objectives of sustainable development and reduction of GHGs

• The project based emission reductions can be sold to developed countries to achieve part of their emission reductions

• CDM is part of Kyoto Protocol under UNFCCC

Significance of CDM

• Achieve sustainable development

• Reduce impact on environment

• Additional stream of income through sale of emission reductions

• Reduce pollution levels or improve other environmental parameters

• Technology improvement

• Helps developed countries to achieve their emission reduction commitments

Threats of Climate Change

• Scientifically un-denied negative impacts

 Until 2100, temperature raising is expected between 1.4 to 5.8 degree
 Changing eco-systems
 Melting glaciers
 Rising sea level
 Changing biodiversity
 Changing household water consumption worldwide
 More and hotter heat waves
 More and different infection deceases

Threats of Climate Change

• Hundreds of millions of World’s most vulnerable people will see their lives and livelihoods jeopardized

• 30% of the World’s species are at risk of extinction

• Natural catastrophes have caused USD 75 billion of economic losses in 2007 and killed 15000 people and climate change is considered to be one of the causes for part of the damage

• The loss is 50% higher than USD 50 billion loss in 2006

• The absolute number of disasters have increased from 850 in 2006 to 950 in 2007

• Therefore, the efforts of the world body promoting steps for mitigating GHGs through the market mechanisms

MILLINEUM DEVELOPMENT GOALS

• Declared in the beginning of millennium, in September 2000
• Endorsed by 189 countries, Goals to be reached by 2015
1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Combat HIV/AIDS, malaria and other diseases
6. Improve maternal health
7. Ensure environmental sustainability
8. Develop a global partnership for development

The UN FCC basics

• 191 Parties – near universal membership
• UNFCCC main features:
 recognizes that the climate system is a shared resource whose stability is affected by emissions of carbon dioxide and other greenhouse gases

 sets an overall framework for intergovernmental efforts to tackle the challenge posed by climate change

UNFCC Objective

• to achieve stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system.

• To strengthen the developed country commitments under the Convention, the Parties adopted Kyoto Protocol in 1997, which commits developed country Parties to return their emissions of greenhouse gases to an average of approximately 5.2% below 1990 levels over the period 2008-12.

GHG Potential

• Gases evolved during natural processes and also because of human activities
1. CO2 1
2. CH4 21
3. N2O 310

• Engineered gases
1. Hydro Fluro Carbons (HFC 23 -11700, HFC 125 -2800,HFC 134A -1300, HFC 152A -140)
2. Per Fluro Carbons ( Tetra Fluro Methane,CF4 -6300; Hexa Fluro Ethane,C2F6 -9200)
3. Sulphur Hexa Flouride SF6 -23900(Life time 3200 Years)

IMPACT OF CLIMATE CHANGE

• Temperature increase of 0.4o c in last 100 years.

• Increase in monsoon seasonal rainfall across west coast, ap

• Decrease in monsoon in north east india, kerala

• Climate models predict 2 – 40 c by 2050s

International Response to Climate Change

Milestones

• 1979: First World Climate Conference
• 1988: Intergovernmental Panel on Climate Change
• 1990: IPCC and Second WCC call for global treaty for climate change
• 1992: UN Framework Convention on Climate Change adopted, in RIO, Earth summit, No binding targets
• 1994: UNFCCC entered into force
• 1997: COP3,Kyoto Protocol adopted
• 2001: COP7, Marrakesh Accords
• 2002: August 26th, India signs the protocol
• 2005: 16th February, Kyoto Protocol entered into force, binding targets

Kyoto Protocol

• Signed in 1997; but entry into Force on 16 February 2005 only
• Facilitates sustainable development & additional support to developing countries on adaptation
• Ratified by 175 parties by May 1977, ratified by Australia in Dec 2007
 Major non-participants: USA
 Individual, quantified emission targets for each industrialized country
 Six greenhouse gases covered: CO2, CH4, N2O, HFC/PFC, SF6


INDIA & KYOTO

• India ratified kyoto protocol on 26th August 2002

• Hosting of cop-8 in Nov, 2002 at New Delhi

• Appointment of DNA ( national clean development mechanism authority as part of MOEF)

• Submitted indian national communication in 2004

• EB is represented by one member from india

Three Kyoto Mechanisms

• International Emission Trading (ET): exchange of emission allowances among industrialized Kyoto Protocol countries

• Clean Development Mechanism (CDM): credits for emissions avoided through sustainable development projects in developing countries

• Joint Implementation (JI): credits for emissions avoided through projects in Annex I countries

CDM Project Partners

• Industrialized countries (Annex I)
• Developing countries (Non-Annex I)
• Independent party for validation & verification
• Registration body
• Private business, governments, NGOs

CDM Objectives

• Twin objectives of CDM:
•
– Help Annex 1 countries meet their GHG emission reduction objectives in a cost-effective way
– Contribute to sustainable development of the host country

• Involvement of Annex 1 Parties (buyers/ investors) can take various forms:
– Most common: Purchase CERs from project proponent once they have been generated (typically, long-term forward purchase agreements)
– Less common: Investment in CDM project è receive (part of) CERs as return on investment

Cost of emission reduction

• Japan US$400 /tCO2e
• USA US$200 /tCO2e
• India US$ 25 /tCO2e

CDM Organization

• Rules, modalities and procedures of CDM are defined in:
– Kyoto Protocol (1997)
– Follow-up decisions of COP, especially Marrakech Accords (2001), and
– Decisions of CDM Executive Board

• CDM Executive Board:
– Responsible for further development of CDM rules, and supervising implementation
– Composed of 10 Members + 10 Alternates
– Reports to the Conference of the Parties (COP)

The CDM Project Stages

Design

Validation

Registration

Implementation

Monitoring/Reporting

Verification

Certification


Design a project in accordance to the criteria of the Kyoto protocol
Validation of the project by an independent body, assuring all Kyoto protocol requirements are met
Registration of the CDM Project by the registration body on the basis of the validation report
Implementing the project
Measure performance and baseline indicators, report
Verification through an independent third party of the GHG emission reduction
Based on the verification a certificate of emission reduction will be issued.


MINIMUM TIME TAKEN

• PIN/PDD 2 months

• Validation 2 months

• MOEF endorsement
& Registration with UNFCC 2 months


CDM ELIGIBILITY

Eligibility criteria for a CDM project :

 The project shall contribute to the Sustainable Development of the host country

 The project shall result in real, measurable and long term benefits in terms of climate change mitigation, and

 The reductions must be additional to any that would have occurred without the project


QUALIFYING CRITERIA

• Project start date after January 2000
• Exceed regulatory standards
• No Leakage
• No double counting


ADDITIONALITY

PROJECT PROPONENTS have to demonstrate that under normal circumstances the project activity would not be implemented due to the existence of one or more barriers
• Investment barrier - Availability of a financially more viable alternative that would have led to higher emissions

• Technological barrier - Existence of a less technologically advanced alternative that involves lower risks due to the performance uncertainty or low market share of the new technology adopted for the project activity and so would have led to higher emissions

• Common practice barrier - Prevailing practice (Local tradition/Social conditions) or existing regulatory or policy requirements would have led to implementation of a technology with higher emissions

• Non economic barriers for CDM: Inadequate human capacity, policies, Legal frame works, Institutions


DOE

• The Designated Operational Entities (DOEs) are UNFCCC accredited agencies involved in validation and verification of CDM projects. Their primary role is to ensure that the project results in real, measurable, and long term emission reductions. The DOEs are thus, creating platform to start the commercial transaction on emission reduction by a project activity.
• The basis will be on additionality of the project activity, application of methodology, establishment of baseline and monitoring plan.


CALCULATIONS

Electrical Energy saving 1 KWH .8- .9 kg CO2
Power generation(WH/RE) 1 KWH 4 - 5 kg CO2
Coal saving 1 Kg 1.3-1.6 kg CO2
NG based power generation 1 KWH .35-.45kg CO2
NG burning/saving 1 Kg 2.4-2.5 kg CO2
Fuel oil saving 1 litre 3 -3.5 kg CO2


International Statistics

COUNTRY N0. OF PROJECTS
(1051) CER ISSUED
Millions
(140) EXPECTED CER UPTO 2012
Millions (214)
INDIA 337 39 30
CHINA 210 42 110
BRAZIL 133 20 18
MEXICO 105 4 7
CHILE 22 2 4
REPUBLIC OF KOREA 18 23 15
OTHERS 226 10 30

Bundling

• Bundling is possible for small-scale project activities provided activities are not a debundled component of a large scale project activity.

• Project activity is considered a debundled component if there is an already registered project activity or an application to register another small-scale project activity
– With the same project participants;
– Registered within the previous two years;
– Whose project boundary is within 1 km of the project boundary of the proposed small-scale afforestation or reforestation activity under the CDM at the closest point.

Carbon Market

The EU Emissions Trading Scheme started in January 2005 (10-16 billion euro/market)

• Currently, CERs trade below the price of EU allowances (entitlement to emit tCO2e). Reasons for this discount are, e.g.:
 Delivery risk relating to CDM registration process and Kyoto Protocol
 Performance risk of CDM projects (counterparty risk, country risk)

• More private sector companies are becoming interested in CERs (EU/UK/Japan/Canada)

• In the longer term, prices of EU allowances and CERs are likely to converge.

EU ETS

• The European Union set up a market in January 2005 under which about 12,000 factories and power stations are given carbon dioxide quotas. If they overshoot they can buy extra allowances in the market or pay a financial penalty; if they undershoot they can sell them.
• Largest CAP and trade system in the world. (Aggregate CAP on certain pollutants is imposed on group of emitters)
• Participants: 25 member states
• Gases: Direct CO2 only in First period
• CDM credits can be used for compliance.(1 EUA = 1 CER)
• Excludes Nuclear & Sinks

EU ETS

• Naming and shaming provision for violators
• Penalty Euro 40/tCO2e in First phase and Euro 100/tCO2e in Second phase
• 15,000 companies in EU ETS, incl. 300 of largest utilities, oil & gas companies
• Surplus emissions : UK: 27 m tons, Germany: 21 m tons

The World Bank Carbon Finance Program

The World Bank Carbon Finance Program has over USD 700 million for buying credits from CDM and JI projects. This includes:-

• World Bank Prototype Carbon Fund – USD 180m
• Bio Carbon Fund – USD 20m
• Community Development Carbon Fund – USD 120m
• Italian Carbon Fund – USD 150m
• Spanish Carbon Fund – USD 240m

CDM Market Potential

• Together, credits from the clean development mechanism (CDM) and joint implementation (JI) accounted for 226m tonnes worth nearly €2bn in the first half of 2006

• EU ETS is set to become a major driver of demand for CERs (1 EUA=1 CER)
– Second only to governmental JI/CDM purchase programs but becoming more important

• CERs offer the key benefit of being bankable for 2008-2012 (unlike EU allowances issued in 2005-07)
– CERs are the ideal instrument for ETS installations to hedge unexpected emissions increase
• Not all good news:
– uncertainty beyond 2012 creates problems for CDM/JI projects - limits market supply value from CERs - Climate change can’t be solved without the U.S - 25% of emissions
– Delay in ITL (International transaction log) – hinders CERs inflow in EUETS. (Purpose of ITL is to record and transfer of Kyoto units during the Kyoto period.)

Voluntary Carbon Market

• Voluntary marked is evolved due to growing concern of individuals and corporates about climate change

• The pressure of action began after the latest report of IPCC which brought out the threats of climate change

• Some of the drivers of voluntary market are :

 Investors scrutiny of environmental performance of companies

 Reputational risk in ignoring climate change issues

 Push from consumers wanting more information on carbon foot print of their products and services

 Preference of consumers for products and services with reduced carbon intensity

• Standards are in place for approval of the projects under voluntary carbon market

• Over 23.7 millions tonnes of CO2 were traded in 2006 in the voluntary market.

• The demand is estimated at 140 mtCO2 by 2020 under conservative estimate and it could be as high as 313 mtCO2 under optimistic estimation

Market uncertainties

• The existing protocol expires by 2012

• The EU has brought out a new energy and climate policy upto 2020 where they have projected
 a 20% cut in emissions below 1990 level
 to procure 20% of energy from RE sources and
 the electricity sector has to buy allowances for every tonne of CO2 emitted from 2013

• The EU restricted use of CERs if no agreement is reached on Kyoto by 2012

India’s Position

• No obligation to reduce emissions UPTO 2012
• Per capita Carbon di-oxide emission of India is amongst the lowest in the world.
• Per capita emission in tones of CO2/annum in 2004
. India 1.2
. USA 20.6
. U.K 9.8
. China 3.8
. World 4.5
• Source: UNDP Human Development report 2007/08

Types of HCA CDM Projects

• Renewable energy (Wind, Biomass, Solar, Hydro)
• Switching to Alternate Fuels
• Energy Efficiency
• Waste Management
• Oil & Gas
• Agriculture
• Carbon Sequestration in Forests

Exclusions to Kyoto Protocol

• As per Intertanko, the International Association of Independent Tanker Owners, global shipping operations are responsible for emitting 1.2 billion tonnes of CO2, equivalent to 4.5% of worldwide emissions. This represents three times more than current estimates of 400 million tonnes, but also twice as much as the 650 million tonnes said to be emitted by aeroplanes.
• Shipping and Aviation sectors were left out of the Kyoto Protocol and, thus, out of the EU's Emissions Trading Scheme (ETS).
• Draft European legislation, presented in January with the aim of strengthening the ETS and extending it to new industrial sectors, provides for aviation to be included in the EU's carbon cap-and-trade scheme as of 2013 .
• Shipping produces less greenhouse gases per tonne-mile than any other form of transport but key issue is the growth in international trade , 90% of which is carried over the sea.

UPDATE ON CLIMATE CHANGE

• As per IPCC, preventing global mean temperature from rising above the critical threshold of 2 degrees centigrade in the 21st century will require radical cuts in greenhouse gas emissions of 80-90% by 2050.
• Bali Roadmap AT UN Conference on CC last December did not mention targets (25-40% reduction from 1990 emission levels by 2020 )to keep Washington in the negotiations for UN’s climate meeting in Copenhagen in December 2009.
• The G8’s LATEST endorsement of a 50% reduction in emissions by 2050 is grossly inadequate. The cut has no clear baseline. This declaration of intent is not binding. Japan and Canada, for instance, have retreated from their previous support for a regime of mandatory reductions.
• The European Union, while it continues to support a mandatory regime, does not appear to be willing to support the cuts of up to 80-90% by 2050 that are necessary to prevent irreversible large-scale climate change.
• Industrialised countries continue to hang on to the position that economic growth can be “decoupled” from energy use.
• “Rather than focusing, as some environmentalists do, on reducing the income and consumption of the rich world,” they assert “Technology can make the transition to a clean Green world a relatively painless one, with no major lifestyle change in the North and no change in the high-growth development paradigm in the South. This serves as a protective shield for global capitalism
• Voluntary cuts, technofixes, and carbon trading are desperate efforts to prevent the inevitable.

SOLUTION

• Opt for Sustainable development
• The emphasis in the definitions of sustainable development is on “Needs”
• Mahatma Gandhi’s statement that “The earth has enough for everyone’s need but not for anyone’s greed” is still relevant
• Implement in toto the theme of the current “World Environment Day”

Timelines

11 – 12 months for each project

Conclusions

• CDM presents interesting opportunities for India to generate additional revenue for project activities

• There are number of sectors under renewable energy and energy efficiency that could be explored

• Awareness is required on the procedures at the project source level – banking institutions which finance the projects

• The awareness helps in developing the documentation at appropriate time so that it will meet the requirements of the protocol.

                                                                                                                                                                            (A collection by Anita de)
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