Transcript No Slide Title

Training Seminar for BioCarbon Fund Projects
September 12-14, 2005. Washington D.C.
Baselines and Additionality
Lucio Pedroni - STC
World Bank Carbon Finance Business
This presentation is based on materials prepared by Lasse Ringius
Contents
I.
The basic concepts underlying the CDM
II.
Approval process of new methodologies
III.
Approaches to A/R CDM baseline methodologies
IV. Determination of the carbon benefits of an A/R CDM
project activity
V.
Additionality & Additionality tool
Concepts underlying the CDM
• Reduce GHG emissions (or enhance removals by
sinks) in one country to permit an equivalent
quantity of GHG emissions in another country,
without changing the global emission balance.
• The Clean Development Mechanism is a baselineand-credit trade mechanism (not a cap-and-trade
mechanism).
Basic requirements of emissions
reductions or removals under the CDM
• Create “real, measurable, and long-term benefits related
to the mitigation of climate change” (KP, art. 12.5b)
• Be “additional to any that would occur in the absence
of the certified project activity” (KP, art. 12.5c)
• Be certified by operational entities designated by the
Conference of the Parties (KP, art. 5)
Implications
Key-word:
Implication for A/R CDM:
– real, measurable
 Monitoring (methodology + plan)
– long-term
 Expiring CERs to deal with
the non-permanence of C storage
– additional
 BAU activities not eligible;
must be direct human-induced
– in the absence of the
project activity
 Baseline (methodology +
assessment)
– certified
 Validation, Verification and
Certification by accredited
operational entities, EB…)
CoP-7 defined baseline for CDM
MA CDM (44) The baseline is the scenario that:
– “reasonably represents GHG emissions that would
occur in the absence of the proposed project activity”;
– is derived using an approved baseline methodology.
MA CDM (45) The baseline shall be established:
– (b) “in a transparent and conservative manner”
regarding the choices of approaches, assumptions, …”
– (c) “on a project-specific basis”;
– (d) in accordance with simplified procedures for small
scale projects.
CoP-9: Mutatis mutandis for A/R CDM
the sum of the changes in the carbon stocks in
the carbon pools within the project boundary
MA CDM (44) The baseline is the scenario that:
– “reasonably represents GHG emissions that would
occur in the absence of the proposed project activity”;
– is derived using an approved baseline methodology.
MA CDM (45) The baseline shall be established:
– (b) “in a transparent and conservative manner”
regarding the choices of approaches, assumptions, …”
– (c) “on a project-specific basis”;
– (d) in accordance with simplified procedures for small
scale projects (< 8 Kt CO2e/yr).
Approved methodologies
• So far, no baseline or monitoring methodology has been
approved for A/R CDM project activities.
• 13 methodologies have been proposed, 5 have not been
approved, 8 are under evaluation and 3 are rated B.
• The term “baseline methodology” is somewhat misleading as
the EB actually requires to address the following items:
1.
2.
3.
4.
5.
6.
Eligibility of the activity and of the land
Baseline
Additionality
Project scenario
Leakage
Net anthropogenic GHG removal by sinks
Eligible activities
C/ha
C/ha
Deforestation
C/ha
Reforestation
Afforestation
> 50
years
time
time
time
In the LULUCF sector during the first commitment period
(2008-2012) only afforestation and reforestation are eligible
project activities.
Eligible activities
First commitment period
C/ha
C/ha
Reforestation
Afforestation
Reforestation
time
31.12.1989
Not CDM eligible
time
31.12.1989
CDM eligible
Eligible lands
A/R project activities are eligible for the CDM
only if they occur on lands that were without
forest on 31.12.1989 (= “Kyoto land”).
What is a
CDM forest?
- Area:
0.05 – 1.0 ha
- Crown cover: 10 – 30 %
- Tree height:
2–5m
• Each host country decides, but must use these parameters
• Taking this decision is a CDM participation requirement.
• Assessment method is part of the baseline methodology.
Approval process of A/R
NBM & NMM methodologies & PDDs
Preparation of (draft) PDD and (if the B or M
methodologies are new) of AR-NMB + AR-NMM
DOE: Checks the methodology
Approved methodology
DOE validates the full PDD
EB examines the
validated PDD
Request for revision
(8 weeks)
New methodology
Experts
EB evaluates
methodology
A/R WG
DOE can finalize the
validation of the PDD
No
Approval of the
methodology
Yes
No
Yes
EB registers the
new methodology
Yes
No
EB reviews the PDD
(max. 2 meetings)
Approval of the project
EB registers the
new project
Timing of the approval process of A/R
NBM & NMM methodologies
4 months
Baseline approaches for A/R projects
(Decision 19 CoP-9)
A baseline methodology must be developed using one of the
following approaches:
(22a) “Existing or historical, as applicable, changes in carbon stocks in the
carbon pools within the project boundary”
(22b) “Changes in C stocks in the pools within the project boundary
from a land use that represents an economically attractive
course of action, taking into account barriers to investment”
(22c) “Changes in carbon stocks in the pools within the project
boundary from the most likely land use at the time the project
starts”
How to select the baseline approach?
(22a) “Existing or historical, as applicable, changes in carbon stocks in the
carbon pools within the project boundary”
 Data are available to determine the existing or historical changes in
carbon stocks.
 It can be shown that the prevailing land use (BAU) is not expected to
change in absence of the project (but carbon stocks can change!).
 Predetermines a historical control group baseline methodology.
(22b) “Changes in C stocks in the pools within the project boundary
from a land use that represents an economically attractive
course of action, taking into account barriers to investment”
 Data are available for economic comparison of different land-use
alternatives.
 It can be shown that land use decisions are mainly driven by economic
factors, and that change in such factors may trigger a change in land use.
 Predetermines an economic baseline methodology, such as investment
analysis (IRR, least cost etc.)
How to select the baseline approach?
(22c) “Changes in carbon stocks in the pools within the project
boundary from the most likely land use at the time the project
starts”
 This approach is seen by many observers as similar to approach (a), but
applicable where land-use change is expected to occur (in absence of the
project).
 Could also be interpreted as a statistical approach, whereby the likelihood of
prospective land uses within the project boundary is estimated (e.g. from a
sample taken from a standard control group)
CFB definition of baseline
•
The baseline scenario is the most likely land use and land
cover development over time within the project boundary. It
includes a conservative and transparent estimation of the sum
of the changes in the carbons stocks in the carbon pools
accompanying any such LULC development.
•
The baseline scenario can include development alternatives
that may be realized during the project crediting period, if such
developments can reasonably be anticipated.
•
The baseline scenario is not a total quantity of carbon
conserved, or an unit expression of sequestration (such as
X tC/ha/yr), in the base case.
Baseline study – ex ante
Carbon
PROJECTION
Additional
carbon
Project
carbon ex ante
= Estimation of
what may occur
under the CDM
PROJECTION
Baseline
carbon ex ante
BASELINE STUDY
= Estimation of
Time
what
would
otherwise occur
Project crediting period
Only the “additional carbon” has a potential market value.
Monitoring – ex post
FACT
Carbon
Project
carbon ex ante
post
= Estimation based on
ex post measurements
in situ
Monitoring
Baseline
carbon ex ante
post
Project crediting period
COUNTERFACTUAL
= Estimation based on
ex Time
ante (“frozen”)
estimation or on ex post
measurements in or ex
situ (monitored
baseline) - depending
on the methodology.
Leakage
Leakage = Increased GHG emissions outside the project boundary attributable to the project activity
(e.g. induced land use/cover change, increased consumption of fossil fuels) and measurable.
Project Area
2005
2005+X
Nearby the Project Area
2005
2005+X
CO2
C
C
The method to be used to assess leakage is part of the “baseline” methodology.
Carbon benefits
of A/R CDM project activities
Baseline scenario
(changes in the
carbon stocks in
the carbon
pools)
(decrease in the
carbon stocks in
the carbon
pools)
=
increase
in project
emissions
emissions
not
considered!
=
=
“Actual net
GHG removal
by sinks”
“Baseline net
GHG removal
by sinks”
Within the project boundary
increase
in
emissions
=
“Net anthropogenic GHG
removal by sinks”
Project scenario
(changes in the
carbon stocks in
the carbon
pools)
“Leakage”
Outside the project
“Not permanent”!
boundary, “attributable”
“Permanent”!
and “measurable”
Additionality
Two basic options for judging additionality:
1. Qualitative: A project activity is “additional” or “not
additional”. Accordingly it gets 100% or 0% of the
carbon credits.
2. Quantitative: Additionality is assessed probabilistically
and carbon credits are awarded accordingly.
Under the Kyoto Protocol “additionality” is a “yes” or “no”
judgment.
EB10: “Additionality Tools”
Examples of tools that may be used to demonstrate that a project activity is
additional and therefore not the baseline scenario include, among others:
(a) A flow-chart or series of questions that lead to a narrowing of potential
baseline options.
(b) A qualitative or quantitative assessment of different potential options
and an indication of why the non-project option is more likely.
(c) A qualitative or quantitative assessment of one or more barriers facing
the proposed project activity (such as those laid out for small-scale
CDM projects).
(d) An indication that the project type is not common practice (e.g. occurs
in less than [<x%] of similar cases) in the proposed area of
implementation, and not required by a Party’s legislation / regulations.
CDM Additionality Tool
(EB 16, Annex 1)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Common practice
PASS
Step 5. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Common practice
PASS
Step 5. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Purpose and Role of the
Additionality Tool
• The purpose of the additionality tool is to check the claim of
additionality and ensure that baseline activities do not receive CERs.
• The additionality tool is guidance that can be used for new
methodologies: Project developers must either include the
additionality tool in the new methodology, adapt it to the specific
case, or propose alternative tools.
Additionality tool and approved methodologies:
• In the future, the A/R additionality tool may have to be used in
conjunction with consolidated methodologies (as in the case of
ACM0001 – waste, ACM0002 – renewables).
• Approved methodologies will not be affected by changes of the
additionality tool.
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Step 0 – Starting date
This step is relevant only for project participants
whishing to have a crediting period starting prior to the
registration of their project activity.
Basic requirements:
• A/R project activity started between 1 January 2000 and the date
of its registration under the CDM.
• PDD submitted for registration before 31 December 2005.
• Evidence exists that the incentive from the CDM was seriously
considered in the decision to proceed with the project activity.
Step 0a – Specific A/R features
This second part of step 0 deals with specific features
of A/R CDM project activities (and does not appear to
be strictly related to additionality).
Basic requirements:
• Evidence that the land within the project boundary is eligible for
A/R CDM project activities.
• Evidence that the proposed activity is direct human-induced (not
a mere continuation of the pre-project spontaneous processes).
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Step 1: Identification of Alternatives
(1.a) Define all realistic and credible alternatives to the project
activity(s) that can be (part of) the baseline scenario which are
available to project participants or similar project developers:
– include the proposed project not undertaken as a CDM project,
– other plausible and credible land-use alternatives to the project activity deemed
appropriate with respect to location, size, funds/expertise requirements, etc.,
– include continuation of the current situation (if applicable).
(1.b) All alternatives considered should comply with applicable legal
and regulatory requirements that are systematically enforced.
 If the proposed project is the only alternative that is in
compliance with all regulations with which there is general
compliance, then it is not additional.
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Step 2 – Investment Analysis
Purpose:
Determine whether the project activity is
economically or financially less attractive than other
alternatives, ignoring carbon revenue.
 If the project activity is unlikely to be (the most)
financially attractive, proceed to step 4 (or
perform barrier analysis).
Investment Analysis - options
Sub-step 2.a: Determine appropriate analysis method
Sub-step 2.b: Apply the appropriate analysis method
Option I – Simple cost analysis:
Use if project generates no financial benefits other than CDM
related income.
Option II – Investment comparison analysis:
Use financial indicator, such as IRR, NPV, cost benefit ratio, or
other including all costs, revenues and incentives/subsidies, and
compare with all alternatives.
Option III – Benchmark analysis:
Use financial indicator and compare with benchmark indicator
representing standard returns in the market.
Step 2 – Investment Analysis
Sub-step 2.c: Calculation and comparison of financial indicators
(only options II and III):
- of the project alternative and other alternatives (Option II)
- of the project alternative only (Option III)
- Include capital costs, operation and maintenance costs, and revenues
(excluding CER revenues, but including subsidies/fiscal incentives
where applicable).
Sub-step 2.d: Perform financial sensitivity analysis
(only option II and III)
 If the project is unlikely to be (the most) financially
attractive, proceed to step 4, or perform barrier analysis.
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Step 3 – Barrier Analysis
Purpose:
Determine whether the project activity faces barriers that prevent its
implementation, but not the implementation of at least one of the other
alternatives identified in step 1.
Sub-steps:
3a: Identify barriers that would prevent the implementation of the
proposed A/R project activity and provide evidence of their
existence.
3b: Show that barriers would not prevent the implementation of at
least one of the alternatives.
 If 3a and 3b are not satisfied, the project activity is not
additional.
Step 3 – Types of Barriers
Investment barriers:
- Debt funding not available for this type of project activity;
- No access to international capital markets due to real or perceived
risks associated with domestic or foreign direct investment;
- Lack of access to credit.
Institutional barriers:
- Risk related to changes in government policies and laws;
- Lack of enforcement of forest or land-use-related legislation.
Technological barriers:
- Lack of access to planting materials
- Lack of infrastructure for implementation of the technology.
Step 3 – Types of Barriers
Barriers related to local tradition:
- Traditional knowledge or lack thereof, laws and customs, market
conditions, practices;
- Traditional equipment and technology;
Barriers due to prevailing practices:
- The is the “first of its kind” in the region or country;
Barriers due to local ecological conditions:
- Degraded soil
- Catastrophic natural and/or human-induced events
- Unfavorable meteorological conditions
- Pervasive opportunistic species preventing regeneration of trees
- Unfavorable course of ecological succession
- Biotic pressure in terms of grazing, fodder collection, etc.
Step 3 – Types of Barriers
Barriers due to social conditions:
- Demographic pressure on the land
- Social conflict among interest groups in the region where the project
takes place;
- Widespread illegal practices
- Lack of skilled and/or properly trained labour force
- Lack of organization of local communities.
Note: These barriers are inter alia; the project proponent
can identify different types of barriers.
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Step 4 – Impact of CDM Registration
Purpose:
Explain how the CDM registration, and the attendant benefits and incentives derived
from this registration, will alleviate the financial or economic hurdles or the identified
barriers and thus enable the project to be undertaken.
Benefits and incentives:
• Net anthropogenic GHG removal by sinks;
• Financial benefit of the revenue obtained from t/lCER sales;
• Attracting new players who are not exposed to the same barriers, or can accept a
lower IRR;
• Attracting new players who bring the capacity to implement a new
technology/practice;
• Reducing inflation/exchange rate risk affecting expected revenues and
attractiveness for investors.
 If step 4 is not satisfied, the project is not additional.
A/R CDM Additionality Tool
(AR WG 4, Annex 1 - Draft)
Step 0. Preliminary screening based on the starting date of the project activity
PASS
Step 1. Identification of alternatives to the project activity consistent with current laws
and regulations
PASS
Step 2. Investment Analysis
OR
Step 3. Barrier analysis
PASS
PASS
Step 4. Impact of CDM registration
PASS
PROJECT ACTIVITY IS ADDITIONAL
Thank
you!
Thank
you!