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CO2 emission trading – systems for quantification and verification Results and experiences of cooperation with the World Bank Trygve Røed-Larsen, Det Norske Veritas (DNV) The Third Workshop Dialogue, Royal Norwegian Embassy, Washington D.C., Collaboration between Norway and the World Bank Group, 26 May 2005 Credibility, Trust and Confidence What does it take to get universally trusted disclosures of greenhouse gas emissions ? More stringent for emissions trading? $ Monitoring Reporting Verification Statement ¥ € Clear and uniform definitions, requirements and rules for MR&V Robust and transparent processes, systems and management Verification by an Accredited Third Party “Incentive” and/or “power” to apply and enforce common rules Version 18 July 2015 Slide 2 Clean Development Mechanism (CDM) Registered CDM projects: 3 full-scale; 4 small-scale 22 full-scale methodologies approved, 15 small-scale and 3 consolidated ones (pr May 2005) 50-60 methodologies under review 100 or more methodologies to come in 2005? 300 projects in the “CDM pipeline” (at Project Design Document stage) Increasing workload on methodologies, radical “surgery” is required to speed up the methodology approval process. Many industrial sectors with no approved methodologies Version 18 July 2015 Slide 3 CDM project stages and Parties involved 1 2 Design Validation Stakeholder consultations Approval Registration Implementation Monitoring & Reporting Project Participants Designated Operational Entity (DOE) CDM Executive Board Version 3 Parties, Stakeholders, Accredited NGOs Designated National Authority (DNA) of host and Annex I country 18 July 2015 Verification Certification Slide 4 Overview of the JI determination process Phase 1 Phase 2 Phase 3 Phase 4 Desk review Interviews Draft report Final report Customer • Initial clarifications • Assistance with logistics Submit Documentation DNV Preliminary check Identify risks associated with assumptions made and data sources used Preliminary determination findings Proposed Interview and site visit schedule • Clarifications • Corrective Actions Interviews with relevant stakeholders Customized draft determination report Final determination report and opinion Publication of determination report on www.dnv.com Stakeholders Approval from host country Stakeholder comment period of 30 days Version 18 July 2015 Host country and donor country can request review for 45 days Slide 5 International GHG emissions trading Cap-and-Trade System Baseline-and-Credit System If over Emissions Cap emitter must buy from the market or transfer allowances from another facility. WB Prototype Carbon Fund projects Emissions Cap If under Emissions Cap may sell or bank Allowances. CO2 Emissions Hypothetical Baseline Emissions Verified Emissions Reductions (Credits) Annual Emissions Cap vs. Real emissions Version Real Project Emissions Time 18 July 2015 Slide 6 Institutional and market observations 8 Designated Operational Entities (DOEs) accredited, 20 plus applicant entities (pr May 2005) Some DOEs have long experience in the climate change field, most AEs do not: - Calls for continued rigour in accreditation procedures CDM has the attention of non-annex 1 Parties The Russian ratification has energised the market - The JI will become a competitor to the CDM The CDM institutional framework is established, but does not necessarily work optimised - The market regulator needs to communicate with the market, and act as a regulator! Version 18 July 2015 Slide 7 The Ilumex World Bank Project Pilot project verification and certification to establish transparent and trustworthy procedures and processes for greenhouse gas emission reduction projects (1998) High efficiency lighting project in Mexico AIJ Requirements and the Kyoto Protocol (JI/CDM) Exchanged 2.4 mill. compact fluorescent lamps for standard incandescent lamps in two cities Duration May 1995 through 1998 Households in Guadalajara and Monterrey Project idea From lower electricity usage to reduced CO2 emissions Version 18 July 2015 Slide 8 Ilumex verification results The Team (DNV, ICF and Cicero) verified that 171,169 tonnes of CO2 equivalent had been abated from 1995-1998. 18,828 tonnes of CO2 equivalent relates to the Norwegian financed AIJ component. Project lifetime GHG reductions is estimated to be 939,102 tonnes of CO2 equivalent. This pioneering exercise proved that it was possible to have GHG emission reductions properly verified according to the principles of the Kyoto Protocol Version 18 July 2015 Slide 9 BP’s GHG emissions audit process Understanding the business BP Amoco’s objectives and strategies Builds on international standards for financial & environmental auditing How the business fits together GHG emissions Risks associated with reporting GHG data (“Gross risks”) Risk based audit approach Management systems in place to control data generation and reporting Draws on understanding of risks with reporting GHG data Remaining areas of uncertainty Detailed Audit testing AUDIT REPORT Version Internal & external stakeholders 18 July 2015 IMPROVEMENT OPPORTUNITIES Slide 10 Verification of emission reductions Validation of project design, baseline and monitoring plan GHG emissions [t CO2-eq] Emission baseline Additional emission reductions With project emissions Project implementation Version Verification/ Certification of emission reductions Year 18 July 2015 Slide 11 Typical validation experiences For most projects the validator requests clarification and/or changes to the project design: - Insufficient discussion of additionality - Possible baseline scenarios are not considered - Insufficient assessment of leakage effects - Necessary data not available (e.g. emission data for an electricity grid) - Insufficient provisions for monitoring and reporting - Missing approvals by the DNA of the participating countries projects can – and do - learn from the mistakes of early projects. New Version 18 July 2015 Slide 12 Communications – Stakeholders Works well. Comments that are provided demonstrates that the comment mechanism works as intended and is a help to all parties involved. It will improve the transparency and development of future CDM projects Who Comments…. ..on what: NGO’s Technical issues, calculations Individuals Project additionality Representatives for governmental institutions Baseline selection Leakage effects Research agencies …how much…. Some projects receive no comments ( landfills, renewable small-scale ) Some receive a lot of comments (Ref. multi-component, innovative ) Most receive one or two comments Version 18 July 2015 Slide 13 Nova Gerar LFG project Collection of landfill gas (LFG) containing 50% methane and utilization of LFG to produce electricity (12 MW) Joint venture between EcoSecurities and S.A. Paulista World Bank Prototype Carbon Fund project / DNV validator Expected CERs volume: 500 000 tonne CO2e per year on the average over a potential 21 year crediting period Version Edit in Veiw > Header and footer Slide 14 DNV GHG projects for the World Bank South America: Argentina, Brazil (2), Chile (2), Colombia and Ecuador Central America: Guatemala, Mexico (2) and Nicaragua Asia/Africa: China, India, Nepal and Mauritius Europe: Czech Republic, Hungary, Latvia and Poland Others tasks: Validation/verification manual Version 18 July 2015 Slide 15 The World Bank’s Carbon funds: The World Bank's carbon finance initiatives (http://carbonfinance.org/) are part of the larger global effort to combat climate change, and go hand in hand with the Bank's mission to reduce poverty and improve living standards in the developing world. The World Bank’s carbon finance products include: - The Prototype Carbon Fund (PCF) http://carbonfinance.org/router.cfm?Page=NLClean - The Community Development Carbon Fund (CDCF) http://carbonfinance.org/cdcf/router.cfm - The BioCarbon Fund http://carbonfinance.org/biocarbon/router.cfm - and several others See also: http://www.ifc.org/ifcext/enviro.nsf/AttachmentsByTitle/p_mib4_ff/$FILE/MIB4_FactsFigures.pdf Version 18 July 2015 Slide 16 GHG tools for industry World Bank Prototype Carbon Fund (WB PCF) & International Emission Trading Association (IETA) , “Validation and Verification Manual”, available at http://www.VVManual.info, 2004 World Business Council for Sustainable Development (WBCSD) & World Resources Institute (WRI), “The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard”, revised edition, USA, 2004 Version 18 July 2015 Slide 17 Summary points: Capacity building and learning on CDM is moving forward Main weaknesses in the process are: - Methodology approvals - Communications between key players - Lack of speed/capacity at CDM Executive Board JI is in the starting block Emission trading in European Union (EU) comprises 25 countries at start. Norway may join later this year CDM/JI projects accepted in EU scheme and project reductions can be converted to EU allowance credits World Bank’s Ilumex and PCF projects given valuable experince to secure credible verifications of GHG projects Version 18 July 2015 Slide 18 [email protected] Version 18 July 2015 Slide 19