500 PPM – Supporting Small Scale CDM Projects in the Offsetting Market

1. DJERBA FORUM September 2004 500 PPM – Supporting Small Scale CDM Projects in the Offsetting Market

2. Overview • Who is 500 PPM GmbH? • Introduction to Offsetting • Who is active in the offsetting market? • Types of Projects 500 PPM Invests in • The Advantages and Disadvantages of the Offsetting market for a Project Developer

3. Who is 500 PPM GmbH? • Our Vision - to motivate cost effective climate change mitigation action today. • 500 PPM Locations - Hannover, Karlsruhe, Washington • Services – We provide an offsetting platform for the sale of emissions reductions from CDM and micro emission reduction projects. • Clients - Multilateral orgs (e.g. PCF, World Bank, UN), the private sector (with compliance targets) & the German government.

4. What is Offsetting? (1) Framework Convention on Climate Change Kyoto Protocol Domestic Policy Actions Non Annex B Countries Annex B Countries Emissions Trading Binding Emission Targets for SELECTED industry sectors Joint Implementation CDM No Targets for sectors such as Transport - OFFSETTING

5. Who is active in the offsetting market? “500,000 ERCs were traded in offsetting/voluntary projects in 2003”. (source World Bank 2004) (20)

7. Offsetting - a market differentiating attribute for a Travel Agent. Application • Travel agent offers offsetting solution to travellers. The Result • Travel agent differentiated in the market. • Raised awareness and interest of business clients in new environmental field.

8. The business case for Offsetting • Private Companies: • Social responsibility positioning. • Increases emotional and rational reasons for consumers to choose a product/service • Improves marketing efficiency. • Consumer: • Interest in project and feel good factor. • Preference for intelligent high quality products. • Sustainable Development: • Supports community projects with +ve SD impacts. • Emission reductions = climate change mitigation.

9. Projects Eligible for Offsetting Voluntary or Retail Project Market – Individual concern & Marketing Kyoto Project Market – e.g. CDM, JI, - Compliance tools Verified Emission Reduction Projects Certified Emission Reduction Projects Small CDM projects Demand from Private Sector interested in Offsetting.

10. Illustrating Difference in Transaction Costs (I)– Costs for Small CDM Project Dev. Project Design Document Development €17,000 – 40,000 €5,000 – €15,000 Government Approval €7,000 – €30,000 Project Validation 2% of the CERs Adaptation & Admin Fee (US$ 5,000 for projects < 15,000 t CO2 Project registration €3,000 – €15,000 per year Implementation & Monitoring €3,500 – €15,000 approx. 50% of validation costs Reporting & Verification Source: Michaelowa, Discussions with DOEs & Project Developers Certification and Issuance of Emission Reduction Credits No costs

11. Illustrating Difference in Transaction Costs (II)– Costs for Micro CDM Project Dev. Project Design Document €2,000 – 3,000 Using standardized procedures €0 - €1000 Government Approval Not with DOE but Independent experts €2-3000. Project Validation UNFCCC & Gov. need to be informed about the project. Project registration Implementation & Monitoring Follow simplified procedures €500 – €3,000 per year Reporting & Verification Verification & certification are not required. Local government and UNFCCC need updated information Source: Experience from VER projects Certification and Issuance of Emission Reduction Credits

12. 3 Project Examples 1. Biofuel 2.Energy Efficient Housing 3. Hydro Project

13. 500 PPM Project Select & Implementation Process Transaction of eERs Payments for eERs Monitoring Database (VERs) Transaction of VERs Payments for VERs

14. Advantages of Developing Projects for Offsetting • Transaction Price can be lower for VER projects. • Supports real sustainable development at the grassroots level • Can raise finance to support CDM project Development. E.g. VER then CDM • Current prices per credit are higher in offsetting market compared to carbon purchasers

15. Disadvantages of Offsetting • Unsteady income stream. The quantities of emission certificates purchased are small and not always annual. • Lack of Standard Regulations for the Projects that are not CDM projects. Preference for CDM projects rather than micro projects. • Offsetting tolerated, but not yet connected to existing UNFCCC Framework. NGOs are concerned about quality controls for non CDM projects. • Lack of awareness of market in many developing countries. i.e. local communities with small projects could benefit but do not know about offsetting markets.

16. For More Information Contact: Felicity Thomas at: fthomas@500ppm.com

17. Back up slides

18. Registration Costs for CDM Projects Average tCO2 eq. US$ reductions per year over Crediting period <15,000 5,000 > 15,000 and <= 50,000 10,000 > 50,000 and <= 100,000 15,000 > 100,000 and <= 200,000 20,000 > 200,000 30,000

19. The 500 PPM Offsetting Platform at www.klimabalance.de

20. Small-Scale CDM • Expert panel proposed simplified modalities and procedures • What is small-scale? • RES less than 15 MW capacity • Energy efficiency less than 15 GWh/year • Other projects emitting less than 15 kilotonnes CO2/year • Proposed simplifications • Bundle project cycle stages • Simplified baseline and monitoring methodologies • 14 small-scale project activity categories have been proposed • New categories can be proposed • Projects developed in consecutive tranches not eligible