Carboncredits.nl

1. Baseline Methodologies Dispatch Analysis Gerhard Mulder Project Officer Carboncredits.nl

2. Senter Internationaal • Agency of the Dutch Ministry of Economic Affairs • Programme implementation, for example: • CO2-reductionplan (domestic) • Emerging markets • Export Finance • Staff of approximately 760 • Annual budget: EUR 1.000 million

3. Senter Internationaal: Carboncredits.nl • Carboncredits.nl is the team within Senter that executes the JI/CDM mechanism for the Dutch government • 6 project officers, one programme manager • Supported by a group of technical and financial experts • 3 ERUPT tenders: (total 70 projects - JI) • 1 CERUPT tender: (total of 80 projects - CDM) • Look at www.carboncredits.nl

4. Senter Internationaal: Procurement rules • Carboncredits.nl implements the programme conform EU procurement rules. Public tender with two phases: • selection phase: focus on the supplier • contract awarding phase: focus on the proposal • There is no negotiation, and there is no preference for companies • Procurement rules are published in the Terms of Reference (ToR) • Advantage: one rules are published, they stand firm • Disadvantage: limited flexibility, bureaucratic

5. Introduction: History of JI/CDM • Dutch Government started with first AIJ projects in 1997 • First ERU-Procurement Tender (ERUPT) for Joint Implementation in 2000 • Describe baseline methodology in ToR • Input from national and international experts • Today: ERUPT- 2 and 3, plus CERUPT-1 have resulted in over 150 PINs, and approximately 50 Baseline studies

6. Introduction: Goals Baseline study • What is the goal of a baseline study? • Article 44: the baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of GHG that would occur in the absence of the proposed project activity • Baseline emissions -/- project emissions +/- leakage = emissions reductions

7. Introduction: Elements of the Baseline • Principle of Control • Project boundary • Account for Leakage • Fixed period • For 7-year renewable or 10-year non-renewable • Provides confidence to investors • Marrakech Accords criteria: Conservative, Transparent, Reasonable • Not one-size-fits-all • Reality is very complex • Scenario Analysis

8. The Dutch Baseline Methodology • Strong emphasis on using conservative assumptions • The ToR allows for more than one baseline methodology: • Scenario Analysis • Investment Analysis • Simplified Baselines for Small Scale CDM

9. Scenario Analysis • Definition: “A future emissions scenario (baseline) is constructed by identifying barriers and risks in a key-factor analysis, using currently delivery system as a starting point” • Which MA approach is umbrella for scenario analysis methodology (art. 48)? • A. Existing or historical emissions • B. Barriers-to-investment approach • C. Build Margin/Benchmarking

10. Scenario Analysis: Steps • Step 1: Describe current delivery system to develop baseline emissions • E.g. how many MWs of what type is installed, fuel use, etc • Step 2: Establish which emissions can be controlled or influenced by the project participants • One step upstream, one step downstream • Step3: Develop Key Factor Analysis • Sectoral reform initiatives, local fuel availability, power sector expansion plans, and the economic situation in the project sector • Step 4: Determine CEF • Various techniques to calculate displacement

11. Scenario Analysis: Take your pick • While Scenario Analysis is guiding principle, it can be implemented in more than one way • Depending on the sector/project • Depending on the preference of the project participant • Of the approximately 25 PDDs we received for CERUPT, we identified several different ways to implement our baseline guidelines: • Dispatch Analysis • Alternative Investment Analysis • Ex-ante calculation of CEF of existing plants • All methodologies are conform MA: reasonable, conservative, and transparent

12. Dispatch Analysis: An Overview • Dispatch Analysis simulates the electricity sector for a period of time • It calculates generating costs per plant in each hour, and then optimises the dispatch for the system • The model calculates the electricity generated for each power plant for the whole crediting period • Knowing the carbon content of the fuels, you can calculate the emissions generated • You run the model with and without the proposed CDM project, and you can calculate how much electricity and emissions your project has displaced

13. Dispatch Analysis: Advantages • Approximates reality closest • Uses reality as starting point • Combines short term and long term effects • Works best if National Expansion Plans exist • But has element of Alternative Investment Analysis • Data input can be evaluated easily and objectively • DOE must evaluate input • Focus is on displacing electricity rather than capacity • CEF is based on how much electricity the proposed CDM project is expected to generate

14. Dispatch Analysis: Disadvantages • Dispatch Model may not always be available • Models are often used by National Grid Operator • Data may not always be available • Some data may be proprietary

15. Peñas Blancas Case Study • Operational details of the PB hydroelectric facility in Costa Rica: • 35.4 MW • 169 GWh/year • Construction starting date: August 2000 • Costa Rica is committed to developing renewable resources: 75 percent of installed capacity is hydro • ICE is the vertically integrated state-owned utility • Official national expansion plan foresees in development of more hydro, as well as fossil fired units

16. Peñas Blancas Case Study Average CEF 0.46 tCO2/MWh)

17. Peñas Blancas Case Study • How was Costa Rica conservative in establishing the baseline? • Assumes no imports • Did not include scenario of regional integration • Average fuel prices • Heat rates of existing fossil plants • Demand projections • Used National Expansion Plan • Furthermore, all assumptions meet the criteria that the baseline must be ‘transparent and reasonable’

18. Next Steps • Meth Panel rejected 14 of 15 New Methodologies • Could not reach consensus on Dispatch Analysis • Investment additionality appears to be back as the most important criteria for project eligibility • Executive Board must provide guidance on how to move the CDM ahead