Clean Development Mechanisms: Role in the Climate Policy & Design of projects Lazare Nzeyimana

1. Clean Development Mechanisms: Role in the Climate Policy & Design of projects Lazare Nzeyimana Department of Water and Environment lazare.nzeyimana@sweco.se ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

2. 1- Introduction: Climate Change History • Historical remarks • Svante Arrenius – Theoretically argued the correlation between levels of greenhouse gases and atmospheric temperature • 1930s – academic discussion without any real impact • 1970/80s – Other more acute problems… Oil shocks, CFCs ect.. • 1987 – Bruntland Commission, ”Our Common Future” • 1988 – Establishment of the IPCC (Intergovernmental Panel on Climate Change • 1992 – Agenda 21 and the Rio conference – led to UNFCCC • United Nations Framework Convention on Climate Change • 1997 – The formulation of the Kyoto Protocol (KP) ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

3. The Kyoto protocol (KP) • Historical remarks • Entered in to force on 16th of February 2005 when Russia signed and approaved the protocol • At least 55 parties of the UNFCCC, accounting for at least 55% of the Annex 1 countries CO2eqv-emissions in 1990 • As of 14th of January 2009, 184 countries and one regional economic integration organization (the EEC) have deposited instruments of ratifications, accessions, approvals or acceptances. • 63.7% of the total CO2 emissions for 1990 of the Annex I Parties have ratified the Protocol. ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

4. The Kyoto Protocol (KP) • Separates Annex 1 countries and non Annex 1 countries • Annex 1 countries – Developed economies and economies in transition according to UNFCCC • Non Annex 1 countries – Less developed economies according to UNFCCC • Obligations for an Annex 1 underwriter of the KP • Emission reduction targets for the period 2008 – 2012 (-5% in total for all Annex 1) compared to the base year 1990 • Setting up of national greenhouse gas inventory for 1990 and forward with yearly reporting • Implement national programmes for implementation of a climate friendly society including informational activities • Setting up of specialized entity that deals with all Kyoto related matters ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

5. The Kyoto Protocol • Content • An Annex 1 country is assigned AAUs (Assigned Amount Units) equal to their 1990 emissions minus their respective emission reduction target Number of AAUs = Total ton CO2eqv1990 – Total ton CO2eqv reduction2008-2012, yearly • Each country is obliged not to emit more CO2eqv than number of held AAUs +/- purchased/sold other emission rights through Kyoto flexible mechanisms • This means the system has a flexibility, enabling Annex 1 countries to fulfil obligations (quantified emission limitations) through market mechanisms • Market mechanisms enables cost efficient emission reductions ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

6. The Kyoto Flexible Mechanisms • International Emission Trading (IET), Cap and trade - AAUs • Joint Implementation (JI) - ERUs • Clean Development Mechanism (CDM) - CERs • All mechanisms to keep greenhouse gasesat set level within specified time period! ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

7. International Emission Trading (IET) - Cap and trade • All Annex 1 countries are given a certain amount of emission allowances (corresponding to a cap) • AAU – Assigned Amount Unit, equivalent to emissions in base year 1990 • Tradable between countries as bilateral trade • Transferable through JI or CDM project mechanisms • Cap is lowered for each trading period ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

8. Example of International Emissions Trading Country A&B both emits 100 000 ton CO2 equivalents The Kyoto allocates 95 000 AAUs (Assigned Amount Units) each Deficit of AAUs 5 000 AAUs Two choices to fulfill Kyoto obligations: 1. Buy 5 000 AAUs for market price (95 000 AAUs + 5 000 AAUs = 100 000 AAUs = actuall emissions) 2. Reduce emission with 5 000 ton for the cost of X EUR/ton (95 000 AAUs = 100 000 ton – 5000 ton = 95 000 ton = actual emissions) 3. Reduce emissions with 10 000 AAUs and sell the 5000 in surplus (95 000 AAUs – 5000 AAUs = 90 000 AAUs = 100 000 ton – 10 000 ton = 90 000 ton = actual emissions) Country B (Buying) Cost for reducing emission € 30 Country A (Selling) Cost for reducing emission € 5 Market price per AAU € 5 - 30 ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

9. Clean Development Mechanism (CDM) CDM - Project based mechanism of the Kyoto protocol • An Annex 1 country can use emission reductions from a project in non Annex 1 country to fulfil required emission reductions • The Annex 1 country is referred to as financing party and the non Annex 1 country as the host country • CO2 equivalent – Certified Emission Right (CER) • When the project has been approved by the CDM executive board, CERs are issued and transferred to the financing party • In reality increases the cap, but also increases the system boundaries • An emissions reduction in a country without quantitative emission limitations will still result in a net zero balance of the cap ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

10. CDM Statistics ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

11. CDM Statistics ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

12. CDM Statistics ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

13. 2- Actors and stakeholders ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

14. UNFCCC institutions in the project cycles CDM projects structure • CDM Executive Board • Designated National Authorities (DNA) • Designated Operational Entities (DOE) ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

15. Commercial actors in the project cycles 1- Profit driven organizations – who does what? • Project finance institutions (Development banks, commercial banks) • Buyers of credits • Project developers 2- Market participants– who does what? • Trading sector participants • Brokers • Financial speculatory actors ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

16. 3- The market system ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

17. Carbon Exchanges • EUAs traded in many exchanges that have clearing services • EUA Contracts, spot trade • Financial contracts such as futures for EUA • Nordpool • European Energy Exchange – EEX • European Climate Exchange – ECX • Financial sector involved! ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

18. Non compliant sector Carbon Off-setting • Company goodwill/profiling • Individuals (ex. transport) • Can be purchased from other than UNFCCC projects • The New South Wales GHG abatement scheme • Chicago Climate Exchange • Gold Standard – Quality projects, may increase value of ERUs/CERs ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

19. The carbon market system in the EU - flow of CO2 allowances and cash Financial Institution Project financing AAUs for Annex 1 country UNFCCC Project financing JI Committee CDM Board ERUs Track II CERs Carbon financing – ERU payment Carbon financing – CER payment Buyer of CER/ERU Annex 1 country Non Annex 1 country JI Developer JI Focal Point ERUs Track I CDM projects ERUs CERs EUA, AAU from NAP End user, Trading sector participant EUA, AAU, ERU, CER Trader/Broker CO2 allowance Finacial Flow EUA, AAU Carbon Credit Exchange EUA, AAU ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

20. 4- The projects ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

21. CDM Project lifecycle ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

22. The PDD Content of the PDD • Choice of methodology • Applicability • Scenarios, definitions and cases • Baseline • Forward scenario for emissions • Identification of alternative scenarios • Project boundaries and activities • Project emissions and leakage • Additionality • Monitoring methodology • Specifications of monitoring parameters for measurements ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

23. Methodologies Different types of methodologies (2009) • CDM project activities (larger projects) • 76 approved large scale methodologies • 40 approved small scale methodologies • Afforestation and reforestation CDM project activities • 10 approved large scale methodologies • 5 approved small scale methodologies ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

24. Example of CDM methodologies • AM0036 “Fuel switch from fossil fuels to biomass residues in boilers for heat generation” • AM0001 “Incineration of HFC 23 waste streams” • AM0031 “Baseline Methodology for Bus Rapid Transit Projects” • AM0035 “SF6 Emission Reductions in Electrical Grids” • AR-AM0002 “Restoration of degraded lands through afforestation/reforestation” • AR-AM0004 “Reforestation or afforestation of land currently under agricultural use” • AR-AM0008 “Afforestation or reforestation on degraded land for sustainable wood production” • AMS I.B. ”Mechanical energy for the user with or without electrical energy” • AMS I.C. ”Thermal energy for the user with or without electricity” • AMS III. B. ”Switching fossil fuels” ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

25. PDD emissions Project emission calculation ERy = BEy − PEy − LEy Where: • ERy = Emission reductions during the year y (tCO2/yr) • BEy = Baseline emissions during the year y (tCO2/yr) • PEy = Project emissions during the year y (tCO2/yr) • LEy = Leakage emissions during the year y (tCO2/yr) ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

26. To pass the additionality test Argumentation Additionality Criteria Evidence ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

27. Bureaucracy… Rationale • Tracability • Transparency • Measurability • Equality ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

28. Services Examples where SWECO can offer services: • Compilation PDDs • Feasibility study of projects • Technical Due Diligence • Financial Due Diligence • Negotiation with buyers (ERPAs) ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

29. To sum up …. Sweco • Thank you for your attention! Buyer Seller CDM- Market ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA

30. Thank you very much Asante saana ADVANCED INTERNATIONAL COURSE IN LOCAL ENVIRONMENTAL MANAGEMENT IN URBAN AREAS 2010 AFRICA