Renewable Energy Promotion Policies: Lessons from CDM/JI for NAMAs (and other new mechanisms) Konrad Raeschke-Kessler

2. Renewable Energy Promotion Policies: Lessons from CDM/JI for NAMAs (and other new mechanisms) Konrad Raeschke-Kessler Emissions Reduction Projects – CDM (DNA) / JI (DFP) German Emissions Trading Authority Carbon Expo, 02 June 2011, Barcelona

3. Umweltbundesamt Federal Environment Agency (UBA) main building located in Dessau

4. German Emissions Trading Authority (DEHSt): Tasks • To provide the infrastructure for emissions trading in Germany • controlling operators’ monitoring reports (in cooperation with the German states due to the federal system in Germany) • operating the EU ETS and Kyoto Registry (Account management) • drafting national and international reports; co-operating with EU / UNFCCC • To administer the project-based Kyoto mechanisms JI and CDM • CDM DNA/JI DFP:approve CDM and JI projects • JI DFP: to approve JI issuance requests and to issue ERUs based on JI monitoring and verification reports

5. Scoping Study “Linking RE Promotion Policies with International Carbon Trade” Commissioned by IEA - Renewable Energy Technology Deployment Study carried out by a consortiumof University ofZurich, Perspectives GmbH, Point Carbon Disclaimer: The presentedproposalsarebased on thestudy in theIEA-RETD researchcontext, preliminaryandsubjecttodiscussion. They do not representorprejudice in anywaythepositionofthe IEA oranyofthegovernmentsorgovernmentalagenciesinvolved.

6. Presentationoverview Barriersto RE promotion in CDM/JI: do they also applytonewmechanisms? Optionstoaddressthebarriers Whatcanbedone in theshort, medium andlongterm?

7. Will barriers to RE promotion under CDM/JI also exist under new mechanisms? High upfront costs Revenues from credits cover only part of the cost gap to fossil fuels Limited country-specific data availability for baselines (CDM PoAs: DOEs have liability for mistakes) Conflict with policiesthat reduce emissions in theadditionality demonstration: Projects in countries that reduced feed-in tariffs to a level that made the CDM necessary are currently rejected unless they can show that they would be commercially unattractive even with the initial tariff Unclear treatment of other renewables promotion policies such as renewables portfolio standards

8. Linking renewables policies and CDM/JI CDM/JI option:E- rule clarification • E- rule: policies that provide a comparative advantage to less emission intensive technologies or fuels over more emissions-intensive ones (E- policies), implemented after 2001, are not to be taken into account for defining a baseline. • => Clarificationthat RE promotion policies introduced after November 2001maybe introducedand modifiedwithout prejudice to additionality • => Definition of E- policies whose modification harms additionality: only those policies that were in place and systematically applicable before 2001 • no negative consequences of pilot (“lighthouse”) projects • highest feed-in tariff only has to be used if tariffs were systematically in place before 2001

9. CDM/JI option: E- rule clarification • Application of the new E- rule interpretation to RE projects: • Renewable electricity generation: investment analysis with actually applied wholesale power tariff, excluding Feed-In tariff (FIT), investment subsidies, green quotas etc. • Other renewable projects: investment analysis with avoided cost of alternative service provision, e.g. heat generated by using fossil fuel Host countries could set FIT or other support at level where CDM is still necessary to make RE projects commercially attractive

10. CDM/JI option: positive listsforadditionality • Country, (region) andtechnologyspecificpositive listsbyobjectiveindicatorsofadditionality • RE technologygenerationcostscannot(yet) becoveredbycurrentwholesale power tariffs in thecountry • Positive listswouldhavetoberegularlycheckedandupdated, otherwisetheyshouldautomatically lose validity • => Burdenofadditionalityproofshiftedfromprojecttocountry/regionlevel.

11. Option: Newmarketmechanismsinsteadof CDM • Sectoralapproachesbeyondtheprojectbyprojectapproach • e.g. creditingbased on non-bindingsectoraltargetsmore stringent thanbusinessasusual • Possiblylowercreditingvolumes per installationthan in thecurrent CDM, but scaled-upoverallclimateprotection • Howtoavoidfree-riding, e.g. usingdomestic ETS systemsforthe power sector? • Howtoclosethecostgapfortechnologieswherethe CDM is not yetsufficient? • National governancerequired - private sectorriskperceptionscomparedtothe CDM?

12. Option:Subsidized NAMAsinsteadof CDM • RE supportpoliciesthatarehardtoquantify • Clear indicationofsubstantiallong-termimpacts • Sufficientcapacityofpublicclimatefinance (e.g. ETS auctionrevenues) forsignificantmitigationcontributions?

13. Option: Credited NAMAs insteadof CDM • RE supportpolicieswithquantifiable GHG impact • methodologyforquantification • e.g. byadapting CDM methodologies, e.g. RE mobilizedbythepolicymultipliedbythegridemissionfactor • „mobilizedby“: thereturnofthecausality (additionality) problem? • Cf. positive listsforthe CDM/JI: objectiveindicators(costgapanalysisasgeneralized, sectoralinvestmentanalysis) couldbedefined

14. Option:Global emissionstradinginsteadof CDM • Inoneortwodecades, RE promotioncouldconsistofintegrationofthe power sector in advanceddeveloping countries in the international carbonmarket, e.g. throughlinkingof ETS • CDM/JI projectcycleshaveprovidedtheMRV experience • enforceablesanctions, allocationmethodologies (auctioning, technology-neutral benchmarking;otherwise ETS mightbecome a barrierto RE integration) • Phase-out for CDM/JI forthecoveredsectors (e.g. CDM reservesforrestofcreditingperiod, noprolongationofcreditingperiodoncethe ETS takesovertheincentive RE functions) • will ETS pricesclosethecostgap (ifany, given rapid RE costdecrease)?

15. First steps: shortterm CDM/JI options • PoAs: limit DOE liability under CDM programmes to a specific period / shift liability to PoA owners by default • Standardized baselines (e.g. default emission factors => other presentations) • Additionality: • Simplification of application of CDM E- rule to additionality determination • Country- and technology specific positive lists based on objective indicators • Close (only) part of the cost gap through support policies and the rest through the revenue from carbon credit sales, optimizing resource allocation and minimizing remaining additionality concerns • => Renewedsignaltohost countries that RE promotionpolicies will not exclude CDM/JI projects.

16. Medium andlongtermoptions • International agreement on climatechangeincludingnewmechanisms such as NAMAs • e.g. second commitment period of the Kyoto Protocol with stringent, binding commitments • Long-termfinancingofhigher-cost RE throughcarbonmarketswithadequatepricebuildingfactorsleadingtopricesreflectingexternalcostsof CO2e emissions • e.g. longtermdemandclarityvia longtermcapsprovidingfordirecttransfers via carbonmarkets, leadingtoadequatemitigationpaths • e.g. byindirecttransfers via international climatefundsfinancedbysources such asauctioningrevenues • e.g. by a combinationofthetwooptionsabove

17. Thank you for your attention! • Konrad Raeschke-Kessler • E-Mail: German.DNA.DFP@uba.de • Internet: www.dehst.de; www.iea-retd.org