Public inputs on the baseline standard

1. Public inputs on the baseline standard Axel Michaelowa UNFCCC Practitioners Workshop “Standards for baseline scenario identification and baseline emissions calculation” Bonn, March 4, 2011

2. Overview of submitters

3. Overview of comments • Comments are rather critical, with most commentators opposing the tools in their current form • Comments relate to • Purpose of tools • Structure of tools • Some comments are off scope • Default grid emissions factor for grids in LDCs / below certain per capita energy supply • CDM EB accountability for rule inconsistencies

4. Purpose of tools • So far, tools treated specific aspects of methodologies • New tools want to generalize the baseline section of all baseline methodologies. • Are tools mandatory or optional? • Most commentators prefer the latter • Project developers could use own approach, if it is more accurate • Are the tools applied as package or can one pick and choose?

5. Purpose of tools • Are the tools independent methodologies or do they serve as guidance on meth development? • Commentators prefer the latter • Approved methodologies override tools as per the hierarchy of decisions and the tools thus could just be seen as guidance • Well-established guidance could be superseded • All existing methodologies would have to be revised • Generally, comments stress inconsistencies between existing methodologies / guidance documents and the tools

6. Structure of tools • Very (“incredibly”) complex • Fear that transaction costs of project developers increase instead of decreasing • Hurdle to recruit qualified auditors for DOEs • Improve language and presentation • Flow diagrams • Annexes • New terminology not always necessary

7. Tool for baseline identification • Tool addresses definition of project alternatives and treatment of suppressed demand • Introduces concept of five “Methodological Approaches for Baseline Setting” (MABS) • Commentators want to limit new terminology or at least get an unambiguous definition • General feeling that MABS 1 and 2 cannot be separated for all project types

8. Tool for baseline identification II • Treatment of suppressed demand is generally seen as too conservative • delivery of goods supply to cover previously suppressed demand should not be treated as capacity expansion • assumption that historical consumption will first be displaced by other activities is problematic • Commentators have difficulty with the requirement to prove that developers would / would not invest in an alternative

9. Tool for baseline calculation • Tool specifies approaches for benchmark setting • Commentators call for • better guidance on how to choose between historical/actual emissions and the benchmark • coverage of greenfield plants • special treatment of LDCs

10. Tool for baseline calculation • Commentators call for substantiation of • choice of the number of 10 facilities for the definition of the relevant area • global level for the industrial gas benchmark • differentiation of stringency level of benchmarks across MABS • Continuation of suppressed demand should be covered • Term “benchmark” needs to be defined

11. Tool for determination of most attractive alternative • Defines alternative scenarios to the CDM projects, for which a barrier and then an investment analysis is done • Some commentators do not see a need for this tool, as additionality tool is available • Terminology problems • Project ”under way“ • Criteria for area expansion if less that 10 comparable facilities are available

12. Tool for determination of most attractive alternative • Restriction of barrier analysis to those barriers really relevant for the project • One comment heavily opposes investment analysis for all relevant alternatives due to excessive cost for project developers • compare the most profitable ways of increasing production • country or regional-level studies on marginal production cost increase provided by the EB in a top-down fashion

13. Options to improve the tools • Tool for baseline identification: include series of flowcharts explaining • Choice of MABS • Treatment of suppressed demand • Concept of MABS • MABS 1: Use of baseline instead of project efficiency might be appropriate in some cases • MABS 2: Delete option without initial investment, or engage in a discussion whether behavioural changes should be included in the CDM www.perspectives.cc · michaelowa@perspectives.cc

14. Options to improve the tools II • Concept of MABS (contd.) • MABS 1: Use of baseline instead of project efficiency might be appropriate in some cases • MABS 2: Delete option without initial investment, or engage in a discussion whether behavioural changes should be included in the CDM • MABS 2 vs MABS 5: could overlap as energy efficiency improvement inevitably leads to a reduction of the emissions intensity of an output www.perspectives.cc · michaelowa@perspectives.cc

15. Options to improve the tools III • Concept of MABS (contd.) • MABS 3 should not exclude new industrial facilities; they could be covered by a benchmark stringent enough to prevent perverse incentives • GHG use avoidance related to cover gas alternatives does structurally not fit into MABS 3, it would better fit into MABS 4, as the cover gas avoided will not be produced. MABS 3 also generally caps the CER production level without assessing the incentives for production increases • Gas flaring reduction should belong to MABS 5 www.perspectives.cc · michaelowa@perspectives.cc

16. Options to improve the tools IV • Concept of MABS (contd.) • Gas pipeline leak reduction is not covered by any MABS • Mobile sources should not be excluded, as they can be covered by MABS 1 and 2 • Disaggregation of projects into components can be cumbersome; combinations of MABS might be necessary • Explain why combination of MABS 1 and 2 is not allowed for greenfield plants www.perspectives.cc · michaelowa@perspectives.cc

17. Options to improve the tools V • Clarify why it is required to check whether project developers would invest in the absence of the CDM project • Change sequence of paras 17-22, clarify that para 20 only applies to greenfield projects • Make clear that this check is required to prevent exclusion of all fossil power plant projects (AM 0029, ACM 0013) that would otherwise have to apply a benchmark under MABS 5 that they could not beat • Discuss openly about suppressed demand www.perspectives.cc · michaelowa@perspectives.cc

18. Options to improve the tools VI • Tool for baseline emissions calculation • All equations that determine baseline fuel or energy use contain a multiplicative term dividing project by baseline efficiency. It only makes sense if the project technology is less efficient than the baseline technology • Consider spatial instead of administrative geographic delineation of markets • Benchmark stringency should differentiated according to common practice in host country and techno-economical optimum of each project type www.perspectives.cc · michaelowa@perspectives.cc

19. Summary • Tools are a commendable attempt to increase the consistency of baseline setting • Stakeholders: need for substantial revisions • Optional character of the tools preferred • Key challenges relating to the tools • disaggregation of projects into components, • evaluation whether a project developer will invest in the absence of the CDM project • coverage of suppressed demand • stringency of benchmarks www.perspectives.cc · michaelowa@perspectives.cc