CDM Benchmarks BEE Workshop on CO 2 Benchmarks for Cement June 2007 Urs Brodmann Member of CDM-India Expert Group Facto

1. CDM BenchmarksBEE Workshop on CO2 Benchmarks for CementJune 2007 Urs BrodmannMember of CDM-India Expert GroupFactor Consulting + Management AG Zurich, Switzerland urs.brodmann@factorglobal.comwww.factorglobal.com BEE: CDM Benchmarks for Cement

2. Factor Consulting + Management:Our Services... since 1999 Carbon Asset Development Carbon Financing Mitigating Climate Change Corporate Greenhouse GasManagement BEE: CDM Benchmarks for Cement

3. Overview • CDM Rules • CDM Statistics – General • CDM Statistics – Cement • Proposal for CDM Benchmarking BEE: CDM Benchmarks for Cement

4. Kyoto Protocolto the United Nations Framework Convention on Climate Change • Signed in 1997; in force since 16 February 2005 • Ratified by >130 countries • Major non-participants: USA and Australia • Industrialised (= Annex 1) countries are to to reduce their greenhouse gas emissions by 5% below 1990 levels in 2008-12 • Individual, quantified emission targets for each industrialized country • Six greenhouse gases covered: CO2, CH4, N2O, HFC/PFC, SF6 • “Flexibility mechanisms” for financing emission reductions abroad: • Clean Development Mechanism (CDM) • Joint Implementation (JI) • International Emissions Trading BEE: CDM Benchmarks for Cement

5. CDM Objectives and Organization • Principle: Emission reductions in developing countries can be certified and sold • Buyers = Annex 1 governments and companies located in these countries • Twin objectives: • Help buyer countries meet their GHG reduction objectives cost-effectively • Contribute to sustainable development of the host countries • Rules, modalities and procedures are defined in: • Kyoto Protocol (1997) • Follow-up decisions of COP, especially Marrakesh Accords (2001), and • Decisions of CDM Executive Board • CDM Executive Board: • Responsible for further development of CDM rules, and supervising implementation • Composed of 10 Members + 10 Alternates • Reports to the Conference of the Parties (COP) BEE: CDM Benchmarks for Cement

6. Eligible Project Types • In principle, any project reducing “Kyoto gases” in the atmosphere: • Kyoto Gases: CO2, CH4, N2O, HFC/PFC, SF6 • Carbon sinks are included: • Afforestation, reforestation • Technical sequestration (rules to be established) • Exclusions: • Nuclear energy • Avoided deforestation (Forest protection) • Tradable unit: “Certified emission reductions” (CER) • 1 CER equals 1 metric tonne of CO2-equivalent (CO2e) BEE: CDM Benchmarks for Cement

7. Emissions baseline Additional emission reductions Emissions with project Baseline and Additionalityof CDM Projects GHG emissions [t CO2-eq] Project implementation Year BEE: CDM Benchmarks for Cement

8. Additionality • CDM is an incentive to achieve additional emission reductions • CDM is NOT a reward for past or BAU emission reductions • A project activity (and the resulting emission reductions) is additional if it is not the baseline scenario • i.e., the project activity should not occur “anyway” • Goal is to makeprojectshappen which without CDM revenues would not be viable. • Without additionality, CDM will lead to global increase in emissions • In comparison with a “Kyoto without CDM” world • Avoid that business-as-usual efficiency gains in developing countries are used to fulfil commitments of Annex 1 Countries BEE: CDM Benchmarks for Cement

9. CDM Project Cycle:Steps towards certified emission reductions (CERs) CDM ExecutiveBoard ProjectOwner Project Idea Registration Project Owner Monitoring ofEmission Reductions* ProjectOwner Project Design Document Operational Entity Verification & Certificationof Emission Reductions* DNA Host Country Approval CERIssuance * CDM ExecutiveBoard ApprovalBaseline Methodology* * CDM ExecutiveBoard Operational Entity * periodically during crediting time* * unless approved method. is used Validation BEE: CDM Benchmarks for Cement

10. Overview • CDM Rules • CDM Statistics – General • CDM Statistics – Cement • Proposal for CDM Benchmarking BEE: CDM Benchmarks for Cement

11. CDM Statistics (as per 7 June 2006) • Projects registered: 720 • Of which located in India: 215 - World Leader • Projects submitted for registration: about 80 • Projects known to be prepared for registration (undertaken public stakeholder consultation process): >800 • Projects submitted to CDM Executive Board for approval of baseline methodology: 202 BEE: CDM Benchmarks for Cement

12. 720 Registered CDM Projects(per 29 May 2006) BEE: CDM Benchmarks for Cement

13. Registered CDM Projects (per 29 May 2007):Expected Emission Reductions Total = 156MtCO2e /yr BEE: CDM Benchmarks for Cement

14. Number of Registered CDM Projects by Quarter BEE: CDM Benchmarks for Cement

15. Approved Large Scale Methodologies (per May 2007) Total = 48 BEE: CDM Benchmarks for Cement

16. Overview • CDM Rules • CDM Statistics – General • CDM Statistics – Cement • Proposal for CDM Benchmarking BEE: CDM Benchmarks for Cement

17. Registered Cement Projects by Country BEE: CDM Benchmarks for Cement

18. Number of Registered Cement Projects by Type, India BEE: CDM Benchmarks for Cement

19. Emission Reductions (tCO2/yr) of Registered Cement Projects by Type, India BEE: CDM Benchmarks for Cement

20. Rejected Cement Projects (1) BEE: CDM Benchmarks for Cement

21. Rejected Cement Projects (2) BEE: CDM Benchmarks for Cement

22. Cement Projects under Review BEE: CDM Benchmarks for Cement

23. Overview • CDM Rules • CDM Statistics – General • CDM Statistics – Cement • Proposal for CDM Benchmarking BEE: CDM Benchmarks for Cement

24. Objective of Benchmarking Twin objective of CDM benchmarks: • Baseline for calculation of emission reductions • No additionality test – any project beating the baseline qualifies as additional (“additionality threshold”) Methodology for determination of the benchmark will be submitted to CDM Executive Board for approval • Once approved, methodology can be used by various project activities • Quantified benchmark to be validated by DOE for each project BEE: CDM Benchmarks for Cement

25. Benchmark CER* Benchmarking Concept CER* = additional reductions due to project Emissions rate (t CO2 /t) Production in region (t /yr) BEE: CDM Benchmarks for Cement

26. Existing CDM Methodologies for Cement BEE: CDM Benchmarks for Cement

27. Benchmark Proposal(Draft for Discussion) • Develop benchmark forenergy intensity of kiln, in MJ /t clinker • Benchmark level =Average energy intensity of 20% best-performing “comparable” units • “Top 20%” is anchored in Marrakesh Accords as one possible principle for baseline setting • CERs = (BM – En.IntensityKiln) x CO2-Intensity of kiln fuel BEE: CDM Benchmarks for Cement

28. Benchmark Proposal(Draft for Discussion) – Cont.d • Why for energy intensity of kiln? • Biggest gap of current CDM rules • Why energy benchmark, not CO2-benchmark? • CO2-benchmarks more complex, less acceptable(mixing thermal efficiency and fuel types) • Why clinker-based, not cement-based?  Clinker is logical choice for kiln efficiency benchmark BEE: CDM Benchmarks for Cement

29. Key Issues - Methodological • Need to distinguish new kilns vs. existing kilns ? • Thermal energy only, or thermal + electrical ? • Differentiate benchmarks based on project circumstances ? • Cement type • Kiln size • Raw materials • Fuels • Etc. etc. • Geographic scope: • Whole of India, vs. sub-national vs. international ? BEE: CDM Benchmarks for Cement

30. Key Issues - Procedural • Data: Need transparent, comprehensive database on kiln energy intensity • Data on drivers (e.g., raw mats., fuels, etc.) also required, if goal is to have set of differentiated benchmarks • Confidentiality: Need to address concerns re. confidentiality • Projects: Need at least one pilot project, to submit CDM methodology for approval • Responsibility: Who does what? BEE: CDM Benchmarks for Cement

31. Establishing the Database:Points to Consider • Use existing data where available;Coordinate with ongoing and planned data collection: • Data submitted to BEE under Energy Conservation Act • Data collected by CMA / NCB • Data collected by CSI • Questions to be addressed: • Which data has been / will be collected ? • Who is coordinating the collection process ? • What is the timeline ? • Can data be used within existing confidentiality agreements ? • Can scope of data be extended for future collection rounds ? BEE: CDM Benchmarks for Cement

32. Tentative Timeline • June 07: Draft strategy & stakeholder buy-in • Aug 07: Detailed strategy and concept; start data collection identify 1-2 pilot project(s) • Oct 07: Start data analysis & methodology development • Jan 07: Submit benchmarking methodology for approval to CDM Executive Board (EB) • Jun 08: Methodology approved by CDM-EB • Aug 08: Pilot projects registered as CDM activities BEE: CDM Benchmarks for Cement

33. Conclusions • CDM is real: • Significant opportunities for Indian cement industry • CDM is becoming more difficult: • Executive Board getting tough on additionality • ... leading to higher transaction costs & projects being rejected • Benchmarks for kiln energy intensity should simplify CDM • Eliminate need for additionality test, and simplify baseline setting • Transparent, comprehensive database required for benchmark setting • Ways towards this database to be discussed • Coordination with ongoing & planned activities is key BEE: CDM Benchmarks for Cement

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