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CLEAN%20DEVELOPMENT%20MECHANISM:%20OVERVIEW%20DENR%20Training%20Course%20November%204-6,%202003%20Climate%20Change%20Information%20Center%20Manila%20Observatory%20Ateneo%20de%20Manila%20University

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3D modeling and visualization tools are used for ... Study area: Northern part of Navotas, Metro Manila. 2. UNFCCC and KYOTO PROTOCOL ... – PowerPoint PPT presentation

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Title: CLEAN%20DEVELOPMENT%20MECHANISM:%20OVERVIEW%20DENR%20Training%20Course%20November%204-6,%202003%20Climate%20Change%20Information%20Center%20Manila%20Observatory%20Ateneo%20de%20Manila%20University


1
CLEAN DEVELOPMENT MECHANISM OVERVIEW DENR
Training Course November 4-6, 2003 Climate
Change Information Center Manila
Observatory Ateneo de Manila University
2
Contents
  1. Problem of Climate Change
  2. UNFCCC Kyoto Protocol
  3. Clean Development Mechanism
  4. CDM Eligible Projects
  5. Environmental Benefits of CDM
  6. Mechanics of CDM
  7. Basics of CDM Financing
  8. Philippine Participation in CDM

3
1. Problem of Climate Change
4
Rising temperatures results in changing weather
patterns
  • Increased occurrence of dramatic weather such as
    hurricanes
  • Melting polar caps, glaciers
  • Shifts in weather patterns

Historic Temperature Data
5
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6
Atmospheric CO2 Concentration and Temperature
Change
7
Climate Change
  • Climate change is caused by both natural events
    (like volcanic eruptions) and human activities

8
Human Sources of GHGs
Carbon Dioxide (CO2) Most prevalent GHG Methane
(CH4) Second most common, 21x the potency of
CO2 Nitrous Oxide (N2O) 310x the potency of
CO2 Other Gases HFCs, PFCs, and SF6 range 600
23900x potency of CO2
Transport
9
GHG and Environmental Impacts
Changes in temperature, weather patterns and sea
level rise
Human Health Weather related mortality
Infectious disease Air quality - respiratory
illness
Coastal Areas Erosion and flooding Inundation Ch
ange in wetlands Water Resources
Changes in water supply and water
quality Competition/Trans-border Issues
Agriculture Changes in crop yields Irrigation
demands, Productivity
Forests Change in Ecologies, Geographic range
of species, and Health and productivity
Industry and Energy Changes in Energy
demand Product demand Supply
10
Philippine Rice Production. Arrows indicate El
Niño events. (source Food and Agricultural
Organization)
11
Vulnerability information systems
El Niño - La Niña Vulnerability Map Support for
Greenhouse Gas Inventory
12
Sea level rise
3D modeling and visualization tools are used
for vulnerability assessment, exact location and
quantification of areas which are susceptible to
floods due to rise in sea level. Study area
Northern part of Navotas, Metro Manila
13
2. UNFCCC and KYOTO PROTOCOL
14
United Nations Framework Convention on Climate
Change
  • Objective of the Convention
  • Stabilization of greenhouse gas concentrations
    in the atmosphere at a level that would prevent
    dangerous anthropogenic interference with the
    climate system. Such a level should be achieved
    within a time frame sufficient to allow
    ecosystems to adapt naturally to climate change,
    to ensure that food production is not threatened,
    and to enable economic development to proceed in
    a sustainable manner.

15
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16
United Nations Framework Convention on Climate
Change
  • Commitments by the Parties to the Convention
  • Parties have common but differentiated
    responsibilities.

17
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18
Division of Parties by Annex
Annex I
Annex II
Australia / Austria / Belgium / Canada / Denmark
/ EC / Finland / France / Germany / Greece
/Iceland / Ireland / Italy / Japan / Luxembourg /
Netherlands / New Zealand / Norway / Portugal /
Spain / Sweden / Switzerland / Turkey / United
Kingdom / USA
Belarus / Bulgaria / Croatia / Czech Republic /
Estonia / Hungary / Latvia / Liechtenstein /
Lithuania / Monaco / Poland / Romania / Russian
Federation / Slovakia / Slovenia / Ukraine
Non-Annex I Countries All the Rest of Ratifying
Countries
19
Kyoto Protocol
  • The overall emission reduction target for Annex I
    Parties as a group is at least 5 percent below
    1990 levels, to be achieved by the commitment
    period 2008 to 2012 (an average over the five
    years).
  • The Protocol covers six greenhouse gases (Annex
    A) - CO2, CH4, N2O, HFCs, PFCs, SF6
  • The negotiated targets for individual Annex I
    Parties are included in Annex B of the Protocol.

20
Selected Quantified Emission Limitation ()
  • Industrialized Countries
  • Australia 108
  • Canada 94
  • EC bubble 92
  • (Germany 75)
  • (Portugal 140)
  • Japan 94
  • Norway 101
  • New Zealand 100
  • USA 93 ???
  • Economies in Transition
  • Bulgaria 92
  • Baltics 92
  • Croatia 95
  • Czech Republic 92
  • Hungary 94
  • Poland 94
  • Romania 92
  • Russia 100
  • Ukraine 100

21
Kyoto Protocol
  • The Kyoto Protocol was adopted at COP-3 in
    December, 1997, in accordance with Berlin
    Mandate of COP-1.
  • The Protocol will enter into force when not less
    than 55 Parties to the Convention, accounting for
    at least 55 percent of the 1990 total CO2
    emissions of the Annex 1 Parties, have ratified
    the Protocol.
  • US 34 Russia 16 Japan 8 EU 23
  • Other Annex 1 Parties 19

22
Kyoto Protocol Flexibility Mechanisms
Annex I GHG Emissions
Clean Development Mechanism
Emission Trading
1990 level
Joint Implementation
- 5
Domestic Actions
Assigned Amounts
Present day
2012 (BaU)
2012 with KP
23
3. Clean Development Mechanism
24
Clean Development Mechanism
  • Enables developed countries (known as Annex B
    countries) to meet their emission reduction
    commitments in a flexible and cost-effective
    manner
  • Assists developing countries (non-Annex B
    countries) in meeting their sustainable
    development objectives
  • Investors benefit by obtaining Certificates of
    Emissions Reductions (CERs)
  • Host countries benefit in the form of investment,
    access to better technology, and local
    sustainable development

25
What can the CDM do for developing countries
  • Attract foreign investment to countries engaged
    in the trading of CERs
  • Increase the profitability of cleaner more
    efficient technology in energy, industry, and
    transport sectors
  • Clean up waste management operations
  • Improve land-use strategies and practice
  • Contribute to sustainable development of the host
    country

26
What are the Criteria for CDM Projects?
  • Sustainable development
  • Host country criteria
  • Environmental Impact Assessment
  • Stakeholder consultations
  • Greenhouse Gas (GHG) emission reductions
  • Environmental additionality
  • Project additionality
  • Project viability
  • Technologically proven
  • Financially sound
  • Host country approval
  • Project validation and registration

27
4. CDM Eligible Projects
28
CDM Eligible Projects
  • Renewable energy
  • Fuel switching
  • End-use energy efficiency improvements
  • Supply-side energy efficiency improvements
  • Agriculture (reduction of CH4 N2O emissions)
  • Industrial processes (CO2 from cement, HFCs, etc)
  • Sink projects (only afforestation reforestation)

29
Renewable energy
  • Solar power
  • Hydro power
  • Wind power
  • Geothermal
  • Biomass
  • Tidal / Wave power

30
Renewable energy
  • Renewable energy for the grid
  • For electricity generation by households or
    commercial users
  • E.g., Solar home systems, solar water pumps,
    photovoltaics, wind battery chargers
  • For mechanical energy by households or commercial
    users
  • E.g. wind-powered pumps, solar water pumps, water
    mills, wind mills

31
Renewable energy
  • Thermal energy for households or commercial users
  • E.g., solar thermal water heaters and dryers,
    solar cookers, energy derived from biomass for
    water heating, space heating or drying
  • Biomass combined heat and power (co-generation)
    systems

32
Fuel switching
  • For industrial facilities
  • From steam or compressed air to electricity
  • For buildings
  • From oil to gas
  • For vehicles
  • From diesel to LPG or to CNG

33
End-use energy efficiency improvements
  • Energy efficiency equipment
  • Motors
  • Lamps
  • Ballasts
  • Refrigerators
  • Fans
  • Air conditioners
  • Appliances
  • Etc

34
Supply-side energy efficiency improvements
  • Generation
  • Efficiency improvements at power stations and
    district heating plants and co-generation
  • Transmission and Distribution
  • Examples
  • Upgrading voltage on a transmission line
  • Replacing a transformer
  • Increased insulation of pipes

35
Agriculture
  • Reducing emissions from agricultural soils
  • Use of ammonium sulfate instead of urea
  • Use of phosphogypsum in combination with urea
    instead of urea
  • Reducing methane emissions from livestock
  • Conservation agricultural tillage
  • Agricultural land management practices
  • Use of composted rice straw instead of fresh rice
    straw

36
Industrial processes
  • Methane (CH4) recovery and avoidance from
    landfills, coal mines, agro-industries, waste
    water treatment facilities
  • CH4 has global warming intensity 21-times that of
    CO2
  • Cement production (CO2)
  • Electric equipment manufacturing (SF6)
  • PFC emissions from aluminum production
  • PCF gases have global warming intensity over
    6000-times that of CO2
  • PFC and SF6 emissions from semiconductor
    manufacturing
  • Nitrous Oxide (N2O) emissions from adipic acid
    and nitric acid manufacturing
  • N2O has global warming intensity of 310-times
    that of CO2

37
Sink projects
  • Afforestation
  • Planting trees on agricultural land
  • Reforestation
  • Planting trees on denuded forest land

38
Clean Development Mechanism
  • Types of small-scale projects that could qualify
    for fast-track approval procedures
  • Renewable energy projects up to 15 megawatts (MW)
    of output capacity
  • Energy efficiency improvements that reduce energy
    consumption on the supply and/or demand side by
    up to 15 gigawatt-hours (GWh)/year
  • Other project activities that both reduce
    emissions at source and directly emit less than
    15 kilotons (kt) of CO2 equivalent annually

39
5. Environmental Benefits of CDM
40
CDM Project
  • Achieves Sustainable Development objectives for
    the host developing country
  • Reduces GHG Emissions

41
Simplistic numerical example
  • Provide electricity for a barangay
  • Business-as-usual (baseline) Diesel generator
    sets
  • Cost of project 10
  • Emissions 1 tC
  • Cleaner project (CDM-eligible) Micro-hydro
  • Cost of project 13
  • Zero Emissions

42
Simplistic numerical example
  • CDM Investor (e.g. Japan)
  • Invests 3 (13-10, difference between cleaner
    and business-as-usual project)
  • Gains Certificate of Emissions Reduction of 1 tC,
    which it can meet some of its Kyoto Protocol
    commitments to reduce emissions

43
Simplistic numerical example
  • WIN WIN WIN
  • WIN for the host country
  • Sustainable development benefit Cleaner energy
    production technology
  • WIN for the Annex I country
  • Credits for emissions reduction
  • WIN for the Global Environment
  • Emissions reduction

44
Additionality
  • Additionality is the key eligibility criterion in
    CDM projects
  • You must do something that you would not have
    done without the CDM
  • Two types of additionality
  • Project Additionality
  • Environmental Additionality

45
Project Additionality
  • Without the ability to register under the CDM,
    the proposed project would be, or would have
    been, unlikely to occur

46
Project Additionality
  • Baseline methodology evaluates whether or not the
    proposed CDM project activity would have gone
    ahead anyway.
  • Baseline methodology assesses why the proposed
    CDM project activity is less likely to occur than
    one or more of the other possible scenarios.

47
Environmental Additionality
  • If the proposed CDM project activity is not
    implemented, a less greenhouse gas friendly
    activity would have been initiated or continued
    instead.

48
Environmental Additionality
  • A CDM project activity is additional if
    anthropogenic emissions of GHGs by sources are
    reduced below those that would have occurred in
    the absence of the registered CDM project
    activity.
  • -CDM MP para. 43

Emission Reductions hypothetical baseline
emissions effective (project) emissions
49
Environmental additionality and baseline

50
6. Mechanics of CDM
51
Starting Point Viable Project
  • A potential CDM Project is a feasible project
  • Technologically feasible
  • Financially sound
  • A potential CDM Project is a project which has an
    Environmental Compliance Certificate (ECC)

52
CDM Project Cycle
Project Design Formulation
Project Design Document
C
D
C
D
4
M
I
C
C
C
53
Contents of CDM-PDD
A. General description of project
activity   B. Baseline methodology   C.
Duration of the project activity/ Crediting
period   D. Monitoring methodology and plan   E.
Calculations of GHG emissions by sources   F.
Environmental impacts   G. Stakeholders comments
54
CDM Project Cycle
Project Design Formulation
Project Design Document
National Approval
C
D
C
D
4
M
I
C
C
C
55
National Approval
  • Approval is by the Designated National Authority
    (DNA) for CDM
  • Main Criteria for Approval Does project
    contribute to the sustainable development
    objectives of the Philippines?
  • Sustainable development indicators
  • Project type priorities
  • Positive list
  • Negative list

56
CDM Project Cycle
Project Design Formulation
Project Design Document
National Approval
Operational Entity A
Validation / Registration
C
D
C
D
4
M
I
C
C
C
57
Validation
  • Designated Operational Entity
  • External Auditor
  • Validates the PDD
  • Including the Baseline Study and the Monitoring
    Plan
  • Recommends whether the project should be
    registered as a CDM Project

58
Registration
  • Registration is done by the CDM Executive Board
    (presently based in Bonn, Germany)
  • CDM Project Registry

59
CDM Project Cycle
Project Design Formulation
Project Design Document
National Approval
Operational Entity A
Validation / Registration
Investors
Project Financing
Project Participants
Monitoring
Monitoring Report
Operational Entity B
Verification / Certification
Verification Report / Certification Report /
Request of CERs
EB / Registry
Issuance of CERs
C
D
C
D
4
M
I
C
C
C
60
Verification
  • Verification of monitoring report of emission
    eductions by the project
  • Verification is done by another Designated
    Operational Entity
  • Operational Entity certifies the actual emission
    reductions by the project
  • Operational Entity submits certification to CDM
    Executive Board

61
Issuance of CERs
  • Based on the certification by the Operational
    Entity, the CDM Executive Board issues the
    Certificate of Emission Reductions
  • Official registry of CERs
  • CERs are a tradable asset (like stocks or bonds)

62
7. Basics of CDM Financing
63
Total Project Costs and Sources of Finance
  • Total Project Cost Estimates
  • Investment costs, including development costs, up
    to commissioning of project
  • Sources of Finance to be Sought or Already
    Identified
  • Critical to identify other debt and/or equity
    finance
  • Typical sources of funding international
    development banks, government funding, private
    financing, supplier credit
  • CDM contribution typically 5-15 of total
    project costs

64
Financing Options in a CDM Project
  • Carbon Funds
  • Annex I investors contribute to a mutual fund
  • Mutual fund agrees to buy CERs as they are
    produced by the project
  • Examples
  • WB Prototype Carbon Fund
  • Netherlands CERUPT

65
How Carbon Funds Work..
Technology

Finance
Industrialized Governments and Companies
Developing Countries and Communities
Carbon Fund
66
Nature of Carbon Financing Contract
Banks
Investor
Debt
Equity
Power Purchase Agreement

Electricity

Carbon Credits
67
Financing Options in a CDM Project
  • Emission Reductions Purchase Agreement
  • Annex I investor agrees to buy CERs as they are
    produced by the project

68
Emission Reduction Purchase Agreement
  • Will improve IRRs
  • Forward contract
  • Payment upon delivery of verified ERs
  • Upfront payments are rare
  • Will provide a hard currency revenue
  • Helps secure financing and reduce project risk
  • Future ER payments as collateral for project
    loans
  • Can be paid into an escrow account, protecting
    lenders from currency convertibility and transfer
    risks

69
How CDM can matter
FIRR
CER income
0
70
Impact of Carbon Finance on Project Financial
Rate of Return
Technology DIRR
Hydro, Wind, Geothermal 0.8-2.6
Methane Kick
Crop/Forest Residues 3-7
Municipal Solid Waste 5-10
  • Revolution in Solid Waste Management
  • Important impact on small-holder crop-processors
    and animal production

71
Lessons from PCF Carbon Prices
Uganda small hydro (51.5 MW) remote area 3.00
Chile 25 MW hydro run-of-river 3.50 option
Brazil sustainable charcoal replacing coal/coke 3.50
Poland District Heating Fuel Switch Coal to Geothermal and Biomass 3.50
C. America small wind/hydro 3.50
Romania Afforestation 3.60 option
Colombia wind farm 3.50 0.5
South Africa Durban waste management 3.75 0.2
Czech small-scale energy efficiency 4.00
72
ODA and CDM Funding
  • Public funding for CDM Projects be additional to
    Official Development Assistance (ODA), Global
    Environment Facility (GEF) provided by Annex I
    Parties
  • Public funding for CDM projects must not result
    in the diversion of ODA
  • ODA can be part of the project financing as long
    as ODA financing does not claim emission
    reduction credits (WB PCF)

73
Emission Reduction Purchase Agreement
ODA
Banks
Investor
Non-ODA
Debt
Equity
Power Purchase Agreement

Electricity

Carbon Credits
74
8. Philippine participation in CDM
75
Requirements for the Philippines to Participate
in CDM
  • Process of Philippine ratification of the Kyoto
    Protocol
  • Senate Committee on Foreign Affairs has sponsored
    the ratification on the floor of the Senate, 2nd
    June 2003 (1st Reading)
  • 2nd Reading, Interpellation, 21st October 2003
  • Need 2/3 majority of the Senate to concur in the
    ratification of the Kyoto Protocol
  • Kyoto Protocol ratified, 22nd October 2003
  • Senate concurred in the ratification by a
    unanimous vote, 19 0 (3rd Reading)

76
Requirements for the Philippines to Participate
in CDM
  • Status of efforts to establish CDM Designated
    National Authority (DNA)
  • Proposal to make the Inter-Agency Committee on
    Climate Change (IACCC) as the DNA
  • IACCC is composed of DENR, DOST, DOE, DFA,
    DTI-BOI, DOTC, NEDA, DPWH, PAGASA, FMB, EMB,
    Philippine Network on Climate Change (NGO)

77
  • Thank you

Roberto C. Yap, S.J., Ph.D. Environmental
Economist Climate Change Information
Center Manila Observatory Ateneo de Manila
University Tel 63 2 426-6144 Fax 63 2
426-6070 rcyap_at_ateneo.edu
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