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Gas Flaring Reductions and the Clean Development Mechanism (CDM)

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'cap & trade' system. Collective problem-solving ... 'Cap and Trade' analogy. 10 passengers share a boat to cross a river ... Classical 'cap & trade' mechanism ... – PowerPoint PPT presentation

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Title: Gas Flaring Reductions and the Clean Development Mechanism (CDM)


1
Gas Flaring Reductions andthe Clean Development
Mechanism (CDM)
NOT AN OFFICIAL UNCTAD RECORD
  • Lucas Assunção
  • Coordinator
  • BioTrade and Climate Change Programmes
  • UNCTAD, Geneva

2
Agenda
  1. The Kyoto Protocol
  2. The Clean Development Mechanism (CDM)
  3. The emerging carbon market
  4. CDM challenges and opportunities for gas flaring
    reduction projects

3
The Kyoto Protocol Architecture
  • Caps emissions of greenhouse gases (GHG) by
    industrialized countries (Annex I)
  • combined emissions are reduced by at least 5 of
    their 1990 levels by the period 2008-2012
  • Industrialized countries have access to 3
    flexibility mechanisms
  • to minimize the cost of reducing emissions
    (flexibility)

4
The Kyoto Protocol as a cap trade system
  • Collective problem-solving approach
  • As a group, reduce GHG emissions by X amount in X
    time to reduce concentrations
  • Flexibility with regards to
  • Measures technology used, policy tools, etc.
  • Allocation of emission quotas among emitters
  • Trading quotas among each other

5
Cap and Trade analogy
  • 10 passengers share a boat to cross a river
  • Due to river conditions, boat has now to be
    lighter but should still accommodate same 10
    passengers
  • The carry-on bags in which we all put our
    things now needs to be smaller
  • From now on, our stuff will have to fit in the
    smaller bag
  • If you have extra space in the bag, you can
    trade it with someone who needs the extra space

6
Why cap trade is preferred policy
  • Drives down the costs of achieving environmental
    objectives
  • Acid Rain from 1,000s to 100s (see next slide)
  • Gives industry space to change and adjust
  • Feeds on diversity of marketplace and differences
    in abatement costs
  • Drives innovation and efficiency
  • So the bigger the market, the better
  • But this also results in winners and losers

7
US SO2 Prices
8
Kyoto ProtocolsFlexibility Mechanisms
  • Classical cap trade mechanism
  • International emissions trading (ET) trading of
    emission quotas among industrialized countries
    (AAU)
  • Offset mechanisms
  • Joint Implementation (JI) emission reduction
    credits resulting from offset projects in other
    industrialized countries (ERU)
  • Clean Development Mechanism (CDM) crediting of
    certified emission reductions resulting from
    offset projects in developing countries (CER)

9
What is the Clean Development Mechanism
  • KP mechanism that defines project activities
    which reduce GHG emissions or increase CO2
    sequestration implemented in developing countries
  • Purpose
  • To support developing countries in achieving
    sustainable development through the
    implementation of project activities that reduce
    GHG emissions
  • To assist industrialized countries in meeting
    their GHG emission reduction commitments

10
CDM overview
CDM Project Activity (Methane recovery in
landfill)
Sustainable Development in developing countries
Certified Emission Reductions (CERs)
Remove or retire CER from market (NGO)
Sell CER through market
INVESTORS
Use CER to comply with present or future
GHG emission commitments
11
CDM rules from Marrakech
  • Undertaken in developing countries
  • CERs may be used by Annex I countries
  • Voluntary participation approved by each Party
  • Real, measurable and long-term mitigation
    benefits
  • Reductions are additional to any that would occur
    in the absence of the project
  • Promotes sustainable development, as confirmed by
    host country
  • Does not divert ODA
  • Should lead to transfer of technology and
    know-how
  • Refrain from reductions generated from nuclear
    facilities

12
The CDM Project Cycle
  • Process/Steps
  • Project Design
  • Project validation
  • Registration
  • Monitoring
  • Verification/Certification
  • Issuance of tradeable credits
  • Key Actors
  • Project Developers
  • Natl CDM Office, National Govts
  • CDM Executive Board
  • Project Operators
  • Independent Third Party
  • CDM Executive Board

13
The Emerging Carbon Market
  • In anticipation of the entry into force of KP, a
    global market is emerging
  • Fuelled by the perception that the future will be
  • carbon-constrained (environment) and/or
  • have to be less fossil-fuel dependent (political
    economy)
  • The Dow Jones Sustainable Development Index has
    outperformed the market

14
Market Actors
  • Governments
  • EU-wide emission trading scheme (starts in 2005)
  • National emissions trading schemes Denmark, UK,
    Norway (early starters)
  • The Netherlands ERUPT and CERUPT emission
    reduction procurement tender now joined by
    other governments like Finland, etc.
  • Corporations
  • Corporate-wide Shell, BP
  • Procurement/Investment TransAlta, OPG, Marubeni
  • Chicago Climate Exchange

15
Chicago Climate Exchange
16
Carbon Finance _at_ World Bank
17
Market Forecast
  • We are living in a carbon constrained world. The
    urgency to control/stop the radical change in the
    worlds atmosphere and climate will only
    increase.
  • Market mechanisms are the preferred policy
    responses. But this will create winners and
    losers at various points in time.

18
CDM Challenges andOpportunities in General
  • Challenges include -
  • Lowering transaction costs
  • Limit on use of credits by industrialized
    countries
  • Additionality issue
  • Promoting CDM investments
  • Ensuring that additional revenue promotes
    sustainable development
  • Opportunities include
  • Additional revenue stream
  • More energy-efficient technologies
  • Better practices
  • Greater environmental awareness

19
  • Gas Flaring Reduction Projects Challenges
    Opportunities

20
Gas flaring and climate change
  • CO2 emissions from flaring is about 10 of the
    Kyoto emission reduction commitment of all
    Annex-I countries (including USA)
  • Energy wasted through flaring and venting is
    prodigious
  • The gas alone is enough to supply all of Frances
    gas requirements
  • Venting of associated gas (methane) directly into
    the atmosphere is unrecorded and is 23 times more
    potent than CO2 as a greenhouse gas

21
Economics of gas flaring
  • About 8 billion standard cubic feet per day of
    gas is wasted globally ( Frances gas
    requirements)
  • There are strong economic reasons to stop the
    flaring and venting of gas resources
  • Requires large capital investment that is
    sensitive to a variety of risk factors

22
Major challenges for gas flaring reduction as CDM
  • Additionality
  • Demonstrating Sustainable Development
  • Competition with other CDM projects

23
Additionality
  • Given the economic importance of capturing flared
    gas and the associated political and regulatory
    pressures, it is difficult to establish
  • Whether or not the planned reductions would take
    place without the proposed CDM project
  • What amount of reductions can be credited to the
    CDM project

24
Demonstrating Sustainable Development
  • 3 categories of reduction projects
  • Re-inject associated gas
  • Improve efficiency of flares
  • Utilization of gas for energy purposes
  • Except for last category, projects do not have
    high visibility impact in promoting sustainable
    development a key component

25
Competition with other CDM projects
  • Assuming that the carbon market is modest and
    that prices stay at Euro 3-10
  • Other CDM projects may be more attractive than
    gas flaring reduction projects

26
Conclusions Gas Flaring Reduction Projects
  • Viability attractiveness of GFR projects is
    likely to increase as the CDM market grows
  • In a large CDM market, GFR projects offer highly
    effective, measurable sources for large amounts
    of CERs
  • Uncertainties about gas flaring reduction
    projects can be reduced by clearer regulatory
    policy
  • For more information
  • CDM Online Course _at_ www.LearnSD.org
  • The CDM Guide _at_ www.unctad.org/ghg
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