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Kyoto Protocol and the CDM Energizing Cleaner Production Management Course

Kyoto Protocol and the CDM Energizing Cleaner Production Management Course. Session Agenda:. Introduction to climate change The Kyoto Protocol and CDM at a glance CDM project cycle CDM Pre-screen Tool for Industry in Developing Countries.

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Kyoto Protocol and the CDM Energizing Cleaner Production Management Course

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  1. Kyoto Protocol and the CDM Energizing Cleaner Production Management Course

  2. Session Agenda: Introduction to climate change The Kyoto Protocol and CDM at a glance CDM project cycle CDM Pre-screen Tool for Industry in Developing Countries

  3. Introduction to Climate ChangeYour task: answer these questions • What causes climate change? • Why are sea levels rising? • Which greenhouse gas is more powerful: CO2 or CH4? • If we cut all GHG emissions, how long will it take for climate change to stop? • How realistic was the movie “The Day After Tomorrow?”

  4. Introduction to Climate ChangeSome basic facts • Human activities are releasing greenhouse gases (GHG) into the atmosphere • Climate change is a global issue: 1 tCO2 emitted in India = 1 tCO2 emitted in USA • Rising levels of greenhouse gases are already changing the climate • Climate models predict the global temperature will rise by about 1.4 to 5.8 degrees by 2100 • Climate change is likely to have a significant impact on the global environment, economy and society

  5. 1) Solar radiation 2) Reflected back to space 3) Absorbed by atmosphere 4) Infra-red radiations emitted from Earth 2 5) Some of the IR passes through the atmosphere 1 3 6) Some is absorbed and re-emitted by greenhouse gas molecules 4 6 5 Introduction to Climate ChangeThe greenhouse effect The effect is increasing temperatures on Earth

  6. Introduction to Climate Change1 oC increase since 1986

  7. Introduction to Climate ChangeThe greenhouse gases

  8. Introduction to Climate ChangeGreenhouses are rising

  9. Introduction to Climate Change...and so is the temperature

  10. Introduction to Climate ChangeTrends for 2100 PRECIPITATION TEMPERATURE 5 degrees= What separates us from the last glacial era (-15 000 BC) Models’ forecasts : +1.4to +5.8 degrees by 2100.

  11. Introduction to Climate ChangeTime needed to reach equilibrium CO2 concentration, temperature, and sea level continue to rise long after emissions are reduced!

  12. Introduction to Climate ChangeVisual impact at the polar ice cap

  13. Introduction to Climate ChangeLess visual but major impact Agriculture and food security Crop yields, irrigation demands... Consequences of climate change: Forest Composition, health and productivity... Water resources Water supply, water quality... Coastal areas Erosion, inundation, cost of prevention... Species and natural areas Biodiversity, modification of ecosystems... > Temperature increase > Sea level rise > More rain Human health Infectious diseases, human settlements...

  14. Introduction to Climate ChangeYour task: answer these questions • What causes climate change? • Why are sea levels rising? • Which greenhouse gas is more powerful: CO2 or CH4? • If we cut all GHG emissions, how long will it take for climate change to stop? • How realistic was the movie “The Day After Tomorrow?”

  15. Kyoto Protocol and CDM at a glanceYour task: answer these questions • What is the main difference between UNFCCC and the Kyoto Protocol? • When did the Kyoto Protocol come into effect, and why not before? • What does it mean when we talk about the “commitment period”? • What are the “Flexible Mechanisms”? • Why has USA not ratified the Kyoto Protocol? • What are the two main purposes of CDM?

  16. Kyoto Protocol and CDM at a glanceUnited Nations Framework Convention on Climate Change (UNFCCC) • A global legal instrument (international agreement) to protect the climate system and stabilize GHG emissions • Adopted in 1992, entered into force in 1994 • Status of participation: 189 Parties • Contains 2 annexes: • Annex 1: countries with obligations to take measures to mitigate the effects of climate change • Annex 2: countries with obligations to provide financing to developing countries for their obligations under UNFCCC

  17. Kyoto Protocol and CDM at a GlanceKyoto Protocol – key points • Adopted at third Conference of Parties (COP) to the UNFCCC in Kyoto in 1997 • Required ratification of > 55 countries representing > 55% of GHG emissions • Entered into force on February 16th, 2005 after ratification of the Russian Federation • Now 163 countries covering 61.6% of global emissions have ratified the protocol

  18. Kyoto Protocol and CDM at a GlanceKyoto Protocol – key points • Six emissions: CO2, CH4, N2O, PFCs, HFCs, SF6 • Binding emission reduction targets for Annex I countries of 5.2% below 1990 over 2008-2012 • Non-Annex I countries have no binding targets but must report on their actions • Annex I countries can achieve targets through domestic policies and three market mechanisms • Non-Annex I countries can participate through the Clean Development Mechanism to facilitate sustainable development • Rules for implementation worked out at annual COP meetings

  19. Kyoto Protocol and CDM at a Glance Annex B countries (= Annex I under UNFCCC) AustraliaAustriaBelarusBelgiumBulgariaCanada CroatiaCzech RepDenmarkEC Estonia FinlandFranceGermanyGreeceHungary IcelandIrelandItalyJapan Latvia LiechtensteinLithuaniaLuxembourgNetherlandsNew ZealandNorwayPolandPortugal Romania Russia Slovakia Slovenia SpainSwedenSwitzerlandTurkeyUkraineUK USA *Countries with economies in transition to a market economy.* Countries which did not ratify Kyoto protocol.

  20. Kyoto Protocol and CDM at a Glance Emission trends in Annex 1 countries (2005) Decreased emissions (1990 baseline) Increased emissions (1990 baseline)

  21. Kyoto Protocol and CDM at a GlanceFlexible mechanisms ET - Emissions Trading AAU (Assigned Amount Units) are exchanged between Annex I countries JI - Joint Implementation Annex I investors receive ERUs (Emission Reduction Units) by investing in a project in another Annex I nation which reduces GHG emissions CDM - Clean Development Mechanism Annex I investors receive CERs (Certified Emission Reductions) by investing in a project in a non-Annex I nation which reduces GHG emissions

  22. Kyoto Protocol and CDM at a GlanceWhat Annex I countries can do Limitations of CO2 emissions in developed countries (Annex I) 4 options for companies 1/ Pay expensivefines. 2/ Carry out carbon reduction through processes improvement. 3/ Buy emissions credits on the CO2 market (ETS). 4/ Carry out carbon reduction through technology transfers in CDM or JI project.

  23. Kyoto Protocol and CDM at a GlanceOpportunities for industry

  24. Kyoto Protocol and CDM at a GlanceOpportunities for industry • Technology transfer to improve process and energy efficiency • Co-finance investments by selling emission credits • Prepare for future commitments (after 2012) • Achieve sustainable development

  25. Kyoto Protocol and CDM at a Glance Cleaner Production and Kyoto Protocol Opportunities Policy advice on industry’sneeds to enable JI/CDM Submit pilot and full-scale projects to GEF. Engage in technology needs assessments project Propose JI/CDM projects Raise awareness of JI/CDM opportunities among local key industries and partners Assistance in formulation of National Implementation Plans(GHG inventories, needs, etc.). CleanerProductionActivities KyotoProtocol

  26. Kyoto Protocol and CDM at a glanceWhy CDM? • Emission reductions more expensive in developed than developing countries • Two objectives: • Help Annex 1 countries meet their objectives in a cost-effective way • Contribute to sustainable development of the host country

  27. Kyoto Protocol and CDM at a glanceHow the CDM Works • Annex I country invests in GHG reduction project in non-Annex I country • Annex I country receives CERs • Non-Annex I country receives revenues from CERs

  28. Kyoto Protocol and CDM at a glanceYour task: answer these questions • What is the big difference between UNFCCC and the Kyoto Protocol? • When did the Kyoto Protocol come into effect, and why not before? • What does it mean when we talk about the commitment period? • What are the “Flexible Mechanisms”? • Why has USA not ratified the Kyoto Protocol? • What are the two main purposes of CDM?

  29. CDM Project CycleYour task: answer these questions • What is the difference between PIN and PDD? • What is the difference between the baseline and the baseline methodology? • What is the role of the DOE? • Does the size of my CDM project matter? • How are CDM projects normally financed?

  30. CDM Project CycleOverview: 9 steps

  31. CDM Project CycleCDM participants • CDM project developer / operator – e.g. government agencies, financial institutions, NGOs • CDM investors / CER purchasers – usually corporation, government agency or NGO in Annex I country • Host government and Designated National Authority – ratification of Kyoto Protocol and approve CDM projects

  32. CDM Project CycleCDM participants Designated Operational Entities (DOEs) • Domestic / international legal entities, accredited by CDM Executive Board • Responsibilities • Validating CDM activities • Making PDDs available • Receive comments on CDM documents • Verifying and certifying CERs during project operation

  33. CDM Project CycleCDM participants • CDM Executive Board (CDM-EB) • Reports to UNFCCC • Ten members • Reviews project validation and verification reports • Issues CERs • Other stakeholders • Local stakeholders: comment on PDD before host country approval • Other interested parties: comment on posted PDD

  34. CDM Project CycleStep 1. Project preparation • 1-i. Identification of project • Usually by comparison against approved baseline and monitoring methodologies • 1-ii. Pre-screening of CDM applicability • Assessment of project against criteria • CDM Pre-screen Tool can be used for this step! • 1-iii. Development of feasibility study • Technical and economical feasibility • Not required but recommended to prove ‘additionality’ of project

  35. CDM Project CycleStep 2. Develop Project Idea Note (PIN) • Project developer prepares PIN • Not mandatory but helps to obtain feedback from country / investors • Five pages • Project type, size, location • GHG reductions • Suggested crediting life time and CER price • Financial structure • Other socio-economic and environmental benefits

  36. CDM Project CycleStep 3. Develop Project Design Document (PDD) A. General description of the project B. Setting of the baseline C. Duration of the project / Crediting period D. Setting of the monitoring plan E. Estimation of GHG emission reductions F. Environmental impacts G. Stakeholders’ comments Annex 1: Contact information on participants Annex 2: Information regarding Public Funding Annex 2: Baseline information Annex 3: Monitoring plan

  37. CDM Project CycleStep 3. Develop Project Design Document (PDD) Baseline methodology: Approved methodology • Statement of which approved methodology has been selected • Description of how the approved methodology will be applied in the context of the project

  38. CDM Project CycleStep 3. Develop Project Design Document (PDD) Baseline methodology: new methodology (to be submitted to the UNFCCC Secretariat) • Description of the baseline methodology and justification of choice, including an assessment of strengths and weaknesses of the methodology • Description of key parameters, data sources and assumptions used in the baseline estimate, and assessment of uncertainties • Projections of baseline emissions • Description of how the baseline methodology addresses potential leakage

  39. CDM Project CycleStep 3. Develop Project Design Document (PDD) • Carbon credit (CER) can be generated as from now: • Banking by buyer for use towards compliance in 2008-2012 • Banking by project proponent for sale in later years • Crediting period: • Usually at start of project operation • Fixed crediting period of up to 10 years • Renewable crediting periods of up to 7 years (maximum 3 x 7 years)

  40. CDM Project CycleStep 4. Submission of PDD and host country approval to validator • Completed PDD and other reports submitted to DNA for approval • Ensures that governments retain sovereignty over natural resources • Confirm that project meets sustainable development criteria • PDD and host country approval documents submitted to validator (DOE)

  41. CDM Project CycleStep 5 – 7: Public comments, validation, review and registration of CDM project Tasks of DOE • Public consultation process (30 days) • Validation of CDM project against requirements • Submission to CDM-EB Tasks of CDM Executive Board • Review (optional) • Registration of CDM project

  42. Number of projects registered or known to be prepared for registration: End of 2004 End of 2005 CDM Project CycleStep 5 – 7: Public comments, validation, review and registration of CDM project Source: www.cd4cdm.org

  43. CDM Project CycleStep 8: Project implementation and monitoring Monitoring required upon project implementation • In accordance with monitoring plan of PDD • For the entire crediting period • Must at least cover technical project performance • Monitoring report submitted to DOE for verification

  44. CDM Project CycleStep 9. Yearly verification and certification Tasks of verification DOE • Verification of data accuracy and completeness and collection in accordance with monitoring plan • Preparation of verification report and certification report to CDM EB & public Tasks of CDM Executive Board • Approval of issuance of CERs • CER transfer into accounts

  45. CDM Project CycleFast track for small-scale projects Reasons for “fast track” • CDM process not feasible for small projects (high transaction costs) • Many small projects deliver significant local sustainable development benefits • Small-scale technologies are some of the most promising for solving the long term problem of climate change (e.g. solar; wind; fuel cells) • CDM might lose public support if rules are biased toward large capital-intensive projects

  46. CDM Project CycleFast track for small-scale projects Three types of small-scale projects • Type I: renewable energy projects with a capacity of up to 15 MW • Type II: energy efficiency projects with up to 15 GW/year (54 TJ) reduction on the demand and supply side • Type III: other projects which reduce emissions and are emitting less than 15 kT CO2/year

  47. CDM Project CycleHow are CERs sold? • Carbon funds are available through • International tenders for CDM projects • Voluntary corporate initiatives • Multilateral Funds • EU commitments for carbon purchase • Bilateral negotiations with the consortium of buyers • Average price of 7,5 US$ / tCO2eq in 2005 (3 to 14 US$)

  48. CDM Project CycleHow are CERs sold? • What determines the CER price • Likelihood Seller will deliver verifiable reduction on schedule • Creditworthiness and experience of project developer • Technical / technological viability of the project • Liabilities the Seller is willing to take if project fails to deliver including penalties for non-delivery and willful default / gross negligence • Vintages: in some markets, early vintages (until 2012) are priced higher because the Buyer’s willingness to pay in order to meet compliance • Likelihood of host country approval • Environmental and social compliance and additional benefits

  49. CDM Project CycleFuture demand for CERs

  50. CDM Project CycleYour task: answer these questions • What is the difference between PIN and PDD? • What is the difference between the baseline and the baseline methodology? • What is the role of the DOE? • Does the size of my CDM project matter? • How are CDM projects normally financed?

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