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Unlocking private investments in energy efficiency through carbon finance Igor Shishlov www.cdcclimat.com March 26, 2013 – University of Twente , Netherlands. Title Title. Date. CDC Climat Research. Independent economic research in: Energy & Carbon Markets

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Title title

Unlocking private investments in energy efficiency through carbon finance

Igor Shishlov

www.cdcclimat.com

March 26, 2013 – University of Twente, Netherlands

Title

Title

Date

JI Russia I 03/10/11


Cdc climat research
CDC Climat Research carbon

  • Independent economic research in:

    • Energy & Carbon Markets

    • Carbon Offsets, Agriculture & Forestry

    • Sub-national Climate Policies

    • Climate, Investment & Decision Making

  • Clubs:

    • Energy & Carbon Trends Club

    • Forestry Club

    • Agriculture Club

    • Cities, Local Governments and Climate Change Club

  • All publications available at www.cdcclimat.com


Agenda
Agenda carbon

  • The role of energy efficiency

  • The CDM and energy efficiency

  • JI and energy efficiency

  • Different roles for different markets

  • The leverage effect


No regrets policy
carbon No-regrets policy”

  • “Energy Efficiency is key for low-carbon transition” (IEA):

    • 2/3 of GHG abatement by 2035 under “new policies scenario”

    • $158 billion annual investment required

    • Spillover benefits: economic growth, energy access, security…

  • Barriers:

    • High technical and financial risk

    • Imperfect information

    • Access to capital

    • Split incentives etc…

  • Targeted policies required:

    • From grants and subsidies to carbon finance and energy savings certificates trading


The cdm scheme
The CDM scheme carbon

  • Emissions reduction projects in non-Annex I countries:

  • Reduce abatement cost

  • Contribute to sustainable development

  • Spillover benefits: search function, technology transfer…

Source: CDC Climat (2012)


The cdm and ee
The CDM and EE carbon

  • 472 EE CDM projects in 40 sub-types registered

  • 58 million CERs issued

  • 20 EE PoAs registered (lighting & cookstoves)

Source: CDC Climat based on UNEP RisoeDatabases (2013)


Cdm poa household ee
CDM carbon PoA: household EE

  • PoA0070: Efficient Cook Stove Programme (Kenya):

    • Reduced CO2 emissions

    • Improved indoor air quality

    • Reduced burden on women and children who collect wood

  • Lessons:

    • PoA framework makes carbon finance increasingly suitable for LDCs

    • There is demand for high-quality carbon offsets


The ji scheme
The JI scheme carbon

  • Emissions reduction projects in Annex I countries

  • ERUs are converted from AAUs

  • No change in the Kyoto cap

  • Can also be used domestically (ETS vs. non-ETS)

Source: CDC Climat (2012)


Ji and ee
JI and EE carbon

  • 125 EE JI projects in 25 sub-types registered

  • 103 kERUs issued

  • 24 PoAs registered (household and commercial buildings)

Source: CDC Climat based on UNEP RisoeDatabases (2013)


Ji poa household ee
JI carbon PoA: household EE

  • JIPoA0005: Active Climate Protection – CO2 Bonus natural gas (Germany)

  • Encouraging private households (28 000 participants expected) to reduce their gas consumption through energy efficiency measures



Investment leverage
Investment leverage carbon

  • Leverage compared to other international financial tools:

    • World Bank programs (GEF, CTF…) 6:1 to 9:1

    • Multilateral Development Banks 2:1 to 8:1

*Note that the creditingperiod for the CDM iseither 7 years (renewable) or 10 years (non-renewable) compared to 5 years in JI, hence large difference in leverage ratios

Source: CDC Climat based on UNEP RisoeDatabases (2013)


Lessons
Lessons carbon

  • CDM/JI cannot

    • Achieve economy-wide emissions reduction (project-based)

    • Tackle sectors covered by a domestic ETS (double-counting)

  • CDM/JI can

    • Facilitate different types of energy efficiency projects: a public policy tool)

    • Leverage private investments: $4-9 per $1 of carbon “carrot” for energy efficiency projects

    • Spur innovation: “search function”

    • Help set efficiency standards

  • CDM/JI frameworks can be used as a flexible policy tool to leverage investments in energy efficiency


To learn more
To learn more… carbon

  • Climate Brief n°27 « Unlocking private investments in energy efficiency through carbon finance »

  • Climate Report n°37 « 10 lessons from 10 years of the CDM »

  • Climate Report n°33 « Joint Implementation: a frontier mechanism within the borders of an emissions cap »

  • World Energy Outlook. International Energy Agency (2012)

  • Plugging the energy efficiency gap with carbon finance. International Energy Agency (2012)


Title title

Thank you for your attention! carbon

igor.shishlov@cdcclimat.com

Title

Title

Date

JI Russia I 03/10/11


Title title

Background slides carbon

Title

Title

Date

JI Russia I 03/10/11


The cdm in brief
The CDM in brief carbon

Heights achieved

Turbulence experienced

Environmental integrity (additionality & baselines)

Administrative process

Uneven coverage (geographical and sectoral)

Supply-demand disequilibrium

  • The largest carbon offset mechanism in the world

  • >9 000 project pipeline

  • >1 billion GtCO2e abated

  • US$3.6 billion savings (mainly EU ETS)

  • US$215 billion investments (mainly private)

  • Innovation and learning curve

25 March 2013


The cdm is a tanker
The CDM is a tanker… carbon

  • Sunk investments => inelastic CER supply

25 March 2013

Source: CDC Climat Research, 2012


Approaching the iceberg
..approaching the iceberg carbon

  • Market disequilibrium threatens the life of the CDM

25 March 2013

Source: CDC Climat Research, 2012


Eu ets drives the cdm
EU ETS drives the CDM carbon

56%

EU ETS

  • 46% CERs are traded via commodity hubs – UK, CH

  • 74% CERs contracted by the EU ETS (World Bank 2012)

  • 56% CER already surrendered under the EU ETS

46%

UK, CH

25 March 2013

Source: CITL (2012), National CarbonRegistries (2012), UNEP Risoe (2012)


Cdm reform is ongoing
CDM reform is ongoing carbon

EB16: tool for demonstrating additionality

COP16: positive lists, standardized baselines

COP17: Materiality Standard

EB47: PoAs

EB27: methodology consolidation

EB62: suppressed demand

COP17: CCS

EB22: E+/E- rules

2001 2012

EB27: combined baseline and additionality tool

EB65: HFC revision

EB48: prior consideration

EB62: standardized baselines guidelines

EB65: Project Standard, Validation and Verification Standard, Project Cycle Procedure

EB55: Validation and Verification Manual

EB39: ban on new HCFC plants

25 March 2013

Source:CDC Climat Research (2012) based on the EB and COP reports


Streamlining procedures
Streamlining procedures carbon

EB16: tool for demonstrating additionality

COP16: positive lists, standardized baselines

COP17: Materiality Standard

EB47: PoAs

EB27: methodology consolidation

EB62: suppressed demand

COP17: CCS

EB22: E+/E- rules

2001 2012

EB27: combined baseline and additionality tool

EB65: HFC revision

EB48: prior consideration

EB62: standardized baselines guidelines

EB65: Project Standard, Validation and Verification Standard, Project Cycle Procedure

EB55: Validation and Verification Manual

EB39: ban on new HCFC plants

25 March 2013

Source:CDC Climat Research (2012) based on the EB and COP reports


Expansion
Expansion carbon

EB16: tool for demonstrating additionality

COP16: positive lists, standardized baselines

COP17: Materiality Standard

EB47: PoAs

EB27: methodology consolidation

EB62: suppressed demand

COP17: CCS

EB22: E+/E- rules

2001 2012

EB27: combined baseline and additionality tool

EB65: HFC revision

EB48: prior consideration

EB62: standardized baselines guidelines

EB65: Project Standard, Validation and Verification Standard, Project Cycle Procedure

EB55: Validation and Verification Manual

EB39: ban on new HCFC plants

25 March 2013

Source:CDC Climat Research (2012) based on the EB and COP reports


Additionality baselines
Additionality & baselines carbon

EB16: tool for demonstrating additionality

COP16: positive lists, standardized baselines

COP17: Materiality Standard

EB47: PoAs

EB27: methodology consolidation

EB62: suppressed demand

COP17: CCS

EB22: E+/E- rules

2001 2012

EB27: combined baseline and additionality tool

EB65: HFC revision

EB48: prior consideration

EB62: standardized baselines guidelines

EB65: Project Standard, Validation and Verification Standard, Project Cycle Procedure

EB55: Validation and Verification Manual

EB39: ban on new HCFC plants

25 March 2013

Source:CDC Climat Research (2012) based on the EB and COP reports


The cdm policy dialogue
The CDM Policy Dialogue carbon

Reforms already on the way

Standardize additionality and baselines

Reform the CDM governance

Enhance sustainable development

Boost CER demand, keep an eye on supply

Proactively diffuse the CDM and its toolbox across climate initiatives

New

Recommendations (to be implemented by end-2013)

25 March 2013


Ji weight is growing
JI weight is growing carbon

  • JI will account for 1/3 of all Kyoto offsets by May 2013

Source: issuance from UNEP Risoe (2012), forecast by CDC Climat Research (2012)


Ji case 1 industry
JI case 1: industry carbon

  • RU1000227: Evaporation System Modernization at OJSC “Ilim Group” (Russia)

  • Objective: reduce power consumption of the pulp production process


Ji case 1 industry1
JI case carbon 1: industry

  • RU1000227: Evaporation System Modernization at OJSC “Ilim Group” (Russia)

  • Additionality: investment, barrier and common practice analyses

  • Lesson: JI can enable large-scale industrial EE projects in the absence of the ETS improving their IRR

1Based on the wholesale gas price set by Gazprom in 2012 (http://www.gazprom.ru/about/marketing/russia/)


Ji case 2 agriculture
JI case 2: agriculture carbon

  • FR1000135: Alfalfa dehydration optimization Coop de France Andainage(France)

  • Flat pre-wilting of alfalfa to reduce energy consumption on 16 individual sites and use of biomass energy


Ji case 2 agriculture1
JI case 2: agriculture carbon

  • FR1000135: Alfalfa dehydration optimization Coop de France Andainage (France)

  • Additionality: investment and barrier analysis

  • Lesson: JI can spur technological innovation and enable efficient agricultural practices – “search function”


Ji case 3 household ee
JI case 3: household EE carbon

  • JIPoA0005: Active Climate Protection – CO2 Bonus natural gas (Germany)

  • Encouraging private households (28 000 participants expected) to reduce their gas consumption through energy efficiency measures


Ji case 3 household ee1
JI case 3: household EE carbon

  • JIPoA0005: Active Climate Protection – CO2 Bonus natural gas (Germany)

  • Additionality: barrier analysis (PoA), common practice analysis

  • Lesson: JI can encourage diffused household EE projects outside the ETS

1Based on Eurostat (http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/)