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NOT AN OFFICIAL UNCTAD RECORD. Gas Flaring Reductions and the Clean Development Mechanism (CDM). Lucas Assun çã o Coordinator BioTrade and Climate Change Programmes UNCTAD, Geneva. Agenda. The Kyoto Protocol The Clean Development Mechanism (CDM) The emerging carbon market

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gas flaring reductions and the clean development mechanism cdm

NOT AN OFFICIAL UNCTAD RECORD

Gas Flaring Reductions andthe Clean Development Mechanism (CDM)

Lucas Assunção

Coordinator

BioTrade and Climate Change Programmes

UNCTAD, Geneva

UNCTAD/Earth Council Carbon Market Partnership

agenda
Agenda
  • The Kyoto Protocol
  • The Clean Development Mechanism (CDM)
  • The emerging carbon market
  • CDM challenges and opportunities for gas flaring reduction projects

UNCTAD/Earth Council Carbon Market Partnership

the kyoto protocol architecture
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)

UNCTAD/Earth Council Carbon Market Partnership

the kyoto protocol as a cap trade system
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

UNCTAD/Earth Council Carbon Market Partnership

cap and trade analogy
“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

UNCTAD/Earth Council Carbon Market Partnership

why cap trade is preferred policy
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”

UNCTAD/Earth Council Carbon Market Partnership

us so2 prices
US SO2 Prices

UNCTAD/Earth Council Carbon Market Partnership

kyoto protocol s flexibility mechanisms
Kyoto Protocol’sFlexibility 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)

UNCTAD/Earth Council Carbon Market Partnership

what is the clean development mechanism
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

UNCTAD/Earth Council Carbon Market Partnership

cdm overview
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

UNCTAD/Earth Council Carbon Market Partnership

cdm rules from marrakech
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

UNCTAD/Earth Council Carbon Market Partnership

the cdm project cycle
Process/Steps

Project Design

Project validation

Registration

Monitoring

Verification/Certification

Issuance of tradeable credits

Key Actors

Project Developers

Nat’l CDM Office, National Gov’ts

CDM Executive Board

Project Operators

Independent Third Party

CDM Executive Board

The CDM Project Cycle

UNCTAD/Earth Council Carbon Market Partnership

the emerging carbon market
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

UNCTAD/Earth Council Carbon Market Partnership

market actors
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

UNCTAD/Earth Council Carbon Market Partnership

chicago climate exchange
Chicago Climate Exchange

UNCTAD/Earth Council Carbon Market Partnership

carbon finance @ world bank
Carbon Finance @ World Bank

UNCTAD/Earth Council Carbon Market Partnership

market forecast
Market Forecast
  • We are living in a carbon constrained world. The urgency to control/stop the radical change in the world’s 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.

UNCTAD/Earth Council Carbon Market Partnership

cdm challenges and opportunities 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

CDM Challenges andOpportunities: in General

UNCTAD/Earth Council Carbon Market Partnership

slide19
Gas Flaring Reduction Projects: Challenges & Opportunities

UNCTAD/Earth Council Carbon Market Partnership

gas flaring and climate change
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 France’s 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

UNCTAD/Earth Council Carbon Market Partnership

economics of gas flaring
Economics of gas flaring
  • About 8 billion standard cubic feet per day of gas is wasted globally (= France’s 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

UNCTAD/Earth Council Carbon Market Partnership

major challenges for gas flaring reduction as cdm
Major challenges for gas flaring reduction as CDM
  • “Additionality”
  • Demonstrating Sustainable Development
  • Competition with other CDM projects

UNCTAD/Earth Council Carbon Market Partnership

additionality
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

UNCTAD/Earth Council Carbon Market Partnership

demonstrating sustainable development
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

UNCTAD/Earth Council Carbon Market Partnership

competition with other cdm projects
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

UNCTAD/Earth Council Carbon Market Partnership

conclusions gas flaring reduction projects
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 @ www.LearnSD.org
    • The CDM Guide @ www.unctad.org/ghg

UNCTAD/Earth Council Carbon Market Partnership