Programmatic CDM: An Approach to Obtaining Carbon Credits

1
Programmatic CDM An Approach to Obtaining
Carbon Credits

• Presentation by Charles Murove
• Free State Provincial Workshop
• CDM Awareness Raising Workshop
• President Hotel, Bloemfontein (15th July 2009)

2
Some acronyms

• UNFCCC United Nations Framework Convention of
  Climate Change
• CDM Clean Development Mechanism
• EB Executive Board
• DNA Designated National Authority
• PIN Project Idea Note
• LNO Letter of No Objection
• PDD Project Design Document
• CER Certified Emission Reduction
• ERPA Emission Reduction Purchase Agreement
• pCDM Programmatic CDM
• PoA Programme of Activity
• CPA CDM Project Activity
• CME Coordinating Managing Entity

3
CDM Programming in SA

• Refer to DNA presentation
• Points to note
• yes stand-alone CDM works
• yes SA has some registered CDM projects
• yes a few have received issueances
• But
• There are barriers militating against wide scale
  adoption of CDM in developing countries
• hence the potential role of pCDM incl. in SA

4
Items to be covered

• Why pCDM?
• What is it?
• Why Is It Important?
• A Very Brief History
• Programmes vs Bundles
• Where We Are Now?
• UNFCCC Procedures/Guidance
• Status of methodologies
• Issues to consider
• Role of the Programme Entity
• What do participants do?
• Programmatic CDM (pCDM) and CDM Methodologies
• Role of the DOE
• How to move pCDM forward
• If time allows The Marbek-SPF pCDM project

5
Why pCDM?

• As Yvo de Boor, Executive Secretary of the United
  Nations Framework Convention on Climate Change
  (UNFCCC) has said
• Programmatic CDM is expected to enormously
  enhance the chances of small and poor countries
  getting access to the CDM. In such countries,
  single projects are often too small to be
  commercially attractive. As a consequence, many
  small and poor countries are not benefiting from
  the CDM at the moment. The programmatic approach
  could dramatically change this.

6
Why pCDM/2?

• Stand-alone CDM has a number of constraints which
  include high transaction costs per activity and
  require a long lead times from project
  development to actual issuance of the CER
  certificate
• To assist overcome some of the constraints
• Innovations towards strengthening the CDM
• rather than implement a stand-alone CDM
  project activity,
• execute a programme of activities (pCDM) or
  implement sectoral CDM (sCDM)
• Focus of this presentation is pCDM

7
Typical CDM Project Cycle (Source Carbon
Fund/CF)
8
Projects (stand-alone CDM) need to be of a
sufficient scale to be attractive economically
viable (Source - South Pole Carbon)
50
Registering CDM projects involves a number of
fixed costs
And therefore a project requires sufficient
scale to overcome these costs and to be
profitable/attractive

• PIN development
• PDD development
• Advisory services
• Validation
• Registration
• Verification
• Issuance

Present value of CDM costs and revenues 000 EUR
Revenues
Costs
Project size 000 tCO2e
9
What is it?

• A programme rather than a project activity.
• A group of similar CDM project activities
  organised by a single entity (CME).
• Can take place in many different locations
  (including multi-country) over a long period of
  time (up to 28 years).
• The programme can be implemented by a public or
  private entity.

10
Why Is It Important?

• Particularly important for energy efficiency and
  renewable energy (EERE) projects as it has the
  potential to reduce transaction costs/activity.
• It also allows smaller project activities to get
  credits even if not ready to proceed nowthe
  long tail projects which are presently
  neglected.
• How does it do this?
• Facilitates corporate programmes which may
  introduce the same improvement in many different
  facilities over time.
• Encourages use of standards and policies as a
  basis for CDM projects, removing the perverse
  incentive.

11
Long-tail and Short-tail EE Projects
Volume of Reductions
Number of Projects
Stand-alone CDM
Distributed CDM
High savings/ High cost/Single location
Low savings/lower cost/many locations
Adapted from C Figueres M Phillips, 2007,
unpublished draft.
12
A Very Brief History

• Introduced at COP11/MOP1--2005
• Finally approved at EB32 in June 2007
• Guidance and procedures plus templates for PDDs
  issued in July 2007.
• Methodologies now being revised to incorporate
  programmatic.
• As many as 10? programmes now at validation, none
  approved yet.

13
The Final Word.

• A programme of activities (PoA) is a voluntary
  coordinated action by a private or public entity
  which coordinates and implements any
  policy/measure or stated goal (i.e. incentive
  schemes and voluntary programmes), which leads to
  GHG emission reductions or increases net
  greenhouse gas removals by sinks that are
  additional to any that would occur in the absence
  of the PoA, via an unlimited number of CDM
  Programme Activities (CPAs).

14
The Final Word, continued.

• All CPAs of a PoA shall apply the same approved
  baseline and monitoring methodology, involving
  one type of technology or set of interrelated
  measures in the same type of facility/installation
  / land.

15
And one more thing.

• The physical boundary of a PoA may extend to
  more than one country provided that each
  participating non-annex I host Party provides
  confirmation that the PoA, and thereby all CPAs,
  assists it in achieving sustainable development

16
Programmes vs Bundles

• Bundle
• a set of different project activities undertaken
  at approximately the same time (i.e. for the same
  crediting period) either by different project
  developers or by the same developer in different
  locations. (May use different technologies and
  baselines)
• Purpose to increase the size of the project
  being registered, e.g. by bundling a number of
  very small-scale projects to achieve a larger
  project which still qualifies as small-scale.

17
Programmes vs Bundles/2

• Programme
• a set of project activities which are broadly
  similar, e.g. have the same baseline and use the
  same technology, but take place over a wide area
  and over a long period of time, e.g. with
  different crediting periods.
• Purpose to facilitate the implementation of a
  measure or set of measures (e.g. energy
  efficiency) which would otherwise be too costly
  to implement as separate project activities.

18
Bundles Within Programmes

• Preference for using small-scale methodologies
  for programmatic CDM
• Wider range of approved methodologies
• Fits the smaller size of most EE and RE projects
• Leads to possibility of bundling projects
  together to further reduce transaction costs,
  e.g. large number of small solar projects.
• Unlike regular bundling, subject to single
  technology/set of measures/single methodology
  rule.

19
Duration, Crediting Periods

• EB 32
• The duration of the PoA, not exceeding gt28 years,
  shall be defined by the entity at the time of
  request for registration of the PoA. Any CPA can
  be added to the PoA at any time during the
  duration of the PoA by the coordinating/ managing
  entity.
• CPAs will declare their crediting period at the
  time they are added to the PoA, and this period
  cannot be outside of the project duration.

20
Role of the Coordinating Entity

• The PoA must be submitted by one
  coordinating-managing-entity (CME) which can be
  private or public.
• This entity does not necessarily implement the
  GHG reductions but rather provides the framework
  and incentives for others to do so.
• The CME communicates with the EB on all matters,
  including the registration of CERs.
• The CME must ensure that double counting does not
  occur, i.e. activities in the program are not
  registered as a separate CDM project activity,
  nor are they part of another registered CDM
  program.

21
What does the CME Do?

• Is accredited by DNA as a voluntary party
• Develops the PoA PIN PDD
• Establishes procedures for project entry to the
  programme and confirms eligibility.
• Submits PoA PDD and CPA PDDs to DOE
• Coordinates sale of credits and initial
  periodic verification.
• Is the sole channel of communication with the DNA
  and CDM EB.

22
What Do the Participants/Developers Do?

• Develop PDDs for their project activity,
  following the template provided by the PoA.
• Submit the PDDs to the CME for onward
  transmission to the EB
• Are responsible for monitoring of the emissions
  reductions.
• Receive the CERs from their project activity (or
  a share of same)

23
Types of Programme

• Single measure/single location
• Example Improved ceiling insulation in
  buildings
• Several measures/single location
• Example Measures to improve boiler efficiency
• Single measure/many locations
• Example Replacing incandescent w/CFLs
  countrywide.
• Several measures/many locations
• Example Set of related efficiency measures for
  buildings, e.g. aircon/eff.lights/
  ballasts/fans

24
Methodologies

• All CPAs must use the same baseline and
  monitoring methodology.
• For energy efficiency, the number of approved
  demandside methodologies is very small.
• BUT, can use small-scale methodologies provided
  that
• The individual CPAs fall under the small-scale
  threshold, regardless of total programme size.
• This threshold now revised to 60 gWh per annum
  for e.e, or 60,000 tonnes CO2-e for other
  projects.

25
Opportunities

• PoAs based on standards
• Subject to effectiveness/currency
• 4-5 e.e. standards currently under SABS review
• PoAs based on energy efficiency measures or sets
  of interrelated measures, e.g.
• Compressor optimisation
• VSDs for conveyors
• Chiller optimisation/upgrades

26
The Energy Efficiency Accord (EEA) Programmatic
CDM Project (pCDM)

• Funded by Global Opportunities Fund GOF (now
  Strategic Projects Fund - SPF) and SANERI.
• Joint venture between NBI and Marbek.
• NBI planned to incorporate as a sponsored
  programme under the Sustainable Futures Unit.
• The EE Accord Technical Committee (EETC) to be
  involved and to constitute a management committee
  for the CME.
• A PoA will be created and a pilot project
  activity developed
• Three technologies/measures reviewed and SWH
  technology selected by EETC.
• NBI no longer part of the initiative
• CEF NEEA now on board

27
Where We Are NowUNFCCC Status

• Procedures/Guidance in place but subject to
  revision at any time.
• Methodologies
• Small-scale all now contain conditions for
  programmes of activities.
• Large-scale under review, some changes made.
• Main concern is leakage.
• EB clarification/decision pending regarding DOE
  liability and programme monitoring issues.

28
Issues to consider.
29
Role of the Programme Entity

• In the PoA_DD, CME responsibilities have to be
  specified, e.g.
• overall management of the programme, including
  all documentation and registration
• only party authorized to communicate with the DNA
  and the CDM EB on behalf of project participants
• Advisory services for technical and procedural
  matters, including screening new applicants.
• Maintaining a project database and archive of
  monitoring reports.

30
What must participants do?

• Will have to sign a binding agreement to allow
  CME to manage the programme and retain a portion
  of CERs to cover operating costs.
• Will have to fill in template (non-specific
  CPA_DD) and submit to CME.
• Will have to guarantee that they are not part of
  another programme or seeking registration as a
  separate CPA.

31
The Role of the DOE

• Crucial Role as it is the DOE that validates the
  PDDs and certifies the projects on behalf of EB.
• The CDM EB has decreed that DOEs must bear risk
  of under-estimation or other errors.
• Raises a number of questions
• Deduction penalties said to accrue to DOE in
  case of unqualified CPAs
• DOEs want to restrict this liability to
  unqualified PoAs
• Need clearer guidance for extent of
  CPA-registration work (before starting activities
  instead of corrections by review cases)
• Need to have flowing issuance requests rather
  than put issuance on hold because of
  verification concerns on a single CPA

32
Issues that need to be resolved

• DOEs are reluctant to take on pCDM
  programme/projects risks
• As a result pCDM validation has stalled
• CDM EB is reviewing liability issues with a view
  to minimise risks to DOE
• More clarity on process needed are programmes
  subject to more stringent review than projects?
• Who bears responsibility for CPAs that enter the
  programme after the initial validation/
  registration?
• Issuance flow provide assurance that CPAs
  failing verification will not block the flow of
  qualifying CPAs.

33
Programmatic CDM Projects Under Development
34
Background

• Funding from SPF and SANERI
• SANERI funding focuses on background research,
  selection of technologies
• SPF work focuses on programme development,
  implementation
• Deliverables
• A working CDM programme, validated and registered
  with the CDM EB

35
(No Transcript)
36
(No Transcript)
37
Project 1 Boiler Steam System Optimisation

• Covers range of capital-cost improvements in
  boiler and steam systems, treated as a set of
  interrelated measures.
• Uses small-scale methodology AMS II.C
• Demandside Energy Efficiency Project Activities
  for Specific Technologies
• Project Design Document will include boilerplate
  information for calculating baselines,
  establishing additionality, and analysing
  interactive effects of adopting more than one
  measure.

38
Project 2Installation of Variable-Speed Drives

• Covers installation in a range of applications
  including VSDs for pumps, fans, conveyors.
• Could be applied to some buildings applications
  operating under variable load conditions, e.g.
  chillers.
• Uses small-scale methodology AMS II.C
• Demandside Energy Efficiency Project Activities
  for Specific Technologies
• PDD Document will include boilerplate information
  for a range of specific applications.

39
Project 3 Solar Hot Water (SWH) for
Commercial-Industrial Applications

• Selected by the EETC
• Covers ablution uses and low-temperature process
  uses (lt60 C).
• Uses small-scale methodology AMS I.C, Thermal
  Energy for the User with or without electricity.
• Technologies used will have to adhere to national
  standards (SANS 1307 and SANS 10106)
• Integration with Eskom Industrial and Commercial
  DSM programme (SWH Component).
• Status PoA_PDD and non-specific CPA_PDD
  completed, first specific CPA_PDD under
  development.

40
Other pCDM Initiatives

• The National Sustainable Housing Facility
• Focuses onENERGY EFFICIENCY
• Who are the key role players?
• KUYASA CDM PROJECT
• SSN
• DBSA
• GENESIS
• DANIDA
• More about this in a later presentation.

41
Thank you for your attention!
For more information or to discuss becoming a
participant contact Charles Murove Marbek
Resource Consultants Africa 8 Victory
Road Greenside 2196 Johannesburg T 27 11 888
1194 F 27 11 782 4054 C27 82 347 0032
CharlesM_at_Marbek.co.za http//www.marbek.co.za