The NSS Side Event AT SBSTA 18

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The NSS Side Event AT SBSTA 18
Report of Study on the Methodologies and Its
Application of Clean Development Mechanism in
China Lu Xuedu Ministry of Science and
Technology Beijing, China Andreas
Oberheitmann/Othmar Schwank International Experts
Germany/Switzerland June 12, 2003, BONN
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Objectives

• Objectives
• Enhancing the capacity on
• (1) Technique and Methodology
• (2) Policy-making on CDM and
• (3) implementation of CDM project

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Activities

• Activities
• 1. Methodology Study
• 2. CDM project Case Study
• 3. Analysis on the CERS demand and supply
• 4. CDM Feasibility Study

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Participants

• Participants
• Management level
• World Bank
• State Secretariat Economy, Switzerland
• GTZ, Germany
• Environment Ministry, Italy
• Ministry of Science and Technology, PR
  China
• Representatives of the 5 Agencies form
  Steering Committee

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Participants

• Participants
• Technical Level
• Swiss CDM Expert Team INFRAS/EBP/LASEN
• Germany CDM Expert Team RWI/Integration
• World Bank Expert team
• Chinese Expert Team Tsinghua University

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Timeframe

• Time frame of the project implementation
• Start November, 2001, soon after COP-7
• Inception Report July 2001
• First Progress Report January, 2003
• Second Progress Report July, 2003
• Final Report September, 2003
• Final Workshop Winter of 2003

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Project Case

• Project Cases
• Wind Farm Project
• Anaerobic Treatment of Effluent and Power
  Generation
• Supercritical Coal-Fired Power Project
• Gas-Fired Combined Cycle Tri-Generation Project
• Gas-Steam Combined Cycle Power Project
• Landfill Gas Recovery and Power Generation
  Project

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Summary of interim results, 2nd progress report

• Task 1 Objectives
• To facilitate better understanding of CDM
  methodological and technical issues, and
• Proper application of related methodologies in
  the case studies in Task 2 and more widely in
  China
• 1.1 General overview
• 1.2 Baseline
• 1.3 Project Boundary and Leakage
• 1.4 Additionality
• 1.5 Project based GHG abatement cost

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Summary of the PRII (Task12)

• 1.2 Baseline
• 1.2.1 Baseline at power sector level
• Technology benchmark and sectoral baseline at
  regional level reasonable for middle large new
  power projects with high transparency
• Appropriateness of the top 20 average
  approach needs to be justified case by case.
• Dynamic baseline is necessary for China along
  with many changing in technological evolvement,
  policy regulation, fuel availability and price,
  product structure, etc.
• 1.2.2 Baseline at project level
• Three baseline approaches of Para. 48 a), b), c)
  evaluated in the case of Shanghai Wind Power,
  Phase II
• Baseline based on the current mix -gt highest
  emission factor
• Baseline based on the average emissions in the
  past five years is the most conservative.
• Planned coal fired addition to the Shanghai grid
  justified as appropriate baseline scenario.

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Summary of the PRII (Task2)

• 1.2.3. For the new built fossil fuel power
  project
• Case Huaneng-Qinbei Supercritical Coal Fired
  Power Project
• Scenario1 Existing provincial grid mix, constant
  emission factor/kWh
• Assuming not likely to build new coal fired power
  plants, while remaining existing grid capacity
  mix without change up to 2020, is thus not very
  accurate. Baseline 1.15 kg CO2/kWhe, ex ante.
• Scenario 2 Recent additions only - built margin
  average emissions, 48c)
• Very reasonable that the CDM project will most
  likely to replace or delay new coal fired power
  capacity otherwise in baseline case.
• The capacity mix of the recent additions would
  not change significantly in the near future, so
  that the ex ante built margin grid mix is used.
• Hydropower is base load, and thus rejected from
  into baseline.
• By top 20 average in past 5 years, Baseline
  1.03 kg-CO2/kWhe.
• Scenario 3 Combination of Existing Power Grid
  and Future Additions
• Combination of Scenario 1 with 2 but with ex post
  added up to 2015.
• Due to less data availability, a trade-off is the
  combination of existing generation mix and Phase
  I of Qinbei. Baseline 1.13 kg CO2/kWhe
• Conclusion Scenario 2 baseline methodology is
  justified as the most appropriate and
  conservative for Qinbei Supercritical Project.

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Summary of the PRII (Task12)

• 1.3 Project Boundary and Leakage
• 1.3.1 Four leakage categories
• Activity shifting,
• Market effect,
• Life-cycle emissions shifting, and
• Ecological leakage.
• 1.3.2. Application on the case study
• Whole life cycle approach applied to
  tri-generation project with gas-steam combined
  cycle leakage significant-1317 of the
  projects total emissions
• Suggestion Project type related leakage
  coefficient and a 5 of benchmark threshold for
  significance, due to complex in upstream and
  downstream approach.
• Further work needed to substantiate the
  definitions of project boundary and leakage as in
  the CDM M P and Glossary by EB.

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Summary of the PRII (Task12)

• 1.4 Additionality
• 1.4.1. Principles considered
• Easy operation
• Reflection of real situation
• Rational data required
• Limited system error
• Low uncertainty
• Low cost and objective.
• 1.4.2. Application in the case of Beijing No.3
  Thermal Power Plant
• Application of various criteria in assessment of
  CDM additionality is project specific, does not
  mean overall exercises.
• Availability of economic/financial data will be
  the most challenges, when detailed data viewed as
  confidential.
• Additionality might be assessed with different
  conclusions for a same project activity when view
  from different aspects.
• 1.4.3. Result
• An agreed integrated approach is needed with a
  view that the approach should eventually help to
  justify why the proposed CDM project is
  additional and not in the baseline scenario as
  required in the PDD.

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Summary of the PRII (Task2)

• 1.2.2. For the new built fossil fuel power
  project
• Case Huaneng-Qinbei Supercritical Coal Fired
  Power Project
• Scenario1 Existing provincial grid mix, constant
  emission factor/kWh
• Assuming not likely to build new coal fired power
  plants, while remaining existing grid capacity
  mix without change up to 2020, is thus not very
  accurate. Baseline 1.15 kg CO2/kWhe, ex ante.
• Scenario 2 Recent additions only - built margin
  average emissions, 48c)
• Very reasonable that the CDM project will most
  likely to replace or delay new coal fired power
  capacity otherwise in baseline case.
• The capacity mix of the recent additions would
  not change significantly in the near future, so
  that the ex ante built margin grid mix is used.
• Hydropower is base load, and thus rejected from
  into baseline.
• By top 20 average in past 5 years, Baseline
  1.03 kg-CO2/kWhe.
• Scenario 3 Combination of Existing Power Grid
  and Future Additions
• Combination of Scenario 1 with 2 but with ex post
  added up to 2015.
• Due to less data availability, a trade-off is the
  combination of existing generation mix and Phase
  I of Qinbei. Baseline 1.13 kg CO2/kWhe
• Conclusion Scenario 2 baseline methodology is
  justified as the most appropriate and
  conservative for Qinbei Supercritical Project.

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Summary of the PRII (Task3)

• 3 Task 3 Major objectives and specific research
  work
• A. Assess the global carbon trading supply and
  demand based on selected scenarios.
• B1. Determine CERs supply potential in China, and
• B2. MAC curve in the world carbon market under
  selected scenarios,
• B3. Develop the equilibrium carbon trade volume
  and price for CERs of China under selected market
  structure scenarios.
• C1. Assess the impacts of CDM on Chinas economic
  development,
• C2. Identify opportunity and economic benefits of
  CDM for China.
• D1. Build capacity of application of analytical
  model tools in China
• D2. Make recommendations on policy implications
  for Chinas participation in CDM.
• Major progress achieved
• Revised Draft PRII submitted for comments in
  early May 2003 in which Work A and B, most of
  Work C were completed.

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III. Summary of the PRII (Task3, MAC)

• Fig. 3.3.1 MAC for CO2 reduction in nine regions
  of the world

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Summary of the PRII (Task3) (MAC)

• Preliminary conclusions on MAC
• China and USA have lowest cost in absolute
  reduction amount and large emission reduction
  potential.
• Middle East, Africa and Latin America have
  highest cost and relatively small potential for
  CO2 emission reduction.
• The MAC cost for China by IPAC here is higher
  than that derived by other modeling, due to
  relative low baseline emission estimation in our
  Task 3 study. While many modeling studies for
  China suggested relative low energy efficiency
  improvement since 1985/90 and as result, high
  emission trajectory.

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III. Summary of the PRII (Task3, 3.2 Global
carbon trading)

• Table 3.3.2 Global carbon trading market in base
  scenario by CERT

Carbon amount (MtC) Profits (MUS)
Domestic action 199.8
USA (30 participation) 42.0 2710
OECD-P 31.6 1822
OECD-W 126.2 5161
Hot Air / EFSU 95.9 2729
JI / EFSU 82.5 2729
CDM 65.5 623
Southeast Asia and south Asia 22.4 215
China 31.8 311
Middle East 4.0 36
Africa 3.4 28.5
Latin America 3.9 32.5
Total 444
Price (US/tC) 19.2 (5.24US/tCO2)
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Summary of the PRII (Task3) (carbon trading)

• Global carbon trading market analyzed by CERT.
• CERT model incorporates a variety of switches,
  such as
• Implementation rate, ? Transaction cost,
• Supplementary, ? Participation rate of USA,
• Market structure, etc.
• to allow analyzing their impacts on the market.
• Global carbon trading influenced by market
  structures
• Perfect competition, ? Monopoly, and
• Price leadership.

Table 3.3.3 Carbon trading simulation under
different market structure
Market Structure Price (US/tC, at 2000 price) Global CDM Potentials (MtC) China CDM Potentials (MtC) China's profits (M US, at 2000 price)
EFSU price leadership 19.2 65.5 31.8 310.8
Perfect competition 4.2 10.0 5.1 5.4
Monopoly 16.0 0.0 0.0 --
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Summary of the PRII (Task3)

• Some conclusions for Chinas CDM potentials and
  price
• Carbon price and CDM potential would largely
  depend on a number carbon market factors in
  particular economic growth in OECD and the
  strategies of Russia/Ukraine and the US
• The combined scenario gives 32 MtC for Chinas
  CDM potentials at 19.2 US/tC/5.2US/tCO2 carbon
  price.
• The MAC of these CDM projects shall fall into
  this price range
• Considering technology additionality, the
  incremental abatement cost for CDM would in
  practice be much higher than the equilibrium
  carbon price obtained from the model.
• Even though Chinas profits from CDM might be
  small, side benefits from CDM projects such as
  employment, local environmental quality,
  technology progress, etc. should not be ignored.

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III. Summary of the PRII (Task3)

• 3.3. Chinas CDM potentials by major 26 sectors,
  by using IPAC-AIM/Technology model, see Table
  3.3.4.
• Table 3.3.4 Potential of CDM in major sectors in
  China

Sector Share of CERs CERs
Sector Share of CERs (Mt-C)
Steel Making 10 3-4
Cement 10 3-4
Chemical Industry 5 1-2
Power Generation 55 16-18
Other sector 20 6-8
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III. Summary of the PRII (Task3)

• 3.3.2.5 Impact of CDM implementation on economic
  development of China simulated by using IPAC-SGM
  model
• Impact on economy with increased foreign
  investment by sale of CERs. Power sector is
  focused.
• Impact of technology progress in China by
  technology transfer through CDM. The target year
  is 2030.
• Impact on local environment improvement focusing
  on SO2 and other gases emission.
• Impact on sector development with CDM, power
  sector is major concerned.
• Preliminary results
• CDM can contribute to Chinas economic
  development by extending foreign investment,
  localization of advanced technologies and
  improving technology efficiency in China.
• CDM has long-term benefit for China. GDP change
  increase from 0.02 in 2010 to 0.08 in 2020,
  then decrease to 0.05 in 2050.

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Experience

• Experience for Implementation
• Guided by Steering Committee ensure correct
  direction
• Carried out by a National Team capacity building
• Supported technically by International CDM Team
  ensure high quality and meet intl requirements
• Dialogue with domestic decision-makers on CDM
  ensure to meet domestic requirements

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Key Work for Future

• Key Work of this Project in future
• Work hard trying to meet the original timeframe
• Submit high quality PDD of 6 cases
• Host final Workshop for the case implementation

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Perspectives for Future

• Perspectives for Future Cooperation
• Networking Business Sector, based on the
  technical study for CDM project implementation
• Networking Academic Community, based on the
  technical study for CDM project technical
  support
• Physical building of National Technical Support
  Unit for CDM implementation

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For More Information

• Prof. Liu Deshun
• Global Climate Change Institute
• Tsinghua University
• Email liuds_at_mail.tsinghua.edu.cn
• Andreas Oberheitmann
• RWI, Essen
• Email oberheit_at_rwi-essen.de
• Othmar Schwank
• INFRAS Zürich
• Email othmar.schwank_at_infras.ch

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For More Information

• Mr. Lu Xuedu
• Director, Division of Resources and Environment
• Ministry of Science andTechnology of China
• FAX [phone]
• Email lvxd_at_mail.most.gov.cn

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• Thank you
• for your attention