CDM: ISSUES

1
CDM ISSUES

• V. RANGANATHAN
• RBI CHAIR PROF.
• IIM, BANGALORE

2
CDM Objectives / Rules

• Objectives Excess emissions of GHG gases in
  developed countries be offset by reduced
  emissions in developing countries. The CERs can
  be traded in the market making money for
  developing countries.
• Reduce the cost of compliance with the Kyoto
  Protocol for the (rich) Annex 1 countries
• Rules
• Emissions must be real i.e. must really occur
• Must be Additional in addition to that which
  would have occurred absent CDM requires a
  baseline within the project
• No leakage reductions must be attributable to
  CDM and not any other causes requires a
  baseline outside the project

3
Rules..

• Different base lines
• Regulatory baseline This is what is permitted
  by Regulator but I emit only this, due to CDM
• Financial baseline The Project would not have
  happened without CDM, which made it financially
  viable
• Environmental baseline Emissions from the
  project are lower than the baseline, from another
  project that would have happened absent CDM.
• Eg The Project is Wind or Mini or Micro hydel
  project to produce electricity the baseline
  project is Electricity production through coal.

4
Rules..

• 6 GHG gases they are interchangeable because of
  their impact
• Steps
• Submit PDD to CDM EB for a period of public
  comment
• Validated by Designated Operational Entity (DOE)
• Project should be approved by host country
  Designated National Authority (DNA)
• Once registered, Submit Monitoring reports
• CERs issued
• Find a buyer

5
Questions

• Is the project additional or a free rider? (i.e.
  would have come up anyway but I take this credit
  also)
• Wind and Cogen projects have existed before and
  without CDM benefits / subsidies
• No project would be eligible to seek CER if it
  already has started! (since additionality is
  negated here), or if similar projects had started
  earlier and this one is new (24 MW Bagasse Cogen
  for Godavari Sugar Mills)
• Baseline emissions should not be overestimated.
  It must be the next best project, and that should
  be feasible.
• My colleagues take the car I walk Give me CER!

6
PERSPECTIVE

• 700 Projects
• 966 Million tonnes CO2 equivalent reductions 380
  Mt from registered projects , as on April 06
• 5 of Annex 1 GHG emissions in 1990
• Dominance of large projects 10 projects (1.4)
  account for 40 of CER supply!
• Big ticket items are industrial gases reductions
  like HFC23, N2O having high Global Warming
  Potential (GWP) vis a vis CO2.
• GWPs for a few gases
• SF6 22,200
• HFC23 11,700
• N2O

7
Outcomes

• Dominance by large projects
• Dominance by HCFCs, N2Os etc. not CO2
• CO2 in developed world exchanged for nonCO2 in
  developing world
• Byproduct (HFC23) annihilation brings brings much
  more revenue than main product (refrigeration /
  Teflon) revenue!
• Price paid is 10 to 100 times cost of
  reductions!! The HFC reductions were not
  additionalities in rich countries they were
  done suo motu.
• 4.6 b
• 100m

Developed country carbon reduction cost
CER MtCO2e
8
Conclusion

• High transaction costs barrier against smaller
  projects
• Projects with third country expertise seem to
  fare better
• Large projects fare better
• Certain fuzziness about additionality criterion
  and setting of baseline emissions risk to the
  investor of CDM projects
• Riddled with free rider and moral hazard problems
• Existing project, I put up for CDM
• Regulator instead of tightening emission rules,
  expects CDM incentives to take care of it.
• Small window first commitment period 2008-12
  rules may change after this.

9
What should be the national policy on GHG
emissions?

• What is good for the US and China is good for
  India! All three economies are driven by dirty
  coal.
• I oppose the Kyoto Protocol because it exempts
  80 of the world, including China and India from
  compliance, and would cause harm to the
  economy. The Senates vote 95-0 shows that there
  is a clear consensus that the KP is an unfair and
  ineffective means of addressing global climate
  change concernsI do not believe that Govt shd
  impose on power plants mandatory emissions
  reductions for CO2 which is not a pollutant
  under the clean air act.

10

• A recent report concluded that including caps on
  CO2 emissions would lead to shift from coal to
  gas for electric power generation and raise
  prices. Coal generates more than half of
  countrys electricity supply.------? 3/6/01