clean development mechanism

CLEAN DEVELOPMENT MECHANISM: OPPORTUNITIES FOR THE PHILIPPINES

Climate Change Information CenterManila ObservatoryAteneo de Manila University

Clean Development Mechanism• Enables developed countries (known as

Annex I countries) to meet their emission reduction commitments in a flexible and cost-effective manner

• Assists developing countries (non-Annex I countries) in meeting their sustainable development objectives

• Investors benefit by obtaining Certificates of Emissions Reductions (CERs)

• Host countries benefit in the form of investment, access to better technology, and local sustainable development

Value & Benefits of CDM:From a developing country perspective

• Attract capital for less-carbon intensive projects

• Encourage active participation of private and public sectors

• Technology transfer – environmentally friendly sustainable technologies

• Investment priorities in sustainable development projects

CDM contributions to Sustainable Development objectives

• Transfer of technology and financial resources

• Sustainable ways of energy production• Increasing energy efficiency &

conservation• Poverty alleviation through income and

employment generation• Local environmental side benefits

Simplistic numerical example

Provide electricity for a barangay• “Business-as-usual” (baseline): Diesel

generator sets– Cost of project $10– Emissions 1 tC

• Cleaner project (CDM-eligible): Micro-hydro– Cost of project $13– Zero Emissions

Simplistic numerical example

• CDM Investor (e.g. Japan)– Invests $3 ($13-$10, difference between

cleaner and business-as-usual project)

– Gains Certificate of Emissions Reduction of 1 tC, which it can meet some of its Kyoto Protocol commitments to reduce emissions

Simplistic numerical example

WIN – WIN – WIN

• WIN for the host country– Sustainable development benefit: Cleaner

energy production technology

• WIN for the Annex I country– Credits for emissions reduction

• WIN for the Global Environment– Emissions reduction

CDM Project

• Achieves Sustainable Development objectives for the host developing country

• Reduces GHG Emissions

Baseline and CERs

CO2 emission

year

Reduced emissions

Project implemented

Business as usual:baseline

CDM: A special product

• CER is a payment for the Project Developer not to produce

• To reduce GHG emissions

• Thus, the importance of special requirements– Definition of baselines– Calculation of GHG emission reductions

How CDM can matter

Without CERs

implemented

With CERs not

implemented

No CDM

Without CERs not implemented;

with CERs implemented

CDM

FIRR

CER income

CDM Eligible Projects

• Renewable energy• Fuel switching• End-use energy efficiency improvements• Supply-side energy efficiency improvement• Agriculture (reduction of CH4 & NO2

emissions)• Industrial processes (CO2 from cement,

HFCs, etc)• Sink projects (only afforestation &

reforestation)

Clean Development Mechanism

Types of small-scale projects that could qualify for fast-track approval procedures

• Renewable energy projects up to 15 megawatts (MW) of output capacity

• Energy efficiency improvements that reduce energy consumption on the supply and/or demand side by up to 15 gigawatt-hours (GWh)/year

• Other project activities that both reduce emissions at source and directly emit less than 15 kilotons (kt) of CO2 equivalent annually

Projected CO2 Emissions 1999-2008

0

30,000

60,000

90,000

120,000

150,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CO

2 e

mis

sio

ns (

Gg

) natural gas

oil

coal

Projected Philippine CO2 Emissions:Potential of CDM Emissions

Reductions Supply

Year Coal Oil N. Gas Total1999 17,988 47,324 7 65,3192000 18,843 50,766 10 69,6192001 19,720 55,653 13 75,3862002 15,890 53,591 5,879 75,3602003 17,530 56,472 6,645 80,6472004 20,750 59,974 7,239 87,9632005 22,854 64,825 7,232 94,9112006 26,897 70,471 7,232 104,6002007 28,281 76,183 8,464 112,9282008 31,055 80,840 9,699 121,594

Estimated CO2 Emissions (in Gg )

Projected Philippine CO2 Emissions:Potential of CDM Emissions

Reductions Supply

-30

-25

-20

-15

-10

-5

0

5

0 3 6 9 12 15

Annual CO2 Reduction Potential (mill t CO2)

Aba

tem

ent Cos

t (U

S $

/ton

CO

2)

Source: ALGAS

PhilippineGHG Abatement Cost

and Potential

Abatement OptionAbatement Potential

(mill t CO2/year)Abatement Cost(US $ / ton CO2)

CFL 1.10 -26.3Industrial Boilers 0.37 -26.0System Loss Reduction 2.32 -17.2Industrial Motors 0.24 -13.7Eff Air Conditioning 1.47 -6.1Eff Refrigerators 0.37 -5.4Heat Rate Improvement 5.26 -5.1Eff Transport 1.34 -2.9Wind Power 0.24 -1.6Biomass Power 0.12 0.3Solar Power 0.12 1.4CC Natural Gas 1.83 2.4

MINDORO ISLAND-ORIENTAL13,500 kW

MARINDUQUE ISLAND 3,000 kW

CUYO ISLAND 330 kW

BUSUANGA ISLAND 330 kW

PALAWAN ISLAND 9,000 kW

LUBANG ISLAND 330 kW

SIQUIJOR ISLAND 1,000 kW

SPECIFIC WIND POTENTIAL POWER SITES

CATANDUANES 2,250 kW

TABLAS ISLAND 1,500 kW

ROMBLON ISLAND1,000 kW

MASBATE ISLAND 3,000 kW

DINAGAT ISLAND3,000 kW

POLILLO ISLAND 500 kW

CASIGURAN500 kWNORTHERN LUZON

120 MW

BATANES1,100 KW

POTENTIAL CAPACITY:

160,340 kW

Solar Energy Resource Potential

Average insolation of 5- 6 kWh/sq. m/day all throughout the country

1990-2025 Equivalent CO2 Emissions from

Municipal Solid Waste Generation (million tons)

5.45

18.97

24.15

30.78

10.499.19

7.335.86

12.1214.23

16.86

20.01

9.87

7.33

12.11

15.04

0

5

10

15

20

25

30

35

1990 1995 2000 2005 2010 2015 2020 2025

Year

constantgenerationrates

changinggenerationrates

Requirements for the Philippines to Participate in CDM

• Ratify the Kyoto Protocol

• Designate the CDM National Authority

Requirements for the Philippines to Participate in CDM

• Status of Philippine ratification of the Kyoto Protocol

• Senate Committee on Foreign Affairs has sponsored the ratification on the floor of the Senate, 2nd June 2003

• Interpellation and voting during the next session of the Senate, August 2003

• Need 2/3 majority of the Senate to concur in the ratification of the Kyoto Protocol

Requirements for the Philippines to Participate in CDM

• Status of efforts to establish CDM Designated National Authority (DNA)

• Proposal to make the Inter-Agency Committee on Climate Change (IACCC) as the DNA

• IACCC is composed of: DENR, DOST, DOE, DFA, DTI-BOI, DOTC, NEDA, DPWH, PAGASA, FMB, EMB, Philippine Network on Climate Change (NGO)

Preparation and review of the Project

Baseline Study and Monitoring Plan (MP)

Validation process

Negotiation of Project Agreements

Periodic verification & certification

Construction and start up

Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

• Project Idea Note• Project Concept Note• Project Concept Document (or equivalent)

• Project Design Document • Baseline study and ER projections• Monitoring Plan

• Validation protocol and report

• Project Appraisal and related documentation• Term sheet• Emission Reduction Purchase Agreement

PCF/CDM Project Cycle – The Manufacturing Process for CDM Emissions Reductions

• Initial verification report

• Verification report• Supervision report

Preparation and review of the Project

Baseline Study and Monitoring Plan (MP)

Validation process

Negotiation of Project Agreements

Periodic verification & certification

Construction and start up

Project completion

3 months

2 months

2 m

onth

s

3 months

1-3 years

Up

to 2

1 ye

ars

• Upstream Due Diligence, carbon risk assessment and documentation: $ 50K

• Baseline: $30 K• Monitoring Plan: $25K

• External consultant: $25K• Processing and documentation: $30k

• Consultation and Appraisal: $75K• Negotiations and Legal documentation: $30K

Carbon Asset Creation and Maintenance CostsThe PCF Experience

Total through Negotiations• All expenses: $265 K

• Initial verification at start-up: $25K

• Verification: $10-25 K• Supervision: $10-20K

Demand for CDM Projects

Example:• The Netherlands will reduce 100Mt CO2eq

through CDM/JI (tender, CDM facilities etc) at average costs of ca 4 US$/ton CO2eq

• This means 400 M US$ for CERs/ERUs. Contribution to the capital costs may by be 5-15% (at least for CERs). Consequently an investment of 4,000 M US$ is needed to generate the credits for the Netherlands.

• Note: Should be new and additional

Total GHG emissions in 1990 and 2010, and reduction commitments according to

the Kyoto Protocol based on national communications

Demand Scenario

TotalGHG Emissions in 1990 (mtc)

Total GHG Emissions in 2010 (mtc)

Kyoto Reduction Commitments (mtc)

Excess Emissions (mtc)

Kyoto Commitments minus Excess Emissions

Projected Demand (at $4 per tC) in $M

EU 1,159.50 1095.9 40.6 12.7 27.9 111.60

Australia 113.3 144.1 21.7     86.80

Canada 153 182.4 29.2     116.80

Iceland 0.8 1 0.1     0.40

Japan 337.2 388.2 71.2     284.80

New Zealand 19.8 22.9 3.1     12.40

Norway 15 17.3 2.1     8.40

Switzerland 14.6 14.5 1.1     4.40

United States 1634.4 1943.9 423.9     1,695.60 Eastern Europe 368.4 358.3 26.7 11 15.7 62.80

Former USSR 1,113.50 1032.2 0.9 81.4 -80.5 (322.00)

CDM Funding as Additional

• Public funding for CDM Projects be additional to Official Development Assistance (ODA), Global Environment Facility (GEF) provided by Annex I Parties

• Public funding for CDM projects must not result in the diversion of ODA

• Funding may involve private and/or public entities

Current ‘State of Play’

• Although numerically dominant, renewables account for only 9.4 million tons of the 42 MT of CO2 equivalent being claimed (just over 20%)

• Single greatest source of carbon credits being claimed is hydroelectric projects

Project Type No. of Projects Tons of CO2

Mono-culture Plantation (sinks)

1 (component) 4,299,951

Renewables* 14 9,430,973

Energy Efficiency 1 319,392

Fuel Switching 1 (component) 7,741,405

Gas Capture 1 700,000

Waste Incineration

1 2,800,000

Hydro 7 17,150,767

TOTAL 25 42,442,488

*Hydro projects <10 MW are counted as renewable.

CDM Project CycleProject

Participants

Designated Operational Entity

CDM Executive Board

Project Participants

Designated Operational Entity

CDM Executive Board

Certified Emission Reductions

Design

Validation/registration

Monitoring

Verification/certification

Issuance

Designated National Authority (DNA) for CDM

Applicant Entity

Executive Board and COP/MOP

Designated Operational

Entity

Accreditation/designation

Contents of CDM-PDD

A. General description of project activity

  B. Baseline methodology   C. Duration of the project activity/

Crediting period   D. Monitoring methodology and plan  E. Calculations of GHG emissions

by sources   F. Environmental impacts  G. Stakeholders comments

Roberto C. Yap, S.J., Ph.D.

Environmental Economist

Climate Change Information Center

Manila Observatory

Ateneo de Manila University

Tel +63 2 426-6144

Fax +63 2 426-6070

rcyapsj@observatory.ph