Clean Development Mechanisms and New Market Developments

Presentation at the Regional Conference on Gas Flare Reductions

Tashkent, 15th June 2012

Carbon Limits AS 2

1. The CDM and Flare Reduction – Current Status

2. Prospects for carbon co-financing of petroleum sector investments

3. Regional initiative on flare reduction (EBRD & GGFR study)

Outline

• Dramatic decline since summer of 2011• The problem is demand - market rebound not likely by market forces alone• Current price levels insufficient to justify most GHG mitigation investments

8/12/2008 8/12/2009 8/12/2010 8/12/20110

5

10

15

20

25

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000Daily Closing Price (EUR/CER)

Total Volume (CERs/day)

Figure: EU ETS developments – CER prices

Carbon prices have collapsed and outlook is uncertain ..

Source: BlueNext

.. but there is continued growth in the CDM project pipeline ..

• > 4,000 registered CDM projects• «Pre-notification» for > 10,000 projects submitted to the UNFCCC• > 900 million CERs issued (CDM)

Figure: Number of projects and CER issuances (cummulative)

Dec-

03M

ar-0

4Ju

n-04

Sep-

04De

c-04

Mar

-05

Jun-

05Se

p-05

Dec-

05M

ar-0

6Ju

n-06

Sep-

06De

c-06

Mar

-07

Jun-

07Se

p-07

Dec-

07M

ar-0

8Ju

n-08

Sep-

08De

c-08

Mar

-09

Jun-

09Se

p-09

Dec-

09M

ar-1

0Ju

n-10

Sep-

10De

c-10

Mar

-11

Jun-

11Se

p-11

Dec-

11

0

50

100

150

200

250

300

Number of CDM projects starting the public comments period each month, the number of them that have requested registration, and the number of them that have CERs issued.

Number of projects with CERs issued Registration Requested but no issuance Still at validation Rejected validation by DOEs

Num

ber o

f Pro

ject

s eac

h m

onth

Source: UNEP Risøe/CL

Gas flare projectsFew countries (and companies) have more than one CDM project ..

= Countries with at least 1 registered gas flare recovery project

= Countries with at least 1 gas flare recovery project under validation/registration

11

2

1

8

3

3

1

1

1

2

1

1

11

2

1

3

x = # registered projects in country x = # projects under validation/registration in country

2+

14+

1

2

3+

2+

1+

1

1

CDM/JI pipeline:(validation ->)

~50 mill tCO2e/yr~26 BCM/yr

Despite low carbon prices and uncertainty about market access for CERs from non-LDCs, new CDM projects are put forward ..

= Additonal countries with at least 1 project in «pre-notification» stage

3

3

1

2

3

2

5

2

x = # projects in «pre-notifications» stage in country

= Countries with projects under development (validation/registration/issuance)

1

1

3

1

1

2

4

2009 2010 2011 20120.0

1.0

2.0

3.0

• 112 known projects• 77 companies• 28 countries

CDM/JI pipeline:

Source: UNEP Risøe/CL

Submission rate to UNFCCC («Pre-notifications» per month)

Gas flare projectsHigh failure rate for CDM project submissions ..

= Countries with at least 1 gas flare recovery project terminated/rejected/no issuance after >2 years

1

2

1

3

1

13

1

1

Only 3 CDM projects have had CER issued!

The Durban Platform: Towards a new broad agreement

The Durban Platform:

• The Ad Hoc Working Group on the Durban Platform on Enhanced Action to start its work in the first part of 2012

• Work to be completed no later than 2015 in order to adopt a protocol, legal instrument or legal outcome and for it tom come into effect in 2020

Commitments:

• Not clear what the commitments will be:

• Quantitative emission limitations/reductions (QELROs)

• Financial

• Monitoring, Reporting and Verification (MRV)

• Not clear what countries/parties will have what type of commitments from 2020

Scale-up from the CDM

POAProgram of Activities under CDM

CDMClean Development Mechanism

SMPScale-up mitigation programs

ETS ”cap-and-trade”Emissions trading system

Voluntary participation Agreement between authorities and companies

Mandatory based on national (international legislation)

Institutions and regulations at national level

Project owner in charge of project development and documentation. National approval by DNA, otherwise modest requirements

Several actions/activities coordinated by a private or public entity. Can be a “policy/measure or stated goal” but must be voluntary

At the initiative of authorities and/or companies. Negotiations on distribution on carbon credit benefits.

Companies/installations are faced with an emission cap and are allocated allowances that can be traded.

International regulations and institutions

Part of the Kyoto Protocol. Reforms and amendments made by Parties

to the Protocol. UN approves projects and issue credits

Similar to the CDM No legal basis, may be developed under a new international

agreement and/or may emerge as part of bilateral agreements.

Allowances to be traded between countries under new international agreement and/or bilateral agreements.

Existing mechanism New mechanisms

Regional study on flare reduction

• Review and analyze the existing flaring situation• Identify and analyze gas utilization options• Develop bankable investment projects• Disseminate the results of the study

Objectives SEI

Tasks and timeline

Project Team

Review flaring situation in the four countries

Establish collaboration with potential partners

Economic and technical analysis of gas utilization projects

Results dissemination

Project Management

Sustainable Energy Initiative Launched by EBRD in 2006, now at phase 3Focus: energy efficiency and climate changeSEI investments since 2006: €8 billion

ResultsCountry Overview Reports

Review for the 4 countries: • Flaring estimates• Flaring policies, regulation and market conditions• Ongoing gas utilisation projets and future prospect

Next steps Establish cooperation with companies

Focus of the phase 2• Based on the result of phase 1, the activities of phase 2 are focused towards:

• Fields where there are currently some gas utilization challenges • Clusters solutions

17 companies

5

2 1

Both major and smaller players

Central Government

Number of companies contacted per countryCurrent process ongoing• Introduction letter sent• Organization of meetings with

the different companies• Establishment of formal

collaboration (NDA)• Technical collaboration on

specific gas utilization projects

Thank to:

Torleif Haugland, Managing Director Carbon Limits AS

E-mail: th@carbonlimits.no