03.0 Clean Development Mechanism

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3 – Clean Development Mechanism

Introduction to Climate Change

Wim Maaskant Wim Maaskant

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3 – Clean Development Mechanism

The basics: the

carbon cycle

Fossil fuel (= carbon stored in the earth, not taking part in cycle

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Why is global warming a problem?

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(1)Very substantial Very substantial damage to agriculture damage to agriculture (land + sea) causing:(land + sea) causing:

-high prices and therefore povertyhigh prices and therefore poverty

-food shortage and therefore hunger_{food shortage and therefore hunger}

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(2) FloodingFlooding (Bangla Desh, Fiji Islands, Netherlands and many others) causing: (Bangla Desh, Fiji Islands, Netherlands and many others) causing:

-economic damage_{economic damage} -migration_migration

(3) Very substantial damage to

(3) Very substantial damage to biodiversitybiodiversity causing: causing:

-diseases_diseases

-loss of genetic resourcesloss of genetic resources

-extinction of species_{extinction of species}

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3 – Clean Development Mechanism

Why should we do anything about global warming?

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(1)Economic interest (see next sheet)Economic interest (see next sheet)

(2) Economic justice (richer & poorer nations)

(3) Taking care of Creation

(4) Business opportunity

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Global warming (6)

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Global warming (8) Global warming (8)

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Kyoto Protocol (1)

Kyoto Protocol (1)

The Kyoto Protocol:

•is part of the United Nations Framework Convention on Climate Change (UNFCCC)is part of the United Nations Framework Convention on Climate Change (UNFCCC)

•Opened for signature December 11, 1997 in Kyoto, Japan_{Opened for signature December 11, 1997 in Kyoto, Japan}

•Conditions for entry into force Conditions for entry into force 55 parties and at least 55% 55 parties and at least 55% COCO₂₂ 1990 emissions by 1990 emissions by UNFCCC Annex I parties. (NB condition met on 16 February 2007)

UNFCCC Annex I parties. (NB condition met on 16 February 2007)

•Parties Parties 175 countries 175 countries and other governmental entities (as of November 2007)and other governmental entities (as of November 2007)

•175 parties have ratified the protocol. Of these, 36 developed countries (plus the EU 175 parties have ratified the protocol. Of these, 36 developed countries (plus the EU as a party in its own right) are required to reduce greenhouse gas emissions to the

as a party in its own right) are required to reduce greenhouse gas emissions to the

levels specified for each of them in the treaty (representing over 61.6% of emissions

from

from Annex I countriesAnnex I countries))

•One hundred and thirty-seven (137) developing countries have ratified the protocol, _{One hundred and thirty-seven (137) developing countries have ratified the protocol,}

including Brazil, China and India, but have no obligation beyond monitoring and

reporting emissions.

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3 – Clean Development Mechanism

Kyoto Protocol (2)

The Kyoto Protocol establishes the following principles:

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(1)Kyoto is underwritten by Kyoto is underwritten by governmentsgovernments and is governed by global legislation and is governed by global legislation enacted under the UN

enacted under the UN

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(2)Governments are separated into two general categoriesGovernments are separated into two general categories: developed : developed

countries, referred to as Annex I countries (who have accepted greenhouse gas

emission reduction obligations and must submit an annual greenhouse gas

inventory); and developing countries, referred to as Non-Annex I countries (who

have no greenhouse gas emission reduction obligations but may participate in

the

the Clean Development MechanClean Development Mechanism); ism);

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(3)Any Annex I country that fails to meet its Kyoto obligation will be penalized by Any Annex I country that fails to meet its Kyoto obligation will be penalized by having to submit emission allowances in a second commitment period for every

having to submit emission allowances in a second commitment period for every

ton of greenhouse gas emissions they exceed their cap in the first commitment

period (i.e., 2008-2012);

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3 – Clean Development Mechanism

Kyoto Protocol (3)

(4) As of January 2008, and running through 2012,

(4) As of January 2008, and running through 2012, Annex I Annex I countries have to countries have to reduce their greenhouse gas emissions by a collective average of 5% below

reduce their greenhouse gas emissions by a collective average of 5% below

their 1990 levels (for many countries, such as the EU member states, this

corresponds to some 15% below their expected greenhouse gas emissions in

2008).

(5) While the average emissions reduction is 5%,

(5) While the average emissions reduction is 5%, national limitations national limitations range from range from an 8% average reduction across the European Union to a 10% emissions

an 8% average reduction across the European Union to a 10% emissions

increase for Iceland; but since the EU's member states each have individual

obligations, much larger increases (up to 27%) are allowed for some of the less

developed EU countries (see below increase in greenhouse gas emission since

1990). Reduction limitations expire in 2013;

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3 – Clean Development Mechanism

Kyoto Protocol (4)

Kyoto includes "

Kyoto includes "flexible mechanismsflexible mechanisms" which allow Annex I economies to meet " which allow Annex I economies to meet their greenhouse gas emission limitation by purchasing GHG emission

their greenhouse gas emission limitation by purchasing GHG emission

reductions from elsewhere.

These can be bought either from financial exchanges, from projects which

reduce emissions in non-Annex I economies under the Clean Development

Mechanism (CDM), from other Annex 1 countries under the JI, or from Annex I

countries with excess allowances.

Only CDM Executive Board-accredited Certified Emission Reductions (CER)

can be bought and sold in this manner. Under the aegis of the UN, Kyoto

established this Bonn-based Clean Development Mechanism Executive Board

to assess and approve projects ("CDM Projects") in Non-Annex I economies

prior to awarding CERs. (A similar scheme called "Joint Implementation" or "JI"

applies in transitional economies mainly covering the former Soviet Union and

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Kyoto Protocol (5)

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Kyoto Protocol (6)

In practice this means that Non-Annex I economies have no GHG emission

restrictions, but when a greenhouse gas emission reduction project (a

"Greenhouse Gas Project") is implemented in these countries the project will

receive Carbon Credits, which can then be sold to Annex I buyers.

Indonesia is a non-Annex-1 country under CDM

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3 – Clean Development Mechanism

Kyoto Protocol (7) –

Kyoto Protocol (7) – Global EGlobal Emissions Trading frameworkmissions Trading framework

UNFCCC (1992) UNFCCC (1992) Kyoto Protocol Kyoto Protocol (1997) (1997)

ECCP: European Climate

Change Program

Project-based

Project-based Cap and tradeCap and trade

Clean Development

Clean Development

Mechanism

Art. 12 Kyoto Protocol

CERs CERs Joint Joint Implementation Implementation

ERUs ERUs International International Emission Trading Emission Trading

AAUs

Between industrial countries Between industrial countries and developing countriesand developing countries

Between industrial countries Between industrial countries (Annex I countries = countries (Annex I countries = countries with GHG emission reduction with GHG emission reduction

targets) targets)

Trade of allocated AAUs Trade of allocated AAUs between industrial countries between industrial countries

(annex I countries) (annex I countries)

Voluntary Market

Voluntary Market

Climate-friendly & climate neutral

products and services

EU-ETS (also cap and trade)

linking

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3 – Clean Development Mechanism

Flexible mechanisms, CDM (1)

Flexible mechanisms, CDM (1)

Industrialized Nations can submit their CERs to meet their target in 2008-2012.

-> there is a worldwide demand for projects and activities for ‘carbon’

reduction or fixation

-> many of these projects will be in Transition Countries.

Purpose of CDM:

-> to assist developing countries in achieving sustainable development

-> to assist developed countries in achieving compliance with part of their

quantified emission reduction commitments

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Flexible mechanisms, CDM (2)

Flexible mechanisms, CDM (2)

Annex 1 Country Annex 1 Country

 Govt. and companies want to reduce Govt. and companies want to reduce GHG emissions

GHG emissions



Invest in their own

country



Invest in a project in

Transition Country

Transition Country Transition Country

 Many opportunities for projects that Many opportunities for projects that reduce emissions e.g.

reduce emissions e.g.



Forestry planting



Renewable electricity



Energy efficiency



Clean transport



Biomass energy

 Project Produces CERsProject Produces CERs

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CDM: how to develop a project (1)

CDM: how to develop a project (1)

1)

1) An industrialized country investsAn industrialized country invests into host country and receives credits into host country and receives credits from from a CDM project

a CDM project

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2) It must obtain the consent of the developing country hosting the project that it It must obtain the consent of the developing country hosting the project that it will contribute to sustainable development.

will contribute to sustainable development.

3)

3) Methodologies approved by the CDM Executive Board (EB) must be used by Methodologies approved by the CDM Executive Board (EB) must be used by the applicant and it must make the case that the carbon project would not

the applicant and it must make the case that the carbon project would not

have happened anyway (establishing

have happened anyway (establishing additionalityadditionality), and ), and

4)

4) It must establish a baselineIt must establish a baseline estimating the future emissions in absence of the estimating the future emissions in absence of the registered project.

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CDM: how to develop a project (2)

CDM: how to develop a project (2)

5)

5) The project is then The project is then validatedvalidated by a third party agency, called a Designated by a third party agency, called a Designated Operational Entity (DOE), to ensure the project results in real, measurable,

Operational Entity (DOE), to ensure the project results in real, measurable,

and long-term emission reductions.

6)

6) The Executive Board (EB) then decides whether or not to register (approve) The Executive Board (EB) then decides whether or not to register (approve) the project.

the project.

7)

7) If a project is registered and implemented, the EB issues credits, called If a project is registered and implemented, the EB issues credits, called Certified Emission Reductions (CERs) to project participants based on the

Certified Emission Reductions (CERs) to project participants based on the

monitored difference between the baseline and the actual emissions, verified

by the DOE.

8)

8) During project operation, the DOE shall monitor the realized emissions During project operation, the DOE shall monitor the realized emissions reductions.

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CDM: how to develop a project (3)

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CDM: career opportunities !

CDM: career opportunities !

Career opportunities:

– Drafting baseline studies (engineers, chemists, biologist) _{Drafting baseline studies (engineers, chemists, biologist)} – Feasibility studies (engineers, economists)_{Feasibility studies (engineers, economists)}

– Stakeholders consultations (all)_{Stakeholders consultations (all)} – Community development (all)_{Community development (all)}

– Forest management (biologists, forestry experts)_{Forest management (biologists, forestry experts)}

– Environmental impact assessment (environmentalists)_{Environmental impact assessment (environmentalists)} – Financing of projects (economists, financial specialists)Financing of projects (economists, financial specialists)

– Trading (economists, financial specialists)Trading (economists, financial specialists)

– Management (managers, public & private)Management (managers, public & private)

– Municipal services (all)_{Municipal services (all)}

– Policy development (managers, public & private)_{Policy development (managers, public & private)}

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3 – Clean Development Mechanism

CDM: business opportunities !

CDM: business opportunities !

Business opportunities:

– Investments in renewable energy projectsInvestments in renewable energy projects

– Equipment manufacturing & trading (solar, wind, biofuel, etc.)Equipment manufacturing & trading (solar, wind, biofuel, etc.)

– Engineering companies_{Engineering companies}

– New waste management services_{New waste management services} – Indonesian investment funds_{Indonesian investment funds}