World Bank Workshop on CDM Methodologies and Technical Issues Associated with Power Generation and Power Saving Project Activities December 3, 2005 Montreal World Resources Institute Additionality – Issues and Options for Grid-Connected Electricity Projects Derik Broekhoff, World Resources Institute USA

Additionality Additionality and Baselines Are Closely Related Additionality and Baselines Are Closely Related “A CDM project activity is additional if anthropogenic emissions... are reduced below those that would have occurred in the absence of the registered CDM project activity ” (Decision 17/CP.7, Para. 43) “A CDM project activity is additional if anthropogenic emissions... are reduced below those that would have occurred in the absence of the registered CDM project activity ” (Decision 17/CP.7, Para. 43) “The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions... that would occur in the absence of the proposed project activity ” (Decision 17/CP.7, Para. 44) “The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions... that would occur in the absence of the proposed project activity ” (Decision 17/CP.7, Para. 44)

Additionality & Electricity Project Baselines Consolidated baseline methodology for renewables (ACM 0002): Consolidated baseline methodology for renewables (ACM 0002): “ The additionality of the project activity shall be demonstrated and assessed using the latest version of the ‘Tool for the demonstration and assessment of additionality…’. ” “ The additionality of the project activity shall be demonstrated and assessed using the latest version of the ‘Tool for the demonstration and assessment of additionality…’. ” How well do ACM 0002 and the ‘Additionality Tool’ work together? How well do ACM 0002 and the ‘Additionality Tool’ work together?

The CDM ‘Additionality Tool’ Step 0: Preliminary screening based on the starting date of the project activity Step 1: Identification of alternatives to the project activity consistent with current laws and regulations Step 2: Investment analysis Step 3: Barrier analysis Step 4: Common practice Step 5: Impact of CDM registration PROJECT ACTIVITY IS ADDITIONAL

Legal Requirements & Renewables Additionality Tool Step 1b: Additionality Tool Step 1b: If the project activity is the only way to comply with regulations where there is widespread compliance, then project activity is not additional. If the project activity is the only way to comply with regulations where there is widespread compliance, then project activity is not additional. Question: How should this be interpreted in the context of a (hypothetical) renewable portfolio standard? Question: How should this be interpreted in the context of a (hypothetical) renewable portfolio standard?

Additionality, Alternatives, and Investment / Barriers Analysis Additionality Tool Step 1a: Define Alternatives to The Project Activity Additionality Tool Step 1a: Define Alternatives to The Project Activity Project activity (not CDM) Project activity (not CDM) Plausible alternatives that deliver comparable outputs and services Plausible alternatives that deliver comparable outputs and services Continuation of current situation Continuation of current situation Build Margin Operating Margin

Additionality, Alternatives, and Investment / Barriers Analysis Questions: Questions: Should we define alternatives as a “blend” of most recent plants (per baseline methodology)? Should we define alternatives as a “blend” of most recent plants (per baseline methodology)? If so, how to apply investment or barriers analysis? If so, how to apply investment or barriers analysis? If additionality analysis identifies a specific plant as most attractive or having fewest barriers, should that plant be used for BM? If additionality analysis identifies a specific plant as most attractive or having fewest barriers, should that plant be used for BM? (And if continuation of current situation is identified, is there only OM displacement?) (And if continuation of current situation is identified, is there only OM displacement?)

Additionality and Common Practice Additionality Tool Step 4: Additionality Tool Step 4: “[Analyze] other activities implemented previously or currently underway similar to the proposed project activity. Projects are considered similar if they are in the same [region] and rely on a broadly similar technology, are of similar scale, [etc.]….” “[Analyze] other activities implemented previously or currently underway similar to the proposed project activity. Projects are considered similar if they are in the same [region] and rely on a broadly similar technology, are of similar scale, [etc.]….” Questions: Questions: Can we link “common practice” with the BM determination for baselines? Can we link “common practice” with the BM determination for baselines? What would “common practice” be in context of 5 most recent plants? What would “common practice” be in context of 5 most recent plants?

What does a 50/50 “combined margin” really mean? What does a 50/50 “combined margin” really mean? Baseline Emissions Rate Project Emissions Rate Operating Margin Emissions Rate Build Margin Emissions Rate Additionality, Combined Margins, and Time

Questions: Questions: What if project activity is “common practice” (or is most attractive / has fewest barriers) but otherwise a new plant would not have been built for five more years? What if project activity is “common practice” (or is most attractive / has fewest barriers) but otherwise a new plant would not have been built for five more years? Can a project still be additional if it emits more than the OM but less than BM? Can a project still be additional if it emits more than the OM but less than BM? Additionality, Combined Margins, and Time

Under ACM 0002, baseline for retrofits assumed to correspond to project activity after a certain date Under ACM 0002, baseline for retrofits assumed to correspond to project activity after a certain date Additionality and Retrofit Projects Baseline Emissions Rate Project Emissions Rate Historical Emissions Rate Retrofit Emissions Rate

Under ACM 0002, baseline for retrofits assumed to correspond to project activity after a certain date Under ACM 0002, baseline for retrofits assumed to correspond to project activity after a certain date Additionality and Retrofit Projects Date based on “typical average technical lifetime” or “common practices of the company” Date based on “typical average technical lifetime” or “common practices of the company” (Same) Questions: (Same) Questions: How can the timing of implementation be incorporated in additionality analysis? How can the timing of implementation be incorporated in additionality analysis? Should “common practice” in additionality analysis involve a timing component for retrofits (and other electricity projects)? Should “common practice” in additionality analysis involve a timing component for retrofits (and other electricity projects)?

Ensure additionality tool and grid-connected electricity project baseline methodologies are compatible Ensure additionality tool and grid-connected electricity project baseline methodologies are compatible Recommendations Clarify how elements of the additionality tool can be adapted and implemented in the context of electricity sector projects Clarify how elements of the additionality tool can be adapted and implemented in the context of electricity sector projects

Definition of additionality tool “alternatives” Definition of additionality tool “alternatives” Clarify link between “continuation of current situation” and OM. Clarify link between “continuation of current situation” and OM. Clarify link between other “alternatives” and BM. Clarify link between other “alternatives” and BM. Clarify if necessary how these alternatives should be evaluated using investment and barriers analysis. Clarify if necessary how these alternatives should be evaluated using investment and barriers analysis. Recommendations Definition of additionality tool “common practice” Definition of additionality tool “common practice” Link “common practice” to BM methodology. Link “common practice” to BM methodology. Incorporate timing component for retrofit projects and possibly others. Incorporate timing component for retrofit projects and possibly others.

Recommendations Possible: Possible: For additionality determinations, provide explicit guidance for situations where the project activity or an alternative might have been implemented at a later date in the baseline scenario. For additionality determinations, provide explicit guidance for situations where the project activity or an alternative might have been implemented at a later date in the baseline scenario. Ensure guidance is compatible with BM definition and any forthcoming guidance on choosing different OM/BM weightings. Ensure guidance is compatible with BM definition and any forthcoming guidance on choosing different OM/BM weightings.

GHG Protocol Electricity Workgroup GHG Protocol Part 2: Project Protocol GHG Protocol Part 2: Project Protocol CDM-Compatible Methodologies & Guidance for Offset Projects CDM-Compatible Methodologies & Guidance for Offset Projects Launch Side Event Tuesday, December 6, 6:00pm - 7:30pm in Mackenzie River Room Launch Side Event Tuesday, December 6, 6:00pm - 7:30pm in Mackenzie River Room Multi-Stakeholder Group Working on Sector- Specific Guidance for Grid-Connected Power Projects Multi-Stakeholder Group Working on Sector- Specific Guidance for Grid-Connected Power Projects Guidance Document Available Mid-2006 Guidance Document Available Mid World Resources Institute