Joint Implementation & Gas Flaring Reduction Projects Alexandrina Platonova-Oquab Carbon Finance Unit, World Bank

Presentation outline JI: fundamentals Project cycle and methodologies –Baselines & Monitoring Flaring reduction under JI –Opportunities & Barriers in Russia Uncertainty on post-2012 period

Joint Implementation: fundamentals (1) Joint Implementation Generate emission reductions (ERUs) from investments in developed (Annex B) countries Two Tracks for JI JI Track 1: –“Simplified” procedure for fully eligible countries JI Track 2: –International verification of projects

Joint Implementation: fundamentals (2) Participants Governments of investing and host countries –Eligibility & national rules –Project approval by the Designated Focal Point Private & Public companies –Must be authorized by the government and for JI Track 2 JI Supervisory Committee (JISC) –International rules / verification Independent validators –Determine conformity of projects with JI requirements

Joint Implementation: fundamentals (3) Status & Rules JI Track 2 –Launched in October 2006 –JISC Track 2 guidelines available –Baseline setting & monitoring rules (incl. guidance on additionality) –JI Project Design Document (PDD) forms approved by COP/MOP2 –JISC administrative fees approved by COP/MOP2 JI Track 1 No rules available yet from Host Parties –More relaxed rules ? / Adoption of Track 2 guidelines?

JI Track 2 : Project cycle Preparation and review of the project Carbon asset due diligence Negotiation of project agreements Determination by AIE PDD forms established by JISC Letter of Approval Baseline setting Publication of PDD Determination report by AIE 30 days 45 days Possible review by JISC Periodic verification by AIE Eligibility requirements 15 days Transfer of ERUs Possible review by JISC Project completion

JI Track 2 Methodologies : Baseline setting & monitoring (1) Key objective of JI (CDM) methodologies –determine GHG emission reductions from a project activity over time Key elements of JI (CDM) methodologies –determination of emissions in the relevant reference scenario (baseline) and in the project scenario –procedures to collect and use the relevant data to calculate emission reductions (monitoring) –demonstration that the project reduces emissions and is not the most likely scenario (additionality) JI projects may use approved CDM methodologies or a new appropriated approach

JI Track 2 Methodologies : Baseline setting & monitoring (2) Main challenges –Baselines are counterfactual/ hypothetical –Additionality / environmental integrity –“Reasonable” conservativeness Monitoring methodology –Procedures to measure or to estimate project emissions (incl. leakage) –Procedures to determine baseline emissions (context data) –Data: sources, quality control Time GHG emissions Project emissions Baseline (gas flaring) Emission reductions In addition to CO 2 price, baseline is key for determining financial impact of JI

Examples of baseline methodologies for gas flaring reduction projects Economic or financial analysis –Baseline is the (time dependent) investment alternative (incl. no investment) with the highest IRR or the highest NPV or the lowest costs (all risk adjusted) –Example: Rang Dong project (Vietnam) - CDM methodology AM0009 Scenario or barrier analysis –Baseline is the option facing the least amount of barriers –Example: Gas-to-Market project facing low prices & limited access to the transmission system Control groups –Baseline is common practice –Example: No incentive to reduce gas flaring leads to the continuation of the current situation in the country/region Technology benchmark Baselines for specific circumstances –Example: Widespread non-compliance with legal or regulatory requirements

Flaring Reduction Projects: Russia’s JI market segment (1) Large opportunities in Russia –15 bcm of associated gas flared per year, officially Projects do not overcome the “hurdle” rate of return Regulatory & institutional barriers for better utilization of associated gas –Carbon finance could bring additional revenues Achievable annual reductions up to 2 MtCO2e per project Priced at 7€/tCO2 the ERUs bring up to 70 M€ for a project in 5 years for GHG-friendly projects

Flaring Reduction Projects: Russia’s JI market segment (2) Barriers for JI projects in Russia –Currently JI Track 2 procedure expected to be used –National rules & approval procedure for JI Track 2 not available yet However, 3 from 9 submitted JI Track 2 projects are in Russia –Uncertainty on forthcoming JI rules in Russia Any limitations on possible activities /sectors? Clear procedures for approval?

Post-2012 uncertainties: Timing for current JI opportunities Carbon finance flow is now limited by period –Progress of the international negotiations is key Opportunity window is narrowing –Particularly, in the absence of national procedures Possible uncertainty mitigation: –Faster move on setting national JI rules in Russia –Possible use of Green Investment Schemes On the project level –Develop projects & start operations in

Useful References Websites on JI and CDM: Website of the UNFCCC –JI Track 2 Modalities & Guidelines: –CDM Gas Flaring Reduction Projects: (search by AM0009 & AM0037) Websites on oil and gas climate activities: Methane emissions from oil and gas industry (US EPA Natural Gas STAR): GHG Protocol Initiative: GGFR Report #6 on gas flaring reductions under the CDM: API Compendium on GHG emissions:

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