Examples on how the additionality is addressed in the three Projects approved by the National CDM Council in Morocco (DNA) Important Issues to address in CDM Projects Tunis, August 27-29, 2004, Hotel Africa, Tunis Mme Samira Elkhamlichi Permanent Secretariat of CDM DNA Morocco ROYAUME DU MAROC Ministère de l'Aménagement du territoire, de l’Eau et de L’Environnement

What is additionality? Project additionality tests Examples: 1. Wind Park Essaouira 2.Rehabilitation of the landfill in Akreuch as a landfill gas to energy project. 3. Heat recovery enhancement for power generation at the Maroc Phosphore’s phosphoric acid and fertilizer production plant of Jorf Lasfar, Morocco Overview

At the 10 th meeting of the EB: for establishing additionality a two step approach has to be followed: First, demonstrate-by testing for barriers- that the project is not the baseline scenario and hence different from what otherwise would have happened. Second, select a baseline approach described under paragraph 48 (a)-(c) Marrakech Accords, describe the appropriate baseline scenario and calculate the resulting GHG reductions. What is additionality? The key idea: prove that the project is not Business as usual BAU

The new baseline methodologies submitted to the EB have shown a variety of approaches to determine whether « the project activity is additional and therefore not the baseline scenario ». The inconsistency and incompleteness of the so far proposed additionality tests seems to be one reason why the EB did not immediately approve many new methodologies. Several possible tests have been identified, judge on a project by project basis Concept must be made operational Problems with additionality?

A proposal on CDM additionality tests, developed by the Ministry of Economic affairs/Senter (Netherlands). Project additionality tests Three types of additionality tests : Test 1: A more economically attractive course of action exists; Test 2: The project is not viable without the carbon credits component; Test 3 : The project must overcome several barriers. The project developer must use one or more of theses tests. The test must be transparent and replicable: Validator will check, public can comment.

Use economic arguments that your project is not the most attractive course of action: Internal Rate of Return IRR. Test 1: A more economically attractive course of action exists; Determine whether your project has a lower IRR than the IRR of the alternative. If yes the project is additional Determine several plausible alternatives for the project in the country Calculate the IRR of these alternatives Calculate the IRR of your project without carbon credits Step 1 Step 2 Step 3 Step 4

Use economic arguments that your project is not viable without the income from carbon credits : Internal Rate of Return IRR Test 2: The project is not viable without the carbon credits component Determine whether a law would require the project to be carried out. Calculate the IRR of project with and without the carbon credits Step 1 Step 2 Step 3 Determine whether the IRR is significantly higher with the sale of carbon credits than without the sale. If yes, project is additional

The CDM EB has identified four different barriers: Investment barriers: Technological barriers Barriers due to prevailing practice:is the project common practice? Others barriers Test 3: The project faces serious barriers

Wind Park Essaouira 60MW Project developer: ONE Type of project : Renewable Energy production Project Description: The project involves the construction of the 60 MW Essaouira wind power project in Cap Sim, Morocco. The Cap Sim region is one of the windiest areas in Morocco. The project will enable the use of renewable energy in Morocco and attract foreign and private investment into the power sector in Morocco. The project will reduce GHG emission reductions by displacing existing and to be developed power plants connected to the grid. Technical and financial elements: Project development costs: 1.2 million $US Installation costs: 88.7 million $US Total project costs: 88.9 million $US, financed by ONE and KFW. Estimate of GHG emission reductions: 1.62 million tonnes of CO2eq. over 10 years Estimated carbon revenues from the project: between 8 and 13 millions $US

ADDITIONALITY TESTS FOR WIND PARK ESSAOUIRA : Step1 Possible alternatives include: coal plant, fuel plant, gas-fired combined cycle and hydro ( depends on rainfall, drought conditions have reduced the contributions of electricity from this source ) Step 2 The current regulations and price for electricity in Morocco doesn’t favour electricity generation by RE sources. The price of electricity generated through a wind park is high compared to the price of electricity generated by fossil fuel sources.Financing wind projects is difficult without the value of the environmental benefits. IRR of CC is the higher Step3The wind park project has the lower IRR Step 4The project is additional Test 1: Morocco has limited oil, gas and hydro resources. It has dependent on imported oil for power generation. 97% of its energy comes from foreign sources. To reduce this dependence, Morocco has diversified its energy sources in recent years.

Step1 There is no legislation requiring the production of wind energy. Step 2 The project will result in Tonnes CO2 over the crediting period. IRR of project with the carbon credits is higher than the IRR of project without Step3Difference in IRR is significant Project is additional Test 2: ADDITIONALITY TESTS FOR WIND PARK ESSAOUIRA :

Test 3: Investment barrier: ONE is still seeking investments partners for the Essaouira project. The price of producing electricity by a wind park is high compared to using fossil fuel and the project is not a commercial option The banks don't want to provide any guarantees for wind power generation projects. The project was only included in the Moroccan power expansion plan taking into account the benefits from the credits carbon.(The tangier wind park project has been included in the expansion plan since 2000, however it is still not financially closed. Technological barrier: There are technological concerns such estimating output and fitting the project into the national grid. A first wind park of 50MW is operational2000 (it is developed by a consortium consisting of EDF, cabinet Germa and the bank group Paribas. ADDITIONALITY TESTS FOR WIND PARK ESSAOUIRA :

Akreuch landfill gas project Project developer: City Council of Rabat Type of project : Methane recovery in the waste sector Project Description: The Akreuch landfill became operational in The landfill will be closed end of December The project involves the rehabilitation of the Akreuch landfill by collection of the currently uncontrolled release of landfill gas into the atmosphere. The landfill gas will be collected through the investment in a gas collection system, leachate drainage system and flaring equipment to be installed at the Akreuch site. Technical and financial elements: Project development costs: 0.05 million $US Installation costs: 0.80 million $US Costs of realisation of the project : 0.85 million US$, 100% self-financed Annual operation costs: million $US Estimate of GHG emission reductions: 1.59 million tonnes of CO2eq. over 21 years Estimated carbon revenues from the project: 4.77 millions de $US

ADDITIONALITY TESTS FOR THE AKREUCH LANDFILL GAS PROJECT Step1 Alternative1: the community o Rabat could continue the current BAU practice of not collecting and flaring landfill gas from its waste operations in Akreuch. In this case, the uncontrolled release of landfill gas would continue. Alternative 2: The landfill operator would invest in some LFG collection and flaring equipment but not in power generation Step 2 The CDM project would involve expenses without any offsetting revenues. IRR is 0% Step3The CDM project has IRR lower !!!. Step 4The project is additional Test 1:

Test 2: Step1 The current Moroccan law and regulations with regard to landfills and rehabilitation works include particularly that the abandoned area should include covering of the rubbish of the abandoned area by covering it with vegetation and trees followed by the development of terracing in the site. There is no obligation to capture landfill gas and to combust the generated biogas. Step 2 The project will result in the avoidance of 1.59 millions Tonnes CO2 over 21 years. IRR of project with the carbon credits is higher than the IRR of project without Step3Difference in IRR is significant Project is additional Carbon credits plays a key role in the investment decision and financial feasibility of the project

Test 3: Investment barrier: Technological barrier: Others barriers: First time implemented in Morocco Management lacks experience using this technology; The project is considered “first of a kind”, that means far from common practice; The local community may fail to see the environmental benefits of the project and so may oppose the project.

Heat Recovery Enhancement at the Jorf Lasfar Phosphoric Acid Production Plant Project Description: Purpose of the project activity is to increase the amount of heat recovered from two lines of sulphuric acid production at the Maroc Phosphore’s site of Jorf Lasfar, in order to generate a greater amount of steam, leading to a greater on-site power generation. The replacement of the existing intermediary absorption towers by HRS systems will result in a significant increase of the heat recovery ratio, i.e. the ratio between the heat recovered and the heat released by exothermic reactions in the process. The increased emissions free power generation will displace an equivalent amount of power from the Moroccan grid. The project will also lead to a significant reduction of atmospheric pollutants, such as SO2, NOx, and carbon monoxide. Technical and financial elements: Project development costs: 2.5 million $US Installation costs: 17.5 million $US Annual operation costs: 0.75 million $US Estimate of GHG emission reductions: tonnes of CO2eq. over 10 years Project developer: OCP Type of project : Energy efficiency in the industrial sector

ADDITIONALITY TESTS FOR THE HRS PROJECT: Step1 Alternative1: The existing plant Alternative 2: The HRS project Step 2 The project leads to reduce electricity costs used by the complex Step3 The IRR of CDM project is higher than the IRR of BAU Step 4The project is not additional It was difficult to prove theaditionality for this project, even if without revenues of CC the project canot be implemented Test 1:

Step1There is no legislation requiring Step 2 The total resulting CO2 emissions reduction is calculated to be tons of CO2Eq over 10 years crediting period. Step3Diffrence in IRR is significant !!!! Project is additional Test 2:

Investiment barrier: The lifetime of the existing system of the Jorf Lasfar project has not yet come to an end. The equipment has been installed in 1986 and is expected run at least for another 10 years. The installation of a HRS system results in extra costs, which do not result in a return acceptable by the Investment Board of OCP. Other investment priorities exist. The environmental department of OCP has put the installation of a HRS system for Jorf Lasfar on the agenda since 1994, but up to now the project has never been approved because of other priorities. The revenues of CERs could help in changing the equipment to an HRS system before The project would not occur in the absence of the CDM. Technological barrier: This processus use a new technology :The first application in Morocco Need of a better knowldege of this technology Test 3:

Thanks Permanent secretariat of CDM Climate Change Unit