UNDP/GEF workshop…. 9 October 2004,Almaty - Overview of CDM and JI mechanisms Lyubov Inyutina Climate Change Coordination Centre Kazakhstan

Outline Objectives and legal framework; Rules defining countries’ eligibility to participate in CDM and JI; CDM/JI project cycle: parties involved, key stages and documentation; National institutional framework for implementation of KP mechanisms(examples); Methodological approaches to assess baseline, define project boundaries and net emissions reduction calculation.

Kyoto Entrance-into- force & Flexible Mechanisms Clean Development Mechanism (CDM) –Projects in developing countries –Sustainable development objective Joint Implementation (JI) –Projects between countries with GHG reduction targets International Emissions Trading(IET) –Between countries with GHG reduction targets Entry into-force requires ratification by 55 Parties representing 55% of industrialized countries 1990 emissions –122 Parties have ratified representing 44.2 % of emissions. –Russian ratification is critical to meet the 55% trigger

Art. 12 – Clean Development Mechanism(CDM) - is based on GHG emissions reduction projects or absorption by absorbents permitting private and public entities of the developed countries to acquire carbon credits as the certified emissions reduction (CER) from non-Annex I countries. Art. 6 – Joint Implementation (JI)- is based on GHG emissions reduction projects or absorption by absorbents between Annex I countries permitting Annex I Parties to transfer or acquire from any other such Party reduction emission units (REU) resulting from projects either for adherence of its identified quantified commitments on GHG emissions reduction or assigned amounts (AA) as well for selling on the open market.

CDM Requirements for participation Only Party of KP can participate in CDM (ratification without commitments) Voluntary participation in CDM, but projects shall be implemented on the area of non-Annex 1 Parties; Each Party has to establish a DNA Partnership basis: - Investor: Annex I Party supports to non-Annex I Party in ensuring of its sustainable development; - Host Country: Non-Annex I Party receives benefit from activities on projects leading to CER and has no quantified commitments on emissions reduction.

CDM Management (Art.12) Conference of Parties ( CP /CC) CDM Executive Board(EB) certifies CE on the basis of : a)written approval of a project by each Party-participant; в) real, measurable and long-term benefits related to the mitigation of climate change; с) CE that are additional to any that would occur in the absence of the certified project activity. Operational Entities designated(OE)

Challenges for JI Countries The Party of KP (ratification with commitments- Annex-1 to UNFCCC) Setting up Registries Submitting Inventories Accounting for AAUs Comply up the relevant Institutions Creating efficient processes( national system identifying all sources of GHG emissions and absorption of GHG absorbents in operation) Managing AAUs

CDM/JI Benefits For business : –Reduce overall cost of compliance: credits have monetary value –Provides opportunities to sell and showcase technologies –Demonstrates environmental leadership For the host country : –Attracts investment in priority sectors –Provides infrastructure and employment gains –Provides access to clean technologies –Improves air quality, energy efficiency & reduced dependence on imported fuel –Provides potential source of revenue from carbon credits

CDM/JI – Kyoto Criteria: CDM Executive Board(EB) established: registration and certification CERS, IE accreditation Contributes to the sustainable development of the host country Results in emission reductions that would not have happened otherwise Generates real, measurable and long- term climate change mitigation benefits Approved by Parties involved Credits earned from 2000 onward Public funding of CDM not to divert ODA Afforestation and reforestation projects in CDM: but subject to a cap(1% of base year emissions) Special procedures for small-scale CDM projects JI Supervisory Committee – similar to the CDM EB - to be established at COP/MOP 1 to Verify Projects hosted by another Annex I country Setting up the relevant Institutions Two tracks: depends on level of Party’s compliance with the Protocol’s participation requirements Results in emission reductions that would not have happened otherwise Generates real, measurable and long-term climate change mitigation benefits Approved by Parties involved Credits earned from 2008 onward An independent verification system also for JI though JISC(track2)

Art. 6 – Verification of ERUs: two possibilities Two possibilities to verify ERUs, either: –By the host Party if it meets AIP participation requirements (Track 1) –Through a verification procedure (Track 2) A Party eligible to follow Track 1 may elect to use the verification procedure under of Track 2. ET like CDM like

JI key features: Track 1Track 2 Project design (baseline/ monitoring plan) National guidelines Supervisory Committee(take into account work by CDM/EB) Check project design against requirements National guidelines (option to use Track 2)Verification by AIE Check performance of project National guidelines (option to use track 2) Verification by accredited AIE Transfer A Host Country may issue ERUs if meets requirements(registry, inventories, AAU accounting) Choose to verify ERs generated by JI projects in its territory In addition if track 2 option used: ERUs exempted from CPR limitations Only if the Party is in compliance with eligibility requirements (para 21, a, b & d) These ERUs are exempt from CPR limitations Verification to be operated through accredited independent entities; Accreditation standards for A6SC (Appendix A); Criteria for baseline setting and monitoring plan (Appendix B).

First Track JI Upon the fulfillment of an additional set of requirements (registry, inventories, AAU accounting): A Host Country may issue ERUs Choose to verify Ers generated by JI projects in its territory First Track JI

Track 1: issues agreed in Marrakech: Additional requirements: –Methodology and reporting requirements under Articles 5.1, 5.2, 7.1 and 7.4 of KP; –Eligibility after 16 months elapsed since the submission of report to facilitate the calculation of its assigned amount (in accordance with Article 3. 7 and 8), and to demonstrate its capacity to account for its emissions and assigned amount (in accordance with Article 7.4); – Enforcement branch of the compliance committee to decide whether Party meets and continue to meet eligibility requirements.

Track 2 issues agreed in Marrakech: Art 6 supervisory committee to be established by COP/MOP1; Issuance & transfers only possible once Party complies with requirements for national system and national registry and is a Party to the Protocol (§ 21 (a), (b) and (d)); Exemption from CPR; Verification to be operated through accredited independent entities; Accreditation standards for A6SC (Appendix A); Criteria for baseline setting and monitoring plan (Appendix B).

JI(Track 2) Verification PP Submits project design doc. Rejects if not conform with criteria AIEx AIEx= Accredited independent entity PP=Project participants URF= Unified reporting format A6SC= Article 6 Supervisory Committee Source: UNFCCC, … Criteria for baselines, monitoring and crediting lifetime (Appendix B) Project implementation PP Data URF AIEx Determination made public through UNFCCC secr. PDD made public - comments within 30 days by Parties, stakeholders or UNFCCC accredited NGOs Automatic within 45 days Unless review by A6SC is requested by a Party involved or 3 of A6SC members Determination on verified ERUs made public through UNFCCC secr. Unless review by A6SC is requested by a Party involved or 3 of A6SC members Automatic within 15 days

Art. 12 – agreed in Marrakech Crediting period - 7 years with the subsequent prolongation to the doubled term (i.e. 14 years) after baseline review or otherwise 10 years without prolongation. Criteria for baseline setting and monitoring plan (Appendix B). “Prompt start ” of CDM project since January 1, 2000( registered before December 31, 2005 ) In ( ) CDM projects only on afforestation and reafforestation from LULUCF category (land use, land use change and forestry, art.3.4), including restriction of carbon credits volumes: volume shall not exceed 1% from the baseline emissions CERs bankable to a max 2.5% of assigned amount pursuant to art. 3.7 & 3.8 of that Party (art.7.4 );

Art. 6 – Issues agreed in Marrakech: Art. 6 LULUCF projects = Art. 3.3 and 3.4; ERUs bankable to a max of 2.5% of assigned amount pursuant to art. 3.7 & 3.8 of that Party (art.7.4); Projects starting as of year 2000 are eligible as Article 6 projects if they meet requirements of guidelines. ERUs shall only be issued for crediting period after the beginning of year 2008.

Who guarantees the environmental credibility ? CDM/ JI(Track2)Track 1 JI Host CountryOperational Entity(AIE ) Host Country KP Compliance Operational Entity Internal procedures for projects (Accredited Independent Entity) (Eligible host Parties may verify ER) ER Verification

Marrakesh Accords D. Participation requirements [Decision CP16] 20. A Party involved in an Art.6 project shall inform the Secretariat of: (a) Its designated focal point for approving projects pursuant to Art.6,paragraph 1(a); (b) Its national guidelines and procedures for approving Art.6 projects, including the consideration of stackeholders’ comments, as well as monitoring and verification.

Determination requirements for JI project: AIE to check whether project design: –Has been approved by Parties involved; –Emission additionality: would not have occurred in the absence of the project; –Baseline and monitoring plan in accordance with Art. 6 guidelines (Appendix B); –Analysis of environmental impacts.

CDM & JI Project Cycle JI project Cycle CDM project Cycle Check eligibility and potential (PIN) Project Design Document (PDD) Approval at national level (host country, investor country) Project implementation based on ER Purchase Agreement or MoU Monitoring and verification Transfer of ERUs Validation Check eligibility and potential (PIN) Project Design Document (PDD) Approval at national level (host country, investor country) Registration with CDM EB Project implementation based on Party’s Agreement or MoU Monitoring and verification, and certification CERs issued and transferred Validation

National Approval:critical issue DNA- official organization ( ministry,committee, agency,etc.) for CDM/JI projects national approval National approval process is not regulated on international level National approval and registration takes place before validation based on PDD or PIN Recently, DNA for CDM are arranged in Germany, Netherlands, some countries of Latin America

Validation – confirmation by examination and provision of objective evidence by an independent and qualified organization before registration that the project design documents, the baseline study and the monitoring plan meet prescribed requirements and that the emission reductions as claimed by the project are considered realistic.

Verification - confirmation by examination and provision of objective evidence by an independent and qualified organization that the project emission reductions are achieved and that other JI/CDM requirements are met.

Registration – formal acceptance by the Government of the Republic of Kazakhstan of a validated project as a JI/CDM activity. Registration is a prerequisite for the verification, certification and issuance of CERs related to that project activity.

Certification - written assurance by the authorized executive JI/CDM body that the project has achieved the verified reductions during a specified time period.

Decision to join Annex 1, COP-5 – 2000.Voluntary obligation on Art. 4.2gUNFCCC. Government Decree on IACCC, Climate Change Coordination Center-working body of IACCC.GHG Inventory for 1992 and Identification of 1992 as a base year Active consultations, meetings on preparation to KP ratification on the highest level( Special working group under Vice-Premyer in June 2004) Researches in energy and economic sector development strategies up to 2030 ;2015 including KP Starting NC-2 under UNDPGEF; launch 3 pilot CDM projects under CIDA. Uralsk project under shedule:technology transferred, construction starting IAC:Launched the model of national procedures for approval of JI/CDM projects ; approved 2 GHG reduction pilot projects. Strenthening international cooperation, MoUs Situation scenarios of macroeconomic modeling and GHG emissions, developing regulation of KP mechanisms in Kazakhstan. Analysis of benefits/disadvantages in KP participation for the decision makers.GHG Inventory under National budget.Model.Uralsk project according to the shedule (UPDD, preliminary national approval, validation) 2003 National System for CDM/JI projects review and approval, GHG projects registry. Inventory 1994, 1999,2000. COP 7 decision on Kazakhstan status: Upon ratification of the KP by Kazakhstan and its entry into force, Kazakhstan becomes a Party in Annex1 for purpose of this Protocol in accordance with Ar.,pr.7 of the KP. The COP recognized that Kazakhstan will continue to be a Party not included in Annex1 for purposes of the Convention.MoU between NEDO&Kazakhstan to implement JI_CDM project in Uralsk UNFCCC is ratified(1995), Kyoto Protocol is signed. First National Communication, GHG Inventory and Kazakhstan actions and decisions

Kazakhstanian Context Kazakhstan is in a unique situation: –COP 7 decision on Kazakhstan status: Upon ratification of the KP by Kazakhstan and its entry into force, Kazakhstan becomes a Party in Annex1 for purpose of this Protocol in accordance with Ar.,pr.7 of the KP. The COP recognized that Kazakhstan will continue to be a Party not included in Annex1 for purposes of the Convention –International competitiveness Provisional” National rules for CDMJI projects development, assessment and approval by GOK” adopted by MEP order(2002) tested UPDD as national project format developed and approved by IAC

Government of the Republic of Kazakhstan Interagency Commission on Ratification of the Kyoto Protocol and Implementation of RK’s Obligations Under UNFCCC (IACCC)(12 Ministries) Observers : NGO and Parliament Representatives, Representatives of Donor Countries and Organizations, Representatives of Business Climate Change Coordination Center Inter-Agency Coordination on CC (Government Decree #590, 2000) Projects related to climate change Projects related to phase-out Ozone Depleting Substances Other

IAC: Best Practice policies and measures Harrikein Company(PETROKAZAKSTAN) project on utilization of the associated gas at Kumkol field with the expected GHG emissions reduction about 500 thousand tons per year (planned investments – about 35 million USD). Model energy saving project at Uralsk CHPS, performed by Japanese Government Company “NEDO” in cooperation with the KAZ Ministry of Energy and Mineral Resources,expected GHG emissions reduction 62 thousand tons per year (investments amount to 15 million USD).

The Scheme of GHG Project Approval by GoK Project submittal and screening Project Verification & Certification for UNFCCC ERU’s Project Submitted for official GOK Review Preliminary Project Review by JI/CDM Board Review of feasibility Study.s Adherence to Official GOK Law Development of project feasibility Project approved awaiting financing Project Implementation & Associated MRVP Financing found Approved but not financing Circles = Project Developers Responsibility Boxes = Government or NGO responsibility GOK approved Preliminary approval

A project developer/proponent submits a project in the Unified Project Design Document (UPDD) format together with all required approvals to the JI/CDM executive body for screening. PDD for CDM is available: UPDD :

Screening is a two-staged project assessment aimed to: 1) Determine if project proposals contain all the required information that is necessary to fairly and accurately assess the suitability of the proposed project for JI/CDM eligibility; and 2) Assess the proposed projects that do satisfy the information requirements to determine their suitability for approval as JI/CDM projects.

Baseline Determination “Baseline ”- scenario( hypothetically), that represents anthropogenic emissions by sources of GHGs that would occur in the absence of the proposed project. Too low a baseline means that the project will be unviable; Too high means the climate integrity of the project will be compromised

Financial &environmental additionality Art.2.5(c) & 6.1(b) require that GHG reductions should be additional to those that would occur in the entire economy in the absence of the project Financial additionality requires that investments which would occur anyway, must be distinguished from those which occur anyway, must be distinguished from those which seek – carbon credits returns ( Proving this is very difficult!) Environmental additionality in respect of GHG is ensured through proper baseline setting. It can be argued that this requires technology not currently available in the host country ( technological additionality)

Indirect effects: leakage of GHG emissions Indirect effects may lead to a reduction in GHG in a project to be accompanied by increase in GHG outside the project boundary (e.g. displacing diesel busses by a metro may lead to the buses being relocated elsewhere) General equilibrium effects: difficult to compute Possibility of positive spillover effects through diffusion of low emitting technology without recourse to CDM

Monitoring plan -Identify data needs &quality regarding accuracy, comparability, completeness& validity -State methodology for data collection & monitoring -State quality assurance &quality control provisions for monitoring,collecting &reporting -An organization may be designated to collect data, calculate real GHG emission reduction & report progress of the project

Contribution to SD: Benefits -Long-term GHG and local emission reductions -Economic,social and technological Other Impacts -Positive -Negative

Benefits of CDM/JI for Kazakhstan Transfer of new sound technologies, facilitate substantial flows of private and public investments into CDM/JI projects; Introduction of new conditions for attracting investments and involving national funds (CDM,JI); Accumulation of carbon credits or use GHG emission offsets (JI); Ensuring stable position at the energy market and economic safety of the country in the process of transition to a market economy additional capacities in energy, industry and transport sector adequate financing for capacity building; Future perspective to participate in IET; Direct investments in environmental protection projects Facilitation of implementation of Innovative-Industrial Development Strategy 2015!

Benefits of JICDM for Project Participant: Position as first mover in climate change(chances as well as risks) International marketing image factor Strengthening of core business of every team member Strengthening of international sales of our products and services New innovative project financing possibility Improvement profitability of projects by consideration of avoided environmental costs(small, but decisive improvement of profitability)

Progress of Japan/Kaz CDM/JI project The MoU between Japan (NEDO) and Kazakhstan was signed on 20 June 2002 in Astana. The parties started implementing the project on construction of a gas turbine cogeneration system with the capacity of 25 MW Bilateral financial structure Japan&Kazakhstan During Kazakhstan will annually transfer its quota of 62 thousand tons of СО2, generated as a result of the gas turbine facility operation, to Japan upon MoU

Progress of Japan/Kaz CDM/JI project UPDD developed. Testing the national procedures of project approval. Approval at ministries obtained Baseline Validation by DNV. Other necessary project documentation in development IAC preliminary approval as JI/CDM project obtained office arranged in Uralsk city for project implementation Close cooperation between stakeholders 2004 – Japan technology transfers to Kazakhstan

National companies; Industrial organizations; NGOs Government of RK; KP Parties; IFO; Large business companies Investment projects : With participation of the government (MIT, MF, MEBP, MEMR, MEP, MA, MTC) and private sector via (MEBP Investment Committee) Projects portfolio without investor Projects with grant support : Ministries and NGOs Council of Fund JI/CDM National Board (DNA) Secretariat CО 2 GHG emissions reduction Proposed institutional arrangements- Carbon Fund CО 2 $ Tg Tg $ Tg Tg $ Tg Tg 44

Way forward a)GHG Projections and MAC analysis, definition of national commitments b) Project portfolio c) Institutional arrangements: role of DNA and transparent procedures and rules c) Creation of national register of AAUs/ERUs/CERs/RMUs d) The Carbon Fund f) Allowance trading

Key issues How to minimize risks? How to low transaction costs? How to ensure credibility of ERs? How to facilitate funds transfer? Host country support(adequate understanding) Additional environment and social benefits calculation? Simplifying procedures?

Contact /information... Climate Change Coordination Centre 48 Abai Street, Room Astana City, KAZKHSTAN Tel: +(7-3172) ; Fax: +(7-3172) ; Web: