Direction générale de lénergie et du climat Standing challenges for JI First SDM Joint Coordination Workshop 24 – 25 March Bonn Dimitar Nikov

Direction générale de lénergie et du climat Lessons learned so far What was expected from JI : to be an efficient flexibility mechanism Environment : internationally capped (and tracked) credits Economy : finance, flexibility and clean technology transfer What was delivered : an efficient flexibility mechanism… Environment : + emission reductions are here to stay Economy : + harvest information on untapped emission reduction potential and inspire future policy design + improve standardization and benchmark setting under existing trading schemes > 350 MtCO2e to be delivered in CP1 …facing challenges in the very near future On national level : data collection, additionnality, procedural problems On global level : multiple Track 1 approaches, lack of enough flexibility of Track 2 On continuation : continuation ensured for AI parties, but clarification decisions on crediting likely to be needed On demand : lack of identified, market demand for ERUs for new, post-2012 registered projects

Direction générale de lénergie et du climat Baseline choice - data collection and use Additionnality - defining and evaluating additionnality Procedural and organizational considerations Is the work distribution between each of the involved national entities for the approval of a project well defined (pedagogy effort often needed)? Are national rules on the mechanism reflecting each of the possible project implementation issues? How national rules evolve when the mechanism evolves on international level? Define a clear place for the mechanism in the national climate policy Ensure the involvement of private sector Challenges for a DFP on national level

Direction générale de lénergie et du climat Main concern for the DFP : preserve its added value Future challenges for a DFP : improve rules on procedures in order to minimize challenges on national level, streamline approvals and incentivize financing and project development across AI parties Options to explore : 1.Unilateral improvement without CMP guidance (BAU scenario) still a credibility issue for the whole mechanism 2.Unilateral improvement under CMP guidance an unrealistic solution 3.Multilateral improvement under CMP supervision meaning no more Track 1 and revision of the mechanism Challenges for a DFP on global level

Direction générale de lénergie et du climat Durban provides for the commencement of the CP2 from the 1 st of January 2013, meaning continuation for existing flexibility mechanisms Nevertheless, even if post-2012 emission reductions are to be accounted for the CP2, it is still unclear how and when they will be credited, as they shall be backed by AAUs (unlikely that CP2 AAUs will be available in January 2013) Options to explore (need for future legal expertise): 1.Prompt start decisions issuing CP2 AAUs before entry into force of CP2 2.Postpone the issuance of ERUs in respect of CP2 reductions until CP2 AAUs are issued 3.Convert CP1 AAUs into ERUs (for Parties with CP2 QELRO) and then deduct equivalent amount from CP1 AAUs to be carried-over 4.Convert CP1 AAUs into ERUs (for Parties with CP2 QELRO) and then deduct equivalent amount from CP2 AAU issuance Challenges on continuation of JI

Direction générale de lénergie et du climat In current market most of the demand is provided by the EU-ETS. ERUs used for compliance of EU installations ETS Directive (2009/29) rules for the third phase ( ) Accept only credits from existing (registered pre-2013) JI projects No new short-term demand perceived under current EU commitments The more time it takes to credit ER taking place post-2012, the less credits may get accepted in the EU-ETS (the cap of 1,6 billions tCO2e of CER, ERUs is filling quickly) Need to search for demand for new ER in other market schemes Challenges on demand for ERUs

Direction générale de lénergie et du climat Private investors; Domestic scheme (Track 1); 90% rule; Methodologies 16 methodologies 17 projects (+ 2 under approval in agriculture et another one in household emissions) with ER potential of 10 MtCO2e (9 M ERUs, over 4 Mt delivered so far) for Mainly industrial gases (benchmark approaches for nitric acid projects of 2,5 and 1,85 kgN2O/tHNO3), but small potential for replication (inclusion into the EU ETS) High potential for agriculture where no specific public tools exist Latest methodologies and projects focus on PoA development : agriculture, transport, housing Examples from agriculture: Energy (CO2) - reduce energy consumption for co-op farms drying alfalfa through biomass use rather than fuel and improve general drying practices) Livestock farming (CH4) – nutrition modification for dairy cows with natural omega-3 rich plants (alfalfa, extruded flaxseed, etc.) Fertilization (N2O) – diminish fertilizers use through crop rotation modification based on legumes. JI hosted in France : a quick snapshot

Direction générale de lénergie et du climat Thank you