AIT Critical aspects in PDD: meeting CDM Criterion Sudhir Sharma Asian Institute of Technology Bangkok, Thailand 23 rd March 2004

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Presentation Structure  CDM Project Development Cycle & Project Design Document (PDD)  Project Design Document (PDD) and Baseline Description  Preparing Annex 3 – New Methodology  Conclusions

AIT CDM Project Development Cycle & Project Design Document (PDD)

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Identification and review of the Project Baseline Study and Monitoring Protocol (MP) 1.Baseline study Prepared 2. MP prepared 3. Project Design Documents prepared for Validation Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion CDM Project Development Cycle 1. Project ideas reviewed by buyer 2. PCN prepared by project sponsor 3. Host country endorsement sought

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia CDM Project Development Cycle  PDD is not first step to Validation of a CDM project but the last step  PDD only a reporting format for information – similar to proposals for project to funding agencies in prescribed formats  Critical features –Brevity –Relevant information that the funder needs to evaluate your proposal –It also provides a check whether the analysis undertaken by Project proponent for Basline is adequate

AIT Project Design Document (PDD) and Baseline Description

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Baseline sections in PDD A. General description of project activity B. Baseline methodology C. Duration of the project activity / Crediting period D. Monitoring Methodology E. Calculations of GHG emissions by sources

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia General description of project activity A.1 Title of the project activity: A.2.Description of the project activity A.3. Project participants: A.4. Technical description of the project activity: A.4.1. Location of the project activity: A.4.2. Category(ies) of project activity A.4.3. Technology to be employed by the project activity: A.4.4. Why Additional A.4.5. Public funding of the project activity  General description is like an Executive summary or PIN

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia The objective of Project description?  Uniquely identify the project – don’t want one project earning CERs twice over  SD benefits – to meet the CDM objective of SD in developing countries  Check Additionality –Funding additionality –Project additionality  From the Baseline perspective –Identify the main activity that results in reduction of GHG –Nature of service provided by the project activity –The above two provide the system boundary for baseline evaluation and identification of baseline options

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia General description of project activity  Uniquely identify the project  SD benefits – to meet the CDM objective of SD in developing countries  Check Additionality –Funding additionality –Project additionality  Identification of Baseline A.4.1. Location of the project activity A.3. Project participants A.2. Description of the project activity Purpose of project SD contribution of project A.4.5. Public funding of the project activity A.4.4. Why Additional (a) What project activity results in reduction (b) report emissions reductions (c) How is it additional to expected changes in the project sector A.4.2. Category(ies) of project activity A.4.3. Technology to be employed by the project activity Technical description Env Safe Tech Transfer

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Project Description  Project purpose – –what is the major need/demand that the project will fulfill. E.g, sugar cogeneration project to generate production of electricity, using high efficiency boiler, for sale to grid. Primary purpose of project in most cases not GHG reduction –For retrofit project (brown field projects that replace a part or whole of existing plant) Is the replacement due to expiry of equipment life? E.g, sugar congeneration (SC) project will have to replace existing boilers. If the boilers are being replaced due to expiry of life, the baseline would be the range of boiler options for replacement. If the replacement is not due to expiry of life than the baseline could be the existing boilers Is the retrofit to meet some regulatory requirements. Example, if in above project the regulation require all boilers of 22 ata pressure be replaced by atleast 32ata boiler, therefore even if the life of existing boilers has not expired, the existing boiler can’t be the baseline option

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Project Description  Technical description of the project –Schematic sketch of the complete setup within which the project process is situated –Major project activities to achieve the project objectives –The technical details needed to differentiate the project from other possible baseline options. Example - SC project: the boiler description and additional equipment required for high efficiency boiler (new turbines) and biomass handling components, etc. –Critical component for operation of project. Example, availability of bagasse to operate boilers. Will higher bagasse be needed for project, if bagasse is not available what will be the alternative arrangement.

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Project Description  Additionality explanation –The detailed analysis is in Section B. Summary presented in Section A –Activity that reduces GHGs and GHG reductions achieved by project. Example SC, use of biomass generated in Sugar mill which otherwise was inefficiently used to generate power. –Description of sector – to provide a background for highlighting the baseline options in context of national policies, programes, sectoral changes, etc. Example, SC description of power sector, in terms of power situation, the various options for power generation, policies (fuel, environmental, power sector etc) that influence the choice of fuel and choice of technology for power generation. Brief description of status of project option as choice of power generation in region/country

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia B: Baseline methodology B.1 Title and reference of the methodology applied to the project activity –If a existing approved methodology (AM) is used, complete reference of AM should be provided –If new methodology (NM) is used reference to title of new methodology as attached in Annex 3 B.2. Justification of the choice of the methodology and why it is applicable to the project activity –The conditions under which the chosen methodology can be used listed for all EB approved methodologies For NM – identify the general conditions for application –How does the project meet all the conditions for using the chosen methodology

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia B: Baseline methodology: Example  Grid-connected Biomass Power Generation that avoids Uncontrolled Burning of Biomass: Applicability (EB Approved Methodology)  This methodology is applicable to biomass-fired power generation project activities displacing grid electricity that: –Use biomass that would otherwise be dumped or burned in an uncontrolled manner –Have access to an abundant supply of biomass that is un-utilised and is too dispersed to be used for grid electricity generation under business as usual (BAU); –Have a negligible impact on plans for construction of new power plants; –Not be connected to a grid with suppressed demand; –Have a negligible impact on the average grid emissions factor; –Where the grid average carbon emission factor (CEF) is lower (and therefore more conservative as the baseline) than the CEF of the most likely operating margin candidate  Justification for choosing BM – does the proposed project meet these conditions

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia B: Baseline methodology B.3. Description of how the methodology is applied in the context of the project activity –Brief explanation of application of steps in BM to Identify baseline scenario Prove additionality Estimate baseline emissions Address leakage –If the methodology uses certain parameters, it might be advisable to describe the parameter value chosen and process B.4. explanation of how and why this project is additional and therefore not the baseline scenario –This section should present an analysis of additionality based on the additionality evaluation steps described in BM –All supportive information such data used in analysis, method of analysis (such financial analysis, etc. should be provided as Attachments). –All assumption made in applying the additionality evaluation steps too should be clearly highlighted

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia B: Baseline methodology B.5. Description of how the definition of the project boundary related to the baseline methodology is applied to the project activity –“A baseline shall cover emissions from all gases, sectors and source categories listed in Annex A within the project boundary” –Baseline methodology is process of estimating baseline emissions therefore a clear statement of the boundary over which the baseline methodology estimates the baseline emission is must Gases covered Physical boundary System boundary –“The project boundary.. all anthropogenic emissions.. under the control of the project participants that are significant and reasonably attributable to the CDM project activity” –Example, SC – the project influence the emission of grid – in absence of project the grid will get energy from fossil sources – the extent of the grid boundary that is influenced by project needs to defined – the system boundary –Let us say, project requires excess bagasse, sourced from sister concern – that too should be part of boundary for evaluation – the project boundary

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia B: Baseline methodology B.6. Details of baseline development B.6.1 Date of completing the final draft of this baseline section (DD/MM/YYYY): B.6.2 Name of person/entity determining the baseline:  The Baseline Methodology section is more of explaining how the BM is used rather the describing the BM – which is done in Annex 3 if it is a NM

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia E. Calculation of GHG emissions by sources  Important aspect the formulae used for estimating GHG – project, leakage and baseline  It should not be a general description  Formulae for each parameter and each variable should be provided. e.g, emission coefficient estimation formulae  E.g., SC, –BL_GHGy = EG_CO2y –EG_CO2y = EG y * CEF y –CEF y = min m (CEF grid av, CEF OM ) –CEF grid av = ∑E i / ∑EG i –CEF OM = ∑E i / (∑EG i - ∑EG(must run hydro)) –E i = sau used from a study (give full and complete reference)

AIT Preparing Annex 3: New Methodology (NM)

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology Objective of Annex 3 submissions Approval of New Methodology by EB To develop a list of standardised methodologies Best way of understanding how to prepare A3 – study the Approved Methodologies recommended by EB

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology 1.Title of the proposed methodology 2.Description of the methodology: 1. General approach 1.Identify the approach from three options 48a,b, c and justify 2.The approach should be based on the steps to estimate the baseline emissions – e.g., one could use financial analysis as a tool to prove additionality but it doesn’t imply that approach “b: the most economical option” therefore should be chosen as baseline emission approach. 3.Example AT Rice Husk Power Thailand (EB Approved) uses 48 b approach – the project uses average grid emission intensity as basis of emission reduction. Meth- Panel (MP) recommendation states that since planned activity are used for estimating the emission factor and as plans are based on economically least cost options, therefore approach b is approved. The additionality in this case was based on barrier analysis with no links to economic analysis.

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology 2.Overall description 1.Define the steps for identifying the baseline options/ scenarios Sugar Cogeneration NM 0035(B) – the baseline methodology does not provide a clear definition on baseline scenario selection, although the example draft CDM-PDD presents a series of information regarding the issue in the context of the specific plants under consideration. 2.Define the steps for additionality analysis Cogeneration Project NM0030 (B) - The methodology repeats the steps prescribed by EB for additionality MP Comments “It is unclear how the barrier and alternative options should be evaluated, and what the determinative steps are. While the underlying intent of the additionality methodology may be perfectly reasonable, the presentation is not” 3.Define steps for estimation of baseline emissions Clearly identify the steps in estimating baseline emissions from the baseline scenario. Justification too should be provided for the procedure NM0025: Combined margin approach (OM & BM average) – similar to small scale electricity methodology – but uses projected capacity creation to estimate BM. The document further modifies the project capacity based on some private information. MP Comment “The rationale for using a modified expansion plan is not provided. 4.Define steps for assessing leakage (not necessary but might be useful)

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology 3.Key parameters/assumptions (including emission factors and activity levels), and data sources considered and used In additionality procedure and baseline emission estimation a number of parameters and data values are used Clearly state the assumption made Example, if financial analysis is used for additionality check – the values of interest rate, debt-equity ratio, O&M costs, etc are assumed values, especially for baseline options Example for using operating margin (OM) “must run” projects are excluded – in absence of data “must run” projects are assumed MP Comments NM 0030 “Most assumptions are fairly clear. However, assumptions regarding the interpretation of projected capacity additions as used to determine the modified CM are not transparent…It is important that application of expert judgment be explicit and the rationale documented” The central idea is that a third person can recreate your thought process for developing baseline reading the document Similarly all data used should be explicitly stated and referenced To ascertain the vintage of data used – too old an information could distort the baseline Appropriate geographic scope of data To maintain transparency

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology 4)Definition of the project boundary related to the baseline methodology Should state key gases to be covered MP Comments NM 0025 “Methane emissions should be included within the boundary since they can be significant for some biomass fuels” Principle of control is appropriately applied – to identify the sources of alternative baseline emissions The boundary for evaluation of baseline options and baseline emissions – normally referred to as system boundary – also used to identify spatial relevance of data used for assessment of emissions in baseline MP comment NM 0032 – (Waste to energy project in India where law requires waste to be processed for biodegradable before disposal in Land fill” “state-level for the system boundary (previously it was national) is closer to the project level” 5)Assessment of uncertainties Two aspects to be covered Identify the uncertainties how the BM accounts for the uncertainty Baseline – factors that could change the baseline (change in regulations) Algorithm – the parameters of the baseline emission calculations (level of project activity could change in future) Assumptions – key assumptions (the must run projects) Data – uncertainty in the availability of data to estimate reductions

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology 6)Description of how the baseline methodology addresses the calculation of baseline emissions and the determination of project additionality This section should be seen in context of section 2 – overall description of the methodology Description of application of additionality steps in baseline methodology to the proposed project Description of description of application of algorithm for estimating baseline emissions If the description of formulae for baseline emission are covered in section 2, no need to present it in this section Description should be concise and precise in describing the application Should describe the various conditions associated with using the algorithm and parameter values – no ambiguity or arbitrariness in the application All the description of exact value of parameters, data etc. should be covered in the main CDM-PDD, not in this section

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Annex 3: New Baseline Methodology 7)Description of how the baseline methodology addresses any potential leakage of the project activity Section 2 should cover the leakage aspect – this section is justification of how the leakage assessment is adequate Most of PDD’s don’t provide details of leakage in section 2 Leakage is emission attributable to project outside the project boundaries – therefore the description of project boundary is the basis of identifying the possible leakage based on interlinkages of project with wider economy – fuel purchases, supply of output, procurement of other inputs, etc. NM001 is a good example of how leakage issue should be described Detailed formulae used for estimating leakage should be stated explicitly in Annex 3 rather than just using it in the CDM-PDD

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia Conclusions  PDD and Annex 3 are good tools for assessing the completeness of baseline study  CDM-PDD baseline section covers only the application of BM and use of actual values of data and parameters for estimating emissions  Annex 3 – is description of BM – description should be from the perspective of a standardized methodology that can you be used for other projects similar to proposed CDM project with which it is submitted

AIT 2 nd Regional Workshop on Capacity Development for the CDM March 23, 2004, Siem Reap, Kingdom of Cambodia