Gas Flaring and CDM An Environmental Opportunity A Methodological Challenge Christophe de GOUVELLO Member of the MethPanel of the CDM World Bank, Energy Division for Africa - AFTEG Views expressed by the author are not representing neither MethPanel nor WB positions

Summary of the Presentation I.CDM Principles and Project Cycle II.Implementation of the CDM: – Where we stand III.Gas Flaring and CDM : – A major issue, comparable in size to HFC 23 IV.CDM and GGFR: – Toward Synergy ?

I CDM Principles and Project Cycle

Reduction of Emissions achieved by a Project compared to the scenario without CDM Years of operation of the project CO 2 Emissions (in ktCO ) Baseline Emissions (to be determined ex ante) Emissions of the CDM project (to be monitored along crediting period) Volume of Certified Emissions Reductions (CER) Methodologies required for : Determination of Baseline Emissions Monitoring CDM Project Emissions Calculation of Emission Reductions

A key concept: ADDITIONALITY 1 CER = 1 more ton CO2 emitted in Annex 1 countries Only emission reductions that are ADDITIONAL to emission reductions that would have occurred without CDM  Not all “Emission Reductions” are eligible to CDM Ex: least cost hydro may or may not be eligible Additionality established on the basis of: Financial Analysis : Additional cost, lower IRR, etc… OR: Barriers preventing the “clean” project to take place: – Difficulties to achieve financial closure ( no long term commercial loans) – Technology Risk: first of kind in the country (high pressure boilers Cogen) – Social / market acceptability (scavengers resettlement for landfill gas to power) – Etc.

CDM Executive Board ► Approves Baseline and Monitoring Methodologies ► Accredits the Certifiers (Operational Entities) Designed Operational Entities Project Host Country ► Forwards the Application for Validation and Registration ► validation report and registration application Project Developer ► Letter(s) of Approval by Participant Countries ► Calculates "Baseline" and prepares a PDD (Project Design Document) using an Approved Methodology ► Registers projects validated by OEs ► Validate proposed CDM projects and forward applications to EB for registration Cycle Before Project

CDM Executive Board ► Approves Baseline and Monitoring Methodologies ► Accredits the Certifiers (Operational Entities) Designed Operational Entities Project Host Country ► Forwards the Application for Validation and Registration ► validation report and registration application Project Developer Project Developer and Host Country ► Shares issued CERs according to the agreement between ► Letter of Approval ► Calculates "Baseline" and prepares a PDD using approved Methodology ► Monitor Emissions during the project and calculates Emissions Reductions ► Requests validation of Emission Reductions to get the CERs ► Registers projects validated by OEs ► Issues the Certificates (CERs) ► verification & certification report and request issuance of credits (CERs) ► Validate proposed CDM projects and forward applications to EB for registration ► Verify and certify emissions reductions Cycle during Project

Project Host Country Project Developer Project Developer and Host Country ► Shares issued CERs according to the agreement between ► Letter of Approval ► Calculates "Baseline" and prepares a PDD using approved Methodology ► Performs Monitoring of Emissions during the project and calculates emissions reductions Carbon Market Place Carbon Funds >30, 10 inside WB Direct Sales Purchase Agreements CERs $ $ + Technical Assistance for CDM project cycle`(WB) Credits (CERs) for Sale

Carbon Finance gives value to Carbon Credits (CERs) generated by CDM Eligible Investment Projects

II Implementation of the CDM Where we stand

Regulatory Bodies of the CDM CDM Executive Board ► Approves Procedures and Baseline and Monitoring Methodologies METH PANEL Review, improve and consolidate proposed methodologies Prepare Technical Decisions for approval by Executive Board recommendations More than 200 proposed methodologies processed so far Mr. Rajesh Kumar Sethi (Chair) Mr. Jean-Jacques Becker (Vice- Chair) Mr. Amr Osama Abdel-Aziz Mr. Felix Babatunde Dayo Mr. Juerg Fuessler Mr. Christophe de Gouvello Mr. Michael Lazarus Mr. Jan-Willem Martens Mr. Vijay Kumar Mediratta Mr. Daniel Perczyk Mr. Braulio Pikman Mr. Ashok Sarkar Mr. Roberto Schaeffer Mr. Lambert Richard Schneider Mr. Christoph Sutter Mr. Massamba Thioye Mr. Kenichiro Yamaguchi

Expansion of the regulatory framework of the CDM Pace of releasing new approved Methodologies by Regulatory Bodies (EB+MethPanel) R 2 y = x = /24/038/23/03 11/22/03 2/21/045/22/048/21/04 11/20/04 2/19/055/21/058/20/05 11/19/05 2/18/065/20/068/19/06

/1/03 2/1/044/1/04 6/1/048/1/04 10/1/0412/1/04 2/1/054/1/056/1/058/1/05 10/1/0512/1/05 2/1/06 4/1/06 Ch. de Gouvello - WB / AFTEG - May 2006 Member of the MethPanel of the CDM Source: UNFCCC data The Y axis has been truncated at 50 Nb Proj under ACM0002 Nb Proj under ACM0003 Nb Proj under ACM0004 Nb Proj under ACM0005 Nb Proj under ACM0006 Nb Proj under ACM0007 Nb Proj under ACM0008 Nb Proj under AM0001 Nb Proj under AM0002 Nb Proj under AM0003 Nb Proj under AM0004 Nb Proj under AM0005 Nb Proj under AM0006 Nb Proj under AM0008 Nb Proj under AM0009 Nb Proj under AM0011 Nb Proj under AM0013 Nb Proj under AM0014 Nb Proj under AM0015 Nb Proj under AM0016 Nb Proj under AM0018 Nb Proj under AM0021 Nb Proj under AMS-I.C Nb Proj under AMS-I.D Nb Proj under AMS-II.B Nb Proj under AMS-II.C Nb Proj under AMS-II.D Nb Proj under AMS-III.B Nb Proj under AMS-III.D Nb Proj under AMS-III.E Nb Proj under ACM Each new approved methodology unleashes a new segment of CDM projects potential Cumulative Number of CDM Projects per Methodology (projects that officially began validation process)

Cumul Nb CDM Proj that have already applied for Validation Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb-06 Nb Proj under ACM0008 Nb Proj under ACM0007 Nb Proj under ACM0006 Nb Proj under ACM0005 Nb Proj under ACM0004 Nb Proj under ACM0003 Nb Proj under AM0021 Nb Proj under AM0018 Nb Proj under AM0016 Nb Proj under AM0013 Nb Proj under AM0008 Nb Proj under AMS-III.D Nb Proj under AMS-III.B Nb Proj under AMS-III.E Nb Proj under AM0015 Nb Proj under AM0014 Nb Proj under AM0011 Nb Proj under AM0009 Nb Proj under ACM0002 Nb Proj under ACM0001 Nb Proj under AM0006 Nb Proj under AM0005 Nb Proj under AM0004 Nb Proj under AM0003 Nb Proj under AM0002 Nb Proj under AM0001 Nb Proj under AMS-II.D Nb Proj under AMS-II.C Nb Proj under AMS-II.B Nb Proj under AMS-I.D Nb Proj under AMS-I.C Ch. de Gouvello - WB / AFTEG - May 2006 Member of the MethPanel Source: UNFCCC data The exponential growth of the number of projects is a direct reflect of the timing of the processing and release of new approved methodologies by the EB/MethPanel. As a result, it can be expected that this growth may continue for a while.

Number of CDM projects that have already applied for validation Nb of calendar days since Dec 1 rst, 2003 Ch. de Gouvello - WB / AFTEG March 23, 2006 Source: UNFCCC data Dec. 1 rst, 2003 The number of CDM projects that have begun or completed the validation process increases as the following polynomial function of time 2 2 = y = 1E-06x 3 - 4E-05x x R = 0.99 Nb of Projects Dec, 2006 N>1,500

Annual value of project-based Emission Reductions Transactions (million USD) (up to 2012 vintages) (Source: State and Trends of the Carbon Market 2006, Ph. Ambrsoi and K. Capoor, World Bank, 2006) Already more than 5 billion dollars of North-South net transfer before end of 2012 However still some uncertainties for post 2012 (second commitment period) Jan - March

III Gas Flaring and CDM

Gas Flaring : A Major Issue for Kyoto/CDM Annual volume of natural gas being flared by non Annex 1 > 250MtCO2eq/year (out of venting)  Comparable to the total volume of committed emission reductions by EU 15 under the Kyoto Protocol for (~ 317MtCO2eq/year)  Comparable to the maximum emission reductions that can be achieved through HFC23 CDM projects (290MtCO2eq/year) More than 90 percent of venting and flaring occurs in fewer than 15 countries, most of them Non-Annex 1

Possible CDM activities related to gas flaring / venting reductions 1. Gas Flaring to Pipeline 2. Gas Flaring to Power 3. Gas Flaring to Heat 4. Gas Flaring to LNG 5. Gas Flaring to LPG 6. Gas Flaring to Feedstocks (i.e. methanol, ethylene, ammonia) 7. Gas Flaring to Re-injection 8. to 13. The same 7 categories but using Vented Gas 14. Improving flares efficiency to reduce CH4 content of flares And any combination of the above activities…

Current Gas Flaring CDM Pipeline So far, there are only two approved methodologies  AM0009 : for “Gas Flaring to Pipeline”  AM0037 : for “Gas Flaring to Energy or to Feedstock” 15 different projects in the current UNFCCC official pipeline (validation or registration stage) AM0009 = 14 ; AM0037 = 1

Current Gas Flaring CDM Pipeline 9,247 MtCO 2 69,274 MtCO 2 # TitlektCO2/yr.Credit start2012 ktCO2Host country 1Use of Recovered Gas for Methanol Production2, May-01 23,560 Equat. Guinea 2Flare gas recovery project at Hazira Gas Process Comp, (ONGC) Sep India 3Gas flaring reduction project at Cauvery Asset, (ONGC) Sep India 4Gas flaring reduction project at Mumbai High, (ONGC) Sep-06 1,274 India 5Gas flaring reduction project at Ankleshwar Asset, (ONGC) Sep India 6Gas flaring reduction project at Assam Asset, (ONGC) Sep India 7Gas flaring reduction project at Rajamundry Asset, (ONGC) Sep India 8Gas flaring reduction project at Neelam and Heera Asset, (ONGC) Sep India 9Flare gas recovery project at Uran plant, (ONGC) Limited Sep India 10Gas flaring reduction project at Mehsana Asset, (ONGC) Sep India 11Gas flaring reduction project at Ahmedabad Asset, (ONGC) Sep India 12Recovery of associated gas Kwale oil-gas process plant, Nigeria1, Oct-06 10,521 Nigeria 13The Ovade Ogharefe Gas Capture and Processing Project2, Jan-07 14,505 Nigeria 14Al-Shaheen Oil Field Gas Recovery and Utilization Project1, Jan-07 9,120 Qatar 15Rang Dong oil filed associated gas recovery and utilization (NM26) Dec-01 6,910 Vietnam

Methodological Challenges Complexity of technical configurations: (i) Boundary determination and emissions calculation in case of complex projects where GFVR activities are only one component of a larger investment; (ii) Variability of gas composition, etc. Additionality: (i) Economics of these projects : May have different sources of direct (electricity sales) or indirect (benefits of re-injection for improving oil extraction) revenues, only one component of a larger project. (ii) Nature and Vintage of Regulations and Policies

Additionality Issues Some gas flaring/venting reduction (GFVR) projects are “low hanging fruits” that incur immediate high benefits (i.e. certain re-injection projects) However, some GFVR projects require costly multi-stakeholders undertakings that are not attractive enough compared to more profitable investment opportunities (i.e. expanding or developing new oil fields)

Additionality Versus Regulations & Policies Decision of the Executive Board on National and/or Sectoral Policies (EB22): “ National and/or sectoral policies or regulations under paragraph 6 (b) that have been implemented since the adoption by the COP of the CDM M&P (decision 17/CP.7, 11 November 2001) need not be taken into account in developing a baseline scenario (i.e. the baseline scenario could refer to a hypothetical situation without the national and/or sectoral policies or regulations being in place)” Regulations/policies alone may not be able to overcome barriers that prevent GVFR projects to happen CDM alone may also not be able to overcome barriers Combination of CDM incentives and regulations/policies is often required, especially in Africa

C D M as D evelopment How does it apply to Gas Flaring Reduction ? While the host country may be dramatically lacking of Power, in number of cases, Gas to LNG is more attractive than Gas to Power In certain cases Gas to Power could have far more economic value than LNG market price Host Countries can use CDM as a Policy Tool to align Gas Flaring Reduction with their own National Energy Strategy CDM has been negotiated in Kyoto to ensure the Host Country will have a sovereign control on CDM projects  CDM projects require a Letter of Approval from the Designated National Authority (DNA). Host countries can develop an Integrated Strategy to facilitate CDM Gas Flaring Reduction and National Energy Development

IV CDM and GGFR

CDM and GGFR Since beginning, GGFR mission includes exploring how CDM can help overcome barriers that prevent flaring reduction projects Reciprocally, GGFR can contribute to overcome barriers that the CDM alone may not be able to overcome GGFR has been launched after November 11, 2001  activities promoted by GGFR could be seen as post- Marrakech E – policies (adoption of the “Global Voluntary Standard for Global Gas Flaring and Venting Reduction”, elaboration of “Associated Gas Recovery Plans”, etc.,) Specific GGFR expertise can contribute to address CDM methodological challenges triggered by GFVR projects CDM and GGFR : Complementary in promoting real additional Gas Flaring Reduction projects ?