AIT Baselines and Additionality Sudhir Sharma Asian Institute of Technology Bangkok, Thailand 24 th March 2004

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Structure of Presentation  What is baseline?  Important elements of Baseline –Identifying Baseline scenario –Estimating Baseline emissions –Addressing Leakage through BM  Analyzing additionality

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia What is Baseline?

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia What is Baseline? (1)  Baseline represents the status of a particular activity/sector/economy in absence of a planned intervention  Baseline –Is a hypothetical scenario –Represents projection of system into future based on the dynamics of the system –Forms the basis for comparison between with and without project/activity scenario.

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia What is Baseline? (2)  E.g. Policy evaluation of Emission norms for Vehicles  Baseline: Transport related emissions is function of –Growth in vehicle stock Travel demand Income growth Public transport system –Vehicular technologies and fuel type Fuel efficiency New fuels End-of-pipe measure

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Important elements of Baseline Methodology (BM)

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Structure of Approved Methodology (AM)  EB has approved four methodologies to date –Incineration of HFC23 –Landfill Gas capture and flaring where baseline set by public concession contract –Simplified financial analysis for landfill gas capture project –Biomass based power generation for grid electricity

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Common structure of AM  Applicability – conditions under which the BM can be used –AM001 – Applicable to HFC 23 waste stream from HCFC production in countries with no regulations on HFC 23 emission  Emission reduction – description of baseline emission, project emission and leakage; description of formulae used for reductions –AM001 – emission reduction is amount of waste HFC 23 actually destroyed less the emission from process of destroying HFC 23 and leakage of the destruction process  Baseline – emission in absence of proposed project, formulae and important parameters in defining the baseline emissions –AM001 – baseline is destruction of waste HFC23 required by regulations –Gives parameter to ensure the baseline waste production can’t be manipulated upwards

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Common structure of AM  Additionality – steps to prove additionality of project –AM001 – (a) regulations don’t require destruction of HFC23 & based on economic analysis (project doesn’t result in any financial benefits) – project is additional; (b) amount of destruction of HFC23 under project is more than that in baseline  Leakage – identifies source of leakage and method to estimate the emissions leakage –AM001 – (a) emission from production of purchased energy (Steam and electricity) for destruction process and transportation of waste generated from destruction process; (b) formulae

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Common structure of AM  Three components of BM emerge –Additionalty tests and steps –Formulae and parameters for estimating baseline emissions –Description of leakage sources and formulae  An important element of BM – based on comments of Meth Panel (MP) on submitted NM –BM should describe process for identifying baseline options or scenarios –Baseline should be in line with project boundary – system boundary too is an important component of the boundary GHGs Emissions from all sources under control of Project proponents –Uncertainty and its addressal by BM What are the uncertainties in baseline? How robust is the BM to absorbs changes in Baseline emissions that might arise due to these uncertainties?

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Important elements of BM  Procedure for identifying baseline scenarios/ options –A clear delineation of project boundary & system boundary  Steps to evaluate “additionality” of project  Description of the steps to estimate baseline emissions – formulae/algorithm  Steps defining leakage and formulae/algorithm to estimate leakage –Project boundary plays an important role here too

AIT Baseline Methodology: Steps To Develop Baseline

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 1: Project Boundary  “Project boundary shall encompass all.. emissions by sources…. under the control of project participants that are significant and …. attributable to the CDM project activity (Para 52, MA) –All GHGs – the six gases listed in the KP (CO 2, CH 4, N 2 O, HFC, PFC, SF 6 ) –Physical boundary of sources of emissions – important element is principle of control – most projects submitted the physical boundary of project –Another important aspect is system boundary – or geographical scope of baseline options/scenario. E.g., Biomass power project supply to isolated grid – the analysis of baseline options will cover all possible sources that can supply to grid  An important aspect of boundary is the project description – that identifies the emission sources as well as the source of GHG reduction to assess the baseline option

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia  In a storage Hydro Power project, project boundary (PB) should include the reservoir area. If reservoir area was a forest land in base case, exclusion of the reservoir area from PB may overestimate CERs of the Project Step 1: Project Boundary

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 2: Selecting Baseline Scenario  The sources of emission within project boundary basis of identify the baseline options (AM001 – the project source of emission is destruction of HFC23 – therefore that alternative of HFC23 release in absence of project)  The system boundary is first stage screening of possible baseline options/scenarios (AM001 – The country is the system boundary for analysis )  The second level of screening for Baseline alternatives will be identified taking into account (Para 45(e), MA) : –National/sectoral policies and circumstances, Sectoral reform initiatives (=> Alternative selected should meet regulatory requirements : efficient technology/fuel options mandated cannot be ignored – AM001 – as there is no regulation for destruction of HFC23 and there is no possible use of end product of destruction – therefore option is no action)

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 2: Selecting Baseline Scenario –Local fuel availability (=> reflecting feasibility – e.g., gas fired furnace is an possible alternative if the project area has access to gas) –Power sector expansion plans –Economic situation in the project sector( If the ) Baseline should not be backward looking for forward looking –the BM should explain the process of identifying baseline scenario/ options as well as how it takes into account national policies and circumstances

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 3: Additionality Tests  First test if additional to regulation and/or common practice  Consider the Proposed project (P) along with the list of baseline alternatives  Note: Additionality test also helps identify baseline projects which will not be implemented due to regulation/ norms in sector Perform Barrier Test If P faces no barrier => Project Non- Additional Two or more alternatives to P are identified as possible baseline alternatives If only one alternative is identified choose that as baseline Identify the baseline approach

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 4: Selecting Baseline Approach  “…shall select from ….. one deemed most appropriate for project activity….. and justify the appropriateness” (Para 48, MA)  Baseline approaches: a.Using existing actual or historical emissions b.Using emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment c.Using average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental, and technological circumstances, and whose performance is among the top 20 per cent of their category. Approach based on the identified baseline and baseline emission formulae – not on basis of additionality procedure

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 4: Selecting Baseline Approach  AM001 –the additionality of project based on the economic analysis –The baseline approach is 48 (a) – existing actual or historical emission – the baseline identifies continuation of the present status as baseline

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Step 5: Estimating Baseline Emissions  After identifying the approach –Develop the generic Steps for application of methodology –Describe mathematical formulae for estimating emissions  Based on the Methodology identify –data and parameters required for the mathematical formulae (for e.g., Efficiency, fuel energy content, fuel carbon content) –Activity level for the proposed project  Baseline methodology should incorporate uncertainty –AM001 – in future HFC23 release could be regulated, the baseline formulae incorporate regulation level parameter to account for future baseline destruction of HFC23 due to regulation

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia STEP 5: Analyzing Leakage due to Proposed Project  What is leakage ? “Leakage is … net change of.. emissions by sources…. outside the project boundary ….. measurable and attributable to the …. project..”(Para 51, MA) E.g., emission related to biomass transport in biomass power projects  Leakages –Not in control of project participants –Can be both positive(removal of fossil fuel subsidy its effect on demand cleaner fuels) as well as negative –Directly attributable to project activity  AM001- –Emission from production of steam and electricity used for destruction of HFC23 –Emission from transfer of sludge, produced during destruction of HFC23, to waste disposal site

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Additionality

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Additionality  Para 37d: The project is expected to result in a reduction …..in greenhouse gases that are additional to any that would occur in the absence of the proposed project activity –Emission reductions are going to happen in a economy/sector/activity even without the CDM –To be eligible for CDM Reduction should be over and above (“additional” to) those. Not additional reduction Refers to Modalities and Procedures of the Marrakech Accord Additional

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Additionality  Para 43; “A CDM project activity…… additional if …. emissions….. are reduced below that would have occurred in absence of the ….project”  Emissions in absence of Project is “Baseline Emissions”  E.g., – Proposed CDM project is coal based Power, tech “A” –Replace planned coal project, using technology “B” –Both are base load plants –Rest of system will behave in exactly the same way –E A < E B Project additional Planned Project (B) Proposed CDM Project (A)

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Additionality  E A < E B necessary condition but not sufficient  10th meeting of EB stated, “as part of the basis for determining the baseline scenario an explanation shall be made of how, … a (proposed CDM) project activity is … not the baseline scenario”.  Therefore to meet the sufficiency condition, the proposed technology “A” should be demonstrated to be not part of baseline scenario.  This has to be demonstrated through the baseline methodology; i.e., the baseline methodology should show steps used in analyzing why the project is not a baseline option.

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Guidelines for Additionality  According to EB, 10 th Meeting, –Baseline methodology should demonstrate additionality –Types of suggested tools that can be used A flow chart or series of questions that lead to a narrowing of potential baseline options and/or A qualitative or quantitative assessment of different potential options (including CDM and baseline options) and why the non-project (“baseline”) options are more likely to be implemented; and/or A qualitative or quantitative assessment of one or more barriers facing the proposed project activity and/or An indication that the proposed “CDM” project type is not common practice (e.g., occurs in less than x% of similar project activity in the proposed area of implementation), and not required by a Party’s legislation/regulation. (“not mandatory”)

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Additionality  Clear evidence of analytical statements should be provided –E.g. if financial analysis is used – the method of financial analysis as well as the data and parameters used should be clearly stated –NM010 – projects uses Long Run Marginal Cost (LRMC) to prove additionality – but provides no information on calculation of LRMC – which was observed by Meth Panel –General statement of existence of barrier no sufficient – proper procedure of analysis should be provided

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia Additionality tests for Small Scale CDM Projects Barrier A Barrier B Barrier C Other Barriers No Additional Project Non-additional Project

AIT IGES – URC Workshop in Asia on Capacity Development for the CDM March 24 – 26, 2004, Siem Reap, Kingdom of Cambodia