1. UNEP Collaborating Centre on Energy and Environment CDM developments Njeri Wamukonya Regional CD workshop, 3-4 March 2003, NBI

2. UNEP Collaborating Centre on Energy and Environment Emission reduction credits Industrialised country Mitigation Project in developing country CDM investment $$ Definitions: How does the CDM work? Project based trading between industrialised and developing countries

3. UNEP Collaborating Centre on Energy and Environment How is CDM different from other investments? CDM project Equity investment Financial returns Carbon ‘investment’ Other development benefits Carbon credits Additional investment based on potential credits Carbon credits and development benefits on top of financial returns

4. UNEP Collaborating Centre on Energy and Environment Origins of the CDM UNFCCC 1992 includes language that the parties may implement policies and measures “jointly with other parties” Combined with Brazilian proposal for a Clean Development Fund - to collect penalties and support development Late night decision at COP-3 in 1997 to include a Clean Development Mechanism in the Kyoto Protocol as a way to trade emissions reductions with the South Outline of rules approved in July 2001 - finalise over next year

5. UNEP Collaborating Centre on Energy and Environment Origins of the CDM The Kyoto Protocol and the CDM : KP establishes binding individual emissions targets for each Annex 1(industrialised) country; commits Annex 1 Parties to reduce emissions of 6 GHGs by 5.2% below 1990 emissions levels between 2008 and 2012; includes significant flexibility to achieve targets, particularly the ‘Kyoto mechanisms’: Emissions trading, Joint implementation and the CDM – CDM is only mechanism with developing country participation.

6. UNEP Collaborating Centre on Energy and Environment Objectives of the CDM Article 12 of Kyoto Protocol: – to assist Parties not included in Annex 1 in achieving sustainable development objectives; – to assist parties included in Annex 1 in achieving compliance with their quantified emissions limitations and reduction commitments in theory equal weight to Northern issues (emissions) and Southern issues (development)

7. UNEP Collaborating Centre on Energy and Environment Rationale: Why GHG emissions trading? Greenhouse gases mix uniformly in the atmosphere - so it does not matter where you reduce them Abatement cost often lower in countries with lower economic development, less energy efficiency, or that are more dependent on fossil fuels The possibility of a ‘win-win’ situation? – investor: global cost-effectiveness- more emissions reduction for a given amount of investment – host country: CDM bring clean technology and investment to developing countries

8. UNEP Collaborating Centre on Energy and Environment Rationale: economic basis for the CDM Avoided cost Host cost ‘Surplus’ 0 20 40 60 80 100 InvestorHost Cost of reduction ($/t C)

9. UNEP Collaborating Centre on Energy and Environment Marrakech Accords CDM project valid as of 2000 Small scale CDM projects take precedence EB established a Small Scale expert group to elaborate on rules and modalities

10. UNEP Collaborating Centre on Energy and Environment Kyoto Protocol Status Ratification of the Kyoto Protocol How to reach 55% of emissions ?? – EU (24.2%)  World Summit (Aug. 2002) – Japan (8.5%)  WSSD / End 2002 – Russia (17.4)  Expected this year - to monetize ”hot air” – Canada (3.3)  Timed for WSSD but local opposition – Australia (2.1)  Seems to follow the Bush line – Romania (1.2) & Czech R. (1.2) have ratified – Poland (3%)  Expected to follow EU Not attractive – but KP can enter into force in 2003 without US, Canada and Australia

11. UNEP Collaborating Centre on Energy and Environment What is happening now Market Development and Pilot Programmes – AIJ programme – Baltic JI Testing – NEFCO – Prototype Carbon Fund – WB – NL ERUPT & CERUPT – Other bilateral and private sector pilot projects Mainly market development and gaining experience – total number ERU/CERUs limited and costs low due to KP uncertainty (range of 2 to 20 US $ pr t. CO 2 ) Special status of small scale projects

12. UNEP Collaborating Centre on Energy and Environment Small Scale Projects Transaction Costs Small scale projects – Definitions 15 MW RETs 15 GWh EE < 15 kT CO 2 – Simplified Procedures Baseline analysis Monitoring Validation Verification – Bundling vs Divisions Transaction Costs Estimates from pilot programmes Range : 40 k$ to 1 million PCF : 200 – 400k$ (½baseline, ½ verifi/certifi) Expected Average for smaller projects 75 – 100 k$

13. UNEP Collaborating Centre on Energy and Environment What is simple about a small-scale project? Projects can be bundled at the following stages of the project cycle Project Design Document, validation, registration; monitoring, verification, and certification. Project Design Document will be reduced; Baseline methodologies are simplified; Monitoring plans are simplified; and A single operational entity may perform validation, verification and certification.

14. UNEP Collaborating Centre on Energy and Environment Small-scale types Type I: Renewable energy projects A. Electricity generation by user e.g. shs, micro-hydro; B. Mechanical energy for the user e.g. wind pumps; C. Thermal energy for user e.g. solar water heaters; and D. Electricity generation for systems e.g. hybrid systems. (Missing biomass based liquid and solid fuels)

15. UNEP Collaborating Centre on Energy and Environment Small-scale types (cont.) Type II: Energy Efficiency improvement technologies E. Supply side energy efficiency improvements - transmission and distribution; F. Supply side energy efficiency improvements – generation; G. Demand-side energy efficiency programmes for specific technologies; H. Measures for industrial facilities; and I. Demand side programmes for buildings.

16. UNEP Collaborating Centre on Energy and Environment Small-scale types (cont.) Type III: Other projects J. Agriculture e.g. manure management, rice farming; K. Switching fossil fuels e.g. retrofit fossil to fossil; changes accompanied with increased efficiency; L. Energy saving in the transport sector; M. Methane recovery e.g. landfill gas, coal bed methane; and

17. UNEP Collaborating Centre on Energy and Environment Small-scale projects; latest developments Standard baselines and monitoring methodologies defined for – RE projects (electricity generation by user; mechnical energy for user; thermal energy for the user; Renewable electricity for the grid) – EE improvements ( supply side efficiency improvements- transmission and distribution; supply side efficiency improvements-generation; demand side efficiency improvements for specific technologies eg motors; energy efficiency and fuel switching technologies for industrial facilities; EE and fuel switching measures for buildings; methane recovery; reductions by low emmiting vehicles)