Baseline for electricity sector CDM projects: Simplifying estimation of operating margin emission factor

The Clean Development Mechanism-Executive Board (CDM-EB) has proposed a consolidated methodology to estimate baseline emission factor (EF) for renewable-energy-based grid-connected power projects. The methodology is based on Combined Margin approach, estimated as weighted average of operating margin (OM), and build margin emissions factors. One of the options suggested for estimating OM EF, simple adjusted operating margin (SAOM), takes into account the possibility that existing low-cost/must-run (LCMR) generation sources in a power system may be affected by the introduction of new generation sources in systems. SAOM method is prescribed for a power system where the power generation from LCMR sources is 50% or more of the total system generation. The paper demonstrates that a better decision criterion for use of SAOM is comparison of average yearly load of LCMR sources, calculated as total LCMR generation divided by 8760, with the minimum system load. Further, the CDM-EB methodology recommends use of SAOM method over average operating margin (AOM) method. The paper demonstrates that SAOM method results in a higher estimate of baseline EF as compared to the AOM method and, therefore, the recommendation is contrary to conservative principle stressed by CDM-EB in developing baselines.     

Small-scale CDM projects in a competitive electricity industry: How good is a simplified baseline methodology?

Setting baseline emissions is one of the principal tasks involved in awarding credits for greenhouse gas emission (GHG) mitigation projects under the Clean Development Mechanism (CDM). An emission baseline has to be project-specific in order to be accurate. However, project-specific baseline calculations are subject to high transaction costs, which disadvantage small-scale projects. For this reason, the CDM-Executive Board (CDM-EB) has approved simplified baseline methodologies for selected small-scale CDM project categories. While the simplified methods help reduce the transaction cost, they may also result in inaccuracies in the estimation of emission reductions from CDM projects. The purpose of this paper is to present a rigorous economic scheduling method for calculating the GHG emission reduction in a hypothetical competitive electricity industry due to the operation of a renewable energy-based power plant under CDM and compare the GHG emission reduction derived from the rigorous method with that obtained from the use of a simplified (i.e., standardized) method approved by the CDM-EB. A key finding of the paper is that depending upon the level of power demand, prices of electricity and input fuels, the simplified method can lead to either significant overestimation or substantial underestimation of emission reduction due to the operation of renewable energy-based power projects in a competitive electricity industry.     

Sweet carbon: An analysis of sugar industry carbon market opportunities under the clean development mechanism

Bagasse power generation projects provide a useful framework for evaluating several key aspects of the Clean Development Mechanism of the Kyoto Protocol. On the positive side, our analysis, which draws in part from a data set of 204 bagasse electricity generation projects at sugar mills, indicates that these projects provide Annex I country investors with a cost-effective means to achieve greenhouse gas emissions reductions. Our analysis also confirms that the marketplace for Clean Development Mechanism-derived offsets is robust and competitive. Moreover, bagasse projects appear to provide a positive example in a “new wave” of clean energy investment that has replaced the earlier industrial gas projects. At the same time, we also identify two aspects of the CDM that demand improvement. First, the additionality standard needs to be tightened and made more transparent and consistent. Financial additionality should be required for all projects; however, any financial additionality test applied by the Clean Development Mechanism's Executive Board must be informed by the significant barriers faced by many projects. Second, the administrative processes for registration and verification of offsets need to be streamlined in order to prevent long registration time lags from chilling clean energy investment.     

中国节能建筑CDM项目基准线方法

清洁发展机制(CDM)的实施可有效地促进中国建筑部门节能和温室气体(GHGs)减排。结合建筑CDM项目的特殊性,探讨了不同类型的节能建筑CDM项目的基准线(Baseline)的设定方法,并以一办公建筑CDM项目为例尝试了基准线的选择。     

Constructing carbon offsets: The obstacles to quantifying emission reductions

The existing literature generally ascribes the virtual absence of the transport sector from the Clean Development Mechanism (CDM) to the inherent complexity of quantifying emission reductions from mobile sources. We use archival analysis and interviews with CDM decision-makers and experts to identify two additional groups of explanations. First, we show the significance of aspects of the CDM's historical evolution, such as the order in which methodologies were considered and the assignment of expert desk reviewers. Second, we highlight inconsistencies in the treatment of uncertainty across sectors. In contrast to transport methodologies, other sectors are characterized by a narrow focus on sources of measurement uncertainty and a neglect of economic effects (“market leakages”). We do not argue that the rejection of transport methodologies was unjustified, but rather than many of the same problems are inherent in other sectors. Thus, the case of transport sheds light on fundamental problems in quantifying emission reductions under the CDM. We argue that a key theoretical attraction of the CDM—equalization of marginal abatement costs across all sectors—has been difficult to achieve in practice.     

Potential and bottlenecks of the carbon market: The case of a developing country,Nepal

The majority of clean development mechanism (CDM) projects are confined to a few countries. For many developing nations, entry into the carbon market, either through CDM or others, has been difficult. Thus, rationalizing CDM projects and the carbon market as a tool for sustainable development is often questioned. Many developing countries, such as Nepal, lack a quantification of CO₂ reduction potential and an assessment of bottlenecks necessary for the carbon market. In this context, this paper assesses the potential emission reductions from major sectors of Nepal and the accompanying bottlenecks of the carbon market. The analyses provide indications of the type and scale of the carbon mitigation opportunities in key sectors such as waste management, biogas utilization, promotion of electric vehicles, rice cultivation, bio-energy utilization, brick making, hydropower development and a few others. These might be helpful to decision-makers in Nepal as well as to the process of re-orienting CDM and other carbon markets to better understand the bottlenecks of developing countries.     

CDM potential of bagasse cogeneration in India

 So far, the cumulative capacity of renewable energy systems such as bagasse cogeneration in India is far below their theoretical potential despite government subsidy programmes. One of the major barriers is the high investment cost of these systems. The Clean Development Mechanism (CDM) provides industrialized countries with an incentive to invest in emission reduction projects in developing countries to achieve a reduction in CO₂ emissions at lowest cost that also promotes sustainable development in the host country. Bagasse cogeneration projects could be of interest under the CDM because they directly displace greenhouse gas emissions while contributing to sustainable rural development.     

How to use the clean development mechanism in the residential sector? The case of Brazilian refrigerators

The definition of simple and reliable emission baselines is crucial to foster clean development mechanism (CDM) projects. This paper assesses a project methodology that could boost large-scale energy-efficiency projects in the sector of domestic appliances. The baseline appliance is defined a priori in a “conservative” manner as the design option minimizing life-cycle social costs. The project methodology consists in a program which rebates new appliances according to their emission savings compared to the baseline. Is the proposed baseline acceptable? What could be the impact of such project on emissions? To address these questions, we look for insights from a hypothetical case on Brazilian refrigerators. A rational choice model is developed which assumes that households select design options minimizing life-cycle private costs. Results suggest that electricity tariff distortions and financial constraints might hamper project performances and allow significant free-riding. Low income households remain trapped into low-efficiency choices and high income households adopt outperforming appliances, whether rebated or not. However, simple solutions likely to improve the project methodology do exist.     

Host country attractiveness for CDM non-sink projects

In the present study, CDM host countries are classified according to their attractiveness for CDM non-sink projects by using cluster analysis. The attractiveness of host countries for CDM non-sink projects is described by three indicators: mitigation potential, institutional CDM capacity and general investment climate. The results suggest that only a small proportion of potential host countries will attract most of the CDM investment. The CDM (non-sink) stars are China, India, Brazil, Argentina, Mexico, South Africa, Indonesia and Thailand. They are followed by attractive countries like Costa Rica, Trinidad and Tobago, Mongolia, Panama, and Chile. While most of the promising CDM host countries are located in Latin America and Asia, the general attractiveness of African host countries is relatively low (with the exception of South Africa). Policy implications of this rather inequitable geographical distribution of CDM project activities are discussed briefly.     

CDM: Taking stock and looking forward

The Kyoto Protocol's clean development mechanism (CDM) was established in 1997 with the dual purposes of assisting non-Annex I Parties in achieving sustainable development and assisting Annex I Parties in achieving compliance with their quantified greenhouse gas (GHG) emission commitments. This paper looks at the development of the CDM portfolio as well as achievements of the CDM to date in the context of wider private and public flows of investment into developing countries. These achievements include the development of 325 (by May 2005) proposed CDM projects which are together expected to generate more than 79 Mt CO₂-eq credits/year during 2008–2012, increasing awareness of climate change mitigation options among possible investors and others that may facilitate transactions (i.e. governments), and the strengthening of climate-relevant institutions within countries. The paper also draws lessons from this experience to date, and outlines what changes may be needed to transform the CDM concept to a broader scale after the end of the first commitment period in 2012.     

Analysis of technology transfer in CDM projects: An update

The clean development mechanism (CDM) contributes to technology transfer by financing emission reduction projects using technologies not available in the host countries. This paper provides the most comprehensive analysis of technology transfer in the CDM to-date, covering 3296 registered and proposed projects. Roughly 36% of the projects accounting for 59% of the annual emission reductions claim to involve technology transfer. Technology transfer is more common for larger projects and projects with foreign participants. Technology transfer is very heterogeneous across project types and usually involves both knowledge and equipment. As the number of projects increases, technology transfer occurs beyond the individual projects. This is observed for several of the most common project types in China and Brazil with the result that the rate of technology transfer for new projects in those countries has fallen significantly.     

Potential of sustainable energy technologies under CDM in Thailand: Opportunities and barriers

The paper presents results obtained from a much elaborated stakeholders’ assessment on potential of sustainable energy technologies conducted in Thailand. It also gives an overview of the status of clean development mechanism (CDM) portfolio in Thailand. The stakeholders from different sectors were contacted during the research and their feedbacks on potential of different technologies under CDM were discussed through a series of bilateral interviews. With the few selected technologies suitable in the context of CDM opportunities in Thailand, the sustainability benefits and barriers to their implementation are also discussed in detail. The suggestions provided by the stakeholders in overcoming a few key barriers are also given in the paper.     

Classifying carbon credit buyers according to their attitudes towards and involvement in CDM sustainability labels

Carbon markets are increasingly conscious of the social and environmental ‘quality’ of credits delivered by CDM projects. Consequently carbon credits are no longer viewed as a homogenous good and buyers now differentiate between credits supplied by different types of CDM project. The objective of this paper is to classify CER buyers according to their attitudes towards and preferences for CDM sustainability labels. K-means clustering was used to segment a sample of buyers into two clusters. The results indicate that two clear clusters exist with distinct profile patterns. Moreover, the results of discriminant analysis confirmed that the two-cluster solution was valid. Finally, the results of the chi-square analysis and a cross-tabulation showed that these two clusters were significantly different in: organization type; level of paid up capital; perception of sustainable development benefits; perception of return on investment; perception of image of the sustainability labeling; participation in the voluntary market; the project priority; knowledge in the sustainability label; attitude towards the host country's duty; and their willingness to pay.     

CDM potential for rural transition in China case study: Options in Yinzhou district,Zhejiang province

This paper aims to examine the potential of the clean development mechanism (CDM) to address energy- related issues during the rural transition process in China, using a case study of quickly urbanizing and industrializing Yinzhou district in coastal Zhejiang province. Yinzhou's per capita GDP reached US$ 3100 in 2002, three times China's average, and is targeted to achieve $10,000 in 2020.     

The economics of the CDM levy: Revenue potential,tax incidence and distortionary effects

A levy on the Clean Development Mechanism and other carbon trading schemes is a potential source of finance for climate change adaptation. An adaptation levy of 2% is currently imposed on all CDM transactions which could raise around $500 million between now and 2012. This paper analyses the scope for raising further adaptation finance from the CDM, the economic costs (deadweight loss) of such a measure and the incidence of the levy, that is, the economic burden the levy would impose on the buyers and sellers of credits. We find that a levy of 2% could raise up to $2 billion a year in 2020 if there are no restrictions on demand. This could rise to $10 billion for a 10% tax. Restrictions on credit demand (called supplementarity limits, the requirement that most emission abatement should happen domestically) curtail trade volumes and consequently tax revenues. They also alter the economic impact of the CDM levy. Without supplementarity restrictions sellers (developing countries) bear two-thirds of the cost of the tax. If there are supplementarity limits they can pass on the tax burden to buyers (developed countries) more or less in full. Without supplementarity restrictions the distortionary effect of the levy (its deadweight loss) rises sharply with the tax rate. With them the deadweight loss is close to zero.     

Border adjustment for European emissions trading: Competitiveness and carbon leakage

Unilateral or sub-global policies to combat climate change are potentially sensitive to free-riding and carbon leakage. One way of dealing with carbon leakage and competitiveness is the imposition of border adjustment measures for competing imports, for example in the form of the obligation to importers of goods to purchase and surrender emissions allowances to the authorities when importing. In this paper, we explore some implications of border adjustment measures in the EU ETS, for sectors that might be subject to carbon leakage. We examine the implications of two variants of these measures on the competitiveness of these sectors and on the global environment with the help of a multi-sector, multi-region computable general equilibrium (CGE) model of the global economy. Our calculations suggest that border adjustment might reduce the sectoral rate of leakage of the iron and steel industry rather forcefully, but that the reduction would be less for the mineral products sector, including cement. The reduction of the overall or macro rate of leakage would be modest. So, from an environmental point of view border tax adjustments would not be a very effective policy measure, but might mainly be justified by considerations of sectoral competitiveness.     

关于建立我国清洁发展机制(CDM)项目运行管理机制的几点建议(一)

我国是温室气体减排潜力较大的发展中国家之一,开展CDM(清洁发展机制)合作的市场前景广阔,为主要的发达国家所看好。在这种形势下,除了进一步开展对CDM的方法学、体制、影响及对策的研究,加强能力建设外,做好市场和技术准备,把握住CDM的国际合作机会,促进我国的可持续发展则更为重要。因此,本文在研究全球层面上CDM的运作程序和CDM项目管理与执行机构建设的基础上,提出了建立我国CDM项目运行管理机制的基本原则,并为建立CDM项目运行管理机制的基本架构,确定不同层面CDM运行管理机构的相互关系,CDM项目运行管理机构的职能和不同层面CDM管理机构的运作机制等提出了具体建议。     

Baselines for carbon emissions in the Indian and Chinese power sectors: Implications for international carbon trading

The study examines the dynamics of carbon emissions baselines of electricity generation in Indian states and Chinese provinces in the backdrop of ongoing electricity sector reforms in these countries. Two Indian states—Gujarat and Andhra Pradesh, and three Chinese provinces–Guangdong, Liaoning and Hubei have been chosen for detailed analysis to bring out regional variations that are not captured in aggregate country studies. The study finds that fuel mix is the main driver behind the trends exhibited by the carbon baselines in these five cases. The cases confirm that opportunities exist in the Indian and Chinese electricity sectors to lower carbon intensity mainly in the substitution of other fuels for coal and, to a lesser extent, adoption of more efficient and advanced coal-fired generation technology. Overall, the findings suggest that the electricity sectors in India and China are becoming friendlier to the global environment. Disaggregated analysis, detailed and careful industry analysis is essential to establishing a power sector carbon emissions baseline as a reference for CDM crediting. However, considering all the difficulties associated with the baseline issue, our case studies demonstrate that there is merit in examining alternate approaches that rely on more aggregated baselines.     

All CO2 is equal in the atmosphere—A comment on CDM GHG accounting standards for methane recovery and oxidation projects

Greenhouse gas (GHG) accounting with respect to two categories of methane recovery and oxidation activities (coal bed or coal mine methane recovery and landfill gas (LFG) recovery) within the Clean Development Mechanism (CDM) is analysed. It is found that baseline methodologies approved by the CDM Executive Board apply systematically inconsistent assumptions concerning the global warming impact of carbon dioxide emissions from the oxidation of methane. One important implication of the results is that applying the baseline methodologies approved for project activities involving LFG recovery will lead to overestimation of the net GHG abatement effect of such CDM project activities.