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State, Trends and Barriers to Carbon Finance in RBEC
Marina OlshanskayaRegional Energy/Kyoto Protocol Specialist
RBEC Energy and Environment Practice MeetingWednesday 27th September, 2006
Bratislava, Slovakia
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RBEC Energy and Environment Practice Meeting: Carbon Finance
September 2006
Presentation Overview
1. JI versus CDM
2. EU Emission Trading Scheme (EU ETS)
3. Green Investment Scheme (GIS)
4. Current status and potential for carbon finance
5. Key problems and barriers
6. Some good news and examples
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September 2006
CDM and JI Host countries
• Countries listed in Annex I to UNFCCC: potential JI hosts (ERUs sellers) or CDM/JI investors (CERs/ERUs buyers)
• With quantified GHG emission reduction targets: by 5.2% as compared to the baseline emission in 1990;
• New EU member States, Bulgaria, Romania, Belarus, Russia, Ukraine, Croatia and Turkey
• Non-Annex I to UNFCCC: potential CDM hosts (CERs sellers):
• No quantified GHG emission reduction targets
• South Caucasus, Moldova, Western Balkan, Central Asia, Cyprus
• Kazakhstan – not ratified KP, would like to be included in the list of Annex I
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September 2006
CDM and JI: Similarities
• Project-based mechanisms: a CDM/JI host country implements
project, generates and sells CERs/ERUs to a CDM/JI investor
(Annex I) country which use them to meet its national Kyoto target
• Similar project development cycles (next presentation)
• Same eligibility criteria:
• CDM/JI project should result in measurable GHG emission
reductions that are additional to what would have occurred in
the business-as-usual scenario
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CDM and JI: Differences
• JI hosts are limited by their Kyoto target (amount of allocated
Assigned Amount Units, AAUs) for ERUs they can sell, while CDM
hosts are not
• CERs can be issued for project implemented from 2000 through
2012, while ERUs only during 2008-2012
• Country eligibility criteria for participation in JI are more stringent
than for CDM:
• CDM: ratification of Kyoto Protocol and establishment of DNA
• JI: CDM criteria plus calculation of AAUs, establishment of
national registry (Track II), submission of national inventory,
system for calculation of GHG emission/sinks (Track I)
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RBEC JI Hosts and their Kyoto targets, 1mlntCO2eqCountry Annual Assigned
AmountGHG Emissions Kyoto Units
Base Year 2010 2010 Demand 2010 Supply
Bulgaria 144 523 157 090 133 694 10 829
Croatia 30 348 31 945 24 500 5 848
Czech Republic
176 657 192 019 141 700 34 957
Estonia 40 014 43 494 11 660 28 354
Hungary 95 535 101 633 62 800 32 735
Latvia 28 570 31 054 13 000 15 570
Lithuania 47 425 51 549 59 148 11 723
Poland 530 554 564 419 496 836 33 718
Romania 243 689 264 879 284 368 40 679
Russia 3 040 332 3 040 332 2 911 800 128 532
Slovakia 67 102 72 937 66 975 127
Slovenia 17 675 19 212 19 897 2 222
Ukraine 919 220 919 220 527 314 391 906
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Green Investment Scheme (GIS)
• Annex I countries with surplus AAUs can sell part of it to other
Annex I countries;
• Several Annex I parties indicated their willingness to buy provided
the revenues from AAU sales are earmarked for “green” purposes
(GHG mitigation project or other environmental projects)
• Potential GIS hosts: Bulgaria, Ukraine, Russia, Belarus, Poland
• Key issues to consider for GIS:
• Need to meet Track I JI eligibility requirements (no country yet)
• Need to design and establish GIS (governance structure, project
development and implementation capacities, monitoring system, etc)
• Calculation and justification of AAUs that can be sold through GIS
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EU Emission Trading Scheme: Motivation
Germany: - 21 %
Industrialised countries: - 5,2 %
EU 15: - 8 %
Reduction targets for Kyoto gases 2008 - 2012 over 1990 (base year)
Kyoto Protocol (since 16.02.2005 in force)
• To fulfil the national GHG reduction obligations, the EU has implemented the EU Emission trading scheme in 2005, involving companies from the industry and energy supply sectors
• Within the EU, approx. 11,400 plants are obliged to take part in EU ETS.
• Since 2005, these plants have received fixed quotas of CO2 certificates on which they must manage in future.
Buying of EU AllowancesPurchasing certificates
from CDM and JI projects
Alternatives for compliance
Emission Reduction
e.g. plant modernisation
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EU Emission Trading Scheme
Emissions in reporting year
Allocated allowances (EUA)
Surplus of certificates
Deficit of certificates
From 2008: further reduction of allocated allowances
2005
Sal
e
Pu
rch
ase
EU ETS* Market CDM / JI ??
...2006 2007
Ban
kin
g
2008
?
1st trading period of EU ETS* 2nd trading period of EU ETS*
EUA
(EU Allowances)
CER (Certificates from CDM projects)
ERU (Certificates from JI projects)
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EU Emission Trading Scheme
• Eligibility among RBEC countries:
• All EU member states, Romania, Bulgaria, Croatia (after EU accession);
• Preparation of National Allocation Plan (NAP) which assign GHG emission quotas to key GHG emitting facilities in country
• CERs/ERUs can be used by EU ETS participants to meet their target under NAP (EU Linking Directive)
• EU Linking Directive provides for legal basis for EU companies to use CERs/ERUs for compliance within the EU ETS:• Once CERs/ERUs are physically available, the should have the value of EUAs
(EU Allocated Allowances)
• Member States can set a maximum for the use of CERs
• CERs have to fulfil certain additional conditions for EU ETS compliance use (e.g. Investor country approval, “World Commission on Dams” rules for hydropower, no Afforestration / Reforestration projects)
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EU Green and White Energy Certificates
• White/green Energy Certificates – market mechanisms introduced
by EU to help countries meet their energy efficiency (white) or
renewable energy (green) targets
• No formal linkages with Kyoto/carbon market, unless special
regulation is introduced by a host country
• Different institutional arrangement, monitoring and verification
protocols
• In theory: one facility (e.g. Wind Park in Hungary) can generate
and sell both ERUs (under JI ) and EU green energy certificates if
the project meets the requirement of each mechanisms
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Region/Country for CDM/JI projects (No. of projects)
415
687
130
17
15
Latin America
Asia & Pacif ic
Europe and Central Asia
Sub-Sahara Africa
North Africa & Middle-East
Current status: RBEC’s share in CDM/JI market (# projects – September 06)
RBEC - 130
11 CDM projects (Moldova, Armenia, Kyrgyzstan and Tajikistan)
119 – JI projects (Bulgaria, Romania, Czech and Slovak Republics, Poland, Hungary, Lithuania, Estonia, Ukraine, Russia)
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23%
66%
6%
3% 2%
Latin America
Asia & Pacif ic
Europe and Central Asia
Sub-Sahara Africa
North Africa & Middle-East
Current status: RBEC’s share in CDM/JI market volume (tCO2 eq - September 06)
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RBEC GHG Reduction Potential
Country MtCO2 World Rank % ofWorld TotalRussian Federation 1,915.2 (4) 5.69%
Ukraine 481.9 (17) 1.43%
Poland 380.6 (21) 1.13%
Turkey 355.4 (22) 1.06%
Uzbekistan 180.8 (31) 0.54%
Kazakhstan 161.0 (34) 0.48%
Czech Republic 143.0 (37) 0.42%
Romania 124.7 (41) 0.37%
Belarus 78.7 (51) 0.23%
Hungary 75.7 (54) 0.22%
Turkmenistan 64.1 (63) 0.19%
Bulgaria 61.8 (66) 0.18%
Serbia60.3 (67) 0.18%
Azerbaijan 55.4 (72) 0.16%
Slovakia 45.4 (78) 0.13%
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RBEC: Carbon Intensity of GDP (tCO2eq/mln$GDPintl)Country Carbon intensity of GDP World rank
Uzbekistan 3,079.0 1
Kazakhstan 1,787.5 4
Turkmenistan 1,174.8 5
Ukraine 1,376.6 7
Russia 1,361.2 8
Belarus 1,135.2 11
Moldova 1,134.9 12
Azerbaijan 1,112.7 13
Tajikistan 895.1 18
Bulgaria 856.6 21
Czech Republic 725.2 29
FYR Macedonia 705.9 31
Kyrgyzstan 660.1 33
Romania 641.8 35
Slovakia 608.0 37
BiH 594.1 38
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Country Carbon intensity of GDP World rank
Turkey 458.8 54
Croatia 456.2 56
Slovenia 443.5 62
Hungary 401.1 69
Lithuania 359.1 80
Armenia 322.8 91
Georgia 322.3 93
Latvia 309.6 95
Albania 296.5 99
RBEC: Carbon Intensity of GDP (tCO2eq/mln$GDPintl), cont
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Why: key issues and barriers
• Poor investment climate and lack of underlying financing for implementation of projects
• Carbon finance only marginally improves economics of potential projects, especially those with strong development dividend:
Sector Carbon Finance Impact: change in IRR, %(at 6.5$/tCO2eq)
Industrial gases (HFCs) and NOx
100 – 500
Landfill gas 5.5 – 50
Coal-mine methane 7-12
Biomass 2-8
Forestry 0.5 –7
Renewable energy 0.2 – 3
District heating 0.5 - 1
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Why: key issues and barriers, cont
• Limited knowledge of carbon finance, especially in national
investment/banking sector
• Lack of data and methodologies for estimation of baseline
emissions (e.g. no approved CDM methodology for projects
in district heating)
• Absence/weakness of national institutional framework for
JI/CDM (see How-to Guide)
• Small/medium countries (most countries in RBEC) have
scarce supply of project with large volume (above
100tCO2eq/yr) of CERs/ERUs, thus difficult to compete with
large CDM/JI hosts
• Low baseline GHG emission due to under-consumption of
energy (lack of access or high costs)
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There are good news – barriers are possible to overcome
• Armenia: Nubarashen Landfill Gas Capture and Power
Generation Project in Yerevan (Japan)
• Moldova: Moldova biomass heating in rural
communities project (World Banks’ Community
Development Carbon Fund)
• Tajikistan: Pamir Energy – Pamir I Hydropower
Generation (14 MW) (Unilateral – Aga-Han Foundation)
Thank you!