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Bilateral Agreements for Sector Crediting
Workshop:
“Reform efforts for the international carbon
market: CDM, bilateral offsets and beyond”
05.06.2013
Bonn, Haus der Geschichte
© ECOFYS | |
Content
Preliminary results of the research project
“The fragmentation of the carbon market and options for
counteraction” (FKZ: 3712 41 507)
> Project objectives
> Country and sector selection
> First considerations for benchmarks and agreements
Carsten Warnecke, Hanna Fekete 05.06.2013
© ECOFYS | |
Current situation
> Carbon market does not provide incentives for mitigation
activities in non-LDCs
– EU ETS restrictions for CERs from non-LDC CDM projects
apply
– Design and implementation of new market mechanisms are
still pending
> Fragmentation tendencies emerge
– CDM’s role as common standard for the indirect linking of
schemes decreases
– Regional schemes and standards gain in importance
> Gap phase with low activity might result in loss of expertise and
structures which is required if ambition and demand increases
> NMM needs pilots and testing of approaches starting now to
ensure practical readiness in time
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Project objectives
> Theoretic research to develop approaches based on a bilateral
crediting system that allows pilot activities
> Pilots shall develop towards new market mechanism while based
on an upscaled continuation of CDM-like activities
> Activities shall have a
– sectoral coverage based on benchmarks
– high level of environmental integrity
– generate net emission reductions
> Demand for „reduction units“ could be created based on bilateral
agreements between Parties as long as markets are not available
> EU ETS in article 11a (5),(6) even considers bilateral agreements
as an option in case in case no new international agreements on
climate change has been agreed
> Open to further ETS and regional markets to join the initiative
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Approaches
> Project shall
– Identify suitable countries and sectors within these countries
– Develop initial sector approaches including proposals for
benchmark concepts
– Elaborate preliminary recommendations for the design of such
bilateral agreements
– And recommend actions on the level of policy makers
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
COUNTRY AND SECTOR SELECTION
- Bilateral Agreements for Sector Crediting -
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Sector and country selection - approach to
country selection
Carsten Warnecke, Hanna Fekete 05.06.2013
2. Below 30 € / tCO2
1. Global importance
2. Regional importance
Upper Middle Income Countries
3. Activity level
4. Ambition
level
Selected countries for
individual assessment
rating
exclu
sio
n
Shortlisted countries
Indicators
Absolute GHG emission level
Political stability, good integration in the region
CDM and NAMA activities, MRV activities
International GHG reduction pledge, national RE and EE targets
© ECOFYS | |
Country selection - Results
> Chile
– High involvement in NAMA concepts
– Very good relationship between Chile and Germany
– Orientation towards liberal markets
> South Africa
– High level of ambition
– High engagement in international processes and key role on African
continent
– Openness to carbon pricing
Carsten Warnecke, Hanna Fekete 05.06.2013
© ECOFYS | |
Sector and country selection - approach to sector
selection
> The aim is to identify
– general importance
– individual suitability of sectors
> Indicators for importance and suitability of sectors include
– share of the sectors of national emissions
– existing experience regarding mitigation activities
– inclusion in national mitigation plans
Carsten Warnecke, Hanna Fekete 05.06.2013
© ECOFYS | |
Sector selection - Results
> Chile – Electricity sector
– Good data availability
– Priority in national plans
– Activities needed to support a long-term positive transformation
> South Africa – Low income housing sector
– Emphasising pilot character of the project
– Important co-benefits for population
– Some experience in CDM for building sector in South Africa
– Low income housing is a priority in national plans
Carsten Warnecke, Hanna Fekete 05.06.2013
© ECOFYS | |
FIRST CONSIDERATIONS FOR BENCHMARKS
AND AGREEMENTS
- Bilateral Agreements for Sector Crediting -
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
The benchmark concept
Carsten Warnecke, Hanna Fekete 05.06.2013
(2) Identification of key performance indicator
(3) Selection of peers for comparison
(4) Collect data of peers for comparison
(5) Measurement of own current performance
(6) Define specific levels
(7) Define an action plan for improvement
(8) Implement specific improvement measures
(9) Evaluate the results of the measures
(1) Definition of the system boundary
Benchmark stringency
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Sector characteristics for BM
05.06.2013 Carsten Warnecke, Hanna Fekete
Power generation sector Building sector
Data availability Good, no confidentiality issue, grid
EF calculations Difficult
Success in the CDM
well represented; several
methodologies, high share of
projects, first SBL
Limited, low penetration rate,
mostly single measures in buildings
Barriers in the CDM
Large differences in regional
baseline and respective incentive
level
MRV, boundary setting, high
transaction costs, high “signal to
noise ratio”
Size of average
projects in terms of
ERs
Small to very large Small, up-scaling desired but
difficult
Benchmarks in the
EU ETS None, no free allocation None, not covered by the EU ETS
© ECOFYS | |
Benchmark concept development in the power
sector - exemplarily for Chile
> Electricity generation is currently dominated by gas and hydro power plants
> Future capacity additions will likely be based coal to reduce the import
dependence and to respond to demand increases.
> Chile has vast potential of renewable energies including solar potential in the
north, hydro in the south, wind along the coast and geothermal potential in
regions with volcanic activities
> Chile released a law which requires electricity companies with more than 200
MW capacity to have a share of at least 5% of renewable energy in their sales
05.06.2013 Carsten Warnecke, Hanna Fekete
GRID
Total Installed Capacity Total
GRID Thermal (MW) Hydro (MW) Wind (MW)
SING 4.570 13 0 4.582
SIC 6.680 5.840 196 12.715
AYSEN 21 18 2 41
MAGALLANES 99 0 0 99
Total National 11.370 5.870 198 17,437
Chile‘s power sector in detail
Source: CDEC-SIC 2012
© ECOFYS | |
Benchmarks steps
> Many procedures can be developed following CDM compatible approaches
– definition of the system boundary,
– the identification of the key performance indicator (e.g. tCO2e/MWh),
– the data collection of peers for comparison and monitoring
> Adjustments to approaches seem to be required
– for the selection of peers for comparison to ensure the project-by-
project approach of the CDM is expanded to a sectoral coverage
● geographic scope of the benchmark,
● the size and type of plants to be included,
● the fuel used and
● the existence of a grid connection.
> Stringency level needs to consider own contribution from countries, net
emission reductions
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Benchmark setting approaches
> The use of the current CDM framework:
– Application of the SBL approach and
the CDM tool to calculate the grid EF
– Net emission reduction ensured by
discount on standardised grid EF
> Application of a default value:
– Use of a politically set default value
– Benchmark below the CDM grid emission factor
– Reference e.g. EF of NG fired power plant, various EU ETS phase II NAPs set
such benchmark levels between 0.350 – 0.450 tCO2e/MWh
> Hybrid approach:
– Combination of the above
– RE by default get reduction units according to default value while fossil fuel
based activities apply for benchmark based on the CDM approach
– Incentives also for new NG fired power plants and for efficiency increase in
existing fossil fuel fired power plants
05.06.2013 Carsten Warnecke, Hanna Fekete
SIC SING
No. of CDM projects using
a grid emission factor 57 5
Operating margin Av. 0.703 0.785
Build margin Av. 0.405 0.652
Combined margin Av. 0.557 0.759
Source: IGES, Ecofys
© ECOFYS | |
BM concept development in the low income
housing sector - exemplarily for South Africa
> CDM experiences show that the needs for
– pragmatic MRV approaches
– valuation of indirect and long term effects
– bundling of less homogeneous single activities to facilitate
reaching a large coverage
> large demand for low cost buildings to supply the growing
population with adequate housing facilities
> government targets for new buildings
> low income housing segment provides free housing to poorest
parts of the population; such houses are usually constructed in a
standard way, resulting in a large number of similar homes
> Lessons learned with the use of the CDM and upscaling
approaches exist
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Benchmarks steps
> All BM steps include challenges
– e.g. the boundary definition
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Benchmark setting approaches
> Performance indicator:
– GHG emissions per floor area vs.
– GHG emissions per standard housing unit
> Peers for comparison
– Buildings with similar service levels
– Segment specific building codes
> Ex-post MRV
– Based on ex-ante agreed higher building standard and
implementation volume
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | |
Outlook on next steps of the project
> What level of
– benchmark stringency,
– GHG quantification accuracy and
– Additionality
would ensure acceptability of reduction units in various demand
systems?
> How can integration in the international processes be ensured to
counteract fragmentation of carbon markets?
> What institutional set-ups are required and what options do exist?
> What are preconditions to reach actual implementation?
05.06.2013 Carsten Warnecke, Hanna Fekete
© ECOFYS | | Carsten Warnecke, Hanna Fekete
Thank you.
Ecofys:
Carsten Warnecke,
Hanna Fekete
Contact:
[email protected] [email protected]
05.06.2013