The Global Community for Sustainable Energy Professionals
1 hour
Rodrigo Valenzuela - Deuman / Luis Uguet - Panther Carbon
This webinar will review the various mechanisms agreed in the Kyoto Protocol with a particular focus on Clean Development Mechanism. The value at each stage of the CDM project will be explained, and market prices for carbon credits will be analysed.
In order to illustrate this type of project, real case studies carried out by Deuman will be discussed. Voluntary carbon credits will also be analysed.
Comments
QUESTIONS AND ANSWERS
SANTA MARTA.
- What business model do you use for project funding ? who pay for what ?
At Deuman we have a very flexible model depending on project type and other specifications. We aim to allign ourselves to client needs.
Thus, we could set a consultancy fee for our services or obtain a percentage of the CERs generated by the project being project participants or combine both. In all cases we assist our customer in the entire CDM Cycle and the commercialization of carbon credits.
In some cases Deuman can also share the costs of transaction with the project developer.
- LFG ER is overestimated in PDD, does Santa Marta LFG project face it as well?
Deuman is well known in the market for its knowledge and solid technical team. In Santa Marta LFG, projected PDD Emission Reductions ammount is very close to the actual issuing of CERs.
- Do you consider only CH4 effects? And what about CO2 generated?
In LFG projects methane is captured and flared, the focuse on CH4 is because the so-called GWP (global warming potential). Methane’s GWP is arround 21 times CO2 meaning that flaring 1 Ton of it would be equal to reduce 21 Tons of CO2.
Approved Methodologies for LFG projects include the: Tool to calculate project or leakage CO2 emissions from fossil fuel combustion, which means that Emissions of CO2 from burning are to be deducted from the estimated ERs.
- Do you produce electricity burning it in an internal combustion engine?
No, the project considers capturing and flaring of the landfill gas. Electricity Generation is under assessment considering actual biogas flows.
- How large are the CDM development costs for the Santa Marta landfill per CER unit?
CDM development costs are around €45.000 up to registration and for verification an estimated cost of €12.000 per verification can be considered.
NEW SEGMENTS
- Do you see any opportunities for green buildings (LEED certification) regarding getting carbon credits on the voluntary market? Is there any approved methodology or have you seen any certified or verified project? Please, if possible, send your answer to d.medeiros@tedesco.com.br Thanks!
Construction Sector is one of the few sectoral scopes where still there is no approved methodology under the CDM (see http://cdm.unfccc.int/DOE/scopes.html#4).
Few projects have been presented and certified through voluntary standards but most of them refer to energy efficiency projects with a clear baseline.
- Is there any CDM project on improved cooking stove aimed at reducing use of firewood?
There is one methodology that considers replacement of liquefied gas with solar systems.
Stoves that improves the efficiency of firewood are not under the CDM scope, since firewood is biomass and for that zero emissions. With this technology no fossil fuels are being replaced.
- Which Forestry related projects are eligible for CERs? I understand REDD projects are only eligible for VER credits? MV
Afforestation and reforestation projects are eligible under the Clean Development Mechanism for the first commitment period of the Kyoto Protocol (2008-2012). Approved methodologies can be downloaded from:
http://cdm.unfccc.int/methodologies/ARmethodologies/index.html.
REDD projects are only applicable under voluntary standards, e.g. VCS.
MISCELLANEOUS
- Small project activities that cannot run with CDM transaction. What is the limit for this small project. How big does the CER capacity should in order to be applicable?
After years of experience and market knowledge different actors in the market agree that a project generating reductions of more than 10,000 tons of CO2e (eventually CERs) is big enough to face the CDM transaction costs, market the CERs and make the additional profit that provides the Mechanism.
However, there are registered projects with estimated emission reductions below the 1,000 tons of CO2e meaning that this topic is to be analysed in a case by case basis taking into consideration implementation costs, revenues of the project, transaction costs, financial (funding) costs, etc.
- We manufacture transformers and the processes don't generate much pollution. How can we generate Carbon Credits?
On CDM projects one of the elegibility principles is the so-called Additionality Principle. This means that in order to obtain CERs projects need to deeply demonstrate that the scenario “with project” would be different, in terms of GHG Emissions, to the “without the project” scenario defining this last as the “baseline scenario”.
In addition, this demonstration is to be completed following methodologies and tools already defined by the UNFCCC. If a company is not planning to implement a project which is additional to what already exists then there is not any CDM project. Carbon credits are not a “prime” or “bonus” for companies that are not polluting at the moment, instead are a financial mechanism for project feasibility, are a support for speeding up a low carbon economy that is only available for developing countries (non-Annex I).
However, there are some methodologies related to energy efficiency using some types of equipment or technology in the industry. Deuman will contact you for further assistance.
VOLUNTARY MARKET
- CDM projects take up to 12 months how long to VCM projects on averge take? RV
Considering our experience CDM projects take more than 14 months for registration and it is foreseen that VCS projects should take less than that, but this will depend on the capacity to respond from the DOE. In the last months DOEs have been experiencing delays due to the amount of projects in the pipeline, both under Kyoto and the voluntary standards.
- Do you think the VERs systems will coexist with CERs in time to come? 25-30% cost is too low, but can we have streamlined processes for smaller projects (<15MW as someone said). What do you think about the voluntary market growth- especially CCX VERs pricing prediction?
It is difficult to predict what is going to happen with the voluntary standards and the CDM, but one of the major facts will be the path that the US take.
- In most projects, carbon is truly additional to the base business... say in energy efficiency projects. It sounds like the retail VER market may in fact be the first thing that sellers shoud look at unless the CERs are VERY VERY easy to capture. Correct?
We request the participant asking to ellaborate on this question since it is not completely clear for us. Please resend it to motero@deuman.com so you can have our direct reply.
- Luis, why would one NOT go in for VERs, given the problems with the CERs market?
Dear Nitin, as for "going in" I should assume you mean offsetting. If so, you have to realize any problems in the issuance, liquidity, etc do not alter in any way a CERs credibility or reputation as it's still a UN sponsored credit, ensuring additionality.
On the other hand, a VER is not issued by the United Nations (unlike the CER) and is verified by an independent, for profit, verifier. Although the aim is still to ensure an additional credit, the authority and procedures (depending on the standard) are not as good as the UN.
Because offsetting is a highly publicized action, any problems arising from the VERs themselves could be counterintuitive.
MARKET PERSPECTIVES
- How do you see the price of CER to be post 2012? Will there be any revision in the methodology for CDM?
It is very complicated to do a forecast on CER prices post 2012 since almost every actor in the market is expecting the conclusions after the COP 15 which is the Meeting of all countries under the Kyoto Protocol on December this year. As you mentioned, the Clean Development Mechanism will be revised and the base of a post 2012 Accord are to be discussed.
We believe on the continuing of the CDM (perhaps under a different name) however, compliance CER buyers are already setting agreements with project developers with a price post 2012 which might be 50% to 60% of the current spot price.
- CDM for wind projects in Brazil. How do you see Brazil as - Is it good market?
Every market has its own pros and cons. Brazil is a big market and a transition economy and could be facing emission reduction targets in the near future. In the other hand, renewable energies such as wind farms are a rapidly-growing market in Latin America.
- From an investor in the cleantech place, would you consider credits to be far to risky to include as a potential stream of additional revenue? I ask this due to the early mentioned hurdles and lack of predictability.
CDM has some associated risk, as every other market in the world. Investors are to be aware of it so they can manage it. Project Cycle has been facing some delivery time problems on the decissions of the EB and DOEs which in some cases are not taking any additional projects or are focusing on some technologies or regions.
In any case, CDM revenues are a valuable asset since they support financial closing or enhance financial conditions with the banks (due to the additional income). Having said that, we recommend Investors should have an expert as an advisor (like Deuman) to measure the implications of developing the CDM project cycle and who can monitor the market for them, as well as find buyers or help them to close deals and agreements with counterparts. This can significantly reduce the uncertainty.
- Which one is better suit in US, Carbon tax or market?
Discussion and bills proposal are already running in the US for both. With the experience with the RGGI in the US, it seems like the most likely scheme would be a federal cap and trade platform with an open market for carbon credits.
Carbon Taxation perhaps, could be an option if a Sectoral Approach take place.