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IES offsets & opportunities

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Educational Material of Vietnam Blended Learning Program, undertaken by Institute of Energy Science, with support of World Bank and Vietnam Development Information Center

Educational Material of Vietnam Blended Learning Program, undertaken by Institute of Energy Science, with support of World Bank and Vietnam Development Information Center

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  • 1. The World Bank in Vietnam Th W ld B k i Vi Vietnam D Vi t Development I f l t Information Center ti C t Vietnam Blended Learning Program Carbon Offset & Carbon Finance Opportunities for Viet Nam Proposed by: UQ SMART – The University of Queensland (Australia) Institute of Energy Science (Vietnam)
  • 2. Sc edu e Schedule Part 1 – Carbon Offsets? Part 2 – The CDM & Other Standards Part 3 – Carbon Markets Part 4 – Carbon Finance Part 5 – Opportunities for Vietnam
  • 3. Part 1 – Carbon Offsets
  • 4. Ca bo O sets Carbon Offsets? REDUCED EMISSIONS - energy efficiency materials efficiency pollution management investment in new technologies AVOIDED EMISSIONS - fuel switch - redesign business processes - onsite RE energy generation OFFSET EMISSIONS - carbon, capture and storage revegetation soil carbon forestry Tonnes of CO2-e AVOIDED, REDUCED or OFFSET - measured modelled verified insured registered certified traded cleared settled registered
  • 5. Ca bo O sets Carbon Offsets? PERMITS • Auctioned by the government in accordance with the scheme cap / target • Both 1 unit = 1tCO2e OFFSETS • Both financial instruments / assets • • Both may be used for compliance (subject to rules) Issued under carbon offset schemes for projects that sequester or avoid GHG emissions
  • 6. Ca bo O sets Carbon Offsets? VOLUNTARY COMPLIANCE
  • 7. 7 Carbon Management Options Ca bo a age e t Opt o s Buy Auction Permits Buy Secondary Market Permits Shutdown Business Bank P B k Permits it Voluntary Options Exercise Abatement Options Buy Offsets Compliance Options
  • 8. Co p a ce Offsets Compliance O sets What types of offsets can a liable entity typically use?
  • 9. Co p a ce Offsets Compliance O sets CDM JI LULUCF Kyoto IET Certified Emission E i i Reductions Emission Reduction Units Removal Units U it Assigned Amount A Units
  • 10. Voluntary Offsets o u ta y O sets What types of offsets can an entity typically use for voluntary purposes?
  • 11. Voluntary Offsets o u ta y O sets CDM JI LULUCF Certified Emission Reductions Emission Reduction Units Removal Units
  • 12. Voluntary Offsets o u ta y O sets Case Study: National Carbon Offset Standard  Many organisations claiming to be “carbon neutral”, “low carbon” etc for the purpose of demonstrating CSR or exercising a competitive advantage advantage.  Unfortunately, many of these claims not-credible and false and misleading to the public and have undermined the credibility off carbon offset markets.  Australian Government started cracking down (+$1m fines and possible imprisonment) on organisations who make false claims.  Australia Government (DCCEE) withdrew the Greenhouse Friendly Scheme and introduced the National Carbon Offset Standard (NCOS) as a Quality Assurance Scheme. Principally. the NCOS principal sets out:  How to measure a carbon footprint (Scopes 1+2+3); &  The types of offsets that can be used to make a “low carbon claim”. low claim
  • 13. Voluntary Offsets o u ta y O sets Case Study: National Carbon Offset Standard  The objective of NCOS is to “ensure the environmental integrity of the carbon offsets and carbon neutral products available in the Australian voluntary market for consumers and businesses alike”.  Carbon Management under NCOS focuses more on Measure, Offset and Verify (usually MACCs not used), given the cheap cost of offsets (e.g. $4 50). used) (e g $4-50)  The NCOS carbon neutral program (certification scheme) is administered by Low Carbon Australia. www.climatechange.gov.au/government/initiatives/~/media/publications/carbon accounting/revised-NCOS-standard-2010-pdf.ashx
  • 14. Offsets: Registration - Retirement 1) Emissions reduction activity occurs 2) Carbon offsets created (validated & issued under applicable standard e.g. CDM, VCS etc) 3) Created in REGISTRY 4a) Sold via OTC market (ERPA) 4b) Sold via broker 4c) Sold via Exchange 5) Entity who is liable or engaging in voluntary action retires carbon offset unit from REGISTRY in its name Entity d E tit reduces it li bilit or meets carbon claim its liability t b l i 4d) Banked
  • 15. Important Concepts Co-benefits - whether the project provides additional benefits e.g. sustainable development such as new infrastructure for remote communities. Validation and verification - the project must receive independent verification and the verifier must be an accredited and recognized independent third party. Transparency - carbon credits should be supported by publicly available project documentation on a registry. Retirement – Essentially means that the carbon offset cannot be used again. Various methods of retirement exist. In the voluntary market, a paper trail is often used (e.g. certificate or receipts), however increasingly, online receipts) increasingly registries are used to retire credits from the market. Vintage - The vintage is the year in which the carbon reduction takes place.
  • 16. Important Concepts Leakage - Changes in emissions that take place beyond the boundary of the project but are attributable to the project activity are called emissions ‘leakage’. Additionality – Additionality is a key concept in evaluating whether or not an offset project leads to real and measurable GHG reductions. To be regarded as a valid offset, a project must be p g , p j proven to be ‘additional’ to what would have occurred anyway e.g. a routine upgrade of equipment or response to a regulatory requirement cannot be regarded as additional.  Financial Additionality: the project needs to go beyond BAU. A BAU standard test for this is if the project is financially viable without the offset funding i.e. does it require carbon offsets to make it viable?  Regulatory Additionality: the project needs to go beyond existing legal requirements.
  • 17. Important Concepts “Baseline & Credit” GHG emissions ERUs / CERs generated Emissions under project activity JI or CDM project Time
  • 18. Issues Sin Tax – A way for the guilty to pay for their ‘indulgence’ without changing their behavior. Double Counting - the same offset being sold two or three times on, and when a two businesses claim the same reduction reduction. Lack of whole-of-industry standard – there are dodgy offsets and “carbon cowboys”. Forward selling – There is wait between establishing a forest and getting offsets. Some project developers forward sell ‘phantom offsets’ that do not exist as yet (and may never). never) Permanence – It is difficult to guarantee the permanence of the forests, which may be susceptible to clearing (both legal/illegal), burning, or mismanagement. This also a common issue with soli carbon. Monitoring Reporting & Verification (MRV) – difficult in assuring that offsets are of a high-quality and are ‘real’ and measurable especially in developing high quality real measurable, countries e.g. REDD.
  • 19. Part 2 – The CDM & Other Offset Standards
  • 20. Joint Implementation (JI) KYOTO PROTOCOL flexible abatement mechanisms International Emissions Trading Assigned Amount Units (AAUs) Clean Development Mechanism (CDM) Certified Emission Reductions (CERs) Joint Implementation p (JI) Emission Reduction units (ERUs)
  • 21. Joint Implementation (JI)   Approved b government in ‘ d by ‘tracks’ rather than continuously k ’ h h l Very few projects, but potentially large amounts of credits (industrialised countries only)  Big issues around “h air” from Soviet projects and influence on EU-ETS carbon price d “hot ”f S d fl S b  No biosequestration projects….  Big d b Bi debate on whether new non-kyoto country (e.g. R h h k ( Russia) ERU should be ‘valid’ i ) ERUs h ld b ‘ lid’
  • 22. Clean Development Mechanism (CDM) KYOTO PROTOCOL flexible abatement mechanisms International Emissions Trading Assigned Amount Units (AAUs) Clean Development Mechanism (CDM) Certified Emission Reductions (CERs) Joint Implementation p (JI) Emission Reduction units (ERUs)
  • 23. Clean Development Mechanism (CDM) Recap: Article 12 of the Kyoto Protocol p y  - 2 goals (reduce emissions & increase sustainable development)  project-bases, ‘baseline and credit’  entities in industrialised nations may invest in GHG-mitigation projects in developing countries e.g. Australia > Philippines  entities earn abatement credits called Certified Emissions Reductions (CERs)
  • 24. Clean Development Mechanism (CDM) What is a CER?
  • 25. Clean Development Mechanism (CDM) Developed to Developing Nation
  • 26. Clean Development Mechanism (CDM) Types of Projects
  • 27. Clean Development Mechanism (CDM) Types of Projects CERs until 2012 – project type CERs until 2012 – country
  • 28. Clean Development Mechanism (CDM) Developing a CDM project – 8 Criteria 1. Voluntary participation e.g. not under duress. 2. Approval by each party involved in the project- requiring issuing of Letter of Approval (LoA) that project meets Host Country’s sustainability requirements. 3. 3 “real measurable and long-term benefits on climate change mitigation real, long term benefits” 4. GHG reductions “additional to any that would occur in the absence of the project activity”. 5. Must not result in diversion of Overseas Development Assistance 6. 6 Both public and private entities can participate, subject to EB supervision participate 7. Nuclear excluded. EU-ETS no more HFC destruction from mid 2013. 8. Is your project based in an LDC?
  • 29. Clean Development Mechanism (CDM) Developing a CDM project – Participants Project Developer – usually private entity i.e. consultant Project Investor – provision of equity / debt CER purchaser – e.g. liable entity in Australia Host Parties – non Annex I country e.g. China Designated National Authority (DNA) – approves projects via LoA Designated Operational Entity (DOE) – assured methodologies CDM Executive Board (EB) – approves project & CERs
  • 30. Clean Development Mechanism (CDM) Developing a CDM project – 6 Key Stages Important links: - http://cdmrulebook.org/ - http://cdm.unfccc.int/index.html 1. Design - prepare a Project Design Document (PDD) using an approved template. - the PDD must use an approved baseline and methodology methodology. - project must be approved by the Host Country DNA. 2. Validation - the PDD must be independently audited by a DOE against CDM rules. - PDD must be made available for public comment.
  • 31. Clean Development Mechanism (CDM) Developing a CDM project – 6 Key Stages 3. Registration - if the DOE is satisfied, a request is made for registration of the project satisfied to the EB. - if no review is requested by 3 or more members of the EB it is automatically registered after 8 weeks. 4. Monitoring - once registered the proponent is required to monitor the project in accordance with the monitoring plan contained in the PDD. Focus on parameters that impact on the greenhouse gas emission reductions.
  • 32. Clean Development Mechanism (CDM) Developing a CDM project – 6 Key Stages 5. Verification and Certification - periodic independent review of GHG reductions during verification period. - verification ensures that the proponent is only credited with the emission reductions that have actually occurred. - figure could differ from the estimated emission reductions contained in the PDD - following verification, DOE certifies to the EB that the verified no. of verification no emission reductions has been achieved. 6. Issuance - upon receipt of the certification report, the EB issues the CERs into the proponent’s account within the CDM Registry.
  • 33. Clean Development Mechanism (CDM) Developing a CDM project – Additionality  Emissions abatement from a CDM project must be additional to abatement that would occur in the project’s absence.  Requires proof that abatement achieved by the project would not have occurred if the project had not been registered under the CDM.  Executive Board has developed a tool for demonstrating and assessing p g g additionality.  A complex and difficult step in the CDM process
  • 34. D Develo oping a CD pro g DM oject – Addition nality y Clean Development Mechanism (CDM)
  • 35. Clean Development Mechanism (CDM) Developing a CDM project – Costs Project developer $30 – 100K+ Legal costs $10 – 100K DNA CER purchaser e.g. liable entity DOE $10 – 15K+ CDM EB Project developer $10 – 15K+ / annum CDM EB 2% of CERs / annum Secondary market 2-5% brokerage ERPA DOE
  • 36. Clean Development Mechanism (CDM) Developing a CDM project – Risk Counterparty Project CDM Process Delivery - - - - credit country authority g g language law reputation bundling currency expropriation immunities industry liabilities tax country approvals compliance p ownership structure O&M MRV - science - performance - catastrophe Registry/ITL fees/charges methodology EB discretion issuance timing post 2012 LoAs additionality shortfalls failures price allocation Registry/ITL payment Enforcement - mechanism leverage language law decision-maker conflict of laws collection
  • 37. Clean Development Mechanism (CDM) Developing a CDM project – Risk Counterparty Project CDM Process Delivery - - - - credit country authority g g language law reputation bundling currency expropriation immunities industry liabilities tax country approvals compliance p ownership structure O&M MRV - science - performance - catastrophe Registry/ITL fees/charges methodology EB discretion issuance timing post 2012 LoAs additionality shortfalls failures price allocation Registry/ITL payment Enforcement - mechanism leverage language law decision-maker conflict of laws collection
  • 38. Clean Development Mechanism (CDM) Developing a CDM p j p g project – ERPA  A transaction that transfers carbon credits between two parties under the Kyoto Protocol. d h l  The buyer pays the seller cash in exchange for carbon credits, thereby allowing the purchaser to emit more carbon dioxide into the atmosphere.  The standards for this agreements are outlined by the International Emissions T di E i i Trading A Association. i ti CER ERPA template available at: http://wbcarbonfinance.org/Router.cfm?Page=DocLib&CatalogID=28153
  • 39. Clean Development Mechanism (CDM) Developing a CDM project – Criticism  CDM has been criticised for not meeting sustainable development goals e.g. large scale hydro (LSH) in China and HFC destruction  additionality process stringent but can be manipulated yp g p  this will likely lead to have greater transparency  EU-ETS vested interests means most likely continue beyond 2012  EU-ETS however may only look to offsets from LDCs.
  • 40. Part 3 – Carbon Markets
  • 41. Carbon Markets 160 Was a growing market… 140 120 100 Other offsets Secondary CDM 80 Primary CDM Other allowances 60 EU ETS Allowances 40 20 0 2005 2006 2007 US$176b in 2011 2008 2009 2010
  • 42. Carbon Markets http p://web.worldb bank.org/WBSIT TE/EXTERNAL/T TOPICS/ENVIRO ONMENT/EXT CAR RBONFINANCE/ /0,,contentMDK K:23206428~menuPK:5575595~pagePK:6 416 68445~piPK:64 4168309~theSit tePK:4125853~ ~isCURL:Y,00.h html Lots of CERs….
  • 43. Carbon Markets Future of the CDM & CERs - Usage of CERs post 2012 only for Kyoto 2 signatories - Price currently very low, around 20 - 40 euro cents (more expensive, g greener p product) ) - Price to remain low / volatile for a while yet… - Some schemes only allow CERs from LDCs…. - 12.5% use under Australia’s Clean Energy Future… 43
  • 44. Carbon Markets How big is the offset market? http://web.wor rldbank.org/WBSITE/EXTERNAL/T TOPICS/ENVIRONMENT/EX TCARBONFINANCE/0,,contentMDK:23206428~m menuPK:5575595 5~pagePK :64168445~piPK:64168309~th heSitePK:4125853~isCURL:Y,00.h html
  • 45. Carbon Markets How big is the offset market? http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTCARBONFINANCE/0,,contentMDK:2320642 8~menuPK:5575595~pagePK:64168445~piPK:64168309~theSitePK:4125853~isCURL:Y,00.html
  • 46. Carbon Markets Price to remain a significant hurdle for some time
  • 47. Part 4 – Carbon Finance
  • 48. Carbon Finance
  • 49. Carbon Finance REDD+  Deforestation and forest degradation account for nearly 20% of global greenhouse gas emissions.  REDD designed to use market/financial incentives in order to reduce the emissions of GHG from deforestation and forest degradation. Can also deliver "co-benefits" such as biodiversity conservation and poverty co-benefits alleviation e.g. REDD+  W ld Bank and th UN setting up th b i f th carbon market and World B k d the tti the basis for the b k t d the legal and governance frameworks of countries receiving REDD.  REDD currently undertaken by national or local governments, dominant NGOs, the private sector, or any combination of these e.g. Norway $500m International Climate & Forests Initiative. Potential as a broadranging ‘offset’ scheme, however issues with MRV and permanence.
  • 50. Carbon Finance Green Climate Fund  Launched at COP17, objective to raise $100 billion a year by 2020. To kick-start environmental projects, a Fast Start Funding of the GCF was agreed, encompassing $30 billi for the period 2010-2012. d i billion f h i d 2010 2012  Based in South Korea, the Fund will provide simplified and improved access to funding, including direct access, basing its activities on a country-driven approach and will encourage the involvement of relevant stakeholders, including vulnerable groups and addressing gender aspects. g g p gg p  The Green Climate Fund was designated as an operating entity of the financial mechanism of the UNFCCC, in accordance with Article 11 of the Convention.  Administered via Nationally Appropriate Mitigation Actions (NAMAs) (NAMAs), REDD+, buying up CERs and other schemes.
  • 51. Carbon Finance NAMAs http://www.nama-database.org/index.php/Chile
  • 52. Carbon Finance World Bank Carbon Funding PROJECT NAME VALUE The Prototype Carbon Fund (PCF) $219.8M The C Th Community Development Carbon Fund (CDCF) i D l C b F d $128.6M $128 6M The BioCarbon Fund (BioCF) T1 = $53.8M T2 = $36.6M The Italian Carbon Fund (ICF) $155.6M The Danish Carbon Fund (DCF) The Spanish Carbon Fund (SCF) The Umbrella Carbon Facility (UCF) €90M T1 = €220M T1 = €799.1M T2 = €70M T2 = €112.5M The Carbon Fund for Europe (CFE) Forest Carbon Partnership facility (FCPF) Carbon Partnership Facility ( p y (CPF) ) Partnership for Market Readiness (PMR) Source: The World Bank Carbon Finance Unit (2013): http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTCARBONFINAN CE/0,,contentMDK:22974424~menuPK:5213558~pagePK:64168445~piPK:64168309~the SitePK:4125853~isCURL:Y,00.html €50M $447M €143.5M $70M
  • 53. Carbon Finance World Bank Carbon Funding  Funded by OECD countries.  Purchasing of emissions reduction units through the Carbon Finance Unit (CFU).  CFU contracts to buy emissions reduction units  Within framework of Kyoto Protocal under CDM or JI (Joint Implementation) methodologies.  Diversity of project types and co-benefits (eg: biodiversity conservation, sustainable development & poverty alleviation).
  • 54. Carbon Finance EIB Carbon Funding  Recently raised its carbon finance commitment, with USD$20b available next three years to kick-start low carbon projects e.g. biogas, solar PV, energy efficiency
  • 55. Part 5 – Opportunities for Vietnam
  • 56. UQ SMART – The University of Queensland (Australia) Viện Khoa học năng lượng (Việt Nam)