CDM Market Support Study


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This presentation refers to a Climatekos/Ecofys study commissioned by KFW. It was presented by Carsten Warnecke, Senior Consultant International Climate Policies, at the side event "Making PoAs work - Services of the PoA Support Centre" of the Carbon Expo 2013. It shows approaches for CDM projects in a low price scenario and investigates on how to support the CDM market as a whole.

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CDM Market Support Study

  1. 1. CDM Market Support StudySide Event: Making PoAs work - services of thePoA Support Centre‘30.05.2013Carbon Expo 2013, Barcelona
  2. 2. © ECOFYS | |Content> A – Analysis of abatement and transaction costsin different project types> B – Identification and analysis of supporting instrumentsfor CDM Projects> C - Identification of policy based measuresfor market and price stabilisationCarsten Warnecke2 30.05.2013
  3. 3. © ECOFYS | |A - Analysis of abatement and transaction costsin different project types30.05.2013 Carsten Warnecke3PDDdevelopmentValidation RegistrationPreparationfor themonitoringMonitoring,verification& issuancePlanningInvestment decisionConstructionOperation and maintenanceCapital costsOperation and maintenance costsCosts for PDDelaborationInternal costs forvalidationCosts for DOEservicesUNFCCCregistration feesInternal costs formonitoringCost for DOEservicesUNFCCC issuancefeesInternal costs forthe installation ofmonitoring systemCDM cycleInvestment cycleCOSTSSTAGECOSTSSTAGETransaction costsAbatement costs
  4. 4. © ECOFYS | |A - Analysis of abatement and transaction costsin different project types30.05.2013 Carsten Warnecke4CDM performanceScalabilitySituation of the project developerTotal costsSensitivity to changesin CER pricesCER price rangesCategories
  5. 5. © ECOFYS | |A - Analysis of abatement and transaction costsin different project types> Useful insight into the sensitivity of CDM projects to CER prices> Support for the design of supporting instruments> But:– High variability in project scenarios and costs within a category● Project based assessment needed– Buyers’ preferences impact the design of supporting instrumentsCarsten Warnecke5 30.05.2013CER price band (€) Sensitivity CategoryEE own generationAround 0LowCategory 1Coal mine methaneConditionalEE households0 – 5Methane avoidanceHydro small-scaleBiomass energyLandfill gasHydro large-scale LowWind small-scale 5 – 10 ConditionalCategory 2Wind large-scaleLowSolar > 10Fossil fuel switch Estimates varyN2O nitric acidAround 0 High Category 3N2O adipic acid
  6. 6. © ECOFYS | |B - Identification and analysis of supportinginstruments for CDM ProjectsCarsten Warnecke6 30.05.2013Financial instruments to provide financial support to CDM projects at implementationand delivery stage, are analysed and ranked using the following criteria: costefficiency, flexibility, proven track record, level of achievement & practicality ofimplementation. Ranking using criteriaSoft loans, at subsidizedrates, /no fixed repaymentConditional subsidies,structured subsidiesUpfront paymentsfor carbon assets withfuture value.Securitisation, incl. projects repayments(private investor) or bonds issuance;Climate Bonds,GFP*: possibility oftradable GFPs and /orsold to developers* Guaranteed Floor PriceDirect subsidiesDirectSupportComplementaryinstrumentsInsuranceDetermination of CER price signal and allocation to specific projects are not best determinedthrough abatement price indication but better done via auction or reverse auction.
  7. 7. © ECOFYS | |B - Identification and analysis of supportinginstruments for CDM ProjectsComplementary instruments such as securitization could be combined withsubsidies, GFPs, or guaranteed loans to help spread the financial burden.Also public entities may decide to use subsidies for certain favoured projectswhile using GFPs or loans with other projects, or even to combine instrumentswithin the same project.Carsten Warnecke7 30.05.2013> Contribution from private sector is desirable however only possible if concreteprofitable components exist, e.g. from by-products of projects. Involvementof philanthropists is also possible. Lightening public financial support can bedone via securitization, nonetheless with financial guarantees applied toinstruments.
  8. 8. © ECOFYS | |C - Identification of policy based measuresfor market and price stabilisationMain assessed approaches:>Introduction of demand windows in existing markets>Activation of new demand sources– New emission trading schemes– Voluntary demand>Purchase activities by (public) institutions>Also– Results-based financing– Differentiation of CDM activitiesCarsten Warnecke8 30.05.2013
  9. 9. © ECOFYS | |C - Identification of policy based measuresfor market and price stabilisation> Measures show differences with respect to– Financing source, implementation timeline, decision maker, CERdemand impact, support to CDM framework> No measure qualifies as single “silver bullet” but the implementation ofeach approach has benefits for the CDM> Coordinated and effective spending of available resources will contributeto the success of the CDM support> Urgency requires short term measures first (e.g. purchase activities)while longer term support strategies should combine all availablemeasures> Measures are temporary solutions, do not replace need for reactivatedgeneral demand> RBF most promising to maintain and transfer the CDM knowledge base tonew mechanisms (environment of piloting and testing)Carsten Warnecke9 30.05.2013
  10. 10. © ECOFYS | | Carsten Warnecke10Thank you.Authors:Ecofys: Carsten Warnecke,Noémie KleinClimatekos: Louis Perroy,Robert TippmannContact:c.warnecke@ecofys.comrobert.tippmann@climatekos.com30.05.2013