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Application of CDM, under Kyoto Protocol, to The Mid Himalayan Watershed Project

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This presentation was given to The Director Dr. T. C. Jain, suggesting that the project should be taken up under the Clean Development Mechanism.

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Application of CDM, under Kyoto Protocol, to The Mid Himalayan Watershed Project

  1. 1. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh  Binding emission targets for industrialised countriesBinding emission targets for industrialised countries (called Annex I)(called Annex I)  Voluntary participation of developing countries (calledVoluntary participation of developing countries (called Non-Annex I countries, e.g. India)Non-Annex I countries, e.g. India)  Flexible mechanisms to allow countries to achieveFlexible mechanisms to allow countries to achieve their emission targets cost effectively:their emission targets cost effectively: – Emission tradingEmission trading (trading of allowances between Annex I(trading of allowances between Annex I governments)governments) – Clean Development MechanismClean Development Mechanism (projects in Non-Annex(projects in Non-Annex I countries with participation of Annex I countries)I countries with participation of Annex I countries) – Joint ImplementationJoint Implementation (projects between Annex I(projects between Annex I countries)countries) What is Kyoto Protocol?What is Kyoto Protocol?
  2. 2. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh CLEAN DEVELOPMENT MECHANISM (CDM)CLEAN DEVELOPMENT MECHANISM (CDM) Twin objectives of CDM:Twin objectives of CDM:  Help Annex 1 countries meet their GHG emission reduction targets andHelp Annex 1 countries meet their GHG emission reduction targets and contribute to sustainable development in developing countries like India.contribute to sustainable development in developing countries like India.  Projects that are eligible for CDM will produce Certified EmissionProjects that are eligible for CDM will produce Certified Emission Reductions, CERs that helps Annexe 1 countries reach their emissionReductions, CERs that helps Annexe 1 countries reach their emission targetstargets  The CERs are tradable and their value is market driven. Current valueThe CERs are tradable and their value is market driven. Current value (May 2006) is US$ 25/CER.(May 2006) is US$ 25/CER.  Annex 1 countries are under pressure of heavy fines for failure to complyAnnex 1 countries are under pressure of heavy fines for failure to comply with emission caps.with emission caps.  These fines are likely to double by 2008, the value is expected to riseThese fines are likely to double by 2008, the value is expected to rise further.further.
  3. 3. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Relevant Green House GasesRelevant Green House Gases 1)1) Carbon DioxideCarbon Dioxide Global Warming PotentialGlobal Warming Potential 11 2)2) MethaneMethane Global Warming PotentialGlobal Warming Potential 2121 3)3) Nitrous OxideNitrous Oxide Global Warming PotentialGlobal Warming Potential 310310
  4. 4. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh How is CDM relevant for such Projects?How is CDM relevant for such Projects? EmissionEmission capcap ActualActual emissionsemissions Buyer Carbon Credits Carbon value ($) Annex I CountryAnnex I Country Renewable energyRenewable energy CDM projectCDM project IN the Host Country: 1) Projects reduce emissions 2) Projects Sequester Carbon. By selling the carbon credits – CERs from a GHG reduction/ Carbon sequestering project to a buyer additional cash flow can be realised for projects.
  5. 5. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Rules for CDM participation: How does itRules for CDM participation: How does it work, and what are the requirements?work, and what are the requirements?  AdditionalityAdditionality  The concept of baselinesThe concept of baselines  Host country approval & SustainableHost country approval & Sustainable development benefitsdevelopment benefits  MethodologiesMethodologies
  6. 6. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Required return on investment threshold Project return excluding CDM revenue Project return including CDM revenue CDM revenue CDM cash flow The gap between the project return and the required return on investment threshold AdditionalityAdditionality
  7. 7. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh The concept of BaselinesThe concept of BaselinesGHGemissions Time Project commissioned “With project” emission level “Without project” emission level (e.g. grid baseline) Carbon credits
  8. 8. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh The Methodology CriteriaThe Methodology Criteria  A Methodology is the method forA Methodology is the method for estimating carbon emissions from aestimating carbon emissions from a technology/projecttechnology/project  If a methodology exists, this simplifiesIf a methodology exists, this simplifies the CDM process, however new onesthe CDM process, however new ones can be developed.can be developed.
  9. 9. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Small Scale CDM ProjectsSmall Scale CDM Projects  Simplified Modalities and procedures forSimplified Modalities and procedures for Small Scale ProjectsSmall Scale Projects  Reduces Transaction CostsReduces Transaction Costs  Designed for Small and BackwardDesigned for Small and Backward CommunitiesCommunities  Simplified Modalities and Procedures forSimplified Modalities and Procedures for Small Scale Afforestation Reforestation andSmall Scale Afforestation Reforestation and Land use ProjectsLand use Projects  Approved Methodologies ExistApproved Methodologies Exist
  10. 10. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Bundling of Small Scale CDM &Bundling of Small Scale CDM & A/R CDM Project ActivitiesA/R CDM Project Activities  Small Scale CDM Projects can further be bundledSmall Scale CDM Projects can further be bundled together.together.  Upper limits for bundling exist.Upper limits for bundling exist.  Small Scale Afforestation and ReforestationSmall Scale Afforestation and Reforestation Projects can also be bundled.Projects can also be bundled.  This helps the tiniest of projects to benefit fromThis helps the tiniest of projects to benefit from the CDMthe CDM  Cost is further reduced after bundling.Cost is further reduced after bundling.
  11. 11. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh CDM under the reforestation category has nothing to do with the end use of the fruit of the tree. It is only linked to the amount of Carbon that is taken in by the trees (as CO2) and delivered to the soil. Steps in Assessment of Carbon Sequestering
  12. 12. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Bundling Small Scale &Bundling Small Scale & Community development ProjectsCommunity development Projects Bundling organisation GHGGHG offsetsoffsets (tCO(tCO22)) CER buyers CERsCERs PaymentPayment ((RsRs)) Payment ($)Payment ($) Financial Institution LoanLoan RepaymentRepayment ODA, Government, NGOs etc. Validation, verification, PDD PaymentPayment ((RsRs/$)/$) Grant/Funds ?Grant/Funds ? Bio Methanation VER Buyers Small ScaleSmall Scale A/R ProjectsA/R Projects
  13. 13. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Carbon Emission Reduction/Carbon Emission Reduction/ SequesteringSequestering Carbon Credits can be earned byCarbon Credits can be earned by  Reduction in emission of Green HouseReduction in emission of Green House Gases by activitiesGases by activities  Sequestering of Carbon via additionalSequestering of Carbon via additional plantations, that otherwise would notplantations, that otherwise would not have been there.have been there.
  14. 14. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Project Activities having CDM PotentialProject Activities having CDM Potential ( in current Project)( in current Project) o Afforestation, Reforestation and land useAfforestation, Reforestation and land use Projects: Small Scale and/or otherwiseProjects: Small Scale and/or otherwise o Avoidance of Methane emission from biomassAvoidance of Methane emission from biomass through biomethanation or controlled combustionthrough biomethanation or controlled combustion o Small Scale Wastewater Treatment ProjectsSmall Scale Wastewater Treatment Projects o Reduction in Nitrous Oxide emission in theReduction in Nitrous Oxide emission in the agriculture sector.agriculture sector. o Energy from bio-oil from TBOs.Energy from bio-oil from TBOs. o Implementation of methods reducing forest fires.Implementation of methods reducing forest fires. o Other Bio-energy activities within the projectOther Bio-energy activities within the project boundary : Hydro, Wind & Solar.boundary : Hydro, Wind & Solar.
  15. 15. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Quantum of Gain through CDMQuantum of Gain through CDM The Environment and Social Management Guidelines to the Project givesThe Environment and Social Management Guidelines to the Project gives the following calculations for various land use activities:the following calculations for various land use activities: a)a) Value of CER: $ 2.5Value of CER: $ 2.5 b)b) Carbon Sequestered/ ha: 150 tonnesCarbon Sequestered/ ha: 150 tonnes c)c) Revenue from CDM/100 ha: Rs. 17 lacs approx.Revenue from CDM/100 ha: Rs. 17 lacs approx. d)d) The latest documents from World Bank site reveal that the tradingThe latest documents from World Bank site reveal that the trading value of 1 CER is around $ 25value of 1 CER is around $ 25 e)e) Future projections: Penalties to double : demand for CERs willFuture projections: Penalties to double : demand for CERs will increase: revenue/ CER will increase.increase: revenue/ CER will increase. f)f) At current rates, using the data given above, the revenue/100 haAt current rates, using the data given above, the revenue/100 ha would be Rs. 170 lacs.would be Rs. 170 lacs. g)g) These figures do not include the revenue from other project activitiesThese figures do not include the revenue from other project activities
  16. 16. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Quantum of Gain through CDMQuantum of Gain through CDM  The revenue earning potential of the otherThe revenue earning potential of the other project activities can be very high asproject activities can be very high as Methane has a GWP of 21 & Nitrous oxideMethane has a GWP of 21 & Nitrous oxide 310.310.  A relatively smaller project can get higherA relatively smaller project can get higher revenuesrevenues
  17. 17. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh Risk FactorsRisk Factors Several risk factors have beenSeveral risk factors have been mentioned in the ESG.mentioned in the ESG. Most of them have been addressed withMost of them have been addressed with the approval of methodologies.the approval of methodologies. Small Scale AR methodology nowSmall Scale AR methodology now existsexists A mixed package of energy andA mixed package of energy and methane projects will make this anmethane projects will make this an extremely attractive CDM propositionextremely attractive CDM proposition
  18. 18. APPLICATION OF CDM TO THE HP WATERSHED PROJECTAPPLICATION OF CDM TO THE HP WATERSHED PROJECT M. P. Singh ConclusionConclusion Looking at the possible impact of CDM onLooking at the possible impact of CDM on the project, it may be desirable tothe project, it may be desirable to restructure some components torestructure some components to accommodate and provide for some ofaccommodate and provide for some of these activities, which can have athese activities, which can have a snowballing effect on the actual benefit tosnowballing effect on the actual benefit to the communities and the sustainability ofthe communities and the sustainability of the project.the project.

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