General Carbon Newsletter - April 2011


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In this issues of General Carbon Newsletter:
-REC & CDM for Renewables
-Status of REDD
-Emerging Emission Trading Schemes
-And many more news, updates & highlights of carbon market

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General Carbon Newsletter - April 2011

  1. 1. General Carbon NewsletterMONTHLY CARBON NEWSLETTER APRIL 2011, ISSUE:03Point of View PROJECT HIGHLIGHTSNews that Japan may use force majeure clauses to seekexemption from the Kyoto Protocol pledges to cut emissions 138 new CDM projects enteredrocked the market in March. While some analysts felt that it the pipeline in March 2011.would result in a boom in the supply of CERs and reduceddemand for ERUs, others were of the view that the demand The issuance of CERs in Marchfor CERs would increase due to the increased reliance on was 22.8 mCERs taking thethermal power generation. Greater demand from Germany for total issuance to 576 MillionCERs due to a revisit of its nuclear power plants was also CERs. The average issuanceprojected. However, these views were put to rest when the success stands at 95.3%.Japanese Environment Minister clarified that Japan had notdecided on any change in its Kyoto commitments. Oman entered CDM Pipeline with the project: “WasteThe US faced further setback due to defections and court Management Project at Al-rulings which may postpone California‟s cap-and-trade plan. Amerat”The buy-side of the carbon market is slowly moving away fromearly stage CDM projects, given registration uncertainties prior Cape Verde is not an LDCto 2012. Increased marketing by CDM EB on the strengths of anymore.the mechanism seems to be falling on deaf ears. Small scaleand community oriented projects are the current focus areas. The Biomass based Cogeneration Project by IndiaNew market mechanisms continue to be the main talking point Glycols Limited got successfullyat negotiations, with over 20 submissions made by countries registered under CDM toto UNFCCC. Plans to address carbon theft at a registry level generate 110,157 CERs perare on the cards, while the market resumed operation and is annum.reverting back to normalcy. The Voluntary Market witnessedreasonable activity during the month despite a limited UAE becomes first GCC nationupwardly price movement. to earn UN carbon credits forBest, reducing emissions through a waste heat recovery project.Satish Kashyap REC PRICE WATCHREC: Maximizing Revenue for Renewable Power IEX: Price (Volume)The first trade of RECs which took place in India saw a good Non solar -INR 3900 (150)participation from buyers. Out of the total 532 RECs issued Solar - (Not traded)(108 RECs- wind energy project in Gujarat & 424- biomassproject in Maharashtra), 424 were placed for trading on IEX PXIL: Price (Volume)and PXIL power exchanges. There was a combined demandof 70,701 RECs (160 times the supply) that led the clearing Non solar -INR 2225 (274)price to touch the forbearance of INR 3900 on IEX while it was Solar - (Not traded)traded at INR 2225 on PXIL. As of now 53 projects (~280MW)
  2. 2. are accredited by the state agencies and 21 of these VCS VER PRICE WATCH(~170MW) are registered by the central agency for issuance.The states of Maharashtra, Gujarat, Chhattisgarh, Haryana India, China:and Rajasthan are currently the most active players in the Renewables, EEREC process. Pre 2008 vintages US$ 0.50- 1.00REC is a tradable certificate of proof that one MWh of Post 2008 vintages US$ 1.00-2.75electricity has been generated by a renewable energy (RE)generator. A RE generator is eligible for availing benefits in Renewables, EE- Pre CDMthe following situations: Pre 2008 vintages US$ 0.50-2.00 1. If the RE generator sells power to the local distribution Post 2008 vintages company (DISCOM) at or below the average power US$ 2.00-3.50 purchase cost (APPC). 2. If the RE generator sells power to another licensee or Industrial gases, others an open access consumer at the mutually agreed Pre 2008 vintages US$ 0.25-0.50 price. Post 2008 vintages 3. If the RE generator sells power through a power US$ 0.50-1.00 exchange at a market determined price. 4. If the RE generator is a grid connected captive consumer, not receiving any concessional wheeling, Rest of Asia, Africa: transmission or banking charges, or exemption from Renewables, EE electricity duty. Pre 2008 vintages US$ 1.00-2.00The RE generator who is selling power to the DISCOM at the Post 2008 vintages US$ 2.00-4.00state determined preferential tariff is not eligible to participatein the mechanism. And if it terminates the existing PPA (power Renewables, EE- Pre CDMpurchase agreement) with the DISCOM, it cannot participate Pre 2008 vintagestill three years from the date of termination. Similarly a captive US$ 1.50-3.00consumer who forgoes the concessional benefits would not be Post 2008 vintageseligible till three years. US$ 2.00-5.00Most of the new RE generators are confused whether to go Industrial gases, othersthe conventional way by signing PPA at preferential tariff or Pre 2008 vintages US$ 0.25-1.00whether to sign PPA at the APPC tariff for getting the REC Post 2008 vintagesbenefit. There is also confusion whether the projects are US$ 0.50-1.00eligible under REC as well as CDM mechanismsimultaneously. The regulatory guidelines of either mechanismdo not restrict a project to apply for the other mechanism atthe moment. Carbon credits are not considered asconcessional or preferential benefits which could restrict aproject from applying for RECs. And there are a few CDM CDM EB NEWSregistered projects which are now also registered under REC. UN Climate Change ConferenceFor a project to register under CDM it needs to prove reached a stalemate in Bangkok“additionality” i.e. the project being financially lesser attractive as rich and poor nations feudedas compared to the other alternatives available to the project at the talks.proponent. In case of most of the REC registered projects,proving additionality would involve comparison between“preferential tariff” and “APPC + REC floor price”. In a few COP 16 and CMP 6 officialcases, proving additionality would not be much of a challenge reports the APPC + REC floor price is of lesser value. But thechallenge will be in proving additionality for projects with highAPPC + REC floor price. For example, many wind projectshave APPC + REC floor price which ranges around INR 4 to4.5 per unit of power, while the preferential tariff ranges
  3. 3. around INR 3.5 to 4 per unit. Such cases will require to be OTHER CARBON NEWStaken care of by structuring the additionality approachappropriately. We still have projects registered under CDM in Japan could review emissionsIndia with captive cost as high as INR 4.8 per unit of power. targets in wake of nuclearAddressing such issues will be a test of the expertise of the crisisCDM consultant.The average revenue from carbon credits for a typical RE EU emissions up 3% asprojects is around INR 0.5 to 0.7 per unit of power generated recession easesand the minimum revenue from RECs is INR 1.5 per unit (floorprice for non solar REC). Thus combining both the revenuestreams could increase the profitability of such RE projects EU May Need Tighter Supplywith a good margin. As is evident from the REC registry and to Avoid CO2 Slump, AdviserCDM pipeline, a good number of projects are opting for both SaysREC as well as CDM.Write to for a detailed Airlines to Be Second-Biggestpresentation on the REC mechanism and how it can benefit Sector in EU CO2-Tradingyou. System California Judge Orders Delay ofState of REDD Carbon-Market Rules to StudyReducing Emission from Deforestation and forest AlternativesDegradation or REDD aims to reduce greenhouse gaseswhile delivering benefits such as biodiversity conservation,sustainable management and poverty alleviation. According Australian PM Julia Gillard seesto IPCC, about 20% of the carbon dioxide emissions are approval dwindle on carbon taxcaused by deforestation, when large forested areas are U-turncleared to make way for industrial progress, agriculture andtimber, especially in developing countries. REDD analystsindicate that controlling deforestation is one of the most Carbon market puts brave facecost-effective ways to reduce emissions. As per the on headwindsconservative estimates of IPCC, approximately 25% ofdeforestation emissions can be abated at a cost of less than$20 per metric ton of carbon dioxide (tCO2). N. Korea seeks to earn hard currency via carbon creditsAt Cancun, it was agreed to create a framework for REDDmechanism where developed nations provide finance tohelp developing countries protect forests. Currently the S&P sees Abu Dhabi solar dealchallenge lies in raising requisite finance since there is no as start of new energy erastructured process for this as yet. Also, another concern isthe lack of a proper technical standard for measuring andmonitoring carbon emissions from forests. Thirdly, there isno robust mechanism in place to account for carbon or totrack “leakage”. For instance, if REDD activities force up themarket price of timber, livestock, and crops, they could drivedeforestation somewhere else.Even so, there is progress being made on several fronts inREDD. A standing example would be the UN-REDDprogram launched in 2008, which now has 29 partnercountries across Africa, Asia Pacific and Latin America, 13of which are receiving support for National Programactivities. National Programmes in seven UN-REDD
  4. 4. Programme countries are now in their implementationphase (Bolivia, DRC, Indonesia, Panama, Tanzania, Viet EDITORSNam and Zambia). In 2010, 15 more countries were Vinodini Chitrakaran,welcomed to the Programme as new partners and given vinodini.c@general-carbon.comobserver status to the UN-REDD Programme Policy Board:Bangladesh, Bhutan, Central African Republic, Colombia, Rameez Shaikh,Costa Rica, Gabon, Guatemala, Guyana, Kenya, Mexico, rameez.shaikh@general-Nigeria, the Philippines, Republic of Congo, Solomon carbon.comIslands and Sudan.The total amount of funding for UN-REDD National GERERAL CARBON PTE LTDProgrammes was at US$51 million in 2010, with Norway 16 RAFFLES QUAY, #33-03 HONG LEONG BUILDING,being the first and the largest donor with US$52.2 million for SINGAPORE 048581.2008-2009, US$31 million for 2010, and at least US$40million for 2011-2012. Other donor countries are Denmark(US$2 million in June 2009 and US$6 million in November2010), Spain (US$20.2 million over a period of three years,and US$1.4 million for 2010), Japan (US$3 million) and theEuropean Commission (US$14 million or €10 million).Source: This newsletter is brought to you by General Carbon. ContactA few key success factors have clearly emerged from the ifexperiences of participating countries. These factors are: you have any queries or 1. Timely access to funds. comments or wish to contribute 2. National level leadership, and linking REDD+ news and updates. We welcome strategies to broader development policies. 3. Flexibility of the REDD+ tool to be adapted to the your suggestions and requirements of a specific context or initiative. contributions. 4. Including the stakeholders from the inception stage and also in the control of resource management. 5. Concrete benefit sharing plans that lend legitimacy If you wish to unsubscribe from to the programmes. this newsletter please reply to 6. Capacity building and knowledge sharing. this email with “unsubscribe” in the subject line.Further, the UN- REDD Program organizes severalinternational events to disseminate information about thecomplex methodologies, and to implement Measuring, General Carbon is a leadingReporting and Verification (MRV) and Monitoring systems emission reduction consulting,(MRV&M) within countries, taking into account their uniquedevelopment goals and UNFCCC requirements. sustainability advisory and investment firm with presenceSimilarly, in early 2010, the REDD+ Partnership was across Singapore, India, Srilaunched, where heads of state and government, ministersand other representatives from 50 countries agreed on a Lanka, Thailand, Philippines,framework for the rapid implementation of measures for Indonesia, South Africa, Nigeria,reducing deforestation. Around USD 4 billion were pledged Ethiopia and Kenya.for the period 2010–2012 for measures to reduce GHGemissions from deforestation and forest degradation indeveloping countries. The core objective of the Partnershipis to contribute to the global battle against climate changeby serving as an interim platform for the Partners to scaleup REDD+ actions and finance. 71 countries are membersof the Partnership to date. This interim Partnership isexpected to be replaced by, or folded into, a UNFCCC
  5. 5. mechanism including REDD+ once established and agreedupon by the Parties.Emerging Emission Trading SystemsSouth Korea- Target Management System (TMS), aprecursor to ETS S. Korea is committed to reduce emissions by 30% below Business As Usual (BAU) by 2020. TMS is a system in which the government imposes the target for GHG emission as well as the energy use to designated entities (companies with GHG emission and energy consumption in large volumes respectively) and by which the government checks on and manages the achievements of those entities. TMS involves systematic management of 70% of national emissions by regulating 468 entities. Main focus is GHG mitigation and energy saving. Covers large corporate emitters with over 125,000 tCO2e/ annum that exceed the baseline volume of 500 terajoules over the latest 3 years, or sites that generate 25,000 tCO2e/ annum and exceed 100 terajoules of energy consumption. Entities spread over agriculture (food companies), power companies, manufacturing units, building (universities and hospitals), transportation companies, and waste management companies. TMS will pave way for the ETS, which will get implemented from 2013-2015. Initially emission allocations will be given out to the entities in 2015. Penalties upto KRW 10 mn for non-compliance.New Zealand ETS Eligible units are called New Zealand Unit or NZU priced at NZD 25. Participants surrender NZUs to the Crown to meet their obligations under the scheme. During the transition phase (July 2010 to December 2012) one NZU is required to cover every two tonnes of GHG
  6. 6. emissions in a calendar year. Participants can alsosurrender a range of „Kyoto units‟ which they canbuy overseas.The government gives out NZUs to owners offorests that absorb carbon dioxide. Some emittingentities that can pass on the cost of carbon toconsumers have to purchase and surrender NZUs.Some other entities that cannot pass on the cost ofcarbon to the consumer receive NZU allocationsfrom the government.Covers carbon dioxide (CO2), methane (CH4),nitrous oxide (N2O), hydrofluorocarbons (HFCs),perfluorocarbons (PFCs), and sulphur hexafluoride(SF6).Sectors covered are forestry, transport fuels,electricity production, industrial processes, syntheticgases, agriculture and waste. All forests faceobligation to surrender NZUs when trees are cutdown. Mandatory emission reduction obligationstaggered out from 2008 to 2015 across sectors.An electronic register called New Zealand EmissionUnit Register (NZEUR) records who holds emissionunits and is like a share registry.The ETS will be reviewed by June 2011 to decidefurther steps and whether new industries should beroped in.Post the transition phase, price for NZUs will bemarket linked and these can be tradedinternationally.