Evaluating Approaches to Aggregating GHG Offsets

Peter Weisberg

C-AggChicago, Il

July 21th, 2011

Disclaimer

• Research supported by the Electric Power Research Institute (EPRI)

• Does not reflect the views of the EPRI or its members.

C-Agg Round Table Purpose

Discuss• Inaccuracies• Gaps• Lessons learned• Next steps

Outline

• Introduction• Methods of aggregation

– Case Studies• Lessons learned• Next steps

Introduction: Definition of Aggregation• Aggregation groups

– geographically and/or temporally dispersed project activities

– that reduce emissions in a similar way– to streamline the process of qualifying

and quantifying those activities as offsets

CERs issued in each sector

Source: Fenhann, Jorgen. CDM Pipeline. July 2011.

Introduction: Why?

Source: Eagle et al. “Greenhouse Gas Mitigation Potential of Agricultural Land Management in the United States.” T-Agg Report. March 2011.

Introduction: Why?

Future of offsets:• Domestic

–Forestry–Agriculture

• International–Household scale

Photo Source: Adam Ferguson, The New York Times

Introduction: Why

• Reduce transaction costs– Simplify monitoring and verification– Facilitate financing at scale– Streamline commercialization

• Reduce risks– Project activity– Buyer

Outline

• Introduction• Methods of aggregation

– Case Studies• Lessons learned• Next steps

Methods of Aggregation

1. Programmatica) CDM PoA b) VCS Grouped Projectsc) CAR Forestry Aggregation Guidelines

2. Business Model Based3. Sectoral

Clean Development Mechanism’sProgramme of Activities (PoA)

PoA

Coordinating and Managing Entity

CPA

CPA CPA

CPA

PoA

DesignDocuments

Host Country Approval

Validation Registration Monitoring and Verification

Credits Issued

CPA Design Document Verification

Verification

Registration Issuing Credits

Registering the PoA

2nd CPA

3rd CPA

Including new CPAs

CPA Design Document

PoA: Key distinction from bundling

PoAs allow for• Temporal flexibility

– 28 years to include new CPAs • The use of small-scale methodologies

at scale– Scale measured at the CPA-level

PoA Pipeline• 8 registered PoAs, with 73 projects at

validation– 50% = “household scale”– 90% = small-scale methodologies

EE de-mand side

35.4%

Waste28.0%

Household Solar14.6%

Hydro6.1%

Other15.9%

Source: Fenhann, Jorgen. CDM Pipeline. March 2011.

PoA Barriers

• Enforcement– Verifier Liability for Erroneous Inclusion

• Additionality– CPA or PoA level?

PoA Case Study:Sadia Brazilian Swine Digester

• Sadia- Brazil’s largest meat producer• Scale: 1,050 swine digesters, delivering

1 million CERs/year– (25 swine digesters in US)

• Methodology: Small-scale CDM• Revenue: Carbon only

PoA Case Study:Sadia Brazilian Swine Digester

Financing-

Brazilian Development Bank lends

$38 million in debt

Carbon Market

-European

Carbon Fund purchased 2.7 million

CERs at fixed price

Swine Producers

PoA Case Study:Cool NRG CFL Distribution

• Cool NRG- Australian efficiency company

• Scale: 1 million CFLs distributed per CPA, delivering 24,000 CERs/year– 30 CPAs planned in Mexico, 720,000

CERs/year• Methodology: Small-scale CDM• Revenue: Carbon only

VCS Grouped Projects

Verifier Includes New Project in Geographic Area

Verifier determines project meets geographic area. New projects share crediting period and baseline scenario of initial project.

Initial Project Defines a Geographic AreaProjects in this area share same regulatory framework, emissions

factors, baseline scenario,

Project ValidationNormal VCS approval process, but ...

CDM PoA vs. VCS Grouped

• PoA– Program of

independent projects

• Grouped Projects – Many independent

projects working together as one

CDMPoA CPA

CPA CPA

CPA

VCSGrouped

CPACPA

CPACPA

VCS Pipeline

• 5 renewable projects in China and India

• 17,000 – 770,000 credits/year

CAR’s Aggregation Guidelines

• <5,000 acres• Transaction cost

reduction– Less frequent

verification– Statistical

certainty of inventory established at aggregated rather than individual project level

CAR’s Aggregation Guidelines

Transaction costs

Unaggregated Aggregated Rational

Preparing forest inventory

$30,000 $3,500 Unaggregated = 358 inventory plots Aggregated = 45 plots

Updating forest inventory

$100,000 $30,000

On-site verification from 2016 to 2070

$150,000 $75,000 Unaggregated = 10 on-siteAggregated = 5 on-site

Desk review from 2016 to 2070

$140,000 $50,000 Unaggregated = 55 desk reviews Aggregated = 21 desk reviews.

Total Cost $420,000 $158,500

Cost Savings: A 2,000 acre landowner joins a 9 project aggregation pool; nominal costs for 2016 through 2070

CAR’s Aggregation Guidelines

3,000 acre landowner generates 270,000 carbon credits at $6/credit• Carbon NPV Unaggregated: $800,000• Carbon NPV Aggregated: $950,000

Aggregation = 20% increase in carbon value

Source: “Aggregated price savings of CAR’s Forestry Aggregation Guidelines.” Steve Dettman, Ecotrust, Portland, OR: May 11, 2010.

CAR’s Aggregation Guidelines:Enforcement

CCX’s Soil Carbon Protocols

• CCX’s Conservation Tillage and Conversion to Grassland and Rangeland Protocol

• Minimal guidance to aggregators

CCX’s Soil Carbon Protocols• Simplified, streamlined process for

qualifying and quantifying a project• Permanence – five years, 10-20%

discount for later reversals– Essential to land leasers

CCX’s Soil Carbon Protocols• Monitoring – Standardized, practice-

based regional crediting

Case Study: North Dakota Farmer’s Union CCX Soil Carbon

• Aggregator for the National Farmers Union

• From 2006 to 2010, the NDFU aggregated 3,900 producers with 5.5 million acres

• Sold $7.4 million credits under CCX

Case Study: North Dakota Farmer’s Union CCX Soil Carbon

Landowners1. Implement

practice2. Map acres online3. Fax standard

contract4. 10% are verified

Business Model Approach:Ducks Unlimited

• Pilot with no methodology

• North Dakota in 2008• 100 landowners with

50,000 acres of avoided grassland conversion projects

• DU pays for perpetual grasslands easement with USF&WS

• Additionality:– Bio economic model – 26%, or 13,000 acres, are

additional– 384,000 mtCO2e over 10

years

Photo Source: Amy Taborski. Ducks Unlimited. Sheridan County, North Dakota. June 2010.

Performance Risk• Aggregator can eliminate

performance risk too:

Source: Steven De Gryze, C-Agg,. March 29-30, 2011 Sacramento, CA.

Business Model Approach:AgCert

• Swine digesters in Brazil and Mexico• Between 2002 and 2008, AgCert

bundled over 816 project sites into 92 CDM project activities

• 3.5 million CERs/year• Examinership in 2008

– Single crediting period limited temporally dispersed projects

– Methodology delays disrupted needed credit generation and sales

Governmental Approaches:International Sectoral Crediting

Developing country contribution to global emission reductions

(supported and non-supported)

Credits/allowances for sale

Business as usual

Emission baseline

Time

GH

G E

mis

sion

s

Actual emissions

Image Source: Diamant, Adam. Opportunities and Challenges of Implementing Sectoral GHG Emissions Offsets Programs. EUEC 2011. Jan. 31st, 2011. Phoenix, Arizona.

Governmental Approaches:Domestic Sectoral Crediting

• Operated by USDA or state agency• Target specific commodity/sector in

specific region• Regional adjustments for

additionality, leakage, permanence, • Credit commercialization

– Retired for US inventory?– Price control reserve?– Sold to regulated entities?

Outline

• Introduction• Methods of aggregation

– Case Studies• Lessons learned• Next steps

Lessons Learned:Consider Aggregation UpfrontAggregation enables• Proportional additionality

assessments- discounts credits according to that project type’s general level of common practice.

Lessons Learned:Consider Aggregation UpfrontAggregation enables• Modeling

Source: Salas, William. Using Biogeochemical Process Models to Quantify Greenhouse Gas Mitigation from Agricultural Management Projects. Nicholas Institute for Environmental Policy Solutions, Report NI R 11-03. Page 22.

Lessons Learned:Reduce Risks

Lessons Learned:Reduce Risks

Lessons Learned:Reduce Risks

Outline

• Introduction• Methods of aggregation

– Case Studies• Lessons learned• Next steps

Next steps

1. Registries develop programmatic rules for US projects– Temporal flexibility– Additionality rules

2. USDA/P-Agg/other pilot US sectoral crediting

Questions for C-Agg RoundtableReport Feedback• What are the major gaps (methods, case studies, etc.) in the

information presented? • What are other potential next steps for ensuring successful

aggregation?Market• How focused should next steps be on a system that works within the

cap-and-trade framework? • Will aggregators be willing to absorb carbon market risks and insulate

landowners and buyers from risks? If not, what can be done to reduce the risks that all market participants face?

Protocol• What methods of aggregation are you considering for methodologies

and protocols that are not yet public?• Is aggregation being sufficiently considered as new agricultural

protocols are designed? If not, what changes need to be made?Modeling and Quantification• What changes need to be made to existing and emerging models to

prepare them for aggregation?• What sectors work particularly well for practice-based standardized

crediting rates (like those in the CCX soil carbon protocols)? What sectors require performance-based monitoring?

Thank you!

Peter WeisbergSenior Project AnalystThe Climate Trust

pweisberg@climatetrust.org(503)238-1915 x207