IES offsets & opportunities

Th W ld B k i Vi Vi t D l t I f ti C t

Vietnam Blended Learning Program

The World Bank in Vietnam Vietnam Development Information Center

Carbon Offset & Carbon Finance Opportunities for Viet NamCarbon Offset & Carbon Finance Opportunities for Viet Nam

Proposed by: Proposed by:

Institute of Energy Science (Vietnam)Institute of Energy Science (Vietnam)UQ SMART UQ SMART –– The University of Queensland (Australia)The University of Queensland (Australia)

ScheduleSc edu e

Part 1 – Carbon Offsets?

Part 2 – The CDM & Other Standards

Part 3 – Carbon Markets

Part 4 – Carbon Finance

Part 5 Opportunities for VietnamPart 5 – Opportunities for Vietnam

Part 1 – Carbon OffsetsPart 1 Carbon Offsets

Carbon Offsets?Ca bo O sets

REDUCED EMISSIONS- energy efficiency

AVOIDED EMISSIONS- fuel switchenergy efficiency

- materials efficiency- pollution management- investment in new technologies

fuel switch- redesign business processes - onsite RE energy generation

OFFSET EMISSIONS- carbon, capture and storage- revegetation

- measured- modelled- verified- insured- revegetation

- soil carbon- forestry

Tonnes of CO2-eAVOIDED, REDUCED

or OFFSET

insured- registered- certified- traded- clearedcleared- settled- registered


PERMITS • Both 1 unit = 1tCO2e OFFSETS

• Auctioned by the government in accordance with

• Both financial instruments / assets

• Issued under carbon offset schemes for accordance with

the scheme cap / target

• Both may be used for compliance (subject to rules)

projects that sequester or avoid GHG emissions


VOLUNTARY

COMPLIANCE

7 Carbon Management OptionsCa bo a age e t Opt o s

Buy Auction Permits

Buy Secondary Market Permits

Shutdown Business

B k P it

Compliance Options

Exercise Abatement

Bank Permits

Options

Buy Offsets

Voluntary Options

Buy Offsets

Compliance OffsetsCo p a ce O sets

What types of offsets can a liable entity can a liable entity

typically use?

Compliance OffsetsCo p a ce O sets

CDM

Certified E i i

JI

Emission Reduction

LULUCF

Removal U it

Kyoto IET

Assigned A Emission

ReductionsReduction

UnitsUnits Amount

Units

Voluntary Offsetso u ta y O sets

What types of offsets can an entity typically use for entity typically use for

voluntary purposes?

Voluntary Offsetso u ta y O sets

CDM

Certified Emission

JI

Emission Reduction

LULUCF

Removal Units

Reductions Units

Voluntary OffsetsCase Study: National Carbon Offset

Standard

o u ta y O sets

Standard Many organisations claiming to be “carbon neutral”, “low carbon” etc for the

purpose of demonstrating CSR or exercising a competitive advantagepurpose of demonstrating CSR or exercising a competitive 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 Schemeand 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” The types of offsets that can be used to make a low carbon claim .

Voluntary OffsetsCase Study: National Carbon Offset

Standard

o u ta y O sets

The objective of NCOS is to “ensure the environmental integrity of the carbon offsets and carbon neutral products available in the Australian voluntary

Standard

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)(usually MACCs not used), given the cheap cost of offsets (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

Offsets: Registration - Retirement

2) Carbon offsets created (validated & issued

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 4d) Banked

3) Created in REGISTRY

market (ERPA)

5) Entity who is liable or engaging in voluntary action retires carbon offset unit from REGISTRY in

its name

E tit d it li bilit t b l i Entity reduces its liability or meets carbon claim

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 certificate or receipts), however increasingly, online registries are used to retire credits from the market.

Vintage - The vintage is the year in which the carbon reduction takes place.

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 proven to be ‘additional’ to g , p j pwhat 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 Financial Additionality: the project needs to go beyond BAU. A 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.

Important Concepts

“Baseline & Credit”

GHG emissions

ERUs / CERsgenerated

Emissions under project activity

Time

JI or CDM project

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 two businesses claim the same 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) (and may 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 are of a high quality and are real and measurable, especially in developing countries e.g. REDD.

Part 2 – The CDM & Other Offset StandardsPart 2 The CDM & Other Offset Standards

Joint Implementation (JI)

KYOTO PROTOCOLKYOTO PROTOCOLflexible abatement mechanisms

Clean Development Joint Implementation International Clean DevelopmentMechanism (CDM)

p(JI)Emissions

Trading

Assigned Amount Units (AAUs) Certified Emission Reductions (CERs)

Emission Reduction units (ERUs)

Joint Implementation (JI)

d b ‘ k ’ h h l Approved by government in ‘tracks’ rather than continuously

Very few projects, but potentially large amounts of credits (industrialised countries only)

d “h ” f S d fl S b Big issues around “hot air” from Soviet projects and influence on EU-ETS carbon price

No biosequestration projects….

Bi d b h h k ( R i ) ERU h ld b ‘ lid’ Big debate on whether new non-kyoto country (e.g. Russia) ERUs should be ‘valid’

Clean Development Mechanism (CDM)

KYOTO PROTOCOLKYOTO PROTOCOLflexible abatement mechanisms

Clean Development Joint Implementation International Clean DevelopmentMechanism (CDM)

p(JI)Emissions

Trading

Assigned Amount Units (AAUs) Certified Emission Reductions (CERs)

Emission Reduction units (ERUs)


Recap: Article 12 of the Kyoto Protocolp 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 EmissionsReductions (CERs)


What is a CER?


Developed to Developing Nation


Types of Projects


Types of Projects

CERs until 2012 – project type CERs until 2012 – country


Developing a CDM project – 8 Criteria1. 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 sustainabilityrequirements.

3 “real measurable and long-term benefits” on climate change mitigation3. real, measurable and long term benefits on climate change mitigation

4. GHG reductions “additional to any that would occur in the absence ofthe project activity”.

5. Must not result in diversion of Overseas Development Assistance

6 Both public and private entities can participate subject to EB supervision6. Both public and private entities can participate, subject to EB supervision

7. Nuclear excluded. EU-ETS no more HFC destruction from mid 2013.

8. Is your project based in an LDC?


Developing a CDM project – Participants

Project Developer – usually private entity i.e. consultant 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


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 methodologythe PDD must use an approved baseline and 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.



3. Registration- if the DOE is satisfied a request is made for registration of the project if the DOE is satisfied, a request is made for registration of the project

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 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.



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 following verification, DOE certifies to the EB that the verified no. of

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.


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 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 gadditionality.

A complex and difficult step in the CDM process


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Developing a CDM project – Costs

Project developer $30 – 100K+

DNACER purchaser e.g. liable entity

$30 – 100K+Legal costs$10 – 100K

DOE

CDM EB Project developer

$10 – 15K+

DOE

CDM EB

ERPA$10 – 15K+ / annum

Secondary market

2% of CERs / annum

market 2-5% brokerage


Developing a CDM project – Risk

Counterparty Project CDM Process

Delivery Enforcement

credit country Registry/ITL shortfalls mechanism- credit- country- authority- language

- country- approvals- compliance- ownership

- Registry/ITL- fees/charges- methodology- EB discretion

- shortfalls- failures- price- allocation

- mechanism- leverage- language- lawg g

- law- reputation- bundling

pstructureO&MMRV

- issuance- timing- post 2012

- Registry/ITL- payment

- decision-maker- conflict of laws- collection

- currency- expropriation- immunities- industry

- science- performance- catastrophe

- LoAs- additionality

- industry- liabilities- tax


Developing a CDM project – ERPAp g p j

A transaction that transfers carbon credits between two d h lparties under the Kyoto Protocol.

The buyer pays the seller cash in exchange for carbon credits, thereby allowing the purchaser to emit more carbon dioxide credits, thereby allowing the purchaser to emit more carbon dioxide into the atmosphere.

The standards for this agreements are outlined by the International E i i T di A i ti Emissions Trading Association.

CER ERPA template available at: CER ERPA template available at: http://wbcarbonfinance.org/Router.cfm?Page=DocLib&CatalogID=28153


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 manipulatedy p 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.

Part 3 – Carbon MarketsPart 3 Carbon Markets

Carbon Markets

160

Was a growing market…

120

140

80

100

Other offsetsSecondary CDM

60

80 Secondary CDMPrimary CDMOther allowancesEU ETS Allowances

20

40

EU ETS Allowances

0

20052006

200720072008

20092010US$176b in 2011

Carbon Markets

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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,

greener product) g p )- 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…

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Carbon Markets

How big is the offset market?

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Carbon Markets

Price to remain a significant hurdle for some time

Part 4 – Carbon FinancePart 4 Carbon Finance

Carbon Finance

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 also deliver co-benefits such as biodiversity conservation and poverty alleviation e.g. REDD+

W ld B k d th UN tti th b i f th b k t d World Bank and the UN setting up the basis for the carbon market and 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 broad-ranging ‘offset’ scheme, however issues with MRV and permanence.

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 d i $30 billi f h i d 2010 2012agreed, encompassing $30 billion for the period 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 g g p

The Green Climate Fund was designated as an operating entity of the financial mechanism of the UNFCCC, in accordance with Article 11 of financial mechanism of the UNFCCC, in accordance with Article 11 of the Convention.

Administered via Nationally Appropriate Mitigation Actions (NAMAs) Administered via Nationally Appropriate Mitigation Actions (NAMAs), REDD+, buying up CERs and other schemes.

Carbon Finance

NAMAsNAMAs

http://www.nama-database.org/index.php/Chile

Carbon Finance

World Bank Carbon Funding

PROJECT NAME VALUEThe Prototype Carbon Fund (PCF) $219.8MTh C i D l C b F d (CDCF) $128 6MThe Community Development Carbon Fund (CDCF) $128.6MThe BioCarbon Fund (BioCF) T1 = $53.8M T2 = $36.6M

The Italian Carbon Fund (ICF) $155.6MThe Danish Carbon Fund (DCF) €90MThe Spanish Carbon Fund (SCF) T1 = €220M T2 = €70M

The Umbrella Carbon Facility (UCF) T1 = €799.1M T2 = €112.5M

The Carbon Fund for Europe (CFE) €50MForest Carbon Partnership facility (FCPF) $447MCarbon Partnership Facility (CPF) €143.5Mp y ( )Partnership for Market Readiness (PMR) $70M

Source: The World Bank Carbon Finance Unit (2013): http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTCARBONFINANCE/0,,contentMDK:22974424~menuPK:5213558~pagePK:64168445~piPK:64168309~theSitePK:4125853~isCURL:Y,00.html

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).

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

Part 5 – Opportunities for Vietnam Part 5 Opportunities for Vietnam

Viện Khoa học năng lượng (Việt Nam)Viện Khoa học năng lượng (Việt Nam)UQ SMART UQ SMART –– The University of Queensland (Australia)The University of Queensland (Australia)

IES offsets & opportunities

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