Accessing Carbon Finance

Workshop on Landfill Gas Development and the CDM

Denpasar, Indonesia. September 5-7, 2005.

Sn. Environmental Specialist. Lasse Ringius. World Bank

Overview of Presentation

- Kyoto Protocol/CDM- Baseline and monitoring methodologies - CDM project cycle - Overview of global carbon market

Kyoto Protocol: Industrial countries must reduce GHG emissions by 5.2% compared to 1990 levels in the period 2008-2012

90

95

100

105

110

115

120

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

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EU15

Japan

Canada

-8%

-6% -6%

-2%-3%

+20%

+12%

+9%

EU15

(228 MtCO2e)

Canada

(159 MtCO2e)

Japan

(214 MtCO2e)

Other Western Europe+ New Zealand

(19 MtCO2e)

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19

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Kyoto Target

Current (2002) Emissions

Current Kyoto gaps

Annex BNon-Annex B

How to close the gap?

Joint Imple-

mentation

Emissions Allowance

Market

Clean Development Mechanism

Clean Development Mechanism (CDM)

• Project-based mechanism• Projects in developing countries earn

“credits” for reducing additional CO2, CH4, N2O emissions

• Verified GHG emission reductions have become an internationally tradable commodity Seller: Project investor Buyer: OECD governments and companies facing

GHG mitigation targets under the Kyoto Protocol

World Bank Carbon Finance Funds

Italian Carbon Fund. $15 million (open to Italian participation). Italian Multi-shareholder. Multipurpose.

Netherlands Clean Development Facility. $180 million.Netherlands Ministry of Environment. CDM energy projects.

BioCarbon Fund. $46.3 million (open). Multi-shareholder. JI and CDM LULUCF projects.

Community Development Carbon Fund. $128.6 million (closed). Multi-shareholder. Small-scale CDM energy projects.

Prototype Carbon Fund. $180 million (closed). Multi-shareholder. Multi-purpose.

Total funds under management: ~ US$ 875 mill.

Netherlands ECF

Netherlands European Carbon Facility. $60 million with IFC.

Netherlands Ministry of Economic Affairs. JI projects.Spanish

CF

Spanish Carbon Fund. $200 million (open to Spanish participation). Spanish Multi-shareholder. Multipurpose.

Danish CF Danish Carbon Fund. $64 million (open to Danish participation). Danish Multi-shareholder. Multipurpose.

How Indonesia can benefit from the CDM

Electricity

$$

Power Purchase Agreement

Certified Emission Reductions

$$

Emission Reduction Purchase Agreement

LFG to Energy Project

Organic methane (CH4)

• Forms when organic material decomposes under anaerobic conditions

• Avoidance of CH4 emissions through: Prevention Capture & Combustion

• When CH4 is avoided, CO2 is emitted

• But: CO2 originating from the decay of organic material is considered neutral to the atmosphere

ER estimationThe amount of credits that can be earned from

LFG projects is dependant upon several factors: Amount of waste; Waste composition (organic fraction); Waste management practices (e.g landfill

covering, compacting of waste, depth of landfill);

Moisture; Age of the landfill site; Efficiency of LFG collection system; and Amount of LFG collection mandated by law

A back-of-the-envelope-calculation*

• Methane generation potential of 1 ton of waste ranges from less than 100 to more than 200 m3, depending on the waste composition (IPCC Good practice guidelines 1996)

• With weight of methane equaling 0.7168 kg/m3: 150m3 of CH4 = 0.1 tons of CH4

• At a collection efficiency of 70%, 0.07 tons of CH4 can be recovered

• Multiplied with the GWP for CH4 (i.e., 21), one ton of waste yields 1.47 t CO2e emission reductions (ERs)

* based on gas yield methodology

Example: Carbon revenues from LFG recovery and methane

destruction

1 mio. tons of waste

6 mio. m3 LFG/yr

2,140 ton CH4/yr

1,500 ton CH4 recovered/yr

31,500 tCO2e US$ 140,000/yr* 21

1

2

Underlying assumptions:- 1 m3 LFG contains 357 g methane- 70% collection efficiency- US$ 4.50/t CO2e

Opportunities in the MSW sector

• CH4 is 21 times more potent than CO2. The “methane kick” significantly improves project economics.

• Projects which reduce CO2 or CH4 emissions against the baseline are eligible, e.g. Landfill gas recovery and utilization Composting Biodigestion

LFG methodologies

Approved LFG methodologies

Project Reference

Presented by

Salvador da Bahia (VEGA), Brazil

AM0002 ICF Consulting

Durban, Africa del Sur

AM0010 PCF

Nova Gerar (NCDF)

AM0003 NCDF /Ecosecurities

Onyx, Brazil AM0011 CERUPT

ABIL, India AM0012 PCF / IDFC

Biodigester

Elements of consolidated LFG methodology ACM0001

• Builds on approved methodologies for landfill projects

• Does not replace previously approved methodologies

• Applicable to both flaring-only and gas utilization projects

Elements of ACM0001 - Baseline

• Baseline is release of gas to the atmosphere, considering gas captured for other reasons (safety, regulations, contractual requirements)

• If no regulations apply, an Adjustment Factor shall be used and justified based on project context

• Approved additionality tool applies Step 2: Investment analysis:

• For flaring projects: a straightforward investment economics test

• For electricity generation projects: compare levelized electricity costs with least cost option in the system or show that IRR is below standard returns in the market.

Step 4: Common practice test can feed into Adjustment Factor

Elements of ACM0001 - Monitoring

• LFG projects allow for direct monitoring of emission reductions following the simple rationale that all methane captured would have been released in the absence of the project

• ER = (methane captured – x%) * 21with x = Regulations or Adjustment Factor

• Monitoring variables include: LFG recovered / flared through flow meters, methane content of LFG (continuous gas analyzer or periodic samples), flare efficiency, flare availability, electricity generation, etc.

• Furthermore: monitoring of regulations and adjustment of baseline scenario if regulations tighten

Which methodology to choose?

Methodology Electricity generation

?

Baseline

Salvador da Bahia (VEGA)

no Mandated collection in concession contract (20% eff)

Durban (PCF)

yes Existing safety curtain wells (7% eff., declining) +

monitoring of regulations

Nova Gerar (NCDF)

yes, but not credited

Collection efficiency in bidding documents + safety

margin (20%)

Onyx (CERUPT)

yes, but on-site use only

Coll. mandated by law or economically attractive (0%)

Consolidated Methodology

yes Existing Regulations or Adjustment Factor +

monitoring of regulations

MSW Project Examples in the Bank

Durban LFG-to-energy, RSA A. Sanghvi

Nova Gerar LFG-to-energy, Brazil

W. Kornexl

Shanghai LFG-to-energy, China

M. Anderson

Mexico LFG-to-Energy Umbrella

W. Vergara

Teheran LFG-to-Energy, Iran

A. Rotman

Olivarria LFG capture and flaring, Argentina

H. Terraza

Liepaja Energy Cell, Latvia A. Halldin

ABIL Biodigester, India D. Hoornweg