baselines and additionality

AIT

Baselines and Additionality

Sudhir SharmaAsian Institute of Technology

Bangkok, Thailand

24th March 2004

IGES – URC Workshop in Asia on Capacity Development for the CDMMarch 24 – 26 , 2004, Siem Reap, Kingdom of Cambodia

AITStructure of Presentation

What is baseline?

Important elements of Baseline– Identifying Baseline scenario– Estimating Baseline emissions– Addressing Leakage through BM

Analyzing additionality


AIT

What is Baseline?


AITWhat is Baseline? (1)

Baseline represents the status of a particular

activity/sector/economy in absence of a planned

intervention

Baseline – Is a hypothetical scenario

– Represents projection of system into future based on the

dynamics of the system

– Forms the basis for comparison between with and without

project/activity scenario.


AIT What is Baseline? (2)

E.g. Policy evaluation of Emission norms for Vehicles

Baseline: Transport related emissions is function of– Growth in vehicle stock

• Travel demand

• Income growth

• Public transport system

– Vehicular technologies and fuel type

• Fuel efficiency

• New fuels

• End-of-pipe measure

100102104106108110112114116118

2005 2006 2007 2008 2009 2010

No Policy Emissions - BaselinePost-Policy Emission


AIT

Important elements of Baseline Methodology (BM)


AITStructure of Approved Methodology (AM) EB has approved four methodologies to date

– Incineration of HFC23– Landfill Gas capture and flaring where baseline set by

public concession contract– Simplified financial analysis for landfill gas capture project– Biomass based power generation for grid electricity


AITCommon structure of AM

Applicability – conditions under which the BM can be used– AM001 – Applicable to HFC 23 waste stream from HCFC

production in countries with no regulations on HFC 23 emission

Emission reduction – description of baseline emission, project emission and leakage; description of formulae used for reductions– AM001 – emission reduction is amount of waste HFC 23 actually

destroyed less the emission from process of destroying HFC 23 and leakage of the destruction process

Baseline – emission in absence of proposed project, formulae and important parameters in defining the baseline emissions– AM001 – baseline is destruction of waste HFC23 required by

regulations– Gives parameter to ensure the baseline waste production can’t be

manipulated upwards



Additionality – steps to prove additionality of project– AM001 – (a) regulations don’t require destruction of HFC23

& based on economic analysis (project doesn’t result in any financial benefits) – project is additional; (b) amount of destruction of HFC23 under project is more than that in baseline

Leakage – identifies source of leakage and method to estimate the emissions leakage– AM001 – (a) emission from production of purchased energy

(Steam and electricity) for destruction process and transportation of waste generated from destruction process; (b) formulae



Three components of BM emerge– Additionalty tests and steps– Formulae and parameters for estimating baseline emissions– Description of leakage sources and formulae

An important element of BM – based on comments of Meth Panel (MP) on submitted NM – BM should describe process for identifying baseline options or

scenarios– Baseline should be in line with project boundary – system boundary

too is an important component of the boundary • GHGs• Emissions from all sources under control of Project proponents

– Uncertainty and its addressal by BM• What are the uncertainties in baseline?• How robust is the BM to absorbs changes in Baseline emissions that

might arise due to these uncertainties?


AITImportant elements of BM

Procedure for identifying baseline scenarios/ options– A clear delineation of project boundary & system boundary

Steps to evaluate “additionality” of project

Description of the steps to estimate baseline emissions – formulae/algorithm

Steps defining leakage and formulae/algorithm to estimate leakage – Project boundary plays an important role here too

AIT

Baseline Methodology:

Steps To Develop Baseline


AIT Step 1: Project Boundary

“Project boundary shall encompass all.. emissions by sources…. under the control of project participants that are significant and …. attributable to the CDM project activity (Para 52, MA)– All GHGs – the six gases listed in the KP (CO2, CH4, N2O, HFC, PFC,

SF6)– Physical boundary of sources of emissions – important element is

principle of control – most projects submitted the physical boundary of project

– Another important aspect is system boundary – or geographical scope of baseline options/scenario. E.g., Biomass power project supply to isolated grid – the analysis of baseline options will cover all possible sources that can supply to grid

An important aspect of boundary is the project description – that identifies the emission sources as well as the source of GHG reduction to assess the baseline option


AIT In a storage Hydro Power project, project boundary

(PB) should include the reservoir area. If reservoir area was a forest land in base case, exclusion of the reservoir area from PB may overestimate CERs of the Project

Step 1: Project Boundary


AIT Step 2: Selecting Baseline Scenario

The sources of emission within project boundary basis of identify the baseline options (AM001 – the project source of emission is destruction of HFC23 – therefore that alternative of HFC23 release in absence of project)

The system boundary is first stage screening of possible baseline options/scenarios (AM001 – The country is the system boundary for analysis )

The second level of screening for Baseline alternatives will be identified taking into account (Para 45(e), MA) :

– National/sectoral policies and circumstances, Sectoral reform initiatives (=> Alternative selected should meet regulatory requirements: efficient technology/fuel options mandated cannot be ignored – AM001 – as there is no regulation for destruction of HFC23 and there is no possible use of end product of destruction – therefore option is no action)


AITStep 2: Selecting Baseline Scenario

– Local fuel availability (=> reflecting feasibility – e.g., gas fired furnace is an possible alternative if the project area has access to gas)

– Power sector expansion plans

– Economic situation in the project sector( If the )

Baseline should not be backward looking for forward looking –the BM should explain the process of identifying baseline scenario/ options as well as how it takes into account national policies and circumstances


AITStep 3: Additionality Tests

First test if additional to regulation and/or common practice Consider the Proposed project (P) along with the list of baseline

alternatives

Note: Additionality test also helps identify baseline projects which will not be implemented due to regulation/ norms in sector

Perform Barrier Test

If P faces no barrier => Project Non-

AdditionalTwo or more alternatives

to P are identified as possible baseline

alternatives

If only one alternative is

identified choose that as baseline

Identify the baseline approach


AITStep 4: Selecting Baseline Approach

“…shall select from ….. one deemed most appropriate for project activity….. and justify the appropriateness” (Para 48, MA)

Baseline approaches:a. Using existing actual or historical emissionsb. Using emissions from a technology that represents an

economically attractive course of action, taking into account barriers to investment

c. Using average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental, and technological circumstances, and whose performance is among the top 20 per cent of their category.

Approach based on the identified baseline and baseline emission formulae – not on basis of additionality procedure


AITStep 4: Selecting Baseline Approach

AM001 – the additionality of project based on the economic analysis– The baseline approach is 48 (a) – existing actual or

historical emission – the baseline identifies continuation of the present status as baseline


AIT Step 5: Estimating Baseline Emissions

After identifying the approach – Develop the generic Steps for application of methodology

– Describe mathematical formulae for estimating emissions

Based on the Methodology identify – data and parameters required for the mathematical formulae (for

e.g., Efficiency, fuel energy content, fuel carbon content)

– Activity level for the proposed project

Baseline methodology should incorporate uncertainty – AM001 – in future HFC23 release could be regulated, the baseline

formulae incorporate regulation level parameter to account for future baseline destruction of HFC23 due to regulation


AIT STEP 5: Analyzing Leakage due to Proposed Project

What is leakage ? “Leakage is … net change of .. emissions by sources…. outside the project boundary ….. measurable and attributable to the …. project..”(Para 51, MA)

• E.g., emission related to biomass transport in biomass power projects

Leakages– Not in control of project participants– Can be both positive(removal of fossil fuel subsidy its effect on

demand cleaner fuels) as well as negative– Directly attributable to project activity

AM001-– Emission from production of steam and electricity used for

destruction of HFC23– Emission from transfer of sludge, produced during destruction of

HFC23, to waste disposal site


AIT

Additionality


AITAdditionality

Para 37d: The project is expected to result in a reduction …..in greenhouse gases that are additional to any that would occur in the absence of the proposed project activity– Emission reductions are

going to happen in a economy/sector/activity even without the CDM

– To be eligible for CDM Reduction should be over and above (“additional” to) those.

110

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1995 2000 2005 2010CO

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issi

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inde

x

Emission w/o CDMEmissions with CDMEmission past trend

Not additionalreduction

Refers to Modalities

and Procedures of the

Marrakech Accord

Additional


AITAdditionality

Para 43; “A CDM project activity…… additional if …. emissions….. are reduced below that would have occurred in absence of the ….project”

Emissions in absence of Project is “Baseline Emissions”

E.g.,– Proposed CDM project is coal

based Power, tech “A” – Replace planned coal project,

using technology “B”– Both are base load plants– Rest of system will behave in

exactly the same way

– EA < EB Project additional

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110

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2000 2005 2010

CO

2 em

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s in

dex

Planned Project (B)

Proposed CDM Project (A)


AITAdditionality

EA < EB necessary condition but not sufficient

10th meeting of EB stated, “as part of the basis for determining the baseline scenario an explanation shall be made of how, … a (proposed CDM) project activity is … not the baseline scenario”.

Therefore to meet the sufficiency condition, the proposed technology “A” should be demonstrated to be not part of baseline scenario.

This has to be demonstrated through the baseline methodology; i.e., the baseline methodology should show steps used in analyzing why the project is not a baseline option.


AITGuidelines for Additionality

According to EB, 10th Meeting,– Baseline methodology should demonstrate additionality– Types of suggested tools that can be used

• A flow chart or series of questions that lead to a narrowing of potential baseline options and/or

• A qualitative or quantitative assessment of different potential options (including CDM and baseline options) and why the non-project (“baseline”) options are more likely to be implemented; and/or

• A qualitative or quantitative assessment of one or more barriers facing the proposed project activity and/or

• An indication that the proposed “CDM” project type is not common practice (e.g., occurs in less than x% of similar project activity in the proposed area of implementation), and not required by a Party’s legislation/regulation. (“not mandatory”)


AITAdditionality

Clear evidence of analytical statements should be provided– E.g. if financial analysis is used – the method of financial

analysis as well as the data and parameters used should be clearly stated

– NM010 – projects uses Long Run Marginal Cost (LRMC) to prove additionality – but provides no information on calculation of LRMC – which was observed by Meth Panel

– General statement of existence of barrier no sufficient – proper procedure of analysis should be provided


AIT Additionality tests for Small Scale CDM Projects

Barrier A

Barrier B

Barrier C

Other Barriers

No

No

No

No

AdditionalProject

Non-additionalProject


AIT

baselines and additionality

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