programme of activities: challenges and opportunities

36
Lima, Perú, October 22 nd , 2009 Programme of Activities: Challenges and Opportunities IV Seminario Internacional: Mercado del Carbono Presented by Alberto Carrillo Pineda South Pole Carbon Asset Management Ltd.

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Programme of Activities: Challenges and Opportunities. IV Seminario Internacional: Mercado del Carbono Presented by Alberto Carrillo Pineda South Pole Carbon Asset Management Ltd. Lima, Perú, October 22 nd , 2009. Introduction. - PowerPoint PPT Presentation

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Page 1: Programme of Activities: Challenges and Opportunities

Lima, Perú, October 22nd, 2009

Programme of Activities: Challenges and Opportunities

IV Seminario Internacional: Mercado del Carbono

Presented by Alberto Carrillo PinedaSouth Pole Carbon Asset Management Ltd.

Page 2: Programme of Activities: Challenges and Opportunities

Introduction

The programmatic approach under the CDM has been received with great optimism among stakeholders in the carbon market for a number of reasons:

Potential to increase the contribution of the CDM to the global mitigation efforts

Possibility of achieving economies of scale Potential to capitalise policy instruments and programmes

aimed at reducing emissions Potential to reach a number of actors that otherwise would

have very limited access to the carbon market (e.g. households, small industry, etc.).

Potential to increase the number of projects in regions and countries underrepresented in the carbon market (e.g. Africa)

Page 3: Programme of Activities: Challenges and Opportunities

However...

The programmatic CDM has taken too long to take off and realise its large potential...

Since EB 32 CDM PoA

# of projects that started validation 3425 14

# of projects that requested registration

784 1

# of projects that got registered 530 1

EB 47 - Modification of procedures and guidelines for the registration of

PoAsEB 32 - Fist adoption of procedures

and guidelines for the registration of PoAs

2007 2008 2009Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Page 4: Programme of Activities: Challenges and Opportunities

Abstract

Aim of this presentation

Drawing from the market experience accumulated by South Pole and other market participants, introduce the audience to the main administrative, financial and operative challenges to be potentially faced when implementing Programmes of Activities (PoAs) under the Clean Development Mechanism (CDM)

To discuss what has been done and what needs to be done in order to overcome such challenges

Page 5: Programme of Activities: Challenges and Opportunities

Content

Challenges inherent to the nature of a Programme of Activities

Regulatory and operative challenges Economic and commercial challenges Conclusions

Page 6: Programme of Activities: Challenges and Opportunities

Content

Challenges inherent to the nature of a Programme of Activities

Regulatory and operative challenges Economic and commercial challenges Conclusions

Page 7: Programme of Activities: Challenges and Opportunities

Challenges inherent to the nature of PoAs

Page 8: Programme of Activities: Challenges and Opportunities

Challenges inherent to the nature of PoAs

Logistics of implementation Documentation

– Centralised data storage– Access to user information (e.g. For monitoring)

Sampling / Monitoring– Usage / adoption patterns– Guidelines on sampling not yet available. Will have to be

followed during verification once they have been issued by EB– Remote sensing

Maintenance / Follow up / Replacement– Intensive field work– Disposal?

Ownership of carbon credits

Page 9: Programme of Activities: Challenges and Opportunities

Capacity building / education

Incentive scheme Free supply Discount Grant Subsidized loan

Mid and long-term management Effectiveness off programmes in the long term is still

uncertain

Selection of appropiate coordinating entities

Challenges inherent to the nature of PoAs (cont.)

Page 10: Programme of Activities: Challenges and Opportunities

Challenges inherent to the nature of PoAs (cont.)

OEMOEM

Development bank

Development bank

RetailerRetailer

Power UtilityPower UtilityEnergy saving agency

Energy saving agency

HouseholdHousehold

Destruction facility

Destruction facility

Freight companyFreight

company

Carbon developer

Carbon developer

Develops and purchase CERs

Coordinating entity

$

CERs

$

Provides subsidized loan

Pays back through

power bill

$

Commercialisation of fridge

Commercialisation of fridges

Delivery of new fridge and collection

of old fridge Destruction of old fridge

Page 11: Programme of Activities: Challenges and Opportunities

Content

Challenges inherent to the nature of a Programme of Activities

Regulatory and operative challenges

Economic and commercial challenges Conclusions

Page 12: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

The main regulatory and operative challenges faced by PoAs can be summarised as follows:

DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date

Page 13: Programme of Activities: Challenges and Opportunities

The main regulatory and operative challenges faced by PoAs can be summarised as follows:

DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date

Regulatory and operative challenges

Page 14: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

DOE liability for erroneous inclusion of CPAs

ProjectIdeaNote

ProjectIdeaNote

PoA DD&

CPA DD

PoA DD&

CPA DD

Host CountryApproval

Host CountryApproval Validation Validation Registration Registration

Inclusionof

furtherCPAs

Inclusionof

furtherCPAs

Monitoringand

Verification

Monitoringand

Verification

= services provided by South Pole

can be done by any DOE

Needs to be done by a DOE which hasn’t

performed PoA validation or inclusion

of any CPA

Page 15: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

DOE liability for erroneous inclusion of CPAs

ProjectIdeaNote

ProjectIdeaNote

PoA DD&

CPA DD

PoA DD&

CPA DD

Host CountryApproval

Host CountryApproval Validation Validation Registration Registration

Inclusionof

furtherCPAs

Inclusionof

furtherCPAs

Monitoringand

Verification

Monitoringand

Verification

= services provided by South Pole

can be done by any DOE

Needs to be done by a DOE which hasn’t

performed PoA validation or inclusion

of any CPA

DOE performing inclusion of any CPA is liable for erroneous

inclusion for 1 year after inclusion of the CPA and for 6 months after

each PoA verification

Page 16: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

DOE liability for erroneous inclusion of CPAs

Traditional CDM Programmatic CDM

DOE is liable for

Significant deficiencies limited to issues of

fraud, malfeasance or incompetence

Any error that disqualifies a CPA from

inclusion in a PoA

DOE is liable for 15 days after the date of receipt of the request for

issuance,

1 y after inclusion and 6 months after issuance

(i.e. all the crediting period)

Penalty

DOE has to pay the amount of CERs

estimated to have been issued in excess

DOE has to pay the total amount of CERs generated by the CPA

Page 17: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

DOE liability for erroneous inclusion of CPAs

ProjectIdeaNote

ProjectIdeaNote

PoA DD&

CPA DD

PoA DD&

CPA DD

Host CountryApproval

Host CountryApproval Validation Validation Registration Registration

Inclusionof

furtherCPAs

Inclusionof

furtherCPAs

Monitoringand

Verification

Monitoringand

Verification

= services provided by South Pole

•Several DOEs are including CPAs only if they performed validation.

•Inclusion is almost as detailed as traditional validation and hence no real economies of scale are happening.

Page 18: Programme of Activities: Challenges and Opportunities

The main regulatory and operative challenges faced by PoAs can be summarised as follows:

DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date

Regulatory and operative challenges

Page 19: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

ProjectIdeaNote

ProjectIdeaNote

PoA DD&

CPA DD

PoA DD&

CPA DD

Host CountryApproval

Host CountryApproval Validation Validation

= services provided by South Pole

Only at validation stage are project owners allowed to request for approval of multiple methodologies

– Risk of no approval cannot be minimised. In case the request is not approved by the EB, the project developer would have lost the money invested in taking the project up to validation

Approval may take more than a couple of months Request of approval can only be done by DOEs

– Requesting approval of multiple methodologies implies an additional external fee The combination of methodologies has to be used for each and every

CPA!!!– Not practical– e.g. Programm of biodigestors with and without energy use. Each component needs

a different meth combination

Request for approval of the application of multiplemethodologies to EB

Request for approval of the application of multiplemethodologies to EB

Page 20: Programme of Activities: Challenges and Opportunities

The main regulatory and operative challenges faced by PoAs can be summarised as follows:

DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date

Regulatory and operative challenges

Page 21: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

If a methodology, subsequent to being placed on hold or withdrawn, is revised or replaced by inclusion in a consolidated methodology, the PoA shall be revised accordingly. The changes shall be subsequently documented in a new version of PoA (e.g Version 1.1), validated by a DOE and approved by the Board.

It is highly probable that in 28 years, a small-scale methodology will undergo at least one revision

Hence, the project developer will have to incur more than once in validation / revalidation fees for the PoA

– Most widely used SSC-Meths• AMS.I.D Version 14

• AMS.I.C Version 15

• AMS.III.D Version 15

Page 22: Programme of Activities: Challenges and Opportunities

The main regulatory and operative challenges faced by PoAs can be summarised as follows:

DOE liability for erroneous inclusion of CPAs Programmes with multiple methodologies Revision of methodologies CPA start date

Regulatory and operative challenges

Page 23: Programme of Activities: Challenges and Opportunities

Regulatory and operative challenges

CPA start date Time gap between CPA start date and PoA registration can be

considerable. Potential loss of significant carbon income for 1st CPA may discourage project owners to be the 1st CPA

Given that CPAs cannot start before beginning of validation (e.g. once CPA-DD has been made) encourages work on projects in very early stages increasing the risk of working on projects that don’t happen in the end

ProjectIdeaNote

ProjectIdeaNote

PoA DD&

CPA DD

PoA DD&

CPA DD

Host CountryApproval

Host CountryApproval Validation Validation Registration Registration

Inclusionof

furtherCPAs

Inclusionof

furtherCPAs

Monitoringand

Verification

Monitoringand

Verification

= services provided by South Pole

Earliest start date of any CPAEarliest beginning of crediting period

for any CPA

Page 24: Programme of Activities: Challenges and Opportunities

Content

Challenges inherent to the nature of a Programme of Activities

Regulatory and operative challenges Economic and commercial

challenges Conclusions

Page 25: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Some of the most relevant economic and commercial challenges that PoAs face today are:

Lack of experience in the market Upfront costs associated with the development of a

PoA Coordinating entity selection and taxation issues

Page 26: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Some of the most relevant economic and commercial challenges that PoAs face today are:

Lack of experience in the market Upfront costs associated with the development of a

PoA Coordinating entity selection and taxation issues

Page 27: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Lack of experience in the market

- Lack of experience among DNAs, DOEs, CDM developers and the EB, which makes it impossible to predict the time it will take to register a PoA

- Only one programme registered so far- No availability of stories of success in the long term- Limited availability to experienced DOEs

- Only one DOE has completed validation of a PoA- In our experience, of 23 DOEs approached for quotation of

validation services for a PoA- Only 6 DOEs showed interest/capacity to undertake this project- Only 3 DOEs presented an offer

- Only 2 offers were serious enough (e.g. in terms of completeness, detailed proposal of services, etc.)

Page 28: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Some of the most relevant economic and commercial challenges that PoAs face today are:

Lack of experience in the market Upfront costs associated with the development of a

PoA Coordinating entity selection and taxation issues

Page 29: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Upfront costs associated with the development of a PoA

As previously discussed, the potential for economies of scale hasn’t been fully realised due to

– High validation fees from DOEs due to high-perceived risks and regulatory uncertainties (e.g. Liability for erroneous inclusion of CPAs)

– Lack of experience in the market• So far no single project developer has submitted more than one

CPA-DD for a PoA There is a high risk associated with not being able to

include enough CPAs into a PoA or not being to reach a volume that is high enough to reach breakeven point or expected IRR

There are not many international funds for financing of PoAs

Page 30: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Upfront costs associated with the development of a PoA

Traditional CDM(000 EUR)*

PoA(000 EUR)**

PIN 3 - 10 8 - 15

PDD / CPA-DD / PoA-DD

10 – 30 50 – 150

Validation 7 – 27 50

Administration N/A 100

Monitoring 3 – 6 30 – 100

Verification 10 - 17 10 - 30

* SNV, 2009** KfW, 2009

Page 31: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Critical size needed for different type of programmes *

Project TypeSize needed for

breakevenSize needed for IRR

of 15%

Distribution of CFL105,000 – 830,000

CFLs139,000

Cooking Stoves13,500 – 145,000

Stoves13,900 – 180,000

Stoves

Household biodigesters1,100 – 8,000 Biodigesters

1,300 – 21,000 Biodigesters

* KfW, 2009

Page 32: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Some of the most relevant economic and commercial challenges that PoAs face today are:

Lack of experience in the market Upfront costs associated with the development of a

PoA Coordinating entity selection and taxation issues

Page 33: Programme of Activities: Challenges and Opportunities

Economic and commercial challenges

Coordinating entity selection and taxation issues

Tax treatment and other liabilities for PoAs are unclear and may vary from country to country.

Unclear if and which host countries will issue LoAs and which restrictions will be imposed on the Coordinating Entity

Unclear how international PoAs will – be approved by host countries– be approved by the EB (what happens if

the EB rejects the PoA for one country? Will the whole process start again?)

Page 34: Programme of Activities: Challenges and Opportunities

Content

Challenges inherent to the nature of a Programme of Activities

Regulatory and operative challenges Economic and commercial challenges Conclusions

Page 35: Programme of Activities: Challenges and Opportunities

Conclusions

Programmatic CDM is promising but still many hurdles need to be removed if PoAs are to play a significant role in the global mitigation efforts

Our current learning curve is in very early stages. More changes are expected to come based on on-going learning

Costs are expected to go down as project developers and DOEs develop a better understanding on the risks involved in developing a PoA

More funding mechanisms are needed particularly for programms which are not viable on a pure commercial schemes

Page 36: Programme of Activities: Challenges and Opportunities

South Pole Carbon Mexico

Alberto Carrillo,Country Director

[email protected]

Campeche 290 -402Col. Hipódromo CondesaMexico06100Tel. (55) 5531 9013 (55) 5564 6793

Thank you for your attention

South Pole Carbon Asset Management Ltd.