14 carbon trading & finance - joy goco

7/28/2019 14 Carbon Trading & Finance - Joy Goco

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Clean DevelopmentMechanism (CDM)

Overview, DNA process andCurrent Project Activities

Philippine Designated National Authority for CDM


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OVERVIEW

OUTLINE

Background (UNFCCC, KP)

Overview of the Clean DevelopmentMechanism (CDM)

State and Trends of the Carbon Market

Prerequisites for CDM Participation

The Philippine DNA for CDM


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UNFCCCNoting that:

the LARGEST SHAREof historical and current GHG emissionsoriginatedin developedcountries,

the PER CAPITA EMISSIONS indeveloping countriesarestill relatively LOWand

the share of global GHG emissions from developing countries willGROW to meet their social and development needs,

Developed countries:

have the obligation to take thelead in combating climate

change and the adverse effectsthereof &

have commitments to providefinancial resources, including forthe transfer of technology, for

developing countriesCSE India presentation


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KyotoProtocol: Taking Root 174 Countries & the EEC have

ratified (as of June 06, 2007) =61.6% of total carbon dioxideemissions, 1990 as the base yr

Entered into Force on 16 Feb 05

Developed countries toimplement domestic policiesand measures to achieve themandatory targets

Three (3) innovativemechanisms supplemental todomestic action:

- Joint Implementation

- Emission Trading

A legally binding instrument

that strengthens the UNFCCC bycommitting developedcountries which have accepted itto individual, quantified GHGemission and limitation targets(an average total cut in GHGemissions of 5% from 1990 levelsfor the period 2008-2012)

- Clean Development Mechanism

or CDM


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Clean Development MechanismSince the atmosphere is equally damaged by GHGemissions wherever they happen and equally helpedby cutbacks in emissions wherever they are made,the CDM, as a market-basedflexibility mechanism:

allows Annex I countries to earn certified emission

reduction units (CERs) that can be applied to partiallymeettheir GHGreduction commitments under the KP

whenever they undertake GHG-reducing projects thatcontribute to sustainable development in a non-AnnexI Party, where land, technology and labor are less costly, &

concomitantly result inreal, measurable, verifiableand long-termGHG reductions that are additional toany that would otherwise occur

Annex ICountries / Parties:UNFCCC Annex I list -developedcountries including

Economies in Transition

NON-Annex ICountries /Parties:developing countries not bound

by emission reduction targets


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CDM as a Market-based Mechanism

For Annex 1 countries:

Enables developedcountries to meet their

emission reductioncommitments in aflexible and cost-effective manner

As investors, developed

countries benefit byobtaining CertifiedEmission Reductionunits (CERs) for KPpartial compliance

For non-Annex 1 countries:

Assists developingcountries in meeting

their sustainabledevelopment objectives

As host countries,developing countries

benefit in the form ofinvestment, access tobetter technology, andlocal sustainabledevelopment


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CER: A special product

CER is a payment for the Project Developernot toproduce

- To reduce GHG emissions

Thus, the importance of special requirements

- Definition of baselines

- Calculation of GHG emissions reductions

- Monitoring of GHG emissions reductions


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Conditions for CDM Projects Assist Non-Annex I Parties in achieving SD Additional if GHG emissions are reduced below those that

would have occurred in the absence of the registered CDMproject activity

Annex I Parties are to refrain from using CERs generated

from nuclear facilities to meet their quantified GHGreduction targets Public funding from Annex I Parties must not result in the

diversion of ODA and separate from and not countedtowards their financial obligations under the UNFCCC andKP

LULUCF project activities presently limited to Afforestationand Reforestation

* PDD, Validation Report and Letter of Approval from HostCountry are required in order to be registered as a CDMproject activity


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Requirements for

participation in the CDM

Participate voluntarily

Establish a National CDM Authority

Ratify the Kyoto Protocol


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CDM Fees

Kinds of Fees Consulting fee for PDD production Fees to be paid to a Designated National Authority

(DNA) Fees to a Designated Operational Entity

(Validation, Verification) Fees to be paid to the UNFCCC

(Request for registration, Share of Proceeds) Placement / brokering fees for CER sales

Cash outlays for fee payment can be mademinimal Annex I (investor) country subsidy CER Buyer agrees to bear the cost Intermediaries absorb the cost


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CDM Project Activity Cycle

Annex I

Party

Host CountryNon-Annex I Party,

e.g. Philippines

NationalApproval

Project Implementation

Stakeholder / PublicConsultation


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Timescale

CDM processTime required

For regularproject

For small-scale project

Project Development:New methodology productionand approval

~ 6 months Usually notrequired

The PDD productiona 1-2 months 1-2 months

The DNA approval(Philippines)

20-25 workingdays

15-20 workingdays

ValidationUNFCCC public comments

1 month1 month

1 month1 month

Registration 8 weeks 4 weeks

aassuming ALL necessary information is available.


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CERs from a CDM Project Activity

CDM in Charts. IGES. July 2007.Photo fr www.vueweekly.com

A total emission capof an Annex I Party

GHGE

missionsProje

ction

GHGEmissions

BaselineScenario

ProjectScenario

CERs

Specific Place in aHost Party

Non-Annex I /Host Parties willbenefit from

project activitiesresulting in CERs

Annex IParty willget CERs

Host Party w/no emission cap

AcquiredCERs areaddedandemission

capincreases

SustainableDevelopment

CER = 1 metric ton of CO2-e


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State and Trends of the

Carbon Market


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GHG Emissions:

A new commodity is emerging Targets are expressed as levels of allowed emissions, or assigned

amounts, over the 2008-2012 commitment period, divided intoassigned amount units (AAUs)Annex 1 countries that have emission units to spare emissionspermitted them but not used - are allowed to sell this excesscapacity to Annex 1 countries that are over their targets

Other units which may be transferred under the emissions tradingscheme, each equal to one tonne of CO2: A removal unit of (RMU) on the basis of land use, land-use change and

forestry (LULUCF) activities such as reforestation An emission reduction unit (ERU) generated by a join implementation

project A certified emission reduction (CER) generated from a CDM project

activity

European Union Allowance (EUA) Carbon credits: both an environmental and a financial asset

Environmental asset: reducing carbon emissions which cause globalwarming & climate change

Financial asset: being bought and sold in emerging carbon markets


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Price and Payment

Price

Determined by supply and demand

No official prices

Most observers agree that issued CERs have asimilar value to EU ETS (EU Emissions TradingScheme) Allowances


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Price and Payment

Contract Types and Pricing

Type ContractCER

DeliveryPayment Pricing

I Now Immediate Immediate No discount

II Now FutureFuture (against

delivery)Some

discount

III Now FutureImmediate

(pre-payment)Substantial

discount


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Price and Payment

Payment-against-delivery contracts

Most common arrangement under currentpractice

No principal risk for buyer even in case ofnon-delivery (cf. pre-payment contracts)

However, the buyer sustains reconstitutionrisk

In case of non-delivery, the buyer will haveto procure the contracted amount from othersources to stay in compliance. This could beexpensive.


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Price and Payment

Buyer Risks for Payment-against-delivery contracts

Projectstatus

CDMqualification

risk

Projectimplementation

risk

DiscountingPrice

example

CERs issued No No No USD 20

Registrationcompleted No Yes Some USD 10

No PDD Yes Yes Heavier USD 5


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Strategy for Sellers

Depends on several factors:

Up-front cash needs Ability to carry out CDM steps

(with or w/o CDM professionals) Future price projection/minimum price

expectation

At what level are you willing to lock in theprice under a payment-against-deliverycontract?


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Prerequisites for CDM participation Participation in CDM is

voluntary

A non-Annex I Party mayparticipate in CDM if it is aParty to the Kyoto Protocol

Parties participating in theCDM shall set up adesignated nationalauthority (DNA) for CDM

Climate Change Convention

Date of signature

Date of ratification

Date of entry into force

12 June 1992

2 August 1994

31 October 1994

Kyoto Protocol

Date of signature

Date of ratificationDate of entry into force

15 April 1998

20 November 200316 February 2005

Executive Order No. 320, series of 2004

Date of signature and

effectivity

25 June 2004

Promulgation of the Rules andRegulations Governing the

Implementation of EO No. 320

Date of signature

Date of effectivit

31 August 2005

7 Se tember 2005


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Philippine DNA for CDM

CDM SteeringCommittee

CDMSecretariat

DENRSecretary

TEC for Energy-RelatedProject Activities

TEC for Afforestation &Reforestation Project

Activities

TEC for WasteManagement Project

Activities

FMB-DENR

EMB-DENR

EMB-DENR

DOE

Chairperson DENR USecand an alternate

Members and alternates:

Philippine DOE, DOST,

Private Sector, NGO

Organizational Structure


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CDM NATIONAL APPROVAL PROCESSBASIC STEPS

Project Application Monitoring

Step 1

Project

Application

Step 2

Project

Evaluation

Step 3

Project

Endorsement

Step 4

Project

Approval/

Non-Approval

CDM Steering

Committee

TECProject

Proponent

DNA Head

(Secretary

of DENR)

CDM Secretariat


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THANK YOUFor your questions / queries:

CDM HelpdeskDNA - CDM Secretariat Office

Environmental Management Bureau

2/F, HRDS Building, DENR Compound,

Visayas Avenue, Diliman, Quezon City

T: (+63-2) 920-2251; F: 928-4674

www.cdmdna.emb.gov.ph

[email protected]

[email protected]

14 carbon trading & finance - joy goco

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