gas flaring and cdm an environmental opportunity a methodological challenge christophe de gouvello...

Gas Flaring and CDM An Environmental Opportunity A Methodological Challenge

Christophe de GOUVELLO

Member of the MethPanel of the CDMWorld Bank, Energy Division for Africa - AFTEG

Views expressed by the author are not representing neither MethPanel nor WB positions

Summary of the Presentation

I. CDM Principles and Project Cycle

II. Implementation of the CDM: – Where we stand

III. Gas Flaring and CDM : – A major issue, comparable in size to HFC 23

IV. CDM and GGFR:– Toward Synergy ?

I

CDM Principles and Project Cycle

Reduction of Emissions achieved by a Project compared to the scenario without CDM

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15Years of operation of the project

CO

2 E

mis

sio

ns (

in k

tCO

)

0

50

100

150

200

2

Baseline Emissions(to be determined ex ante)

Emissions of the CDM project (to be monitored along crediting period)

Volume ofCertified Emissions Reductions (CER)

Methodologies required for : • Determination of Baseline Emissions• Monitoring CDM Project Emissions• Calculation of Emission Reductions

A key concept: ADDITIONALITY

• 1 CER = 1 more ton CO2 emitted in Annex 1 countries• Only emission reductions that are ADDITIONAL to emission

reductions that would have occurred without CDM Not all “Emission Reductions” are eligible to CDM

Ex: least cost hydro may or may not be eligible

Additionality established on the basis of:• Financial Analysis : Additional cost, lower IRR, etc… OR:

• Barriers preventing the “clean” project to take place:– Difficulties to achieve financial closure (no long term commercial loans)

– Technology Risk: first of kind in the country (high pressure boilers Cogen)

– Social / market acceptability (scavengers resettlement for landfill gas to power)

– Etc.

CDM Executive Board

►Approves Baseline and Monitoring Methodologies►Accredits the Certifiers (Operational Entities)

Designed Operational Entities

Project Host

Country

►Forwards the Application for Validation and Registration

► validation report and registration application

Project Developer

►Letter(s) of Approval by Participant Countries

►Calculates "Baseline" and prepares a PDD (Project Design Document) using an Approved Methodology

►Registers projects validated by OEs

►Validate proposed CDM projects and forward applications to EB for registration

Cycle Before Project

CDM Executive Board

►Approves Baseline and Monitoring Methodologies►Accredits the Certifiers (Operational Entities)

Designed Operational Entities

Project Host

Country

►Forwards the Application for Validation and Registration

► validation report and registration application

Project Developer

Project Developer andHost Country

►Shares issued CERs according to the agreement between

► Letter of Approval

►Calculates "Baseline" and prepares a PDD using approved Methodology

►Monitor Emissions during the project and calculates Emissions Reductions

►Requests validation of Emission Reductions to get the CERs

►Registers projects validated by OEs

►Issues the Certificates (CERs)

►verification & certification report and request issuance of credits (CERs)

►Validate proposed CDM projects and forward applications to EB for registration

►Verify and certify emissions reductions

Cycle during Project

Project Host

Country

Project Developer

Project Developer andHost Country

►Shares issued CERs according to the agreement between

►Letter of Approval

►Calculates "Baseline" and prepares a PDD using approved Methodology

►Performs Monitoring of Emissions during the project and calculates emissions reductions

Carbon Market Place

Carbon Funds>30, 10

inside WB

Direct Sales

Purchase Agreements

CERs

CERs

$

$

+ Technical Assistance for CDM project cycle`(WB)Credits

(CERs)for Sale

Carbon Finance

gives value to

Carbon Credits (CERs)

generated by

CDM Eligible Investment

Projects

II

Implementation of the CDM

Where we stand

Regulatory Bodies of the CDM

CDM Executive Board ►Approves Procedures and Baseline and

Monitoring Methodologies

METH PANELReview, improve and consolidate

proposed methodologies

Prepare Technical Decisions for approval by Executive Board

recommendations

More than 200 proposed methodologies processed so far

Mr. Rajesh Kumar Sethi (Chair)

Mr. Jean-Jacques Becker (Vice-Chair)

Mr. Amr Osama Abdel-Aziz

Mr. Felix Babatunde Dayo

Mr. Juerg Fuessler

Mr. Christophe de Gouvello

Mr. Michael Lazarus

Mr. Jan-Willem Martens

Mr. Vijay Kumar Mediratta

Mr. Daniel Perczyk

Mr. Braulio Pikman

Mr. Ashok Sarkar

Mr. Roberto Schaeffer

Mr. Lambert Richard Schneider

Mr. Christoph Sutter

Mr. Massamba Thioye

Mr. Kenichiro Yamaguchi

Expansion of the regulatory framework of the CDMPace of releasing new approved Methodologies by Regulatory Bodies (EB+MethPanel)

R2

y = 0.0403x - 1524.4 = 0.9694

0

5

10

15

20

25

30

35

40

45

5/24/038/23/03

11/22/03

2/21/045/22/04

8/21/04

11/20/04

2/19/055/21/05

8/20/05

11/19/05

2/18/065/20/06

8/19/06

10

20

30

40

50

12/1

/03

2/1/

04

4/1/

04

6/1/

04

8/1/

04

10/1

/04

12/1

/04

2/1/

05

4/1/

05

6/1/

05

8/1/

05

10/1

/05

12/1

/05

2/1/

06

4/1/

06

Ch. de Gouvello - WB / AFTEG - May 2006

Member of the MethPanel of the CDM

Source: UNFCCC data

The Y axis has been

truncated at 50

Nb Proj under ACM0002







Nb Proj under AM0001















Nb Proj under AMS-I.C

Nb Proj under AMS-I.D

Nb Proj under AMS-II.B

Nb Proj under AMS-II.C

Nb Proj under AMS-II.D

Nb Proj under AMS-III.B

Nb Proj under AMS-III.D

Nb Proj under AMS-III.E


0

Each new approved methodology unleashes a new segment of CDM projects potential

Cumulative Number of CDM Projects per Methodology (projects that officially began validation process)

Cumul Nb CDM Proj that have alreadyapplied for Validation

-

50

100

150

200

250

300

350

400

450

500

550

600

650

700

750

01-D

ec-0

301

-Feb

-04

01-A

pr-0

401

-Jun-

0401

-Aug

-04

01-O

ct-0

401

-Dec

-04

01-F

eb-0

501

-Apr

-05

01-Ju

n-05

01-A

ug-0

501

-Oct

-05

01-D

ec-0

501

-Feb

-06












Nb Proj under AMS-III.D

Nb Proj under AMS-III.B

Nb Proj under AMS-III.E













Nb Proj under AMS-II.D

Nb Proj under AMS-II.C

Nb Proj under AMS-II.B

Nb Proj under AMS-I.D

Nb Proj under AMS-I.C

Ch. de Gouvello - WB / AFTEG - May 2006Member of the MethPanelSource: UNFCCC data

The exponential growth of the number of projects is a direct reflect of the timing of the processing and release of new approved methodologies by the EB/MethPanel. As a result, it can be expected that this growth may continue for a while.

Number of CDM projects that have already applied for validation

-

100

200

300

400

500

600

700

800

900

- 61 122 183 244 305 366 427 488 549 610 671 732 793 854

Nb of calendar days since Dec 1rst, 2003

Ch. de Gouvello - WB / AFTEG March 23, 2006Source: UNFCCC data

Dec. 1rst, 2003

The number of CDM projects that have begun or completed the

validation process increases as the following polynomial function of time

22 = 0.9904

y = 1E-06x3 - 4E-05x2 + 0.004x

R = 0.99

Nb of Projects

2004 2005 2006

Dec, 2006N>1,500

Annual value of project-based Emission Reductions Transactions (million USD)(up to 2012 vintages)

(Source: State and Trends of the Carbon Market 2006, Ph. Ambrsoi and K. Capoor, World Bank, 2006)

Already more than 5 billion dollars of North-South net transfer before end of 2012

However still some uncertainties for post 2012 (second commitment period)

Jan - March

III

Gas Flaring and CDM

Gas Flaring : A Major Issue for Kyoto/CDM

• Annual volume of natural gas being flared by non Annex 1 > 250MtCO2eq/year (out of venting)

Comparable to the total volume of committed emission reductions by EU 15 under the Kyoto Protocol for 2008-2012 (~ 317MtCO2eq/year)

Comparable to the maximum emission reductions that can be achieved through HFC23 CDM projects (290MtCO2eq/year)

More than 90 percent of venting and flaring occurs in fewer than 15 countries, most of them Non-Annex 1

Possible CDM activities related to gas flaring / venting reductions

1. Gas Flaring to Pipeline2. Gas Flaring to Power3. Gas Flaring to Heat4. Gas Flaring to LNG5. Gas Flaring to LPG6. Gas Flaring to Feedstocks (i.e. methanol, ethylene,

ammonia)7. Gas Flaring to Re-injection8. to 13. The same 7 categories but using Vented Gas 14. Improving flares efficiency to reduce CH4 content of flares

And any combination of the above activities…

Current Gas Flaring CDM Pipeline

• So far, there are only two approved methodologies

AM0009 : for “Gas Flaring to Pipeline” AM0037 : for “Gas Flaring to Energy or

to Feedstock”

• 15 different projects in the current UNFCCC official pipeline (validation or registration stage)

AM0009 = 14 ; AM0037 = 1

Current Gas Flaring CDM Pipeline

9,247 MtCO2 69,274 MtCO2

# Title ktCO2/yr . Credit start 2012 ktCO2Host country

1 Use of Recovered Gas for Methanol Production 2,356.03 01-May-01 23,560 Equat. Guinea

2 Flare gas recovery project at Hazira Gas Process Comp, (ONGC) 73.58 01-Sep-06 466 India

3 Gas flaring reduction project at Cauvery Asset, (ONGC) 33.36 01-Sep-06 211 India

4 Gas flaring reduction project at Mumbai High, (ONGC) 201.34 01-Sep-06 1,274 India

5 Gas flaring reduction project at Ankleshwar Asset, (ONGC) 136.64 01-Sep-06 865 India

6 Gas flaring reduction project at Assam Asset, (ONGC) 21.12 01-Sep-06 134 India

7 Gas flaring reduction project at Rajamundry Asset, (ONGC) 26.85 01-Sep-06 170 India

8 Gas flaring reduction project at Neelam and Heera Asset, (ONGC) 109.46 01-Sep-06 693 India

9 Flare gas recovery project at Uran plant, (ONGC) Limited 96.35 01-Sep-06 610 India

10 Gas flaring reduction project at Mehsana Asset, (ONGC) 16.74 01-Sep-06 106 India

11 Gas flaring reduction project at Ahmedabad Asset, (ONGC) 13.04 01-Sep-06 130 India

12 Recovery of associated gas Kwale oil-gas process plant, Nigeria 1,496.93 16-Oct-06 10,521 Nigeria

13 The Ovade Ogharefe Gas Capture and Processing Project 2,531.70 01-Jan-07 14,505 Nigeria

14 Al-Shaheen Oil Field Gas Recovery and Utilization Project 1,457.81 01-Jan-07 9,120 Qatar

15 Rang Dong oil filed associated gas recovery and utilization (NM26) 677.00 01-Dec-01 6,910 Vietnam

Methodological Challenges

• Complexity of technical configurations:(i) Boundary determination and emissions calculation in case of complex projects where GFVR activities are only one component of a larger investment;(ii) Variability of gas composition, etc.

• Additionality: (i) Economics of these projects :

May have different sources of direct (electricity sales) or indirect (benefits of re-injection for improving oil extraction) revenues, only one component of a larger project.

(ii) Nature and Vintage of Regulations and Policies

Additionality Issues

• Some gas flaring/venting reduction (GFVR) projects are “low hanging fruits” that incur immediate high benefits (i.e. certain re-injection projects)

• However, some GFVR projects require costly multi-stakeholders undertakings that are not attractive enough compared to more profitable investment opportunities (i.e. expanding or developing new oil fields)

Additionality Versus Regulations & Policies

• Decision of the Executive Board on National and/or Sectoral Policies (EB22):“ National and/or sectoral policies or regulations under paragraph 6 (b) that have been implemented since the adoption by the COP of the CDM M&P (decision 17/CP.7, 11 November 2001) need not be taken into account in developing a baseline scenario (i.e. the baseline scenario could refer to a hypothetical situation without the national and/or sectoral policies or regulations being in place)”

• Regulations/policies alone may not be able to overcome barriers that prevent GVFR projects to happen

• CDM alone may also not be able to overcome barriers

Combination of CDM incentives and regulations/policies is often required, especially in Africa

CDM as DevelopmentHow does it apply to Gas Flaring Reduction ?

• While the host country may be dramatically lacking of Power, in number of cases, Gas to LNG is more attractive than Gas to Power

• In certain cases Gas to Power could have far more economic value than LNG market price

Host Countries can use CDM as a Policy Tool to align Gas Flaring Reduction with their own National Energy Strategy

• CDM has been negotiated in Kyoto to ensure the Host Country will have a sovereign control on CDM projects

CDM projects require a Letter of Approval from the Designated National Authority (DNA).

• Host countries can develop an Integrated Strategy to facilitate CDM Gas Flaring Reduction and National Energy Development

IV

CDM and GGFR

CDM and GGFR

• Since beginning, GGFR mission includes exploring how CDM can help overcome barriers that prevent flaring reduction projects

• Reciprocally, GGFR can contribute to overcome barriers that the CDM alone may not be able to overcome

• GGFR has been launched after November 11, 2001 activities promoted by GGFR could be seen as post-

Marrakech E – policies(adoption of the “Global Voluntary Standard for Global Gas Flaring and Venting Reduction”, elaboration of “Associated Gas Recovery Plans”, etc.,)

• Specific GGFR expertise can contribute to address CDM methodological challenges triggered by GFVR projects

CDM and GGFR : Complementary in promoting real additional Gas Flaring Reduction projects ?

gas flaring and cdm an environmental opportunity a methodological challenge christophe de gouvello...

Documents

cdm project cycle

proposed cdm projects

clean project

emissions reductionscycle

project cycle implementation

pdd project design document

wbcredits cers

registrationvalidation