promoting investments for energy efficiency and renewable energy through carbon financing in china

Heinz-Peter Mang – Senior Adviser for Bioenergy and Climate Change

Chinese Academy of Agricultural Engineering (CAAE) / Ministry of Agriculture (MOA)

and

Markus Schwegler - Senior Advisor Climate Protection

The Administrative Centre for China's Agenda 21 (ACCA21) / Ministry of Science and

Technology (MOST)

Promoting investments for energy efficiency and renewable energy

through carbon financing in China

“International Conference on Climate Change 2007”

Hong Kong 29 -31 May 2007

Table of Content

1. Is Climate Change real?

2. Climate Policy - Major milestones

3. Climate Change Mitigation - the Cleaner Development

Mechanism

4. Chinas CDM Potential and Opportunities

5. Climate Change Adaptation

Is Climate Change real?

The Climate Challenge - Impacts and Vulnerability

2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 4

Some quotes from latest press release

China warns of disasters from warming Tibet plateau (Reuters, 01.02.2007):

...Chinese scientists have warned that rising temperatures on the Qinghai-Tibet plateau will melt glaciers, dry up major Chinese rivers and trigger more droughts, sandstorms and desertification...

Food security at risk (China Daily, 04.01.2007):

...Global warming will negatively impact China's ecological, social and economic systems, especially farming, animal husbandry and the country's water supply…

China report warns of agriculture problems from climate change (International Herald Tribune, 03.01.2007):

...Typhoons, floods and droughts killed 2,704 people and caused economic losses of 212 billion yuan (€20.65 billion) in 2006...


The Fourth Assessment Report - Summary

With "90 percent" certainty the increase of average global temperatures since the mid-20th century is linked to the increase of manmade GHG in the atmosphere.

It is "likely" - in some cases "more likely " -- that manmade greenhouse gases have contributed to hotter days and nights, more heat waves, heavier rainfall, major droughts in more regions, stronger and more frequent cyclones…

11 of the last 12 years are among the 12 warmest years on record.


Stern Review on the Economics of Climate Change

One percent of global GDP must be invested to mitigate the effects of climate change; failure could risk a recession worth up to twenty percent of global GDP.

... "our actions over the coming few decades could create risks of major disruption to economic and social activity... on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century...”

(compiled by economist Sir Nicholas Stern for the government of the United Kingdom, released on October 30, 2006)


First National Climate Change Assessment Report

The Assessment started in 2002 under the guidance of the National Climate Change Coordinating Committee and 12 Chinese ministries and organisations.

The report is the result of a 4-year government study carried out by over 80 leading Chinese experts.

The Assessment was released on October 26th 2006 by the Ministry of Science and Technology (MOST), China Meteorology Administration (CMA), and the Chinese Academy of Sciences (CAS).


Climate Changes in China (over the last 100 Years)

Average temperature increased by 0.5-0.8°C (global average 0.6°C).

Temperature rise most significant in winter and spring (global trend).

Temperature rise is most obvious in North China and Tibet.

The growing season has prolonged (Tibetan Plateau, North China)

Average precipitation is increasing (year-to-year fluctuations).

Precipitation trends show major regional differences.

In most parts of West China, the annual average precipitation increased.

in North China and Northwest precipitation declined.


Extreme weather events Average days of hot weather increased.

Average number of frost days dropped (±10 days since 1950).

Frequency of cold waves declined in the last 50 years.

Draughts are more severe (North and Northeast China).

Floods are more frequent and severe (middle and lower reaches of the Yangtze River and Southeast China).

The frequency of strong precipitation events increased in Northwest.

Storm days in summer increased (middle and lower reaches of the Yangtze River and in southeast China).


Future Climate Change Predictions for China

Surface temperatures will rise and precipitation will increase over the next 20 to 100 years (similar to the global trend).

Temperature rise will be higher in the north than in the south and bigger in winter and spring than in summer and autumn.

The days of precipitation will increase in the north and changes in the south will be less.

The daily maximum and minimum temperature will increase, but the rise of minimum temperature will be more significant.

The south will see more days of heavy rain and storms.


Major Impacts of Climate Change in China

Coastal areas are affected by extreme weather events

Decreasing glaciers in Northwest (-21%) and permafrost in Tibet.

Enlargement of draught-stricken areas in the north.

More instable agricultural production (draughts and high temp.).

Major river flows will decline (in the north seasonal drying up).

More frequent flood disasters

Forest areas are decreasing and forest belts are moving upwards.

Spreading of diseases with major impact to human health.

Climate Policy - Major milestones

Adaptation to and Mitigation of Climate Change


The path to the convention 1989 IPCC First Assessment Report - Threat of Climate Change

1992 UNFCCC opened for signature (Rio Earth Summit)

1994 UNFCCC entered into force with 166 signatures

1995 Second Assessment Report (SAR) of the IPCC

1997 December, adoption of the Kyoto Protocol

2001 Third Assessment Report (TAR)

2005 Kyoto Protocol came into force (16.02.2005)

2005 EU Emission trading scheme (01.01.05)

2007 Fourth Assessment Report (AR4) of the IPCC


The UN Framework Convention on Climate Change

... stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system...(Article 2)

Set Goals, not targets

Annex I countries (industrial countries) were to adopt policies to “aim” to reduce their emissions


The Kyoto Protocol

Defines quantified greenhouse gas (GHG) emissions reduction targets for developed countries (Annex I Parties).

Longer-term challenge: Meet the objectives of Article 2 of UNFCCC

Countries have different targets for the 5-year period of 2008-2012).

Total emission reductions for the Annex I countries amounts to 5.2 % from 1990 year's levels.

EU countries commit to reduce their emissions by 8%, Japan by 6% and Germany by 21%, from their base-year emissions.


The Protocols flexible mechanisms Clean Development Mechanism (CDM), Article 12 of the Protocol

Credit for emission reduction investments in developing countries

Emission reductions must be real and measurable (verified by third party or Operational Entities)

Joint Implementation (JI), Article 6 of the Protocol

Credit for emission reduction investments in projects in EIT countries

International Emissions Trading (IET), Article 17 of the Protocol

Trading of emission reduction credits among developed countries


The Chinese Climate Policy

1992 China approved and ratified the UNFCCC

1998 China signed the Kyoto Protocol

2002 China approved the Kyoto Protocol

2004 DNA was founded with the Interim Measures

2005 On 12 October 2005, Measures for Operation and Management of Clean Development Mechanism Projects (“CDM Measures”)


Relevant Institutions in China

National Climate Change Coordination Committee (NC4):Inter-ministerial committee established in 1990 to coordinate national activities related to climate change, CDM policy formulation, rules and standards...

National CDM Board:Main responsibilities are review and approval of CDM application submitted by the project owners.

Chinese National Authority (DNA):Focal Point is National Development and Reform Commission (NDRC)


The priority areas for CDM projects in China

Energy efficiency improvement

Development and utilization of new and renewable energy and

Methane recovery and utilization

(Measures for Operation and Management of Clean Development Mechanism Projects in China)


Points to Note under CDM Measures Resource of emission reductions owned by the PRC government

Outputs of CDM Projects are owned by PRC project owner

Proceeds from sale of outputs jointly owned by PRC government and PRC project owner

PRC government entitled to:

65% from HFC and PFC projects

30% from N2O projects

2% from energy efficiency and renewable energy projects

The Cleaner Development Mechanism (CDM)

Incentives for project developers


The CDM - a win-win mechanism

The CDM’s aims are twofold:

It supports the developed countries in reaching their emissions targets set by the Kyoto Protocol,

and the developing countries in achieving a higher level of sustainable development through technology transfer and financial assistance.

For a project to be approved as a CDM project it has to meet various obligations an go through a defined project cycle.


Ag. Waste to energy biogas project:

2 MW installed capacity

>50,000 t CO2 ER’s p.a.(10 years)

Project costs: US$3.5m

Carbon value:

$5 /t CO2 = $2.5m

$8 /t CO2 = $4.0m

Proportion of project costs:

$5/ t CO2 = 71.4%

$8/ t CO2 = 114%

The Economics of a Hydro Power and a Methane Project

Reason: Methane is 21 times more potent than CO2 on ton-to-ton basis >> Opportunity for many agricultural projects

Hydro power project:

7.5 MW installed capacity

28,448 t CO2 ER’s p.a.(10 years)

Project costs: US$ 4.5m

Carbon value:

$5/ t CO2 = $1.42m

$8/ t CO2 = $2.27m

Proportion of project costs:

$5/ t CO2 = 31.5%

$8/ t CO2 = 50.5%


What Kinds of Projects/Sectors? 1. Renewable Energy Projects:

Biomass Energy incl. for Energy Farming

2. Waste-to-energy projects:

Municipal Solid Waste clean up transforming poorly managed dumps to sanitary landfills, recycling, and landfill biogas capture and power generation

Agribusiness Waste to Energy: Rice Husk Power Plants (1-10MW); Palm Oil waste to energy projects, Farm Biogas project, Straw-to-Energy

3. Community and agro forestry

Biomass Energy

4. Large Scale Energy Efficiency

5. Coal Mine & Bed Methane

6. Transport

Bio fuel

7. Industrial Gas Incineration N20, HFC23

Chinas CDM Potential and Opportunities


Chinas CDM Potential and Opportunities

Potential

Energy demand and consumption in China ranks second in the world following the USA

Coal baseline

In 2000, China’s energy consumption per unit of eight major products was 20-40% higher compared to international level

Estimated CDM Potential: 50% of the global CDM Market (World Bank /GTZ Study)

Opportunities

Energy Efficiency

Renewable Energy

CBM/CMM

Fuel conversions and new technology for power generation

Large energy losses with much potential in re-utilization of waste heat and waste energy


Status of CDM Projects - Expected CER´s until end of 2012 *1

Number of Project

CDM project pipeline: > 1600

Registered: 655

Requesting registration: 69

CER´s issued

Expected CER´s until 2012: >1900 Million CERs

Total based on registered projects (665): > 900,000,000

Total based on projects requesting registration (69): > 700,000,000

*1) as of 8th May 2007


Registered project activities by host party

China has 76 projects up to date (09.05.2007)


Expected average annual CER´s

Average Annual Reductions in China: 61,717,664CER´s as of 09.05.2007


number of registered projects per sector

Wind49%

Hydro18%

HFCs10%

Biomass energy7%

N2O1%

Reforestation1%EE

industryCoal bed/mine methane4%

Landfill gas

Chinese registered projects per sector

As of 1 May 2007, data source http://www.cd4cdm.org/


Top sectors issued CERs (globally)

HFCs55%

N2O14%

Biomass energy13%

Hydro4%

Agriculture4%

Landfill gas4%

Wind3%

EE industry2% Cement

1%

Top sectors by issued CERs (globally)



Sector results and distribution for China


Type

no of projects (registered)

number of projects (status all)

amount of expected CER«s until 2012 (registered) total

ktCO2

amount of expected CER«s until 2012 (status all) total

ktCO2

CERs issued so far (kCERs)

Biogas 0 4Biomass energy 5; 7% (4) 19Coal bed/mine methane 3 27; 6% (4) 2,5% (4) 10,1 % (4)EE industry 3 59; 13% (3) 4% (3)EE Service 0 1Fossil fuel switch 0 18HFCs 7; 9,9% (3) 11 82% (1) 41,6 % (1) 2 projects; 4823,067Hydro 13; 18,3% (2) 191; 43% (1) 11,0 % (2)Landfill gas 4 24 1 project; 42,444N2O 1 12 10,2 % (3)Reforestation 1 2Wind 34; 47,9% (1) 86; 19% (2) 6,5% (2) 7 projects; 433,146Total result 71 454 357812,1226 942238,1217 10


Top Countries by Buyers

United K.38%

Netherlands14%

Japan14%

Switzerland6%

Italy6%

Sweden5%

Spain5%

Germany4%

Denmark3%

Canada3%

Austria2%

Top countries by Buyer (No. of CDM projects)



Barriers for CDM in China

Lack of knowledge and skills to identify CDM opportunities

Lack of experience to assess risks and develop projects

CDM not fully accepted and understood as financial tool

Complexity of the CDM Cycle

Legal framework

The currently low CER price in the buyer driven market

Availability of data

Confidentiality & Transparency

Transactions costs

Large number of different players

Language Barrier


Experiences with CDM in ChinaForeign CDM Participants & stakeholders

CER buyers dominate

Low interest in project development and investment

Lack of understanding of the Chinese framework and market conditions

Don't fully understand the risks and don't want to deal with it (51/49 rule)

Looking for help to find projects

Looking for help to deal with contractual and risks issues

Language problem

Chinese CDM Participants & stakeholders:

Limited knowledge of CDM

Misunderstanding of the financial mechanism

Up front payment

Transaction costs

Project Complexity

Language problem

Limited understanding of the operational aspects of CDM (PIN, PDD)

Difficulties to access foreign project partners and buyers

Climate Change Adaption


Adaptation versus Mitigation

Adaptation and mitigation are two options to respond to climate change.

Mitigation

Refers to an anthropogenic intervention to reduce the sources or enhance the sinks of GHGs.

Adaptation

Refers to adjustments in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderate harm or exploit beneficial opportunities (IPCC, 2001a).


Linkages between Mitigation and Adaptation

Mitigation policies can complement adaptation and development.

Planting forests to sequester carbon can also stabilise soils and avoid floods,

rural electrification can support sustainable development.

Planting trees can reduce urban heat-island effects.


Adaptation in the Chinese Assessment Report

Area StrategyAgriculture and Food Security Changing crop/livestock mixWater resources and Quality Improvement of water conservation

measuresForestry Afforestation and reforestation,

Management of natural resourcesLivestock Adoption of new livestock more

suited to anticipated climatic conditions

Costal defence Improved flood management systems

Human health Establishment of forecast, monitoring, and surveillance networks


Existing Local and Sectoral Coping Strategies

Limited experiences available on adaptation to climate change.

Asian experience at local level on coping with climatic variability and extreme weather events:

Large scale irrigation for agriculture,

intercropping, mixed cropping, agro-forestry and animal husbandry.

Coastal defence and flood protection and cyclone warning systems.


Climate Change Mitigation China has a huge energy demand due to the high economic

growth

High demand for renewable energy and energy efficiency

High demand for advanced technology

CDM Projects can deliver significant local economic and sustainable development co-benefits

China needs technology transfer and financial support

There is now time for discussion…

Thank you for your attention

promoting investments for energy efficiency and renewable energy through carbon financing in china

Documents

chinas agenda

administrative centre

climate challenge impacts

major chinese rivers

chinese ministries

chinese scientists

chinas ecological

major droughts