CDM baseline standardization

– key policy questions

Axel Michaelowa

Center for Comparative and International Studies (CIS), University of Zurich and ETH Zurich; Perspectives

axel.michaelowa@pw.uzh.ch, michaelowa@perspectives.cc

Joint Workshop, Bonn, March 13, 2011

Harnessing emissions reduction potential

Source: IPCC (2007)Potential 2030, bottom-up studies

CDM

CDM

CDM

CDM

CDM

CDM

CDM

Preventing emissions take-off

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

0 2 4 6 8 10

China

Korea 

Singapore

Malaysia

Hong Kong

Ireland

Israel

Portugal

Spain

t CO2/capita

HDI

Critical

level

of HDI

Source: Michaelowa and Michaelowa (2009)

What can be standardized?

• Use of pre-defined values / parameters applicable to many projects at once

• Baseline setting• Additionality determination• Criteria, emission factors, calculation methods,

equations, models feeding into baseline methodologies

• Across project types• E.g. all electricity related projects

• Within individual project types• E.g. benchmark for N2O from adipic acid

Why standardization?

• Administrative improvements to the CDM:• Increased efficiency of registration process • Greater objectivity, consistency and predictability• Reduced transaction costs• Increased project flow

• Broader systemic improvements:• Guaranteeing and improving environmental

integrity• Improved distribution across host countries and

project types

•Trade-offs between these goals??• Careful implementation and regulatory oversight !

Potential risks

• Subjectivity is not really eliminated, but shifted from project registration process to the baseline setting stage

• One off decision, difficult to reverse• Gaming with standard setting can lock in too

lenient baselines / non-conservative parameters

• High costs for public administrations, especially if frequent updating• Aggregation level is crucial

• Too high: risk for environmental integrity, and of reaching all mitigation potential

• Too low: data confidentiality issues

Types of standards

• Emissions intensity benchmarks (add. /bl.)• X t CO2 / amount of product or service• Homogeneous products, large number of entities,

normal performance distribution

• Technology / practice standards (add./bl.)• Average of top X % performance• Reference technology that is common practice• Project technology that is highly innovative

• Market penetration rates (add.)• X percentage of installed capacity • Economies of scale and learning are important

• Model (add/bl)

Types of standards II

• Deemed savings defaults (emission reduction)• X t CO2 reduced per installation and year• Requires good understanding of usage patterns

• Utilization defaults (add.)• X % plant load factor / x hours average daily use• Limited variability of parameters influencing plant

load factor

• Positive lists (add.)• Technology• Applicable if no other revenues than CERs or if

technology clearly faces a cost gap to alternative technologies providing the same service

Key issues for benchmarks

Type of benchmark

e.g tCO2 / t output

Aggregation level

Process?

Product or service?

Vintage?

Geographic area?

Stringency level

Updating frequency

Average?

Best 20%?

Best used?

Best available?

Fixed improvement

factor?

According to data?

Decision on stringency

Emission intensity (tCO2 / t output)

Additionality benchmark

A

Baseline benchmark

BC

CERs

D

Plants

Greenfield vs brownfield

Vintages count!

Technology shifts

Benchmark development

Development of the benchmarking approach

(2) Identification of key performance indicator

(3) Selection of peers for comparison (Choice on the aggregation level)

(1) Definition of the system boundary

Initial feasibility study for the CDM benchmarking: How large is the expected emission reduction potential for a benchmarking-based

CDM? What is the level of complexity expected? Which efforts are needed regarding the data collection?

Decision on whether to develop a benchmarking based CDM for the sector/product

Choice of MRV procedures

Data collection (Monitoring, Reporting,

Verification)

Data collection

Benchmark development II

Selection of the stringency level

(2) Evaluation of the impact

(3) Decision on stringency levels

(1) Preliminary choice on stringency level

Approval of the CDM benchmarking:

Approval of benchmarking approach

Approval of the data adequacy

Approval of selected stringency level

Policy questions

• Which sectors and project types should be prioritized for standardization?

• Highly homogeneous, large-scale industries?• Small, dispersed emissions sources?

• How stringent should standardized approaches be to guarantee a sufficiently high environmental integrity?

• More stringent than project-based approaches?• Role of experts?

• What lessons can be drawn from existing use of standardization in offset programmes?

• US programmes (CAR, RGGI, CCX)

Policy questions

• Who should administer and develop standardized methodologies?

• CDM EB?• Project developers?• Should there be a Baseline Standard rulebook?

• How can we prioritize countries and regions?• Underrepresented regions?• Regions with highest potential?

• How can DNAs be enabled to decide whether to apply standardized baselines?

• Capacity building required• Can distortions be prevented?