State, Trends and Barriers to Carbon Finance in RBEC

State, Trends and Barriers to Carbon Finance in RBEC

Marina OlshanskayaRegional Energy/Kyoto Protocol Specialist

RBEC Energy and Environment Practice MeetingWednesday 27th September, 2006

Bratislava, Slovakia

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RBEC Energy and Environment Practice Meeting: Carbon Finance

September 2006

Presentation Overview

1. JI versus CDM

2. EU Emission Trading Scheme (EU ETS)

3. Green Investment Scheme (GIS)

4. Current status and potential for carbon finance

5. Key problems and barriers

6. Some good news and examples

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September 2006

CDM and JI Host countries

• Countries listed in Annex I to UNFCCC: potential JI hosts (ERUs sellers) or CDM/JI investors (CERs/ERUs buyers)

• With quantified GHG emission reduction targets: by 5.2% as compared to the baseline emission in 1990;

• New EU member States, Bulgaria, Romania, Belarus, Russia, Ukraine, Croatia and Turkey

• Non-Annex I to UNFCCC: potential CDM hosts (CERs sellers):

• No quantified GHG emission reduction targets

• South Caucasus, Moldova, Western Balkan, Central Asia, Cyprus

• Kazakhstan – not ratified KP, would like to be included in the list of Annex I

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September 2006

CDM and JI: Similarities

• Project-based mechanisms: a CDM/JI host country implements

project, generates and sells CERs/ERUs to a CDM/JI investor

(Annex I) country which use them to meet its national Kyoto target

• Similar project development cycles (next presentation)

• Same eligibility criteria:

• CDM/JI project should result in measurable GHG emission

reductions that are additional to what would have occurred in

the business-as-usual scenario

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September 2006

CDM and JI: Differences

• JI hosts are limited by their Kyoto target (amount of allocated

Assigned Amount Units, AAUs) for ERUs they can sell, while CDM

hosts are not

• CERs can be issued for project implemented from 2000 through

2012, while ERUs only during 2008-2012

• Country eligibility criteria for participation in JI are more stringent

than for CDM:

• CDM: ratification of Kyoto Protocol and establishment of DNA

• JI: CDM criteria plus calculation of AAUs, establishment of

national registry (Track II), submission of national inventory,

system for calculation of GHG emission/sinks (Track I)

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September 2006

RBEC JI Hosts and their Kyoto targets, 1mlntCO2eqCountry Annual Assigned

AmountGHG Emissions Kyoto Units

Base Year 2010 2010 Demand 2010 Supply

Bulgaria 144 523 157 090 133 694 10 829

Croatia 30 348 31 945 24 500 5 848

Czech Republic

176 657 192 019 141 700 34 957

Estonia 40 014 43 494 11 660 28 354

Hungary 95 535 101 633 62 800 32 735

Latvia 28 570 31 054 13 000 15 570

Lithuania 47 425 51 549 59 148 11 723

Poland 530 554 564 419 496 836 33 718

Romania 243 689 264 879 284 368 40 679

Russia 3 040 332 3 040 332 2 911 800 128 532

Slovakia 67 102 72 937 66 975 127

Slovenia 17 675 19 212 19 897 2 222

Ukraine 919 220 919 220 527 314 391 906

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September 2006

Green Investment Scheme (GIS)

• Annex I countries with surplus AAUs can sell part of it to other

Annex I countries;

• Several Annex I parties indicated their willingness to buy provided

the revenues from AAU sales are earmarked for “green” purposes

(GHG mitigation project or other environmental projects)

• Potential GIS hosts: Bulgaria, Ukraine, Russia, Belarus, Poland

• Key issues to consider for GIS:

• Need to meet Track I JI eligibility requirements (no country yet)

• Need to design and establish GIS (governance structure, project

development and implementation capacities, monitoring system, etc)

• Calculation and justification of AAUs that can be sold through GIS

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September 2006

EU Emission Trading Scheme: Motivation

Germany: - 21 %

Industrialised countries: - 5,2 %

EU 15: - 8 %

Reduction targets for Kyoto gases 2008 - 2012 over 1990 (base year)

Kyoto Protocol (since 16.02.2005 in force)

• To fulfil the national GHG reduction obligations, the EU has implemented the EU Emission trading scheme in 2005, involving companies from the industry and energy supply sectors

• Within the EU, approx. 11,400 plants are obliged to take part in EU ETS.

• Since 2005, these plants have received fixed quotas of CO2 certificates on which they must manage in future.

Buying of EU AllowancesPurchasing certificates

from CDM and JI projects

Alternatives for compliance

Emission Reduction

e.g. plant modernisation

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September 2006

EU Emission Trading Scheme

Emissions in reporting year

Allocated allowances (EUA)

Surplus of certificates

Deficit of certificates

From 2008: further reduction of allocated allowances

2005

Sal

e

Pu

rch

ase

EU ETS* Market CDM / JI ??

...2006 2007

Ban

kin

g

2008

?

1st trading period of EU ETS* 2nd trading period of EU ETS*

EUA

(EU Allowances)

CER (Certificates from CDM projects)

ERU (Certificates from JI projects)

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September 2006

EU Emission Trading Scheme

• Eligibility among RBEC countries:

• All EU member states, Romania, Bulgaria, Croatia (after EU accession);

• Preparation of National Allocation Plan (NAP) which assign GHG emission quotas to key GHG emitting facilities in country

• CERs/ERUs can be used by EU ETS participants to meet their target under NAP (EU Linking Directive)

• EU Linking Directive provides for legal basis for EU companies to use CERs/ERUs for compliance within the EU ETS:• Once CERs/ERUs are physically available, the should have the value of EUAs

(EU Allocated Allowances)

• Member States can set a maximum for the use of CERs

• CERs have to fulfil certain additional conditions for EU ETS compliance use (e.g. Investor country approval, “World Commission on Dams” rules for hydropower, no Afforestration / Reforestration projects)

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September 2006

EU Green and White Energy Certificates

• White/green Energy Certificates – market mechanisms introduced

by EU to help countries meet their energy efficiency (white) or

renewable energy (green) targets

• No formal linkages with Kyoto/carbon market, unless special

regulation is introduced by a host country

• Different institutional arrangement, monitoring and verification

protocols

• In theory: one facility (e.g. Wind Park in Hungary) can generate

and sell both ERUs (under JI ) and EU green energy certificates if

the project meets the requirement of each mechanisms

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September 2006

Region/Country for CDM/JI projects (No. of projects)

415

687

130

17

15

Latin America

Asia & Pacif ic

Europe and Central Asia

Sub-Sahara Africa

North Africa & Middle-East

Current status: RBEC’s share in CDM/JI market (# projects – September 06)

RBEC - 130

11 CDM projects (Moldova, Armenia, Kyrgyzstan and Tajikistan)

119 – JI projects (Bulgaria, Romania, Czech and Slovak Republics, Poland, Hungary, Lithuania, Estonia, Ukraine, Russia)

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September 2006

23%

66%

6%

3% 2%

Latin America

Asia & Pacif ic

Europe and Central Asia

Sub-Sahara Africa

North Africa & Middle-East

Current status: RBEC’s share in CDM/JI market volume (tCO2 eq - September 06)

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September 2006

RBEC GHG Reduction Potential

Country MtCO2 World Rank % ofWorld TotalRussian Federation 1,915.2 (4) 5.69%

Ukraine 481.9 (17) 1.43%

Poland 380.6 (21) 1.13%

Turkey 355.4 (22) 1.06%

Uzbekistan 180.8 (31) 0.54%

Kazakhstan 161.0 (34) 0.48%

Czech Republic 143.0 (37) 0.42%

Romania 124.7 (41) 0.37%

Belarus 78.7 (51) 0.23%

Hungary 75.7 (54) 0.22%

Turkmenistan 64.1 (63) 0.19%

Bulgaria 61.8 (66) 0.18%

Serbia60.3 (67) 0.18%

Azerbaijan 55.4 (72) 0.16%

Slovakia 45.4 (78) 0.13%

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September 2006

RBEC: Carbon Intensity of GDP (tCO2eq/mln$GDPintl)Country Carbon intensity of GDP World rank

Uzbekistan 3,079.0 1

Kazakhstan 1,787.5 4

Turkmenistan 1,174.8 5

Ukraine 1,376.6 7

Russia 1,361.2 8

Belarus 1,135.2 11

Moldova 1,134.9 12

Azerbaijan 1,112.7 13

Tajikistan 895.1 18

Bulgaria 856.6 21

Czech Republic 725.2 29

FYR Macedonia 705.9 31

Kyrgyzstan 660.1 33

Romania 641.8 35

Slovakia 608.0 37

BiH 594.1 38

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September 2006

Country Carbon intensity of GDP World rank

Turkey 458.8 54

Croatia 456.2 56

Slovenia 443.5 62

Hungary 401.1 69

Lithuania 359.1 80

Armenia 322.8 91

Georgia 322.3 93

Latvia 309.6 95

Albania 296.5 99

RBEC: Carbon Intensity of GDP (tCO2eq/mln$GDPintl), cont

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September 2006

Why: key issues and barriers

• Poor investment climate and lack of underlying financing for implementation of projects

• Carbon finance only marginally improves economics of potential projects, especially those with strong development dividend:

Sector Carbon Finance Impact: change in IRR, %(at 6.5$/tCO2eq)

Industrial gases (HFCs) and NOx

100 – 500

Landfill gas 5.5 – 50

Coal-mine methane 7-12

Biomass 2-8

Forestry 0.5 –7

Renewable energy 0.2 – 3

District heating 0.5 - 1

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September 2006

Why: key issues and barriers, cont

• Limited knowledge of carbon finance, especially in national

investment/banking sector

• Lack of data and methodologies for estimation of baseline

emissions (e.g. no approved CDM methodology for projects

in district heating)

• Absence/weakness of national institutional framework for

JI/CDM (see How-to Guide)

• Small/medium countries (most countries in RBEC) have

scarce supply of project with large volume (above

100tCO2eq/yr) of CERs/ERUs, thus difficult to compete with

large CDM/JI hosts

• Low baseline GHG emission due to under-consumption of

energy (lack of access or high costs)

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September 2006

There are good news – barriers are possible to overcome

• Armenia: Nubarashen Landfill Gas Capture and Power

Generation Project in Yerevan (Japan)

• Moldova: Moldova biomass heating in rural

communities project (World Banks’ Community

Development Carbon Fund)

• Tajikistan: Pamir Energy – Pamir I Hydropower

Generation (14 MW) (Unilateral – Aga-Han Foundation)

Thank you!

Documents

State, Trends and Barriers to Carbon Finance in RBEC