The Danish CDM Project Development Facility

Financing CDM in Indonesia

Erik Dugstad, Sr. Economist, ECON Analysis

Agus Sari, Climate change specialist, Pelangi

Contact: erik.dugstad@econ.no – Phone: 021 5221930

2

Danish Climate Strategy

Published by Danish Government in February 2003

Key issue: Introducing Kyoto Mechanisms to achieve cost efficiency

Balance between domestic action and buying of credits defined in economic terms.

Maximum cost of domestic measures set at 120 DKK or approximately 20 USD pr ton of CO2-eq

3

Uncoupling of economic growth and CO2-emissions

50

75

100

125

150

1988 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01

GDP CO2-emission Primary Energy Supply

4

Share of Renewable Energy in Denmark

0

5

10

15

20

25

30

35

1980 1983 1986 1989 1992 1995 1998 2001 2004

%

Red: Share of electricity

Blue: Share of total energy

5

Danish demand for Carbon Credits

Danish EU-burden sharing target is reduction of 21% in 2008-2012 compared to 1990-level

Three sources of ”deficit” compared to target: 10 mill. Tons CO2/year from lack of success in achieving

reductions i.e. in the transport sector 10 mill. Tons CO2/year from expected electricity export 5 mill. Tons CO2/year from (lack of) base year adjustment

Projected total demand 25 mill tons CO2/year for 5 years or a total of 125 mill tons

Government expected to buy 20% - The rest by private sector (mainly electricity sector)

6

Bilateral collaboration in focus

Government purchases through pipelines of Ministry of Foreign Affairs: Bilateral collaboration on CDM in

Malaysia, Thailand, Indonesia, China and South Africa Environmental Protection Agency: JI-projects in Eastern Europe Multilateral Carbon Funds – A Danish Fund in the World Bank

Incentives for private sector EU Emissions trading scheme started 1. January 2005 Directive implemented that links emission trading and JI/CDM

A Memorandum of Understanding between Denmark and Indonesia has been signed between Ambassador Andersen and Minister Witoelar on July 27, 2005

7

Huge CDM potential in Indonesia

125 - 300 million ton CERs in the period 2008-2012

Could create a value of 625 -1200 million USD via sales + large local benefits for sustainable development

Opportunities in many sectors Cement Oil and gas Landfill and waste Pulp and paper Steel Palm Oil Electricity Energy saving Etc

8

Impact of CDM for landfill to energy projects

Threshold for producing power from landfill gas is 150 tonnes of waste per day

Emission reductions generated by avoiding methane emissions from deposited waste and displacement of grid connected fossil fuel plants

Contribution from CDM is more than half of the electricity tariff

The table below indicates impact CDM on IRR for different sizes of landfills

Project (mT/d

MSW to landfill)

Output IRR without CDM, (%)

IRR with CDM, (%)

150 1 MW 1.6% 13.2%

300 2 MW 4.8% 16.8%

400 3 MW 5.9% 18.1%

9

Impact of CDM for Palm Oil Mill Effluent

Mill with capacity of 40 ton of Fresh Fruit Bunches per hour

Power generated will be connected to the grid

Contribution from CDM is more than half of the electricity tariff

Impact of CDM is different per technology used

Technology Option IRR without

CDM (%)

IRR with CDM

(%)

Power and Heat Generation

(Gas Turbine)

5.8 11.0

Power and Heat Generation

(Gas Engine)

9.6 15.0

Power Generation (Gas

Engine)

7.6 13.7

10

How to develop a CDM project?

ProjectProject

timelintimelinee

CERs CERs issuedissued

Pre-Pre-feasibilityfeasibility

PDD PDD DevelopmenDevelopmen

tt

ImplementatiImplementationon

RegistratioRegistrationn

Final Host Final Host Country Country ApprovalApproval

Project Project ValidationValidationPINPIN

Feasibility Feasibility studystudy

Conditional Host Conditional Host Country ApprovalCountry Approval

Financial closureFinancial closure OperationOperation

MonitoringMonitoring

Danida Project Development FacilityDanida Project Development Facility

Danida buys CERsDanida buys CERs

11

Transaction costs of CDM Project

Feasibility and Due Diligence $5,000 - $10,000

Documentation (PDD) US$ 20,000 – $50,000, up to $100,000 with new methodology

Public Consultation About $2,000 – 10,000

Validation $8,000 - $15,000

Approval by the National Authority

Currently free

Registration to the Executive Board

$5,000 - $30,000(according to the project)

Implementation of the CDM Project

According to the project

Underlying investment According to the project

Monitoring According to the project

Verification $5,000 – $10,000

12

Benefits of participating

You get a new income stream for your project – with no risk for you

Danida takes all the CDM related risk

Danida takes all the trouble getting the paper work done

Preparing a Project Design Document

Getting the PDD validated

Getting an Indonesian National Approval

Getting the registration at the CDM Executive Board

Danida buys the CERs when they are delivered

13

Criteria for participating

The underlying project must be technically and financially viable

The technical design Financial viability/project financing Legal and commercial status of the project

The project should be likely to be approved as CDM project Contribution to sustainable development Likelihood of being additional Existence of baseline methodology

The project proponent is capable to implement the project Technical and management capability Financial solidity of the company

14

The formalities

Action Date

Announcement of call for proposals

27 July 2005

Closing for proposals

Pre-assessment/selection

3 October 2005

4 October - 21 November 2005

Announcement of results 22 November 2005

Signing of Letter of Intent 22 November – 29 November 2005

Second call with tentative closing date: 1 February 2006

15

Possible next step in the waste-management sector

A number of workshops will be organised giving more information on the Project Development Facility

A follow-up workshop to develop Project Idea Notes (PINs) in the waste-management sector.

If you have a project already then contact the project secretariat to get a template for a PIN.

A one-on-one consultation on project development and writing of PIN is possible.

ContactSecretariat of Danish CDM Project Facility

c/o Royal Danish Embassy

Menara Rajawali 25th Floor

Jl. Mega Kuningan

Jakarta 12590

Telephone: + 62 21 576 1478 ext 114

Fax: + 62 21 576 1535

E-mail: jktamb@um.dk

Website: www.emb-denmark.or.id

Or

ECON (in Jakarta) – emd@econ.no – Hp: 0815 8155048

Pelangi - rde@pelangi.or.id – Phone: 021 - 72801172