Domestic UNFCCC Kyoto Protocol Mechanisms Project Supply Coordination Through Tendering – Lessons from the New Zealand Experience

A United Nations Framework Convention on Climate Change (UNFCCC) Joint Implementation (JI) host country has to make sure that JI projects are additional to avoid extra costs to generate the reductions necessary to cover the deduction of Emission Reduction Units (ERUs) from the country’s Kyoto Protocol emissions budget. A tender of ERUs by the government allows to generate additional reductions beyond the ERUs issued if it thoroughly checks project additionality. The government of New Zealand is running a tender for JI projects under the title “Projects to Reduce Emissions” since 2003. In two rounds, 10 million ERUs have been awarded and several projects have already entered into contracts with European buyers. The ratio of ERUs awarded to reductions achieved was 0.8 in the second tender. However it remains to be seen whether the additionality test of this tender is sufficient to exclude clearly non-additional projects.     

Review of International Investment and Climate Change: Energy Technologies for Developing Countries by T. Forsyth

Mitigation and Adaptation Strategies for Global Change -     

Incentive Aspects of Joint Implementation of Greenhouse Gas Reduction

The costs of a national climate policy instruments can be reduced if a reduction of greenhouse gas emission achieved abroad can be credited to a national target. Reductions carried through by agents of one country in another country are called Joint Implementation and have been a major topic in the negotiations on the UN Framework Convention on Climate Change. The First Conference of the parties in Berlin decided that the concept shall be tested in a pilot phase without crediting. To induce private investments in Joint Implementation projects, primary instruments such as emission taxes, subsidies, tradeable emission rights or regulation are a necessary condition. Tax concessions, subsidies, additional emission rights or relaxation of regulation act as incentives. These must be proportional to the emission reduction achieved through the projects. Tax concessions and subsidies are preferable to other instruments for efficiency reasons.     

Options for baselines of the clean development mechanism

The Kyoto Protocol created the Clean Development Mechanism (CDM) to allow industrial countries to reach part of their greenhouse gas (GHG) emission reduction through projects in developing countries. To calculate the achieved emission reduction a reference scenario has to be developed – the baseline. Despite efforts to develop realistic baselines, a certain degree of uncertainty regarding actual reductions will be inevitable. It is therefore necessary to compare the costs (including transaction costs) of developing a baseline against the informational benefit it can be expected to produce. While project-related baselines are already being applied, the proponents of country-related baselines have still to show the applicability of their approach for the CDM. The possibility of quantifying indirect effects and considering market distortions and subsidies through aggregation in the country-related baselines is weighed up by the manipulability and uncertainty of the assumptions required in such a baseline. Thus project-specific baselines are recommended. In cases of severely distorted markets undergoing liberalization or subsidy phase-out, a country-related baseline can be helpful. Sectoral or programme baselines would be suited to large-scale energy and sequestration projects. Moreover it has to be considered whether emission reductions are generally achieved in the context of relocation or done in the context of global emitting capacity expansion.     

Review of The Kyoto Protocol by M. Grubb,C. Vrolijk and D. Brack, 1999

Mitigation and Adaptation Strategies for Global Change -     

Early action to reduce greenhouse gas emissions before the commitment period of the Kyoto protocol: advantages and disadvantages

Current “business as usual” projections suggest greenhouse gas emissions from industrialized nations will grow substantially over the next decade. However, if it comes into force, the Kyoto Protocol will require industrialized nations to reduce emissions to an average of 5% below 1990 levels in the 2008–2012 period. Taking early action to close this gap has a number of advantages. It reduces the risks of passing thresholds that trigger climate change “surprises.” Early action also increases future generations' ability to choose greater levels of climate protection, and it leads to faster reductions of other pollutants. From an economic sense, early action is important because it allows shifts to less carbon-intensive technologies during the course of normal capital stock turnover. Moreover, many options for emission reduction have negative costs, and thus are economically worthwhile, because of paybacks in energy costs, healthcare costs, and other benefits. Finally, early emission reductions enhance the probability of successful ratification and lower the risk of noncompliance with the protocol. We discuss policy approaches for the period prior to 2008. Disadvantages of the current proposals for Credit for Early Action are the possibility of adverse selection due to problematic baseline calculation methods as well as the distributionary impacts of allocating a part of the emissions budget already before 2008. One simple policy without drawbacks is the so-called baseline protection, which removes the disincentive to early action due to the expectation that businesses may, in the future, receive emission rights in proportion to past emissions. It is particularly important to adopt policies that shift investment in long-lived capital stock towards less carbon-intensive technologies and to encourage innovation and technology development that will reduce future compliance costs.     

CDM potential of SPV lighting systems in India

In view of the increasing interest in the development and dissemination of technologies for harnessing new and renewable sources of energy in India, there have also been some efforts towards their use in the domestic lighting sector. However, the cumulative number of Solar Photovoltaic (SPV) lighting systems such as SPV lanterns and solar home lighting systems in India is far below their theoretical potential despite government subsidy programmes. One of the major barriers is the high capital investment in these systems. The Clean Development Mechanism (CDM) provides industrialized countries with an incentive to invest in emission reduction projects in developing countries to achieve a reduction in CO₂ emissions at lowest cost that also promotes sustainable development in the host country. SPV lanterns and solar home lighting systems could be of interest under the CDM because they directly displace greenhouse gas emissions while contributing to sustainable rural development. However, only two SPV projects have been submitted under the CDM so far. This study assesses the maximum theoretical as well as the realistically achievable CDM potential of SPV lanterns and solar home lighting systems in India. The SPV lantern project is financially viable at a certified emissions reductions (CER) price of 34 € whereas the solar home lighting project is financially viable at a CER price of 46 €. While the maximum mitigation volume is about 35 million tonne CO₂ on an annual basis, an estimate of achievable CER levels is done using the past diffusion trends of SPV systems. We find that annual CER volumes could reach 0.8 to 2.4 million by 2012 and 5.6 to 13.6 million by 2020. This would require that the government sets the subsidy level for SPV lighting systems at a level that allows them to become viable with the CER revenue. From a macro-economic point of view this makes sense if the sustainability benefits are deemed sufficiently high to warrant promotion of this type of project.

Mitigation Options for Enteric Methane Emissions from Dairy Animals: An Evaluation for Potential CDM Projects in India

Enteric fermentation in livestock is an important source of anthropogenic methane emission. India, with its large livestock population, is estimated to contribute 10.8 Tg of methane annually from this source. An evaluation of various methane mitigation options indicate that some of the available technologies like, diet supplementation with feed additive and molasses urea product are highly cost effective in reducing enteric methane emissions. The gross cost of methane abatement from use of feed additive monensin premix ranges from €0.6 to €1.8/ton CO₂ equivalent, for buffaloes and indigenous cows, respectively. The gross cost of enteric methane mitigation from supplementing molasses urea products and dietary manipulation through increased concentrate feeding is much higher. But, as the monetary value of the increased milk production on application of these technologies was higher than the annual cost of reduction strategy for buffaloes and crossbred cows, the net costs of the former mitigation option was negative for buffaloes (€-28.1/ton CO₂) and of the latter for crossbred cows (€-7.0/ton CO₂,). The availability of cost-effective technologies suggest that the methane mitigation projects under CDM, can be planned in the Indian dairy sector to the mutual benefit of countries with emission targets and India. The vast dairy animal population of India and resulting methane emissions provide good opportunity these countries to buy reasonable quantum of emission credits from projects in India. Such projects will work to the benefit to India by providing a tool for technology transfer to increase animal productivity and attract capital that assists in more prosperous and environmental friendly milk production in the country.     

UNFCCC Kyoto Protocol Clean Development Mechanism Baseline Construction for Vietnam National Electricity Grid

For projects under the UNFCCC Kyoto Protocol Clean Development Mechanism (CDM), a baseline has to be set to allow calculation of the greenhouse gas emissions reductions achieved. An important obstacle to CDM project development is the lack of data for baseline definition; often project developers do not have access to data and therefore incur high transaction costs to collect them. The government of Vietnam has set up all necessary institutions for CDM, wants to promote CDM projects and thus is interested to reduce transaction costs. We calculate emission factors of the Vietnam electricity grid according to the rules defined by the CDM Executive Board for small scale projects and for large renewable electricity generation projects. The emission factors lie between 365 and 899 g CO₂/kWh depending on the specification. The weighted operating and build margin reaches 600 g for 2003, while grid average reaches 399 g. Using three-year averages, a combined build and operating margin of 705 g is calculated. We hope that these data facilitate CDM project development in the electricity supply and energy efficiency improvement in Vietnam.     

A Dynamic Crediting Regime for Joint Implementation to Foster Innovation in the Long Term

Joint Implementation is a theoretically efficient instrument of climate policy at least in the short run. This need not apply for the long run. Joint Implementation can reduce innovation in the industrialized countries because of reduced incentives for emission reduction. To realize short run efficiency gains and to avoid long run efficiency losses, we need a ‘strategic’ climate policy. This policy should start with full crediting of Joint Implementation allowing short-run efficiency gains which can foster technology transfer and thus lead to ‘leapfrogging’ by developing countries. Over time, the crediting ratio should be gradually reduced while domestic carbon taxes are raised. Experiences from the second oil shock have shown that energy-saving innovation is positively correlated to energy prices. Both, the reduced crediting and the raising domestic carbon tax, will therefore lead to long-run innovation.