Dear reader!

The fateful “black swan” event at Fukushima means that global climate policy is at a crossroads. Will the nuclear catastrophe make strong energy efficiency and renewable energy policies politically palatable? Or will it lead to a re-emergence of fossil fuel dominance in the electricity system and a further weakening of global climate policy? Climate policy makers should use the window of opportunity to push towards the first path – which would also be the path of choice for the carbon markets. The high volume of NGO submissions on new market mechanisms as well as continued high CDM project inflow show that the market is alive and kicking – but patience of market participants will start to wear off at some point in time.

Friedel Sehlleier, GIZ
Axel Michaelowa, Perspectives GmbH

UNFCCC, CDM-Executive Board and its panels

·  Three months after the Cancun Agreements have been inked, the UNFCCC negotiations start again on 3 - 8 April in Bangkok, Thailand.

·  The absence of a CDM EB meeting gave the chance to have a series of meetings of the “extended CDM family” in mid-March, starting with the DNA Forum, followed by the Joint Coordination Workshop and a workshop on buildings efficiency methodologies in Bonn. Already one week earlier, two stakeholder workshops had discussed transport methodologies and the baseline standards documents developed by the UNFCCC Secretariat in autumn 2010.

·  In a similar vein, the baseline standard workshop led to a wave of criticism of the proposed baseline standard documents by CDM project developers who thought that it is premature to try to define all baseline principles in one basic document. They preferred to improve baseline methodologies step by step. The documentation of the workshop is available at www.cdm.unfccc.int/methodologies.

·  The DNA forum discussed standardised baselines, the role of DNAs in the development of grid emission factors, the current implementation of PoAs, potential post-2012 scenarios for the CDM and the Nairobi Framework. A webcast and a wealth of presentations are available at: www.unfccc2.meta-fusion.com.

·  The Joint CDM Coordination Workshop, a forum for major CDM stakeholders organized by the UNFCCC, discussed the role of the different bodies and actors involved in the CDM project cycle, methodology development and standardisation as well as PoAs. With the staff level of the CDM team at UNFCCC having now almost reached the full level, people start to look beyond just keeping up with the project cycle and start in engaging in long-term issues, such as marketing the CDM, developing generic baseline standard documents and improving communication with CDM stakeholders. Please find the presentations at www.cdm.unfccc.int/stakeholder.

·  Last but not least, at the buildings efficiency workshop, UNEP and the World Bank tried to convince the CDM regulators to be more open towards modelling and simulation-based approaches. Unfortunately, so far no workshop report is available.

·  The 48th meeting of the Meth Panel
> did not recommend any methodology for approval.
> proposed rejections of four methodologies (a benchmark methodology for the cement sector, low-GHG cement substitutes, combined cycle gas power and grid connection of isolated electricity systems). The decision on the cement benchmark had been pending for a considerable period. The Meth Panel argues that the methodology developers were unable to provide a clear case why the benchmark level of 20% would be too stringent. This foreshadows future fights of project developers with regulators regarding benchmark stringency levels.
> Top down revisions will be undertaken for the methodologies AM 21 (N2O reduction from adipic acid), AM 23 (gas pipeline leak reduction), AM 30 (PFC reduction from aluminium smelters), AM 36 (biomass use for heat generation), AM 48 (cogeneration) and ACM 16 (mass rapid transport systems).

·  The 30th meeting of the Small Scale Working Group
> proposed approval of five new methodologies on solar water heaters, efficient street lighting, water purification, efficiency improvement of commercial vehicle fleets through tachographs and methane reduction from rice fields. The solar water heater methodology is revolutionary inasmuch it allows model-based simulation, metering and use of a default deemed energy savings value as per the preferences of the project developers. Especially the first two but also the last project types are highly replicable.
> However, the Group recommends rejection of the simulation model-based methodology for buildings energy efficiency proposed by the World Bank.
> The Group propses a revision of the guidelines for the automatic additionality of micro-scale projects as follows:
> Grid-connected renewables are not eligible.
> Type III projects are included as long as they produce less than 20,000 CERs per year.
> Entire PoAs are not covered.

·  Five new large-scale methodologies have been proposed, all covering industrial energy efficiency or power plants.

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Discussion on new market mechanisms

·  24 submissions were made by NGOs regarding the design of new market mechanisms, of which 12 by environmental NGOs, 9 by business NGOs and 3 by research institutes.
> While unsurprisingly all business submissions support new market mechanisms, the environmental NGO submissions are split. While CAN, EDF, NRDC and the Tropical Forest Group support new mechanisms, Friends of the Earth, Gender CC, Corner House, FERN and the Global Forest Coalition oppose market mechanisms in general
> 8 submissions request a market mechanism for REDD+. Most submissions in favour of new mechanisms call for direct NAMA crediting.

·  NAMA experiences from Mexico and Tunisia are showcased in the latest issue of JIKO Info. In addition, the up-scaling from CDM towards sectoral mechanisms as well as the role of NAMAs in a post 2012 carbon market are reflected - see www.jiko-bmu.de for the English version (780 KB).

·  IETA has launched a new publication series that strives to reflect design issues of a REDD+ mechanism through the eyes of the private sector. Two initial papers discuss the concepts of the “nested approach” (www.ieta.org, 144 KB) and “REDD+ trajectories” (www.ieta.org, 301 KB).

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Supporting up-scaling of mitigation through programmes and bundles

·  In March, 2 PoAs entered the validation pipeline – one solar water heating (South Africa) and one geothermal heating (China).

·  Regarding the submissions China leads with 11 PoAs before India (10) and Vietnam (6). In total, 33 host countries are involved, of which 8 are Least Developed Countries.

·  With respect to consultancies, the World Bank leads with 10 before GIZ with 5 and South Pole with 4.

·  In terms of technologies, demand & supply side energy efficiency measures lead with 30 PoAs, followed by biogas (25) and renewables (18).

·  19 stakeholders followed the EB´s call for public input on programmes of activities, of which nine individuals from host countries. The grievances are the same as those already mentioned numerous times.

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The CDM in Least Developed Countries and Sub-Saharan Africa

·  The Nordic Environmental Finance Corporation NEFCO has contracted CERs from a small scale hydro power plant in Laos for its Nordic carbon fund. The project is expected to generate up to 140,000 credits until 2019. Since Laos is defined as a least developed country, the credits will be eligible under EU ETS phase III.

·  The African Carbon Exchange (ACX) located at Nairobi Stock Exchange has started trading of CERs and VERs on 24 March.

·  The African Development Bank (AfDB) launched a 40 million Euro fund that aims to invest in renewable energy projects across Africa.

·  Two projects from Least Developed Countries entered the pipeline in March:
> Namwasa Central Forest Reserve Reforestation Initiative (Uganda, 0.5 million CERs by 2012)
> Tsiazompaniry Hydropower Project (Madagascar, 0.02 million CERs by 2012)

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Project developers, operational entities and consultants

·  In March, 138 projects entered the pipeline, a value close to the record. The largest two are:
> Samalkot Power Phase I natural gas plant (India, 1.5 million CERs by 2012)
> Zoomlion composting of municipal solid waste (Ghana, 0.9 million CERs by 2012)

·  A Chinese 201 MW wind power plant is the biggest project ever approved under the Gold Standard. The Huadian Kulun project (ID: 3539) is expected to generate 500,000 Gold Standard CERs for project developer Tricorona.

·  German consultancy Perspectives Climate Change has just completed a management buyout from its former parent corporation, Thomson Reuters Point Carbon. Perspectives is now one of the few remaining service providers that manages greenhouse gas reduction projects and develops CDM and JI methodologies without being a proprietary buyer of the resulting emissions credits.

·  Singapore based Carbon Broker Sindicatum has opened the door to the North-American carbon markets by acquiring the US project developer Verdeo Group. Verdeo holds a portfolio of projects under several US registries, mainly in the landfill, mining, oil and gas sectors.

·  US project developer C-Quest Carbon Capital has received new finance through a management buyout. The company’s portfolio comprises projects and PoAs in Africa, Asia and Latin America. Last month C-Quest set up an efficient cook stove PoA in Nigeria that aims to distribute 2 million stoves.

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Incentives for CDM investment

·  The price for EUAs was 16.48 Euro for the spot market and 18.10 Euro for 2012 vintages at the end of March. The spread to issued CERs was 3.33 Euro.

·  The cap under the EU’s aviation trading scheme was set at 212.9 million t CO2, which would generate an offset demand of 70-90 million according to Barclay’s and Point Carbon. However, US and Chinese airlines have threatened lawsuits which will likely lower demand in the short term.

·  The European Commission approved the auctioning/allocation rules for phase III of the EU ETS. From 2013 onwards the energy sector has to purchase 100 % of emission allowances, unless a member state decides to provide them for free. In the latter case, the member state then must deduct the respective number of allowances from the ones earmarked for auction to other sectors.

·  Reeling under the impacts of the earthquake, the Japanese government has so far upheld its Kyoto target, but indicated that it could reduce its post-Kyoto target of 25%. The Hungarian opposition has proposed to donate 10 million AAUs to Japan, but the Hungarian government did not appreciate this proposal.

·  6 large EU electric utilities have called for an EU target of -25% below 1990 levels.

·  A UK parliamentary committee has proposed that the UK should not buy any offsets until 2020. UK has a reduction target of 16 percent on 2005 levels under the EU effort sharing.

·  AAU sales are picking up, with the Czech Republic planning to sell 20 million at a price of 5-6 Euro, while Estonia sold 10 million to Japan, with the price partially paid in kind in the form of 500 electric cars.

·  Denmark, followed by Austria, Belgium, Estonia, Germany, Greece and Hungary, has announced that it will not use offsets from industrial gas projects for governmental compliance under the EU effort sharing from 2013 onwards.

·  New Zealand is considering a ban of CERs from industrial gases under its national emissions trading scheme. After the EU has ruled out the ban of these credits from 2013 onwards, New Zealand is a likely destination for these credits.

·  Hungary, Poland, Slovakia and the Czech Republic push the establishment of an EU-wide domestic offsetting mechanism as a successor of JI. The countries invited the European Commission to lay out rules for such a mechanism that would address non-ETS emissions, based on article 24a of the revised emissions trading directive.

·  The Joint Implementation Supervisory Committee JISC has approved the introduction of fees for track 1 projects – 2,100 Euro for small scale projects and PoAs and 14,000 Euro for large scale projects. The move is motivated by the poor financial situation of the JISC that inter alia hinders more frequent meetings of the panel and with this a more effective processing of projects. Thus, project developers such as the JI Action Group welcome the fee.

·  Belarus and Kazakhstan are now eligible for JI project determination; emission reductions become effective once the countries are listed in Annex B of the Kyoto Protocol, which is extremely unlikely given the current situation of international climate policy.

·  China’s 12th Five-Year Plan includes energy intensity improvement targets of 16% on average by 2015, varying over the provinces depending on the economic development. The strictest targets of 18% apply to the rich coastal regions such as Tianjin, Shanghai and Guangdong. The latter two plan to set up tax incentives and new subsidies for clean energy.

·  The Chinese city of Xiamen plans to install an emissions trading scheme for the commercial building sector. Building owners need to comply with certain energy efficiency standards; otherwise they have to buy allowances. For more than two years emissions of large buildings have already been measured.

·  The Philippine Government has approved a 0.8 million Euro national adaptation fund that partially will be financed through a 5% levy on credits from CDM projects in the country.

·  The UK announced a carbon price floor for the power sector from April 2013 onwards. The instrument differentiated by fuel type will work like a tax and initially amount for around 5.6 Euro per tonne CO2 and increase up to 11.2 Euro in 2016.

·  The South African Government is getting serious about the introduction of a comprehensive carbon tax by mid 2012 and has finalized a proposal to be sent to the parliament for approval. Industry lobby groups heavily oppose the plan. Revenues from the tax shall flow into green investments. According to the government, the set up of a cap and trade scheme is still considered in the midterm.

·  China saw the first transaction under its voluntary Panda Standard. The real estate company Franshion Properties purchased 16,800 VERs from a bamboo reforestation project in Yunnan province at a price of 6.4 Euro.

·  The ongoing process to establish a Californian cap and trade scheme from January 2012 onwards has stalled, as a judge of the Californian Superior Court claimed violation of state environmental law by ignoring alternative measures: A court decision on the issue is expected sooner than later.

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Country of the month: Democratic Republic of the Congo

Located in Central Africa, the Democratic Republic of the Congo (DRC) is one of the largest countries in Africa. After more than a century of Belgian rule, brutal dictatorship and civil wars, the first democratic elections were held in 2006, leading to a semi-presidential republic. But although the DRC possesses an enormous amount of mineral deposits, its population is among the poorest in the entire world.

Since DRC is only slowly recovering from civil war and international investors are only cautiously channeling money into the country, the CDM so far has not played an important role. The country signed the Kyoto protocol in December 2000 and in the year 2005 the DNA was founded under the “Ministère de l'Environnement, Conservation de la Nature et Tourisme“. So far, the country has received several capacity building missions that have been carried out by international donors such as UNEP or UNDP. DR Congo was also one of nine pilot countries participating in the UN-REDD programme.

In March 2011 the Ibi Batéké degraded savannah aforestation project for fuelwood production was DRC’s first CDM project to get registered. The validation pipeline currently comprises four projects, two forestry, one landfill and one biodiesel project. Further eight projects are in earlier stages, mainly hydro power but also supply side energy efficiency and a cook stove dissemination activity.

The future project potential is mainly sketched by the country´s natural conditions: the Congo Rainforest is the second largest rainforest in the world and is estimated to have a storage capacity of 17 billion tons of CO2e. It is crossed by the Congo River system, the second largest river worldwide and a large number of small rivers with permanent water-course. Thus there are opportunities for hydro power and forestry projects. Finally, as nearly 90 percent of households use combustible organic materials, a further option to reduce emissions is biomass energy, in particular with regards to PoAs.

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Web news and downloads of the month

·  Three discussion papers on additionality have been released by the Greenhouse Gas Management Institute – see: www.ghginstitute.org.

·  Lessons from 20 years of forest carbon investment are available at: www.forest-trends.org (3 MB).

·  Timberwatch has published a critical report on a CDM plantation project in Tanzania - see: www.timberwatch.org (3 MB).

·  Market based and voluntary measures to reduce emissions from the agri-food sector are discussed at: www.piarn.org.au (532 KB).

·  IGES has published a calculation tool for grid emission factors - www.iges.or.jp.

·  Grid emission factors for Russia and the Ukraine have been published by the EBRD, see: www.ebrd.com.

·  A carbon finance guide for project developers is available at: www.gvepinternational.org (1.5 MB).

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In charge of this newsletter: 
Friedel Sehlleier (climate@giz.de), GIZ Climate Protection Programme,
a project carried out on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ)

Editor(s):
Friedel Sehlleier (climate@giz.de), GIZ
Axel Michaelowa, Perspectives GmbH (Author)

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