Dear reader!

Climate policy seems far away from the preoccupations of policymakers grappling with the fallout of the Fukushima crisis and the Arab revolutions. So the statement of US and EU climate negotiators that they do not expect a breakthrough at the Durban COP is unsurprising. Given that gloomy background, the CDM market quietly passes important milestones such as the 1000th project with issued CERs and the 3000th registered project. The rush to achieve pre-2013 registration is reflected in continued near-record numbers of projects starting validation. Moreover, CERs are churned out at an unprecedented speed - the reforms of the Secretariat’s procedures are clearly bearing fruit. 119 million CERs were issued in the first four months of 2011, almost the same volume as during the whole of 2010!

Close to our 100th issue, we have decided to discontinue the section “Country of the month” - we have now covered almost all relevant CDM host and investor countries.

Friedel Sehlleier, GIZ
Axel Michaelowa, Perspectives GmbH

UNFCCC, CDM-Executive Board and its panels

·  Parties started the 2011 UNFCCC climate negotiations with an intersessional meeting from 3 - 8 April in Bangkok. The main focus of the meeting was on digesting the Cancun results, which are hailed by industrialized countries but regarded with mixed emotions by developing countries. While the meeting focussed on administering the work plan for 2011, it also saw parties entrenching in well-known positions. Thus, no progress on market mechanisms was made.

·  Under the convention track the working group on long term cooperative action solely discussed the agenda for 2011 and finally agreed on a schedule that reflects the Cancun results but converts them in the structure of the Bali Action Plan (Cancun-Plus), a move urged by the G-77.

·  The working group for further commitments under the Kyoto Protocol discussed whether to focus its work on determining reduction targets or the legal obligations of a second commitment period. The latter was supported by developing countries, of which some made any further technical discussions conditional on industrialized countries committing towards the Kyoto Protocol. Russia and Japan reiterated that all major emitters should adopt commitments under a new treaty, while the EU could accept a second Kyoto commitment period under the condition that the role of forestry, the CDM and AAUs is clarified first. Issues requiring concessions by developing countries - such as MRV – are more and more becoming bargaining chips for the negotiation on a second commitment period.

·  The meeting was preceded by workshops on technology cooperation and on global mitigation actions. For the first time developing countries presented mitigation scenarios in the context of climate negotiations..
The EB met for its 60th meeting from 11 - 15 April in Bangkok. It took the following decisions:

·  Two DOEs from the South (South African and India) were newly accredited for a wide range of scopes. A Korean candidate withdrew its application. While six performance assessments were positive, two were negative, relating to ERM and the Colombian company ICONTEC.

·  The EB rubberstamped the recommendations of the 48th Meth Panel, rejecting four large-scale methodologies including the long-pending cement benchmark, while revising four methodologies and one tool. The revision of the grid emission factor tool now allows using a non-zero emission factor if the electricity grid extends to other countries than the host country and substantial imports occur. This could become quite relevant for Central America, Southern Africa, South and South-East Asia. Likewise, the revision of ACM 0012 for waste energy recovery projects should considerably improve its applicability, allowing greenfield projects, and unfreeze the long pipeline of projects stuck in validation. An additionality loophole for waste heat recovery projects under ACM 0012 was closed by the decision not to accept an internal price for waste gas specified by the project owner. Some of the most glaring non-additional projects in the past had used such arbitrary transfer prices. Moreover, investment testing was mandated for greenfield projects. In the forestry sector, the first top-down methodology was approved as AR-AM0013. It includes eight approved tools as methodological modules.

·  Likewise, the five small-scale methodologies proposed by the SSC WG were all approved, including irrigation management for rice fields, street lighting and the revolutionary solar water heater methodology that allows project developers to choose between monitoring, a simulation model and use of a default value. Three revisions were made, one of which further simplifies the methodology for efficient cookstoves reducing use of non-renewable biomass.

·  The automatic additionality of micro-scale projects in least developed countries and small island states was expanded to CPAs as well as type III small-scale projects with annual CER volumes below 20,000.

·  The combined additionality tool now applies to all kinds of retrofit and replacement projects. Four scenarios are defined differentiated according whether an investment is required to sustain the baseline activity or not. Projects first apply a barrier test and only use the investment test if several scenarios “survive” the barrier test.

·  With regard to reviews, the EB registered 32 of 33 projects on its table, which shows that rejections become extremely rare. The only project rejected was a small wind project in India.

·  In contrast to the registration cases, rejections of issuance requests pick up with four rejections. Three previous rejections totalling 0.71 m CERs will be reopened.

·  All panels and working groups were newly elected, with incumbents generally confirmed.

·  The EB will translate meeting summaries in all official UN languages.

Ihre Listenpunkte

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Discussion on new market mechanisms

·  Bangladesh unveiled a low carbon growth plan that envisages a 30 per cent emission reduction below the business as usual scenario of 150 million tCO2e by 2030. Though, the country makes this conditional on obtaining international support.

·  Indonesia, Thailand, China, Chile, Colombia, Costa Rica, Mexico, Ukraine and Turkey have all submitted expressions of interest in the bank’s Partnership for Market Readiness. This shows a high willingness to engage in new market mechanisms of these large and important countries.

·  Japan has opened an application phase for projects under its bilateral mechanism. Domestic companies and NGOs may submit proposals until 26 May, prioritising waste, wastewater, biomass, agriculture, forestry and transport.

·  The still juvenile character of REDD attracts spurious market actors. Just recently, an Australian carbon offset developer has been accused to be involved in a massive REDD fraud. The company took several million Euros, inter alia to offset the emissions of schools or sport events and claimed to provide forest protection credits. But apparently the respective conservation projects in Malaysia, DR Congo or on the Philippines do not exist.

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Supporting up-scaling of mitigation through programmes and bundles

·  In April, 4 PoAs entered the validation pipeline – one hydro (run of river) in Honduras, one Solar PV in South Korea, one landfill composting in Sri Lanka and one biomass energy in Thailand.

·  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.

·  In terms of technologies, demand & supply side energy efficiency measures lead with 30 PoAs, followed by biogas (25) and renewables (20).

·  The inclusion of additional CPAs under registered PoAs picks up: The Brazilian Sadia manure management programme has included a package of 87 CPAs, totaling to 1049 CPAs under the scheme. Also, the Ugandan municipal waste compost programme has added 7 CPAs (total: 8), and the Indian Bachat Lamp Yojana PoA included one further CPA (total: 2).

·  A solar water heater PoA in South Africa has been registered. The programme aims at distributing solar water heating systems towards households free of charge and comprises estimated emission reductions of 77,000 CER per year by the date of registration.

·  The World Bank Institute launched a PoA e-learning course – www.web.worldbank.org

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The CDM in Least Developed Countries and Sub-Saharan Africa

·  South African Carbon Check Ltd. is the first African company that has been approved as a DOE. The firm was entitled by the EB at its 60th meeting to undertake validation and verification in all sectors except for construction, transport, fugitive emissions from HFCs and SF6, solvents use, agriculture and forestry.

·  Under a small scale energy efficient lighting project 400,000 compact fluorescent lamps shall be allocated to the residential sector of Togo, generating some 5,000 CERs annually.

·  A sectoral potential study for CDM activities in selected Least Developed Countries in Africa has been published by the Wuppertal Institute and GFA Envest on behalf of the German Environment Ministry (www.jiko-bmu.de, 5 MB).

·  Five projects from Least Developed Countries entered the pipeline in April:
> Xekaman 3 Hydropower Project (Lao PDR, 0.3 million CERs by 2012)
> Nam Sim Hydropower Project (Lao PDR, project starts in 2013)
> Nam Lik 1-2 Hydropower Project (Lao PDR, 0.2 million CERs by 2012)
> Cimentos do Mozambique – Matola Gas Company Fuel (Mozambique, <0.1million CERs by 2012)
> Togo Compact Fluorescent Lamp (CFL) distribution project (Togo, <0.1 million CERs by 2012)

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GIZ CDM Capacity Building

The potential for using CDM or NAMAs as the cornerstone of host country market mechanism strategies was discussed at two GIZ-supported workshops in Tunis on April 29 and May 2, one covering representatives of 10 MENA and middle East countries and the other one Tunisian government officials. Generally, the validity of a post-2012 CDM approach was questioned given the EU’s import ban of CERs from projects registered after 2012. However, it was also cautioned that setting up rules for NAMA crediting is likely to take many years and thus one should continue to promote CDM, even if it could only be sold outside of the EU. The pros and cons of cross-country PoA and of a pilot for sectoral crediting under a bilateral contract with the EU were discussed as well.

Besides these two events, the members of the Tunisian DNA were informed about the latest international developments regarding the CDM.

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Project developers, operational entities and consultants

·  In April, 120 projects entered the pipeline, a value close to the record. The largest three all are gas power plants:
> Greenhouse Gas Emission Reductions Through Natural Gas – Samalkot Power – Phase II (India, 2.1 million CERs by 2012)
> Shanghai Lingang natural gas based power generation project (China, 1.4 million CERs by 2012)
> Switch from Single Cycle to Combined Cycle (CC) CDM Project at Jahrom Power Plant (Iran, 1.3 million CERs by 2012)

·  After a massive NGO campaign against the controversial Honduran Aguan CDM activity, CER buyer EDF trading has pulled out of the project. Exportadora del Atlantico, the owner of the biogas project, is accused of violent action including murder against farmers living on its palmoil plantation farmland. In addition, German public development bank DEG suspended an already approved loan to Grupo Dinant, the owner of Exportadora del Atlantico. In early 2011 the CDM consultancy Perspectives, who had been commissioned to draft the PDD, had already given back the assignment.

·  A purchase of French chemical company Rhodia is contemplated by its Belgian competitor Solvay. Rhodia has so far generated some 80 million CERs under the CDM through its N2O destruction facilities. The impact on the CDM business of the company and its subsidiary Orbeo is unclear.

·  The news service Bloomberg claims to have evidence for manipulation of the HFC-23 production by Chinese firms, with 9 out of 11 plants reducing HCFC-22 production once they had reached the cap beyond which no further CERs would be issued. Over 60% of plants decreased the rate of HFC23 produced per unit of HCFC-22 once the cap had been reached Bloomberg apparently got hold of the UNFCCC Secretariat report written after CDM Watch’s request for revision of HFC-23 methodology AM 0001.

·  Swedish clothing retailer H&M has acquired 67,000 Gold Standard CERs from project developer Tricorona in order to offset the emissions exceeding its 2010 corporate emission cap. The credits origin from Indian biomass power and Chinese wind power projects.

·  Belgian carbon broker Blue World Carbon has acquired Caspervandertak Consulting’s Southeast Asian CDM team for an undisclosed sum in order to strengthen its presence in the region.

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Incentives for CDM investment

·  The price for EUAs was 16.4 Euro for the spot market and 18 Euro for 2012 vintages at the end of April. The spread to issued CERs was 3.3 Euro.

·  Given the massive issuance of CERs in the last months, UNEP Risoe Centre has increased its forecast of pre-2013 CER issuance from 890 million to 1070 million. To date, this has not weakened the CER price.

·  In a move continuing the institutional blunders that have plagued its JI programme, Russia announced a revision of the national rules for JI project approval. Denmark has withdrawn from four Russian JI projects due to the newly introduced 10 Euro floor price for ERUs invalidating contracts signed long ago and the lack of an unconditional approval. The projects initially were thought to generate 10 million ERUs.

·  The European Commission regards raising US$100 billion per year by 2020 for climate finance to developing countries as challenging but feasible. According to the Commission, the CDM and sectoral mechanisms are amongst the key elements to reach this goal.

·  The UK has closed its Climate Change Projects Office that supported British companies in engaging in CDM/JI due to budget constraints. Services are now provided online.

·  The Belgian Development Agency is tendering a long term CDM capacity building and project identification mission for Uganda, worth 2 million Euro.

·  Norway eyes Russian post 2012 offsets for domestic compliance. However, the nature of these credits depends on the future development of JI under the UNFCCC.

·  China is substantiating its plans to install a domestic emissions trading scheme by 2015. Six regions will start pilot trading schemes from 2013 onwards. A domestic Chinese emissions trading market is expected to interfere with the existing CDM since double counting needs to be avoided.

·  A recent study on the CDM potential in Vietnam estimates the mitigation potential through CDM projects in the sectors wind energy, biomass energy, waste treatment and wastewater treatment for more than 30 million tCO2e per year - www.ambhanoi.um.dk (5.8 MB).

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Web news and downloads of the month

·  Michael Gillenwater and Stephen Seres evaluate the CDM against quality criteria for offsets at: www.pewclimate.org (1.2 MB).

·  Transparency International discusses the integrity of climate policy in a detailed and frank report – see : www.transparency.org (3.3 MB).

·  Reform options for Indian CDM projects in the power and cement sector are discussed here: www.iges.or.jp.

·  The future of offsetting projects in Europe is discussed at: www.climatefocus.com (950 KB).

·  The experiences of the Danish CDM/JI programme are described at: www.ens.dk (7.4 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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