Baselines and additionality

1

• ??????
• Baselines and additionality

??CDM??????????Training Material Building
Capacity for the CDM in China
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????? The baseline scenario

• ???(?????)Baseline (baseline scenario )
• ???CDM????????,?GHG?????????
• Scenario forecasted to show the trend of
  anthropogenic GHG emissions
• that would occur in the absence of the proposed
  CDM project.
• ????Project scenario
• ??CDM????????,?GHG?????????
• Scenario forecast to show the trend of
  anthropogenic GHG emissions
• that would occur with the proposed CDM project
  intervention.

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???Baseline

• CDM???????????????????????????????????????????????
  ?????????A ????????????????
• The baseline for a CDM project activity is the
  scenario that reasonably represents the
  anthropogenic emissions by sources of greenhouse
  gases that would occur in the absence of the
  proposed project activity. A baseline shall cover
  emissions from all gases, sectors and source
  categories listed in Annex A within the project
  boundary.
• ???????????????????????????????????????????????
• The baseline may include a scenario where future
  anthropogenic emissions by sources are projected
  to rise above current levels, due to the specific
  circumstances of the host Party.
• CDM modalities procedures, paragraph 44 46

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?????Baseline approaches (MA48)
????????????????????????????????????? Select from
among the following approaches the one deemed
most appropriate for the project activity and
justify the appropriateness of your choice

• ?????????????(????)
• ????????????,??????????????????????
• ???????????????????,????????????????????20

• Existing actual or historical emissions, as
  applicable
• Emissions from a technology that represents an
  economically attractive course of action, taking
  into account barriers to investment
• The average emissions of similar project
  activities undertaken in the previous five years,
  in similar social, economic, environmental and
  technological circumstances, and whose
  performance is among the top 20 per cent of their
  category.

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?????Establishing a baseline

• ??????????
• ???????????????????
• ??????????????????????????????????????,???????
• ??????????????????????,???????????????????????????
  ????
• ????CDM????,???????????,??????????

• On a project-specific basis
• In accordance with provisions for the use of
  approved and new methodologies
• In a transparent and conservative manner manner
  regarding the choice of approaches, assumptions,
  methodologies, parameters, data sources, key
  factors and additionality, and taking into
  account uncertainty
• Taking into account relevant national and/or
  sector policies and circumstances, such as sector
  reform initiatives, local fuel availability,
  power sector expansion plans, and the economic
  situation in the project sector.
• In the case of small-scale CDM project activities
  which meet the criteria specified in accordance
  with simplified procedures developed for such
  activities

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???????Baseline and additionality

eq
2-
???Emission reductions
GHG emissions t CO
Year
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?????Additionality requirements

• CDM??????????????????????????????????
• GHG emission reductions of CDM projects shall be
  real, measurable, and assure long-term benefits
  related to the mitigation of climate change
• CDM ??????????????????????????????????????????
• GHG emission reductions of CDM projects shall be
  additional to any that would occur in the absence
  of the certified project activity.
• Kyoto Protocol, Article 12/ 5(c)

• ????????????????,?????????????????????????????????
  ?????
• A CDM project activity is additional if
  anthropogenic emissions of greenhouse gases by
  sources are reduced below those that would have
  occurred in the absence of the registered CDM
  project activity.
• CDM modalities procedures, paragraph 43

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?????Additionality assessment
????????????????????????????,???????
Additionality assessment is an explanation of
how, through the use of the methodology, it can
be demonstrated that a project activity is
additional and therefore not the baseline
scenario.

• ????????????????????????
• ?????????????????,????????????????
• ??????????????????
• ?????????????,??????? lt???????X

• A flow-chart or series of questions that lead to
  a narrowing of potential baseline options
• A qualitative or quantitative assessment of
  different potential options and an indication of
  why the non-project option is more likely
• A qualitative or quantitative assessment of one
  or more barriers facing the proposed project
  activity
• (An indication that the project type is not
  common practice (e.g. occurs in less than lt x
  of all cases)

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???????? Additionality Introduction of new
legislation

• E??????(?)??????????????????,
  ?????????????????/??????????
• Type E Existing national and/or sectoral
  policies or regulations that create policy driven
• market distortions which give comparative
  advantages to more emissions-intensive
  technologies
• or fuels over less emissions-intensive
  technologies or fuels.
• ??? E?????(?)????????COP???????(1997.12.11?deci
  sion 1/CP.3)?????,????????????????E?????(?)????
  ????COP????????????,????????????????????????
• -Only Type E national and/or sectoral policies
  or regulations that have been implemented
• before adoption of the Kyoto Protocol by the COP
  (decision 1/CP.3, 11 December 1997) shall be
  taken into account when developing a baseline
  scenario. If Type E national and/or sectoral
  policies were implemented since the adoption of
  the Kyoto Protocol, the baseline scenario should
  refer to a hypothetical situation without the
  national and/or sectoral policies or regulations
  being in place.
• E-??????(?)???????,????????????????/??????????(??
  ???????????????)
• Type E- National and/or sectoral policies or
  regulations that give positive comparative
• advantages to less emissions-intensive
  technologies over more emissions-intensive
  technologies (e.g. public subsidies to promote
  the diffusion of renewable energy or to finance
  energy efficiency programs)
• E-?????(?)????????COP???????(1997.12.11?decisio
  n 1/CP.3)?????,??????????????? (??????????????????
  ???????)
• Type E- national and/or sectoral policies or
  regulations that have been implemented since the
• Adoption by the COP of the CDM MP (decision
  17/CP.7, 11 November 2001) may not be taken into
  account in developing a baseline scenario (i.e.
  the baseline scenario should refer to a
  hypothetical situation without the national
  and/or sectoral policies or regulations being in
  place).

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?????The additionality tool

• 0. ??????????
• 0 Justify early start of the project and show
  that CDM was considered
• 1. ????????????
• 1. Baseline options related to existing laws and
  regulations
• 2. ???? 2.Investment analysis
• ???NVP/IRR,??Simple, NPV/IRR, benchmark
• ??,?????Comparisons, sensitivity analysis
• 3. ???? 3 Other barriers
• ??????????
• Other First of kind, capacity, technology etc..
• 4. ??????????
• 4Demonstarte that the project is not common
  practice
• 5. ?????? 5 Impact of CDM registration

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???????-??1 Additionality testing example -Step 1

• ??????
• Define alternatives
• ???????CDM??
• The project not undertaken as CDM project
• ?????????
• All other plausible and credible scenarios
• ????(????)
• The business as usual (as applicable)
• ????
• Check towards legislation
• ??????, ???????????
• If legislation is not enforced, this may cause
  the project to be additional

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???????-??2 - Additionality testing example -Step
2

• ??????????????IRR
• ????CERs?????
• ????????????????
• ???????
• ????
• ????
• ?????????????
• ???????
• ?????????????

• Calculate a conservative internal rate of return
  (IRR) for the proposed project activity
• Excluding expected revenue from the sale of CERs.
  
• Include the incremental investment cost, the
  operations and maintenance costs, and all other
  costs of upgrading the BAU scenario to the
  proposed project activity.
• Also include all revenues generated by the
  project activity, including revenue from the sale
  of electricity and cost savings due to avoided
  electricity purchases,

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???????-??2 - Additionality testing example Step
2

• ?????IRR??????????????????IRR?????????????
• ??????IRR???
• ????????????????(??????)
• ??????IRR???????????
• ??????????????.

• Determine whether the project IRR is
  significantly lower than a conservatively (i.e.
  rather low) expected and acceptable IRR for an
  alternative to this project or a comparable
  project type in the relevant country.
• The conservatively acceptable IRR can be based
  on
• ?Government bond rates or other appropriate
  estimates of the cost-of-capital (e.g. commercial
  lending rates)
• ?Expert views on expected IRRs for this or
  comparable project types
• ?Other hurdle rates that can be applied for the
  country or sector.

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?????????(1) Barriers and Economic Theory (1)
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?????????(2)Barriers and Economic Theory (2)
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????????Project financial analysis

• ???(NPV)

• ?????(IRR)

B (??) Benefits C (??)Costs
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????Time Value

• ???????
• ????1000?? A. Receive 10,000 now OR
• 3????1000??B. Receive 10,000 in three years

???1??????1????? 10 000 now are worth more than
10 000 in the future
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????Future Value
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??Present Value
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???Net Present Value

• ????????????,?????????????????????????????????
• Net Present Value is the cumulative present value
  of income (positive values) and a series of
  future payments (negative values) from a series
  of investment cash flow using a discount rate to
  handle time values of money.

i Discount rate CF Cash Flow j the j-th
period n the total number of the period
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???Net Present Value

• ???????, NPV gt 0 ???????????,?????????
• more economic attractive
• ???????, NPV lt 0???????????,????????,
• less economic attractive
• ??????, NPV 0???????????????????????
• Balance attractive

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?????IRR

• ???????????????????
• IRR is the discount rate r which makes the NPV of
  the investment exactly zero.

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??2??Step 2 summary

• ??NPV/IRR ??,??CERs?????,????????
• if NPV/IRR is too low, the project will not go
  ahead anyway, regardless of the CERs revenue or
  not
• ??NPV/IRR??,?????????????
• if NPV/IRR is too high, the project will have
  difficulties in explaining the investment
  barrier, as it may be argued that it would be
  implemented anyway, regardless of the CERs
  revenue.
• ???????????????,DOE????????????
• it is very difficult for the DOE to check the
  IRR as we don't know a project developer's
  internal costing approach, the way benefits are
  evaluated, etc. there are a lot of assumptions in
  such calculations, as we're talking about future
  cash flows.
• ?????????????????????????NPV/IRR????
• DNV bases its judgement on experiences with
  similar projects in the respective sector and
  country context and will ask authorities or other
  stakeholders whether the NPV/IRR analysis in the
  PDD is reasonable.
• ?PDD????????????????
• Add a qualitative discussion about the NPV/IRR
  in your PDD to make the case of an investment
  barrier.

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???????-??3 - Additionality testing example -Step
3

• ????
• Barrier assessment
• ????
• Investment barriers
• ????
• Technological barriers
• ??????????
• Barriers due to prevailing practice
• ?????????
• Support barriers with sufficient evidence
• ?????????????? (?????!)
• Show that at least one of the scenarios would
  not be prevented by the barriers (that will be
  the baseline!)

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???????-??4 - Additionality testing example -Step
4

• ??????
• Common practice analysis
• ????
• Other activities
• ??????
• Similar options occurring
• ????
• Discuss!

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??5 CDM ?????Step 5. Impact of CDM registration

• ??????????????CDM???,????????????????????(???????)
  ????????(???????)
• Explain how the approval and registration of the
  project activity as a CDM activity, and the
  attendant benefits and incentives derived from
  the project activity, will alleviate the economic
  and financial
• hurdles (Step 2) or other identified barriers
  (Step 3) and thus enable the project activity to
  be undertaken.
• ????????????
• The benefits and incentives can be of various
  types, such as
• ???????Anthropogenic greenhouse gas emission
  reductions
• ??CERs???The financial benefit of the revenue
  obtained by selling CERs,
• ?????????Attracting new players who are not
  exposed to the same barriers, or can accept a
  lower IRR (for instance because they have access
  to cheaper capital),
• ????????Attracting new players who bring the
  capacity to implement a new technology, and
• ????Reducing inflation /exchange rate risk
  affecting expected revenues and attractiveness
  for investors.