State, Trends and Barriers to Carbon Finance in RBEC

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State, Trends and Barriers to Carbon Finance in
RBEC
Marina Olshanskaya Regional Energy/Kyoto
Protocol Specialist RBEC Energy and Environment
Practice Meeting Wednesday 27th September,
2006 Bratislava, Slovakia
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Presentation Overview

• JI versus CDM
• EU Emission Trading Scheme (EU ETS)
• Green Investment Scheme (GIS)
• Current status and potential for carbon finance
• Key problems and barriers
• Some good news and examples

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CDM and JI Host countries

• Countries listed in Annex I to UNFCCC potential
  JI hosts (ERUs sellers) or CDM/JI investors
  (CERs/ERUs buyers)
• With quantified GHG emission reduction targets
  by 5.2 as compared to the baseline emission in
  1990
• New EU member States, Bulgaria, Romania, Belarus,
  Russia, Ukraine, Croatia and Turkey
• Non-Annex I to UNFCCC potential CDM hosts (CERs
  sellers)
• No quantified GHG emission reduction targets
• South Caucasus, Moldova, Western Balkan, Central
  Asia, Cyprus
• Kazakhstan not ratified KP, would like to be
  included in the list of Annex I

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CDM and JI Similarities

• Project-based mechanisms a CDM/JI host country
  implements project, generates and sells CERs/ERUs
  to a CDM/JI investor (Annex I) country which use
  them to meet its national Kyoto target
• Similar project development cycles (next
  presentation)
• Same eligibility criteria
• CDM/JI project should result in measurable GHG
  emission reductions that are additional to what
  would have occurred in the business-as-usual
  scenario

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CDM and JI Differences

• JI hosts are limited by their Kyoto target
  (amount of allocated Assigned Amount Units, AAUs)
  for ERUs they can sell, while CDM hosts are not
• CERs can be issued for project implemented from
  2000 through 2012, while ERUs only during
  2008-2012
• Country eligibility criteria for participation in
  JI are more stringent than for CDM
• CDM ratification of Kyoto Protocol and
  establishment of DNA
• JI CDM criteria plus calculation of AAUs,
  establishment of national registry (Track II),
  submission of national inventory, system for
  calculation of GHG emission/sinks (Track I)

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RBEC JI Hosts and their Kyoto targets, 1mlntCO2eq
Country Annual Assigned Amount GHG Emissions GHG Emissions Kyoto Units Kyoto Units
Country Annual Assigned Amount Base Year 2010 2010 Demand 2010 Supply
Bulgaria 144 523 157 090 133 694 10 829
Croatia 30 348 31 945 24 500 5 848
Czech Republic 176 657 192 019 141 700 34 957
Estonia 40 014 43 494 11 660 28 354
Hungary 95 535 101 633 62 800 32 735
Latvia 28 570 31 054 13 000 15 570
Lithuania 47 425 51 549 59 148 11 723
Poland 530 554 564 419 496 836 33 718
Romania 243 689 264 879 284 368 40 679
Russia 3 040 332 3 040 332 2 911 800 128 532
Slovakia 67 102 72 937 66 975 127
Slovenia 17 675 19 212 19 897 2 222
Ukraine 919 220 919 220 527 314 391 906
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Green Investment Scheme (GIS)

• Annex I countries with surplus AAUs can sell part
  of it to other Annex I countries
• Several Annex I parties indicated their
  willingness to buy provided the revenues from
  AAU sales are earmarked for green purposes (GHG
  mitigation project or other environmental
  projects)
• Potential GIS hosts Bulgaria, Ukraine, Russia,
  Belarus, Poland
• Key issues to consider for GIS
• Need to meet Track I JI eligibility requirements
  (no country yet)
• Need to design and establish GIS (governance
  structure, project development and implementation
  capacities, monitoring system, etc)
• Calculation and justification of AAUs that can be
  sold through GIS

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EU Emission Trading Scheme Motivation
Emission Reduction e.g. plant modernisation
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EU Emission Trading Scheme
EU ETS Market
CDM / JI ??
CER (Certificates from CDM projects) ERU
(Certificates from JI projects)
EUA (EU Allowances)
Purchase
Sale
From 2008 further reduction of allocated
allowances
?
Banking
2005
...
2006
2007
2008
1st trading period of EU ETS
2nd trading period of EU ETS
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EU Emission Trading Scheme

• Eligibility among RBEC countries
• All EU member states, Romania, Bulgaria, Croatia
  (after EU accession)
• Preparation of National Allocation Plan (NAP)
  which assign GHG emission quotas to key GHG
  emitting facilities in country
• CERs/ERUs can be used by EU ETS participants to
  meet their target under NAP (EU Linking
  Directive)
• EU Linking Directive provides for legal basis for
  EU companies to use CERs/ERUs for compliance
  within the EU ETS
• Once CERs/ERUs are physically available, the
  should have the value of EUAs (EU Allocated
  Allowances)
• Member States can set a maximum for the use of
  CERs
• CERs have to fulfil certain additional conditions
  for EU ETS compliance use (e.g. Investor country
  approval, World Commission on Dams rules for
  hydropower, no Afforestration / Reforestration
  projects)

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EU Green and White Energy Certificates

• White/green Energy Certificates market
  mechanisms introduced by EU to help countries
  meet their energy efficiency (white) or renewable
  energy (green) targets
• No formal linkages with Kyoto/carbon market,
  unless special regulation is introduced by a host
  country
• Different institutional arrangement, monitoring
  and verification protocols
• In theory one facility (e.g. Wind Park in
  Hungary) can generate and sell both ERUs (under
  JI ) and EU green energy certificates if the
  project meets the requirement of each mechanisms

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Current status RBECs share in CDM/JI market (
projects September 06)
RBEC - 130 11 CDM projects (Moldova, Armenia,
Kyrgyzstan and Tajikistan) 119 JI projects
(Bulgaria, Romania, Czech and Slovak Republics,
Poland, Hungary, Lithuania, Estonia, Ukraine,
Russia)
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Current status RBECs share in CDM/JI market
volume (tCO2 eq - September 06)
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RBEC GHG Reduction Potential
Country MtCO2 World Rank ofWorld Total
Russian Federation 1,915.2 (4) 5.69
Ukraine 481.9 (17) 1.43
Poland 380.6 (21) 1.13
Turkey 355.4 (22) 1.06
Uzbekistan 180.8 (31) 0.54
Kazakhstan 161.0 (34) 0.48
Czech Republic 143.0 (37) 0.42
Romania 124.7 (41) 0.37
Belarus 78.7 (51) 0.23
Hungary 75.7 (54) 0.22
Turkmenistan 64.1 (63) 0.19
Bulgaria 61.8 (66) 0.18
Serbia 60.3 (67) 0.18
Azerbaijan 55.4 (72) 0.16
Slovakia 45.4 (78) 0.13
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RBEC Carbon Intensity of GDP (tCO2eq/mlnGDPintl)
Country Carbon intensity of GDP World rank
Uzbekistan 3,079.0 1
Kazakhstan 1,787.5 4
Turkmenistan 1,174.8 5
Ukraine 1,376.6 7
Russia 1,361.2 8
Belarus 1,135.2 11
Moldova 1,134.9 12
Azerbaijan 1,112.7 13
Tajikistan 895.1 18
Bulgaria 856.6 21
Czech Republic 725.2 29
FYR Macedonia 705.9 31
Kyrgyzstan 660.1 33
Romania 641.8 35
Slovakia 608.0 37
BiH 594.1 38
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RBEC Carbon Intensity of GDP (tCO2eq/mlnGDPintl)
, cont
Country Carbon intensity of GDP World rank
Turkey 458.8 54
Croatia 456.2 56
Slovenia 443.5 62
Hungary 401.1 69
Lithuania 359.1 80
Armenia 322.8 91
Georgia 322.3 93
Latvia 309.6 95
Albania 296.5 99
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Why key issues and barriers

• Poor investment climate and lack of underlying
  financing for implementation of projects
• Carbon finance only marginally improves economics
  of potential projects, especially those with
  strong development dividend

Sector Carbon Finance Impact change in IRR, (at 6.5/tCO2eq)
Industrial gases (HFCs) and NOx 100 500
Landfill gas 5.5 50
Coal-mine methane 7-12
Biomass 2-8
Forestry 0.5 7
Renewable energy 0.2 3
District heating 0.5 - 1
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Why key issues and barriers, cont

• Limited knowledge of carbon finance, especially
  in national investment/banking sector
• Lack of data and methodologies for estimation of
  baseline emissions (e.g. no approved CDM
  methodology for projects in district heating)
• Absence/weakness of national institutional
  framework for JI/CDM (see How-to Guide)
• Small/medium countries (most countries in RBEC)
  have scarce supply of project with large volume
  (above 100tCO2eq/yr) of CERs/ERUs, thus difficult
  to compete with large CDM/JI hosts
• Low baseline GHG emission due to
  under-consumption of energy (lack of access or
  high costs)

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There are good news barriers are possible to
overcome

• Armenia Nubarashen Landfill Gas Capture and
  Power Generation Project in Yerevan (Japan)
• Moldova Moldova biomass heating in rural
  communities project (World Banks Community
  Development Carbon Fund)
• Tajikistan Pamir Energy Pamir I Hydropower
  Generation (14 MW) (Unilateral Aga-Han
  Foundation)

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Thank you!