A proposal for discussion to the UNFCCC Parties
1. Introduction
Many small-scale technologies will not be able to
absorb the significant costs inherent in developing CDM projects.
The costs for formulating project baselines and certifying emission
reductions for small projects are likely to erode any climate-friendly
investment incentives provided by the CDM, rendering such projects
noncompetitive. This is unfortunate, considering that many small-scale
projects will deliver safe, renewable energy that is essential
to promoting sustainable development and solving the long-term
problems of climate change. Unless action is taken to "fast track"
small projects in the CDM, the inherent bias of the mechanism
will be towards large capital-intensive projects.
The UNFCCC Parties should, therefore, consider the
following proposal in order to improve the prospect for small-scale
CDM projects, as well as provide incentives to speed the market
penetration of the most climate-friendly technologies. These technologies
are likely to play an important role in attaining the ultimate
goal of the Kyoto Protocol.
2. Fast-Track Proposal
i. Project eligibility. All energy projects,
on- or off-grid, that are 20-30 megawatts or smaller are eligible.
This includes energy generation and demand-side energy efficiency1
projects.
ii. Automatic additionality. Eligible projects
are considered to be additional. This is a plausible assumption,
considering that small projects face significant and well known
implementation barriers. The few small-scale energy projects that
do take place rely heavily on public subsidies.
iii. Standardized baseline. Eligible projects
in any non-Annex I country may use a standard pre-approved baseline
that reflects a given amount of emissions per kilowatt hour (kg
CO2/Kwh) generated or reduced. A possible baseline is the global
weighted average performance (expressed in kg CO2/Kwh) of the
most efficient and recently constructed fossil fuel projects.
This pre-approved baseline would apply for the life of a project,
and enable easy calculation of expected CDM credits (see iv).
All projects, however, retain the option of using a project-specific
baseline (e.g., to demonstrate that the project is offsetting
emissions from coal), but this would require a baseline study
and subsequent third party inspection (like non-eligible Fast
Track projects).
iv. Credit calculation. Credit determinations
are made strictly on the basis of kilowatt hours generated or
reduced (i.e., indirect emissions or leakage is not factored in
to credit calculations). Thus, project that have associated emissions
(such as hydro and fossil fuel) would need to calculate the CO2
equivalent emissions per Kwh of electricity generated. Projects
that emit zero direct emissions or that reduce emissions would
calculate credits strictly on the basis of Kwhs generated or reduced,
respectively.
v. Project bundling. Multiple small-scale
activities of the same kind can be bundled together to form a
single CDM project, so long as the overall project's size does
not exceed the threshold eligibility size (20-30 MW).2
vi. Expedited project registration. Eligible
projects would be able to submit a "project design document" directly
to the Executive Board for approval (i.e., registration), provided
that the project is approved by the host government. This would
obviate the need for project developers to pay for the services
of a third party assessment before project implementation.
All other CDM rules, such as those for monitoring
and certification, would also apply to projects eligible for the
above proposal.
3. How does this proposal relate to other potential
CDM project types?
This proposal does not deny eligibility, or relate
directly to, any larger potential CDM projects. It is without
prejudice to the many other potentially beneficial projects that
may meet the general CDM eligibility criteria, including and larger
power generation projects. However, relative to small projects,
larger CDM activities will better be able to absorb the transaction
costs inherent in the CDM.
4. Does this proposal pose an environmental danger
to the Kyoto Protocol?
The Kyoto Protocol allows credits earned through
the CDM to be used by industrialized countries to offset their
domestic emissions. This proposal, however, would not result in
a quantity of credits large enough to significantly dilute the
emission targets of industrialized countries. For example, under
this proposal, a 1 megawatt zero-emission power project would
result in about 2,800 tons of CO2 reduced (i.e., 2,800 credits)
per year.3 Hypothetically, if 50,000 such projects
were credited under the CDM (an inconceivably large number), it
would generate yearly credits reflecting less than 1 percent of
total annual greenhouse gas emissions from Annex I countries4.
This minor crediting impact is due to the small-scale nature of
the eligible projects.
5. What are the financial, technology, and sustainable
development benefits?
While the crediting impact on Annex I targets may
be trivial, the broader benefits for climate protection and sustainable
development could be large. First, adopting clear, simple, and
streamlined rules to earn CDM credits will increase the financial
viability of small-scale projects. Such projects are likely to
deliver significant local and national development benefits, such
as rural electrification and reduced fuel costs, in countries
hosting CDM projects. Second, new incentives such as those in
this proposal could speed the market development of the most climate-friendly
technologies, which are essential for accomplishing the ultimate
objective of the Climate Convention.
For more information please contact:
Kevin Baumert,
World Resources Institute, 1-202-729-7731
Christiana Figueres, Center for Sustainable Development
in the Americas, 1-202-588-0155
David Moorcroft, World Business Council on Sustainable
Development, 41-22-839-3197
NOTES
1. Since energy efficiency projects are
not measured in installed capacity of megawatts, they instead
use a size limit of megawatt hours (MWhs) consistent with a 20-30
MW plant:
20 to 30 MW * 0.60 capacity factor * 8760 hours/year = 105,120
to 157,680 Mwh/year avoided.
2. This is already proposed under Part II, section G
(validation), of the Chairman's Text on Mechanisms.
3. Operating at 60 percent capacity; using OC gas baseline
of 0.55 tons CO2/Mwh.
4. Based on 1997 emission figures from the FCCC/SBI/1999/12.
Total Annex I emissions in1997 is 18,051 MtCO2E.
