CDM update from UNEP Risø
At a recent CDM workshop, Jørgen Fennhan of the UNEP Risø Centre on Energy, Climate and Sustainable Development gave an update of the current state of play in the CDM (88KB, PDF), based on the status of projects in the formal CDM project cycle. This has revealed some interesting trends.
There are 4,586 CDM projects in the pipeline at the moment; this does not include projects which are pre- PIN . That number could well be inflated by those projects which are still on the books of various DOEs but are unlikely to ever be registered. From 31 March, DOEs will, however, be required to report on the exact number of CDM projects in the validation backlog and how long these have been in backlog. This may allow the market to get a clearer idea of how many such projects may never come to registration.
Of the 4,586 projects in the pipeline, 1,370 have been registered and 87 rejected. These figures are heavily influenced by the industrial projects to date; the number of renewable energy projects is rising most quickly at the present time.
The timelines shown for projects to reach the various stages in the CDM cycle are interesting in themselves. The average is 660 days from the start of validation to registration. This does not take into account the period from the project idea to the development of the final PDD necessary to begin the validation process; estimates on this vary from 6 months to 18 months.
UNEP Risø are projecting a total of 286 million CER s per year up until 2012, and 666 million CERs a year for the period 2013 to 2020. This represents around 1.3 billion CERs for the period up until 2012 — assuming that all projects in the pipeline go onto registration and issuance in accordance with the PDD projections for numbers of CERs.
However, looking at the figures for issuances, there is an apparent disparity between the different types of project: there are low rates of issuance for some types (such as landfill or coal mine methane projects) compared to the projected CER volumes in the PDD s. Current projections for issued CERs are:
The spread between registered and unregistered projects in the pipeline, and the number of projects which still need to bring forward requests for issuances, indicates that the CDM Executive Board and the UNFCCC Secretariat have a heavy workload ahead of them.
Turning to methodologies, 296 are registered: transport and energy efficiency methodologies are lagging behind other types.
Our thanks to Jørgen Fennhan of the UNEP Risø Centre on Energy, Climate and Sustainable Development for his contribution.
EUA auctions: lessons learnt from the UK
The design, timing and harmonisation of approaches across Europe to the auction of allowances in Phase III will have a significant impact on the secondary market. The auction of Phase II EUAs by the UK Government in late 2008 provides some lessons for that process (as will the upcoming auction of 24 March).
A key element of the UK approach was the approval of primary participants that were required to meet certain criteria, including their capacity to offer access to the auction at no cost to entities with compliance obligations (indirect participants).
In effect, this limited potential primary participants to large financial institutions. The access each primary participant was obliged to offer indirect participants was provided at no cost but brought with it a number of obligations. Those included identity checks; performance obligations; document retention for two years; the establishment of internal information barriers; and, importantly, potentially managing credit risk in respect of indirect participants.
While the auction managed to attract four primary participants, the lack of a cost recovery mechanism for the obligations imposed on them limited the attractiveness of the role. There was also no positive incentive to locate indirect participants and the lack of cost recovery could be seen as a disincentive.
As a result, a mechanism designed to grant widespread access to an auction did not achieve all its goals. The range of primary participants available to indirect participants was too limited.
This issue will have to be addressed during development of the regulation for Phase III auctions.
Climate Change Act and the CRC
On 26 January, the remaining unimplemented provisions of the Climate Change Act came into force in the UK. The Act is the flagship of the UK Government’s domestic climate change policy through which, it is hoped by the Government, that the UK will take a global lead in finding a suitable post-2012 environmental solution.
With President Obama’s recent environmental announcements in the US indicating a dramatic and ambitious shift in the United State’s climate change policy, officials in the US, as well as in other industrialised countries, will be looking with interest at the progress of the CRC , a domestic initiative introduced by the Act creating a cap-and-trade system to function alongside the existing EU ETS and CCA schemes, targeting large, non-intensive energy consumers in the UK.
The CRC should, initially, affect over 5,000 organisations at 50,000 sites around the UK, with the aim of reducing the carbon output of these installations by around 1.2 million tonnes of CO2 per year by 2020. Commentators have already signalled that some operators are inadequately prepared to meet the demands to be imposed by the CRC upon implementation in April 2010. The preparations of operators likely to fall within the scope of the CRC are not helped by the slippage of the timetable. The draft CRC regulations and stakeholder consultation — scheduled for publication in autumn 2008 — have now been rescheduled for February of this year, although this time frame could slip further.
The initial delay has already caused the registration period of the CRC to run concurrently with the first six months of the scheme. It remains to be seen if this further delay will have any significant impact on the CRC’s implementation.
When the draft regulations and public consultation are released, climate change secretary, Ed Miliband is likely to face particular pressure over the relationship between the CRC and ROCs , the tradable credits issued by Ofgem certifying power generated by a clean source. Under the present CRC proposal, businesses are entitled to trade their ROCs or claim their reduced carbon footprint under the CRC regulations but they are not entitled to do both, because of claims that this would lead to double counting.
Recent reports in the British press have highlighted how this has put multi-million renewable investments in wind farms throughout the UK in jeopardy as investors would have to choose between paying financial penalties under the CRC for failing to meet energy reduction targets or forgo valuable ROC income streams.