IES offsets & opportunities

The World Bank in Vietnam
Th W ld B k i Vi

Vietnam D
Vi t
Development I f
l
t Information Center
ti
C t

Vietnam Blended Learning Program

Carbon Offset & Carbon Finance Opportunities for Viet Nam

Proposed by:

UQ SMART – The University of Queensland (Australia)

Institute of Energy Science (Vietnam)

Sc edu e
Schedule

Part 1 – Carbon Offsets?
Part 2 – The CDM & Other Standards
Part 3 – Carbon Markets
Part 4 – Carbon Finance
Part 5 – Opportunities for Vietnam

Ca bo O sets
Carbon Offsets?

REDUCED EMISSIONS
-

energy efficiency
materials efficiency
pollution management
investment in new technologies

AVOIDED EMISSIONS
- fuel switch
- redesign business processes
- onsite RE energy generation

OFFSET EMISSIONS
-

carbon, capture and storage
revegetation
soil carbon
forestry

Tonnes of CO2-e
AVOIDED, REDUCED
or OFFSET

-

measured
modelled
verified
insured
registered
certified
traded
cleared
settled
registered

Ca bo O sets
Carbon Offsets?

PERMITS
•

Auctioned by the
government in
accordance with
the scheme cap /
target

•

Both 1 unit = 1tCO2e

OFFSETS

•

Both financial
instruments / assets

•

•

Both may be used for
compliance (subject
to rules)

Issued under
carbon offset
schemes for
projects that
sequester or avoid
GHG emissions

Ca bo O sets
Carbon Offsets?
VOLUNTARY

COMPLIANCE

7 Carbon Management Options
Ca bo
a age e t Opt o s
Buy Auction Permits
Buy Secondary
Market Permits
Shutdown Business
Bank P
B k Permits
it

Voluntary
Options

Exercise Abatement
Options
Buy Offsets

Compliance
Options

Co p a ce Offsets
Compliance O sets

What types of offsets
can a liable entity
typically use?

Co p a ce Offsets
Compliance O sets

CDM

JI

LULUCF

Kyoto IET

Certified
Emission
E i i
Reductions

Emission
Reduction
Units

Removal
Units
U it

Assigned
Amount
A
Units

Voluntary Offsets
o u ta y O sets

What types of offsets can an
entity typically use for
voluntary purposes?

Voluntary Offsets
o u ta y O sets
CDM

JI

LULUCF

Certified
Emission
Reductions

Emission
Reduction
Units

Removal
Units

Voluntary Offsets
o u ta y O sets
Case Study: National Carbon Offset
Standard


Many organisations claiming to be “carbon neutral”, “low carbon” etc for the
purpose of demonstrating CSR or exercising a competitive advantage
advantage.



Unfortunately, many of these claims not-credible and false and misleading to
the public and have undermined the credibility off carbon offset markets.



Australian Government started cracking down (+$1m fines and possible
imprisonment) on organisations who make false claims.



Australia Government (DCCEE) withdrew the Greenhouse Friendly Scheme
and introduced the National Carbon Offset Standard (NCOS) as a Quality
Assurance Scheme. Principally. the NCOS principal sets out:


How to measure a carbon footprint (Scopes 1+2+3); &



The types of offsets that can be used to make a “low carbon claim”.
low
claim

Voluntary Offsets
o u ta y O sets
Case Study: National Carbon Offset
Standard


The objective of NCOS is to “ensure the environmental integrity of the carbon
offsets and carbon neutral products available in the Australian voluntary
market for consumers and businesses alike”.



Carbon Management under NCOS focuses more on Measure, Offset and Verify
(usually MACCs not used), given the cheap cost of offsets (e.g. $4 50).
used)
(e g $4-50)



The NCOS carbon neutral program (certification scheme) is administered by
Low Carbon Australia.

www.climatechange.gov.au/government/initiatives/~/media/publications/carbon
accounting/revised-NCOS-standard-2010-pdf.ashx

Offsets: Registration - Retirement
1) Emissions reduction activity occurs
2) Carbon offsets created (validated & issued
under applicable standard e.g. CDM, VCS etc)
3) Created in REGISTRY
4a) Sold via OTC
market (ERPA)

4b) Sold via broker

4c) Sold via Exchange

5) Entity who is liable or engaging in voluntary
action retires carbon offset unit from REGISTRY in
its name
Entity d
E tit reduces it li bilit or meets carbon claim
its liability
t
b
l i

4d) Banked

Important Concepts

Co-benefits - whether the project provides additional benefits e.g.
sustainable development such as new infrastructure for remote communities.
Validation and verification - the project must receive independent
verification and the verifier must be an accredited and recognized
independent third party.
Transparency - carbon credits should be supported by publicly available
project documentation on a registry.
Retirement – Essentially means that the carbon offset cannot be used
again. Various methods of retirement exist. In the
voluntary market, a paper trail is often used (e.g.
certificate or receipts), however increasingly, online
receipts)
increasingly
registries are used to retire credits from the market.
Vintage - The vintage is the year in which the carbon reduction takes place.

Important Concepts
Leakage - Changes in emissions that take place beyond the boundary of the
project but are attributable to the project activity are called emissions
‘leakage’.
Additionality – Additionality is a key concept in evaluating whether or not
an offset project leads to real and measurable GHG reductions. To be
regarded as a valid offset, a project must be p
g
, p j
proven to be ‘additional’ to
what would have occurred anyway e.g. a routine upgrade of equipment or
response to a regulatory requirement cannot be regarded as additional.
 Financial Additionality: the project needs to go beyond BAU. A
BAU
standard test for this is if the project is financially viable without the
offset funding i.e. does it require carbon offsets to make it viable?
 Regulatory Additionality: the project needs to go beyond existing
legal requirements.

Important Concepts
“Baseline & Credit”
GHG emissions

ERUs / CERs
generated
Emissions under project activity

JI or CDM project
Time

Issues
Sin Tax – A way for the guilty to pay for their ‘indulgence’ without changing their
behavior.
Double Counting - the same offset being sold two or three times on, and when a
two businesses claim the same reduction
reduction.
Lack of whole-of-industry standard – there are dodgy offsets and “carbon
cowboys”.
Forward selling – There is wait between establishing a forest and getting offsets.
Some project developers forward sell ‘phantom offsets’ that do not exist as yet
(and may never).
never)
Permanence – It is difficult to guarantee the permanence of the forests, which
may be susceptible to clearing (both legal/illegal), burning, or mismanagement.
This also a common issue with soli carbon.
Monitoring Reporting & Verification (MRV) – difficult in assuring that offsets
are of a high-quality and are ‘real’ and measurable especially in developing
high quality
real
measurable,
countries e.g. REDD.

Part 2 – The CDM & Other Offset Standards

Joint Implementation (JI)

KYOTO PROTOCOL

flexible abatement mechanisms

International
Emissions
Trading

Assigned Amount Units (AAUs)

Clean Development
Mechanism (CDM)

Certified Emission Reductions
(CERs)

Joint Implementation
p
(JI)

Emission Reduction units
(ERUs)

Joint Implementation (JI)



Approved b government in ‘
d by
‘tracks’ rather than continuously
k ’
h
h
l
Very few projects, but potentially large amounts of credits (industrialised countries only)



Big issues around “h air” from Soviet projects and influence on EU-ETS carbon price
d “hot
”f
S
d fl
S
b



No biosequestration projects….



Big d b
Bi debate on whether new non-kyoto country (e.g. R
h h
k
(
Russia) ERU should be ‘valid’
i ) ERUs h ld b ‘ lid’

Clean Development Mechanism (CDM)

KYOTO PROTOCOL

flexible abatement mechanisms

International
Emissions
Trading

Assigned Amount Units (AAUs)

Clean Development
Mechanism (CDM)

Certified Emission Reductions
(CERs)

Joint Implementation
p
(JI)

Emission Reduction units
(ERUs)

Recap: Article 12 of the Kyoto Protocol
p
y

 - 2 goals (reduce emissions & increase sustainable development)


project-bases, ‘baseline and credit’



entities in industrialised nations may invest in GHG-mitigation
projects in developing countries e.g. Australia > Philippines



entities earn abatement credits called Certified Emissions
Reductions (CERs)

What is a CER?

Developed to Developing Nation

Types of Projects

Types of Projects

CERs until 2012 – project type

CERs until 2012 – country

Developing a CDM project – 8 Criteria
1. Voluntary participation e.g. not under duress.
2.

Approval by each party involved in the project- requiring issuing of
Letter of Approval (LoA) that project meets Host Country’s sustainability
requirements.

3.
3

“real measurable and long-term benefits on climate change mitigation
real,
long term benefits”

4.

GHG reductions “additional to any that would occur in the absence of
the project activity”.

5.

Must not result in diversion of Overseas Development Assistance

6.
6

Both public and private entities can participate, subject to EB supervision
participate

7.

Nuclear excluded. EU-ETS no more HFC destruction from mid 2013.

8. Is your project based in an LDC?

Developing a CDM project – Participants

Project Developer – usually private entity i.e. consultant
Project Investor – provision of equity / debt
CER purchaser – e.g. liable entity in Australia
Host Parties – non Annex I country e.g. China
Designated National Authority (DNA) – approves projects via LoA
Designated Operational Entity (DOE) – assured methodologies
CDM Executive Board (EB) – approves project & CERs

Developing a CDM project – 6 Key Stages
Important links:
- http://cdmrulebook.org/
- http://cdm.unfccc.int/index.html

1. Design
- prepare a Project Design Document (PDD) using an approved template.
- the PDD must use an approved baseline and methodology
methodology.
- project must be approved by the Host Country DNA.
2. Validation
- the PDD must be independently audited by a DOE against CDM rules.
- PDD must be made available for public comment.

3. Registration
- if the DOE is satisfied, a request is made for registration of the project
satisfied
to the EB.
- if no review is requested by 3 or more members of the EB it is
automatically registered after 8 weeks.
4. Monitoring
- once registered the proponent is required to monitor the project in
accordance with the monitoring plan contained in the PDD. Focus on
parameters that impact on the greenhouse gas emission reductions.

5. Verification and Certification
- periodic independent review of GHG reductions during verification period.
- verification ensures that the proponent is only credited with the
emission reductions that have actually occurred.
- figure could differ from the estimated emission reductions contained in the PDD
- following verification, DOE certifies to the EB that the verified no. of
verification
no
emission reductions has been achieved.
6. Issuance
- upon receipt of the certification report, the EB issues the CERs into
the proponent’s account within the CDM Registry.

Developing a CDM project – Additionality

 Emissions abatement from a CDM project must be additional to
abatement that would occur in the project’s absence.
 Requires proof that abatement achieved by the project would not have
occurred if the project had not been registered under the CDM.
 Executive Board has developed a tool for demonstrating and assessing
p
g
g
additionality.
 A complex and difficult step in the CDM process

D
Develo
oping a CD pro
g
DM
oject –
Addition
nality
y


Developing a CDM project – Costs
Project developer
$30 – 100K+
Legal costs
$10 – 100K

DNA

CER purchaser
e.g. liable entity

DOE

$10 – 15K+

CDM EB

Project developer
$10 – 15K+ / annum

CDM EB

2% of CERs / annum

Secondary
market

2-5% brokerage

ERPA

DOE

Developing a CDM project – Risk
Counterparty

Project

CDM
Process

Delivery

-

-

-

-

credit
country
authority
g g
language
law
reputation
bundling
currency
expropriation
immunities
industry
liabilities
tax

country
approvals
compliance
p
ownership
structure
O&M
MRV
- science
- performance
- catastrophe

Registry/ITL
fees/charges
methodology
EB discretion
issuance
timing
post 2012
LoAs
additionality

shortfalls
failures
price
allocation
Registry/ITL
payment

Enforcement
-

mechanism
leverage
language
law
decision-maker
conflict of laws
collection

Developing a CDM p j
p g
project – ERPA
 A transaction that transfers carbon credits between two
parties under the Kyoto Protocol.
d
h
l
 The buyer pays the seller cash in exchange for carbon
credits, thereby allowing the purchaser to emit more carbon dioxide
into the atmosphere.
 The standards for this agreements are outlined by the International
Emissions T di
E i i
Trading A
Association.
i ti
CER ERPA template available at:

http://wbcarbonfinance.org/Router.cfm?Page=DocLib&CatalogID=28153

Developing a CDM project – Criticism


CDM has been criticised for not meeting sustainable development
goals e.g. large scale hydro (LSH) in China and HFC destruction



additionality process stringent but can be manipulated
yp
g
p



this will likely lead to have greater transparency



EU-ETS vested interests means most likely continue beyond 2012



EU-ETS however may only look to offsets from LDCs.

Carbon Markets
160

Was a growing market…

140

120

100

Other offsets
Secondary CDM

80

Primary CDM
Other allowances

60

EU ETS Allowances
40

20

0
2005

2006

2007

US$176b in 2011

2008

2009

2010

Carbon Markets

http
p://web.worldb
bank.org/WBSIT
TE/EXTERNAL/T
TOPICS/ENVIRO
ONMENT/EXT
CAR
RBONFINANCE/
/0,,contentMDK
K:23206428~menuPK:5575595~pagePK:6
416
68445~piPK:64
4168309~theSit
tePK:4125853~
~isCURL:Y,00.h
html

Lots of CERs….

Carbon Markets
Future of the CDM & CERs
- Usage of CERs post 2012 only for Kyoto 2 signatories
- Price currently very low, around 20 - 40 euro cents (more expensive,
g
greener p
product)
)
- Price to remain low / volatile for a while yet…
- Some schemes only allow CERs from LDCs….
- 12.5% use under Australia’s Clean Energy Future…

43

Carbon Markets

How big is the offset market?

http://web.wor
rldbank.org/WBSITE/EXTERNAL/T
TOPICS/ENVIRONMENT/EX
TCARBONFINANCE/0,,contentMDK:23206428~m
menuPK:5575595
5~pagePK
:64168445~piPK:64168309~th
heSitePK:4125853~isCURL:Y,00.h
html

Carbon Markets
How big is the offset market?

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTCARBONFINANCE/0,,contentMDK:2320642
8~menuPK:5575595~pagePK:64168445~piPK:64168309~theSitePK:4125853~isCURL:Y,00.html

Carbon Markets
Price to remain a significant hurdle for some time

Carbon Finance
REDD+
 Deforestation and forest degradation account for nearly 20% of global
greenhouse gas emissions.
 REDD designed to use market/financial incentives in order to reduce
the emissions of GHG from deforestation and forest degradation. Can
also deliver "co-benefits" such as biodiversity conservation and poverty
co-benefits
alleviation e.g. REDD+
 W ld Bank and th UN setting up th b i f th carbon market and
World B k d the
tti
the basis for the
b
k t d
the legal and governance frameworks of countries receiving REDD.
 REDD currently undertaken by national or local governments, dominant
NGOs, the private sector, or any combination of these e.g. Norway
$500m International Climate & Forests Initiative. Potential as a broadranging ‘offset’ scheme, however issues with MRV and permanence.

Carbon Finance
Green Climate Fund
 Launched at COP17, objective to raise $100 billion a year by 2020. To
kick-start environmental projects, a Fast Start Funding of the GCF was
agreed, encompassing $30 billi for the period 2010-2012.
d
i
billion f
h
i d 2010 2012
 Based in South Korea, the Fund will provide simplified and improved
access to funding, including direct access, basing its activities on a
country-driven approach and will encourage the involvement of relevant
stakeholders, including vulnerable groups and addressing gender aspects.
g
g p
gg
p
 The Green Climate Fund was designated as an operating entity of the
financial mechanism of the UNFCCC, in accordance with Article 11 of
the Convention.
 Administered via Nationally Appropriate Mitigation Actions (NAMAs)
(NAMAs),
REDD+, buying up CERs and other schemes.

Carbon Finance
NAMAs

http://www.nama-database.org/index.php/Chile

Carbon Finance
World Bank Carbon Funding
PROJECT NAME

VALUE

The Prototype Carbon Fund (PCF)

$219.8M

The C
Th Community Development Carbon Fund (CDCF)
i D
l
C b
F d

$128.6M
$128 6M

The BioCarbon Fund (BioCF)

T1 = $53.8M

T2 = $36.6M

The Italian Carbon Fund (ICF)

$155.6M

The Danish Carbon Fund (DCF)
The Spanish Carbon Fund (SCF)
The Umbrella Carbon Facility (UCF)

€90M
T1 = €220M
T1 = €799.1M

T2 = €70M

T2 = €112.5M

The Carbon Fund for Europe (CFE)
Forest Carbon Partnership facility (FCPF)
Carbon Partnership Facility (
p
y (CPF)
)
Partnership for Market Readiness (PMR)
Source: The World Bank Carbon Finance Unit (2013):
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/ENVIRONMENT/EXTCARBONFINAN
CE/0,,contentMDK:22974424~menuPK:5213558~pagePK:64168445~piPK:64168309~the
SitePK:4125853~isCURL:Y,00.html

€50M
$447M
€143.5M
$70M

Carbon Finance
World Bank Carbon Funding



Funded by OECD countries.



Purchasing of emissions reduction units through the Carbon Finance Unit
(CFU).



CFU contracts to buy emissions reduction units



Within framework of Kyoto Protocal under CDM or JI (Joint
Implementation) methodologies.



Diversity of project types and co-benefits (eg: biodiversity conservation,
sustainable development & poverty alleviation).

Carbon Finance
EIB Carbon Funding



Recently raised its carbon finance commitment, with USD$20b available
next three years to kick-start low carbon projects e.g. biogas, solar PV,
energy efficiency

Part 5 – Opportunities for Vietnam

UQ SMART – The University of Queensland (Australia)

Viện Khoa học năng lượng (Việt Nam)

IES offsets & opportunities

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