For the uninitiated - it all started in 1992 when 172 countries met in Rio de Janeiro at the Earth Summit and created the United Nations Framework Convention on Climate Change.
This entity was tasked to look critically at climate change issues and start global negotiations to reduce the anthropogenic greenhouse gas (GHGs) emissions, the main cause of global warming.
These discussions led to the Kyoto Protocol in 1997 which sets a binding target for GHG reductions.
This protocol came into effect on February 16, 2005.
The developed countries (called Annex 1 countries) are required to cut their emissions by 5.2% below their 1990 levels on average during the first commitment period 2008-2012.
There are 36 industrialised countries in Annex 1 including the United Kingdom, Australia and New Zealand. To facilitate the emission reduction at the least cost, the protocol allows for cross-border trade of GHG emission reductions.
The reduction in emissions is quantified as Certified Emission Reduction (CER) with 1 CER being equivalent to 1 metric tonne of CO2. The following three types of trading mechanisms are available under the Kyoto Protocol:
International Emissions trading (IET): trading of CERs between an Annex 1 country with Kyoto target and another Annex 1 country with Kyoto target;
Joint implementation (JI) : between an Annex 1 country and another Annex 1 country - project based; and
Clean development Mechanism (CDM): project based CER trading between Annex 1 countries and Non Annex 1 (developing countries). The project is based in the developing country (host country) and the CERs are sold to the developed country.
As far as Pacific Island Countries (PICs) are concerned, CDM is the most relevant option and this article will deal mainly with this mechanism.
Project development
According to the Kyoto Protocol, a CDM project has following main features:
This is a project in a developing country that results in reduction of GHG emissions and hence qualifies to generate CERs;
These CERs can be traded with an annex 1 country which uses them to meet its Kyoto obligations;
The project should support sustainable development in the host country;
The project should not divert Official Development Assistance (ODA); and
The project must not be based on nuclear power.
The process of developing a CDM project is quite involved and to qualify as one it has to go through a number of steps. Some of the main terms encountered during the process are explained below:
Project Idea Note( PIN): this is the first step that describes the project methodology, expected CERs and other benefits.
Eligible projects: A project leading to reduction of GHGs viz. CO2, CH4 (methane), N2O (nitrous oxide), HFC (hydrofluorocarbons), PFC (Perfluorocarbon) and Sulphur hexafluoride SF6). It could be a renewable energy project, an energy efficiency activity or fuel switching exercise among others.
Baseline: Every CDM project must have a baseline (business-as-usual) scenario which signifies the GHG emission in the absence of the proposed activity. This baseline must be calculated using one of the methodologies developed by the CDM executive board or if a new methodology is to be used it must be approved by the board.
Additionality: This is a major requirement of a CDM project; the project must be additional. The proposer has to prove that the project would not be possible in the absence of carbon credit program and CDM.
Designated National Authority (DNA): Each host country must have a DNA which sets the national CDM guidelines and approves any submitted CDM project. The DNA also makes sure that the project leads to sustainable development. At the moment only Fiji (Epeli Nasome, Department of environment) and PNG (Dr. W.L.Iamo, department of environment) have DNAs among the PICs.
Project Design Document (PDD): Once the PIN has been approved by the DNA, actual work on the project documentation starts. PDD is the main CDM project document. This should contain a description of the project, estimates of the CERs, baseline methodology, monitoring plan and comments from the various stakeholders linked with the project.
Designated Operational Entity (DOE): Once the PDD is done it is submitted to one of the 18 DOEs. The DOE independently certifies the CDM project by checking its baseline and monitoring methodology. It also makes sure that all other CDM requirements are met and may also ask for public comments.
Project Registration and CER issuance: If the project is positively validated by the DOE, it is now sent to the CDM board for CER registration. A registration fee has to be paid and CERs are issued. Only projects registered with the CDM board can deal with the CERs.
According to Einar Telnes from Det Norske Veritas Certification Ltd, one of the DOEs "a good (CDM) project needs to have a strong sustainable development component: It should be clearly needed in the host country, region or community, and have a committed and supportive local management".
Status of projects
Table 1 shows the status of CDM projects submitted to CDM board as on 11th June 2008. A total of 1080 projects have already been registered with the CDM board. Three-quarter of the projects are in Asia-Pacific region followed by Latin America. Sub-Saharan Africa has only 1.4% of the total projects (majority of them are in South Africa) while Pacific Island Countries barely appear on the list with only 2 projects.
Figure 1 shows the share of CDM projects according to their type. Renewable energy projects have the lions share (62%) and are expected to account for 33% of all CERs issued by 2012 (end of current commitment period). Small hydro, biomass energy and wind power make the majority of the RE projects submitted.
Fig. 1 Categories of CDM projects submitted - June 2008 (data from UNEP Riso centre).
China has the biggest slice of the CERs issued (30%) while India, South Korea, Brazil and Mexico are other major players. Malaysia expects to trade up to 100 Million CERs by 2012. It is expected that by 2012 more than two billion CERs would be issued. With the current rise in oil prices and weak supply of CERs , the price of CERs is continuously increasing and stands at about 19 Euros (29.6 USD) for December 2008 future contracts.
The two CDM projects in the PICs are:
Wainikasaou and Vaturu Small Hydro Plants, Viti Levu, Fiji: these two plants of capacities 6.5 MW and 3 MW respectively were developed by FEA/Pacific hydro as a CDM project in 2004-2005. This is a fully bank-implemented carbon credit project with UK's Accord Energy purchasing 100% CERs through ABN-AMRO bank. The two projects are estimated to help reduce GHG emissions by 24,928 tonnes of CO2 equivalent annually.
Lihir Geothermal Power project, Papua New Guinea: This project started in 2003 with a 6MW pilot plant and a capacity of 55MW when fully commissioned. It will produce 422 GWh annually and displace 278,904 tonnes of CO2 equivalent per year. There is no annex 1 country partner in this project and the registration allows Lihir Gold Company to accumulate CERs for 10 years.
Opportunities
The dependence of PICs on imported fossil fuel and the threat of climate change is well known. CDM supported renewable energy projects provide the opportunity to help mitigate both problems simultaneously while generating income for the project stakeholders. According to a PIREP report Fiji has a potential to generate about 108 MW of electricity using RE. If this potential is somehow realised it would result in a GHG reduction (by not using diesel generators) of about 1 million tonnes of CO2 equivalent generating 1 million CERs tradable for $30million (at current price).
Since the utility sizes and demands in most PICs are very small it is difficult to design a sizeable CDM project. CDM has a special provision for small scale projects. The main criteria of a small scale project are:
Renewable energy projects with a maximum capacity of less than 15 MW;
Energy efficiency activities that can save up to 60 GWh of energy annually;
Other activities that can reduce GHGs emissions up to 60,000 tonnes of CO2 equivalent.
The baseline methodologies for small scale projects are much more simplified and the registration costs is $US5000 compared to $US10-30,000 for the regular projects. It is also possible to 'bundle' several small scale projects as a single CDM project to cut down costs. Projects across countries can also be bundled into one project.
In order to fully utilise CDM benefits, all PICs must have DNAs established. Decision makers should be made aware of the CDM possibilities and an effective national energy policy for sustainable development should be formulated. Capacity building in designing small RE based projects, bundling process and implementation should be undertaken without delay.
Development of small projects is hampered by high costs involved in the registration process. There are a number of so called carbon funds that provide financial and technical help for CDM projects in developing countries. For example, ADB's Carbon Market Initiative offers upfront carbon financing for future delivery of CERs and technical support for the whole CDM project registration process..
It is hoped that the Pacific Island Countries will take advantage of the opportunities available under CDM and will develop long term sustainable energy strategies.
As Tom Roper of The Climate Institute says "unless special measures are taken, the CDM will have sailed by with few, if any, Small Island developing States on board". And, we most certainly shouldn't let this to happen.
Atul Raturi teaches Renewable Energy and Physics at the University of the South Pacific. He can be contacted at raturi_a@usp.ac.fj
