October, 2003
International Affairs Department
Hydroelectric Power Development Center
New Energy Foundation (NEF)

 What is CDM?
 Hydropower and CDM
 CDM Scheme and Keywords
 State of Hydropower CDM Projects
 Key Issues for Host Country of
Hydropower CDM Projects
1


 Hydropower and CDM
 CDM Scheme and Keywords
 State of Hydropower CDM Projects
 Key issues for Host Country of
Hydropower CDM Projects
2





Adopted at the Third Conference of Parties (COP3),
United Nations Framework Convention on Climate Change
(UNFCCC) , held in Kyoto, Dec. 1997
International treaty containing legally binding constraints on greenhouse gas （ GHG) emissions.
(CO
2
, CH
4
, N
2
O, HFCs, PFCs, SF
6
)
Industrialized Countries (Annex I Parties) agreed to limit their
GHG emissions, -5% from 1990 levels by 2008-2012.
3 flexible mechanism (Kyoto mechanism)
– Emissions trading
– Joint Implementation (JI)
– Clean Development Mechanism (CDM)
3


EU
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxemburg
Netherlands
Portugal
Spain
Sweden
UK
EU total
Targets of Annex I Parties
Reduction target
-21%
-7.5%
-21%
0%
0%
-21%
25%
13%
-6.5%
-28%
-6%
27%
15%
4%
-12.5%
-8%
Emission share
Countries transiting to market economy
0.4% Bulgaria
0.8% Croatia
0.4% Czech
0.4% Estonia
3.1% Hungary
6.7% Latvia
0.6% Lithuania
0.3% Poland
2.9% Romania
0.1% Russia
1.2% Slovakia
0.4% Slovenia
1.6% Ukraine
0.4%
4.1%
23.1%

Reduction target
-8%
-5%
-8%
-8%
-6%
-8%
-8%
-6%
-8%
0%
-8%
-8%
0%
Developing countries (non-Annex I) have no targets
Emission share
Other countries
0.9% Australia
Canada
1.1% Iceland
0.2% Japan
0.6% Liechtenstein
0.2% Monaco
0.3% New Zealand
3.1% Norway
1.5% Switzerland
16.6% US
0.4%
0.1%
5.0%
Reduction target
8%
-6%
10%
-6%
-8%
-8%
0%
1%
-8%
-7%
Emission share
2.3%
3.3%
0.0%
6.8%
0.0%
0.0%
0.4%
0.3%
0.3%
33.6%
4




Help Annex 1 countries comply with their emission reduction commitments
Contribute to the ultimate goal of the convention i.e., stabilization of GHG concentrations in the atmosphere
Assist non-Annex 1 countries in achieving sustainable development
Investing country (Annex I)
Host country
Transfer to investing country
CER
Distribute to host country
Assigned amount
Before project After project
Fund, technology, etc.
CER: Certified Emission Reduction 5

 What is CDM?

 CDM Scheme and Keywords
 State of Hydropower CDM Projects
 Key issues for Host Country of
Hydropower CDM Projects
6

 Hydropower is one of few carbon-free energy sources capable of large scale & low cost generation
→ large potential of GHG reduction
 If all of the “ technically exploitable capability ” is exploited, CO
2 reduction will be … technically exploitable capability 11,570 TWh
× emission factor 0.5 t-CO
2
/MWh
= 5.79 billion t-CO
2
（
25
％ of world
’ s CO
2 emission)
7

 Construction cost: 2,500 $/kW, operation rate 50%, payout period 50 years
⇒ electricity price: 3.1 cents/kWh
（
IRR 5%
）
5.8 cents/kWh （ IRR 10% ）


If CO
2 reduction unit is 0.5kg-CO
2 carbon credit is $5/t-CO
2
/kWh and
, additional income will be 0.25 cent/kWh
– CO
2 reduction effect ： 4 ～ 8 % of electricity price
Carbon finance may become important for hydropower development
8

5000
4000
3000
2000 undeveloped planed or under construction installed
1000
0
Africa North
America
South
America
Asia Europe Middle
East
Oceania Japan
Based on
“
Survey of Energy Resources 1998 (World Energy Council)
”
9

1.2
1
0.975
Fuel
Facility and Operation
0.742
0.8
0.608
0.6
0.519
0.887
0.4
0.704
0.478
0.408
0.2
0
0.088
0.038
0.130
0.111
0.053
0.029
0.022
0.015
0.011
Based on a report published by the Central Research
Institute of the Electric Power Industry, Japan
10

 Usage of abundant potential of undeveloped hydropower resources
 Contribute to the stability of power supply
 Infrastructure development
 Revenues from sales of CER
 Development aid in addition to ODA
 Low running cost
 Other benefits from multi-purpose dams
11

 What is CDM?
 Hydropower and CDM

 State of Hydropower CDM Projects
 Key Issues for Host Country of
Hydropower CDM Projects
12

Project developer Project Planning
Designated National
Authority (DNA)
Investing country approval Host country approval
CDM Executive Board
(CDM EB)
Designated Operational
Entity (DOE)
Project developer
Preparation of Project Design Document(PDD)
Approval of New Methodology (by CDM EB)
Validation(by DOE) and Registration(by CDM EB)
Project Implementation/ Annual Monitoring
Designated Operational
Entity (DOE)
CDM Executive Board
(CDM EB)
Project developer
Verification and Certification of Reductions
Issuance of CER
Add to Adaptation Fund Sale in Market
Host country participation
(Project developer)
Designated National
Authority (DNA)
(Project developer)
(Project developer)
13

 CDM Executive Board (CDM EB)
– Supervise the CDM projects under the authority and guidance of the COP/MOP *
• Make recommendations on further modalities and procedures
•
Approve new methodologies related to, baselines, monitoring plans and project boundaries

Methodology panel
• Review provisions with regard to simplified modalities, procedures and the definitions of small scale project activities

Small Scale CDM panel
• Be responsible for the accreditation of DOE

CDM accreditation panel
• Register the validated projects as CDM project activities
• Issue CER according to the emission reduction verified by DOE
* COP: Conference of Parties, MOP: Meeting of Parties
14



Designated Operational Entity (DOE)
– A body (private or public) accredited by the CDM EB to review projects
• Validate proposed CDM project activities
• Verify and certify reductions in anthropogenic GHG emissions
Make information obtained from CDM project participants publicly available, as required by the executive board
Designated National Authority (DNA)
– Parties participating in the CDM shall designate DNA
– Interfaces between project owner and the DOE
•
Malaysia: Conservation and Environmental Management
Division, Ministry of Science, Technology and the Environment
•
Bhutan: National Environment Commission Secretariat
15

Preparation of draft PDD (new methodology)
Submission to the CDM EB through DOE
Experts ’ desk review, Public comments
Recommendation by Methodology Panel
Consideration by CDM EB
A-rank: Approved B-rank: Changes required C-rank: Not approved
As of Sep. 2003
A-rank: 2 projects
B-rank: 4 projects
C-rank: 6 projects (2 hydropower projects included)
16

Host country approval
Validation by Designated Operational Entity


Validation points
– detailed scrutiny of the institutional capacity of the project stakeholders
– evidence underlying the calculations of carbon benefits
– systems to be used for monitoring
Project Design Document will be made publicly available for comments
Submission to to CDM EB

Registration by CDM EB
Registration finalized after a maximum of 8 weeks from receipt
17

Project Implementation and Monitoring



Emissions must be monitored during project life time
– Project developer must monitor and report as set out in the PDD
– Monitoring methodology must be approved by CDM EB
Monitoring of environmental and social impacts is implicit in
Environmental Impact Assessment
Verification
Includes site visits, checks of monitoring data and calculation of emission reductions
Certification/Registration by CDM EB
Issuance of CERs
 CERs issue within 15 days, unless the CDM EB requests a review
(only if fraud, malfeasance or incompetence of DOE is suspected)
18








General description of project activity
Baseline methodology
– Applied methodology, additionality, project boundary
Duration of the project activity/ Crediting period
Monitoring methodology and plan
Calculation of GHG emissions by sources
Environmental impacts
Stakeholders comments
19

 How to define
without the project
case
– Taking into account national policy, local fuel availability, power development plan, and so on.
– Choice a baseline methodology
•
Existing actual or historical emissions, as applicable,
•
Emissions from a technology that represents an economically attractive course of action,
•
The average emissions of similar project activities undertaken in the previous 5 years, in similar circumstances, and whose performance is among the top 20% of their category
20

 What is
additionality
?
（ Reductions in emissions that are additional to any that would occur in the absence of the certified project activity .
Kyoto protocol Article12-5c
）
– Environment ： must reduce GHG emission
– Investment ： profitability of the project must increase dramatically by CER
– Finance ： diversion of ODA is prohibited
– Technology ： must use the state-of-art technology
21



How to define “ Project boundary ” ?
– Under control of the project participants
– Significant and reasonably attributable to the CDM project activity
– Hydropower project;
• Within Power station
• Within connecting point to existing transmission line
•
Methane emission from reservoir
What is “ Leakage ” ?
– Outside the project boundary; and
– Measurable and attributable to the CDM project activity
– Hydropower project;
• Decline of hydropower production downstream
23

 What is the purpose of “ monitoring ” ?
– For determining the baseline;
– For estimating or measuring anthropogenic emissions occurring within the project boundary of a CDM project activity and leakage, as applicable
– For example; Power generation (MWh)
 Quality Assurance (QA) & Quality Control (QC)
– It is easy to measure relevant data
– There is little factor of over/underestimation
24

 What is “ Small-scale CDM project ”
– Renewable energy project activities:
Up to 15 megawatts (or an appropriate equivalent)
– Energy efficiency improvement project activities:
Up to the equivalent of 15 gigawatthours per year
– Other project activities:
Less than 15 kilotonnes of carbon dioxide equivalent annually
 Simplified modalities and procedures
– Usage of simplified baseline/monitoring methodologies
– Same DOE can validate and verify the project
– Able to bundle similar projects
25

 What is CDM?
 Hydropower and CDM
 CDM Scheme and Keywords

 Key Issues for Host Country of
Hydropower CDM Projects
26

 PCF: 4 projects, ERU-PT/CERU-PT: 9 projects
（ As of 3 June, 2003 ）



Generation type: 2 run of river, 4 run of river with reservoir, 7 dams （ 4 utilizes existing dams ）
5
Capacity distribution
4
Country distribution ：
– Costa Rica, Panama: 3
– Uganda, Romania: 2
– Guatemala, Chile, Peru:1
3
2
1
0
～ 10M
W
10
～ 50M
W
50
～ 100M
W
100M
W
～ refurbi shm ent
27

 35 projects have been submitted to the
Methodology Panel under the CDM Executive
Board as “ New Methodology ”
(As of 19 Sep. 2003)
 4 are hydropower projects:
– El Canada Hydroelectric Project (Guatemala)
– Peñas Blancas Hydroelectric Project (Costa Rica)
– La Vuelta and La Herradura Hydroelectric Project
(Colombia)
– El Gallo Hydroelectric Project (Mexico)
28





Antipathy against large hydropower projects (especially in Europe): renewable but not sustainable
Example of criticism by NPOs such as “ CDM Watch ”
– Significant GHG emissions during construction
– Inflated baselines
– Methane emissions from reservoirs
– Cost overrun, corruption
– Criticism of “ anyway project
”
Most issues are not unique to hydropower projects, and dam, not hydropower itself, is the main target of criticism
Need to appeal that hydropower ’ s negative impact is small
– The state of the art technology, social development, …
30

 What is CDM?
 Hydropower and CDM
 CDM Scheme and Keywords
 State of Hydropower CDM projects

31

 Key factors on Identification of a Host Country
– Participation in Kyoto Protocol
•
Ratification on Kyoto Protocol
• Organization on CDM
– Investment conditions for Hydropower development as a IPP project.
• Government Policy
• Legal condition
32

 Baseline methodology
•
High average CO2 emissions units of power generation
(High effect of hydropower project)
•
High CO2 emissions power generation development plan
(substitute for high CO2 emissions power generation)
– Additionality
•
Project activity would not have occurred anyway due to a barrier
•
Less hydropower development Plan
• Hydropower is more expensive than thermal power
( investment barrier )
33

 Project Approval by DNA of Host country
– Prior to the submission of the validation report to the executive board,
•
Submission to both of Host country and own party
•
Written approval of voluntary participation from the
DNA (Designated National Authority) of each party
34

For more information and question http://cdm.unfccc.int/ (UNFCC CDM)
Hydropower@nef.or.jp (NEF)