Kim Session24 Acef2008

Shaping for the future

Suggestions on Offset with Insightful Cases [ACEF 2008 conference]

Sungwoo Kim, GHG Business Strategy Expert June 5th, 2008

Contents 1

Any problem?

2

Will it last?

3

Insightful Investment

4

Project Case

5

Offset Case

1. Any problem? Is offset effective? 9 9 Most Most of of ETS ETS consider consider offset offset mechanism mechanism (not (not only only EU) EU) 9 9 RGGI RGGI // WCI WCI // CCX CCX /USFed /USFed // JVET JVET // NZ NZ // Canada, Canada, Australia Australia Coming Coming up up

On the contrary, 9 9 Criticism Criticism on on Additionality Additionality and and Arbitrary Arbitrary Standards Standards 9 9 Non Non CO2 CO2 and and Hydro Hydro projects projects 9 9 Slow Slow process process and and geographical geographical distortion distortion

1/6

2. Will it last?

2/6

Back to the CDM’s origin (Kyoto COP3, 1997) ‰ Dual aim of Sus. Dev.(the developing) and GHG reduction(the developed) ‰ JI proposed by US + Penalty by Brazil → CDM(from ‘fund’ to ‘investment’)

Mechanism that facilitates the GHG reduction investment Unique pathway connecting two acute parties (Donator & Beneficiary)

¾ ¾ New New ETS ETS will will include include offset offset -- Own Own offset offset or or International International offset offset not not matter matter ¾ ¾ Problems Problems are are mostly mostly procedural procedural ones ones (not (not generic generic ones) ones) -- Policy Policy and and consequent consequent Market Market will will value value the the ERs, ERs, not not Mechanism Mechanism ¾ ¾ Maybe Maybe some some changes, changes, but but any any alternatives alternatives ??

3. Insightful Investment Satisfy both parties (stakeholders) y My experience from both perspectives(TGIK) - Investor & host y Landfill Owner vs. Landfill Operator vs. EPC provider as an investor

Classify Offset into 3 categories y CO2 vs. CH4 vs. Others (SPC vs. Partnership Agreement) y Different valuation in investor’s mind needed for each category

Understand CDM as a guideline y Prepare for evolving criteria (Even during the construction, CDQ) y Methodology is just methodology (Fuel Cell) y Ahead of learning curve for other offset markets (Value ratio)

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4. Project Case (CO2)

4/6

Use of FINEX Off Gas for power generation in Pohang Steel Works ¾ POSCO, 4th largest steel maker(30 MT-steel/yr), had invested $1.5 Bil. in the innovative steel making process called “Finex” commercialized in 2007 ¾ The project activity is to recover waste gas from FINEX process for power generation displacing electricity from the grid. ¾ 532 KT-CO2/yr↓ expected from Combined Cycle Power Plant of 145.9MW ¾ Construction from June in 2005 to July in 2007 (to be registered in July)

¾ CEO vs. Operator ¾ Evolving Criteria ¾ Electricity + CER

4. Project Case (CH4 & Others) Sudokwon (Seoul Metropolitan) Landfill Gas Electricity Generation Project ¾ Largest landfill in Korea (7MT-waste/yr) ¾ Replacing existing 10MW to utilize full LFG (1) expansion of the collection system (2) construction of the 50MW LFG power ¾ CO2 reduction of 1.2 MT-CO2/yr

¾ Owner vs. Investor ¾ Modeling and Law ¾ Electricity + CER

¾ Registered (Unilateral)

Catalytic N2O Abatement in the Tail Gas of the Nitric Acid Plant of HWC in Korea ¾ Undesired by-product of nitric acid (HNO3) ¾ Reduce N2O in the tail gas at nitric acid

¾ First Act, then Nego

production process by DeN2O catalyst ¾ Nitric acid since 1991 (Cap. of 100KT/yr) ¾ 0.3 MT-CO2/yr ↓, Not regulated in Korea ¾ Registered (Bilateral – Hanwha & Mitsubishi)

¾ Facilitate Host ¾ only CER

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5. Offset Case (KOP)

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Implementation since October 2005 KOP (Korean Offset Program)

CDM Obj.

y Supplementary to Compliance

y Facilitate Voluntary Investment of GHG Red.

Agency y EB (under UNFCCC)

y KEMCO (under Ministry of Industry)

Bound. y Global Project

y Domestic Project

Val./Ver. y EB Accredited DOEs

y Val.(KEMCO) / Ver.(ISO Certifying Org.)

Criteria y Regulation + Financial + Env. Additionality

y Regulation + Environmental Additionality

Period y 10 yrs or 7yrs

y 5 yrs (No extension)

Benefit y Acquiring CERs

y Acquiring KCERs (bought by Korean Govt.)

Ú KEMCO(Korea Energy Management Corp., http://co2.kemco.or.kr)

+100

+2 million

$1~2 bil.

Projects

CO2 T/yr

Voluntary

Registered

Reduction

Investment

Shaping for the Future

Thank you [email protected] OR [email protected]