New Frontiers In Hydropower Investment: The Clean Development Mechanism (cdm)

NEW FRONTIERS IN HYDROPOWER INVESTMENT: THE CLEAN DEVELOPMENT MECHANISM (CDM)

Dweependra Nath Kalita

The UNFCCC •

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The United Nations Framework Convention on Climate Change (UNFCCC) is an international environmental treaty produced at the United Nations Conference on Environment and Development (UNCED), informally known as the Earth Summit, held in Rio de Janeiro from 3 to 14 June 1992. The treaty is aimed at stabilizing greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system. The UNFCCC Conference of Parties (countries) met for the first time in Berlin in 1995. Since then, 14 conferences have been held in various parts of the world. COP-8 was held in New Delhi in 2002. COP-15 is due in August 2009 in Copenhagen COP-3 held in Kyoto, Japan in December 1997 by far remains the most important milestone of the UNFCCC and the resolutions adopted in this conference after intense negotiations came to be known as the Kyoto Protocol.

The Kyoto Protocol •

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The major feature of the Kyoto Protocol is that it sets binding targets for 37 industrialized countries and the European community (Annex-I countries) for reducing greenhouse gas (GHG) emissions . These amount to an average of five per cent against 1990 levels over the five-year period 2008-2012. The Kyoto Protocol entered into force on 16 February 2005. 184 Parties (countries) of the Convention have ratified its Protocol to date. The first commitment period under the Kyoto Protocol expires in 2012. Six Green House Gases are covered under this protocol. – Carbon Dioxide (CO2) – Methane (CH4) – Nitrous Oxide (N2O) – Hydro fluorocarbons (HFC)

The Kyoto mechanisms •

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The Kyoto Protocol recognizes that developed countries are principally responsible for the current high levels of GHG emissions in the atmosphere as a result of more than 150 years of industrial activity, and therefore the Protocol places a heavier burden on developed nations under the principle of “common but differentiated responsibilities.” Countries must meet their targets primarily through national measures. However, the Kyoto Protocol offers additional means of meeting their targets by way of three market-based mechanisms.

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The three Kyoto mechanisms are:

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Emissions trading – known as “the carbon market"  Clean development mechanism (CDM) Joint implementation (JI)

The Clean Development Mechanism (CDM) •

The Kyoto Protocol’s Clean Development Mechanism is expected to result in emission reductions equivalent to over 2 billion tonnes of CO2 by the end of 2012.

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CDM project implementers earn certified emission reduction units which are bought by countries with emission reduction commitments under the Kyoto protocol. Energy projects lowering the carbon intensity of the electricity grid can generate additional revenues from carbon credits. CDM gives an opportunity to developing countries in achieving their sustainable development objective, besides providing opportunity to introduce new and efficient technologies. CDM provides an opportunity for the Indian power sector to earn revenue through the reduction of greenhouse gas emissions (GHG), particularly carbon dioxide (CO2). India has tremendous potential for CDM projects.

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CDM in the Indian hydropower context • • •

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The Ministry of Power has accorded high priority to the CDM projects in the power sector. CEA took the initiative to publish the CO2 baseline database for the Indian Power Sector to assist CDM project developers for speedy approval of their CDM projects. This has facilitated adoption of authentic baseline emissions data and has ensured uniformity in the calculations of CO2 emission reductions by CDM project developers. CEA in cooperation with GTZ CDM-India, has compiled the database containing necessary data on CO2 emissions for all gridconnected power stations in India. The database currently covers eight fiscal years 2000-01 to 200708. CEA intends to update the database at the end of each financial year. A user guide has been posted in CEA’s website to enable project developers to use these baseline emission data effectively for CDM benefits.

Scope of CDM in the Indian Power Scenario •

Installed Capacity as on 30.04.2009

•It is evident from the table that the installed capacity is predominantly coal based and therefore, is a major source of carbon dioxide emissions in India. •Hence, there exists scope for reducing the CO2 emissions in the country by way of fuel substitution, and increased use of

How CDM works • • •

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A project claiming to reduce emissions has to apply to the Designated National Authority (in India, the Ministry of Environment). If the DNA approves the project, it is submitted to the International CDM Executive Board (EB). The EB has appointed certain consultants as Designated Operational Entities (DOE), who are to validate this claim. Based on their validation, the EB will Register (the technical word for approving) the project. Once registered, the project will be issued Certified Emission Reduction (CERs) or carbon credits but only when it starts operation and after verification of its claims of reduction by a DOE other than the one that did the validation. One CER is equivalent to one ton of carbon-dioxide emission saved. These CERs are bought by developed countries who can then claim that they have met their reduction target by the amount of CERs they have purchased. The CERs can be purchased directly from the project, or from the several international carbon

The CDM Project Cycle

Composition of NCDMA

Host Country Approval Procedure

Eligibility The project proposal should establish the following in order to qualify for consideration as CDM project activity: Additionalities: Emission Additionality: The project should lead to real, measurable and long term GHG mitigation. The additional GHG reductions are to be calculated with reference to a baseline. - Financial Additionality: The procurement of CERs should not be from Official Development Assistance (ODA) Sustainable Development Indicators

– It is the prerogative of the host Party to confirm whether a clean development mechanism project activity assists it in achieving sustainable development. The CDM projects should also be oriented towards improving the quality of life of the poor from the environmental standpoint.

Aspects to be considered while designing a CDM project 1. Social well being: The CDM project activity should lead to

alleviation of poverty by generating additional employment, removal of social disparities and contribution to provision of basic amenities to people leading to improvement in quality of life of people. 2. Economic well being: The CDM project activity should bring in additional investment consistent with the needs of the people. 3. Environmental well being: This should include a discussion of impact of the project activity on resource sustainability and resource degradation, if any, due to proposed activity; bio-diversity friendliness; impact on human health; reduction of levels of pollution in general; 4. Technological well being: The CDM project activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices in order to assist in up-gradation of the technological base. The transfer of technology can be within the country as well

Status of CDM hydro projects of India (including small hydro) as of 01 May 2009

Some notable CDM hydro projects

CBM hydro in the pipeline •

Reliance Power, which has been allotted the Siyom (1000 MW), Tato II (700 MW) and Kalai II (1200 MW) projects in Arunachal Pradesh and the 400 MW Urthing Sobla project in Uttarkhand, has declared its intention to register some of its projects with the CDM and has signed MoUs with consultants for this purpose.

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