Evaluating approaches to ghg offset aggregation c-agg

Editor's Notes

• #5: Clarify here that the purpose of the presentation is to gather info from C-Agg, particularlyGaps in the researchInaccuraciesInsight on other potential lessons learned and next steps
• #6: Temporally- projects within a group take place over a period of time that is longer than a single project’s crediting period. Not all projects share the same implementation schedule.
• #7: Carbon markets are good at capturing low cost mitigation opportunities that are large and centralized, like industrial gas projects.
• #8: Agricultural land management practices have a small per-hectacre impact but a large potential area for implementation.
• #9: Domestic- Forestry and agriculture will not be capped.International- Under EU ETS, there is pressure for projects to come from least developed countries. LDC projects are mostly household scale or land-use change.All these project types need aggregation to succeed!
• #12: Programmatic- Rules from a standards setting organization on how to design an aggregation program and how to include individual projects in it.Business Model Based – Replicating one project type to realize benefits of aggregation without following a specific set of programmatic rulesSectoral- Crediting based on an entire sector exceeding an emissions goal, rather than through individual project qualification and quantification.
• #13: Separate set of rules for aggregation created by CDM in June 2007.The Coordinating Entity creates the framework and financial structure for the PoA, develops the Program Design Document, contracts for validation of the PoA and an initial CPA, attains approval from the host country, and registers the PoA and its first CPA with the CDM. Once the PoA is established, the Coordinating Entity originates new CPAs, arranges for the inclusion CPAs, organizes monitoring, arranges verification, and commercializes the credits.
• #14: Normal CDM process to set up the PoA28 years after that for a verifier to include new CPAsThe number of CPAs that will be included in a PoA is not defined when the PoA is initially registered. Instead, at any time over the PoA’s crediting period a third-party can include a new CPA in the PoA by verifying that the CPA meets the criteria outlined in the PoA’s Design Document. The approval of the CDM Executive Board is not needed to include a new CPA in the PoA. Registering a PoA reduces the risk that a CPA’s registration will be delayed, modified or rejected, which consistently hampers stand-alone CDM projects and makes lenders discount or ignore revenue from the sale of carbon credits from unapproved and unregistered projects. The reduced regulatory risk of including a new CPA in an already registered PoA may increase the bankability of the credits CPAs generate, as lenders can be confident that credits that will be generated within an already approved and operating PoA represent a real revenue stream that is not dependent upon the approval of the CDM.Individual CPAs are credited according to their CDM methodology, which generally have a renewable seven-year crediting period or a single ten-year crediting period. New CPAs, however, can be included anytime over a PoA’s28 year crediting period.
• #16: Ninety-percent of the 81 projects in the PoA pipeline use small-scale methodologies for their CPAs. The average CPA reduces 50,000 mtCO2e per year.About half of the 81 registered or at validation PoAs are household-scale programs like the distribution of efficient light bulbs or improved cook stoves and the installation of domestic biogas or solar water heaters. Energy efficiency is the most common PoA project type, making up 35% of PoAs compared to 4% of stand-alone CDM projects. This early data suggests that PoAs will encourage household scale projects.“CDM Pipeline.” Riso Centre: 2011.
• #17: Verifier Liabiltiy Liability is hard to quantify because carbon price and credits issued by a CPA are unknown EB is trying to limit liability Time limit- 1 year after inclusion or renewal of crediting period Need definition of erroneousAdditionality. Lex De Jong, Head of the CDM Unit, proposed one solution: the CDM Executive Board could set a size threshold for CPAs. CPAs that are smaller than the threshold could determine their additionality at the PoA level, while large CPAs would require individual additionality analysis.
• #19: Lessons learned from this business model:Finance at scale ($38 million loan from Brailizian Development Bank)Low risk for the swine producers (96% of producers signed the contract)Aggregators = existing relationships are more important than carbon market expertise
• #20: Another example of a carbon revenue only business model that provides technology for free and arranges for financing by itself without involving the entities that actually reduce emissions in the financial risk of the program.
• #25: Cost Savings of CAR’s Guidelines for Aggregating Forest Projects. The table assumes a 2,000 acre landowner joins eight other 2,000 acre landowners to form an aggregated pool. Price assumptions are a best guess at average costs, while actual costs are highly site-specific. Costs are calculated for 2016 through 2070.
• #26: Steve Dettman, Forest Carbon Program Manager of Ecotrust, estimated the net present value of selling 270,000 carbon credits from 2010 to 2070 at $6 per mtCO2e from a 3,000 acre property. Unaggregated, the credits have an $800,000 net present value after transaction costs have been subtracted out. By aggregating the project with five other 3,000 acre landowners, the reduction in transaction costs raises the value of the credits to $950,000. The modest reduction in transaction costs raised the value of the carbon project by 20%. “Aggregated price savings of CAR’s Forestry Aggregation Guidelines.” Steve Dettman, Ecotrust, Portland, OR: May 11, 2010.
• #27: To ensure CAR’s ability to ensure the validity of the credits, landowners sign the Project Implementation Agreement (PIA) with CAR. Under this structure, the landowner retains the majority of the power and liability. Landowners can enter and leave an aggregated pool at any time. Because no single entity can enroll more than 5,000 acres in any aggregate, there will be no business model in which an aggregator owns all the properties in a large aggregated pool. CAR’s Aggregation Guidelines lower project development and operating costs for groups of standalone projects. This is a compelling incentive for aggregators, but the PIA requirement makes it challenging to sign up landowners who will have the bear risk associated with participating in the carbon market. As such, aggregators that are unable to shield landowners from market risks and criteria are not likely to be successful in configuring individual projects into a scalable aggregated project. Permanence significantly lengthens the period of time over which enforcement is an issue. Rethink permanence. Focus on projects that avoid or reduce emissions and deal with sequestration separately.
• #29: PermanenceThe CCX protocols require enrolled farmers to commit to implementing conservation tillage, grassland or rangeland practices for five years. Whereas, the Climate Action Reserve’s (CAR) Forestry Protocol requires all landowners to demonstrate carbon remains sequestered for 100 years, CCX addresses permanence by discounting offsets 10 to 20% to account for reversals that may occur after the five-year commitment period ends. Reductions are considered permanent because the CCX assumes less than 10-20% of the offsets will be later reversed.AdditionalityThe CCX’s additionality determination is standardized and practice-based: all conservation tillage and rangeland projects and any grassland conversion implemented after 2003 are considered additional. Projects participating in the USDA’s Conservation Reserve Program, which is described in Appendix F, also are eligible.Monitoring and CreditingNo on-site monitoring is required under the CCX protocol. Instead, soil scientists established crediting rates for each practice by taking the average sequestration rates published in peer-reviewed literature for specific regions. All landowners that implemented the approved practice are credited at the standardized rate for their region. Landowners can easily assess the potential carbon value of implementing a project on their property and do not undergo complex monitoring. VerificationVerifiers randomly select 10% of the contracts enrolled in aggregation program for annual on-site verification. During this visit, the verifier ensures the sequestration practice is in place. If the verifier finds an error or non-compliance rate of greater than 3% in its sample, the offsets issued from the entire aggregation pool are reduced by an error rate determined by the verifier; no further verification is required.
• #30: Practice based vrs performance based creditingPractice based crediting eliminates
• #33: Two standard offer agreements:Upfront purchase of carbon rights in exchange for easement Option to purchase offsets later, with greater potential carbon revenue to the landowner
• #36: Sectors like electricity, iron and steel, aluminum, cement and/or other sectors in a specific region through an analysis of trends and projections. Inventory of sector rather than comparison of project scenario and baseline scenario.A developing country voluntarily establishes an “emissions baseline” below BAU for a sector.If actual emissions are belowthe baseline at the end of the sectoral crediting period, the country / sector would earn tradable credits ex-post.Under a “no lose” approach, if actual emissions are above the baseline at the end of the crediting period, the country / sector would not receive any tradable credits and would not be penalized.
• #39: Proportional additionality- Proportional additionality discounts the amount of credit received by a project according to that project type’s general level of common practice. If 15% of farmers currently use conservation tillage, for example, proportional additionality would deem all conservation tillage additional, but would discount each project’s credits by 15%. For proportional additionality to produce credits with environmental integrity, the full participation of a sector within a specific region is needed. All non-additional projects will participate in a carbon program that uses proportional additionality; by definition, these non-additional projects will implement the practice with or without the carbon program. If, in the example above, only 20% of farmers that could implement conservation tillage projects participate in the program, far more than 15% of the participants in the program will be non-additional. Aggregation could potentially enable full participation of a region, and therefore enable protocols to use proportional additionality. Modeling- Imperfections in biogeochemical models produce “structural uncertainty” such that modeled results do not perfectly match measured results. The variability that occurs at each individual site is hard to capture in a model, so the structural uncertainty is higher when the model predicts the GHG emissions of one site. Multiple-sites, in aggregate, smooth out the variability of individual sites, and models better represent these “average” results. Aggregation therefore reduces the structural uncertainty of biogeochemical process models. The greater the numbers of sites involved in an aggregation program, the more precisely the models predict measured results.
• #41: Aggregator can take on financial risk of the program
• #42: Aggregator can take on project performance risk
• #43: Protocol can reduce performance risk by using practice-based, standardized crediting rates