Promoting the Sustainable Development Contribution of CDM

Projects

-- Actions in China

Xianli Zhu

Mar. 27th, 2006,

Vancouver, Canada

Contents

1. China’s pursuit for sustainability development and energy policies

2. China’s CDM Policies and the Sustainable Development Criteria for CDM Project

3. Effects of China’s CDM Regulations and Requirements

4. Options for measuring the development dividend in CDM projects

China’s overall SD strategy • Average annual GDP growth 1980-90: 10.3%; 1990-2003: 9.6%;

government target: quadrupling GDP by 2020 on 2000 basis, meaning average annual GDP growth rate of 7.2% during the 2000-2020 period.

• Population: 1300 million, still growing at around 7 to 8 million per year.

• Energy intensity: almost halved during the 1990-2002 period, 0.23 toe/ k 2000 US$ PPP in 2003, 21% higher than the 0.19 among OECD countries.

• Fuel mix: 94% of the fossil fuel reserve is coal, share of coal in total primary energy consumption fell to 67% in 2004 from 78% in 1978, still much higher than 27% worldwide.

• Sustainable development has been fixed as national fundamental strategy and increasingly integrated in China’s policy making

Energy Consumption and CO2 Emissions Structure of Primary Energy Consumption - China,

2004

Oil22%

Natural gas3%

Coal69%

Nuclear1%

Hydro5%

Structure of Primary Energy Consumption - World, 2004

Oil36.8%

Natural gas23.7%

Coal27.2%

Nuclear6.1%

Hydro6.2%

Source: BP, 2005

Source: World Bank, 2005

28% 27% 27%

36%

52%

0%

10%

20%

30%

40%

50%

60%

World Highincome

Lowincome

Middleincome

China

Share of Industry in GDP-2003

Economic Structure-2003

Source: IEA, 2005

Manufacturing Industries and Construction:CO2 Emissions of Top-5 Emitting Countries

(Giga tons of CO2)

Energy Efficiency ImprovementTPES/GDP (toe per thousand 2000 US$ PPP)

0

0.2

0.4

0.6

0.8

1

1971 1973 1980 1990 1995 2000 2001 2002 2003

toe/

k 20

00 U

S$ P

PP

Latin America Asia (excl. China) China Non-OECD Europe

Former USSR Middle East OECD-total World Average

Source: IEA, ENERGY BALANCES OF NON-OECD COUNTRIES, 2002-2003

Major SD Policies with direct relevance to CC mitigation

Climate Change

Environmental/ecological policies

Environmental/ecological policies

Social policiesFamily

PlanningPoverty

Alleviation

Energy industry institutional reformOptimizing energy structure

Energy saving

Forest

Air pollution control

Energy PoliciesEnergy Policies

China’s CDM Policies and the Sustainable Development Criteria for CDM Projects

China’s Attitude toward CDM• From skeptic and wait-and-see to active support: Multiple government

agencies and industrial associations (like coal, cement, renewables etc.) are actively boosting CDM implementation through soliciting project proposals, organizing experts and consulting agencies participation, and looking for buyers.

• Policy priorities in China: securing energy supply for its economic growth and curbing environmental pollution, CDM offers a good instrument for realizing the ambitious domestic energy and environment goals;

• China embraces technology cooperation with different parties in the field of climate change and clean energy;

• Although climate change is not a top policy priority in China, its synergies with environmental protection and energy security improvement make enables it to be integrated into China’s overall development policy.

Domestic Authority and RegulationsClimate change authorities• NCCCC (National Climate Change Coordinating Committee,

(inter-ministerial decision-making body, consisting of 15 ministries and commissions, with NDRC as the current chair, making major decisions at annual meeting)

• CDM Executive Committee (CDM project approval, representatives from 7 ministries, Co-chairs: NDRC and MOST

• Vice-chair: MFA)

• NDRC (DNA, the NCCCC Office)

Domestic Regulations• Interim Measures on CDM Project Operation Management,

issued on June 30th, 2004

• Renewed on Oct. 12th, 2005; the government levies and administration on unilateral projects specified.

Domestic Approval Process

Approval based on PIN (letter of endorsement, or no objection letter)

PDD and project approval

National Approval - Regulations and Requirements

• Priority areas: energy efficiency improvement, new and renewable energy, recovery and utilization of methane and coal bed methane

• Government levies:

-priority areas, SSC, and forestation: 2%;

-N2O: 30%;

-HFCs and PFCs, 65%.

• Floor price: the price should not be “unreasonably low”.

• Eligibility – only Chinese and Chinese-holding enterprises are eligible (at least 51% held by Chinese individuals or enterprises); CER sales belong to the Chinese government and the project developers, revenue sharing by other entities forbidden.

Approach to Promote SD in CDM Projects

• Gas-based approach- Among the 6 GHGs 2% government levy: renewables, energy efficiency, methane capture and

energy use, afforestation, and SSC two kinds of gases: CO2 & CH4 30% for N2O 65% for HFCs, PFCs SF6: to be fixed later.• The levies are to be pooled in a clean development fund and proposed uses

of the fund: CDM project activity administration, climate change capacity building, and supporting projects of high development dividend

• In China, all construction projects are required to go through environmental impact assessment;

• The CER sales price and technology involved are controlled through expert review and international additionally requirements;

• Identifying priority areas,

Effects of China’s CDM Regulations and Requirements

Project Potential

• Market Potential in 3 Priority Areas in China

Total mitigation potential

Accumulated (2006-2010) (MtCO2e)

Accumulated

(2011~2020) (MtCO2e)

RE 574 1,933

EE 312 1,450

MM 56 1,247

Total 942 4,630

Source: ERI

Emission Reduction Potential of Different Sectors

10.7%

4.4%

1.2%

1.0%

10.4%

6.8%

7.7%3.3%

8.1%

37.3%

0.6%

4.4%

0.4%

0.3%

0.4%

2.9%

Steel

Ammonia

Ethylene

Fertilizer

Cement

Brick

Glass

Aluminum

Copper

Paper

Commerce

Transport

Urban

Rural

Power generation

Other

Source: World Bank, 2004

Sector potential at a maximum incremental cost of US$ 13.6US$/tCO2e

Renewable Energy Promotion• Renewable Energy Law entered into force on Jan. 1st, 2006;

• Measures to promote renewable energy: 1) favorable tariffs for electricity from renewable sources; 2) the extra costs of electricity from renewable sources are shared nationwide.

• 2020 Renewable Energy Promotion Plan • Increase the share of Renewables in Total Primary Energy Supply from the

current 7% to around 15%;• Specific targets: Enlarge the share of installed capacity of electricity generation from

renewable sources in total installed capacity to 30%; Installed capacity of hydropower: 290 GW, and the exploration rate of

hydropower resources approximately 70%; Total installed capacity of wind power: 30 GW; Electricity generation of solar power generation: 2 GW; Solar water heaters: total heat collection area: 300 million m2, annual fossil

fuel substitution (Xinhua News Agency, Nov. 11th,2005)

Government Plans• The 11th Five-year Plan (2006-2010): reducing the

energy intensity of GDP by 20%;

• 2020 Energy Conservation Plan: China plans to double its energy consumption as its economy quadruples by 2020 on the 2002 level.

• At an annual savings rate of 3 per cent, China's energy consumption is expected to reach 2050 Mtoe in 2020.

• The Chinese government has unveiled a sweeping policy statement in Feb. 2006 on its environmental-protection goals for the next five years.

• .

China’s CDM Implementation Progress

CDM Projects in the CD4CDM Pipeline

CDM Implementation in China: starting later than some other developing countries, project number increasing rapidly, having some large projects, but the crediting period starting later than world average level.

Source: www.cd4cdm.org

Item CDM Projects in the Pipeline

Annual CER (kt CO2e)

2012 CERs (kt CO2e)

As of Aug. 15th, 2005

China 9 1241 9,084

World Total 202 46,563 346,923

China’s Share in World Total

4.4% 2.7% 2.6%

As of Jan. 16th, 2006

China 30 38,057 227,169

World Total 589 116,781 818,298

China’s Share in World Total

5.1% 27.8% 32.6%

Project Composition

Total HFCs Wind Landfill Gas

Hydro Fuel switch (chemicals)

Waste heat recovery (cement)

Projects 30 4 15 5 4 1 1

k CERs/yr. 38057 91.3% 3.6% 3.2% 1.5% 0.3% 0.04%

k CERs 2012

227170 89.6% 4.3% 4% 1.8% 0.3% 0.05%

Composition of the Chinese CDM projects in the Pipeline – as of Jan. 16, 2006

Source: based on data from the cd4cdm pipeline

• Among the existing 30 Chinese CDM projects in the international pipeline, half are wind power; other major categories include landfill gas, hydropower, and HFCs.

• Around 90% of the CERs to be generated come from the 4 HFCs projects.

Options for measuring the development dividend in CDM projects

The Gas-based Approach in China

• In view of the existence of large potential of chemical GHGs, the gas-based approach can improve the attractiveness and competitiveness of RE and EE projects;

• The Clean Development Fund, is yet to be established; the detailed rules about the management and use of the fund is not yet formulated;

• If the fund is properly managed and used for sustainable development purposes, the overall development dividends of Chinese CDM project activities can be improved

Options for SD Measurement

• Cost-benefit analysis( rank projects based on unit mitigation costs)

• Cost-effective analysis(rank projects based on IRR)

• The checklist appraoch - the WWF gold standard - the SSN matrix tool• Multicriteria Analysis• The Chinese gas-based approach

Requirements of SD Measurement Tool

• Transparent and easy to operate

• Universal applicability

• Comparability and able to be aggregated

• Minimum extra information cost

• Low development dividend assessment, monitoring, and verification costs

•

Comparison of Existing CDM Project

Dividend Assessment Approaches Transparency & operability

Universal applicability

Comparability and able

to be aggregated

Extra information requirement

Assessment, monitoring,

and verification

costs

CEA High Yes Yes Low Medium

CBA High Yes No Low Medium

Gas-based

High Yes Yes Low Low

Checklist Low Yes No High High

MCA Low Yes No High High

Xianli Zhu:

E-mail: Xianli_z@yahoo.com