Download An investigation of CDM for buildings energy efficiency

An investigation of CDM for buildings energy efficiency
Jun Li , IDDRI, +33 145 497 678, [email protected]
Overview
This paper deals with energy efficiency improvement in China that undergoes rapid urbanisation. Here we assess the relevance
and effectiveness of policy and economic instruments for the improvement of building energy efficiency standards and
adoption of the state-of-the-art construction techniques in a city in Northern China. A city-based programmatic Clean
Development Mechanism (CDM) model is proposed based on economic analysis. We find that upgrading the current Chinese
BEE standard to the Best practices in the world implies a carbon emissions reduction cost at around 16US$/CO2, compatible
with the carbon price in the international market. However, achieving the efficiency improvement and related carbon credits
needs implicitly that final energy use must be revised otherwise the heat companies have no incentives to invest in BEE
upgrading. Accordingly, energy price needs to be raised by 15-20 per cent to make all stakeholders better-off.
Methods
In this study we propose a programmatic CDM model under which all carbon credits in this case will be centralised to local
government ( a carbon pool could be step up as indicated in the diagram). Local government commits it self to financing (by
means of public bank or social development funds) the extra cost of adoption of the BAT to improve buildings energy
efficiency to the public. The city of Tianjin (close to Beijing) is selected as the case study object. A builder in the city adopts
higher efficiency practice package (compliance with Swedish standard equivalent requirement + 24 MW NGCC) if and only if
the carbon price is higher than the abatement costs. Likewise, a utility company (heat supplier) or property developer would be
engaged in investing in BEE if the generated carbon transaction cash flow will allow him to cover the related extra costs. He
would tradeoff this decision according to the outcome of this financing arrangement.
Results
With an average rise of 1% in energy price per year during the calculation period with equation 1, it can be easily calculated
that the EAC is 16 US$/tCO2 (2005 prices), which is slightly higher than average CERs price of China's CDM projects, but
still significantly lower than the EU-ETS Allowance (EUA) price that is close to 30 US$/tCO2 (Point Carbon, 2008). The
CDM CER price of residential BEE upgrading in Chinese northern cities is fairly competitive for carbon financiers and
investors. Moreover, the transaction costs of CDM are expected to decrease further with the city-level and sector-based
programmatic CDM models. The potential demand for ERs in EU countries could increase to 300 Mt CO2eq per year to attain
the European target of reducing GHG emissions further to a 30% below 1990 levels by 2020 (Capoor and Ambrosi, 2008).
It can be estimated that if the regulatory authority (Tianjin District Heating Office and Tianjin Price Administration) is
concerned with the fact that financial situation of heat company needs to be improved, the heat price must be raised up to
between 16% and 21%, beyond which the final consumers will be worse-off. Clearly, there is a tradeoff of increase rate
between the benefits of heat supplier and final consumers. If the price is allowed to increase 20%, the profit of heat company
will reach 5.6 million RMB, whereas the consumers will be indifferent since the pay the same energy bill as before, however
their comfort level is improved significantly.
Conclusions
It was argued that cost of financing would be around 15-16 US$/t CO2 avoided compared to baseline scenario (implement the
current building code with conventional coal-fired district boilers). To achieve the energy efficiency target, the heat price rise
for end-user is a necessary condition for the commitment of heat supply company. We found that end user's payoff will remain
indifferent until the heat price rise exceeds 20% of current price level. Importantly, if the price is allowed to raise 20%, a
considerable benefit will be generated for heat suppliers. The transition model can be sustainable way of CDM financing in
energy efficiency in developing countries since it enables the local authorities to build up a strategy to anticipate the future
carbon constraints by generalising gradually the most efficient practices in large infrastructure.
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