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Promoting investments for energy efficiency and renewable energy through carbon financing in China “International Conference on Climate Change 2007” Hong Kong 29 -31 May 2007 Heinz-Peter Mang – Senior Adviser for Bioenergy and Climate Change Chinese Academy of Agricultural Engineering (CAAE) / Ministry of Agriculture (MOA) and Markus Schwegler - Senior Advisor Climate Protection The Administrative Centre for China's Agenda 21 (ACCA21) / Ministry of Science and Technology (MOST) Table of Content 1. Is Climate Change real? 2. Climate Policy - Major milestones 3. Climate Change Mitigation - the Cleaner Development Mechanism 4. Chinas CDM Potential and Opportunities 5. Climate Change Adaptation Is Climate Change real? The Climate Challenge - Impacts and Vulnerability Some quotes from latest press release China warns of disasters from warming Tibet plateau (Reuters, 01.02.2007): ...Chinese scientists have warned that rising temperatures on the QinghaiTibet plateau will melt glaciers, dry up major Chinese rivers and trigger more droughts, sandstorms and desertification... Food security at risk (China Daily, 04.01.2007): ...Global warming will negatively impact China's ecological, social and economic systems, especially farming, animal husbandry and the country's water supply… China report warns of agriculture problems from climate change (International Herald Tribune, 03.01.2007): ...Typhoons, floods and droughts killed 2,704 people and caused economic losses of 212 billion yuan (€20.65 billion) in 2006... 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 3 The Fourth Assessment Report - Summary With "90 percent" certainty the increase of average global temperatures since the mid-20th century is linked to the increase of manmade GHG in the atmosphere. It is "likely" - in some cases "more likely " -- that manmade greenhouse gases have contributed to hotter days and nights, more heat waves, heavier rainfall, major droughts in more regions, stronger and more frequent cyclones… 11 of the last 12 years are among the 12 warmest years on record. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 4 Stern Review on the Economics of Climate Change One percent of global GDP must be invested to mitigate the effects of climate change; failure could risk a recession worth up to twenty percent of global GDP. ... "our actions over the coming few decades could create risks of major disruption to economic and social activity... on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century...” (compiled by economist Sir Nicholas Stern for the government of the United Kingdom, released on October 30, 2006) 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 5 First National Climate Change Assessment Report The Assessment started in 2002 under the guidance of the National Climate Change Coordinating Committee and 12 Chinese ministries and organisations. The report is the result of a 4-year government study carried out by over 80 leading Chinese experts. The Assessment was released on October 26th 2006 by the Ministry of Science and Technology (MOST), China Meteorology Administration (CMA), and the Chinese Academy of Sciences (CAS). 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 6 Climate Changes in China (over the last 100 Years) Average temperature increased by 0.5-0.8°C (global average 0.6°C). Temperature rise most significant in winter and spring (global trend). Temperature rise is most obvious in North China and Tibet. The growing season has prolonged (Tibetan Plateau, North China) Average precipitation is increasing (year-to-year fluctuations). Precipitation trends show major regional differences. In most parts of West China, the annual average precipitation increased. in North China and Northwest precipitation declined. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 7 Extreme weather events Average days of hot weather increased. Average number of frost days dropped (±10 days since 1950). Frequency of cold waves declined in the last 50 years. Draughts are more severe (North and Northeast China). Floods are more frequent and severe (middle and lower reaches of the Yangtze River and Southeast China). The frequency of strong precipitation events increased in Northwest. Storm days in summer increased (middle and lower reaches of the Yangtze River and in southeast China). 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 8 Future Climate Change Predictions for China Surface temperatures will rise and precipitation will increase over the next 20 to 100 years (similar to the global trend). Temperature rise will be higher in the north than in the south and bigger in winter and spring than in summer and autumn. The days of precipitation will increase in the north and changes in the south will be less. The daily maximum and minimum temperature will increase, but the rise of minimum temperature will be more significant. The south will see more days of heavy rain and storms. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 9 Major Impacts of Climate Change in China Coastal areas are affected by extreme weather events Decreasing glaciers in Northwest (-21%) and permafrost in Tibet. Enlargement of draught-stricken areas in the north. More instable agricultural production (draughts and high temp.). Major river flows will decline (in the north seasonal drying up). More frequent flood disasters Forest areas are decreasing and forest belts are moving upwards. Spreading of diseases with major impact to human health. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 10 Climate Policy - Major milestones Adaptation to and Mitigation of Climate Change The path to the convention 1989 IPCC First Assessment Report - Threat of Climate Change 1992 UNFCCC opened for signature (Rio Earth Summit) 1994 UNFCCC entered into force with 166 signatures 1995 Second Assessment Report (SAR) of the IPCC 1997 December, adoption of the Kyoto Protocol 2001 Third Assessment Report (TAR) 2005 Kyoto Protocol came into force (16.02.2005) 2005 EU Emission trading scheme (01.01.05) 2007 Fourth Assessment Report (AR4) of the IPCC 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 12 The UN Framework Convention on Climate Change ... stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system...(Article 2) Set Goals, not targets Annex I countries (industrial countries) were to adopt policies to “aim” to reduce their emissions 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 13 The Kyoto Protocol Defines quantified greenhouse gas (GHG) emissions reduction targets for developed countries (Annex I Parties). Longer-term challenge: Meet the objectives of Article 2 of UNFCCC Countries have different targets for the 5-year period of 2008- 2012). Total emission reductions for the Annex I countries amounts to 5.2 % from 1990 year's levels. EU countries commit to reduce their emissions by 8%, Japan by 6% and Germany by 21%, from their base-year emissions. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 14 The Protocols flexible mechanisms Clean Development Mechanism (CDM), Article 12 of the Protocol Emission reductions must be real and measurable (verified by third party or Operational Entities) Joint Implementation (JI), Article 6 of the Protocol Credit for emission reduction investments in developing countries Credit for emission reduction investments in projects in EIT countries International Emissions Trading (IET), Article 17 of the Protocol Trading of emission reduction credits among developed countries 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 15 The Chinese Climate Policy 1992 China approved and ratified the UNFCCC 1998 China signed the Kyoto Protocol 2002 China approved the Kyoto Protocol 2004 DNA was founded with the Interim Measures 2005 On 12 October 2005, Measures for Operation and Management of Clean Development Mechanism Projects (“CDM Measures”) 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 16 Relevant Institutions in China National Climate Change Coordination Committee (NC4): Inter-ministerial committee established in 1990 to coordinate national activities related to climate change, CDM policy formulation, rules and standards... National CDM Board: Main responsibilities are review and approval of CDM application submitted by the project owners. Chinese National Authority (DNA): Focal Point is National Development and Reform Commission (NDRC) 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 17 The priority areas for CDM projects in China Energy efficiency improvement Development and utilization of new and renewable energy and Methane recovery and utilization (Measures for Operation and Management of Clean Development Mechanism Projects in China) 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 18 Points to Note under CDM Measures Resource of emission reductions owned by the PRC government Outputs of CDM Projects are owned by PRC project owner Proceeds from sale of outputs jointly owned by PRC government and PRC project owner PRC government entitled to: 65% from HFC and PFC projects 30% from N2O projects 2% from energy efficiency and renewable energy projects 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 19 The Cleaner Development Mechanism (CDM) Incentives for project developers The CDM - a win-win mechanism The CDM’s aims are twofold: It supports the developed countries in reaching their emissions targets set by the Kyoto Protocol, and the developing countries in achieving a higher level of sustainable development through technology transfer and financial assistance. For a project to be approved as a CDM project it has to meet various obligations an go through a defined project cycle. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 21 The Economics of a Hydro Power and a Methane Project Hydro power project: Ag. Waste to energy biogas project: 7.5 MW installed capacity 2 MW installed capacity 28,448 t CO2 ER’s p.a.(10 years) >50,000 t CO2 ER’s p.a.(10 years) Project costs: US$ 4.5m Project costs: US$3.5m Carbon value: Carbon value: $5/ t CO2 = $1.42m $5 /t CO2 = $2.5m $8/ t CO2 = $2.27m $8 /t CO2 = $4.0m Proportion of project costs: Proportion of project costs: $5/ t CO2 = 31.5% $5/ t CO2 = 71.4% $8/ t CO2 = 50.5% $8/ t CO2 = 114% Reason: Methane is 21 times more potent than CO2 on ton-to-ton basis >> Opportunity for many agricultural projects 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 22 What Kinds of Projects/Sectors? 1. Renewable Energy Projects: Biomass Energy incl. for Energy Farming 2. Waste-to-energy projects: Municipal Solid Waste clean up transforming poorly managed dumps to sanitary landfills, recycling, and landfill biogas capture and power generation Agribusiness Waste to Energy: Rice 3. Community and agro forestry Biomass Energy 4. Large Scale Energy Efficiency 5. Coal Mine & Bed Methane 6. Transport Bio fuel 7. Industrial Gas Incineration N20, HFC23 Husk Power Plants (1-10MW); Palm Oil waste to energy projects, Farm Biogas project, Straw-to-Energy 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 23 Chinas CDM Potential and Opportunities Chinas CDM Potential and Opportunities Potential Energy demand and consumption in China ranks second in the world following the USA Coal baseline In 2000, China’s energy consumption per unit of eight major products was 20-40% higher compared to international level Estimated CDM Potential: 50% of the global CDM Market (World Bank /GTZ Study) Opportunities Energy Efficiency Renewable Energy CBM/CMM Fuel conversions and new technology for power generation Large energy losses with much potential in re-utilization of waste heat and waste energy 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 25 Status of CDM Projects - Expected CER´s until end of 2012 *1 Number of Project CDM project pipeline: > 1600 Registered: 655 Requesting registration: 69 CER´s issued Expected CER´s until 2012: >1900 Million CERs Total based on registered projects (665): > 900,000,000 Total based on projects requesting registration (69): > 700,000,000 *1) as of 8th May 2007 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 26 Registered project activities by host party China has 76 projects up to date (09.05.2007) 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 27 Expected average annual CER´s Average Annual Reductions in China: 61,717,664CER´s as of 09.05.2007 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 28 number of registered projects per per sector Chinese registered projects sector Coal bed/mine methane 4% EE industry Reforestation 1% N2O 1% Landfill gas Biomass energy 7% Wind 49% HFCs 10% Hydro 18% As of 1 May 2007, data source http://www.cd4cdm.org/ 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 29 Top sectors by issued CERs (globally) Top sectors issued CERs (globally) Landfill gas 4% Agriculture 4% Wind 3% EE industry 2% Cement 1% Hydro 4% Biomass energy 13% HFCs 55% N2O 14% As of 1 May 2007, data source http://www.cd4cdm.org/ 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 30 Sector results and distribution for China Type Biogas Biomass energy Coal bed/mine methane EE industry EE Service Fossil fuel switch HFCs Hydro Landfill gas N2O Reforestation Wind Total result no of projects (registered) number of projects (status all) 0 5; 7% (4) 3 3 0 0 7; 9,9% (3) 13; 18,3% (2) 4 1 1 34; 47,9% (1) 71 4 19 27; 6% (4) 59; 13% (3) 1 18 11 191; 43% (1) 24 12 2 86; 19% (2) 454 amount of expected amount of expected CER«s until 2012 CER«s until 2012 (registered) total (status all) total ktCO2 ktCO2 2,5% (4) 4% (3) 10,1 % (4) 82% (1) 41,6 % (1) 11,0 % (2) CERs issued so far (kCERs) 2 projects; 4823,067 1 project; 42,444 10,2 % (3) 6,5% (2) 357812,1226 942238,1217 7 projects; 433,146 10 As of 1 May 2007, data source http://www.cd4cdm.org/ 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 31 Top Countries by Buyers Top countries by Buyer (No. of CDM projects) Spain 5% Denmark Germany 3% 4% Canada Austria 2% 3% Sweden 5% United K. 38% Italy 6% Switzerland 6% Japan 14% Netherlands 14% As of 1 May 2007, data source http://www.cd4cdm.org/ 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 32 Barriers for CDM in China Lack of knowledge and skills to The currently low CER price in Lack of experience to assess Availability of data identify CDM opportunities risks and develop projects CDM not fully accepted and understood as financial tool Complexity of the CDM Cycle Legal framework the buyer driven market Confidentiality & Transparency Transactions costs Large number of different players Language Barrier 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 33 Experiences with CDM in China Foreign CDM Participants & stakeholders Chinese CDM Participants & stakeholders: CER buyers dominate Limited knowledge of CDM Low interest in project development and investment Misunderstanding of the financial mechanism Lack of understanding of the Chinese framework and market conditions Up front payment Transaction costs Project Complexity Don't fully understand the risks and don't want to deal with it (51/49 rule) Looking for help to find projects Language problem Looking for help to deal with contractual and risks issues Limited understanding of the operational aspects of CDM (PIN, PDD) Language problem Difficulties to access foreign project partners and buyers 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 34 Climate Change Adaption Adaptation versus Mitigation Adaptation and mitigation are two options to respond to climate change. Mitigation Refers to an anthropogenic intervention to reduce the sources or enhance the sinks of GHGs. Adaptation Refers to adjustments in natural or human systems in response to actual or expected climatic stimuli or their effects, which moderate harm or exploit beneficial opportunities (IPCC, 2001a). 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 36 Linkages between Mitigation and Adaptation Mitigation policies can complement adaptation and development. Planting forests to sequester carbon can also stabilise soils and avoid floods, rural electrification can support sustainable development. Planting trees can reduce urban heat-island effects. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 37 Adaptation in the Chinese Assessment Report Area Strategy Agriculture and Food Security Changing crop/livestock mix Water resources and Quality Improvement of water conservation measures Forestry Afforestation and reforestation, Management of natural resources Livestock Adoption of new livestock more suited to anticipated climatic conditions Costal defence Improved flood management systems Human health Establishment of forecast, monitoring, and surveillance networks 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 38 Existing Local and Sectoral Coping Strategies Limited experiences available on adaptation to climate change. Asian experience at local level on coping with climatic variability and extreme weather events: Large scale irrigation for agriculture, intercropping, mixed cropping, agro-forestry and animal husbandry. Coastal defence and flood protection and cyclone warning systems. 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 39 Climate Change Mitigation China has a huge energy demand due to the high economic growth High demand for renewable energy and energy efficiency High demand for advanced technology CDM Projects can deliver significant local economic and sustainable development co-benefits China needs technology transfer and financial support 2007 Mang & Schwegler, Chinese Academy of Agricultural Engineering (CAAE) & The Administrative Centre for China's Agenda 21 (ACCA21) 40 Thank you for your attention There is now time for discussion…