Event: Carbon Forum Asia 2008

November 12, 2008

to

November 13, 2008

Carbon Forum Asia 2008 will be held from 12 to 13 Nov 08 at the Suntec International Convention and Exhibition Centre. This annual conference and trade fair is jointly organized by the International Emissions Trading Association (IETA) and Koelnmesse. The event provides a platform for participants and exhibitors to explore and learn about carbon markets and financing, Clean Development Mechanism (CDM) projects, technologies, and regulatory developments in the Asia-Pacific region. Visit the Carbon Forum Asia website for more details.

Follow the Money

If China’s Green Leap Forward fails for whatever reason, it won’t be because of the lack of cash. Generally speaking, it has never been better to be a clean tech entrepreneur or project developer. Investment dollars are pouring in globally from hedge funds, private equity and venture capital funds, multinational corporations and development banks. Take these recent developments, for example:

• The clean development mechanism (CDM) under the Kyoto Protocol, for example, provides the much needed financial lifeblood to take IRRs of wind farm projects over the “hurdle rate.” There has been some criticism about the use and abuse of CDM by some camps, such as a front page article by The Guardian, but I thought China Environmental Law’s response was spot on. China is by far the world’s biggest market for CDM projects, accounting for a whopping 73% of transactions in 2007. Hong Kong joins the CDM fray as well.
• Sycamore Ventures and the China Association of Resources Comprehensive Utilization (CARCU), which operates under the State-owned Assets Supervision and Administration Commission, are to launch a US$ 1 billion dollar Greenstar fund to invest largely in China’s environmental sector.
• The World Bank will provide additional $440 million in loans for three energy efficiency projects. This will constitute one-third of the bank’s loan portfolio in 2008 to China. The three projects consist of energy efficiency financing, desulfurization in Shandong and infrastructure in medium-sized cities in Liaoning.

All this is not to say that China is reliant on external sources of funding. In fact, according to a Reuters report, Gao Guangsheng of the National Development and Reform Commission expects China to fund 90% of its renewable energy development by domestic sources of funding. Separately, Don Ye, founding partner of Tsing Capital’s China Environment Fund, for seven years, and still, China’s only fund 100% dedicated to clean tech investments told The Green Leap Forward, “There’s a trend to self sufficiency both in terms of talent as well as investments. By the end of this year, we expect to see quite a few RMB-denominated investment funds come to the market.”

Provincial and municipal governments are also investing big in renewable energy. The northeastern municipality of Tianjin has committed to invest RMB 200 million a year into mergers and pre-IPO deals in solar, wind and energy storage businesses. The southwestern province of Sichuan is pushing solar development in a big way, as evidenced by last weekend’s Western China PV Conference held in the province’s biggest city, Chengdu (成都). The governments of Chengdu and adjacent Shuang Liu (双流) county, together constituting the aviation hub of China, have now have established the Chengdu (Shuang Liu) Photovoltaic Industrial Park with the goal of becoming China’s “solar PV valley.” I’ll write more about the Western PV Conference in my next post.

There will be occasional bottlenecks to capital availability. Last month, the central government raised bank reserve ratios yet again to reduce liquidity in the market so as to combat inflation. The series of bank reserve ratio increases has resulted in a tightening in the availability of bank loans for renewable energy projects (although these have tend to affect foreign project developers, which are typically last in line, more than the major state-owned enterprise developers, which get priority access to capital) . But such a phenomenon does not detract from the favorable patchwork of investment policies enacted by the central, provincial and municipal governments for clean energy. If I were a betting man, my money would be on the red (the color of RMB 100 notes) to continue chasing the green (energy).

(This article is contributed by our guest writer, Julian Wong, and was first published in The Green Leap Forward.)

Asia and the Clean Development Mechanism

(Just for fun, rest assure that the carbon credits from CDM projects are not earned in the above manner.)

The Clean Development Mechanism (CDM) was discussed in our previous article. We are encouraged by the interest and participation of China and India in the CDM projects. However, the other Asian countries are still not making full use of the CDM to get funding and technology to reduce their emissions. Some information that we obtained from the Carbon Forum Asia 2007 is shown below.

The UNFCCC CDM website reported that there are 844 registered projects and 53 requesting registration, and more than 2600 projects in the pipeline. Of the registered projects, 61% is implemented in Asia and the Pacific (34% is implemented in India, 16% in China, 2% each in Malaysia and Korea). The expected average annual CERs from the registered projects amount to about 174,268,851 and 45% is generated by China while India generates 16%. Together, India and China takes up 50% of the CDM registered projects and generates 61% of the annual CERs.

The UNEP Risoe Centre reported that for the other 2600 projects in the pipeline, 73% is in Asia and the Pacific. The number of CDM projects in Asia by country are as follows: China (44%); India (40%); Malaysia (4%); Indonesia (3%); Philippines (2%); South Korea (2%); Thailand (2%); Vietnam (1%); Sri Lanka (1%) and Others (1%). The expected volume of CERs until 2012 in Asia is generated mostly from China (66%) and India (19%).

The above figures show that China and India host most of the CDM projects in Asia and the world, and most of the CERs is expected to be from China. The other countries in Asia are still lacking behind in the CDM market and some speakers attribute it to the lack of knowledge and awareness of CDM among the governments and private companies, and also the lack of financial support. Those countries can learn from China, especially on China’s role in CDM and carbon trading, and on how China use the profits generated for tackling climate change.

Source: UNFCCC CDM website; UNEP Risoe Centre; China.org.cn; Xinhua News Agency. Image attribution: WillyFeng.

Understanding the Clean Development Mechanism

We attended the recent Carbon Forum Asia 2007, which has given us more knowledge about the carbon market and how carbon trading works. In particular, we realised that the Clean Development Mechanism (CDM) works and is useful in helping developing countries reduce their carbon emissions through the use of cleaner and better technology.

Background

Under the Kyoto Protocol, developed countries (Annex I countries) are required to reduce their greenhouse gas emissions below specific target levels, between 2008 and 2012. To give developed countries some flexibility in meeting their targets and for developing countries (non-Annex I countries) to benefit from investment and technology in carbon-reducing projects, the Protocol developed three flexibility mechanisms. They include:

1. Clean Development Mechanism (CDM): this mechanism provides for Annex I countries to implement projects that reduce emissions in non-Annex I countries, in return for certified emission reductions (CERs) that can help meet their emissions targets.
2. Joint Implementation (JI): this mechanism provides for an Annex I country to implement an emission-reducing project or a project that enhances removals by sinks in another Annex I country, and use the resulting emission reduction units (ERUs) to meet its own target.
3. Emissions Trading: this mechanism provides for Annex I countries to purchase units from other Annex I countries and use them to meet their targets.

Developed countries are required to take domestic actions (”significant element”) to reduce their own emissions and the use of the mechanisms should be “supplemental to domestic action”. In other words, carbon trading should not be used as a shortcut way to meet emissions targets.

Clean Development Mechanism (CDM) 

Currently, the CDM is the favoured mechanism to earn CERs or commonly known as carbon credits. These CERs are traded in the global carbon market with ready buyers and sellers. The CDM works and some speakers at the Carbon Forum called it a success story. A typical CDM project undergoes the following:

• The project developer undertakes a CDM project in a developing country (host country).
• The project must satisfy two criteria – additionality and sustainable development. Additionality means that the project must have reduced emissions in addition to those that would occur in the absence of the project. The project must also help the host country move towards sustainable development and this criteria is determined by the host country.
• The project developer describes the project details in the Project Design Document (PDD) based on approved methodology by the CDM Executive Board (EB).
• The host country appoints a Designated National Authority (DNA) to approve the CDM project.
• The PDD and approval from the DNA is submitted to a Designated Operational Entity (DOE) who is approved by the EB to conduct the validation of the proposed project.
• After validation, the DOE submits the PDD to the EB for approval and registration.
• After registration, the project developer implements the CDM project according to the PDD and monitors the emissions.
• The DOE verifies the emissions from the project and requests the EB to issue the CERs.

Most of the CDM projects deal with hydropower, biomass energy, renewable energy and energy efficiency. The UNFCCC CDM website reported that there are 844 registered projects and 53 requesting registration, and more than 2,600 projects in the pipeline. The expected average annual CERs from the registered projects amount to about 174,268,851. This means that the implementation of the CDM projects have reduced emissions in developing countries by about 174 million tonnes of carbon dioxide equivalent.

Source: UNFCCC CDM website.