Renewable Energy Project Development Under the Clean Development Mechanism

A Guide for Latin America

Elizabeth Lokey

• Publisher: Taylor & Francis
• Year: 2012
• Print ISBN: 9781844077373
• eBook ISBN: 9781136558535
• Edition: 1
• Topic: Business
• Subtopic: International Business
• Index: Business

This definitive guide to developing renewable energy CDM projects in Latin America - the largest market on the doorstep of the United States - provides business leaders, investors, project developers and host country offices with the one-stop guide to successful CDM renewable energy project development.

The book opens with an accessible guide to the CDM that explains what it is and how it works in both theory and practice with a step-by-step guide for investors, project developers, consultants and Designated National Authorities (DNAs). The book then provides valuable country-by-country market analysis of Latin America with a focus on the electrical sector, renewable energy incentives and the overall investment climate that provides an authoritative guide to the most and least favourable places to develop projects. The final section provides guidance for how to overcome the identified barriers with practical actions for successful project development.

Section 1

CDM Market and this Guide

1

Background and Introduction

Background

In order to address climate change, the United Nations formed the Framework Convention on Climate Change (UNFCCC) in the early 1990s. Most countries signed this treaty and pledged to consider reducing climate change and its impacts. The 1997 Kyoto Protocol, which calls for binding emission reduction targets for most developed countries – termed Annex I countries by the Protocol – was created as an extension of this treaty. The Protocol was to go into effect when 55 countries representing 55 per cent of the world’s greenhouse gas emissions had ratified it. The 55-country clause was met by 2002, but it was not until February of 2005, three months after Russia signed the Protocol, that the 55 per cent of the world’s emissions stipulation was met. The Protocol’s time frame is 2008–2012 for the 175 countries that had ratified it by April of 2008 [1].

Flexible mechanisms within the Kyoto Protocol allow countries to fulfil a portion of their carbon obligations by trading emission allowances known as Assigned Amount Units (AAUs) among Annex I countries, purchasing emission reductions from carbon offset projects in other developed countries or economies-in-transition like the former Soviet republics or purchasing Certified Emission Reductions (CERs) from carbon offset projects in developing countries. The latter of these options, known as the Clean Development Mechanism (CDM), defined in Article 12 of the Kyoto Protocol, and overseen by the UNFCCC, is intended to allow countries that ratified the Kyoto Protocol to meet their carbon obligations in the cheapest way possible, achieve the objectives of the Protocol and promote sustainable development, which is contentious because it has not been defined by the UNFCCC [2].

Providing an alternative path to development for non-Annex I or developing countries is essential to curbing global warming since 59 per cent of energy-related carbon dioxide (CO₂) emissions will come from developing countries in 2030 [3]. CDM projects absorb CO₂ from the atmosphere or decrease CO₂ emissions by improving the efficiency of a process, fuel switching or substituting fossil fuel-based energy with renewable energy. If the CDM project is successfully registered and the emission reductions verified, the emissions reduced or absorbed can be sold internationally to the Annex I countries and provide additional revenues for the project owner.

The more emissions are reduced, the larger the profits from the project. The process by which projects are registered is essentially the same for both large and small projects and quite costly at between $58,400 and $500,000 [4 and 5].¹ Therefore, most emission reductions are derived from large projects such as industrial gas emission mitigation in urban areas. These projects have potentially large revenue streams and can attract foreign investment and interest from project developers and carbon brokers, who buy reductions from project owners and sell them to Annex I countries.

Renewable energy projects tend to result in fewer emission reductions per project and therefore only account for 12 per cent of CERs produced worldwide, while industrial gas mitigation projects account for 72 per cent [6]. In order to allow developers to have greater success in implementing these projects, this book seeks to make these barriers to renewable energy CDM projects better known. This geographic area was chosen because it has been overshadowed by Asia, and there is no major study that assesses the region’s barriers. Some recommendations for how to overcome these barriers will also be offered, but less emphasis is placed on these suggestions since a full elaboration of the potentials and pitfalls of each would constitute another book.

The author researched these barriers not only by reviewing the current literature available, electrical background for each country and renewable energy legislation in each country, but also by visiting 12 Latin American countries and conducting interviews with project developers, governmental and non-governmental organization (NGO) representatives, and investors. She also visited 15 project sites during her travels to observe first-hand the barriers to project implementation. See Appendices A and B for a complete list of interviewed persons and project sites visited.

It is important to assess the project-specific barriers, as well as the host country environment for implementing CDM projects, since the process for registering and continually earning CERs is interdisciplinary and includes all of these factors. The document used for registration of these projects with the UNFCCC, known as the Project Design Document (PDD), must discuss the technical aspects of the project, the renewable energy legislation and energy situation in the country, provide an argument of why the project would not have occurred in a business-as-usual situation based on a financial or barriers analysis, show the baseline emissions that would have occurred without the project, emission reductions as a result of the project, the environmental impacts of the project and a stakeholder analysis of the project with community members. The process of UNFCCC registration is interdisciplinary because the success of renewable energy projects depends on social, political, economic and technical aspects of the project being well aligned. Therefore, this book is also interdisciplinary and seeks to address each of these components in order to provide a thorough analysis of the barriers to CDM project success.

The appeal of this book is wider than may first appear since virtually al...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Acknowledgements
• Executive Summary
• List of Acronyms and Abbreviations
• Section 1: CDM Market and this Guide
• Section 2: Barriers
• Section 3: Country Market Intelligence for CDM Projects
• Section 4: Future Development
• Index