In December 2012, the Jirau hydro power plant in Brazil was registered as a greenhouse gas-reduction project at the United Nations Climate Change Secretariat in Bonn, Germany and obtained a certified credit for the amount of reductions in greenhouse gas (GHG) emissions. The project aimed to build a hydro power plant with a capacity of 3750 MW at a cost of US$ 4.7 billion.1 Through registration at the United Nations, the project can earn money by selling their certified reductions in GHG emissions. More precisely, the hydro power plant project is estimated to reduce GHG emissions by approximately 6 million metric tons per year compared to the level of GHG emissions from fossil fuel-burning power plants (CDM 2012c). Given that the technical lifetime of the hydro power plant is 30 years, the project could reduce about 180 million metric tons of GHG during its lifetime. Accordingly, if the price of GHG is US$ 10 per metric ton, the project could mobilize US$ 1.8 billion through the sale of certificates of GHG reduction.2 If the price of GHG rises to US$ 20 in most of the developed world in the 2020sāas projected by the International Energy Agency āa project of such kind would garner US$ 3.6 billion in the 2020s.3 If the price goes up to US$ 40 in the developed world in 2040, a project of this kind at that time could reap US$ 7.2 billion through the sale of the certificates of GHG reduction. Keeping in mind that this is a hypothetical scenario, the profits from the sales of the certificates for GHG reduction could be even greater than the entire project cost.
Similar potential for garnering profits from GHG reduction can also be identified in many other āgreenā projects.
Solar Power
The Atacama photovoltaic power plant project in Chile was registered at the United Nations Climate Change Secretariat in December 2012 (CDM 2012d). The project aimed at building a photovoltaic power plant with a capacity of 250 MW at a cost of US$ 500 million. Given that the solar photovoltaic power project is projected to reduce 290,000 metric tons of GHG per year and its operational lifetime is 25 years, the project could reduce around 7.25 million metric tons of GHG during its lifetime. One sees that a project of this kind has the potential to reap sizable profits of somewhere between US$ 73 million and US$ 300 million on the premise that the price of GHG certificates falls somewhere between US$ 10 and US$ 40.
Wind Power
Inner Mongolia Bayannur Wulanyiligeng wind power plant in China was registered at the United Nations Climate Change Secretariat in August 2011 (CDM 2011b). The goal of this project was to build a wind power plant with a capacity of 300 MW at a cost of US$ 420 million.4 Given that the wind power project is projected to reduce up to 900,000 metric tons of GHG per year and its operational lifetime is 25 years, the project could reduce 23 million metric tons of GHG during its lifetime. Similar to the solar project, this type of project has the potential to harvest a considerable profit of somewhere between US$ 225 million and US$ 900 million, likewise on the premise that the price of GHG certificates will fall somewhere between US$ 10 and US$ 40.
Geothermal Power
The Olkaria IV geothermal power plant in Kenya was registered at the United Nations Climate Change Secretariat in December 2012 (CDM 2012b). Here, the aim was to build a geothermal power plant with a capacity of 140 MW at a cost of US$ 520 million. Given that this geothermal power project is projected to reduce 651,000 metric tons of GHG per year and its operational lifetime is 25 years, the project could reduce 16.3 million metric tons of GHG during its lifetime. Accordingly, there is the potential to garner a remarkable profit of somewhere between US$ 163 million and US$ 651 million if the price of GHG certificates fall somewhere between US$ 10 and US$ 40.
Subway
The Metro Line 12 project in Mexico was registered at the United Nations Climate Change Secretariat in September 2012 (CDM 2012a). The objective was to build a 25 km-long subway system in Mexico City at a cost of US$ 1.97 billion.5 Given that the project is estimated to reduce up to 137,000 metric tons of GHG per year and its operational lifetime is 30 years, the project could reduce up to 4.1 million metric tons of GHG during its lifetime. This project has the potential to garner a profit somewhere between US$ 41 million and US$ 164 million assuming that the price of GHG certificates falls somewhere between US$ 10 and US$ 40.
Rapid Transit System
The Bus Rapid Transit (BRT) Lines 1ā5 EDOMEX project in Mexico was registered at the United Nations Climate Change Secretariat in May 2011 (CDM 2011a). The BRT Line 1ā5 EDOMEX project aimed to establish a safe and rapid mass transit system by introducing bus-only lanes, rechargeable electronic cards for payment, real-time next bus information displays and centralized control systems. The BRT project is estimated to cost US$ 246 million.6 Given that the project is estimated to reduce 146,000 metric tons of GHG per year and its operational lifetime is 30 years, the project could reduce 4.4 million metric tons of GHG during its lifetime. A substantial profit potential of somewhere between US$ 44 million and US$ 176 million could be projected based on the premise that the price of GHG certificates will fall somewhere between US$ 10 and US$ 40.
Non-green Projects
It is worthwhile to note that the potential of GHG as a new financing source is not limited to āgreenā areas as mentioned above but can be further extended to ānon-greenā areas like fossil fuel-burning power plants. Taking the example of a gas-fired power plant, Fujian Jinjiang LNG power plant project in China was registered at the United Nations Climate Change Secretariat in February 2009 (CDM 2009). The project goal was to build a natural gas-fired power plant with a capacity of 1516 MW at a cost of US$ 695 million.7 Compared to GHG produced by ācheaperā coal-fired power plants that are currently a more prevalent power source in China, GHG emissions produced by the āexpensiveā natural gas-fired power plant project are estimated to drop by about 2.7 million metric tons per year. Given that the technical lifetime of the natural gas-fired power plant is 20 years, the project can reduce up to 55 million metric tons of GHG during its lifetime. Accordingly this project has the potential to reap a large profit somewhere between US$ 550 million and US$ 2.2 billion assuming that the price of GHG certificates will fall somewhere between US$ 10 and US$ 40.
Coal-fired power plants also play a role: Shanghai Waigaoqiao coal-fired power project was registered at the United Nations Climate Change Secretariat in December 2010 (CDM 2010). The project aimed to construct an ultra-supercritical (USC) coal-fired power plant with a capacity of 2000 MW at a cost of US$ 1.4 billion. The āmore efficientā USC coal-fired power plant project is projected to reduce GHG emissions by about 310,000 metric tons per year when its GHG emissions are compared with those of āefficientā supercritical (SC) coal-fired power plants.8 A supercritical coal-fired power plant operates at a higher temperature and pressure than a normal coal-fired power plant does, increasing efficiency and consuming less coal: reductions in coal consumption means a reduction in GHG emissions. Likewise, an ultra-supercritical coal-fired power plant operates at an even higher temperature and pressure than a supercritical coal-fired power plant does, making them even more efficient than supercritical power plants. Given that the technical lifetime of the ultra-supercritical coal-fired power plant is 20 years, the project can reduce up to 6.2 million metric tons of GHG during its lifetime. The profit potential of such project lies somewhere between US$ 62 million and US$ 248 million based on the assumption that the price of GHG certificates falls somewhere between US$ 10 and US$ 40. A summary of the cost of projects and their profit potential on GHG reductions can be seen in Table 1.1. The details on the calculation of reductions in GHG emissions for an individual project will be reviewed in Chap. 6.
Table 1.1
Project cost and profit potential in GHG reductions
Project | Investment cost (US$) | Potential of profits (US$)a | Percentage of profit (%)b |
|---|---|---|---|
Jirau hydro power | 4.7 billion | 1.8 billionā3.6 billion | 38ā77 |
Atacama solar power | 500 million | 73 millionā300 million | 15ā60 |
Inner Mongolia wind power | 420 million | 225 millionā900 million | 54ā214 |
Olkaria geothermal power | 520 million | 163 millionā651 million | 31ā125 |
Metro Line 12 | 1.97 billion | 41 millionā164 million | 2.1ā8.3 |
BRT Line 1ā5 EDOMEX | 246 million | 44 millionā176 million | 18ā72 |
Fujian LNG power | 695 million | 550 millionā2.2 billion | 79ā317 |
Shanghai coal-fired power | 1.4 billion | 62 millionā248 million | 4.4ā18 |
Inevitably, such estimates as noted above are financial ones that do not take into account both political and technical issues...