Baseline methodologies for grid- connected electricity – Context and Introduction to the Combined Margin Baseline Calculation Martina Bosi, World Bank Holiday Inn, Montreal December 3, 2005

Some Context

Outlook for Future World Electricity Generation Gas-based electricity production will triple, but coal will remain the dominant fuel worldwide Source: IEA, World Energy Outlook 2004

Context: Power Sector CO 2 Emissions Power generation will contribute half the increase in global CO2 emissions; In 2030, coal plants in developing countries will produce more CO 2 than the entire power sector in the OECD; Source: IEA, World Energy Outlook 2004

Generating Capacity Requirements ,800 GW of new capacity will be needed to meet new demand and retirements’ Source: IEA, World Energy Outlook 2004

CDM and Power Generation $ $ Technology Finance CO Equivalent2 Emission Reductions Industrialized Governments and Companies Developing Countries and Companies

CDM Portfolio (projects at PDD stage) CDM projects by sector (total:477) Annual CERs from CDM projects by sector (total:83.4 million) Source: UNEP Risoe database (28 Nov. 2005):

Technological Distribution of World Bank’s Carbon Finance Portfolio (total $629 million) Source: Carbon Finance Annual Report 2005

Key CDM Methodological Challenge: the Baseline time emissions Project emissions baseline Certified emission reductions The difference between the actual project emissions and the emission baseline constitute the volume of CERs

Baseline Calculation one general baseline calculation: Output (kWh/yr) X emission factor (kgCO2/kWh) Different possible methodologies to calculate emission factor (kg CO 2 e/kWh) Methodological challenge

Impact of Different Baselines for Power Generation Projects: Example of India tCO2/GWh Possible emission credits under different baselines Fossil fuel only Peaking All sources Natural gas (BAT) 382 Natural gas only 418 Natural gas (BAT) Wind Source: Bosi (2000)

Desirable Features of Baseline Methodologies For example: Accuracy Transparency Conservative Cost-effective Consistency Practical (e.g. based on available data)

Baseline Methodology for Grid-Connected Power Generation Projects: Combined Margin Approach  Most grid-connected electricity projects likely to affect both: –Operation of current or future plants, i.e. the operating margin; as well as –The building of new facilities, the build margin  Combined margin (CM) baseline methodology combines the operating and build margins  appropriate where counterfactual scenario assumed to be the ongoing expansion and operation of the grid (as opposed than 1 specific investment) Source: Kartha et al. 2002

Calculating the Combined Margin Combined Margin EF (kg CO2e/kWh) = (Operating Margin EF + Build Margin EF)/2 Baseline = Project Output (kWh/yr) X Combined Margin emission factor (kgCO2/kWh) Michael Lazarus’ presentation will provide the details!

Conclusions World electricity demand expected to double (now ) –Most of growth to come from developing countries –Electricity-related CO2 emissions in developing countries projected to more than double  Opportunity for CDM to create incentive to reduce CO2 intensity  Power generation project: important part of CDM portfolio  Determining Emission Factor of Baseline: key methodological challenge  Combined Margin is attractive/promising baseline methodology  But devil is in the details

Thank You! Martina Bosi