CDM baseline standardization – key policy questions Axel Michaelowa Center for Comparative and International Studies (CIS), University of Zurich and ETH Zurich; Perspectives Joint Workshop, Bonn, March 13, 2011

Harnessing emissions reduction potential Source: IPCC (2007) Potential 2030, bottom-up studies CDM

Preventing emissions take-off Critical level of HDI Source: Michaelowa and Michaelowa (2009)

What can be standardized? Use of pre-defined values / parameters applicable to many projects at once Baseline setting Additionality determination Criteria, emission factors, calculation methods, equations, models feeding into baseline methodologies Across project types E.g. all electricity related projects Within individual project types E.g. benchmark for N 2 O from adipic acid

Why standardization? Administrative improvements to the CDM: Increased efficiency of registration process Greater objectivity, consistency and predictability Reduced transaction costs Increased project flow Broader systemic improvements: Guaranteeing and improving environmental integrity Improved distribution across host countries and project types Trade-offs between these goals?? Careful implementation and regulatory oversight !

Potential risks Subjectivity is not really eliminated, but shifted from project registration process to the baseline setting stage One off decision, difficult to reverse Gaming with standard setting can lock in too lenient baselines / non-conservative parameters High costs for public administrations, especially if frequent updating Aggregation level is crucial Too high: risk for environmental integrity, and of reaching all mitigation potential Too low: data confidentiality issues

Types of standards Emissions intensity benchmarks (add. /bl.) X t CO 2 / amount of product or service Homogeneous products, large number of entities, normal performance distribution Technology / practice standards (add./bl.) Average of top X % performance Reference technology that is common practice Project technology that is highly innovative Market penetration rates (add.) X percentage of installed capacity Economies of scale and learning are important Model (add/bl)

Types of standards II Deemed savings defaults (emission reduction) X t CO 2 reduced per installation and year Requires good understanding of usage patterns Utilization defaults (add.) X % plant load factor / x hours average daily use Limited variability of parameters influencing plant load factor Positive lists (add.) Technology Applicable if no other revenues than CERs or if technology clearly faces a cost gap to alternative technologies providing the same service

Key issues for benchmarks Type of benchmark e.g tCO 2 / t output Aggregation level Process? Product or service? Vintage? Geographic area? Stringency level Updating frequency Average? Best 20%? Best used? Best available? Fixed improvement factor? According to data?

Decision on stringency Emission intensity (tCO 2 / t output) Additionality benchmark A Baseline benchmark B C CERs D Plants

Greenfield vs brownfield

Vintages count!

Technology shifts

Benchmark development

Benchmark development II

Policy questions Which sectors and project types should be prioritized for standardization? Highly homogeneous, large-scale industries? Small, dispersed emissions sources? How stringent should standardized approaches be to guarantee a sufficiently high environmental integrity? More stringent than project-based approaches? Role of experts? What lessons can be drawn from existing use of standardization in offset programmes? US programmes (CAR, RGGI, CCX)

Policy questions Who should administer and develop standardized methodologies? CDM EB? Project developers? Should there be a Baseline Standard rulebook? How can we prioritize countries and regions? Underrepresented regions? Regions with highest potential? How can DNAs be enabled to decide whether to apply standardized baselines? Capacity building required Can distortions be prevented?