Caspar Chiquet

According to Reuters, Huang Huikang, member of the Chinese negotiation team at Cancun, told a reporter:

“Under the (U.N. Climate) Convention, we can even have a legally binding decision. We can discuss the specific form. We can make our efforts a part of international efforts.”

This comes after Japan declared that they would under no circumstances sign up to a second commitment period. Things are getting interesting in Cancun.

Here’s the full Reuters article: http://www.reuters.com/article/idUSTRE6B55H720101206

Point Carbon takes another look at double counting of carbon credits under international schemes and domestic NAMAs, again in the context of China.

This could become a very important topic if China should decide to step up their commitments at Cancun these weeks.

I was talking to Stian of Point Carbon, explaining my personal opinion that China was not very likely to make avoiding double counting a priority when formulating their domestic strategy under the 12th 5-year plan. While CDM may have significantly contributed to certain industries (small hydros, wind), it’s overall impact is still minor compared to the overall scale of China’s mitigation efforts. I think the most likely outcome is that double counting will be solved on the demand side, either through an outright ban of certain credit types (think HFC23) or through cancelation of an equal amount of domestic credits (if that’s possible within the Chinese system).

It’s also possible they could be banned or restricted from emissions trading schemes outside of China, meaning the EU and UN need to clarify eligibility rules, said Caspar Chiquet at project developer South Pole Carbon’s Beijing office.

“It shouldn’t be too complicated to solve, depending on how energy intensity goals are implemented. They will include targets for big emitters, and it should be easy to take those into consideration,” he added.

Read the full article here: http://www.pointcarbon.com/news/1.1489544 (subscription necessary).

Li Meiying from 21st Century Business Herald wrote an excellent Chinese language summary of the lead-up to Cancun, cleverly titled 《坎昆角力》(the Cancun wrestle). Li talked to several of the major players in Beijing’s CDM business, and the result is an interesting potpourri of opinions.

I was talking about post 2012 uncertainty and the possibility to place bets, taking advantage of the Chinese floor price to get exclusive options at low prices.

另外，西克称，碳资产管理公司还可以预测气候谈判的结果、在风险可承受的范围内进行赌博，虽然风险大，但是盈利空间也很大。

I think Li misinterpreted the risk, since we’re talking about options, the only exposure of developers are registration costs.

Overall it’s a solid piece and I’m happy to see that Chinese mainstream media are building up capacity to cover climate change related topics.

More anecdotal evidence about forced blackouts to achieve the 11-5 target, this time from The Guardian’s Jonathan Watts:

Anping County, in Hebei Province, cut electricity to homes, factories and public buildings for 22 hours every three days in a radical move that has highlighted both the serious last-minute effort that China is making to achieve environmental goals and the immense long-term difficulty of shifting away from a dirty, wasteful model of economic growth.

Full article.

Here’s my earlier post about China’s goal under the 11^th 5-year plan with “5 months to go“.

Huayong Niu, a dean at the Beijing Foreign Studies University, said China’s growing GDP and energy consumption will make it “really tough work” for China to meet its 2010 greenhouse gas reduction target.

Funny choice for a source. You can read it in full on Point Carbon, it’s along the lines of my postfrom earlier this month.

http://www.pointcarbon.com/news/1.1474371

Recently, probably in absence of other hot topics, Point Carbon/Reuters dedicated a lot of coverage to China’s still blurry domestic emission reduction ambitions under the 12^th 5-year-plan.

The broader context is of course China’s pledge to reduce CO2 emissions per unit of GDP by 40-45% by 2020 compared to 2005 levels. But a similar indicator which essentially measures the same thing is already in place during the current 11^th 5-year plan: “GDP energy intensity” (单位GDP能耗). Let’s have a look at where China stands with regards to its own domestic target under the 11^th 5-year plan using official government data.

The National Bureau of Statistics has announced earlier this month, that GDP energy intensity rose by 0.09% during the first half of 2010. By now, China has to accelerate its pace to meet its goal of 20% reduction as compared to 2005 by the end of the year. By the end of 2009, the difference to 2005 was estimated at 14.38%, the figure later corrected to 15.6%, that means this year would need to see a reduction of more than 5%, a rate which was never achieved in the past 5 years (highest was 2008 with -4.59%).

http://www.stats.gov.cn/tjgb/qttjgb/qgqttjgb/t20100803_402662765.htm

Here are the 2009 figures broken down by province:

http://www.stats.gov.cn/tjgb/qttjgb/qgqttjgb/t20100715_402657560.htm

Annual reduction in GDP energy intensity (% compared to previous year; source: NDRC)

Still, it is entirely possible and even likely that the target will be met, resorting to drastic measures in certain cases as is already the case now with enforced shut downs of production plants in the South of China. No reliable sources for this, but there are lively discussions on Tianya (e.g.http://www.tianya.cn/publicforum/content/develop/1/470284.shtml). Here’s a highlight:

浙江湖州长兴，由于，没做好有秩序的节能减排以至于没达到上级部门下达的指标，工作组来了，领导慌了，自己的错误让老百姓和企业来埋单，竟然做出连续50天24小时停电限产的决定，现在已经持续了一周了。由于长兴是全国纺织基地，纺织业是当地产业的重点，有几千家纺织工厂。为此，全面停产，造成全国市场的混乱，很多有计划接单的外贸企业，面临无数的官司。如此的损失，谁来承担？假如，一开始有秩序的每个月限产5到10天的安排，也不至于造成如今一刀切带来的后果。再有一周，估计要出大事。

Changxing in Huzhou, Zhejiang province: Because energy saving and emission reduction measures have so far not been systematically implemented, targets set by superior ministries have not been met. Now the workgroup came (for an inspection), the leaders panicked and now the ordinary people and enterprises have to pay the bill. Nobody would have thought that they decided to cut power supply 24h a day for 50 days in a row! This has been enforced now for a week already. Because the textile industry is the most important industry branch in Changxing, there are several thousand factories located here. All these factories facing a full production stop led to chaos in the domestic market and lots of trading companies with pending orders are facing numerous lawsuits. Who will cover such huge losses? If one had from the beginning systematically restricted production for only 5 to 10 days a month, the impact would have been much less severe than such a brusque intervention. If this goes on for another week, something bad is likely to happen.

Other than that, it is always easy to close down already abandoned equipment and claim emission reductions from phasing out backward production capability (淘汰落后产能). This article was published on Xinhuanet.

Here a statement from a steel plant operator:

“我们拆除的210立方米的小高炉其实早就不用了，不符合经济效益呀。以前是停了没拆，现在拆掉了。”河北一家年产量在500万吨的中等规模钢企人士向记者坦言。这拆除的高炉，就出现在了工信部的淘汰名单中。业内人士称，这种实际上在拆除前已废弃的产能，在此次名单中占比不低。

“The small 210m³ blast furnace which we just tore down wasn’t actually used for quite some time now, it was simply not economic anymore. We stopped using it earlier but didn’t tear it down until now.” This statement comes straight from the operator of a medium-sized steel plant with an annual production capacity of 5m tons, located in Hebei province. This exact blast furnace appears on the list of phased out furnaces of the MIIT. According to industry insiders, this kind of already abandoned, but not yet torn down furnaces accounts for a significant part of that list.

It is easy to understand why China cannot accept NAMAs with international monitoring at this point in time. Their top-down measures are not effective enough to achieve their ambitious goals without all kinds of accounting tricks and often set wrong incentives for local government officials and enterprises. What tends to work is the market, apparently, and as market regulation decreases, competition increases and with overcapacity in several key industries, energy efficiency measures will be crucial to the survival of manufacturers in the coming years. The challenge for the Chinese government is how to support these ongoing trends, but also how to measure and communicate them to the Chinese public and the West.

WWF has published a report rating different DOEs according to the number of their validated projects which pass the UNFCCC EB without being reviewed. The report was compiled by German Oeko-Institut.

Here’s the methodology for the ranking:

For this first rating, the basis for the rating of DOEs is a statistical evaluation of decisions by the CDM EB on requests by DOEs for registration of a project. The rationale for a statistical evaluation of EB decisions on requests by DOEs is that the number of reviews or rejections of projects by the EB may over longer timer periods and over many projects express to what extent the DOEs live up to the expectations of the EB.
For example, a DOE with a high percentage of projects being rejected fails on average more frequently to meet the requirements and expectations of the Board and should thus have a lower rating than a DOE with a low percentage of projects being rejected. Similarly, if the CDM EB requires that corrections have to be made to a PDD or a validation report before the project can be registered, one can argue that the DOE has not ensured a sufficiently transparent or correct documentation of the project or the validation process. A key advantage of this approach is that it allows the rating to be estab- lished on publicly available information. This makes the rating transparent and reproducible.

The report then finds, as summarized by Point Carbon:

The number of project registrations directly accepted by the board fell to 36 per cent from 41 per cent since the 2009 rating. The EB rejected 7 per cent of projects submitted by auditors, according to this year’s survey of around 900 CDM projects, compared to 6 per cent calculated in last year’s survey. “Since our rating in 2009, discrepancies did not decrease – they increased,” said Juliette de Grandpre, climate policy officer at WWF Germany, in a statement.
The report found that Tuev-Nord of Germany performed best of the companies which audit the CDM, also known officially as designated operational entities (DOEs). Tuev-Nord scored a ‘D’ in the range of ratings drawn up by WWF, while UK headquartered BVC scored the worst with an ‘F’ rating. All other DOEs surveyed – DNV of Norway, Switzerland-headquartered SGS and Germany’s Tuev-Sud – all got a ‘E+’ rating.

From “poor” to “no way I’m ever gonna contract them again” =)
Source: WWF Report

There’s nothing wrong with the numbers, the problem is simply that they don’t say too much about the performance of the DOEs. Different technologies and methodologies of validated projects certainly account for a large part of the difference between different DOEs. Another factor is timing, since the EB tends to randomly focus on a certain project type at a given time, right now for example you’d have a hard time registering your typical Chinese hydropower project, while the same project with exactly the same quality of documentation would have passed without any complications a year ago. There are too many random factors, the most important of which being the inconsistent behavior of the EB itself.

I don’t disagree with the conclusions of the report, however. Schneider, one of the authors of the report, lists the following changes that could make auditors more transparent and improve their performance:

• Publishing the meeting reports of the accreditation team
• Publishing the results from spot checks of auditors by the UN
• Publishing the issues which trigger a request for review; and
• Faster application of requests by UN climate talks for policy framework to address non-compliance.

The performance indicator I’m most interested in is another one: how long does it take a DOE from publishing the PDD until they finally upload the validated version to UNFCCC? To minimize the technology factor, one could limit the methodology to ACM002 and maybe only count projects from China (where most of the projects are located). Of course, you still cannot eliminate the impact of different quality standards of project developers, that’s why such a ranking would still be far from perfect.

All the above illustrates that a project based approach is not getting us anywhere in the long term. To use carbon credits as a tool to finance emission reducing activities and at the same time guarantee that they are real (additional), we need to have crystal clear eligibility criteria up-front, not a year long gamble after which your project may or may not see carbon revenue.

The National Development and Reform Commission (NDRC) and the Ministry of Finance (MOF) have jointly developed a report called “China’s Carbon Tax System Framework Design”.

http://www.ccchina.gov.cn/cn/NewsInfo.asp?NewsId=23889

Key findings:

• the carbon tax could be introduced as early as 2012, under the framework of the 12th 5-year plan
• carbon tax revenue will be used to subsidize the energy efficiency and environmental protection sector and companies
• the tax will be imposed on fossil fuels: coal, natural gas and oil
• tax rate starts at a low 10-20 RMB per ton of CO₂ and will see a gradual increase to 40-50 RMB by 2020
• key industries can be exempted from the tax
• tax revenue will be shared 7/3 between central government and provinces to encourage enforcement

With support from both NDRC and MOF, looks like the carbon tax is really happening, replacing the “environmental tax” on natural resources – a rebranding if you want. Increasing tax rates set an important signal, although with such low tax rates, it’s mostly symbolic in the beginning.

Impact on CDM projects

With current coal prices, that roughly translates to a 3% tax. It certainly has a slight impact on the additionality of EE projects, but not a dramatic one. For renewables, there is no direct impact, as benchmarks will not be adjusted downwards. The biggest impact will probably be perception in Annex-I countries.

Yesterday I attended the Business Leader’s Climate Change Roundtable in Beijing, organized by 3C and the European Chamber. The speaker list was quite impressive, with ex Vattenfall CEO Lars Josefsson and China’s Special Representative for Climate Change Negotiations of the Ministry of Foreign Affairs, Yu Qingtai (于庆泰). The main reason I signed up was Jiang Kejun’s (姜克隽) name on the list. Jiang, from NDRC’s Energy Research Institute (能源研究所), is one of my favorite Chinese speakers on the topic of climate change, with a great presentation style and highly informative slides with lots of data. In the end, he didn’t show up, but fortunately, his replacement, Miao Ren (苗韧), did quite a good job. Overall, the topics covered by the different speakers were not really coherent, but there were a lot of interesting statements and views on China’s climate change policies and their impact on the business community.

Yu Qingtai basically repeated China’s official stance in international climate change negotiations, nothing really new and nothing groundbreaking. Lot’s of variations on “common, but differentiated responsibilities” and China’s state of development (国情). The most positive thing I took away from his speech was his relaxed attitude and confidence while talking about China’s stance – looks like a clear defined strategy and a position with which all the domestic stakeholders are comfortable.

Much more interesting was Yang Chaofei (杨朝飞). He’s the department head of the Department of Policies, Laws and Regulations of the MEP (国家环境保护部政策法规司司长). His presentation demonstrated a lot of current flaws in law enforcements, and reactions from media and the public after especially severe incidents of pollution. At least he personally seems to be fine with media and the public taking on a role as a watchdog and to build up pressure in case of non-enforcement of environmental regulations on the local level. During the Q&A, he clarified the relationship between environmental legislation and national standards, that is, that legislation mandates adherence to national standards, which then define the different benchmarks and emission limits.Also worth to note, in his presentation, I seen for the second time this year the theme of melting glaciers within China. A very visual rendition of climate change which I haven’t seen in Chinese presentations before 2010.

Fu Chengyu (傅成玉), CEO of China National Offshore Oil Corporation, made a few interesting remarks about a “zero-emissions” target for their offshore oil rigs, and he stressed the importance of liquified natural gas (LNG) imports for China’s energy structure. He mentioned that CNOOC would publish their own white paper on climate change (中海油气候变化白皮书), but I couldn’t find any reference online so far. During the Q&A, he responded to a question from the audience about the importance and future of carbon capture and storage (CCS) for China’s oil companies. Interestingly, Mr. Fu was not very supportive of CCS and said that CNOOC is putting more emphasis on recycling CO2 for synthesizing chemical products, and only use storage as last means for carbon dioxide which can’t be utilized. The highlight during the Q&A session was his answer to a question asking about CNOOC’s awareness and preparations for the eventual emergence of domestic cap & trade. His answer: “I don’t really have a clue what the government wants to do right now.” (我不太清楚政府目前决定怎么办。)

Miao Ren‘s presentation was very high on information, one particularly interesting point was that in his view, foreign enterprises lag behind state-owned enterprises when it comes to readiness for climate change and a  low-carbon economy. While these large multinationals tend to have such strategies in place for their branches in Europe and the U.S., their domestic subsidiaries tend to be less than prepared to transit into a low-carbon future.

Tang Min (汤敏), vice-secretary of the Chinese Development Research Foundation, presented his concept of carbon bonds, to mobilize finance for a transition to a less carbon intensive economy. His idea is highly dependent on GDP growth, inflation and interest rates, but as a thought experiment, it is very entertaining. He lost the audience pretty early during his presentation, but seemed to have a few enthusiastic followers among the Chinese researchers present yesterday. When asked about coordinating such a scheme in an international context, he said that China doesn’t care about free riders, as long as it could strengthen its competitiveness, free riders wouldn’t matter because they couldn’t keep up with China. Refreshing self-confidence.

A Mr. Lin from McKinsey (don’t remember his full name) presented a Chinese version of their famous abatement cost curve. From far away it looked essentially the same as the global version. Apparently, they were working together with NDRC on this. Me and another member of the audience tried to bring up the question of finance and why the negative cost part of abatement opportunities is so hard to realize, but we couldn’t really get the point through. One classic example where McKinsey‘s cost curve shows a negative cost of abatement is building energy efficiency and building isolation. That is only of theoretical value in China, since the way the market works (or rather doesn’t), cost of abatement and the savings from energy can’t really be offset against each other. The building sector is highly complex with all the different actors, and incentives not working due to market distortions, such as heating cost per square meter no matter of true energy consumption are not reflected in McKinsey’s Chinese version of their cost curve. I wish they would address such particularities in a future version, that would be highly valuable.

All in all, it was an interesting conference. The high quality of its speakers prevailed over a less well organized and balanced selection of topics.