Table of contents: 1
Introduction
1.1. 1.2.
Value of the international carbon markets Five reasons why carbon trading is here to stay in South Africa
Module
2
Carbon taxes, policies and legislation in South Africa
2.1 2.2 2.3 2.4 2.5 2.6
Carbon taxes defined Current carbon taxes in South Africa Future environmental taxes Pending legislation on carbon tax Allied legislation Reporting
Module
3
Carbon Footprinting
3.1 3.2 3.3 3.4 3.5 3.6
Global warming The six greenhouse gases What is a carbon footprint? How is a carbon footprint reported and what are the standards for reporting against? Greenhouse gas protocol (GHG) process Six reasons why calculate and report your carbon footprint?
4
Carbon Trading
4.1 4.2 4.3 4.4
What is carbon trading? United Nations mechanisms for carbon emissions trading The Voluntary and Mandatory (Compliance) markets Financial legislation relevant to carbon trading in South Africa
Module
Module
5
Carbon Projects
5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8
Definition of a carbon project Examples of carbon projects Legal and policy framework for mandatory carbon projects Main steps for carbon projects in the mandatory markets Main steps for carbon projects in the voluntary markets Current situation in the South Africa carbon project arena Verification and Validation organizations Schedule and Transaction costs for carbon projects
6
International Exchanges, verification and job opportunities
6.1 6.2
International Exchanges Employment opportunities in the South African carbon industry
Module
Module
Module 1:
Quick reference:
Introduction 1.1. Value of the international carbon markets 1.2. Five reasons why carbon trading is here to stay in South Africa
This module covers the following: • Definition of what constitutes a carbon project; • Examples of different types of carbon projects; • Main elements of the legal and policy framework for carbon projects; • Overview of the main steps for carbon projects for the mandatory and voluntary markets; • The current situation in the South African carbon project arena; • Verification and validation organizations; and • Estimate of schedule and transaction costs for the establishment and maintenance of a notational carbon project;
5.1 Definition of a Carbon Project In the context of this course, a carbon project is an enterprise that is undertaken for the purpose of generating carbon emissions reduction credits for sale on any of the mandatory or voluntary markets that exist. (Refer to Module 4 – Carbon Markets - for an overview of the current carbon markets).
Module 2:
Carbon taxes, policies and legislation in South Africa 2.1 Carbon taxes defined 2.2 Current carbon taxes in South Africa 2.3 Future environmental taxes 2.4 Pending legislation on carbon tax 2.5 Allied legislation 2.6 Reporting
Module 3:
Carbon Foot-printing 3.1 Global warming 3.2 The six greenhouse gases 3.3 What is a carbon footprint 3.4 How is a carbon footprint reported and what are the standards for reporting against? 3.5 Greenhouse gas protocol (GHG) process 3.6 Six reasons why calculate and report your carbon footprint?
Module 4: 5.2 Examples of Carbon Projects Activities that are typically deemed suitable • Renewable energy generation infrastructure utilizing biomass, geothermal, solar, wind, tidal, hydro and wave energy sources • Energy efficiency measures • Switching fuels to one with lower carbon emissions • Re-afforestation and reduction of deforestation • Geo-sequestration • A range of initiatives including hydrofluorocarbon replacement, cogeneration, water management, methane capture (from landfill sites) and nitrous oxide amongst others.
5.3 Legal and Policy framework for Mandatory Carbon Projects Carbon projects yielding carbon credits for the mandatory markets are regulated by the Kyoto Protocol under the UNFCCC. Refer to Module 4 – Carbon Markets – which provides an overview of the UNFCCC, the Kyoto Protocol and the three pursuant mechanisms for managing carbon emissions reduction credits via the mandatory markets. The mechanisms are: • Emissions Trading; • Joint Implementation; and the • Clean Development Mechanism.
Carbon Trading 4.1 What is carbon trading? 4.2 United Nations mechanisms for carbon emissions trading 4.3 The Voluntary and Mandatory (Compliance) markets 4.4 Financial legislation relevant to carbon trading in South Africa
Module 5:
Carbon Projects 5.1 Definition of a carbon project 5.2 Examples of carbon projects 5.3 Legal and policy framework for mandatory carbon projects 5.4 Main steps for carbon projects in the mandatory markets 5.5 Main steps for carbon projects in the voluntary markets 5.6 Current situation in the South Africa carbon project arena 5.7 Verification and Validation organizations 5.8 Schedule and Transaction costs for carbon projects
Module 6:
International Exchanges, verification and job opportunities 6.1 International Exchanges 6.2 Employment opportunities in the South African carbon industry
Since South Africa is a Non-Annex Country and therefore is not subject to legally-binding emissions reduction targets, only the third mechanism for the mandatory markets (CDM) is applicable locally and the other two shall not be addressed any further in this module. The Clean Development Mechanism (CDP) allows emission-reduction projects in developing countries to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. These CERs can be traded and sold, and contribute to industrialized countries meeting their emission reduction targets under the Kyoto Protocol. In South Africa, the CDM is the way for projects to be listed under the Kyoto Protocol. Projects are verified under the United Nations Framework for Climate Change. More and more projects are coming on line. Standard Bank will kick off an energy efficient lighting programme aimed at replacing the estimated 40-million inefficient light-bulbs their offices across South Africa, by early 2012.
Module 1:
Quick reference:
Introduction 1.1. Value of the international carbon markets 1.2. Five reasons why carbon trading is here to stay in South Africa
Module 2:
Carbon taxes, policies and legislation in South Africa 2.1 Carbon taxes defined 2.2 Current carbon taxes in South Africa 2.3 Future environmental taxes 2.4 Pending legislation on carbon tax 2.5 Allied legislation 2.6 Reporting
Module 3:
Trevor Manuel, South Africa’s Minister of National Planning who has been appointed as the co-chair of an international green fund, urges Africa to start identifying Climate Fund Projects. His comment is that “Africans didn’t go and fetch the money”. The $100bn Green Climate Fund was set up after the Cancun climate summit in December 2010.
5.4 Main steps for carbon projects in the Mandatory Markets The key steps for CDM/Mandatory Market carbon projects and the responsible parties are set out in the table below:
Carbon Foot-printing 3.1 Global warming 3.2 The six greenhouse gases 3.3 What is a carbon footprint 3.4 How is a carbon footprint reported and what are the standards for reporting against? 3.5 Greenhouse gas protocol (GHG) process 3.6 Six reasons why calculate and report your carbon footprint?
Module 4:
Carbon Trading 4.1 What is carbon trading? 4.2 United Nations mechanisms for carbon emissions trading 4.3 The Voluntary and Mandatory (Compliance) markets 4.4 Financial legislation relevant to carbon trading in South Africa
Module 5:
Carbon Projects 5.1 Definition of a carbon project 5.2 Examples of carbon projects 5.3 Legal and policy framework for mandatory carbon projects 5.4 Main steps for carbon projects in the mandatory markets 5.5 Main steps for carbon projects in the voluntary markets 5.6 Current situation in the South Africa carbon project arena 5.7 Verification and Validation organizations 5.8 Schedule and Transaction costs for carbon projects
Module 6:
International Exchanges, verification and job opportunities 6.1 International Exchanges 6.2 Employment opportunities in the South African carbon industry
Typically, it is best to request a trained consultant provide a pre-feasibility study to see if the development is worth submitting as a CDM project. In order to be submitted for registration, a project should be developed in accordance with a methodology approved by the CDM Executive Board. Methodologies typically address monitoring and baselines, both of which are crucial for determining the actual emissions reductions realised by the project in question. The CDM has well over 138 approved methodologies for a wide range of different activities (project types and scales) as well as locales under which projects have been registered with the UNFCC. These can be downloaded from the UNFCC website. If a methodology does not exist for a proposed project then one is required to be developed and approved – a process which is time-consuming and can cost up to EUR250,000 if developed from scratch. A project registered with the under the Clean Development Mechanism will require that a Project Idea Note (PIN) and Project Development Document (PDD) be completed as part of the process. A PIN is like a scoping document (typically ten pages in length) that maps out the rough idea and plan. The PDD on the other hand is a detailed business plan which contains more details about the project and its execution. Although not formally required as part of the CDM project process there is definite merit in undertaking a feasibility study investigating whether the project fulfils the requirements such as the different types of Additionality and is likely to attract financing and generate sufficient income to cover the transaction and other costs. The feasibility study is positioned somewhere between the PIN and PDD in terms of timing, detail and cost and is an effective means of reducing project risk. It yields a yes/no decision about whether to proceed with the project without going to the additional expense of producing a PDD only to discover the project may not be viable. Monitoring is a crucial component of any carbon project and it must be able to adequately determine the volume of emissions reduction attributable to the project. This is essential for project validation. Validation and verification are undertaken by an independent auditor or DOE approved by the CDM EB. CDM projects may apply to the Gold Standard for certification.
5.5 Main Steps for Carbon Projects in the Voluntary Markets The key steps for Voluntary Market carbon projects and the responsible parties are set out in the table below:
Module 1:
Quick reference:
Introduction 1.1. Value of the international carbon markets 1.2. Five reasons why carbon trading is here to stay in South Africa
Module 2:
Carbon taxes, policies and legislation in South Africa 2.1 Carbon taxes defined 2.2 Current carbon taxes in South Africa 2.3 Future environmental taxes 2.4 Pending legislation on carbon tax 2.5 Allied legislation 2.6 Reporting
Module 3:
Carbon Foot-printing 3.1 Global warming 3.2 The six greenhouse gases 3.3 What is a carbon footprint 3.4 How is a carbon footprint reported and what are the standards for reporting against? 3.5 Greenhouse gas protocol (GHG) process 3.6 Six reasons why calculate and report your carbon footprint?
Module 4:
Carbon Trading 4.1 What is carbon trading? 4.2 United Nations mechanisms for carbon emissions trading 4.3 The Voluntary and Mandatory (Compliance) markets 4.4 Financial legislation relevant to carbon trading in South Africa
Module 5:
Carbon Projects 5.1 Definition of a carbon project 5.2 Examples of carbon projects 5.3 Legal and policy framework for mandatory carbon projects 5.4 Main steps for carbon projects in the mandatory markets 5.5 Main steps for carbon projects in the voluntary markets 5.6 Current situation in the South Africa carbon project arena 5.7 Verification and Validation organizations 5.8 Schedule and Transaction costs for carbon projects
Module 6:
International Exchanges, verification and job opportunities 6.1 International Exchanges 6.2 Employment opportunities in the South African carbon industry
There are fewer steps, activities, documents and parties involved in carbon projects for the voluntary markets. Several Standards exist for certification of voluntary carbon projects including the Climate, Community & Biodiversity Alliance, Verified Carbon Standard and VER+ for example. The voluntary carbon market is starting to mature and democratize and is becoming more discerning. Purchasers are prepared to pay a premium for carbon credits from high quality projects such as those certified to the CCBA standard. Overseas companies such as SceptreCo2 specialize in trading carbon credits in both the voluntary and mandatory markets.
5.6 Current situation in the South African carbon project arena Just like any other commercial venture, a carbon reduction project or commercial venture designed to reduce greenhouse gases from entering the environment will require time, money and resources and should be well planned within the planning and legal requirements of that country i.e. feasibility studies or environmental impact assessments (EIA’s). In South Africa, there are 174 projects listed with the Department of Energy. Of these projects, 140 are still Project Idea Notes (PIN’s) and 34 are at the Project Design Document stage. Of the 34 more advanced projects 17 have been registered with the CDM Executive Board as CDM projects. Seventeen are at different stages of the CDM project registration cycle, i.e. DNA approval, validation stage and/or the request for review stage. To date only 4 have been issued with CER’s. Project statistics in South Africa:
Module 1:
Quick reference:
Introduction 1.1. Value of the international carbon markets 1.2. Five reasons why carbon trading is here to stay in South Africa
Module 2:
Carbon taxes, policies and legislation in South Africa 2.1 Carbon taxes defined 2.2 Current carbon taxes in South Africa 2.3 Future environmental taxes 2.4 Pending legislation on carbon tax 2.5 Allied legislation 2.6 Reporting
Module 3:
Carbon Foot-printing 3.1 Global warming 3.2 The six greenhouse gases 3.3 What is a carbon footprint 3.4 How is a carbon footprint reported and what are the standards for reporting against? 3.5 Greenhouse gas protocol (GHG) process 3.6 Six reasons why calculate and report your carbon footprint?
Module 4:
Carbon Trading 4.1 What is carbon trading? 4.2 United Nations mechanisms for carbon emissions trading 4.3 The Voluntary and Mandatory (Compliance) markets 4.4 Financial legislation relevant to carbon trading in South Africa
Module 5:
Carbon Projects 5.1 Definition of a carbon project 5.2 Examples of carbon projects 5.3 Legal and policy framework for mandatory carbon projects 5.4 Main steps for carbon projects in the mandatory markets 5.5 Main steps for carbon projects in the voluntary markets 5.6 Current situation in the South Africa carbon project arena 5.7 Verification and Validation organizations 5.8 Schedule and Transaction costs for carbon projects
Case study: - Red Cap Investments have been given the green light by Environmental Affairs to go ahead with the development of a 300MW wind power plant near St Francis Bay and Oyster Bay. 350 000 tons of carbon dioxide emissions will be avoided with this project and it is being developed under the Clean Development Mechanism (CDM) of the United Nations Framework Convention on Climate Change.
Module 6:
International Exchanges, verification and job opportunities 6.1 International Exchanges 6.2 Employment opportunities in the South African carbon industry
5.7 Verification and Validation Organizations To prove whether a project will result in actual reductions in GHG emissions, it must be validated and verified by an independent third party that is approved for performing such a role. There are just over 50 companies world-wide that are accredited by the UN as DOEs. The latest list can be found HERE. (http://cdm.unfccc.int/DOE/list/index.html) To date there are only a few companies in South Africa undertaking third party validation and verification of locally-generated carbon credits. Det Norske Veritas (DNV) have offices in Durban and Cape Town and as is one of the worlds leading certification bodies, can undertake the third party verification work required. ERM consulting in Johannesburg is registered as a DOE by virtue of it’s London office.
5.8 Schedule and Transaction Costs for Carbon Projects Experience in South Africa has shown that the process of registering a CDM project with the United Nations is long and costly. It can take between 14 and 24 months with transaction costs ranging between R1M and R2.5M. If required by the project’s host country, an environmental impact assessment (EIA) may add up to R1M or more to the project cost and extend the lead time for completion. EIA is not a de facto requirement of the CDM process. A voluntary project requires less time and, by implication, lower transaction costs. However, this is tempered by the lower carbon prices and less liquidity in the voluntary markets.
Useful websites, resources and conferences or courses: In South Africa: Green Business Guide - for the latest on events in South Africa and environmental, carbon and energy news. To stay connected read the Green News daily, or sign up for a newsletter that summarizes the week’s news – including CDM news. South Africa’s Clean Development Project Profile as at November 2010. The pdf document lists all projects listed with the Department of Energy that are going through the CDM process. Not all projects are approved. International resources: Clean Development Mechanism – Download the Clean Development Mechanism Executive Boards 2010 report on the state of the CDM internationally. http://cdm.unfccc.int/Statistics/index.html - Useful statistics about the CDM process and projects. http://cdmrulebook.org/home - The CDM Rulebook is the definitive online database of the CDM rules SceptreCO2 – Has useful resources such as short video’s on carbon trading, CDM projects.
Module 1:
Quick reference:
Introduction 1.1. Value of the international carbon markets 1.2. Five reasons why carbon trading is here to stay in South Africa
Module 2:
Carbon taxes, policies and legislation in South Africa 2.1 Carbon taxes defined 2.2 Current carbon taxes in South Africa 2.3 Future environmental taxes 2.4 Pending legislation on carbon tax 2.5 Allied legislation 2.6 Reporting
Module 3:
Carbon Foot-printing 3.1 Global warming 3.2 The six greenhouse gases 3.3 What is a carbon footprint 3.4 How is a carbon footprint reported and what are the standards for reporting against? 3.5 Greenhouse gas protocol (GHG) process 3.6 Six reasons why calculate and report your carbon footprint?
Module 4:
Carbon Trading 4.1 What is carbon trading? 4.2 United Nations mechanisms for carbon emissions trading 4.3 The Voluntary and Mandatory (Compliance) markets 4.4 Financial legislation relevant to carbon trading in South Africa
Module 5:
Carbon Projects 5.1 Definition of a carbon project 5.2 Examples of carbon projects 5.3 Legal and policy framework for mandatory carbon projects 5.4 Main steps for carbon projects in the mandatory markets 5.5 Main steps for carbon projects in the voluntary markets 5.6 Current situation in the South Africa carbon project arena 5.7 Verification and Validation organizations 5.8 Schedule and Transaction costs for carbon projects
Module 6:
International Exchanges, verification and job opportunities 6.1 International Exchanges 6.2 Employment opportunities in the South African carbon industry
Module 1:
Quick reference:
Introduction 1.1. Value of the international carbon markets 1.2. Five reasons why carbon trading is here to stay in South Africa
Module 2:
Carbon taxes, policies and legislation in South Africa 2.1 Carbon taxes defined 2.2 Current carbon taxes in South Africa 2.3 Future environmental taxes 2.4 Pending legislation on carbon tax 2.5 Allied legislation 2.6 Reporting
Module 3:
Carbon Foot-printing 3.1 Global warming 3.2 The six greenhouse gases 3.3 What is a carbon footprint 3.4 How is a carbon footprint reported and what are the standards for reporting against? 3.5 Greenhouse gas protocol (GHG) process 3.6 Six reasons why calculate and report your carbon footprint?
Module 4:
Carbon Trading 4.1 What is carbon trading? 4.2 United Nations mechanisms for carbon emissions trading 4.3 The Voluntary and Mandatory (Compliance) markets 4.4 Financial legislation relevant to carbon trading in South Africa
Module 5:
Carbon Projects 5.1 Definition of a carbon project 5.2 Examples of carbon projects 5.3 Legal and policy framework for mandatory carbon projects 5.4 Main steps for carbon projects in the mandatory markets 5.5 Main steps for carbon projects in the voluntary markets 5.6 Current situation in the South Africa carbon project arena 5.7 Verification and Validation organizations 5.8 Schedule and Transaction costs for carbon projects
Module 6:
International Exchanges, verification and job opportunities 6.1 International Exchanges 6.2 Employment opportunities in the South African carbon industry