Project mechanisms under the Kyoto Protocol and District Heating

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Project mechanisms under the Kyoto Protocol and District Heating Powered By Docstoc
					      06 December 2007

Position Paper

District heating and project mechanisms:
Accounting for all savings

      Flexible mechanisms under the Kyoto Protocol have developed significantly in the recent years. In
      particular the Clean Development Mechanism (CDM) and the Joint Implementation (JI). There are over 800
      CDM projects registered currently under the United Nations Framework Convention on Climate Change
      (UNFCC), representing one billion of certified emission reductions (CER) by 2012 for a market of over six
      billion US dollars in 2006.

      Nevertheless, most of the registered CER relate to industrial gases such as N2O and HFC (37% of credits by
      2012) that anyhow have a limited impact on the carbon intensity of industrial growth and sustainable
      development as a result only complying with one of the two goals of CDM.

      Energy efficiency represents an element which has been so far largely overlooked. Projects related to
      energy efficiency represent only eight per cent of credits generated by 2012 under CDM. We believe this is
      a missed opportunity as energy-efficiency projects could enable large reductions in specific sectors (i.e.
      district heating), sustainable growth as well as long-term energy security.

      The fact that so few projects are being developed is largely result of CDM methodologies related to energy
      efficiency, which are very limited in comparison to methodologies available for other sectors. One of the
      main problems has been the very slow and demanding process to get methodologies approved.

      The situation is that the complexity and dispersed character of the energy-efficiency projects has
      challenged the present way of dealing with methodologies.

      The case of district heating:

      CDM in district heating is an unexplored area: only two methodologies have been accepted by the UNFCC:

      •   AM0056 “Efficiency improvement by boiler replacement or rehabilitation and optional fuel switch in
          fossil fuel-fired steam boiler systems”
      •   AM0058 “Introduction of a new primary district-heating system”.

      Only one project applying AM0056 has been approved, in Mongolia. The newly registered methodology
      AM00058 is a positive step, but again not enough to address the issue of modernisation and development
      of district heating in countries like China or those belonging to the Commonwealth of Independent States
      (CIS). It took the Danish Ministry of Foreign Affairs more than four years and several attempts before the
      methodology was finally approved by the UNFCC, and in addition the current version is only covering part
      of the district-heating system components and solutions which were initially meant to be included in the

      The AM0058 covers cases where the project activity shall include establishment of a new primary district-
      heating network supplying heat to residential and commercial consumers, where the heat comes
           predominantly from an existing power plant/combined heat and power (CHP). This means that the present
           methodology can be used for projects where a new primary network connects one or more decentralised
           heating networks and where the heat otherwise would have been produced in heat-only boilers. The
           emission reductions within the new methodology are only related to higher heat production efficiency or
           fuel shift in the CHP-mode compared to the heat-only boiler mode.

           Furthermore, the methodology now includes limits on baseline emissions in relation to the installed heat
           capacity and the historical values for electricity production. This implies that where the heat consumption
           and/or electricity production are higher in the project activity than in the baseline, possible emission
           reductions may disappear due to these newly introduced limits.

           As a result, the methodology covers the most significant emission reduction components of a DH/CHP
           project, although with potentially problematic limits/caps on heat capacity and electricity production.
           However it does not encompass all the potential of reductions. Some issues remain out of scope:

           •   New CHP plants and heat-only boiler projects;
           •   Emission reductions generated by the decrease in water losses;
           •   Optimisation of DH operations;
           •   Demand-side measures in building.

           The use of flexible mechanisms should be foreseen in order to support the need for modernisation in
           district-heating networks in many eastern European countries (outside EU ETS) as well as CIS’ members.
           District heating CDM/JI projects already face typical problems such as weak investment, lack of knowledge
           in CDM/JI regime and carbon market, high transaction costs due to the technical complexity of the
           infrastructure, and the highly subjective demonstration of additionality.

           We strongly believe it is essential to amend present guidelines (both simplify and enlarge the
           scope) so that the whole range of savings delivered by these projects is fully accounted for.

           Euroheat & Power members are willing to provide expertise and support in this process to the
           relevant bodies. New harmonised guidelines will increase the attractiveness of projects and
           therefore contribute to realise the large potential for emission reductions that are within reach with
           district heating.

Euroheat & Power is the international association representing the combined heat and power (CHP),
district heating and cooling (DHC) sector in Europe and beyond. Euroheat & Power unites 23 national
CHP/DHC associations and has individual members (utilities, equipment suppliers and research
institutes) in 32 countries.

Contact:           Sabine Froning, Managing Director
                   Eloi Piel, European Affairs
CDM/JI:            Sophie Ducoloner , Manager for Environmental Products, Dalkia

Telephone:         + 32 (0)2 740 21 10