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Technical Guide to Clean Development Mechanism (CDM) in Sri Lanka Summary

Core Content Overview

This document provides a comprehensive technical guide on the Clean Development Mechanism (CDM) in the context of Sri Lanka, detailing the country's potential for CDM projects, the associated rules and procedures, and the challenges and opportunities for implementation. It also outlines the institutional and policy framework necessary for CDM development in Sri Lanka and presents sectoral baselines for CDM activities.

Main Points and Key Information

1. Introduction to Climate Change, UNFCCC, Kyoto Protocol, and CDM

• Climate Change Overview:
  The Earth has warmed by over 0.6°C since the 20th century, with the 1980s and 1990s being the warmest decades in the last 1000 years. The IPCC predicts a rise of 1.4–5.8°C in global temperatures by the end of the 21st century.
  • Greenhouse Effect:
    Greenhouse gases (GHGs) like CO₂, CH₄, N₂O, HFCs, and PFCs trap heat and regulate energy flows in the atmosphere. CO₂ is the most significant contributor to the enhanced greenhouse effect, responsible for over 60% of it.
  • Climate Change Definition:
    According to the UNFCCC, climate change refers to a change in climate attributed directly or indirectly to human activity that alters the atmosphere's composition, beyond natural variability.
  • Kyoto Protocol:
    A global agreement that allows developed countries to meet their emission reduction targets by investing in CDM projects in developing countries. CDM promotes sustainable development and provides a mechanism for trading emission reductions.
  • Flexibility Mechanism:
    Includes Joint Implementation (JI) and CDM, enabling developed countries to meet their targets through projects in developing countries.
  • CDM Rules:
    The CDM project cycle includes Project Identification, Project Idea Note (PIN), Project Design Document (PDD), Validation, Registration, Verification, and Certification.

2. International Carbon Market and CDM Opportunities

• CDM Project Activity Cycle:
  A structured process from project identification to certification.
• Economic Analysis:
  • Marginal Abatement Costs (MAC): The cost of reducing one tonne of CO₂.
  • CDM Transaction Costs: Include costs for project development, validation, and verification.
  • CER Prices: Certified Emission Reductions (CERs) prices varied between 2005 and 2006.
  • Impact on IRR: CDM can improve the internal rate of return (IRR) for projects by providing additional revenue through carbon credits.
• Global CDM Projects:
  • Up to September 2006, over 3,000 CDM projects were registered globally.
  • The majority of CDM projects are in the energy sector, particularly renewable energy and energy efficiency.
  • CDM Buyers and Sellers:
    • Buyers include developed countries and companies aiming to meet emission targets.
    • Sellers are typically developing countries with emission reduction potential.

3. CDM Opportunities in Sri Lanka

• Sectoral Potential:
  • Renewable Energy: Mini and micro-hydro, wind, and solar power projects.
  • Energy Efficiency: Improving efficiency in power generation and transport.
  • Transport: Policy initiatives, energy efficiency improvements, and alternate fuels like biofuels.
  • Agriculture: Methane recovery from livestock and agricultural waste.
  • Waste Disposal: Methane recovery from landfills and agro-residues.
  • Forestry: Afforestation, reforestation, and other LULUCF (Land Use, Land-Use Change, and Forestry) activities.
• State Sector Projects:
  • Replacement of old refineries and bus fleets.
  • Railway modernization, including electric trains.
  • Power system upgrades and CFL bulb implementation.
  • Reduction of transmission losses.
  • Improvement of industrial efficiency and water pumping systems.
  • Bus Rapid Transit (BRT) and reforestation in state lands.
• Limitations:
  • Sri Lanka has not fully utilized CDM due to policy, institutional, financial, and technical barriers.
  • The first crediting period ends in 2012, creating urgency for CDM project development.

4. Policy, Legal, and Institutional Barriers

• Institutional Structure:
  • The Ministry of Environment and Natural Resources is the apex body for environmental matters.
  • The Global Affairs Division is the Designated National Authority (DNA) for Kyoto Protocol matters.
• Supportive Policies:
  • National Environmental Act No. 47 of 1980: Establishes the legal framework for environmental protection.
  • National Environmental Policy: Focuses on sustainable development and environmental management.
  • Sustainable Development Policy: Encourages environmentally friendly development.
  • Power Sector Policies: Support renewable energy and energy efficiency.
  • Rural Electrification and Employment Policy: Aims to promote clean energy in rural areas.
• Legislation for CDM:
  • Includes laws on industry, energy, solid waste, and hazardous waste.
  • Environmental Impact Assessment (EIA) is a key requirement for CDM projects.
• Institutional Capacity:
  • The DNA has functional areas for CDM implementation, including project identification, design, validation, and verification.
  • Current performance of the DNA is outlined, with suggestions for improvement.
• Strengths and Weaknesses:
  • Strengths: Existence of supportive policies, potential for CDM in multiple sectors.
  • Weaknesses: Limited institutional capacity, lack of awareness, and financial constraints.
  • Barriers: Legal, financial, technical, and institutional challenges hinder CDM development.

5. Sectoral Baselines for CDM Projects

• Small-Scale CDM Methodologies:
  • Accepted methodologies for various sectors, including energy, transport, agriculture, waste, and forestry.
• Baseline Scenarios and Calculation:
  • Baseline Emissions: Calculated using Type I (Category I.D) for renewable power generation.
  • Operating Margin (OM) and Build Margin (BM) are used to estimate baseline emissions.
  • Combined Margin (CM): A method to estimate baseline emissions for CDM projects.
• Sector-Specific Baselines:
  • Renewable Energy: Baseline emissions for grid-connected projects.
  • Waste Sector: Methane recovery from landfills and agro-residues.
  • Transport Sector: Emission reductions from low-GHG vehicles.
  • Industry Sector: Energy efficiency and fuel switching measures.
  • Forestry Sector: Afforestation and reforestation projects, including methods for estimating GHG removals.

6. Institutional Recommendations

• National CDM Strategy:
  • Early submission of low-hanging projects.
  • Development of legal and institutional frameworks.
  • Establishing an effective information dissemination system.
  • Awareness and outreach programs for stakeholders.
  • Setting up a Carbon Fund and Conservation Bank.
  • Creation of a Carbon Trading Exchange.
  • Encouraging unilateral CDM development.
  • Avoiding pervasive incentives that may undermine sustainability.
  • Capacity Building: Training for CDM project developers.
  • Bundling Small-Scale Projects: To increase efficiency and attract investment.
  • Service Charge on CERs: To ensure fair revenue distribution.
  • Ownership of CERs: Clarification for legal and administrative purposes.
  • Arbitration Mechanism: To resolve disputes related to CDM projects.
  • CDM Study Centre: To undertake strategic research and development.
  • Policy and Programmatic CDM: Encouraging projects that align with national policies.
  • Local DOE: Facilitating project development and verification.
  • State Sector CDM: Emphasizing government-led projects for emission reductions.
  • Methane Flaring: Making it mandatory for waste processing projects.
  • LULUCF Sector: Promoting afforestation and reforestation projects.
  • Encouraging All Sectors: To ensure comprehensive CDM development.

Conclusion

This guide outlines the potential for CDM in Sri Lanka, emphasizing the need for policy reform, institutional strengthening, and technical capacity building. It provides a sectoral baseline methodology, including energy, transport, agriculture, waste, and forestry, and highlights the importance of early project submission to benefit from the first crediting period. The institutional framework and recommendations aim to support the development of CDM projects in a sustainable and economically viable manner.