Cover

OwnerJuly 2015 to presentEl Cerrito

Finding best available technologies for meeting energy needs today and tomorrow: energy efficiency, demand response,, solar, wind, electric vehicles, biofuels and smart grid. It’s all the innovations that make the energy we use more secure, clean, and affordable. The energy world's best hopes lie in what's happening in the digital realm, especially in data analytics.

Thursday, August 16, 2012

Community Choice Aggregation

Procures renewable sources of electricity and partners with a utility to distribute energy to local communities, You get all the advantages of cleaner, greener, healthier energy consumption AND all of the advantages of the established, experienced energy provider.


Navigate this Report
Back to Markets and Pricing Index
1. Background

2. Acronyms/Definitions
  • In the past, one utility provided the all components of energy service: generation, transmission, distribution and retail. Legislatures and the public utility commissions (PUC) of many states have created competition for electricity and natural gas supply. This allows consumers to choose their energy supplier, while the delivery of the energy is still regulated and is the responsibility of the local utility company.
  • The electric power industry is commonly split up into four processes
    1. Electricity Generation - The process of generating electric energy from other forms of energy.
    2. Electric power transmission or "high voltage electric transmission" is the bulk transfer of electrical energy, from generating power plants to substations located near population centers. Historically, transmission and distribution lines were owned by the same company, but over the last decade or so many countries have liberalized the electricity market in ways that have led to the separation of the electricity transmission business from the distribution business.
    3. Electricity distribution - The final physical stage in the delivery of electricity to end users, the Wooden Pole System”
    4. Electricity Retailing
  • 2002 the California Legislature passed AB 117, California Community Choice Aggregation adding Section 366.2, among others, to the Public Utilities Code. The law gives local governments the ability to combine electricity loads within their communities and act on behalf of those customers to buy or choose electricity for them.

2. Acronyms/Definitions
  1. California State Bill 790 (SB790 - Leno) California Public Utilities Commission (CPUC) recently found that utility opposition to CCA has forced CCA efforts in some communities to be abandoned. The introduced California State Bill 790 (SB 790) ensures that CCA remains a viable option for local governments as intended by the original Assembly Bill 117 and by the voters who opposed Proposition 16 in 2010. CCA has been extremely difficult to implement for local governments, in large part due to the ability of incumbent utilities to actively block CCA start-up efforts. Existing law requires utilities to cooperate fully with communities seeking to establish a CCA. SB790 would clarify ambiguous language in the original Assembly Bill 117 to improve cooperation between local governments and investor owned utilities.

    Additionally, the introduced Assembly Bill SB790 would direct Public Purpose energy efficiency funds from PG&E to the CCA. Public Purpose funds account for 3 percent of the City-wide PG&E bills, which amounts to millions of dollars each year. These Public Purpose funds are currently distributed across the state and consumed partly by PG&E overhead costs and ineffective programs. Cities have very little input as to how Public Purpose funds are spent in their jurisdictions. The CCA would allow the City to develop more effective Public Purpose funded energy programs for the community and create more job opportunities for residents.

  2. California Senate Bill 843 - SB 843 - Community-Based Renewable Energy Self-Generation Program - establishes a new program allowing investor-owned utility (IOU) customers to purchase an interest in a "community
    renewable energy facility" and receive a bill credit for the generation component of the customer's electrical service.

    SB 843 establishes a new program to allow any IOU customer to pursue off-site renewable energy. Based on the successful model established between PG & E, the City of Davis and the PVUSA solar facility, this bill allows all participating customers to receive a credit on their electricity bills for the clean power they purchase at an off-site renewable energy facility. Allowing customers to opt into larger energy facilities and pool their resources will reduce the price they pay for clean energy, and access to this renewable energy will be increased.

    The author indicates that "?only a small percentage of California homes and businesses are appropriate sites for renewable energy. Many customers are interested in using solar energy, but the arrangement at their home or business is not a good match for installing solar. For example, some customer sites - both businesses and residences are overly shaded or not oriented in the proper direction; in many cases customers are renters who do not own the property at which they live.

    The bill allows for Californians to access an optimally located renewable energy facility, shared by multiple customers, rather than being limited to renewable energy options on their own property.

    Southern California Edison (SCE) opposes the bill for numerous reasons. According to SCE, "the core transaction in the program is essentially a wholesale sale of electricity
    at an administratively determined price, under a mandatory purchase obligation, with payment made in the form of a retail bill credit to participants in the program. Viewed in this
    manner, the program conflicts with federal law?SB 843 also raises the specter of unregulated entities participating in the retail energy market.

    As of August 16, 2012, this bill has passed the California Senate (38-0) and Asm Utilities and Commerce Committe: (10-2) and was under consideration by the Assembly Appropriations Committee

    Specifically, this bill:

    1. Limits a community renewable energy facility to 20 megawatts (MW) capacity and requires the facility to be located in the service territory of an IOU with more than 100,000 customers and be an eligible renewable facility pursuant to the state's Renewable Portfolio Standard (RPS) program.

    2. Limits the statewide capacity of community renewable energy facilities to 2,000 MW, and requires the Public Utilities Commission (PUC), when statewide capacity reaches 1,500 MW to determine whether the 2,000 MW limit is necessary or can be raised or eliminated based on the commission's determination of the impacts on IOU ratepayers.

    3. Requires the PUC to establish a facility rate, as specified, for each community renewable energy facility and, by December 31, 2014, to determine a methodology for calculating an "added value," as specified, of the community renewable energy facility, in order to determine the participant's bill credit, which shall be applied to the generation component of the participant's electricity service charges from their IOU. (Once the added value is determined, the higher of the facility rate or added value shall be used to determine the participant's bill credit.)

    4. Requires the PUC to reevaluate the added value methodology every three years in order to maintain the program goals, including indifference of ratepayers not benefiting from the program.

    5. Limits the interest of non-public entities participating in a community renewable generation facility to 2 MW of generating capacity.

    6. Stipulates that interconnection process and cost allocation for facilities under this program are to be determined under rules established by the PUC.


  3. California Assembly Bill  117 - The passage of AB 117 came in response to the 2000 energy crisis and the ensuing bankruptcy of Pacific Gas and Electric Company, which darkened much of the state and sucked billions of dollars from the economy into the coffers of Texas energy corporations. AB 117 was a strategic shift in a decades-old campaign to wrest economic power away from giant corporate utilities like PG&E and Southern California Edison and the big energy companies that supply them with electricity. AB 117 eliminated the need to own the energy grid and enabled  Community Choice Aggregation, or CCA. a new model of energy provisioning.  
  4. California Assembly Bill 976 (AB 976 - Hall) - Would prohibit a community choice aggregator (CCA) from procuring electricity or energy services from any entity that provided any analysis, advice, consultation or other services to the CCA prior to it providing the 30-day notice to the incumbent utility of commencement of service to customers. This bill would create a new barrier to the formation of any Community Choice Aggregation (CCA) programs.

  5. CCA - Community Choice Aggregation - Allows cities and counties to pool their citizens’ purchasing power to buy electricity.

  6. CRS - Cost Responsibility Surcharge - The CRS is a charge the utilities will assess on CCA customers in order to prevent the shifting of generation-related costs onto remaining utility customers that might result from transfer of electric service to a CCA. The CRS includes costs incurred by the California Department of Water Resources for contracts entered into during the 2000-2001 energy crisis as well as costs incurred by the utilities for generation and power purchase contracts. AB 117 directed the CPUC to establish the CRS before it authorizes implementation of CCA, and the CPUC designated this phase of the proceeding to determine the methodology and issues surrounding the calculation of the CRS.

  7. ESP - Energy Service Providers -

  8. H Bond Authority - San Francisco ordinance (Charter Section 9.107.8, Ammiano), which combined the power purchasing authority of CCA with a revenue bond authority to finance the new green power infrastructure, worth approximately $1 Billion.

  9. IPP – Independent Power Producer – Produce and sell electricity on the wholesale market at market-based rates, and do not have franchised service territories. Most are designated as exempt wholesale generators, which relieves them of many of the regulatory requirements applicable to traditional utilities subject to FERC regulation. Allowed fair access to transmission system by FERC Orders 888 and 889).

  10. MASH - Multifamily Affordable Solar Housing - Solar PPAs are now being successfully utilized in the California Solar Initiative's MASH program.

  11. PPA - Power Purchase Agreement- A legal contract between an electricity generator (provider) and a power purchaser (host). The power purchaser purchases energy, and sometimes also capacity and/or ancillary services, from the electricity generator. One of the key benefits of the PPA is that by clearly defining the output of the generating assets (such as a solar electric system) and the credit of its associated revenue streams, a PPA can be used by the PPA provider to raise non-recourse financing from a bank or other financing counterparty.

  12. Propostion 16 - A defeated California Initiative. PG&E qualified Proposition 16 for the June 2010 ballot. Titled the “The Taxpayers Right to Vote Act" , the measure requires local governments to obtain the approval of 2/3 of voters before providing electricity to new customers or expanding service to new territories if any public funds or bonds are involved. The measure would make it very difficult for local communities to switch from PG&E and other investor-owned utilities (IOUs) to municipal-owned utilities (MUNIs) To date, PG&E has been the sole contributor to the Yes on Prop. 16 political action committee (PAC)—contributing a total of $19 million to support the measure as of March 9, 2010.

  13. PUHCA – Public Utility Holding Company Act. This first major federal regulation of the electric power industry signed in 1935 by President Roosevelt. PUHCA limits the geographical scope of utility holding companies and the corporate structure of the holding companies. The act of created vertically integrated utilities (owning both power plants and power lines) in monopoly service areas. The Federal Power Act gave the Federal Power Commission jurisdiction over wholesale power sales and over transmission of electric power. States retain jurisdiction over siting of generation and transmission and over distribution rates. This combination of federal and state regulation of the industry remained in much the same form for close to a half century.

  14. PURPA - 1978 Public Utility Regulatory Policies Act - Passed at a time when the nation was focused on what appeared to be a steady stream of oil price increases and a great deal of concern about energy imports from politically unstable countries. PURPA was ground-breaking because, for the first time, it required that utilities buy power from companies that were not utilities. PURPA created a new industry of nonutility power generators. It was important to transmission policy because it required that the nonutility generators be given access to the transmission system in order to deliver their power onto the grid.

  15. RPS - Renewable energy Portfolio Standards - A regulation that requires the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal. The RPS mechanism places an obligation on electricity supply companies to produce a specified fraction of their electricity from renewable energy sources. Certified renewable energy generators earn certificates for every unit of electricity they produce and can sell these along with their electricity to supply companies. Supply companies then pass the certificates to some form of regulatory body to demonstrate their compliance with their regulatory obligations.

  16. SPPA - Solar Power Purchase Agreement - Depends heavily on the existence of the solar investment tax credit, which was extended for eight years under the Emergency Economic Stabilization Act of 2008. The SPPA relies on financing partners with a tax appetite who can benefit from the federal tax credit. Typically, the investor and the solar services provider create a special purpose entity that owns the solar equipment. The solar services provider finances, designs, installs, monitors, and maintains the project. As a result, solar installations are easier for customers to afford because they do not have to pay upfront costs for equipment and installation. Instead, customers pay only for the electricity the system generates.

  17. Utility Cooperative - A type of cooperative that is tasked with the delivery of a public utility such as electricity, water or telecommunications to its members. Profits are either reinvested for infrastructure or distributed to members in the form of "patronage" or "capital credits", which are essentially dividends paid on a member's investment into the cooperative.

    Each customer is a member and owner of the business with an equal say as every other member of the cooperative, unlike investor-owned utilities where the amount of say is governed by the number of shares held.

    Many such cooperatives exist in the rural United States, and were created by the New Deal to bring electric power and telephone service to rural areas, when the nearest investor-owned utility would not provide service, believing there would be insufficient revenue to justify the capital expenditures required. Many electric cooperatives have banded together to form their own wholesale power cooperatives, often called G & Ts, for generation and transmission, to supply their member-owners with electricity.

    Many utility cooperatives strive to bring the best service at the lowest possible cost, but often the high cost of maintaining the infrastructure needed to cover large, rural areas without the support of large cities as a rich customer base causes prices to be high. However, a few such co-ops have managed to tap into urban markets (due to growth into previously rural territory served by the co-ops) and have proven to be very cost-effective.

3. Business Case
  • Former Federal Energy Regulatory Commission member Nora Brownell says CCAs are "the only great exceptions to the failure of electric deregulation in the U.S." With every CCA yet formed still in operation and charging ratepayers less per kilowatt hour than their Investor-Owned-Utilities, CCAs have proven to be reliable and capable of delivering greener power at competitive prices. Ohio’s Office of the Consumer’s Council has said that CCA is “the greatest success story” in Ohio’s competitive market, and new legislation to re-regulate utility rates in Ohio will preserve CCA even if other forms of competition are eliminated. In Massachusetts, the success of the Cape Light Compact has led to the formation of new CCAs used in towns such as Marlborough, Massachusetts.
  • Community Choice Aggregation (CCA) is a system enabled by California Assembly Bill 117 (2002) that allows local governments to procure electric energy for residents and businesses within a community. CCA’s enabling legislation requires that investor-owned utilities such as Pacific Gas & Electric (PG&E) cooperate with local governments and provide electricity delivery over its existing distribution system and provide consumer metering, billing, collection and all traditional retail customer services (i.e., call centers, outage restoration, extension of new service).
  • A local government is not required to manage electric transmission or distribution services or develop infrastructure for CCA. PG&E must provide delivery services to CCA customers under the same terms and conditions as provided to other of its customers. It is important to distinguish CCA from municipal utilities and from investor owned utilities as each of these entities provides different services, has different responsibilities, and operates under different regulatory frameworks. Local governments that implement CCA programs do not become a municipal utility which owns and operates transmission and distribution systems. A critical distinguishing factor is that the City would not own the electric distribution system within the City. Rather, it would own or procure electric power from the wholesale markets through power purchase agreements and distribute electric power through PG&E’s existing infrastructure.
    CCA is a Hybrid Approach
  • Since 1997, CCA Laws have been passed by New Jersey, Ohio, Massachusetts, California, and Rhode Island.
  • The first CCA to form was the Cape Light Compact, which includes all of Cape Cod and nearby islands, which have power, gas and energy efficiency services for over fiveyears
  • The largest CCA to form so far was the Northeast Ohio Public Energy Council (NOPEC), which serves 650,000 customers with gas and electricity, switching them from utility coal and nuclear power to a gas and renewables portfolio with a guaranteed 5% discount below utility prices.

4. Benefits
  • Reduce Cost of Renewable Energy - Cut the cost of renewable energy projects like wind farms and solar panels by 50 percent or more.
  • Local Control - Shift political power away from large energy corporations and into the hands of local governments, residents, and small businesses. CCA shifts financial power away from corporate utilities and the California Public Utilities Commission (which many activists characterize as suffering from "regulatory capture" by the companies it is tasked with overseeing) and places the power of the purse in the hands of local officials. With this ability comes the potential for reinvesting in conservation and efficiency programs, creating new local jobs, and lowering consumers' energy bills.
  • Reliability - Take advantage of cutting-edge energy efficiency and demand response technologies to ease the burden on public utilities and improve system reliability and environmental performance.
  • Green and Local Jobs - Provide private sector incentives for the creation of local clean energy jobs and keep energy dollars circulating in the local economy. Attract investment and new, "green collar" manufacturing jobs;
  • Customer Choice - Light Green, Deep Green or PG&E. Competition in business
  • Cost Competitiveness - Cost at or below PG&E
  • Cost Stability - Predetermined supply costs
  • Support Communities RPS Goals
    • San Francisco with 51% RPS Goal includes 775,000 residents
    • Fresno County and 13 cities with accelerated 20% by 2010 RPS Goal includes over 1 million residents
    • Oakland-Emeryville-Berkeley CCA municipalities with 50% RPS Goal include 600,000 residents
    • Marin County and CCA municipalities with 50% RPS Goal include 247,289 residents
    • Chula Vista and neighboring municipalities in San Diego County with 40% RPS Goal includes 250,000 residents
    • LA County and CCA municipalities in LA County with 40% RPS Goal includes over 1 million residents
    • San Luis Obispo and Ventura CCA counties with 40% RPS Goal: over 1 million residents
    • Solano County CCA municipalities with 40% RPS Goal: 117,000 residents
  • Focus on Customer Needs - Rates set to tailor local needs


5. Risks/Issues
  • Non-Cooperation from Utilities - On May 3 2010 the California Public Utilities Commission's (CPUC) Executive Director notified PG&E that certain recent actions by the utility in Marin County, Calif., related to CCA have violated tariffs and rules and directed PG&E to immediately cease such actions.

    On April 9, 2010, the CPUC confirmed Marin Energy Authority (MEA) as a community choice aggregator in California. The CPUC has heard from members of the public and MEA that although PG&E has a statutory obligation to cooperate with community choice aggregators, instead the utility has been attempting to thwart MEA's efforts to launch the new CCA.

    After evaluating PG&E's actions, the CPUC's Executive Director sent a letter to the company, outlining actions that PG&E must immediately cease, including telephoning customers to ask them to opt out and then transferring the call that PG&E initiated to a PG&E customer service representative. The CPUC said that customers electing to opt-out of MEA service must do so only by the methods included in the customer notification provided by MEA - by the customer calling a phone number or visiting a website. PG&E cannot obtain an opt-out by using an opt-out form PG&E includes in a newspaper advertisement or by visiting a customer's residence and asking the customer to provide an oral or written opt-out during the visit.
    In addition, PG&E may no longer send mailers that have the appearance of an official opt-out notice to its customers in Marin County for the purpose of encouraging these customers to opt out of the CCA program established by MEA. These mailers are likely to create unnecessary customer confusion and therefore violate the statutory requirement that PG&E cooperate fully with any community choice aggregators.

    PG&E was directed to meet with the CPUC's Energy Division to identify the specific customers who have opted out of MEA service in the manners specified above and develop a way of informing these customers that their opt-outs are invalid.
  • Some CCA-related Matters are Still Pending Before the CPUC
    • Final methodology for calculating amount of the CCA bond required by AB 117 - ALJ is considering a June 2009 Settlement filed by IOUs and certain CCA interests
    • Draft Energy Division Resolution (April 8 Agenda) –Revises “opt-out” tariff language and clarifies rules regarding certain IOU activities vis-a-vis CCAs
    • City and County of San Francisco Petition to Modify Decision 05-12-041 – Filed January, 2010

6. Case Studies
  1. CleanPowerSF - San Francisco adopted a CCA Ordinance in 2004, creating a CCA program to build 360 Megawatts (MW) of solar, green distributed generation, wind generation, and energy efficiency and demand response to serve San Francisco ratepayers. Specifically, the ordinance combined the power purchasing authority of CCA with a revenue bond authority also developed by Fenn to expand the power of CCA. In 2007 the City adopted a detailed CCA Plan also written primarily by Fenn (Ordinance 447-07, Ammiano and Mirkarimi), which established a 51% Renewable Portfolio Standard by 2017 for San Francisco.

    As a community choice aggregation program, CleanPowerSF would only replace the
    energy generation component of PG&E service, which is about typically 20% or $15.00
    of a $75.00 residential gas and electric bill. PG&E would still continue to provide all
    other components of electric service, like responding to power outages, on-going
    maintenance of electrical distribution lines, meter reading and billing, and would still
    provide and charge for gas service. The CPUC approved San Francisco's implemenation plan in May 2010. In Nov 2010, the SFPUC received four bids in response to its CleanPowerSF Request for Proposals from Constellation Energy Commodities Group, Shell
    Energy North America, Power Choice Inc and Noble Americas Energy Solutions
    (formerly Sempra Energy Solutions). Once the scoring phase of the RFP concludes, the SFPUC will then enter into contract negotiations with the winning respondent to begin setting-up San Francisco’s clean energy program. Implementation is planned for late 2011.

  2. Groundswell - Washington, DC - Groundswell knits together a group of community institutions and assesses their aggregate energy needs. It then collects bids from energy suppliers who can offer competitive rates and often hire from within the local community.

    The latest purchase, which closed in March 2012, counted 103 groups from across Maryland and the District — more than twice the number that participated in the previous round. The Georgetown Presbyterian Church, Cesar Chavez Public Charter Schools for Public Policy and the NAACP were among the groups that took part.

    The nonprofit’s second purchase agreement saved 38 organizations a total of $215,000 on their annual energy bills, an average cost reduction of 12 percent



  3. Marin Energy Authority (MEA) - A Joint Powers Authority formed in 2008 comprised of local governments in Marin County: Belvedere, Fairfax, Mill Valley, San Anselmo, San Rafael, Sausalito, Tiburon and the County of Marin. MEA operates the Marin Clean Energy (MCE) program, which is a CCA now serving electric service customers in Marin County. Since the passage of Assembly Bill 117 in 2002, the MEA has formed the only CCA program in California.

    On February 2, 2010, CPUC certified its implemenation plan and MEA completed Phase I of its
    implementation in May 2010 to include 9,600 customers (mix of residential, municipal and commercial users) and will incrementally expand to provide electricity to all electric service customers in MEA jurisdiction by May of 2012.

    MEA provides electric service customers with a choice of electric service providers. Electric service customers may choose to buy electricity from PG&E or from MEA. MEA currently offers two options for their electric service customers: Light Green and Deep Green. Light Green has a 27 percent renewable energy content and was designed to mirror PG&E's rates. Electric service customers have the choice to upgrade to the Deep Green option which is 100 percent renewable energy and costs an additional 7 percent or about $5-10 per month.

    MEA is an “opt-out” program, which means customers are automatically enrolled in the program unless they specifically choose to continue with PG&E. All electric service customers receive four notifications from MEA prior to being automatically opted in to the MEA program. Electric service customers have the choice to purchase power from the MEA or PG&E. Electric service customers may choose to opt out at anytime and switch to PG&E.

    Since PG&E manages the customer service functions of the electric service, PG&E’s
    senior, low-income and disabled programs, as well as tiered pricing structures are still
    available to the electric service customers. Electric service customers continue to
    receive a PG&E bill; however the generation charges are returned to MEA by PG&E

  4. San Joaquin Valley Power Authority (www.communitychoice.info.) - On April 30, 2007, the CPUC authorized its first Community Choice Aggregation (CCA) application. The application was submitted by the Kings River Conservation District on behalf of San Joaquin Valley Power Authority (SJVPA). made up of Kings County and 8 local cities - Clovis, Dinuba, Hanford, Kerman, Kingsburg, Parlier, Reedley, and Sanger - to engage in regional energy planning and bring energy choice to local residents and businesses in the central San Joaquin Valley. The Authority prepared a Community Choice Implementation Plan and received certification by the California Public Utilities Commission on April 30, 2007. The Authority will set electrical generation rates for customers within its service area and will purchase power from the Kings River Conservation District. Conservative estimates on rates show a 5 percent savings on generation costs. In June 2009: the SJVPA Board temporarily suspended implementation activities.

  5. NOPEC - Northern Ohio Public Energy Council has been serving Ohio customers since September 2001. In December 2009, NOPEC entered into an agreement with FirstEnergy Solutions Corp. (FES), a subsidiary of FirstEnergy Corp. (NYSE: FE), making FES the generation supplier for customers in the 126 Northeast Ohio communities served by NOPEC. The agreement extends from January 1, 2011, through December 31, 2019. In addition, FES and Gexa Energy - NOPEC's current generation supplier - have signed a letter of intent that is expected to make FES the supplier for NOPEC communities in 2010.

    Through its innovative Powering Our Communities program, FES will make a onetime grant of $12 million, which will be administered by NOPEC for energy-related programs throughout its communities. The program will also provide residents and small businesses of those communities with guaranteed long-term electric generation savings that are expected to total an estimated $19 million a year, based on current generation prices. In addition to these savings, NOPEC will use funds it has available to offer its communities additional discounts.

    NOPEC's board chairman Joe Migliorini said, "We've once again been able to leverage our group buying power to obtain the most advantageous deal for our customers and member communities.

  6. Fulton, Illinois, In May 2011 the city of Fulton signed a three year agreement to buy its power from FirstEnergy Solutions. Fulton is the first city to take advantage of Illinois’ municipal aggregation laws and selected its own supplier. Customers may opt out of the aggregation program and shop for a different supplier or accept the standard rate offered by the utility. Residential customers will have a fixed price of 6.23 cents per kWh and small business will pay 6.04 cents per kWh with the agreement. These prices are approximately 20% less than ComEd’s current average generation rate. ComEd will continue to read meters, send monthly billing statements and maintain service for participants in the municipal aggregation program.

  7. Massachusetts’ Cape Light Compact - First enrolled customers in March 2002. The 1997 Massachusetts Restructuring Act enabled towns and cities to establish municipal aggregators like Cape Light Compact, that could:
    • Purchase power on behalf of all customers in the municipality
    • Implement the energy efficiency programs instead of the local electric utility
    • Administer rate-payer funded surcharge. This charge appears on monthly electric bills as the “Energy Conservation” charge and is one of the funding sources for Cape Light Compact’s Energy Efficiency Programs, which are available to every resident and business on Cape Cod and Martha’s Vineyard regardless of which electric supplier the ratepayer chooses.

    The compact serves 200,000 consumers from all 21 towns on Cape Cod and Martha’s Vineyard and offers comprehensive approach to energy services:
      • Competitive electricity rates with a green energy option
      • Effective consumer advocacy
      • Proven energy efficiency programs
      • Energy education
    • CCA Feasibility Studies
      • City of Berkeley - The Final Base Case Feasibility Study for the City of Berkeley was completed in April 2005. The analysis indicated the City is likely to obtain cost savings equal to over $5 million per year or approximately 6% of customers’ electricity bills on average over the study period. The analysis showed that a 50% renewable energy target can be achieved with no rate increases for customers if the City is willing to finance renewable resource development to supply the CCA program.
      • City of Emeryville - The Final Base Case Feasibility Study for the City of Emeryville was completed in March 2005. The analysis indicated the City is likely to obtain cost savings equal to over $3.7 million per year or approximately 10% of customers’ electricity bills on average over the study period. The analysis shows that a 50% renewable energy target can be achieved with no rate increases for customers if the City is willing to finance renewable resource development to supply the CCA program.

      • City of Oakland - The Final Base Case Feasibility Study for the City of Oakland was completed in April 2005. The analysis indicated the City is likely to obtain cost savings equal to over $17.9 million per year or approximately 5% of customers’ electricity bills on average over the study period. The analysis shows that a 50% renewable energy target can be achieved with no rate increases for customers if the City is willing to finance renewable resource development to supply the CCA program.

      • City of Pleasanton - The analysis indicated the City is likely to obtain cost savings equal to approximately $6.6 million per year or approximately 5% of customers’ electricity bills on average over the study period. The analysis shows that a 50% renewable energy target can be achieved with no rate increases for customers if the City is willing to finance renewable resource development to supply the CCA program. The City of Pleasanton is currently evaluating whether to move forward in developing a potential CCA.
      • City of Richmond - The analysis indicated the City is likely to obtain cost savings equal to over $6.6 million per year or approximately 7% of customers’ electricity bills on average over the study period. The analysis shows that a 50% renewable energy target can be achieved with no rate increases for customers if the City is willing to finance renewable resource development to supply the CCA program.

7. Companies/Organizations
  1. Constellation Commodity Energy, Bidder of CleanPowerSF contract and the largest wholesale energy company in North America. Subsidiary of Constellation Energy, Baltimore, MD, a Fortune 200 company with 2006 revenues of $19.3 billion, is the nation's largest competitive supplier of electricity to large commercial and industrial customers and the nation's largest wholesale power seller. Constellation Energy also manages fuels and energy services on behalf of energy intensive industries and utilities. It owns a diversified fleet of 78 generating units located throughout the United States, totaling approximately 8,700 megawatts of generating capacity. The company delivers electricity and natural gas through the Baltimore Gas and Electric Company (BGE), its regulated utility in Central Maryland.

  2. Local Power Inc. - San Francisco, CA - An Energy Service Bureau helping cities adopt, implement and manage Community Choice Aggregation (CCA) energy networks. LPI's founders created Community Choice Aggregation (CCA), Solar Bonds and other major tools for green cities.

    Founded by Paul Fenn, who had served as Senator Montigny's Energy Advisor, formed Local Power (local.org and localpower.com), drafted new CCA legislation for California. In a campaign organized by Local Power, the City and County of San Francisco led Oakland, Berkeley, Marin County, and a group of Los Angeles municipalities in adopting resolutions asking for a state CCA law in response to the failure of California's deregulated electricity market. Fenn's bill was sponsored by then Assembly Member Carole Migden (D-San Francisco) in 2001, and the bill became law (AB117) in September, 2002.
  3. LEAN Energy US,  Local Energy Aggregation Network - San Rafael, CA - Helps local governments transition from corporate utilities to CCAs

  4. Noble America Energy Solutions - San Diego, CA - In Nov 2010, RBS Sempra Commodities (Joint venture between Royal Bank of Scotland and Sempra) completed the sale of its Sempra Energy Solutions business to Noble Americas Gas and Power Corp a subsidiary of Noble Group Hong Kong/Stamford, CT is a market leader in managing the global supply chain of agricultural, industrial and energy products. Our “hands on” approach to business has seen us grow to become a world leader in supply chain management in just 20 years. Their risk-management products are structured to meet the unique needs of each customer. One of four bidders for CleanPowerSF's supplier contract.

  5. One Block Off the Grid - San Francisco - just announced a $5 million round A of venture capital from New Enterprise Associates. OBOG is an online start-up which acts as a consumer solar advocate that engineers group discounts for solar purchases. The firm has helped to initiate almost 600 residential solar installations across the U.S. since the company's founding in 2008.

    The start-up goes into a geographical region, and launches a formal RFP campaign to identify a reliable solar installer with a track record of quality work, strong warranties and fair pricing. 1BOG then partners with that installer, obtains a group discount, and provides a pre-negotiated price to their customers.

  6. Power Choice Inc. - One of four bidders for CleanPowerSF's supplier contract. Formed in 2009 to serve the emerging needs of newly formed Community Choice Aggregation (CCA) and Direct Access programs, in California and elsewhere in the US. Their website is currently a single splash screen.

    Power Choice brings together an alliance of best-in-class energy services companies with several decades of experience in California and around the world. Currently, consortium members serve and manage an electrical power load greater than that of all California-based investor-owned utilities combined.

  7. SENA - Shell Energy North America, Houston, TX - Supplier to MCE and bidder to CleanPowerSF.

8. Links
  1. California Public Utility Commission - Community Choice Aggregation Home Page
  2. California Energy Commission - PIER Program Area: Renewable Energy Technologies- Community Choice Aggregation Pilot Project - In this pilot project, 12 California local governments evaluated the feasibility of implementing community choice aggregation programs through which a minimum renewable energy mix of 40 percent would be achieved, at least doubling the Renewables Portfolio Standard. Three groups of cities/counties went on to develop business plans through this program detailing how community choice aggregation programs for their regions would be organized, governed, funded, and operated to provide at least 50 percent renewable energy to participating customers.
  3. What is Community Choice Aggregation? Fact Sheet by Local Government Commission
  4. Local Government Coaltion - Final Report on California Public Utilities Commission Process to Implement Community Choice Aggregation -
  5. CCA Regulatory Updates - Noble Solutions
  6. CleanPowerSF on Twitter
  7. Marin Clean Energy Presentation to Richmond City CouncilVideo of Meeting May 23, 2011 Richmond City Council Resolution Staff Report June 2 MEA Meeting Marin IJ
  8. http://localpowerrevolution.blogspot.com/
  9. http://www.lgc.org/cca/
  10. CPUC Rejects SDG&E's Network Use Charge - The scoping memo and ruling (PDF)

Tuesday, August 14, 2012

Supercapacitors

Energy storage that operates even faster than batteries could be achieved by super-capacitors that store charge directly in novel nano-engineered materials.

Navigate this Report
Back to EV Index
1. Background
2. Acronyms/Definitions
3. Business Case
4. Benefits
5. Risks/Issues
6. Next Steps
7. Companies
8. Links


1.Background
  • Supercapacitors are electrochemical capacitors with unusually high-energy density — having typically been used to start locomotives, tanks and diesel trucks. Supercapacitors operates by means of static charge capture similar to an electrical charge built up on a carpet that gives you a jolt when you walk on it in dry weather conditions.

  • Supercapacitors hold less electricity than batteries but absorb and release it much more quickly, usually in a matter of seconds. The ability to absorb and release electricity quickly is crucial for time-sensitive electricity storage, including frequency regulation (the moment-to-moment fine-tuning of the power grid), quick vehicle acceleration, and capturing energy from vehicle braking.

  • New technology in development could potentially make supercapacitors with high enough energy density to be an attractive replacement for batteries in all-electric cars and plug-in hybrids.

  • While supercapacitors are related to batteries, they use a different energy storage mechanism. Batteries move charged chemical species (ions) from one electrode via an electrolyte to the second electrode, where they interact chemically. Thus batteries store chemical energy; EDLCs store electrical charge physically, without chemical reactions taking place. Because the charge is stored physically, with no chemical or phase changes taking place, the process is highly reversible and the discharge-charge cycle can be repeated virtually without limit.


  • Typically, an EDLC stores electrical charge in an electrical double layer in an electrode-electrolyte interface of high surface area. Because of the high surface area and the extremely low thickness of the double layer, these devices can have extraordinarily high specific and volumetric capacitances. A striking dissimilarity between batteries and ECs is the number of charge-discharge cycles each can undergo before failure. In contrast, no inherent physical or chemical changes occur in EC electrodes during cycling because the charge is stored electrostatically. As a result, ECs exhibit cycle lifetimes ranging from a few hundred thousand to over one million cycles. Most notably, however, ECs have the ability to deliver an order of magnitude more power than batteries. However, at present, their energy densities are generally lower than those of batteries.

  • As the energy densities of ECs have increased, applications using ECs as EES devices—from vehicles, cell phones, and photocopiers to larger industrial drive systems have increased and in some cases have displaced batteries.


Supercapacitors have a higher power density, but lower energy density than batteries.


2. Acronyms/Definitions
  1. EDLC – Electrochemical Double Layer Capacitor (aka Supercapacitor)

  2. Capa Bus - A traction vehicle that uses supercapacitors to store electricity. Ultracapacitors can charge much faster than batteries, so in vehicles such as buses that have to stop frequently at known points where charging facilities can be provided, energy storage based exclusively on ultracapacitors is viable.

    China is experimenting with a new form of electric bus, known as Capabus, which runs without continuous overhead lines by using power stored in large onboard EDLCs, which are quickly recharged whenever the vehicle stops at any bus stop (under so-called electric umbrellas), and fully charged in the terminus.

    The buses have very predictable routes and need to stop regularly every 3 miles (4.8 km) or less, allowing quick recharging at charging stations at bus stops. A collector on the top of the bus rises a few feet and touches an overhead charging line at the stop; within a couple of minutes the ultracapacitor banks stored under the bus seats are fully charged.

  3. Capacitor - A passive electronic component consisting of a pair of conductors separated by a dielectric. When a voltage potential difference exists between the conductors, an electric field is present in the dielectric. This field stores energy and produces a mechanical force between the plates. The effect is greatest between wide, flat, parallel, narrowly separated conductors

    A capacitor consists of two conductors separated by a non-conductive region. The non-conductive substance is called the dielectric medium, although this may also mean a vacuum or a semiconductor depletion region chemically identical to the conductors. A capacitor is assumed to be self-contained and isolated, with no net electric charge and no influence from an external electric field. The conductors thus contain equal and opposite charges on their facing surfaces, and the dielectric contains an electric field.

  4. Capacitance -The ability of a body to hold an electrical charge. Capacitance is also a measure of the amount of electric charge stored (or separated) for a given electric potential. A common form of charge storage device is a two-plate capacitor. Capacitance is directly proportional to the surface area of the conductor plates and inversely proportional to the separation distance between the plates.

  5. Coulomb (symbol: C) - The SI derived unit of electric charge. It is defined as the charge transported by a steady current of one ampere in one second:  

    One coulomb is also the amount of excess charge on the positive side of a capacitance of one farad charged to a potential difference of one volt:  

  6. EDLC - Electric Double-Layer Capacitor (Also known as supercapacitor, supercondenser,electrochemical double layer capacitor, or ultracapacitor) - An electrochemical capacitor with relatively high energy density.

  7. Farad -   (symbol: F) - The SI derived unit of capacitance. The unit is named after the English physicist Michael Faraday. A farad is the charge in coulombs which a capacitor will accept for the potential across it to change 1 volt. A coulomb is 1 ampere second. Example: A capacitor with capacitance of 47 nF will increase by 1 volt per second with a 47 nA input current.

  8. KERS - Kinetic Energy Recovery System - An automotive system for recovering a moving vehicle's kinetic energy under braking. The recovered energy is stored in a reservoir (for example a supercapacitor, flywheel or a battery) for later use under acceleration.

  9. Specific Energy  - The amount of energy stored per unit of mass which is often measured in watt-hours per kilogram (W⋅h/kg) or megajoules per kilogram (MJ/kg). In 2010 the highest available EDLC specific energy was 30 W⋅h/kg (0.1 MJ/kg) Up to 85 W⋅h/kg has been achieved at room temperature in the lab, which is still lower than rapid-charging lithium-titanate batteries. As of 2012commercially available EDLCs typically have mass-to-volume ratio between 0.33 and 3.89 kg/l

  10. Supercap – aka Supercapacitor

  11. Ultracapacitor – aka Supercapacitor

  • Researchers are working to improve ultracapacitors in several ways:
    1. Boost the amount of energy an ultracapacitor can store -its energy density
    2. Boost the amount of power an ultracapacitor can deliver - its power density
    3. Reduce costs, particularly of electrode materials
    4. Increase ultracapacitor operating voltage
  • Because a supercapacitor can store and rapidly release large amounts of electrical power, it can serve as a buffer between the battery pack and an electric vehicle's motors — improving the vehicle's responsiveness while reducing the charge/discharge cycling that shortens battery life.

    Supercapacitors may be deployed as buffers on a battery. Researchers at Carnegie Mellon's ChargeCar project calculate that an intelligent electric car controller could recapture 48 percent of the energy during braking. A supercapacitor could reduce 56 percent of the load on the batteries and reduce heating of the batteries — which shortens battery life — by 53 percent.

4. Benefits
  • Battery Savings - The number-one cost of electric vehicle ownership is the batteries. Smart power management will save money initially because it pairs a low-cost battery pack with a small supercapacitor. And it will continue to save money by increasing efficiency and extending battery life.

  • High Output Power - Some of the earliest uses were motor startup capacitors for large engines in tanks and submarines, and as the cost has fallen they have started to appear on diesel trucks and railroad locomotives. The railway industry also use supercap for train braking because of the very high power levels.

    Ultracapacitors have become the power source of choice in wind turbine nacelles, where they power blade pitch control, the positioning of the blade in the wind. hough wind turbine blades are long and awkward to reposition, it is vital to be able to adjust them quickly to allow them to grab useful winds. It is even more vital to quickly get blades turned out of potentially damaging winds. Ultracaps are ideal for such quick bursts of work.

  • Fast Charging - Ability to soak up energy quickly makes them particularly suitable for regenerative braking applications, whereas batteries have difficulty in this application due to slow charging rates. Supercapacitors will be able to recover the energy from many repetitive processes (e.g., braking in cars or descending elevators) that is currently being wasted.

  • Low Self-Discharge Rate - Reliability, on-the-shelf life time of the capacitors are much higher than of any battery type. Starting the engine after a long period of inactivity and under the most unfavorable conditions can be required at any time.

  • High Cycle Life - It has an essentially unlimited charge/discharge cycle life (millions or more compared to 200–1000 for most commercially available rechargeable batteries) This means there are no disposable parts during the whole operating life of the device, which makes the device environmentally friendly. During operation of a hybrid vehicle, energy storage elements are subject to as many as 700,000 stop/start cycles and more than 1 million regenerative storage events. Furthermore a system of this kind has to provide well over 200,000 cycles to support the on-board electrical system for power consumers. On-board electrical systems built to present-day technical and design standards are not able to cope with these kinds of loads over the lifetime of a vehicle.

  • Avoids Battery Disposal - Which is a huge environmental issue Though rechargeable batteries provide some relieve, but still, after 200...1000 (2000 at best) charge-discharge cycles they should be disposed. No corrosive electrolyte and low toxicity of materials improves safety compared to batteries.

  • High Efficiency - (up to 97-98%) due to extremely low internal resistance or ESR

  • Improved Safety - Supercaps are mostly immune to the short circuiting and high charge current, thus the charge cycle could be made very short: seconds vs. hours required for the batteries.

  • Wide Operating Temperatures. exhibit temperature stability. extremely low heating levels, Power is unaffected by cold temperatures.

5. Risks/Issues
  • Low Energy Density - Supercapacitors need to be much larger than batteries to hold the same charge. Existing commercial electric double-layer capacitors range around 0.5 to 30 Watt Hours/kilo (Wh/kg) Physical constraints on electrode surface area and spacing have limited supercapacitors to an energy storage capacity around 25 times less than a similarly sized lithium-ion battery.

    Research is ongoing to improve performance. An order of magnitude energy density improvement was achieved in the laboratory in mid-2011. A new carbon based material for supercapacitor electrodes that could allow them to store the same amount of energy as a lead-acid battery but with much faster charge times was discovered at the University of Texas. The porous material shows power densities an order of magnitude better than current carbon supercapacitors and can be made in a simple method that could be easily scaled to industrial quantities

    Comparisons:
    • Conventional lead-acid battery is typically 30 to 40 Wh/kg

    • Modern lithium-ion batteries are about 160 Wh/kg.

    • Gasoline has a net calorific value (NCV) of around 12,000 Wh/kg, which in automobile applications operates at 20% tank-to-wheel efficiency giving an effective energy density of 2,400 Wh/kg

  • Cost - Relatively expensive and only recently began being manufactured in sufficient quantities to become cost-competitive. Research is ongoing to improve performance. For example, an order of magnitude energy density improvement was achieved in the laboratory in mid-2011. Prices are dropping: a 3 kF capacitor that cost  $5,000 in 2000 cost $50 in 2011.

  • Variable Voltage - The energy stored in a capacitor is (1/2)CV^2. When you have drained 3/4 or the energy, it is at 1/2 the voltage. Your application needs to tolerate a range of supply voltages.

    Effective storage and recovery of energy requires complex electronic control and switching equipment, with consequent energy loss. A detailed paper on a multi-voltage 5.3 W EDLC power supply for medical equipment discusses design principles in detail. It uses a total of 55 F of capacitance, charges in about 150 seconds, and runs for about 60 seconds. The circuit uses switch-mode voltage regulators followed by linear regulators for clean and stable power, reducing efficiency to about 70%. The authors discuss the types of switching regulator available, buck, boost, and buck-boost, and conclude that for the widely varying voltage across an EDLC buck-boost is best, boost second-best, and buck unsuitable x

  • Leakage/Self Discharge - Ultracaps self discharge at about 5% per day. This means that they should not be used in long standby applications, just like flywheels. They are meant rather for applications with numerous charge/discharge cycles, and also where the power/energy ratio is high.

  • Low Maximum Voltage – series connections are needed to obtain higher voltages, and voltage balancing may be required.


Images of different types of carbon nanotubes.
Carbon nanotubes are key to MIT researchers' efforts to improve on ultracapacitors.

  • While supercap energy storage density had more than tripled since 1998 to reach 6 kWh/kg today, new materials and chemical processes are needed to improve their charge storage capabilities by increasing both their energy and their power densities.

  • According to MIT Laboratory for Electromagnetic and Electronic Systems (LEES), Incremental changes in existing technologies will not produce the breakthroughs needed to realize these improvements. Rather, a fundamental understanding of the physical and chemical processes that take place in the EC—including the electrodes, the electrolytes, and especially their interfaces—is needed to design revolutionary concepts.

  • Recent research in electric double-layer capacitors has generally focused on improved materials that offer even higher usable surface areas. Experimental devices developed at MIT replace the charcoal with carbon nanotubes, which have similar charge storage capability as charcoal (which is almost pure carbon) but are mechanically arranged in a much more regular pattern that exposes a much greater suitable surface area. Other teams are experimenting with custom materials made of activated polypyrrole, and even nanotube-impregnated papers.

  • The LEES supercap uses vertically aligned, single-wall carbon nanotubes -- one thirty-thousandth the diameter of a human hair and 100,000 times as long as they are wide. Storage capacity in an supercap is proportional to the surface area of the electrodes. Today's supercaps use electrodes made of activated carbon, which is extremely porous and therefore has a very large surface area. However, the pores in the carbon are irregular in size and shape, which reduces efficiency. The vertically aligned nanotubes in the LEES supercap have a regular shape, and a size that is only several atomic diameters in width. The result is a significantly more effective surface area, which equates to significantly increased storage capacity.
  1. ChargeCar Project - Carnegie Mellon University's Robotics Institute, Pittsburgh, PA - Exploring how electric vehicles can be customized to cost-effectively meet an individual's specific commuting needs — and how an electric vehicle's efficiency can be boosted and its battery life extended by using artificial intelligence to manage power.

    Key to the project is a vehicle architecture called smart power management, which uses artificial intelligence to manage the flow of power between conventional electric car batteries and a supercapacitor. Based on a driver's route and habits, the smart power management system will decide whether to draw power for the electric motors from the batteries or the supercapacitor — and decide where to store electricity produced by the regenerative braking system as the car slows down or goes down a hill.

  2. EEStor - Cedar Park, TX - Claimed to have developed a revolutionary new type of capacitor for electricity storage, which EEStor calls 'Electrical Energy Storage Units' (EESU). EEStor claims the EESU can store far more electrical energy than any other type of capacitor, and that it could be used to propel a small car for about 300 miles. This potential for making electric vehicles fully competitive with gasoline-powered vehicles has created much interest, although the company's claims have yet to be verified.

    EEStor may be going out of business. The firm's website is no longer online and the usual fevered musings of the EEStor blogosphere have slowed

    .
  3. EnerG2 - Seattle, WA - Does not make ultracaps. Instead, it makes the activated carbon that goes inside them. Now, a lot of that carbon comes from coconuts. EnerG2 claims it can better control the morphology and pore sizes of the material, which in turn leads to a higher performance electrode.

    EnerG2 founded in 2003, developed its patented Carbon Technology Platform to enable large-scale production of carbon materials that surpass the limitations of the naturally occurring carbons traditionally used in energy storage applications. Controlling the molecular structure and synthesis of these advanced materials at the earliest production stages provides flexibility, reduced costs, and maximizes performance.

  4. Ioxus – Oneonta, NY - An ultracapacitor and asymmetric hybrid ultracapacitor manufacturer – in April 2011 raised $21 million from investors including GE, ConocoPhillips, NRG Energy, Schneider Electric, and Braemer Energy Ventures, an impressive list of investors for a historically undifferentiated ultracapacitor company. For automakers and OEMs looking to buy energy storage devices, ultracapacitors are often seen as being in competition with batteries. But Ioxus has developed a sort of hybrid battery, ultracapacitor technology, and thinks the storage devices should be used in tandem. They say “Ultracapacitors are not looking to replace batteries in the acceleration or main storage of a car – they are merely there to enhance the battery, make it last longer, and reduce the warranty issues related to replacing large batteries.”


    Ultracapacitors have become the power source of choice in wind turbine nacelles, where they power blade pitch control, the positioning of the blade in the wind.   Ioxus supplies makers of “multiple megawatt turbines, 1.6 megawatts and up,” though confidentiality agreements prevented them from naming the manufacturers.

    Though wind turbine blades are long and awkward to reposition, it is vital to be able to adjust them quickly to allow them to grab useful winds. It is even more vital to quickly get blades turned out of potentially damaging winds. Ultracaps are ideal for such quick bursts of work.

    Manufacturers use Ioxus ultracapacitors in a variety of combinations. With iMOD arrays, the engineering needed to achieve whatever blade-moving power the turbine-maker wants will be more affordable because “they don’t have to become experts in cell balancing, one of our core competencies,”

    “There is a significant amount of money involved for turbine makers in wiring ultracapacitor cells together,” McGough said. It requires expert design and engineering skills. “Instead of dealing with 60 cells and the power electronics, you have the ability to install six modules, each with four simple hold-down screws, and they terminate in a simple bus bar structure,” McGough said. “It’s snap-and-go.”
    .
  5. Maxwell (NASDAQ: MXWL) San Diego CA - The far-and-away leader in supercap technology. With strong ties to the electric vehicle and wind markets.  Maxwell's largest ultracapacitor market is hybrid electric transit bus drive systems where the ultracapacitors capture braking energy.


  6. Nanotek Instruments, Dayton, Ohio - MIT’s Technology Review reports that Nanotek's researchers are developing graphene electrodes which may inspire ultracapacitors with more than five times the energy density of current commercial devices.

    Ultracapacitors store charge electrostatically with ions from an electrolyte clinging to the electrodes within the capacitor. Through the utilization of graphene (described as atom thick sheets of carbon) Nanotek is able to significantly increase the surface area of the electrodes found within the ultracapacitors. Graphene is able to store a much larger charge as ions are able to layer across the carbon sheet enabling easier attachment and subsequent detachment. This allows for large-scale increases in storage capacity.

    Nanotek’s tests show that the graphene electrodes could store 85.6 watts of energy per kilogram. Compare that to current ultracapacitors with an energy density of around five to ten watt-hours per kilogram.

  7. Sinuatec Automobile Technologies- Arlington, VA - From 2006 - 2010,  Sinautec and its Chinese partner Shanghai Aowei Technology Development Company tested, with 17 forty-one seat Ultracap Buses serving the Greater Shanghai area swithout any major technical problems. Buses in the Shanghai pilot were made by Germantown, Tennessee-based Foton America Bus Company.  In April 2012, Foton America Bus Company announced it was closing its doors after five years of product design and development. The company, with locations in New Milford, CT and Germantown, TN, was created to develop and deploy alternative fuel buses for the American market, while decreasing incremental costs. Foton America was American owned and operated and had no ties to Foton China except for buying the bus shells.


8. Links
  1. Green Tech Media - Report on Ultracapacitors: Major Advances on Tap.
  2. Railway Gazette - Regenerative Breaking - UltraCaps win out in energy storage
  3. MIT's Laboratory for Electromagnetic and Electronic Systems (LEES) - Ultracapacitor Research

  4. Burke, Andrew F. (2009) Ultracapacitor Technologies and Application in Hybrid and Electric Vehicles. Institute of Transportation Studies, University of California, Davis, Research Report UCD-ITS-RR-09-23 1312

  5. Burke, Andrew F. and Marshall Miller (2009) Electrochemical Capacitors as Energy Storage in Hybrid-Electric Vehicles: Present Status and Future Prospects. Institute of Transportation Studies, University of California, Davis, Research Report UCD-ITS-RR-09-07

Tuesday, August 7, 2012

Carbon Offset Markets

Financing needs for low-emission development strategies are the hundreds of billions annually for developing countries alone. Mobilizing sufficient resources in a predictable and sustainable manner requires a combination of sources-both existing and innovative ones, both public and private.

Navigate this Report
Back to Carbon Markets Index
1. Background

2. Acronyms/Definitions
3. Business Case
4. Benefits
5. Risks/Issues
6. Success Criteria
7. Case Studies
8. Companies/Bodies
9. Links

1.Background
  • A carbon offset is a reduction in emissions of carbon dioxide or greenhouse gases made in order to compensate for or to offset an emission made elsewhere. Carbon offsets are measured in metric tons of carbon dioxide-equivalent (CO2e) and may represent six primary categories of greenhouse gases. One carbon offset represents the reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases.

  • There are two markets for carbon offsets. In the larger, compliance market, companies, governments, or other entities buy carbon offsets in order to comply with caps on the total amount of carbon dioxide they are allowed to emit. This market exists in order to achieve compliance with obligations of Annex 1 Parties under the Kyoto Protocol, and of liable entities under the EU Emissions Trading Scheme. In 2006, about $5.5 billion of carbon offsets were purchased in the compliance market, representing about 1.6 billion metric tons of CO2e reductions.

  • In the much smaller, voluntary market, individuals, companies, or governments purchase carbon offsets to mitigate their own greenhouse gas emissions from transportation, electricity use, and other sources. For example, an individual might purchase carbon offsets to compensate for the greenhouse gas emissions caused by personal air travel. Many companies offer carbon offsets as an up-sell during the sales process so that customers can mitigate the emissions related with their product or service purchase (such as offsetting emissions related to a vacation flight, car rental, hotel stay, consumer good, etc.). In 2008, about $705 million of carbon offsets were purchased in the voluntary market, representing about 123.4 million metric tons of CO2e reductions.

  • Offsets are typically achieved through financial support of projects that reduce the emission of greenhouse gases in the short- or long-term. The most common project type is renewable energy, such as wind farms, biomass energy, or hydroelectric dams. Others include energy efficiency projects, the destruction of industrial pollutants or agricultural byproducts, destruction of landfill methane, and forestry projects. Some of the most popular carbon offset projects from a corporate perspective are energy efficiency and wind turbine projects.

    Carbon offsetting has gained some appeal and momentum mainly among consumers in western countries who have become aware and concerned about the potentially negative environmental effects of energy-intensive lifestyles and economies. The Kyoto Protocol has sanctioned offsets as a way for governments and private companies to earn carbon credits which can be traded on a marketplace. The protocol established the Clean Development Mechanism (CDM), which validates and measures projects to ensure they produce authentic benefits and are genuinely "additional" activities that would not otherwise have been undertaken. Organizations that are unable to meet their emissions quota can offset their emissions by buying CDM-approved Certified Emissions Reductions.

  • Offsets may be cheaper or more convenient alternatives to reducing one's own fossil-fuel consumption. However, some critics object to carbon offsets, and question the benefits of certain types of offsets.


2. Acronyms/Definitions
  1. AAU - Assigned Amount Units - A tradable 'Kyoto unit' or 'carbon credit' representing an allowance to emit greenhouse gases comprising one metric ton of carbon dioxide equivalents calculated using their Global Warming Potential. Assigned Amount Units are issued up to the level of initial "assigned amount" of an Annex 1 Party to the Kyoto Protocol. Assigned amounts are the Kyoto Protocol Annex B emission targets (or "quantified emission limitation and reduction objectives") expressed as levels of allowed emissions over the 2008-2012 commitment period.

    An AAU or its near-equivalent European Union Allowance (EUA), may have a different market value to an offset such as a CER. This is due to the lack of a developed secondary market for CERs, a lack of homogeneity between projects which causes difficulty in pricing, as well as questions due to the principle of supplementarity and its lifetime. Additionally, offsets generated by a carbon project under the Clean Development Mechanism are potentially limited in value because operators in the EU ETS are restricted as to what percentage of their allowance can be met through these flexible mechanisms.

  2. Additionality - Addresses the question of whether the project would have happened anyway, even in the absence of revenue from carbon credits. Only carbon credits from projects that are "additional to" the business-as-usual scenario represent a net environmental benefit. Carbon projects that yield strong financial returns even in the absence of revenue from carbon credits; or that are compelled by regulations; or that represent common practice in an industry are usually not considered additional, although a full determination of additionality requires specialist review.

  3. AE - Applicant Entity - An entity that has applied for accreditation and designation as a designated operational entity (DOE) under the CDM, before its application has been finalized.

  4. A/R Project - CDM Afforestation and Reforestation Project. Afforestation is the process of creating forests on land that was previously unforested, typically for longer than a generation. Deforestation, particularly in Brazil, Indonesia and parts of Africa, account for about 20% of greenhouse gas emissions. Deforestation can be avoided either by paying directly for forest preservation, or by using offset funds to provide substitutes for forest-based products.

    CDM project activities can be categorized into “Emission reduction project” and “Sink project”. Sink projects are to absorb carbon through afforestation or reforestation activities.

  5. Baseline - The scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity. In other words, a baseline for a CDM project activity is a hypothetical reference case, representing the volume of greenhouse gases that would have been emitted if the project were not implemented. Therefore, the baseline can be used to determine:
    1. whether a CDM project activity is additional; and
    2. the volume of additional greenhouse gas emission reductions achieved by a project activity.

  6. Carbon Credit - A generic term for any tradable certificate or permit representing the right to emit one tonne of carbon or carbon dioxide equivalent (tCO2e)

  7. CDE - Carbon Dioxide Equivalency - A quantity that describes, for a given mixture and amount of greenhouse gas, the amount of CO2 that would have the same global warming potential (GWP), when measured over a specified timescale (generally, 100 years). Carbon dioxide equivalency thus reflects the time-integrated radiative forcing of a quantity of emissions or rate of greenhouse gas emission - a flow into the atmosphere - rather than the instantaneous value of the radiative forcing of the stock (concentration) of greenhouse gases in the atmosphere described by CO2e.

    Visualizing the volume represented by one metric ton of carbon dioxide at ambient temperature and pressure makes that quantity more real

    The carbon dioxide equivalency for a gas is obtained by multiplying the mass and the GWP of the gas. The following units are commonly used:

    1. By the UN climate change panel IPCC: billion (giga) metric tonnes of CO2equivalent (GtCO2eq).
    2. In industry: million metric tonnes of carbon dioxide equivalents (MMTCDE).
    3. For vehicles: grams of carbon dioxide equivalents / kilometer (gCDE/km).

    For example, the GWP for methane over 100 years is 25 and for nitrous oxide 298. This means that emissions of 1 million metric tonnes of methane and nitrous oxide respectively is equivalent to emissions of 25 and 298 million metric tonnes of carbon dioxide.

  8. CO2E - Equivalent Carbon Dioxide - The concentration of CO2 that would cause the same level of radiative forcing as a given type and concentration of greenhouse gas. Examples of such greenhouse gases are methane, perfluorocarbons and nitrous oxide. CO2e is expressed as parts per million by volume, ppmv.

  9. CDM - Clean Development Mechanism - One of the "flexibility" mechanisms defined in the Kyoto Protocol (IPCC, 2007). It is defined in Article 12 of the Protocol, and is intended to meet two objectives: (1) to assist parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the United Nations Framework Convention on Climate Change (UNFCCC), which is to prevent dangerous climate change; and to assist parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments (greenhouse gas (GHG) emission caps). "Annex I" parties are those countries that are listed in Annex I of the treaty, and are the industrialized countries. Non-Annex I parties are developing countries.

    CDM Process Flowchart

  10. CER - Certified Emission Reductions - A type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE under the rules of the Kyoto Protocol. CERs can be used by Annex 1 countries in order to comply with their emission limitation targets or by operators of installations covered by the European Union Emission Trading Scheme (EU ETS) in order to comply with their obligations to surrender EU Allowances, CERs or Emission Reduction Units (ERUs) for the CO2 emissions of their installations. CERs can be held by governmental and private entities on electronic accounts with the UN.
    1. Primary CERs - Although there is no standard definition, common understanding refers to Certified Emission Reductions that will be issued to a Project Participant in the underlying CDM project. Hereby the underlying purchase contract is custom tailored to match the specific project risks, which is also reflected in the pricing of these CERs. The higher the project risks the lower the purchase price. Such a transaction normally encompasses that the buyer is purchasing a future multi-year stream of CERs that will be issued annually directly into the Buyers holding account at the CDM Executive Board.

    2. Secondary CERs - Can be bought or sold based on a standard contract, similar to EU Allowances. Because the Seller or Buyer are investment grade companies, transactions for CERs can be executed without having to worry about any of the risks typically associated with CDM transactions.

    CERs are either long-term (lCER) or temporary (tCER), depending on the likely duration of their benefit. Both types of CER can be purchased from the primary market (purchased from original party that makes the reduction) or secondary market (resold from a marketplace). At present, most of the approved CERs are recorded in CDM Registry accounts only. It is only when the CER is actually sitting in an operator's trading account that its value can be monetized through being traded.

    By the end of 2008, over 4,000 CDM projects had been submitted for validation, and of those, over 1,000 were registered at the CDM Executive Board, and were therefore entitled to generate CERs. As of 23 March 2010, 2099 projects have been registered by the CDM Executive Board as CDM projects. IGES CDM Project Database These projects reduce greenhouse gas emissions by an estimated 220 million ton CO2 equivalent per year. There are about 4,000 projects yet to be certified. These projects would reduce CO2 emissions by over 2.5 billion tons until the end of 2012. However, the previous adoption rate suggests that only a fraction of these projects will be certified.

  11. Certification Regime - The certification regime describes the systems and procedures that are used to certify and register carbon offsets. Different methodologies are used for measuring and verifying emissions reductions, depending on project type, size and location. For example, the Chicago Climate Exchange used one set of protocols, while the CDM uses another.

  12. ERU - Emission Reduction Units - A unit of emission reductions issued pursuant to Joint Implementation. One ERU represents the right to emit one metric ton of carbon dioxide equivalent

  13. Gold Standard - A best practice methodology and a high quality carbon credit label for both Kyoto and voluntary markets.

  14. JI - Joint Implementation - One of three flexibility mechanisms set forth in the Kyoto Protocol to help countries with binding greenhouse gas emissions targets (Annex I countries) meet their obligations. JI is set forth in Article 6 of the Kyoto Protocol. Under Article 6, any Annex I country can invest in emission reduction projects in any other Annex I country as an alternative to reducing emissions domestically. In this way countries can lower the costs of complying with their Kyoto targets by investing in greenhouse gas reductions in an Annex I country where reductions are cheaper, and then applying the credit for those reductions towards their commitment goal.

    The JI has caused less concern of spurious emission reductions than the CDM because the JI takes place in countries which have an emission reduction requirement. Most JI projects are expected to take place in so-called "economies in transition," noted in Annex B of the Kyoto Protocol. Currently Russia and Ukraine are slated to host the greatest number of JI projects.

    The process of receiving credit for JI projects is somewhat complex. Emission reductions are awarded credits called Emission Reduction Units (ERUs), where one ERU represents an emission reduction equaling one ton of CO2 equivalent. The ERUs come from the host country's pool of AAUs. Each Annex I party has a predetermined amount of AAUs, calculated on the basis of its 1990 greenhouse gas emission levels. By requiring JI credits to come from a host country's pool of AAUs, the Kyoto Protocol ensures that the total amount of emissions credits among Annex I parties does not change for the duration of the Kyoto Protocol's first commitment period.

  15. Methane Collection and Combustion - Some offset projects consist of the combustion or containment of methane generated by farm animals by use of an anaerobic digester,landfills or other industrial waste. Methane has a global warming potential (GWP) 23 times that of CO2; when combusted, each molecule of methane is converted to one molecule of CO2, thus reducing the global warming effect by 96%. Willow Creek Dairy Farm is an example manages manure in orfer to limit GHG Emission.


  16. NAMA - Nationally Appropriate Mitigation Actions - Developing countries’ pledges which are aimed at achieving a deviation in their GHG emissions compared to business-as-usual trends by 2020.

  17. Parties to UNFCCC are classified as:
    Annex I countries – 41 Industrialized countries and economies in transition
    Annex II countries – 23 Developed countries which pay for costs of developing countries
    Non Annex I countries - Developing countries.

    Annex I countries which have ratified the Protocol have committed to reduce their emission levels of greenhouse gasses to targets that are mainly set below their 1990 levels. They may do this by allocating reduced annual allowances to the major operators within their borders. These operators can only exceed their allocations if they buy emission allowances, or offset their excesses through a mechanism that is agreed by all the parties to UNFCCC.

    Annex II countries are a sub-group of the Annex I countries. They comprise the OECD members, excluding Turkey and those that were economies in transition (an economy which is changing from a centrally planned economy to a free market. in 1992.

    Developing countries are not required to reduce emission levels unless developed countries supply enough funding and technology. Setting no immediate restrictions under UNFCCC serves three purposes:
    1. it avoids restrictions on their development, because emissions are strongly linked to industrial capacity
    2. they can sell emissions credits to nations whose operators have difficulty meeting their emissions targets
    3. they get money and technologies for low-carbon investments from Annex II countries.

  18. PoA - Program of Activities - (Also known as Programmatic CDM (pCDM)) - A new concept of CDM which is expected to enlarge the CDM opportunities through registering a program of activities instead of individual project activities. pCDM is developed aiming to enable the small but large number of projects to become CDM projects, which will activate the wide range of efforts to tackle with global warming issues. The aim of PoAs was to allow replicable projects with low and physically spread Greenhouse Gas reductions into the CDM. This type of project is often linked to higher sustainability benefits, but are too small to pay back the transaction cost involved in the CDM process. It was expected to allow African countries a higher participation in the CDM in particular.


    Under the PoA modality, a PoA Coordinating/Managing Entity (CME), which can be a government agency, NGO or business, develops a PoA which defines broad parameters for project activities (referred to as CDM Programme Activities or CPAs) that are eligible for inclusion in the PoA. Whereas stand-alone CDM projects must be approved individually by the CDM Executive Board, a PoA needs to be registered only once by the CDM Executive Board. After that, it can include an unlimited and unspecified number of individual CPAs without recourse to the CDM Executive Board. As of November 2010, after the 57th meeting of the CDM Executive Board, a total of 54 PoAs were under validation and 5 were registered.

  19. REDD - Reducing Emissions from Deforestation and Forest Degradation - A set of steps designed to use market/financial incentives in order to reduce the emissions of greenhouse gases from deforestation and forest degradation.

  20. RMU - Removal unit On the basis of land use, land-use change and forestry (LULUCF) activities such as reforestation. Equal to one tonne of CO2 can be traded and sold under the Kyoto Protocol’s emissions trading scheme.

  21. SSC - Small Scale CDM Project - Simplified modalities and procedures can be applied to projects meeting the following criteria:
    1. Type I: Renewable energy project activities with a maximum output capacity equivalent to up to 15 MW (or an appropriate equivalent)
    2. Type II: Energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, limited to those with a maximum output of 60 GWh per year (or an appropriate equivalent);
    3. Type III: Other project activities limited to those that result in emission reductions of less than or equal to 60 kt CO2 equivalent annually

    While the total size of the SSC CDM projects can not exceed the maximum size for the SSC CDM project by type, more than one SSC CDM projects can be bundled. Meanwhile, a full scale CDM project cannot be debundled into more than one SSC projects. Appendix C of the Simplified Modalities and Procedures for Small-Scale CDM project activities defines that a small-scale CDM project activity shall be deemed to be a debundled component of a large project activity if there is a registered small-scale CDM project activity or an application to register another small-scale CDM project activity:
    • With the same project participants;
    • In the same project category and technology/measure;
    • Registered within the previous 2 years; and
    • Whose project boundary is within 1 km of the project boundary of the proposed small-scale activity at the closest point.

    The definition of “same technology/measure” in the CDM glossary of terms:
    Two different project activities will be considered to be applying the same technology if they provide the same kind of output and use the same kind of equipment and conversion process. Two different project activities will be considered to be using the same measure if they constitute the same course of action and result in the same kind of effect (e.g. two projects using the same management practice such as fuel switch).

  22. Supplementarity (Also known as "the supplementary principle") - One of the main principles of the Kyoto Protocol. The concept is that internal abatement of emissions should take precedent before external participation in flexible mechanisms like emissions trading, CDM and JI.

  23. VER - Voluntary Emission Reduction - The voluntary markets have always seen a mix of “pure voluntary” offsetting and pre-compliance motivations. Last year, suppliers reported that the bulk of transactions, around 70 percent, were driven by purely voluntary intentions.

    In 2010, suppliers reported a total volume of 131.2 MtCO2e transacted in the global voluntary carbon markets. Compared to the 98 MtCO2e transacted in 2009, volumes grew by 34% to exceed historic “over-the-counter” (OTC) and overall transaction volumes as tracked in our previous reports. As the global financial crisis gave way to recovery, voluntary buyers recommitted their discretionary income to offsetting emissions. At the same time, vastly different political circumstances in the US spelled the end of the CCX and shifted the majority of transactions to the OTC market. The OTC market last year transacted 127.9 MtCO2e, or 97% of global market share. Transactions collapsed on the CCX, which, due to the US Senate’s failure to secure a climate bill, ceased trading at the end of 2010. A single bilateral OTC transaction of CCX Carbon Finance Units (CFIs) totaling 59 MtCO2e substituted for collapsed exchange activity but will not likely be repeated. Even excluding this statistical outlier, OTC volumes were higher than in any previous year (68.7 MtCO2e).

  24. Vintage - The year in which the carbon reduction takes place

3. Business Case
  • In 2010, primary Certified Emission Reductions (CERs) market, which accounts for the bulk of project-based transactions, fell by double digits for a variety of reasons, including lower demand for credits and competition from more predictable assets (Assigned Amount Units and secondary CERs). The CDM market is now at its lowest level since the Kyoto Protocol entered into force in 2005, having dropped by 46% to an estimated US$1.5 billion in new project-based transactions. Similarly, other carbon markets also declined or stayed at their plateau. Nevertheless, cumulatively, primary offset transactions have reached almost US$30 billion since 2005 and are expected to have catalyzed much larger resources, mostly from the private sector.
    Carbon Market at a glance, Market Values,
    2004–10

  • In 2008, it cost European traders €31 to pump out a tonne of CO2 into the atmosphere, but today it will set you back about half that at €15. You will be hard pressed to find any financial wizard/pundit giving a sermon on a bullish carbon market in the near future- it’s just not happening anymore.

  • The World Bank estimates total value of the 2010 global carbon market to be US$142 billion. The report’s authors noted that several reasons help to explain the decline, including the continuing lack of clarity about the market after 2012 and the loss of political momentum on setting up new cap-and-trade schemes in several developed economies. Some buyers from industrialized countries, which in previous years had reached or surpassed targets, consequently made fewer purchases in 2010. As well, lingering effects of the recession in several industrialized countries led to lower greenhouse gas emissions, easing emissions reduction compliance obligations.

  • In 2010, the market volume and value of project based transactions fell by almost 50 percent from the previous year, to reach a total value of approximately $1.5 billion. The two-digit annual decline in the size of the market in the last three consecutive years (12 percent in 2008, 59 percent in 2009, and 46 percent in 2010) led the primary CER (pCER) market to its record low value since the entry into force of the Kyoto Protocol in 2005. Similarly, other carbon markets also declined or stayed at their plateau. Nevertheless, cumulatively, primary offset transactions have reached almost US$30 billion since 2005 and are expected to have catalyzed much larger resources, mostly from the private sector.

  • Primary CER transactions, which used to represent a significant portion of the global carbon market in previous years (up to 23 percent of the market in 2005 and 19 percent in 2006), account for barely 1 percent of the global market today.

  • In addition, the ban of offsets from hydrofluorocarbons (HFCs) and adipic acid N2O projects
    from Phase III will limit even further the number of CERs eligible for compliance in the EU ETS. A large portion of the CERs currently being issued are from these project types—407 million out of the 605 million CERs issued to date (67 percent).

  • The problem is further compounded because it takes on average about 670 days for project developers to get their projects registered yet there are only 631 days left until December 31, 2012. This strongly diminishes the hope that projects in the early stages of development will be able to get registered in time and generate EU ETS-eligible credit

  • North American Offset Prices: 2010–11 - In 2010, the expectations of the North American
    carbon market refocused from federal legislation to California’s cap-and-trade. Between January and July, prices for offset credits in the United States were driven by the signals from federal legislation of whether the credit was likely to be eligible for an anticipated federal cap-and-trade program. Between August and October, the market was mostly illiquid, but in November it was reawakened by the release of California’s cap-and-trade regulation.

    The Climate Reserve Tonnes (CRTs) issued by the Climate Action Reserve (CAR) were the first choice for sourcing early action credits in the federal bills that came through the 111th Congress, including the Waxman-Markey climate bill that passed the House of Representatives in the summer of 2010. Average prices lingered from January 2010 to July 2010 at $5.90/t for national forestry vintage 2009 CRTs, at $3.50/t for landfill gas vintage 2009 CRTs, and at $4.20/t for V11-12 CRT forwards from ozone depleting substance (ODS) projects.

    As Proposition 23 was voted down in November and the market gained confidence in the California cap and-trade scheme, the price for CRTs from U.S. forestry, livestock methane, and ODS projects converged into one “CARB eligible CRT” price at an average of $7.00/t, jumping approximately 40% by January to an average of $9.75/t. In February and March 2011, on the back of the court case of “Association of Irritated Residents v CARB” and market’s concern with the invalidation of CRT prices were once again down by approximately 17% to average of $8.10/t. CARB eligible CRT prices are expected to stay at this level until further developments in the court case.

  • In 2010, the Cancun Agreements formalized the commitment made by developed countries in Copenhagen to mobilize $100 billion a year by 2020 to address the mitigation and adaptation needs of developing countries. Importantly, the Cancun Conference decided to establish a “Green Climate Fund.” It is envisioned that the Fund will manage a portion of these
    additional resources.

  • The sources of funding are not yet clear. It is expected, however, that a portion of the $100 billion will come from private sources, which may be mobilized through carbon markets. Carbon finance and other financial instruments will be important for leveraging these funds to scale up the financing of mitigation and adaptation activities. Policy makers will need to ensure that market-based capacity is maintained in both the public and private sectors to ensure mobilization of the pledged climate finance.

  • Voluntary Market - While the volumes in the VCM remain miniscule, less than 0.3 percent of the global carbon markets, overall transaction volumes increased 28 percent between 2009 and 2010 . The global economic crisis that dampened demand for voluntary climate action in 2009 gave way to market growth as buyers sought credits from projects that reduce emissions from deforestation and forest degradation (REDD.

    Voluntary Market Prices and Volume
    Source: World Bank


    In 2010, suppliers reported a total volume of 131.2 MtCO2e transacted in the global voluntary carbon markets. Compared to the 98 MtCO2e transacted in 2009, volumes grew by 34% to exceed historic “over-the-counter” (OTC) and overall transaction volumes as tracked in our previous reports. As the global financial crisis gave way to recovery, voluntary buyers recommitted their discretionary income to offsetting emissions. At the same time, vastly different political circumstances in the US spelled the end of the CCX and shifted the majority of transactions to the OTC market.


    The OTC market last year transacted 127.9 MtCO2e, or 97% of global market share. Transactions collapsed on the CCX, which, due to the US Senate’s failure to secure a climate bill, ceased trading at the end of 2010. A single bilateral OTC transaction of CCX Carbon Finance Units (CFIs) totaling 59 MtCO2e substituted for collapsed exchange activity but will not likely be repeated. Even excluding this statistical outlier, OTC volumes were higher than in any previous year (68.7 MtCO2e).
    Source: Ecosystem Marketplace/Bloomberg New Energy - State of the Voluntary Carbon Markets 2011
    x
4. Benefits
  • The CDM & JI have reduced over 600MtCO2e of emissions and may achieve 3.3 billion tCO2e by end 2020.
  • There is now an established international market that penalises emissions and rewards reductions via prices that respond in real time to a changing world.
  • The use of market mechanisms can contribute to lower the cost of achieving sustainable goals, result in additional resources, and send a price signal to encourage less carbon-intensive lifestyles and investment decisions.

5. Risks/Issues
  • Subjectivity of Additionality - Addresses the question of whether the project would have happened anyway, even in the absence of revenue from carbon credits. Only carbon credits from projects that are "additional to" the business-as-usual scenario represent a net environmental benefit. Carbon projects that yield strong financial returns even in the absence of revenue from carbon credits; or that are compelled by regulations; or that represent common practice in an industry are usually not considered additional, although a full determination of additionality requires specialist review.

    Additionality testing is inherently subjective since it requires knowledge about a hypothetical future. Developers cannot 'prove' their own intentions, and external auditors (validators) cannot judge other’s motivations

    To avoid giving credits to projects that would have happened anyway ("freeriders"), rules have been specified to ensure additionality of the project, that is, to ensure the project reduces emissions more than would have occurred in the absence of the project. At present, the CDM Executive Board deems a project additional if its proponents can document that realistic alternative scenarios to the proposed project would be more economically attractive or that the project faces barriers that CDM helps it overcome. Current Guidance from the EB is available at the UNFCCC website.

  • Perverse Incentives - Because offsets provide a revenue stream for the reduction of some types of emissions, they can in some cases provide incentives to emit more, so that emitting entities can later get credit for reducing emissions from an artificially high baseline

  • HFC-23 Controversy - Hydrofluorocarbon-23 is a potent greenhouse gas (GHG) and an unwanted by-product in the production of HCFC-22, a refrigerant and temporary substitute to CFCs. HCFC-22 is both an ozone depleter and potent greenhouse gas and is being phased out under the Montreal Protocol. While there are only a handful HFC-23 destruction projects in the Clean Development Mechanism (CDM) they account for about half of all the CDM credits that have been issued so far.

    The CDM has proven extremely ineffective in addressing HFC-23 emissions. Without
    delivering any development benefits, credits from this project type have flooded carbon markets.
    None of the HFC-23 projects are located in Least Developed Countries.

    Even more troubling, these projects are undermining the phase-out of HCFC-22 under the
    Montreal Protocol and are seriously compromising climate mitigation goals: Estimates show that the destruction of HFC-23 costs as little as €0.17 per tonne of CO2e but the resulting credits can be sold for up to €12, some 70 times more than it costs to destroy the gas. In addition, the current HFC-23 destruction methodology (AM0001) has major loopholes that enable plants to over-produce HCFC-22 and HFC-23. The resulting exorbitant profit margins of these projects create a strong disincentive to shut down plants in the course of the planned HCFC-22 phase out under the Montreal Protocol.

    Moreover, HCFC-22 produced for feedstock purposes is not controlled under the Montreal Protocol and therefore the production of HCFC-22 for feedstock purposes can be increased for the purpose of increasing CER generation, undermining both climate and ozone protection goals

    The scale of the profits generated from CDM credits could have made it profitable to build whole new facilities just for the value of destroying the by-product. The initial reductions of industrial gas projects included large contributions from South Korea and Brazil, which were then followed by India and China.

    In response to this, the CDM Executive Board revised crediting to reduce the risk of perverse incentives. Critics of the CDM have stated that it would cost only €100 million to pay producers to capture and destroy HFC 23 compared with €4.6 billion in CDM credits, yielding what they believe are excessive profits to the sellers and middlemen. Carbon Trust argued that criticizing the CDM for finding low-cost reductions seemed perverse. They also argued that addressing the problem with targeted funding was easy with hindsight, and that before the CDM, these emission reduction opportunities were not taken.

    The scale of profits generated by HFC-23 projects also threatened distortions in competitiveness with plants in industrialized countries that had already cleaned up their emissions. In an attempt to address concerns over HFC-23 projects, the CDM Executive Board made changes in how these projects are credited. According to the Carbon Trust, these changes effectively ensure that: the potential to capture emissions from these plants is exploited; distortions are reduced; and the risk of perverse incentives is capped. Industrial gas projects, like those limiting HFC-23 emissions, are expected to contribute 20% of the CDM reduction in emissions to 2012.

    In mid-2010 the CDM Executive Board temporarily halted issuance of Certified Emission Reductions (CERs) from hydrofluorocarbon (HFC-23) projects over baseline concerns. As concerns revealed not to be substantiated, issuance resumed at the end of the year. Nonetheless, the European Commission soon thereafter proposed qualitative restriction in the EU ETS of carbon offsets related to CDM industrial gas projects. The proposal was adopted by the European Member States, which in January 2011 confirmed the ban of CERs from HFC and nitrous oxide (N2O) adipic acid projects starting, in 2013.

    A promising solution would be to simply pay for the costs of HFC-23 incineration in all HCFC-22 production plants in developing countries. The ideal implementing body for this action would be the Montreal Protocol on Substances that Deplete the Ozone Layer, which currently regulates the production of HCFCs. Its long history of successful technology transfer within this field means that it could simply use its existing compliance network to effect this transition.

    Disgusted with the payments, the European Union has announced that as of next year it will no longer accept the so-called waste gas credits from companies in its carbon trading system — by far the largest in the world — essentially declaring them counterfeit currency. That is expected to erode their value, but no one is sure by how much.

    “Consumers in Europe want to know that if they’re paying for carbon credits, they will have good environmental effects — and these don’t,” Connie Hedegaard, the European commissioner for climate action, said in an interview.

    Likewise, the United Nations is reducing the number of credits the coolant companies can collect in future contracts. But critics say the revised payment schedule is still excessive and will have little immediate effect, since the subsidy is governed by long-term contracts, many of which do not expire for years.

    Even raising the possibility of trimming future payments “was politically hard,” said Martin Hession, the immediate past chairman of the United Nations Clean Development Mechanism’s executive board, which awards the credits. China and India both have representatives on the panel, and the new chairman, Maosheng Duan, is Chinese.

    Carbon trading has become so essential to companies like Gujarat Fluorochemicals Limited, which owns a coolant plant in this remote corner of Gujarat State in northwest India, that carbon credits are listed as a business on the company Web site. Each plant has probably earned, on average, $20 million to $40 million a year from simply destroying waste gas, says David Hanrahan, the technical director of IDEAcarbon, a leading carbon market consulting firm. He says the income is “largely pure profit.”And each plant expects to be paid. Some Chinese producers have said that if the payments were to end, they would vent gas skyward. Such releases are illegal in most developed countries, but still permissible in China and India.

  • Coal Plant Controversy - In July 2010, the Guardian reported that 12 companies have applied to the UN for hundreds of millions of emission reduction credits to subsidise "efficient" coal-fired power stations in China and India. Many of the plants would be paid for with carbon offsets bought by British and European companies in lieu of cutting their own emissions, effectively channeling billions of pounds of public money to giant energy companies to build 20 polluting coal-fired power plants on the basis that they will emit less carbon dioxide than older ones. If, as expected, the power company applications are approved by the UN Framework Convention on Climate Change (UNFCCC), they will earn around £3.5bn at current carbon market prices, making the UN body set up to promote clean energy and reduce global climate emissions one of the world's largest provider of funds for new coal burning instead.

    The rush by companies to take advantage of the UN's Clean Development Mechanism (CDM) subsidies follows the successful application for credits by the Indian Adani coal group for two large power stations at Mundra in Gujarat, India. Adani will earn around £25m a year for the lifetime of its power stations in return for using "super-critical" technology, which burns the coal at lower temperatures and emits up to 30% less carbon dioxide than conventional power plants.

  • Offset Scams - Carbon offsets are difficult to measure, but they are worth real money. The incentive to cheat will be in the billions of dollars. In addition to the “carousel” value-added tax (VAT) fraud that surfaced in 2009, the last 18 months witnessed the sale of recycled CERs, phishing attempts on Germany’s national registries and a series of subsequent cyber-thefts that undermined the European market, highlighting security shortcomings and increasing the urgency of stakeholders’ pleas to strengthen infrastructure.

  • High Administrative Costs - Less than 30 percent spent on some carbon offset schemes goes directly to projects designed to reduce emissions. The figures reported by the BBC and based on UN data reported that typically 28% goes to the set up and maintenance costs of an environmental project. 34% goes to the company that takes on the risk that the project may fail. The project's investors take 19%, with smaller amounts of money being distributed between organisations involved in brokering and auditing the carbon credits.

    The classical structure of CDM uses a project-by-project process for registering and verifying projects. This approach involves very high transaction costs, a long time to market, and a high risk of non-registration. It is also very difficult to implement such a process in least developed countries and small island states where average project sizes and the scale of national markets tend to be smaller, so relative transaction costs are higher. In order to reduce transaction costs in CDM and expand the mechanism’s applicability to micro project activities, the CDM Executive Board launched the Programme of Activities modality.

    The major area of improvement and reform of the CDM is arguably the introduction of standardized baselines and monitoring methodologies. These decisions are aimed at maintaining environmental integrity, but reducing transaction costs, enhancing transparency and redictability, and facilitating access to underrepresented project types and regions.

  • Carbon Market Fraud - Exchanges after reports of stolen carbon credits created safety messures to make the SPOT trading safe. In April 2011, Bluenext announced a Safe harbour initiative. In March 2011, Commodity Exchange Bratislava opened the Suspicious carbon credits registry. SCC Registry asks emitters to report the stolen credits as soon as possible.
    • January 2011—Discovery of an EU ETS-wide theft of €45 million worth of EU allowances leads to the closure of national carbon registries, the suspension of spot trade, and the implementation of an EU-wide upgrade of registry security.
    • November 2010—Incident of unauthorized access to EU ETS registry accounts in Romania results in the theft of 1.6 million EUAs.
    • November 2010—German Registry closes due to Trojan virus Nimkey.
    • March 2010—Hungary sells CERs that had already been surrendered to it under the EU’s emissions trading scheme. In response, the EU amends the registry regulations to prevent CER recycling.
    • September 2009—European Commission proposes measures for a consistent response to deal with VAT or carousel fraud detected in the market in 2009–10.
    • January 2009—The widespread phishing attacks on users of EU ETS registries prompts the EU to revise Internet security guidelines.

  • Money Laundering -transactions that are undertaken to hide the true sources of the money. Usually the money involved is earned from illegal sources and is laundered to give the appearance of coming from a legitimate source.

    A speculation and concern of carbon market participants is that money laundering exists in the market. This speculation is based on the ease of transfer of allowances between registry accounts held in different countries, while avoiding mandatory reporting requirements, because no threshold reporting limits are triggered. However, at the time of writing the authors are unaware of any substantiated cases of money laundering. The EC plans to address money laundering and other issues as part of a wide-ranging review of the market oversight framework of the EU ETS.

  • Inaccurate Biofuel GHG Accounting - Under international accounting rules significant emissions from bioenergy are not being accounted for, meaning that bioenergy is not fulfilling its potential as a climate mitigation tool and in some cases emits more carbon than fossil fuels.

    According to existing IPCC guidance, greenhouse gas emissions from bioenergy are not counted as emissions in the energy sector. Rather, the guidance assumes that bioenergy emissions will be reflected in accounting in the Land Use, Land Use Change and Forestry (LULUCF) sector. The guidance therefore relies on the assumption that emissions associated with the production of biomass energy feedstocks are accurately accounted for by the country of origin in its sector of origin i.e. the LULUCF sector. However, in the first commitment period of the Kyoto Protocol, accounting for emissions and removals from land management activities in the LULUCF sector is voluntary for Annex I countries. These activities are: forest management, cropland management, grassland management, and revegetation. Of these, forest management and cropland management activities lead to the production of bioenergy feedstocks.

    As a result, in the first commitment period, emissions attributable to biomass energy production and use in developed countries are not necessarily accounted for in either the energy or the LULUCF sector. New LULUCF accounting rules for forest management being considered under the AWG-KP for the second commitment period would see accounting for emissions from forest management become
    mandatory. However, these rules have been designed in such a way as to still allow Annex I countries to avoid responsibility for the impacts of bioenergy production and use on the atmosphere. Misinterpretation of this IPCC accounting convention has led to a widely held but scientifically inaccurate assumption that all bioenergy emissions should be treated as “carbon neutral.” This assumption underlies a wide range of current policies subsidising and otherwise favouring bioenergy. In reality, greenhouse gas emissions from biomass cultivation, harvest, processing, and combustion do have a net impact on climate. The failure to account for bioenergy emissions (in whole or in part) thus creates a perverse incentive for expansion of bioenergy production and utilization when it may create as many or more emissions than fossil fuel

  • Post 2012 Uncertainty -

  • Indulgence Controversy - Some activists disagree with the principle of carbon offsets, likening them to papal indulgences, a way for the guilty to pay for absolution rather than changing their behavior. George Monbiot, an English environmentalist and writer, says that carbon offsets are an excuse for business as usual with regard to pollution. Opponents hold that the indulgence analogy is flawed because they claim carbon offsets actually reduce carbon emissions, changing the business as usual, and therefore address the root cause of climate change.

  • Indirect Offsets - Renewable Energy Credits (RECs) are also sometimes treated as carbon offsets, although the concepts are distinct. Whereas a carbon offset represents a reduction in greenhouse gas emissions, a REC represents a quantity of energy produced from renewable sources. To convert RECs into offsets, the clean energy must be translated into carbon reductions, typically by assuming that the clean energy is displacing an equivalent amount of conventionally produced electricity from the local grid. This is known as an indirect offset because the reduction doesn't take place at the project site itself, but rather at an external site. Some controversy surrounds the question of whether they truly lead to "additional" emission reductions and who should get credit for any reductions that may occur.

6. Success Criteria
  • Ways to improve the access of under-represented regions in the CDM are particularly important in the face of the EU’s decision to restrict CERs from CDM projects registered after December 31, 2012 to those generated by projects located in least developed countries (LDCs). A significant change is needed in order to be able to scale up the virtual absence of LDC projects from the CDM pipeline.

  • The EU and other Parties are advocating the creation of new and more ambitious sectoral mechanisms that make it possible to tap into far greater emissions-saving potentials and provide
    more revenue for financing reductions in developing countries. Because only actions that go beyond a previously defined threshold or target are credited, this would ensure net benefits to the atmosphere.

  • Sectoral mechanisms and the CDM could co-exist but the CDM should increasingly focus on less developed countries, where it should continue to target low cost options for saving emissions. For the major emerging economies in the developing world, the CDM should gradually be replaced by new sectoral mechanisms.

  • At the the COP14 meeting in December 2008 held in Poznan, Poland,The Climate Action Network International (CAN), argued that "Extensive analysis clearly shows that a substantial proportion of CDM projects are non-additional. This non-additionality, combined with the reliance of many industrialized countries on the CDM to meet their Kyoto targets, causes the CDM to significantly undermine efforts to cut global GHG emissions. CAN argued that "the only solution to these problems is to completely replace or substantially restructure the CDM in the post-2012 regime" and that a new body or a reformed CD should:
    • "not be a mechanism that allows Annex I countries to offset their emission reduction obligations. Instead, industrialized countries must provide financial and technological support to developing countries in a way that is independent from and additional to their domestic emission reduction targets;"
    • "a restructured CDM also must cease to rely on the ability to test the additionality of each individual project, which is simply not feasible to do accurately. In the interim, it will be important to avoid the negative aspects of the CDM, such as lack of a requirement for projects to meet internationally accepted sustainable development criteria; the distorted geographical spread of project activities; the conflict of interest of project validators and EB members; and perverse incentives associated with HFC-23 and N2O destruction project

  • CAN also outlined proposals by some NGO's on reforms of the CDM. These included that:
    "it is imperative to remove the current conflict of interest where the validators are selected and paid by the project participants. In the future, this should be done by the UNFCCC secretariat or another appropriate UNFCCC body."
    • "the current arbitrary assessment of the additionality of CDM projects ... should be replaced by a set of more objective rules, such as clear definitions of “common practice” and of what constitutes a “barrier.”
    • "the CMP should decide that all CDM projects must meet the social and environmental standards laid out in the CDM Gold Standard" and that "the assessment of the sustainable development contribution of a project should be undertaken by an independent institution such as, for example, the validators (if selected and paid by UNFCCC)".
    • "The role of the CDM Executive Board should be changed so that a permanent professional body reporting to the EB is responsible for the day-to-day operation of the CDM. The current structure, where a parttime EB meets every one or two months for a couple of days to discuss dozens of requests for project reviews and numerous proposals for methodologies is inadequate."
    • "the CMP should adopt a code of conduct for CDM Executive Board members that clarifies what constitutes a conflict of interest and ensures that Board members do not participate in discussion and decisions where they may have a conflict of interest."
    • "the CMP should require that CDM Executive Board members do not work for a Designated National Authority (DNA), a validator or for an institution engaged in the CDM market."

7. Case Studies
  • Mexico CFL PoA - To deploy 30 million compact fluorescent light bulbs (CFLs) in Mexico was approved in 2009. Under the project designed by energy efficiency project developer Cool nrg, the CFLs will be distributed in phases over the next two to three years with the aim of generating up to 7.5 million CERs. Dutch firm Eneco Energy Trade B.V. has agreed to buy the CERs in a deal brokered by TFS Green. Spot CERs traded at around 12.95 euros a tonne on Monday.

    The Mexico project plans to have 30 CDM program activities, to ensure full deployment of the 30 million CFLs. Strict monitoring of households and limiting the number of CFLs to each home were key parts of the design. Each household would receive four CFLs, and details such names and addresses and utility bill numbers taken for tracking. People also need to bring four old incandescent bulbs and exchange them, so this creates a barrier to stockpiling CFLs, As part of the ongoing monitoring, a sample of households is surveyed to see the proportion of CFLs that are in operation.
  • California - In Dec 2010, CARB approved four U.S. based project types—urban forestry, forestry, livestock methane, and ODS—to generate offsets for California’s capand-trade system. In order to ensure supply of offsets at the start of the program in 2012, the legislation allows early supply of CRTs from the above listed project types with vintages 2005–14, as long as the project started prior to 2012. Offsets from jurisdictions under the Western Climate Initiative may also be accepted, but Certified Emission Reductions (CERs) from the Clean Development Mechanism (CDM) are not eligible. CARB’s regulations suggest a cumulative demand of 233 million tonnes of offsets from 2012 to 2020, or 8.7% of the total cap. To forecast supply, Thomson Reuters Point Carbon included projections from four project types CARB has approved. The projections also included REDD supply from Acre, Brazil and Chiapas, Mexico, and from U.S. based agricultural sequestration (cropland management and nutrient management), protocols for which CARB is likely to consider next for inclusion. The supply estimates show that there will not be enough offsets to meet the maximum theoretical demand in any of the scheme’s 3 phases, resulting in a cumulative offset shortage of 68Mt.

  • California's system, which will be linked to other regional schemes within the United States and Canada, will allow offsets equal to 8 percent of total volume. The most favored source of international offsets is REDD+. The eligibility criteria for REDD+ offsetsto enter the California system (such as baseline, social, and environmental safeguards) are still to be defined, but it is likely that preference will be given to offsets produced by states that have signed memoranda of understanding with California (so far, Acre from Brazil and Chiapas from Mexico)

  • In the wake of a lawsuit filed by environmental groups, California will delay enforcement of its greenhouse gas cap-and-trade program by one year to give the state more time fine-tune the scheme.  The head of the California Air Resources Board (CARB) said in June 2011 that polluters wouldn't have to comply with the emissions trading program until 2013, but it would still begin in 2012.  "We will be testing the system, doing simulation models, but no one will be held accountable during that year for compliance," CARB Chairwoman Mary Nichols told legislators Wednesday, ClimateWire reported. "But at the end of 2014, people will still be where they would have been if the program had started on time ."

  • The initial 2013-2014 compliance phase covers only the electricity sector and large industrial facilities, such as oil refineries and cement manufacturers. Distributors of transportation fuels (including gasoline and diesel), natural gas, and other fuels are included in the second (2015-2020) phase. Ultimately 360 businesses representing 600 facilities will be covered under the program.

  • The California program design that will help manage allowance price fluctuations and guard against substantial deviations from the expected cost of the program,” including:
    • Banking – Emissions allowances can be saved and used in later years, providing an incentive to take advantage of low cost-opportunities when they become available. Burtraw said that also should dampen price fluctuations from potential short-run fluctuations in emissions.

    • Offsets – The plan includes an ability to use emissions offsets from emissions sources not covered by the cap,such as forestry management, which should expand compliance options “and soften any price swings.”

    • Price Collar – The price collar includes a hard price floor and a soft price ceiling for allowances. Burtraw said the collar “is designed specifically to constrain fluctuations in allowance prices” and “reflects the best available information about how to design a cap and trade program.”

8. Companies/Bodies
  1. AIE - Accredited Independent Entity - Independent auditors that assess whether a potential project meets all the eligibility requirements of the JI (determination)
    and whether the project has achieved greenhouse gas emission reductions (verification.

  2. CAN - Climate Action Network, Washington, DC - A global network of over 700 NGOs in 95 countries working to promote government and individual action to limit human-induced climate change to ecologically sustainable levels.

  3. CCX - Chicago Climate Exchange- Was North America’s only voluntary, legally binding GHG reduction and trading system for emission sources and offset projects in North America and Brazil. CCX employed independent verification, included six greenhouse gases, and traded greenhouse gas emission allowances from 2003 to 2010. The companies joining the exchange committed to reducing their aggregate emissions by 6% by 2010. CCX had an aggregate baseline of 680 million metric tons of CO2 equivalent. The effective final CFI position was reached in November 2010 when the carbon credit price per metric ton of CO2 was between 10 and 5 US Cents, down from its highest value of 750 US Cents in May 2008. Trading reached zero monthly volume in February 2010 and remained at zero for the next 9 months when the decision to close the exchange was announced.

    Until July 2010, CCX was operated by the public company Climate Exchange plc, which also owned the European Climate Exchange (ECX). IntercontinentalExchange (NYSE: ICE), a leading operator of regulated global futures exchanges, clearing houses and over-the-counter (OTC) markets purchased Climate Exchange plc. in July 2010, followed by an announcement that half of the company's Chicago-based workforce would be laid off due to inactivity in the U.S. carbon markets. In November 2010, the Climate Exchange stated that it would cease trading carbon credits at the end of 2010, although carbon exchanges will still be facilitated.

  4. COP/MOP (or CMP) - The Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol. The Conference of the Parties refers to the Parties to the UNFCCC. The meeting of the Parties refers to the Parties to the Kyoto Protocol. The CMP:
    1. Has authority over and makes rules for the CDM
    2. Decides on the recommendations made by the Executive Board and
    3. Designates operational entities that are provisionally accredited by the Executive Board.

  5. CDM-EB - CDM Executive Board - Approves CDM projects, certifies operational entities and will issue carbon credits for CDM projects.

  6. CDM-AP - CDM Accreditation Panel - Established to support the Executive Board in the accreditation of designated operational entities and related functions. The CDM Accreditation Panel makes recommendations to the Executive Board regarding:
    1. The accreditation of an applicant operational entity (AOE)
    2. The suspension of accreditation of a designated operational entity (DOE)
    3. The withdrawal of accreditation of a designated operational entity
    4. The re-accreditation of a designated operational entity (EB 3, Annex 1, paragraph 4)

  7. CDM-AT - CDM Assessment Teams - Ad hoc teams established to undertake assessments of applicant entities (AEs) seeking accreditation and designation. CDM- AT's prepare assessment reports of AEs for the CDM Accreditation Panel and conduct spot-checks of designated operational entities (DOEs) to ensure ongoing compliance with the CDM rules. CDM AT's are chosen by the CDM-AP according to the relevance of their experience in relation to the scope of the assignment and taking into account issues of consistency of assessment.

  8. DNA - Designated National Authority - The body granted responsibility by a Party to authorize and approve participation in CDM projects. Establishment of a DNA is one of the requirements for participation by a Party in the CDM. The main task of the DNA is to assess potential CDM projects to determine whether they will assist the host country in achieving its sustainable development goals and to provide a letter of approval to project participants in CDM projects. This letter of approval must confirm that the project activity contributes to sustainable development in the country. It is then submitted to CDM Executive Board to support the registration of the project.


  9. DFP - Designated Focal Point - Parties participatingin the Joint Implementation (JI) mechanism are required to nominate a DFP for approving projects.

  10. DOE - Designated Operational Entity - An independent auditor accredited by the CDM Executive Board (CDM EB) to validate project proposals or verify whether implemented projects have achieved planned greenhouse gas emission reductions. More specifically, the two key functions of DOEs are:
    1. Validation: assessing whether a project proposal meets the eligibility requirements and subsequently request registration of the project by the CDM EB (validation). The registration will be considered valid after 8 weeks if no request for review is made.
    2. Verification/Certification: verifying emission reductions from a project, certify as appropriate, and recommend to the CDM EB the amount of Certified Emission Reductions (CERs) that should be issued. The issuance will be considered final 15 days after the request unless a request of review is made.

    Usually, for large scale projects, a DOE may only conduct either validation or verification of the same project. However, upon request, the CDM EB may allow a single DOE to perform both functions.
    DOE Accreditation Procedure

  11. Emission Markets - There are six exchanges trading in carbon allowances: the Chicago Climate Exchange (up to Dec 2010), European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange. At least one private electronic market has been established in 2008: CantorCO2e.

  12. Gold Stardard Foundation, headquartered in the BASE (Basel Agency for Sustainable Energy) offices in Basel, Switzerland, with offices in Geneva, Rome and San Francisco. (Wikipedia) - The world's only independent standard for creating high-quality emission reductions projects in the CDM, JI, and Voluntary Carbon Market. It was designed to ensure that carbon credits are not only real and verifiable but that they make measurable contributions to sustainable development worldwide. Its objective is to add branding, a label to existing and new Carbon Credits generated by projects which can then be bought and traded by countries that have a binding legal commitment according to the Kyoto Protocol.

  13. Meth Panel - Methodologies Panel - Advises the Executive Board on a range of issues relating to baseline and monitoring methodologies. The role of the Meth Panel includes:
    1. Advising on proposals for new baseline and monitoring methodologies;
    2. Selecting experts to undertake desk reviews;
    3. Advising on options to expand the applicability of methodologies;
    4. Creating tools to assist project participants to choose appropriate methodologies; and
    5. Revising the sections of the project design document (PDD) relating to baselines and monitoring.

  14. RIT - Registration and Issuance Team - Established to assist the Executive Board to consider requests for registration of project activities and requests for issuance of CERs submitted to the Executive Board by designated operational entities (DOEs) The RIT assists the Executive Board , by:
    1. Preparing appraisals of requests for registration submitted by DOEs (including submissions received from project proponents and DOEs in response to request for review) assessing whether the validation requirements are met and/or appropriately dealt with by DOEs;
    2. Preparing appraisals of requests for issuance of CERs submitted by DOEs (including submissions received from project proponents and DOEs in response to request for review) assessing whether the verification and certification requirements are met and/or appropriately dealt with by DOEs; and
    3. Preparing appraisals of requests submitted to the Board under any other procedure established by the Board requiring input from the RIT
    4. Including in the above assessments any policy issues of significant importance raised by the request for registration or issuance, for consideration by the Board.

  15. VSC Association, Washington, DC - An independent, non‐profit organization that manages the Voluntary Carbon Standard (VCS) is a quality standard for voluntary carbon offset industry. Based on the Kyoto Protocol's CDM, VCS establishes criteria for validating, measuring, and monitoring carbon offset projects.

    As of June 2011
    • VCUs issued - 59,915,470
    • VCUs retired - 8,889,045
    • Projects registered - 630
    • Projects with VCUs issued - 479
    • Projects without VCUs issued - 151
    • Projects registered privately - 24

9. Links
  1. CDM Rulebook - The definitive online database of the CDM rules. It has been developed by Baker & McKenzie, with funding from eight donor organisations, and is now freely available to the public. Users new to the CDM should begin with the annotated Article 12 section or the Overview of the CDM. More experienced users can navigate directly to the relevant section, using the home page's flowchart, tabs or the search function.

  2. Ecosystem Marketplace/Bloomberg New Energy - State of the Voluntary Carbon Markets 2011 Molly Peters-Stanley, Katherine Hamilton, Thomas Marcello, and Milo Sjardin June 2011. Tracked a record volume of voluntary carbon credit transactions (131 MtCO2e) -- much of which consisted of private sector investments in forest conservation.

  3. In contrast, the World Bank's State and Trends of the Carbon Market 2011 report -- also released June 2011 -- revealed stagnation and uncertainty in the compliance markets, partly due to a lack of motivation among developed countries to pursue national market-based solutions.

  4. Sourcewatch - Clean Development Mechanism