{ "docId": "019dd923-5e88-73ef-bd59-6131f37efc2b", "docSlug": "71b5b657f034a972", "documentTitle": "ey net zero centre carbon offset publication 20220530", "authorId": "MorganStanley", "authorName": "Grantham Research Institute", "documentKindSlug": "consulting-deck", "documentKindLabel": "Consulting deck", "sourceTypeSlug": "equity_research", "sourceTypeLabel": "Equity research", "presentationDate": null, "orientation": "portrait", "aspectRatio": 0.707, "pageNumber": 8, "pageCount": 45, "prevPage": 7, "nextPage": 9, "slideType": "appendix_methodology", "function": "diagnose", "density": "dense", "nDataPoints": 0, "notes": "This page appears to be an excerpt from a larger academic or policy report, focusing on the limitations of CDM project assessment methodologies.", "elementsJson": [ "paragraph" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-5e88-73ef-bd59-6131f37efc2b/8", "deckHref": "/decks/019dd923-5e88-73ef-bd59-6131f37efc2b", "deckJsonHref": "/decks/019dd923-5e88-73ef-bd59-6131f37efc2b.json", "deckAnchorHref": "/decks/019dd923-5e88-73ef-bd59-6131f37efc2b#slide-8", "components": [ { "bbox": null, "kind": "callout", "text": "It is critical that CDM projects are in fact marginal, since they receive CER credits that are used to relax someone else's emissions quota.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-340a-72a9-845a-7b131fe541c2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.03, "w": 0.78, "x": 0.11, "y": 0.09 }, "kind": "paragraph", "text": "dam or a wind farm, for instance, would start receiving its approved allotment of CERs as soon as a third-party verifies that it has begun generating electricity.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "119fd96f-b926-461f-9e26-5a706bf28229", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.02, "x": 0.49, "y": 0.93 }, "kind": "paragraph", "text": "6", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5c30c5ff-17fe-40a6-931c-0ed1dd7d5468", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.21, "w": 0.78, "x": 0.11, "y": 0.66 }, "kind": "paragraph", "text": "This raises clear issues of accountability and regulatory governance. However, the absence of evidence that projects are marginal that previous studies have pointed to is not the same as providing evidence that they are infra-marginal. The most notable direct evidence of infra-marginal projects concerns the potent greenhouse gas HFC-23, which is a by-product in the production of some refrigerants. Wara (2007b,a), Schneider (2011), and Schneider and Kollmuss (2015) persuasively show that Chinese and Russian refrigerant factories were running over-time just to produce more of this by-product, since the destruction of this highly potent greenhouse gas allowed them to claim CERs that were much more valuable than the refrigerant being manufactured. Once the problematic projects were identified, regulators could easily ban polluters from using these specific credits for compliance purposes.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7d249660-e9f6-4ffe-bc25-d61543ee3ed2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.78, "x": 0.11, "y": 0.13 }, "kind": "paragraph", "text": "It is critical that CDM projects are in fact marginal, since they receive CER credits that are used to relax someone else's emissions quota. If CDM projects are marginal, the CERs represent emissions reductions that are generated elsewhere, reducing abatement costs without compromising progress towards meeting global emissions reduction targets. However, if projects are infra-marginal, global emissions increase. The regulatory problem is the same as any subsidy program—the regulator's objective is to avoid supporting infra-marginal projects.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a629b902-e357-4331-ae51-35818358b685", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.22, "w": 0.78, "x": 0.11, "y": 0.25 }, "kind": "paragraph", "text": "The CDM Executive Board applies a set of standardized methodologies to determine whether or not a project is marginal. For renewable energy projects, the principle is straightforward. Calculate the project's internal rate of return with and without the extra revenue that would come from selling CER credits. If the internal rate of return with CER revenue exceeds a benchmark rate, but the rate without CER revenue does not, the project is judged to be marginal. The CER revenue is estimated by multiplying the electricity that would be generated by a \"business as usual\" emissions factor. Most projects use a factor equal to the generation-weighted average carbon dioxide emissions per unit of net electricity generation from all generating power plants serving the same regional grid (tCO2/MWh). The assumption is that the new project would replace an equivalent amount of \"business as usual\" generation capacity, avoiding the associated emissions.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b12c11af-55a2-48d4-98ec-f94757fe2ea3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.17, "w": 0.78, "x": 0.11, "y": 0.48 }, "kind": "paragraph", "text": "This approach to assessing the \"additionality\" of projects has a number of problems. First, it is difficult to objectively estimate or evaluate internal rates of return. In practice the PDDs frequently rely on subjective arguments or neglect to provide the underlying data used in their calculations (Schneider, 2009). Even when detailed information is available and analysis has been performed, the results are not verifiable by the authorities in charge of CDM registration (Michaelowa and Purohit, 2007). Second, even if all the information was correct and verifiable, the methodology itself builds in incredibly strong assumptions about the growth of renewable power (or more accurately, the lack of growth) in the absence of CER credits.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b58dd945-34bf-4289-b953-7fc198e5204f", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }