Main ResultsThe study evaluated five boiler conversion projects in Estonia (Aardla-Tartu, Haabneeme, Türi, Valga and Võru), four boiler conversion projects in the Czech Republic (Kardašova Recice, Mratokin, Staré Mesto and Velesin), two combined building energy efficiency projects in Estonia (at Mustamäe), a cogeneration project in the Czech Republic (Decín) and two electricity supply projects, one in the Czech Republic (Jeseník) and the other in Latvia (Lettland). A range of possible baselines was established for each project, and the critical accounting variables (emissions reductions, specific emissions reductions, incremental costs and specific incremental costs) were evaluated for each project against each baseline.
Evaluation of Critical Accounting Variables
Calculated values for emission reductions and specific emission reductions from the case study projects varied considerably according to the different assumptions adopted in the accounting procedures. Typically, low estimates are less than 50% of the high estimates. In particular, the variability associated with different baseline assumptions was dramatic. There are generally several reasonable options for baseline choice for any given JI project, involving the use of different technologies and fuels; differences in the timing of changes in such factors; and different assumptions about the project lifetime. Figure S.1 illustrates this variability for selected case study projects.
Figure S.1 – Specific Emission Reductions for Selected Case Study Projects (tonnes of carbon dioxide equivalent per megawatt hour of output)In addition to the counterfactual uncertainty associated with the choice of baseline, a number of other factors can influence the values of critical accounting variables. These factors include the technical performance of the project (including the impact of changing local demand on the output of the plant), uncertainty in engineering measurement parameters, uncertainty in background factors (such as fuel prices) and variability in discounting procedures or discount rates.
An assessment of the five Estonian boiler conversion projects shows that the uncertainty from all sources in evaluating emissions reductions is ± 115%. The study has also shown that these uncertainties can be reduced to around ± 80% by using monitoring-based data in place of feasibility study data to calculate the emission reductions, and the recommendation to use measured data when assigning emission reduction credits is a key policy conclusion from this work.
Standardisation plus Safeguards – Towards the Management of Uncertainty
In view of the significant uncertainties associated with JI project evaluation, and the incentives for gaming which these uncertainties present, this study has proposed an approach to the operationalisation of JI which combines the use of standardised assessment procedures with the introduction of specific institutional safeguards.
Four standardised baseline types have been formulated. Type 1 baselines make simple assumptions about the plant which has been replaced and the separability of the JI project from the rest of the energy system; but compensates for these simplistic assumptions by using a short crediting life. Type 2 baselines also assume separability but include more complex assumptions about the timing of replacement plant over a longer crediting life. Type 3 baselines adopt an average mix for situations where the replaced plant is difficult to define explicitly, and again incorporate the possibility of revising this mix to account for unforeseen changes in technology over time. Type 4 baselines are constructed from an average of other baseline types.
The use of such standardisation procedures has the advantage of reducing the potential for gaming by JI participants, but does not altogether eliminate the risk of compromising the environmental objectives of the Convention. To reduce that risk, a number of possible institutional safeguards have been suggested. These include:
Typically, it has been argued, the operational form of a particular JI situation should be defined by a "package" of measures which includes a combination of standardised assessment and institutional safeguards. Each such package (and each such situation) is likely to perform differently with respect to environmental effectiveness, equity and economic efficiency, and must be evaluated separately to determine their success or failure in meeting these objectives.
- the use of project approval criteria and verification procedures
- a supplementarity cap
- baseline revision
- limited crediting lifetimes
- the use of operating data (rather than feasibility data) for crediting purposes
- discounting emission reductions
- verification of existence, operation and output
- partial or discounted crediting
- environmental and social assessment
Environmental and Social Assessment of Case Study Projects
It has proved difficult to make a comprehensive retrospective assessment of the selected case study projects, partly because of problems in attaining sufficient data. Nevertheless, it is estimated that there has been no significant change between the reference and the project in many impact categories. These categories include water, land use, soil, visual impact, noise, forestry, energy consumption and socio-economic aspects.
The main benefits from the selected projects include: significant reductions in sulphur dioxide and nitrogen oxide emissions – by at least an order of magnitude in certain project types; and reductions in particulate emissions for conversions from coal to gas or biomass. The main disbenefits include: some increases in carbon monoxide emissions for conversions from oil to biomass; increases in waste production for oil or gas conversions to biomass; increases in transport requirements for some biomass conversions.
In some cases, it has been clear that environmental or social benefits which are deemed secondary in terms of the aims of the FCCC have in fact been the principal motivation for local involvement in the projects.
Accreditation of JI Projects
This study has identified a number of important considerations in defining appropriate crediting regimes for JI projects. In the first place, it has become clear that credits for JI projects should be awarded on the basis of annually monitored operating data not feasibility data. Ex post crediting of this kind can substantially reduce the uncertainty associated with emissions reductions from JI projects. Next, it has become clear that partial crediting (or some form of discounting of credits) offers several advantages in operationalising JI. Specifically, partial crediting could be used:
Credit-sharing between the donor and host may be considered for two reasons: firstly, to reward the host if it decides to contribute to the investment costs of the JI project; and secondly, to compensate the host in the event of the JI project causing unforeseen negative local social and environmental effects.
- to compensate for counterfactual uncertainty;
- to reduce the leeway for gaming by JI participants;
- to penalise donors for negative local social and environmental effects;
- to provide an incentive for greater domestic action; and
- to compensate for interim period banking, or early crediting (see below).
Early crediting (or interim period banking), as currently allowed under Article 12 of the Kyoto Protocol, creates a disincentive to take domestic action or to engage in Article 6 JI, effectively relaxes donor country targets, and leads to emissions leakage which risks compromising the environmental objectives of the Convention. Extending early crediting to A6JI would not only exacerbate this leakage effect but would also create problems of distributional equity. A quantitative analysis reveals that partial crediting (using a crediting fraction between 40% and 70%) can be used to counteract the deleterious effect of interim period banking.
Holistic Evaluation of JI
The principal justification for the use of "flexibility mechanism" in global climate policy has been the argument from economic efficiency. However, it is clear that there are other crucial objectives informing policy under the FCCC. First and foremost, the Convention operates under an over-arching environmental objective; next, it requires clear commitments to inter- and intra-generational equity; additional objectives concern, for example, the diffusion of technology and the development of institutional capacity in less-developed countries. It might legitimately be argued that policy objectives from outside the Convention are also influencing policy within the Convention. So, for example, some of the attraction for flexibility mechanisms like JI arises from ideological commitments to trade liberalisation.
It is typical of multi-objective contexts, such as those exemplified by JI, that conflicts arise between different objectives. The analysis carried out in this study confirms that the existence of underlying conflicts has dogged both the development of JI and the implementation of climate policy from the earliest days. This study has argued that these conflicts are unlikely to be resolved except through explicit identification of the tradeoffs involved in individual situations.
This study has shown further that different operational forms of JI perform differently with respect to the underlying objectives. Some operational forms seem to offer clear advantages in terms of economic efficiency, and appear more attractive to market investors; yet these operational forms often risk compromising the environmental objectives of the Convention and may also have unfavourable implications in terms of equity. Other operational forms ensure greater security in terms of environmental targets, but offer fewer attractions to market investors, and risk losing the advantage of economic efficiency. Typically, policy-makers find themselves in the situation of having to trade-off advantages in relation to one objective against advantages in relation to another. This study has illustrated the use of decision analysis techniques in performing this task.
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