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CCS as a project activity in the Clean Development Mechanism

The Kyoto Protocol and The Clean Development Mechanism

The Kyoto Protocol article 2 sets a quantified emission limitation and reduction commitments for the Annex I countries to promote sustainable development. In order for the Annex I countries to meet their reduced emission target, the Kyoto Protocol sets out four different flexible mechanisms. These mechanisms are market based tools and have the advantage of promoting technology-neutral and cost effective reduction of GHG-emissions.

The Clean Development Mechanism (CDM) is one of these four flexible mechanisms. The CDM is project-based and allows Annex I countries and investors to invest and participate in mitigation project in non-Annex I countries. Annex I countries can earn so-called certified emission reduction (CER), which can be used to meet their quantified emission limitation and commitments under the Kyoto Protocol.

Further the CDM shall help assist the non-Annex I parties in achieving sustainable development. The term sustainable development is debated, and there is no definition either in the UNFCCC or in the Kyoto Protocol. It is up to the host country (non-Annex I country) to decide whether the project has contributed to sustainable development, and there is no clear guidance on how this can be done.

Legal framework for the CDM

Article 12 establishes the legal framework for the CDM. If a CDM project is successful, implemented and operated in accordance with the requirements for the project, Annex I investors and participants in the project will receive CERs. One CER is equal to one tonne CO2 equivalent, and can be used to meet their reduction target. These credits can also be traded or sold in a valid emission-trading scheme (such as the EU ETS). CERs are awarded on the basis of the result of each CDM project, and there are three conditions that need to be fulfilled before CERs are issued.

1. All parties must be voluntarily involved in the project cf. the Kyoto Protocol Article    12.5 (a)

2. There must be proven “Real, measurable, and long-term benefits related to the   mitigation of climate change”, cf. the Kyoto Protocol Article 12.5 (b)

3. Reductions must be additional to any emission that would occur in the absence of         the project activity cf. the Kyoto Protocol Article 12.5 (c). The project must reduce   GHG emissions that would not be reduced in the absence of the CDM-project.

Further guidance on how CDM projects should be implemented and carried out are stated in the Marrakesh Accords (Section J number 3)[1].


Regulatory framework for CCS in the CDM

At the 17th COP meeting in December 2011, the CMP[2] agreed to implement Carbon dioxide Capture and Storage (CCS) as a valid CDM[3] project activity. Additional rules to the Marrakesh Accords were presented, as “Modalities and procedures for carbon dioxide capture and storage in geological formations as clean development mechanism project activities” (dec10/CMP7).[4] These rules regulate how a CCS project should be implemented through the CDM. The framework is supplemental to the Marrakesh Accords, and includes detailed provisions and obligations for the project participants to fulfil in relation to the project activity.


Participation requirements

It requires the host country (non-Annex I country) to ensure that they allow CCS activities within their territory, and to establish domestic legislations on CCS. These legislations should cover various aspects of the CCS activity, and are further elaborated in the CCS modalities and procedures Annex Section F.

Further, Appendix B Section 1 sets out a comprehensive list in relation to the selection and characterization of the geological storage site, where the CO2 will be stored. Section 3 addresses the rules for monitoring of the storage site, and explains in detail what the monitoring plan shall cover. The monitoring shall begin before injection of the CO2, frequently during and beyond the period when the project participants receive Certified Emission Reductions (CERs)[5], also called the crediting period. The project shall not be terminated earlier than 20 years after the end of the last crediting period. It is also a requirement that no seepage have been observed in the past 10 years and that all available evidence indicates that the CO2 remains stored before the monitoring can be terminated.

In addition there are strict requirements for financial provisions outlined in Appendix B Section 4. A CCS project is a large, costly and complex chain; therefore, it is essential that financial and necessary permits are in place before the project starts. The financial provisions shall cover among others the cost associated with the obligations in an event of seepage.


The risk of seepage

A reserve account for potential seepage must be established. Five per cent of the CERs from the project must be placed on a reserve account to make up for any leaked CO2 according to Section J paragraph 21. The potential risk of seepage arises questions regarding the additionality of the CCS project. For a CDM project to be approved, the reduction of emissions must be additional to what would occur in the absence of the project, it must be beyond business as usual.

If the stored CO2 seeps out it would be released into the atmosphere and the CCS project would not be additional in accordance with the requirements in the Kyoto Protocol. There is a possibility that this happens after CERs are issued and sold or traded in the carbon market. Then the project would be counterproductive and lead to increased emissions. If this happens, the amount equivalent to the leaked volume of the net reversal of storage should be cancelled.  This will make up for any released CO2 and the global emissions will not increase, and the project will fulfil the additionality requirements.

 

Liability

How the liability should be allocated is also a key issue in these projects. Liability is defined as “the legal responsibility arising from the CCS project activity or the relevant geological storage site” in the CCS modalities and procedures. The definition also includes “all obligations related to the operation of the storage site”, this meaning the liability to pursue actions to stop or control any seepage of CO2, and to restore the long-term environmental quality on the geological storage site. The project participants are obligated to agree on the allocation of liability before the project starts.

According to the CCS modalities and procedures, the liability shall reside at the project participants until the project is terminated. When the project is terminated the long-term liability should be transferred to the host country (non-Annex I country). In other words, the project participants are liable until the project is terminated, no sooner than 20 years after the end of the last crediting period. However, the host Party is not obligated to accept this long-term liability after the project is terminated.


Assessment requirements

The CCS modalities and procedures also require two different assessments before the CCS project starts. A risk and safety assessment is necessary to assess the storage site, and the impact on human heath and ecosystems nearby the proposed CCS project activity. Further an environmental and socio-economic impact assessment (EIA) is required. This assessment should address possible impacts that the project might have on the environment, including social and economic impacts.


Outstanding questions

There are still some outstanding questions that need to be addressed regarding CCS in the CDM. First, there is a proposal to establish a global reserve account for CERs in addition to the reserve account already established. Second, the issue of transboundary CCS activities is waiting to be considered. Transboundary CCS projects is when the CCS activity involve transport of CO2 from one country to another or when the storage sites are located in more than one country. All of these questions have been postponed for consideration until 2016.

The Subsidiary Body for Scientific and Technological advice (SBSTA) have provided a document to support the CMP in their consideration of the eligibility of transboundary CCS activities in the CDM. They are presenting different international frameworks that can be relevant to CCS activities, some of them representing an opportunity for demonstration and deployment of CCS, while others may represent hurdles, barriers and show-stoppers.

The document further describes different scenarios involving transboundary CCS projects within the territory of two or more Parties. In current international legislation the situation on transboundary CCS projects is unclear and unresolved. It is important to keep in mind that the CCS project cycle consists of three stages, capture, transport and storage. The different scenarios in the document from the SBSTA involves[6]:
- Scenario 1: Capture in Party A and Storage in Party B
- Scenario 2: Capture in Party A and Storage in Party A and Party B
- Scenario 3: Capture in more than one Party (Party A and Party B) and storage in more than one Party (Party A and Party B)
- Scenario 4: Capture in Party A, transport through Party C and storage in Party B

Different legal questions arise within these scenarios for example the relation to international legislation and to national legislation in the parties involved.

For more information on these scenarios see the document from SBSTA: http://unfccc.int/resource/docs/2012/tp/09.pdf


Summary

The CCS modalities and procedures provide a comprehensive framework on what the parties must prepare and fulfil in order to implement a CCS project activity in the CDM. The framework presents clarifications on many issues related to CCS projects, and obligates to take these issues into account when preparing and implementing a CCS project. The strict rules and obligations lead to a highly supervised project cycle. This will help ensure the environmental integrity of the project activity. On the other hand it may represent barriers for investors wanting to invest in these projects, and making CCS projects in the CDM less attractive. Especially as the current price on CERs are very low.



[1] http://unfccc.int/cop7/documents/accords_draft.pdf

[2] The conference of the Parties serving as the meeting of the parties to the Kyoto Protocol

[3] http://cdm.unfccc.int/about/index.html

[4] http://unfccc.int/resource/docs/2011/cmp7/eng/10a02.pdf (page. 10)

[5] http://cdm.unfccc.int/about/dev_ben/index.html

[6] All scenarios are based on the premise that the parties involved are non-Annex I countries and that all of the participation countries are parties to the Kyoto Protocol.





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