Carbon Market Watch

For fair and effective climate protection.

Carbon Rush for Coal: The Fate of Fossil Fuel Carbon Credits – The Tirora and Sasan Projects (Newsletter #10)

18 Sep 2010

At their last meeting, the CDM Executive Board made a landmark decision against coal projects in the CDM by rejecting the Indian Ultra Mega Power Project (UMPP) Tata Mundra[1]. It had been claimed that the 4000-MW super-critical coal plant owned by Coastal Gujarat Power would reduce 2.6m tonnes of CO2eq over the next 10 years. However, it was rejected because the project developers failed to prove that the CDM revenue was decisive for the investment decision, i.e. they could not prove that it was additional, an essential CDM requirement. CDM Watch applauds the Board for this milestone decision, which goes some way towards restoring credibility to the CDM. That the project was clearly non-additional was a sentiment echoed by several anonymous analysts who were reported to have said “The carbon crediting probably was not factored in at the time of the bid“ adding “Estimates would not have considered such credits ahead of U.N. project approval[2]” . A senior investment specialist at the Asian Development Bank, which backs the project financially, further demonstrated Tata Mundra’s lack of additionality. He is reported in the same article as saying that the bank will support Tata‘s project despite the rejection.

Despite heavy criticism of the first – and so far only – registration of a (non-additional) coal power plant under the CDM in 2009, Adani Power Maharashtra Ltd is now seeking registration for another project in Tirora[3], India. However, three members of the CDM Executive Board have expressed serious concerns about the project’s additionality and have asked to review[4] the registration request of the Tirora project which will be decided upon during this week’s meeting.

According to the validation opinion of SGS the Tirora “project is not a likely baseline scenario. Emission reductions attributable to the project are hence additional” [5]. However, CDM Watch believes that the project is, in fact, not additional precisely because supercritical, not subcritical, is the baseline. For more detailed criticism on the Tirora project please refer to comments by Naveen Sharma[6]. The Tirora project claims around 12m tonnes of emission reduction over the next 10 years, equivalent to the annual CO2 emissions of about 3 coal-fired power plants [7].

Analysis conducted by CDM Watch and the Stanford Environmental Law Clinic in March 2010 reviewed 14 coal projects pending validation. The research showed that none of the expected reductions of the reviewed coal projects are contingent on the additional CDM revenue. These projects would occur regardless of CDM financing as they are included in national energy policies. The analysis also found significant shortcomings in the investment analysis of the Tirora project, see table below. Problems included (1) the fact that it neglects to consider revenues as clearly as costs thereby distorting the financial calculation, (2) it does not justify parameters/assumptions, and (3) it does not provide full spreadsheets making it impossible to reproduce a financial analysis. However, above all, the analysis found that in the case of all projects in India and China supercritical – not subcritical – should be used as the baseline scenario, which would render supercritical coal plants non-additional within the CDM. While the Board decides upon projects on a project-by-project basis, CDM Watch believes that the findings outlined above are likely to hold true for the additional 13 coal projects submitted after the analysis was conducted. Since the registration of the first project in December 2009, the CDM has witnessed an incredible rush of applications. In the past two weeks alone three new coal projects totaling four million tonnes in annual emission reductions were submitted for validation.

Looking ahead, our eyes are set on the Board’s decision, especially as the largest of all the coal power plants and the most controversial project currently under validation has requested registration under this faulty baseline methodology. The 3,960 MW Sasan UMPP in Madhya Pradesh, which lays claim to almost 4 million tonnes of annual emission reductions is the clearest example thus far of a non-additional plant. In the Ultra Mega Projects bidding process that awarded the project to Anil Ambaniled Reliance Power Limited in 2008 the following criteria8 were fixed: (1) the location: Sasan; (2) the technology: supercritical; (3) and the fuel: imported coal. With the technology and the fuel being specified in the tender, it is hard to follow Reliance’s argument that a subcritical plant using Indian coal was a viable alternative [9].

Action to be taken by the Board: CDM Watch believes unequivocally that the Tirora project is not additional. It must therefore be reviewed and subsequently rejected. At the same time, the Board should request a review of the registration request of the Sasan project, based on the same faulty baseline methodology, in order to ultimately reject it.

Allowing coal-based power projects in the CDM at a time when the mechanism’s integrity is being questioned for a range of other fundamental flaws would deal a terrible blow to its reputation. The inclusion of coal-based power in the CDM not only risks allowing industrialized countries to increase their own emissions without reducing emissions elsewhere, it also risks increasing emissions in developing countries by artificially improving the financial returns to the most carbon-intensive form of electricity production in the world – coal-based power. In order to maintain the integrity of the CDM it is clear that Tirora, Sasan, and all other coal projects based on this faulty baseline methodology must be rejected.

1 http://cdm.unfccc.int/Projects/DB/DNV-CUK1254830678.73/Rejection/IWNNWJIB1G6WAG6F9RW59N3AOLQEXP
2 http://www.moneycontrol.com/india/newsarticle/news_print.php?autono=477761&sr_no=0
3 http://cdm.unfccc.int/Projects/DB/SGS-UKL1260815245.04/view
4 http://cdm.unfccc.int/Projects/DB/SGS-UKL1260815245.04/Review/FG74NWW0ZYFK2Y2RIM7K0RPL5GBOG5/display
5 http://cdm.unfccc.int/Projects/DB/SGS-UKL1260815245.04/Review/FG74NWW0ZYFK2Y2RIM7K0RPL5GBOG5/display, page 6
6 http://cdm.unfccc.int/Projects/Validation/DB/259L8CYWH665QF5XEXXKIGR1A6FO0Y/view.html
7 EPA GHG equivalent calculator available at http://www.epa.gov/cleanenergy/energy-resources/calculator.html#results
8 http://www.powermin.nic.in/whats_new/pdf/ultra%20mega%20project.pdf
9 For more details, see http://cdm.unfccc.int/Projects/Validation/DB/JB9AVH5IAWF0MDFULY3P4678XR05JN/view.html