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Shaping for the future

Suggestions on Offset
with Insightful Cases

[ACEF 2008 conference]

Sungwoo Kim, GHG Business Strategy Expert

June 5th, 2008


Contents

1 Any problem?

2 Will it last?

3 Insightful Investment

4 Project Case

5 Offset Case
1. Any problem? 1/6

Is offset effective?

9
9 Most
Most of
of ETS
ETS consider
consider offset
offset mechanism
mechanism (not
(not only
only EU)
EU)
9
9 RGGI
RGGI // WCI
WCI // CCX
CCX /USFed
/USFed // JVET
JVET // NZ
NZ // Canada,
Canada, Australia
Australia Coming
Coming up
up

On the contrary,

9
9 Criticism
Criticism on
on Additionality
Additionality and
and Arbitrary
Arbitrary Standards
Standards
9
9 Non
Non CO2
CO2 and
and Hydro
Hydro projects
projects
9
9 Slow
Slow process
process and
and geographical
geographical distortion
distortion
2. Will it last? 2/6

Back to the CDM’s origin (Kyoto COP3, 1997)

‰ Dual aim of Sus. Dev.(the developing) and GHG reduction(the developed)


‰ JI proposed by US + Penalty by Brazil → CDM(from ‘fund’ to ‘investment’)

Mechanism that facilitates the GHG reduction investment


Unique pathway connecting two acute parties (Donator & Beneficiary)

¾
¾ New
New ETS
ETS will
will include
include offset
offset
-- Own
Own offset
offset or
or International
International offset
offset not
not matter
matter
¾
¾ Problems
Problems areare mostly
mostly procedural
procedural ones
ones (not
(not generic
generic ones)
ones)
-- Policy
Policy and
and consequent
consequent Market
Market will
will value
value the
the ERs,
ERs, not
not Mechanism
Mechanism
¾
¾ Maybe
Maybe some
some changes,
changes, but
but any
any alternatives
alternatives ??
3. Insightful Investment 3/6

Satisfy both parties (stakeholders)

y My experience from both perspectives(TGIK) - Investor & host


y Landfill Owner vs. Landfill Operator vs. EPC provider as an investor

Classify Offset into 3 categories


y CO2 vs. CH4 vs. Others (SPC vs. Partnership Agreement)
y Different valuation in investor’s mind needed for each category

Understand CDM as a guideline

y Prepare for evolving criteria (Even during the construction, CDQ)


y Methodology is just methodology (Fuel Cell)
y Ahead of learning curve for other offset markets (Value ratio)
4. Project Case (CO2) 4/6

Use of FINEX Off Gas for power generation in Pohang Steel Works

¾ POSCO, 4th largest steel maker(30 MT-steel/yr), had invested $1.5 Bil. in the
innovative steel making process called “Finex” commercialized in 2007
¾ The project activity is to recover waste gas from FINEX process for power
generation displacing electricity from the grid.
¾ 532 KT-CO2/yr↓ expected from Combined Cycle Power Plant of 145.9MW
¾ Construction from June in 2005 to July in 2007 (to be registered in July)

¾ CEO vs. Operator

¾ Evolving Criteria

¾ Electricity + CER
4. Project Case (CH4 & Others) 5/6

Sudokwon (Seoul Metropolitan) Landfill Gas Electricity Generation Project

¾ Largest landfill in Korea (7MT-waste/yr)


¾ Replacing existing 10MW to utilize full LFG ¾ Owner vs. Investor
(1) expansion of the collection system
¾ Modeling and Law
(2) construction of the 50MW LFG power
¾ CO2 reduction of 1.2 MT-CO2/yr
¾ Electricity + CER
¾ Registered (Unilateral)

Catalytic N2O Abatement in the Tail Gas of the Nitric Acid Plant of HWC in Korea

¾ Undesired by-product of nitric acid (HNO3)


¾ Reduce N2O in the tail gas at nitric acid ¾ First Act, then Nego
production process by DeN2O catalyst
¾ Nitric acid since 1991 (Cap. of 100KT/yr) ¾ Facilitate Host
¾ 0.3 MT-CO2/yr ↓, Not regulated in Korea
¾ only CER
¾ Registered (Bilateral – Hanwha & Mitsubishi)
5. Offset Case (KOP) 6/6

Implementation since October 2005

CDM KOP (Korean Offset Program)


Obj. y Supplementary to Compliance y Facilitate Voluntary Investment of GHG Red.
Agency y EB (under UNFCCC) y KEMCO (under Ministry of Industry)
Bound. y Global Project y Domestic Project

Val./Ver. y EB Accredited DOEs y Val.(KEMCO) / Ver.(ISO Certifying Org.)


Criteria y Regulation + Financial + Env. Additionality y Regulation + Environmental Additionality
Period y 10 yrs or 7yrs y 5 yrs (No extension)
Benefit y Acquiring CERs y Acquiring KCERs (bought by Korean Govt.)
Ú KEMCO(Korea Energy Management Corp., http://co2.kemco.or.kr)

+100 +2 million $1~2 bil.


Projects CO2 T/yr Voluntary
Registered Reduction Investment
Shaping for the Future

Thank you
ssungwoo@posco.com
OR ssungwoo@chol.com

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