Written by Enrique Lendo, Business Development Mexico Advisor.
Adopted in 2015, the Paris agreement sets the objective to stabilize the average increase of global temperature at 1.5 °C to avoid widely documented catastrophic effects. According to the Intergovernmental Panel on Climate Change (IPCC), this target will be reached only if global emissions of greenhouse gases (GHG) peak in 2030 and become net zero by 2050.
The transformation required to decarbonize our economy is monumental. It implies reconfiguring our energy mix, electrifying our transport systems, reverting deforestation rates, boosting resource efficiency and building smart cities, among many others. The OECD estimates that the investment cost in infrastructure to achieve the global climate change and sustainable development goals will be close to 7$ trillion dollars a year, equal to the GDP of Mexico multiplied by 5.
Who is to pay for the transition cost? It is very likely that the only feasible alternative to drive the energy transition at the speed required by the Paris Agreement is the massive adoption of “carbon pricing schemes”, which are based on the “polluter pays principle”.
According to the World Bank, carbon pricing schemes throughout the world have increased exponentially going from 7 in 2000 to 61 today. Thirty of these are carbon taxes and 31 are emission trading systems (ETS). Carbon pricing schemes are applied both by national and subnational governments, cover 22% of global emissions and collected $ 45 billion dollars in 2019. Through immediate signals to economic agents, they induce innovation, resource efficiency and important changes to production and consumption patterns.
Mexico was the first country in Latin America to adopt a carbon tax in 2014, which has collected $ 1.8 billion dollars since its operation began. Mexico´s ETS pilot program was launched this year, considering companies with 100,000 + tones of CO2 emissions from the energy and industrial sectors. The ETS will become fully operational in 2023 and become the first of its kind in the region.
Besides the carbon pricing schemes adopted at the federal level, in the last days some subnational governments in Mexico have shown interest to adopt GHG emissions taxes under environmental and public finance grounds, as well as in reaction to policies adopted at the federal level which prevent the transition to renewable energy. A couple of weeks ago, Tamaulipas became the first subnational government in Mexico to adopt a carbon tax and the state government of Jalisco announced that its carbon tax will enter into force in 2021. The states of Nuevo León, Coahuila, Durango, Michoacán, Colima and Guanajuato are also considering similar taxes.
While carbon pricing schemes around the world have advanced notably, their impact are still insufficient. According to the Carbon Pricing Leadership Coalition (CPLC), the price level to achieve the goal of the Paris Agreement needs to reach $75 dollars per ton of CO2 in 2030. Half of the schemes currently operating around the world have set the price below $10 dollars and Mexico´s carbon tax is only $2 dollars per ton. In this context, it is imperative to secure a substantial increase both in the price level and in the emissions covered by carbon pricing schemes to induce the transformation required. In the same line, it will be necessary to link schemes within and between countries.
Finally, to foster social acceptance, it is essential that carbon pricing policies consider compensation and transition measures to affected sectors and consumers, which can be financed with the same revenues. The post-Covid economic recovery process provides an opportunity to adjust the relative prices of energy in order to transit towards carbon neutrality by 2050.
Article originally published in Mexico´s newspaper Reforma
By Asier Aramburu Santa Cruz, Climate Change RENEN Manager
Thanks to the project for the capture of methane, the displacement of fossil fuels and the cogeneration of renewable energy that ALLCOT is currently developing in Colombia, the palm industry can be a great ally in reducing greenhouse gas emissions. The good management of its plantations and the avoidance of deforestation is not the only action that this industry can take, some changes in the processing of the fruit itself to obtain the oil can be also implemented to ensure a more sustainable product. Thus, Colombia has managed to turn a problem, waste management, into an opportunity. Industrial wastewater from the production process has a high organic load and requires a previous treatment to be discharged into an aquatic environment. In Colombia, this treatment was carried out using anaerobic lagoons, which emitted large amounts of methane into the atmosphere, a gas with a global warming potential 25 times greater than carbon dioxide (CO2).
However, a solution was found: the use of biodigesters. Thanks to these facilities, methane emissions are being reduced by capturing biogas, the methane-rich gaseous mixture produced in the wastewater treatment process.
Although few plants are using this biogas to generate energy, the second phase of the project contemplates the adoption of this form of electric power generation. Thus, instead of burning in a flare, the current destination of most of the biogas, the companies will be able to adopt the technology that allows them to use that methane as an energy source. That is how they can become self-sufficient and deliver their surplus energy to the electricity grid, increasing the project’s climate change mitigation potential.
ALLCOT faces now a critical moment, as there is a need to update the Project Design Document (PDD) initially delivered to the United Nations Framework Convention on Climate Change (UNFCCC). But the biggest challenge comes with the first verification of the emission reductions to obtain the carbon credits, which will certify for the first time the reductions that have already been carried out. ALLCOT is also challenged to demonstrate the potential and benefits of the project, so that the rest of the companies take part in the project and this industry is transformed. Furthermore, the success of this project comes with the development of other initiatives within the production process, such as composting the sludge and waste from the production process, which also emits large amounts of greenhouse gases in their decomposition process.
ALLCOT commitment goes not only by doing the calculations of the reductions and the preparation of the documentation to get the carbon credits. ALLCOT is involving and motivating the companies visiting their production facilities.
The palm oil industry is currently the world leader in the supply of oils and fats. At the top the Asian countries play the main role, led by Indonesia and Malaysia, which have achieved fast growth in recent decades, reaching a combined production of 59,000,000 tons (82.5% of the total). However, this growth has received multiple criticisms, since it has led to the destruction of natural forests.
In the case of Colombia, in a field dominated by Asian producers, it has managed to position itself as the first palm oil producer in America and the fourth in the world (1,600,000 tons).
Therefore, following this project, the Colombian palm industry could show its commitment to sustainable development, take distance from other producers and align with the objectives set forth in the Paris Agreement.
By Andrés Melendro, Sustainability Consultant.
ALLCOT is currently developing a REDD + project (Reduction of Co2 emissions from deforestation and forest degradation) in the south of the Department of Meta, in Colombia. The project area is located in a transition zone between the Amazon and the Orinoco bassins. In the vicinity of the project, the area is the La Macarena Special Management Area, within which are included four Natural Parks. Unfortunately, during the first weeks of 2020 there have been numerous fires. La Macarena and Tinigua National Parks have been particularly affected. According to the Environmental Information System for the Colombian Amazon (SIAT-AC), during the first two months of the year there have been around 7000 heat points in the department of Meta, almost all in the municipality of La Macarena.
According to the inventory of Greenhouse Gases (GHG) established by the IDEAM (Institute of Hydrology, Meteorology and Environmental Studies) of Colombia, in 2015, the AFOLU (agriculture, forestry and other land use) accounted for 55% of Colombia’s total emissions. In other words, AFOLU is more determinant than transportation, industry and energy combined. These figures highlight the importance of the forestry sector in Colombia’s climate change mitigation strategy and the severity of current fires.
The drivers and perpetrators for this wave of deforestation are not entirely clear. There are several hypotheses, namely the economic interests of moving the agricultural frontier forward, for both licit and illicit crops; the benefits of converting forest into grassland for livestock; but also, a few studies hypotheses related to speculation and hoarding of “cleared” land.
In the eyes of the Government, the dissent of the extinct FARC (Revolutionary Armed Forces of Colombia) guerrilla are the main actors in this process and their objective is the planting of coca plants. However, according to serious journalistic investigations, large landowners are also promoting the arrival of settlers in the Natural Parks and financing deforestation. Degrading the environmental value of the land, located both inside and outside of protected areas, by cutting down the forest and later introducing livestock, is a perverse strategy to one day trigger the legalization and subsequent valuation of these lands. Settlers degrade, occupy the land and further sell it at low cost to illegal land hoarders. These two actors sign purchase agreements of unduly occupied vacant lots, and over time they manage to validate and finally authenticate these certificates in notaries.
This vicious circle explains the fires that today destroy the same forests that our REDD + project aims to protect. The current conjuncture of forest degradation both within and outside protected areas highlights the importance of promoting voluntary schemes such as REDD + since monitoring and control are not enough. The work that ALLCOT carries out through its emissions reduction projects complements enforcement carried by the environmental authorities and the operations of the Military Forces such as Operation “Artemisa”.
By offering financial incentives to avoid deforestation in the Southern Meta, ALLCOT’s REDD+ project supports local communities in their productive reorientation. ALLCOT works with them to define the most viable sustainable productive projects and uses the income derived from the sale of carbon credits serves to finance them. Whether through technical assistance, purchasing materials, building infrastructure or structuring business plans and marketing strategies, REDD+ represents the opportunity to reconcile local economic development and climate change mitigation.
Each hectare burned in the area of influence of our projects is one extra reason to continue protecting the forest through the REDD+ scheme.
Proyecto Redd+, Sur del Meta
Written by Alexis Leroy, CEO ALLCOT
Carbon offsets are just as valid and valuable as renewable power
Anyone involved in developing clean energy projects around the world will be familiar with the demands of securing project finance. Lenders typically want to see a solid revenue stream before they consider financing renewable energy or low-carbon energy projects.
Normally, a Power Purchase Agreement (PPA) fits this requirement: a long-term offtake agreement with a high-quality buyer offers confidence that the project will generate steady cash flow to service its debt.
Occasionally a PPA by itself may not be regarded as a sufficient guarantee of performance, or the off taker’s credit quality may not be sufficiently strong. In such instances additional security can be added in the form of liquid guarantees or performance bonds.
But there is another revenue stream that can play its part: carbon offsets.
Carbon offsets represent the saving in emissions of carbon dioxide and other greenhouse gases (GHGs); they’re measured against a baseline in which the project would use legacy technologies. In this way a wind farm, a solar park or a waste-to-energy plant represents savings in GHG emissions compared to coal or even gas-fired power.
The world is waiting for a new global offsets market to replace the Clean Development Mechanism (CDM) that will end when the Kyoto Protocol is superseded by the Paris Agreement in 2021. But in the meantime, there are plenty of opportunities to develop and sell carbon offsets for some existing markets. The revenues generated should help secure project finance.
South Africa and Colombia are leading the way in creating high-confidence markets for carbon offsets, by allowing them to be used in part payment of their respective national carbon taxes and thereby granting them a monetized value – at least on paper.
Besides, the International Civil Aviation Organisation is preparing the launch a global offsetting market for airlines in January 2021. Demand for offsets from airlines participating in CORSIA is projected to reach as much as 174 million tonnes of CO2 equivalent (tCO2e) tonnes in 2025 and could be nearly 8 billion tCO2e by 2040.
And beyond these formally established, government-backed markets is a wide variety of voluntary carbon offsetting programs operated by large industrial, commercial and retail companies around the world. According to Forest Trends, nearly 49 million offsets were retired by governments, companies, and individuals in 2018.
There are plenty of challenges facing the use of carbon offsets as securities for project finance. Firstly, the revenue stream from offsets would likely form only a fraction of the overall project costs, and for some, it may simply not be worth the effort to incorporate offsets into a finance agreement.
Also, revenue streams from offset sales tend not to be regular, but “lumpy”. Offset projects must submit independent verification and reporting of the volume of emissions reduced before they can apply for the issuance of those credits, and the costs associated with that process usually mean they can only afford annual or even biennial issuance. Such periodic issuance may not be steady or regular enough to satisfy a lender.
Yet at the same time, using carbon revenue to secure financing may yield two significant benefits: the quality and the reliability of the purchaser. In the case of countries with carbon taxes that can be part-paid in offsets, the guarantor of demand is the government, and industrial emitters must abide by the law.
Similarly, in the case of CORSIA, the end-buyers will be international airlines seeking to comply with government-established, UN-approved targets.
Why is the end-use of the offset important? Because lenders are concerned not only with the scale of revenue streams from a project but also the reliability and creditworthiness of the buyers. Higher-quality off-takers will mean more security for the seller and hence for the lender.
Secondly, it’s important to understand that there is a direct link between the security of the supply of renewable electricity and the security of the supply of carbon offsets. It should be the case that any lender that relies on a PPA as security against project finance, should also be able to rely on the flow of offsets through an emissions reduction purchase agreement (ERPA).
Lenders will consider the reliability of the power project – how much power it is expected to deliver across the length of any contract – when estimating the value of the PPA. The PPA, therefore, is a measure of the potential supply of power, and it can, therefore, be a measure of the supply of carbon offsets.
In the case of many reliable renewable energy technologies – waste gas, solar and even wind power – the actual generation of power and the generation of offsets are very closely linked.
A project developer could even use future delivery of offsets as a source of seed capital for a project. This was a common practice under the UN Clean Development Mechanism. By arranging an ERPA with a buyer who is seeking offsets for some compliance or even voluntary purpose, a project developer can then use this ERPA to raise seed capital. To be sure, the volume of offsets may be subject to clipping, but the principle is sound.
So why don’t lenders take ERPAs into account? If we agree that the fight against climate change is paramount, then how can we not support carbon offsets as a valid source of capital, and indeed may be more valuable than megawatt-hours of renewable power generation?
Written by Casania Fometescu, ALLCOT Group Business Development
Earlier this month, Casiana Fometescu, international CO2 consultant and ALLCOT Group business development director on Eastern Europe attended the 19th Annual Workshop on Greenhouse Gas Emissions Trading, jointly organized by The International Energy Agency (IEA), the International Emissions Trading Association (IETA) and the Electric Power Research Institute (EPRI) in Paris.
The Conference shows the growing importance of the CO2 market worldwide. The number of attendees at the Conference doubled from last year’s, especially in terms of government representatives (e.g. United Kingdom, Switzerland, European Commission, China, New Zealand, Canada, etc.). This feeling was embodied by Mark Lewis from BNP who told the audience he feels “in the glory days of the carbon action”.
The international carbon market has become such an extended topic since national and regional governments, but also companies have developed policies to reduce emissions, and each of them has different technical details in implementation. The presentations held explained many sub-national trading schemes or carbon initiatives (Ontario, Quebec, California), national ones (New Zealand, China, Taiwan, Korea, Japan, Costa Rica, Columbia), and supra-national carbon markets (EU ETS).
The following talking points are worth highlighting:
- The representative of the World Bank, Celine Ramstein, recognized the importance of pricing carbon and mentioned that there are 46 national and 30 subnational jurisdictions that have already implemented either carbon trading or carbon tax schemes. Yet, all the emissions trading schemes (ETS) in the world (including China) comprise just 20% from the worldwide greenhouse gas (GHG). Therefore, there is still plenty of room to broaden the scope of these mechanisms.
- According to the World Bank report on the state of the carbon market, there is a diversity of carbon prices in different countries, ranging from €127/tCO2 in Sweden and €96/tCO2 in Switzerland, to €25/tCO2 in the EU ETS to less than €10/tCO2 in most countries covered by carbon pricing. Only 5% of the global GHG market has carbon prices between €40-80/tCO2.
- Worldwide carbon revenues by governments are also on the rise from USD 22 billion in 2016 to 33 billion USD in 2017, and 45 billion USD in 2018, according to the WB.
- Voluntary carbon trading volumes have been rising in recent years and companies are increasingly looking to set CO2 targets in line with the Paris Agreements, Sustainable Development Goals and EU targets for 2030 and 2050.
- The EU target of carbon neutrality for 2050 can be achieved only if governments reinforce their National Determined Contributions (NDCs), and set higher targets to achieve through carbon offsetting and investment in green technologies, renewable energy, and carbon storage measures.
- Germany would like to introduce a national sectoral trading scheme in addition to the mandatory EU ETS, which will comprise more activity sectors compared to the EU ETS. China has been moving forward on the implementation of the national ETS finalizing Phase I with the plan to realize Phase 2 “simulation exercises” before the end of this year.
- Article 6 negotiations of the Paris Agreement can represent an opportunity for private entities to contribute to global mitigation efforts through their participation in international market mechanisms, but also through voluntary cooperation in the implementation of the each country’s NDC. Yet, all pilot initiatives under Article 6 are government initiatives and not private ones.
- IETA’s 2019 GHG Market Sentiment Survey shows that 85% of respondents expect corporate voluntary action to increase over the next 5-10 years with businesses much more involved in reducing GHGs emissions and achieving their voluntary targets.
Written by Encarnación Hernández, Climate Change Mitigation Consultant
We are currently facing a critical global situation in terms of consumption of plastics and their subsequent recycling. It is expected that by next year, plastic production will increase to 350 million tons. If this rhythm and the current “use and discard” consumption model are maintained, this level could increase to 619 million tons in 2030.
The process of decomposing plastic material produces the emission of two greenhouse gases with a high global warming potential (methane and ethylene) and a very harmful effect on human health. For this reason, in recent years various initiatives have been developed in the field of plastic waste reduction and recycling. Their main objective is to reduce dependence on existing conventional resources. However, there are other solutions in the market contributing to the manufacture of different products from recycled plastics. This is a great innovation in the recycling market.
ALLCOT Group, a company specialized in environmental solutions in the fight against climate change, is working on an innovative project based on the construction of sustainable housing from recycled plastic.
The main objective is the recycling of plastic waste to give it a second life, improving the performance of both recycling and waste recovery. The population is involved in the collection of plastic, mainly bottles, from which blocks and bricks are manufactured and used for the construction of houses or other types of buildings. These materials are flexible and flame retardant light and they display high insulation capacity. These characteristics make them ideal to face extreme weather events that often affect vulnerable countries to the effects of the current climate crisis, such as heatwaves or deterioration caused by water on such conventional buildings.
The ongoing project will be replicated in developing countries. It has focused on vulnerability groups, including women working in the informal waste recycling sector, and therefore contributing to the United Nations’ Sustainable Development Goals signed in the 2030 Agenda. In addition to reducing the amount of waste destined for its final disposition and increase its recovery, the project will yield another series of economic, social and environmental benefits. These include an increase in the country’s resilience to climate change, poverty alleviation, and improvement of the well-being and health of populations by offering a new sustainable livelihood. Finally, it also contributes to greater access to drinking water and improved biodiversity protection in the area.
This project contributes to the mitigation of GHG emissions and thus tackles the current climate crisis. With the use of different internationally accepted methodologies and previous studies, the actual reduction of greenhouse gas emissions can be calculated. In fact, the secondary production of construction materials entails lower amounts of CO2 emissions compared to conventional production (from 40% to 80% depending on the type of material).
Given that fuel and electricity consumption the freest are the stages of the building process that release most CO2, the plastic brick recycling project is expected to have a high impact on greenhouse gas emissions reduction.
Concentrating on five key areas (cement, plastics, steel, aluminum, and food), the project “Completing the Picture: How the Circular Economy Tackles Climate Change” illustrates how designing out waste, keeping materials in use, and regenerating farmland can reduce emissions by 9.3 billion tonnes. That is equivalent to eliminating current emissions from all forms of transport globally.
ALLCOT is currently developing a methodology to estimate CO2 emission reductions since there is none approved by the United Nations Framework Convention on Climate Change (UNFCCC) that directly applies to the project in question.
Once approved by the United Nations, project implementation can begin.
We need additional efforts to decarbonize our economy while creating creative and innovative sustainable growth opportunities.
✅ The actual situation of #plastic is critical, and if we don’t take forceful actions, it will be worse over the years. #Allcot works on a project that aims to give plastic a 2nd shelf life. Find out more 👇
https://t.co/XpACo7bLhK#recycling #co2 #climatechange pic.twitter.com/oKY108qgr5
— ALLCOT Group (@Allcot_news) October 17, 2019
Written by Mercedes García, Climate Change and Sustainability Manager
Between January 1st and August 18th, 2019, forest fires have increased 83% compared to the same period of 2018, according to the National Space Research Institute of Brazil (INPE). According to the INPE satellite images, more than 70,000 spotlights were produced, of which more than half were located in the Amazon region. However, fires are not the only elements that are devastating the Amazon rainforest, the country’s deforestation has reached its highest level in the last 10 years.
According to a new study in the journal Science, “planting billions of trees around the world would be the cheapest and most effective way to tackle the climate crisis”. The same study confirms “a program at this scale could remove about two-thirds of the carbon dioxide (CO2) emissions caused by human activities since the start of the industrial revolution”. Taking into account that up to 20% of annual GHG emissions come from deforestation activities, the impact of properly managing these activities could imply a reduction of more than one million tons of CO2e (study published in Global Change Biology, carried out jointly with scientists from the Global Forest Watch of the World Resources Institute (WRI).
However, for many small landowners in developing countries, it is not profitable to maintain a small tree plantation. Without aid, financing or awareness policies, these small owners will choose to continue cutting down trees to allow livestock to enter their property rather than conserving the forest in its natural state or reforesting the degraded. This is the key point to work on, and that is why REDD projects that generate carbon credits are so beneficial for society and the fight against the climate crisis.
But, what exactly is the REDD mechanism? To understand the mechanism, it is necessary to go back to 2005 when a group of countries, led by Papua New Guinea, managed to talk about avoided deforestation at the Conference of the Parties, held in Montreal (COP 11). From that moment the discussion on the role of forests in the fight against climate change returned to the international debate and it was two years later, in Bali, when the UNFCCC recognized the reduction of emissions from deforestation and forest degradation (REDD) as a valid mechanism in the fight against climate change.
According to the Bali Action Plan signed by the Parties at that conference, REDD + refers to the reduction of emissions from deforestation and forest degradation; in addition to conservation, sustainable management and improvement of the carbon stock of forests in developing countries. It is a more complex mechanism than a GHG emission mitigation project of the CDM type since it is necessary to work on forest governance ensuring the rights of local communities and forest-dependent indigenous peoples.
However, the result is that the REDD mechanism allows conserving forests immediately and profitably. The REDD mechanism is based on calculating (using internationally accepted methodologies) the amount of carbon that is no longer emitted, and converting it into a carbon-offset carbon credit. These credits are sold to large companies that require offsetting GHG emissions from their activities, and part of the income obtained is reinvested in local communities to contribute to local economic development. There are examples of successful initiatives in many countries, and the reinvestment of those benefits has allowed activities as beneficial to society, for example, the creation of cooperatives for local trade, conversion of “illegal loggers” into forest protection agents, infrastructure reinforcement such as schools and hospitals, distribution of water purification systems or efficient kitchens that reduce biomass consumption.
The fight against the climate crisis is not easy or cheap, but it will be more difficult and expensive to face the consequences of not doing so, and the REDD mechanism can be configured as one of the most sustainable, profitable and beneficial engines in the short and medium-term of the fight.
ALLCOT certifies under “Gold Standard for the Global Goals” more than 644,000 tons of CO2 emissions for Consorcio Santa Marta in Chile.
Written by Alfredo Gil, Climate Change Mitigation Consultant
Consorcio Santa Marta, as Project Proponent and ALLCOT in its role as consultant in climate change mitigation projects, have achieved, on September 13, 2019, the issuance of 644,763 VERs (Verified Emission Reductions) certified under “Gold Standard for the Global Goals”, corresponding to the GS3976 project “Santa Marta Landfill Gas (LFG) Capture for Electricity Generation Project”.
These VERs are equivalent to 644,763 tons of CO2 emissions, avoided during the fourth monitoring period of the project (from August 1, 2017, to April 30, 2019), thanks to the collection and reuse of biogas from the landfill to produce clean electricity.
The project, located 17 km south of the city of Santiago, in Chile, receives a monthly average of 130,000 tons of municipal solid waste and it is estimated that during the project’s crediting period it avoids around 3 million tons of CO2 in the atmosphere. This reduction of greenhouse gas emissions is achieved through two routes, one is the use of biogas itself, with high methane content (a gas with a high global warming potential) since if it is not collected and used for generation of energy, it would be emitted into the atmosphere. The other way is the generation of unconventional and clean electricity and its supply to the Chilean national network since these MWh generated present 0 emissions and otherwise would have been produced by the country’s conventional electricity mix, partly formed by thermal power plants and the partial use of fossil fuels.
In addition to its contribution to climate change mitigation, the Consorcio Santa Marta project contributes positively to different United Nations Sustainable Development Goals, due to its certification in “Gold Standard for the Global Goals”. Among these social, environmental and economic benefits, are the reduction of the per capita environmental impact due to the sustainable management of urban solid waste, the improvement of quality in early childhood education, the contribution of clean energy and the creation of quality jobs and training for the workers.
If you want to read more about this project, please click here