GHG Accounting Guidance Note Manufacture of Energy Efficient Climate Related Products IFC CLIMATE BUSINESS GROUP SEPTEMBER 2011
Introduction The following is an overview guidance for IFC investment staff to conduct greenhouse gas (GHG) emission reduction calculations for IFC projects associated with the manufacture of energy efficient climate related products (EECRP) that reduce global GHG emissions through energy efficiency gains in downstream consumers. Such products would typically include insulation products, certified higher-efficiency equipment and products, automated industrial processes, or similar products that reduce energy consumption while maintaining production. For other climate related projects, please see additional guidance notes from CBGSM. Such calculations are required in order to consider the project as mitigation or climate related and will feed into the climate-related tracking system required by management. 1 1 Previously called RE/EE tracking. KEY CONSIDERATIONS 1) This methodology is subject to refinement and expansion based on testing and implementation feedback, please visit our website for the latest version of guidance. See contact information at the bottom for more information and related questions. 2) This methodology is to be superseded by any externally accepted GHG calculation qualified for generating certified and/or verified carbon credits by an internationally recognized third party, such as the UNFCCC s Clean Development Mechanism (CDM) Executive Board. If approved as generating carbon credits, please upload the Project Design Document (PDD, in the case of CDM), or equivalent, as per the instructions in the Reporting section of the guidance note. Please note that a third party methodology must be followed in its entirety and any partial application of the methodology and assumptions is not acceptable. 3) Scopes: Net GHG calculations require inclusion of some degree of GHG lifecycle analysis (LCA), and all significant changes in GHG emissions affected by the project, regardless of ownership, are considered, per the guidelines herein. This is defined as partial lifecycle analysis in this methodology. 4) Boundary: IFC investments can often include multiple projects and facilities, both EECRP and non EECRP, and the gross emissions calculation will typically capture all project components. However, for the purposes of GHG reduction calculations, project boundaries are limited to the impacts associated with the EECRP portion of investments only. 1 This means that all changes in GHG emissions resulting from the EECRP portion of the project, regardless of ownership, need to be captured, over and beyond the EECRP facility covered by the project. 5) This methodology is designed for IFC investments engaged in the manufacture of EE products (e.g. CFLs, double paned windows, etc.) resulting in indirect GHG benefits through third party implementation. With the objective of market transformation, it differs from other IFC GHG reduction guidance notes in that it accounts for additional indirect GHG increases as part of its partial lifecycle analysis. 6) Conservativeness is to be followed in all calculations to address uncertainty. Given ex ante calculations often require some level of assumption, staff should assume the project options and emission factors resulting in the lowest GHG emission reduction in order to not overstate project GHG emission reductions. When addressing any
tco2e/mwh Requirements: uncertainty, staff should also detail how conservativeness is being followed in their submitted calculation. 2 EECRPs clearly result in a GHG emission reduction through energy savings in downstream consumer. Products where this is not apparent do not qualify. 3 EECRPs in most cases involve product substitution - where the EECRP is more EE than a similar product and its implementation is evidence of the intended displacement of the less efficient product (i.e. not installing one low-e windows would result in the installation one non-low-e window). Products where this is not apparent do not qualify. 4 EECRPs should clearly supports activities in IFC sectoral EE guidance notes, for additionality purposes. To be considered EECRP, product must consist of the manufacture of "finished products" ready for sale and implementation by third parties, and not the manufacture or production of inputs or components that later could be used in the EECRP. The GHG emission reduction methodology is illustrated in the graphic below: Baseline (Country) Project Emissions (PE) Additionality / GHGs emissions reduced 1 Anything non-eecrp related is considered business-as-usual, does not result in any change in GHG emissions, and excluded from the GHG emission reduction calculation. These emissions are captured separately by IFC gross portfolio reporting. 2 As an example, consider an IFC project scenario where uncertainty exists between various species of tree that could be planted on the A/R project, based on future market availability. The GHG reduction calculation, in this case, would assume that the tree species with the lowest carbon-sink potential is to be planted in order to follow conservativeness, as it would result in the lowest GHG reduction. 3 Projects must demonstrate through independently published research, offset methodologies, or industry studies that the activity in question is considered to be less carbon intensive than its alternative, and that such activities are accepted elements of a low-carbon growth strategy. 4 For example, the purchase of one LED TV does not indicate the displacement of a less efficient TV as: a) The LED TV may be purchased in addition to older TVs still in use in the household; b) Several LED TVs can be installed in one household; c) LED TVs are only marginally more EE than other LCDs; d) Are mainly purchased based on consumer picture quality preferences. On the other hand, products (i.e. insulation, water heaters, HVAC, windows, etc) required for commercial and residential spaces and of single-application (only one heater per household) usually result in an either/or choice between EE and non-ee, and, thus, are a most defensible EECRPs indicating the displacement of the non-ee scenario.
Method 1. IFC PROJECT EMISSIONS (PE 1 ): Calculate project emissions from sources that will change as a result of the implementation of the project. 1 A. OPERATIONAL EMISSIONS: These GHG emissions include on-site GHG emissions associated with the EECRP manufacturing process financed by IFC. This is already an IFC GHG accounting requirement as operational emissions are mandated in idesk prior to project approval. Operational emissions are always calculated in the IFC CEET in the IFC Gross Project Emissions worksheet. Ensure to consider the following: Mobile fuel combustion in maintenance and staff vehicles Stationary fuel combustion in back-up power or other Electricity purchases from grid Other emission sources B. OTHER PROJECT EMISSIONS: GHG emissions associated with the EECRP upstream inputs, transport, site construction, installation, implementation, dismantling, and disposal to be accounted for according to the following two scenarios: 1) If the EECRP is a product substitute, other project emissions are therefore comparable between the baseline and project scenarios and are excluded from the GHG reduction calculation 2 or 2) If the EECRP is not a product substitute, then other project emissions are additional to the project scenario and need to be accounted for in the GHG reduction calculation. 3 Other project emissions are to be accounted for per the instructions below: Upstream GHG emissions resulting from the production of material and/or energy inputs from non-dedicated, third parties Transportation includes GHG emissions associated with transport from the production site to wholesale/retail, to the point of installation, and to the point of disposal Installation includes any GHG emissions associated with the product installation at the point of implementation Implementation includes the operational GHG emissions of the EECRP 1 This purpose of this methodology is to identify GHG emission sources that will change between the baseline and project scenarios due to the project activity. Emission sources that remain constant between these scenarios are therefore excluded from the calculation. 2 A product substitute is an EE product that displaces a non-ee product (e.g. CFL lighting displaces incandescent light bulbs). 3 A non-product substitute is an EE product with an alternative baseline scenario being the absence of any product at all (e.g. smart-grid technology)
Disposal GHG emissions include end-of-life associated emissions required for the decommissioning of the product Leakage or any other change in GHG emissions beyond the project boundary For IFC investments where the above indirect GHG emissions are too difficult to estimate, the following conservative default emission factors 4 can be used 5 : EE Product Category by weight per product tco2e per MT of EE product A. 6-11 MT (e.g. heat exchangers) 7.91 B. 3-6 MT (e.g. small boiler) 4.19 C. 1-3 MT (e.g. diesel irrigation pumps) 1.86 D. 0-1 MT (e.g. small engines) 0.51 Assuming that the indirect emissions would be comparable in a given weight category, and in the absence of more accurate data, the user should select the most suitable category from the table above (based on the weight of each product) and use the given emission factor in order to estimate indirect GHG emissions. For e.g. indirect GHG emissions from manufacturing 1000 units of energy efficient product X weighing 4 MT each (category B, as per table above) will be equivalent to 16,760 tco2e (4MT x 4.19 tco2e/mt x 1000 units). The Project Emissions equation is: Project Emissions (PE 1 ) 6 = Operational Emissions + Other Project Emissions 2. BASELINE EMISSIONS (PE 0 ): The baseline activity is the project scenario that would have occurred in the absence of the IFC project. For EECRP, the baseline activity is the alternate product that the EECRP is designed to replace or the absence of the EECRP. As multiple options may apply in the absence of the EECRP, please follow the rule of conservativeness to address any uncertainty. 4 Given the limited availability of data after a product has been sold, the emission factor for indirect GHG emissions has been estimated based on typical life-cycle emission figures during operations & maintenance, decommissioning and transportation stage of different equipments. 5 Emission factors are based on individual products and derived from various studies on life-cycle GHG emissions including: 1) Climate Leaders Greenhouse Gas Inventory Protocol Offset Project Methodology for Industrial Boiler Efficiency version 1.3. Office of Atmospheric Programs, EPA, 2008; 2) Mann, M.K., Spath, P.L. Life Cycle Assessment of a Biomass Gasification Combined-Cycle System. National Renewable Energy Laboratory, 1997; 3) Weisser, D. A guide to life-cycle greenhouse gas (GHG) emissions from electric supply technologies. PESS/ IAEA, 2007; and 4) Raadal, H. L., Gagnon, L. and Hanssen, O. J.. Life cycle greenhouse gas (GHG) emissions from the generation of wind and hydro power. Renewable and Sustainable Energy Reviews 2011; 5) Pehnt, M. Dynamic life cycle assessment (LCA) of renewable energy technologies. Renewable Energy, 2005. 6 Units are in tonnes of CO2e per year or tco2e/yr.
To determine baseline GHG emissions, use the CEET s Alternate Project Emissions worksheet to input baseline emission sources. Ensure to include the same emissions sources as those noted in the previous section, Project Emissions, such that differences between the baseline and the project scenario can be determined. 3. GHG REDUCTION: Calculate the GHG emission reduction by subtracting the IFC Project Emissions (PE 1 ) from the Baseline Scenario Emissions (PE 0 ): GHG Reduction = Baseline Emissions (PE 0 ) - IFC Project Emissions (PE 1 ) As noted earlier, this can be done using the CEET for the first year at full production for a project, as a representative year. Annual production variation and longer periods of construction should be captured by year, as noted in the next section. 4. TIMELINE: The timeline for the project GHG emission reduction calculation starts at the Commitment Stage of the IFC Project Cycle and is limited to the term of IFC financing and not beyond. For equity and other financial products with indefinite timelines, a standardized timeline of 10 years should be assumed to be conservative. 7 Account for all GHG emission reductions and other associated impacts during this time period. 8 5. ILLUSTRATIVE EXAMPLE: In the example below, the difference between the baseline and the project emissions (the GHG reduction) is illustrated: Assumptions: 1. The project is the manufacture of EE double paned windows in China. 2. Loan term is equal to 7 years with one year grace period. 3. Operational emissions during manufacturing process are a constant 160,000 tco2e/yr. 4. A review of glass products revealed that double-paned windows can reduce loss by 30-50% when compared to the most efficient, non low-e glass type made by the same company and its competitors in China. In order to be conservative, we assume that the average loss reduction is only 30%. 7 Beyond IFC financing, implementation assistance, and supervision, we have no assurance that any GHG reductions are actually taking place. This is consistent with IFC s gross emissions accounting methodology and is also consistent with internationally accepted methodologies, such as CDM, where one-time net calculations do not extend beyond 10 years. 8 Grace periods and other operational delays before the project is implemented show up as the baseline being equal to the project scenario (GHG reduction equal to zero) as anything before implementation is business-asusual.
years of manufacture/sales 5. The low emissivity and high solar gain of the low-e window, when compared to its most efficient, non low-e competitor (for conservativeness), results in an energy index improvement of more than 5 kwh/m2/year. Based on 27M m2 of low-e glass per annum production, 135,000,000 kwh are being reduced per year. 6. China low-e glass exports vary by company and year but have focused in the past on domestic use in China, USA, and EU. Given uncertainty and variability regarding future sales and, therefore, related GHG emissions, the emission factor per kwh to be used is that of EU (for conservativeness purposes, it results in the lowest GHG reductions given the low emission factor of the EU grid) and translates into at least 48,897 tco2e/yr being reduced, which is constant over the project life. Per the below diagram, please note that each year s production continues to reduce emissions over time as additional years of production are added, thus the stepwise timeline diagram is unique to climate related products. The above calculation is a simplified example of how to aggregate GHG emissions and thus GHG avoidance for EECRPs, as each step in the GHG calculation is a complex calculation in itself. Actual project calculations will have details for each individual calculation by year, capture annual variations, illustrate all assumptions, denote how uncertainties were overcome, and demonstrate conservativeness. GHG Abatement Timeline yr-1 yr-2 yr-3 yr-4 yr-5 yr-6 yr-7 yr-8 yr-9 yr-10 (tco2e) (tco2e) (tco2e) (tco2e) (tco2e) (tco2e) (tco2e) (tco2e) (tco2e) (tco2e) Manufacturing Emissions 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 160,000 Annual GHGs Reduced - yr 1 (24,449) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 2 0 (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 3 0 0 (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 4 0 0 0 (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 5 0 0 0 0 (48,897) (48,897) (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 6 0 0 0 0 0 (48,897) (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 7 0 0 0 0 0 0 (48,897) (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 8 0 0 0 0 0 0 0 (48,897) (48,897) (48,897) Annual GHGs Reduced - yr 9 0 0 0 0 0 0 0 0 (48,897) (48,897) Annual GHGs Reduced - yr 10 0 0 0 0 0 0 0 0 0 (48,897) Cumulative GHG Reduction 135,552 62,206 13,309 (35,588) (84,485) (133,382) (182,279) (231,176) (280,073) (328,970) The total GHG emission reduction over the 7 year timeline is 224,667 tco2e and, therefore, the total annual average GHG reduction for this IFC project is 32,095 tco2e/yr (224,667 tco2e divided by 7 years).
6. REPORTING: Please use the GHG Emission Reduction Calculation Template 9 to record GHG reduction calculations and upload it to the project's idesk GHG Emissions tab, under the "attach" section. This is to support any project GHG reduction claims and is required for any project that is to be considered "climaterelated" for the purposes of climate-related tracking. The CEET is to be used to compare the Project Emissions (in the IFC Gross Project Emissions worksheet) to the Baseline Emissions (in the Alternate Project Emissions worksheet), illustrating variations between the two scenarios. While the CEET will not capture annual variations, a representative year will suffice for peer review. 9 http://www.ifc.org/climatebusiness
IFC Climate Business Group 2121 Pennsylvania Avenue, NW Washington, DC 20433 http://www.ifc.org/climatebusiness Lucas Broussard lbossard1@ifc.org Sabin Basnyat Sbasnyat@ifc.org