4th GGFR Global Forum: Gas Flaring Reduction Solutions - - PowerPoint PPT Presentation

Pilot Auction Facility Potential to Deliver Climate Finance in Oil & Gas Sector

Khanty-Mansiysk, Russian Federation, 9 –10 September, 2015

4th GGFR Global Forum: Gas Flaring Reduction Solutions

Session #2 Gas Flaring and Climate Change Scott Cantor, The World Bank

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The PAF’s Objectives and Scope

• Pilots an innovative climate finance

mechanism that uses auctions to maximize impact of funds

• Provides incentive for private sector

investment in projects that reduce greenhouse gas emissions

• Disburses resources against

independently verified emission reductions

• $100m target capitalization – learning a key objective for scaling-up or replication for use with
• ther pollutants or other results

PAF Contributors

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• Carbon credit prices collapsed, stranding projects with no

incentive to reduce emissions

• The PAF uses “put options” to guarantee a floor price for

sale of future carbon credits

• Put options give the right, but not the obligation to sell at

the guarantee price

The PAF Offers a Price Guarantee by Using the Financial Equivalent of a Put Option

• The auction result sets the guarantee

price level

• Auctioning ensures that the least-cost

climate mitigation activities are selected

• Auction winners purchase the price

guarantee (pay put premium)

2008 2020 2010 2012 2014 2016 2018

Historic and hypothetical emission reduction prices*

“Put option” price guarantee

Price guarantee exercised Price guarantee not exercised

*Prices after 2014 are hypothetical and for explanatory purposes only.

Paris COP ?

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For Background – The PAF’s First Auction Result

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Why Consider a Climate Finance Mechanism in the Oil and Gas sector?

Sources: Carbon Limits analysis based on the data from NOAA/GGFR, IEA, Rhodium 2015.

• A massive resource waste
• Large potential for low cost GHG mitigation
• Significant co-benefits from reduced smog and particle

emissions

• Momentum building up to address flaring, e.g. Zero

Routine Flaring by 2030 initiative

• Climate finance (e.g. PAF-like instrument) can

contribute and help reinforce national policies

Flaring of associated gas

• The sectors own emissions 8% of global GHG emissions
• Targeted by the IEA as a priority area of early and cost-efficient mitigation options (Bridge Scenario)
• Barriers hinder emission reduction efforts

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Analyzing Suitability of a PAF-like Instrument to Support Reduction in Gas Flaring

Pictures: GE, Fleet and fuels, Gazprom, EME, SINTEF,

Investment sub-categories and aspects against which their suitability is evaluated

GF1 Power for own site use GF2 Power for own site use and delivery to market GF3 Gas delivered by pipeline GF4 Gas delivery by mobile equipment (CNG/LNG) GF5 On site liquefaction of gas (GTL/GTF) GF6 Reinjection of gas GF7 Large scale gas processing and delivery by pipeline GF8 Large scale LNG/GTL/GTC investment

Calculation of GHG impacts

Relevant MRV framework being sound and practical New standards not entailing large costs Predictability and low risks in GHG calculations

Economic impacts

Scale of emission reductions Price paid per tCO2e reduction up to 10 US$

“Free riders” and perverse incentives

Target investments that facing barriers Avoid relaxation of flare policies and regulations

Auctioning and tradability

Eligible players: fields that flare and face barriers Cost structures, emission reduction profiles and investment lead time which impact deign of instrument

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Way Forward to Explore Opportunities to use PAF-like Mechanism for Reduction of Gas Flaring

Conclusions

• Small and medium scale projects score best on applicability test
• Four sub-categories offer the best opportunities:
• Power for own use
• Power for own use and delivery to market
• Gas delivery by pipeline
• Gas delivery by mobile equipment (CNG/LNG)

Next step:

• Receive comments and engage in discussion with stakeholders
• Explore possible facility design

Issues for discussion:

• Can results based climate finance, like the PAF, play a role?
• Is a guaranteed price for carbon credits important to unlock barriers?
• In instrument design: how to balance simplicity with environmental integrity?
• Is auctioning and tradability preferable to administrative pricing?

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ANNEX

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Gas flaring sub-categories suitability assessment

Calculation of GHG impacts Economic impacts “Free riders”

• Perv. incentives

Auctioning and tradability GF1 Power for own use GF2 Power for own use and to markets GF3 Gas delivered by pipeline GF4 Delivery by mobile equipment (CNG/LNG) GF5 Small and medium size gas to liquids (GTL) GF6 Reinjection of gas GF7 Large gas processing & delivery by pipeline GF8 Large scale LNG/GTL/GTC Score on evaluation aspects: High Medium Low Not suitable