Global Biofuels Blog

The CDM EB adopted a ground breaking methodology (ACM0017) in 2010 which allows for biodiesel production (not consumption) to be registered as a CDM project (generating CER) under the UNFCCC framework. This is a break from previous regulations and big step forward in recognizing the potential role of biodiesel in combating climate change. Not surprisingly, biodiesel¹ producers are optimistic about the positive impact of the new methodology in aiding the development of their industry.

The new methodology had various stringent criteria to ensure the GHG abatement potential of biodiesel from a life cycle perspective. Firstly, the feedstock for biodiesel production need to be from a new plantation on degraded/degrading land that has been dedicated to the production of biodiesel feedstock.  Secondly, this methodology is only eligible for biodiesel produced and used within the host country and for vehicles; it must be a captive fleet.  Lastly, stringent checks are expected at both the blending and consumption levels.

Looking deeper, the real benefit of the new methodology might not be as optimistic as most would have hoped for it to be. Dedicated plantations increase the business risks to plantation owners. Consumption criteria limit the market and stringent monitoring requirement add to business costs. The beneficiaries of this new methodology will most likely be biodiesel producers supplying to domestic public transportation, government vehicle fleets as well as hardy and locally consumed feedstocks that are more likely to grow on degraded lands such as jatropha. However, the eventual economic feasibility of this methodology in benefiting biodiesel production will depend on the relative cost of monitoring consumption and terra-treating of degraded land to achieve crop productivity and benefit that could be derived in the form of revenue from CER.

Furthermore, as this methodology is only applicable for blend levels above the mandated level in the host country, its adoption might somewhat have an impact on the implementation of biodiesel mandates in developing countries.

The Global Biofuels Center will analyze this issue further in its upcoming Special Report: Carbonomics 2 scheduled for release early 2010.

1) Biodiesel is defined as FAME produced by the esterification of vegetable and/or waste oil with alcohols from biogenic and/or fossil origin.

Ang Ding Li, our manager of Global Strategic Services for HEC, highlights the misconceptions for biofuels and CDM:

There are some critical fallacies on the relationship between biofuels and the complex Kyoto Protocol, which governed the issuance of Clean Development Mechanism (CDM) carbon credits. Many biofuels producers, even those regarded as the largest, are under the misguided understanding that the production of biofuels and the cultivation of biofuels feedstocks (e.g. jatropha) are eligible for carbon credits under the CDM scheme.

The Kyoto Protocol consists of 1) Annex 1 (developed) countries that have CO2 emissions reduction targets and 2) non-Annex 1 (developing) countries, the majority of which can benefit from CDM schemes through carbon credits (CERs) generated by engaging in activities that reduce CO2 emissions. Biofuels by virtue of their CO2 emission reduction abilities will be eligible for carbon credits under the broader Kyoto Protocol. Politics aside, this is certainly the case for Annex 1 countries that have CO2 emissions reduction targets - hence the huge case for biofuels mandates and subsidies in these developed countries.

The picture is very different for the developing non-Annex 1 countries where biofuels are being perpetuated under very different market dynamics. To date, there are no biofuels projects registered as CDM projects. As a result, no CDM carbon credits have been generated from the many biofuels projects in the developing world. This can be primarily attributed to 1) the lack of standardized accounting methods to calculate the carbon footprints of biofuels, 2) the non-eligibility of biofuels exported to Annex 1 countries for CDM, 3) ineligibility of vehicles using similar engine technology to those using fossil fuels for the CDM scheme, 4) poor operational consistency of first generation biofuels and 5) the existence of other cheaper projects that generate more carbon credits per dollar invested. These restrictions kept most of the biofuels projects out of the CDM scheme.

Another fallacy with the CDM scheme is the ease of obtaining carbon credits from projects involving the cultivation of biofuels feedstocks (e.g. jatropha) under the CDM scheme. Such projects, if conducted like quasi-reforestation projects on marginal lands, may be eligible for carbon credits under the CDM schemes. The first afforestation project was awarded carbon credits under the CDM scheme in March 2009 in India. However, given the complexities in accounting for greenhouse gas (GHG) abatement, the direct cultivation of crops on marginal lands may not be directly eligible as a CDM project. As such, it would be easier to generate carbon credits by using waste biomass generated from the land for power generation in place of fossil fuel if CO2 emissions are being avoided or reduced.

Particular opinion convergence has been achieved during the Poznan Climate Change Conference in Dec 2009 which set a precursor to the Copenhagen talks this December trying to finalize climate change policies for the post-Kyoto era.  This is further supported by the carbon finance markets which current offers CER futures well beyond 2012. It is expected that at the Copenhagen meeting, the registration process and regional distribution of CDM projects will be enhanced. Furthermore, eligibility of projects that are currently limited in scope within the CDM scheme such as energy efficiency, carbon capture and storage as well as forestation projects are likely to be further expanded. CDM has proven to be effective; its successes should be built on and further improved for global good, including for biofuels.