Read Strategy for Zimbabwe text version

PROGRAM OF NATIONAL CDM/JI STRATEGY STUDIES NSS PROGRAM

STRATEGY FOR ZIMBABWE

WITH RESPECT TO

ACTIVITIES IMPLEMENTED JOINTLY (AIJ)

AND THE

CLEAN DEVELOPMENT MECHANISM (CDM)

October 2000

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TABLE OF CONTENTS

EXECUTIVE SUMMARY

1. 2. 3. 4. 5. 6. 7. 8. 9.

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NSS Background ..................................................................................................................................... 6 Zimbabwe's Energy Base ....................................................................................................................... 7 Zimbabwe's Potential Participation in the CDM ................................................................................ 8 Mitigation................................................................................................................................................. 9 Zimbabwe's Offer to OECD Countries on the GHG Market ............................................................ 9 Selection Criteria for CDM Projects.................................................................................................... 10 Risk Identification ................................................................................................................................. 12 Decisions For Zimbabwe...................................................................................................................... 12 Conclusions............................................................................................................................................ 13

1.

1.1 1.2 1.3 1.4

THE UNFCCC, KYOTO PROTOCOL AND AIJ

14

Introduction ........................................................................................................................................... 14 Earlier Climate Change Studies/Activities in Zimbabwe............................................................... 15 UNFCCC and the Kyoto Protocol....................................................................................................... 16 Conclusions............................................................................................................................................ 17

2.

2.1 2.2 2.3

DOMESTIC PREREQUISITES

18

Introduction ........................................................................................................................................... 18 Proposed Institutional Arrangements................................................................................................ 18 Some Crucial Elements in CDM.......................................................................................................... 21

3.

3.1 3.2 3.3 3.4 3.5

DEMAND FOR GHG OFFSETS AND MATCHMAKING POTENTIAL BETWEEN DEMAND AND ZIMBABWEAN SUPPLY

23

GHG Emissions in OECD Countries, Target Emissions, and Expected Trading Prices.............. 23 International Demand for and Zimbabwean Supply of GHG Reductions ................................... 23 Market Mechanisms ............................................................................................................................. 26 Architecture of an Emission Market................................................................................................... 28 How to Position Zimbabwe in the Offset Market............................................................................. 31

4.

4.1 4.2 4.3 4.4 4.5 4.6 4.7

SECTORIAL GHG EMISSIONS, INVENTORY, DEVELOPMENT, AND OFFSET POTENTIAL

39

Introduction ........................................................................................................................................... 39 Macro-Economic Analyses and Major Assumptions ....................................................................... 39 Zimbabwe Energy Supply ................................................................................................................... 41 Zimbabwe GHG Emissions Inventory ............................................................................................... 47 Emissions Projections ........................................................................................................................... 51 GHG Abatement Potentials ................................................................................................................. 57 Other Possible GHG Abatement Projects .......................................................................................... 60

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5.

5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8

GHG MITIGATION IN ZIMBABWE: OPTIONS AND BENEFITS

61

Introduction ........................................................................................................................................... 61 Significant Identified Mitigation Options.......................................................................................... 61 The Value of the Potential GHG Market for Zimbabwe.................................................................. 61 Projects Pipeline .................................................................................................................................... 62 Project Selection Criteria ...................................................................................................................... 62 Secondary Project Benefits................................................................................................................... 64 Regulatory Mitigation Options ........................................................................................................... 64 Conclusions............................................................................................................................................ 66

6.

CONCLUSIONS

67 68

APPENDIX: GHG PROJECTS ­ UNIFORM REPORTING FORMAT FOR AIJ UNDER THE PILOT PHASE

PROJECT 1 PROJECT 2 PROJECT 3 PROJECT 4 PROJECT 5

OSBORNE DAM.............................................................................................................. 69 TOBACCO CURING....................................................................................................... 75 SEWAGE GAS POWER.................................................................................................. 81 BOILER EFFICIENCY IMPROVEMENT ..................................................................... 86 COAL BED METHANE.................................................................................................. 90

REFERENCES

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FIGURES

Figure 0.1 Figure 2.1 Figure 3.1 Figure 3.2 Figure 3.1 Figure 3.4 Figure 3.5 Figure 3.6 Figure 4.1 Figure 4.2 Figure 4.3 The National Energy Balance in Pie Chart Form.................................................................. 7 Proposed Institutional Arrangements for CDM Project Screening and Approval ........ 19 Hypothetical Situation in the GHG Market ........................................................................ 27 Zimbabwe's Offer at a Given Price P1 ................................................................................. 28 Prototype Carbon Fund Suggested by the World Bank .................................................... 30 Forces Determining Attractiveness of the Offset Market for Zimbabwe ........................ 31 Profile of Demand of OECD Countries................................................................................ 33 Matchmaking Prerequisites for DCs to Get into Successful Trade .................................. 34 The National Energy Balance in Pie Chart Form................................................................ 41 Sectoral Distribution of GHG Emissions from Commercial Fuels ................................... 47 Contribution of Individual GHGs to Total Emissions in Zimbabwe............................... 48

TABLES

Table 0.1 Table 0.2 Table 3.1 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.10 Table 4.11 Table 4.12 Table 4.13 Table 4.14 Table 4.15 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 5.5 Emission Projection by Sector ................................................................................................. 8 General Benefits Accruing to Zimbabwe............................................................................. 11 Estimates of the Size of the CDM Market in 2010 .............................................................. 24 GDP Growth............................................................................................................................ 40 The Energy Resource Base in Zimbabwe ............................................................................ 41 ZESA Plants, Interconnectors, and Latest Approved Expansion Plan ............................ 43 Extent of Household Electrification Zimbabwe by Province (1992) ................................ 44 Summary of GHG Emissions in Zimbabwe, 1994 .............................................................. 46 Coal Demand Schedule.......................................................................................................... 52 1994 Emissions and Projected GHG Emissions from Electricity Generation and Coal Supply ............................................................................................................................. 52 Present and Expected Capacities of the Cement Plants .................................................... 53 Emission Projections for the Industry, Commercial and Residential Sector................... 54 Projection of GHG Emissions from the Transport Sector Based on GDP Growth Rate ............................................................................................................................ 55 GHG Eission Pojections from Lnd-use Cange and Frestry ............................................... 55 GHG Emissions Projections from Agriculture.................................................................... 55 Summary of Emission Projections by Source...................................................................... 56 Projects Pipeline...................................................................................................................... 59 Mitigation Options Analysed for the Supply Side ............................................................. 60 National Economic Development Priorities and Strategic Options for Zimbabwe ................................................................................................................................ 62 National Environmental Priorities for Zimbabwe.............................................................. 63 Sectoral Environmental Priorities......................................................................................... 63 General Benefits Accruing to Zimbabwe............................................................................. 64 Specific Project Benefits ......................................................................................................... 64

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ACKNOWLEDGEMENTS

The Zimbabwe government would like to thank the government of Switzerland for financing the National Strategy Study and the World Bank as well as Swiss companies (Ernst Basler and Partners and Carbotech) for providing technical assistance to the project. Furthermore, the Zimbabwe government would also like to thank the following consultants for providing the technical support as well as carrying out the research work. External Consultants Dr J Fuessler Dr U Brodmann Dr J Janssen Dr T Buerki Dr W Kaegi Zimbabwe Consultants Dr T Ngara Ms M Sangarwe and Dr R S Maya Mr C Dube and Mr S Matema Dr C Matarira and D Kwesha Mr R Chizema and Mr D Corri Mrs D Kayo and Dr M Muyambo Project Coordinator GHG Offsets Potential (Energy Sector) GHG Offset Potential (Industry, Residential and Transport Sectors) Land-use Change and Forestry and Agriculture Sectors Markets and Financial Mechanism Options for Zimbabwe Ernst Basler and Partners Ernst Basler and Partners Ernst Basler and Partners Carbotech University of Sankt Gallen, Switzerland

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ACRONYMS

AEEI AIJ CDM CER COP I CSO CZI DCs EIA EIT EPA ERU ESMAP EST FC FINESSE GDP GEF GHG GTZ ICs IET IMF IPCC IRT LPG MAC MMET NAFTA NRSE NSS OECD PV SADC SAPP SCEE UNDP UNEP UNITR UNFCCC URF WWF ZIC ZIMASCO ZIMPREST ZPC ZESA Autonomous Energy Efficiency Improvement Activities Implemented Jointly Clean Development Mechanism Certified Emission Reduction Conference of the Parties I Central Statistics Office Confederation of Zimbabwe Industries Developing Countries Environment Impact Assessment Economies in Transition Environment Protection Agency Emission Reduction Units Energy Sector Management Assistance Programme Environmentally Sound Technology Forestry Commission Financing Energy Use in Small Scale Enterprises Gross Domestic Product Global Environmental Facility Greenhouse Gas German Technical Co-operation Industrialised Countries International Emission Trading International Monetary Fund Intergovernmental Panel on Climate Change Industrial, Residential and Transport (Sector) Liquid Petroleum Gas Marginal Abatement Cost Ministry of Mines, Environment and Tourism North Atlantic Free Trade Association New and Renewable Sources of Energy National Strategic Study Organisation for Economic Co-operation and Development Photo voltaic Southern Africa Development Community Southern Africa Power Pool Southern Centre for Energy and Environment United Nations Development Programme United Nations Environmental Programme United Nations Institute for Training and Research United Nations Framework Convention on Climate Change Uniform Reporting Format World Wide Fund for Nature Zimbabwe Investment Centre Zimbabwe Mining And Smelting Company Zimbabwe Programme for Economic and Social Transformation Zimbabwe Power Corporation Zimbabwe Electricity Supply Authority

CONVERSION FACTOR FROM CARBON (C) TO CARBON DIOXIDE (CO2) To calculate the conversion factor to CO2, total carbon oxidised should be multiplied by the molecular weight ratio of CO2 to C (44/12) to find the total carbon dioxide.

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EXECUTIVE SUMMARY

1.

1.1

NSS Background

Rationale for NSS

In Zimbabwe most of the national aggregated greenhouse gas (GHG) emissions are associated with CO2 that originates from coal combustion and land-use change and forestry. Most of the CO2 emissions can be linked to the energy, industry, transportation, agriculture, residential, and public sectors. A 25-percent decrease of CO2 emissions is possible through technological upgrading. The national target for Zimbabwe would therefore be to substantially reduce future CO2 emissions (relative to GDP) with a process of economic growth based on policies and measures that increase energy efficiency and, in particular, that introduce new production and energysaving technologies. To facilitate this, the World Bank, through the National Strategy Study (NSS), assists countries in exploring opportunities and benefits that may be accessed through the Clean Development Mechanism (CDM) framework. It is, therefore, the aim of the NSS to provide Zimbabwean authorities with information that allows them to better understand opportunities presented by potential international markets for GHG offsets and to develop options for their potential use. In order to achieve this objective, the study has quantified the potential for Certified Emission Reductions (CERs) in some selected sectors of the Zimbabwean economy. 1.2 Activities Implemented Jointly (AIJ)

At the First Conference of the Parties (COP I) the pilot phase of the Activities Implemented Jointly (AIJ) was adopted. This was designed to provide a learning curve for the Joint Implementation (JI) (Article 4.2 of the UNFCCC). The concept of JI introduces the idea of international cooperation among all parties of the UNFCCC with the goal of stabilising atmospheric greenhouse gas concentration. Cooperation is perceived as a cost-effective means for encouraging Annex I countries to meet their respective UNFCCC commitments when mitigation activities abroad offset domestic greenhouse gas emissions. Such an arrangement allows any Annex I party to exploit climate-change- mitigation cost differentials between countries. The amount of emission reduction units that can be credited depends on the amount of greenhouse gas emissions avoided by implementing projects abroad. AIJ provides a similar transaction, with the major difference being that credits do not yet accrue to the investor country. It should be noted that AIJ projects can also be undertaken between Annex I countries. Zimbabwe signed and ratified the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 and the Convention entered into force in March 1994. By being a party to the Convention Zimbabwe is entitled to participate in the AIJ framework. Since the initiation of the AIJ pilot phase in 1995, Africa has not gained much experience, as a result of which Africa's contribution to the JI learning curve is negligible. The reason for this is that very few AIJ projects ­ only four ­ have been implemented in Africa. One of the four Zimbabwe projects is the Manyuchi Mini-Hydro Scheme, an AIJ project between Zimbabwe and the E-7 electricity utilities.

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1.3

The Clean Development Mechanism

In the Kyoto Protocol, which was signed in December 1997, the parties to the UNFCCC agreed on legally binding GHG limitation and reduction commitments. A new concept, the Clean Development Mechanism (CDM), is set forth in Article 12 of the Kyoto Protocol. The CDM allows an Annex I party to invest in a host country (non-Annex I) and get Certified Emission Reductions (CER) to meet their obligations in the Kyoto Protocol while the host country gets cash as well as sustainable development benefits associated with the CDM projects. Though the Kyoto Protocol has not yet been ratified, it is strategic for parties to take an early lead in the CDM process by implementing CDM projects. Given this background, there are a number of pertinent questions to ask. At this stage in the negotiations toward the ratification of the Kyoto Protocol where does Zimbabwe stand? What advantages does Zimbabwe have if it enters into the CDM markets early? Does Zimbabwe have a pipeline of projects that could attract potential investors to enter into CDM arrangements? Does Zimbabwe have, or is it ready to create, a suitable domestic infrastructure to accommodate the different players in the CDM process in a cost-effective way? This study attempts to lay the groundwork for Zimbabwe to address some of these questions.

2.

Zimbabwe's Energy Base

Zimbabwe has a large conventional fuel resource base - coal with total reserves of 10.6 billion tonnes, of which half a billion are proven, and hydroelectric power with a total potential of 13 300 MW mainly on the Zambezi River shared system. Figure 0.1 The National Energy Balance in Pie Chart Form

Primary Energy Supply, 1996 100% = 359PJ

Other Fuels 2% Woodfuels 42% Coal 42%

Final Energy Consumption, 1996 100% = 283PJ

Other Fuels 6% Coal 15% Oil derivatives 18% Woodfuels 49%

Electricity Im ports 6%

Oil derivatives 8%

Electricity 12%

Coal makes up about 42% of the primary energy supply in the country and about 70% of domestic power generation, with the remaining internal power generation being hydro based. Petroleum, which amounts to about 8% of primary supply, is imported exclusively in the form of finished distillates. Firewood is the second dominant fuel, making up about 40% of primary supply. It constitutes a major source of energy, especially for the rural population and lowincome urban group. Although statistics to support this do not exist, it is possible that the use of wood as a fuel results in significant deforestation. Clearing land for agricultural purposes is the biggest cause of deforestation, and 1994 estimates put such clearing at over 18 000 hectares per annum [Zimbabwe Initial National Communication, 1998].

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Forms of renewable energy such as solar gas and biogas have received notable attention, but this has been mainly at the research level or under diffusion activities funded on a non-commercial basis. While solar water heaters are becoming more common in high-income urban areas, the cost relative to alternative and more traditional heating appliances still puts them beyond the means of the majority of the people. Energy balance pie charts are shown in Figure 0.1. It should be noted that some of the coal is used as raw coal and in electricity and coke production. This explains the disparity between the percentages for the primary energy supply and final energy consumption.

3.

Zimbabwe's Potential Participation in the CDM

In the coming years economic growth and rising residential demand will require an increased supply of all the above-mentioned fuels. There are significant expansion plans for coal-based power generation in the short to medium term (i.e., until 2004). However, expansion of largescale hydro generation on the Zambezi River is planned for 2010 and beyond. This will require close co-ordination with neighbouring countries. The Zimbabwe Initial National Communication shows that Zimbabwe has a big potential for participation in the CDM process due to its growing greenhouse gas emissions, particularly in the energy sector. As a consequence, there is a potential for Zimbabwe to undertake CDM projects in those identified sectors where emissions are likely to grow. Table 0.1 summarises emission projections from all major sources in the country up to the year 2020. Emissions in 1994 are based on Zimbabwe's Initial National Communication. Emissions in later years have been extrapolated using the GDP growth rate of 4.6% up to 2010 and 3.8% thereafter. Table 0.1 Emission Projection by Sector (Gg/CO2 Eq.)

GDP Rate 4.6 % 1994 All Energy Fugitive Fuel Emissions Industrial Processes Agriculture Land Use Change & Forestry Waste TOTAL Emissions 19 076.68 324.32 4 732.20 13 388.96 18 831.74 616.06 56 969.96 2000 24 990.45 424.86 6 199.18 17 539.54 24 669.58 807.00 74 630.61 2005 31 288.04 531.92 7 761.38 21 959.50 30 886.31 1 010.41 93 437.56 2010 39 172.63 665.97 9 717.24 27 493.30 38 669.66 1 265.00 116 983.80 GDP Rate 3.8 % 2015 47 203.02 802.49 11 709.27 33 129.42 46 596.94 1 524.36 140 965.50 2020 56 879.64 967.00 14 109.68 39 920.96 56 149.31 1 836.81 169 863.40

NB: The 1994 emissions are based on the Initial National Communication. It is assumed that the GDP growth rate is proportional to the emissions. The GDP growth rate is taken to be 4.6% up to 2010 after which it declines to 3.8% (see Section 4.2.2).

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4.

Mitigation

This National Strategy Study (NSS) considers a pipeline of five projects selected from a longer list of twenty-one mitigation options previously presented in the Initial National Communication. These five mitigation options are drawn from the energy, industry, agriculture, and residential sectors. The project titles are as follows: · · · · · Use of coal-bed methane for ammonia generation Investment in a mini hydro-project to supply electric power to rural and peri-urban consumers Increasing boiler efficiency in industry Improving energy efficiency in tobacco curing Generation of power from gas produced at the sewage plant

It should be noted that these projects are examples that have a high replication potential. However, the full reduction potential in Zimbabwe at various cost levels could not be determined. An Example of a Mitigation Project: Improving the Technology of Tobacco Curing Background: The tobacco is cured on the farms and causes significant CO2 emissions. Very simple furnaces are employed for the curing process; and wood is being used as a fuel. The fuelwood is harvested largely and increasingly from common property resources at a level well above regeneration levels. Thus the wood used for curing is not CO2-neutral. Project: Introduction of "slot furnaces" would reduce wood fuel requirements by about 55%. Given an annual baseline CO2 emission of approximately 100 000 t CO2 per annum, annual emission reductions of approximately 50 000 t CO2 could be achieved. Assuming a project lifetime of 11 years (2002-2012), total savings could amount to 550 000 t CO2. Benefits: Global emission reductions as well as social, environmental, and economic benefits for the local population are also associated with the project.

5.

Zimbabwe's Offer to OECD Countries on the GHG Market

The Organisation for Economic Co-operation and Development (OECD) countries are responsible for about 70% of the global GHG emissions (1990 emissions of about 3.3 Gg CO2 equivalent). This amount is expected to increase by between 1.3 Gg and 2.8 Gg CO2 equivalent between 2008 and 2012 (total for 5 years). Mitigation of these GHG emissions can be attained through emissions reduction or sink enhancement. Emissions can be reduced by countries with commitments either domestically or externally by making use of the flexibility mechanisms (ET, JI, CDM). With this in mind, many OECD countries are increasingly becoming concerned about the impact of their GHG reduction costs on the economies. Quite a number of these countries are expected to meet a considerable share of their commitments abroad. The trade with GHG emissions reduction is attractive due to varying marginal costs of GHG mitigation in OECD countries and developing countries (DCs). The price of CO2 reductions under the CDM is predicted to be approximately US $20/ton of CO2. As demonstrated by the project pipeline, Zimbabwe can attain emission reductions at costs below US $20 per ton of CO2. However, not being an Annex I country, Zimbabwe has no legally binding commitment to reduce GHG emissions.

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5.1

Mechanisms of the GHG Market

Zimbabwe's emission trading with OECD countries follows the rules of the CDM (i.e., Article 12 of the Kyoto Protocol). Through the CDM, DCs will benefit from a technology transfer to increase energy efficiency in the industrial sectors. At the same time the CDM stipulates a sustainable development goal which is attained through the protection of the local environment and the promotion of health benefits and improved infrastructure development. The varying emission-reduction costs between ICs and DCs can be attributed largely to the varying efficiencies in energy use and the wide disparity in developments in infrastructure and technology. To promote markets and reduce risks the World Bank has recently launched a Prototype Carbon Fund (PCF) that foresees that the World Bank act as a broker between the investor and host country. The PCF intends to develop market know-how for the CDM and demonstrate its feasibility. 5.2 How to Position Zimbabwe in the Offset Market

Zimbabwe's situation in the Certified Emission Reduction (CER) market can be equated to that of a company selling a new product in a new and unknown market. Zimbabwe's chances in this market are accordingly influenced by market behaviour. A market analysis to determine Zimbabwe's matchmaking advantages shows that the target focus for Zimbabwe in the carbon offsets market would be Annex 1 countries with which Zimbabwe presently enjoys favourable trading relations. 5.3 Market Constraints on Zimbabwe

The comparative disadvantages that would impede Zimbabwe from operating in an optimal manner in the market are obstacles that originate in Zimbabwe such as transaction costs, Zimbabwe's risk structure, weak institutional structure, and human resource capacity. 5.4 Recommendations for Zimbabwe

Zimbabwe must fulfil the following conditions to be able to participate successfully in the future GHG market: · establish an office where the CDM is promoted · clarify controlling, verification, and monitoring procedures in Zimbabwe · introduce clear rules and regulations on how to proceed in implementing GHG reduction projects · introduce formats, including baseline and additionality calculations and other project information demands, that allow project developers to offer or propose high quality projects. If Zimbabwe wants to be an early participant in the CDM process, then the country has to make a strategic decision based on the initial prices of the CERs i.e., if, in Zimbabwe's opinion, the prices for the CERs that are first traded are too low, then the policy could be to "bank" the CERs and sell when market prices are right.

6.

Selection Criteria for CDM Projects

In addition to watching the GHG market behaviour, Zimbabwe has to set out project criteria that maximise the benefits from the CDM. Some of the criteria follow.

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The project should be compatible with and supportive of national environmental and development priorities and strategies and contribute to cost-effectiveness in achieving global benefits. The project should be officially accepted, approved, or endorsed as a CDM project. It should bring about real, measurable, long-term environmental benefits that are related to the mitigation of climate change and that would not have occurred in the absence of such an activity. Financing the CDM must be in addition to the financial obligations of the donor country within the framework of the financial mechanism of the UNFCCC (i.e., the Global Environmental Facility) and in addition to current official development assistance (ODA). The principle of additionality will be applied to ensure that projects have real environmental long-term benefits related to the mitigation of climate change which would not occur without the project. Risks and barriers to project implementation such as prohibitive capital costs must be clearly identified and demonstrated. Extra or additional financing will be over and above the already existing arrangements and obligations that occur under business-as-usual conditions. CDM projects must also satisfy broad, national environmental priorities and strategies. Besides causing a reduction in GHG emissions, the projects should also provide secondary benefits for the host country and the local communities. The host country's (secondary) benefits are shown in Table 0.2. Table 0.2 General Benefits Accruing to Zimbabwe Benefits Technology Transfer Investments Description Encourages private sector diffusion of innovative technology that can help meet Zimbabwe`s development priorities Expands investments in technologies and projects that reduce GHG emissions while contributing to overall host country development priorities Reduces SO2 emissions resulting in reduced acid rain effects Reduces pollution of air, water, and soil from coal combustion products Reduces deforestation and soil erosion from reduced forest clearing Encourage capacity building and skills transfer, cost saving from facilities and production processes, and provision of new energy services Lead to improvements in general quality of life; cottage industries; improved health Encourages additional private sector investment and dissemination of technologies and practices that contribute to sustainable development Participants get an opportunity to learn about the market and influence the direction of the development of the CDM beyond the initial stages

Environment

Economic

Social benefits Sustainable Development Learning Effects

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7.

Risk Identification

Zimbabwe should identify and assure potential investors that financial risks are identified and reduced in order to improve the chances of project success and reduce the cost of financing. Potential investors are by nature risk averse and need to be convinced that all financial obligations will be met. In the interest of furthering the spirit of mutual trust between the potential investor and host country, project proposals should identify the actual major risks and should have a clear project structure that best allows GHG emissions to be mitigated. Both Zimbabwe and the potential investor should address the risk factor in some of the areas listed below. While some of these risks are well known to international investors, others are new and specific to the CDM. Not all of these risks can be insured. Host Country Investment Climate: · · · · · There must be a consideration of the enforceability of agreements in general and of regulatory risk and some adverse political risk. The potential currency devaluation risk is a factor for consideration. Currency convertibility risk also needs to be considered. A market risk exists that sales fail to meet projections. The adequacy of local infrastructure must be taken into consideration.

Technology and Project Completion: · · · Technology should be proven. Site and/or facility availability should be assured by enforceable agreements. Assets of the project need to be covered by insurance against accidental loss due to fire, flood, and other insurable causes.

Operations and Management: · · Raw materials and inputs need to be available at budgeted qualities. Skilled labour availability can be enhanced by implementing a training programme.

Environmental: · Systems for verification and certification of the avoided GHG emissions must be clear and enforceable.

8.

Decisions For Zimbabwe

The present study puts forward the potential benefits for Zimbabwe. These include sustainable development, environmental, and social benefits. In order to profit from these benefits, Zimbabwe has to formulate an appropriate policy for participation in the CDM process. This policy should bring with it or promote the development of a domestic infrastructure that facilitates the implementation of CDM projects with minimum transaction costs. Such an infrastructure should ensure that the approval process is not loaded down with institutions that are not absolutely essential. Furthermore, Zimbabwe should also ensure that climate-change-mitigation response options are consistent with local environmental agendas--for example, that the importation of advanced technologies contributes toward technology transfer and increased industrial competitiveness in domestic and international markets. Increased use of domestic non-fossil fuel energy sources

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improves fuel supply security at the national level while decentralised renewable energy use contributes to cost-effective rural electrification as well as important health benefits.

9.

Conclusions

The CDM could become an important policy tool in Zimbabwe for addressing environmental and developmental challenges through the use of projects financed, inter alia, by foreign investment. Both the government and Zimbabwean local population will gain from these projects, not only through local environmental benefits at no extra cost, but also because reductions in greenhouse emissions will be realised at a lower cost to society. Moreover, the CDM provides an opportunity for Annex I countries to reduce their costs of compliance with their quantified emission limitation and reduction objectives. Zimbabwe can decide that now is the opportune time for the country to seize this opportunity and put policies and institutions in place that facilitate the speedy implementation of CDM projects. Such a strategic decision will put Zimbabwe in an early lead in the CDM process and allow it to reap the associated benefits despite the fact that there are still many areas in the CDM process that need to be defined. On the other hand, Zimbabwe might want to wait until all the CDM rules and regulations are finalised before it participates. There are risks and advantages to both sides depending upon the outcome of the negotiations.

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1. THE UNFCCC, KYOTO PROTOCOL

AND AIJ

Introduction 1.1

At the First Conference of the Parties (COP I) the pilot phase of the Activities Implemented Jointly (AIJ) was adopted. It was designed to provide a learning curve for the Joint Implementation (JI) (Article 4.2 of the UNFCCC). The JI concept introduces the idea of international cooperation among all parties of the UNFCCC in order to stabilise atmospheric greenhouse gas concentration. Such cooperation is perceived as a cost-effective means for Annex I countries to meet their respective UNFCCC commitments when mitigation activities abroad offset domestic greenhouse gas emissions. The parties to the UNFCCC agreed on legally binding GHG limitation and reduction commitments in the Kyoto Protocol, which was signed in December 1997. A new concept, the Clean Development Mechanism (CDM), is set forth in Article 12 of the Kyoto Protocol. The CDM allows an Annex I party to invest in a host country (non-Annex I) so as to get Certified Emission Reductions (CER) to meet their obligations in the Kyoto Protocol while the host country gets cash as well as sustainable development benefits associated with the CDM projects. Though the Kyoto Protocol has not yet been ratified, it is strategic for parties to take an early lead in the CDM process by implementing CDM projects. Even though the Kyoto Protocol has not yet entered into force, the CDM could become an interesting instrument for Zimbabwe's future environmental investments. The CDM may not only lead to modernisation of the existing capital stock for energy production and consumption, but could also generate a financial surplus for Zimbabwe in the form of additional financial flows based on the CER opportunities. Through economic development Zimbabwe has shown a steady increase in GHG emissions measured by a variety of criteria, e.g., cumulative emissions, emissions per capita, emissions per unit of GDP, etc. It is therefore important to estimate the economically feasible reduction potential of different sectors and calculate abatement costs for different types of projects such as fuel switching, energy savings, renewable energy sources, etc. Given this background, it is important to note the following points.

· ·

In Zimbabwe, most of the national aggregated GHG emissions are dominated by CO2 that originates from the combustion of coal, land-use change, and forestry. Annual emissions of CO2 from coal production and use are very high. It is therefore evident that the country has a substantial abatement potential. Decreasing CO2 emissions by about 25% is possible through technological upgrading. The national target for Zimbabwe would therefore be to reduce future CO2 emissions relative to GDP substantially during the process of economic growth through appropriate policies and measures and, in particular, by introducing new production and energy-saving technologies.

Zimbabwe would like to benefit from Article 12 of the Kyoto Protocol by participating in project activities that fall under the framework of the CDM. This would pave the way for real, measurable, long-term benefits related to the mitigation of climate change.

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1.2

Earlier Climate Change Studies/Activities in Zimbabwe

Zimbabwe was involved in climate change studies and activities prior to the current Swisssponsored National Strategy Study (NSS). Some of these studies and activities are described below. United Nations Institute for Training and Research (UNITAR) Project In 1992 and 1993 UNEP, through its RISO Centre, conducted studies on various abatement options through a local non-governmental organisation, the Southern Centre for Energy and Environment (UNEP, 1993). This study identified mitigation options in industry and agriculture. United States Country Studies In 1995/96 the United States Country Studies Programme was carried out in Zimbabwe under the auspices of the Ministry of Mines, Environment, and Tourism. These studies contributed toward capacity building associated with the preparation of GHG inventories and vulnerability and adaptation assessments. UNDP Capacity Building Project In 1996 Zimbabwe participated in a two-year, regional, four-country Capacity Building Project with the assistance of UNDP (GEF). The main objective of this project was to enable the four participating countries--Mali, Ghana, Kenya, and Zimbabwe--to meet their obligations under the UNFCCC. The method of project execution was through national and provincial workshops throughout the country as well as focused studies on mitigation options, particularly in the energy sector. The greenhouse gas inventory was also revisited using 1994 as a baseline year. Capacity building achieved through this project had a positive impact on the preparation of the Initial National Communication. The project also attempted to examine climate change policies in the four participating countries. Climate Change in Southern Africa (Climate Research Unit, United Kingdom) In 1996 the WWF International commissioned a regional report on the climate change impacts in the Southern African Development Community (SADC) (Hulme, 1996). This report was coordinated by the Climate Research Unit (United Kingdom). The report covered a wide range of topics, i.e., the regional impact of climate change by the year 2050­e.g., changes in natural vegetation, surface water availability, agriculture, disease vectors, biological diversity and adaptation strategies, and development policies. Initial National Communication In 1997 Zimbabwe started working on its Initial National Communication under the UNEP/GEF Enabling Activity Programme. This project was also executed by the Climate Change Office. Under the general framework of the Zimbabwe Initial National Communication Project greenhouse gas inventories were improved by expanded areas of sources of emissions and higherquality data. This exercise was facilitated by the presence of a reasonable number of previous studies. The final product--the Initial National Communication--was submitted to the UNFCCC Secretariat in May 1998. The results of all these studies and activities formed a good basis for the National Strategy Study.

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1.3

UNFCCC and the Kyoto Protocol

Since the Rio Earth Summit, the topic of foreign investment and technology transfer has been a subject of contention between North and South. The transfer of environmentally benign technologies between the North and South provides an excellent opportunity for developing countries to develop with minimum greenhouse gas emissions in the atmosphere. The slow progress in international climate technology transfer has been due largely to the lack of incentives to privatesector actors in the North. The CDM under the Kyoto Protocol is expected to provide these much needed incentives. The CDM may be defined as the process of jointly implementing emissions reduction/sequestration project(s) in a developing country (host) with funds from a developed country (investor). The usual rationale for this is that, since it does not matter in global biophysical terms where greenhouse gas emissions are reduced, it is better to invest in reduction where abatement is cheapest. The CDM has the potential to bring international investments to developing countries. This may have double benefits for climate change mitigation as well as local economic and environmental benefits. Before the Kyoto Protocol the debate on flexible mechanisms centred on Emissions Trading and Joint Implementation (JI). Emissions trading allows Annex I parties to obtain commitments by trading permits among themselves. JI allows Annex I parties to offset commitments by investing in projects in foreign countries that mitigate climate change. The AIJ pilot phase facilitated Annex I parties to invest in climate-change-mitigation projects in non-Annex I parties, but with no credits accruing to them. These mechanisms, particularly JI/AIJ, were viewed with suspicion by some parties because they were seen to be strategies for Annex I countries to avoid taking meaningful measures at home. This may possibly explain the fact that by mid 1998 there were only three AIJ projects in Africa­ the Dutch forest protection project in Uganda, the Norwegian fuelwood project in Burkina Faso, and an E7 hydro-electric project in Zimbabwe (Forsyth, 1999). Another reason may be that there are no sufficient incentives for Annex I parties to invest in Africa. Many AIJ projects have focused on the sequestration of carbon dioxide by forests rather than on the transfer of badly needed environmentally sound technologies (EST) to developing countries. Reforestation, or forest conservation projects, are often adopted because they are relatively cheaper than the complex investment in industry and also because they allow investors to benefit from additional sustainable forestry business. Scientific justifications adopted for forestry-based projects have, however, been challenged for being too simplistic and unduly optimistic. Such projects also do not add to industrial technology transfer as demanded by the South. AIJ and the CDM offer opportunities for North-South co-operation in mitigating climate change. Although these mechanisms are controversial, there is a need to be involved in AIJ and CDM investment for climate change mitigation by transferring badly needed technology to developing countries. Some investment schemes for climate change mitigation may in fact be driven by developed countries' concerns and markets rather than the priorities of the people in countries receiving investment. Integrating foreign investment and climate change policy therefore is not simply about increasing opportunities for private investors, but rather which combination of market and regulatory forces will allow firms the greatest freedom to achieve profits while fulfilling global goals of climate change mitigation.

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1.4

Conclusions

Zimbabwe should therefore weigh the pros and cons of actively participating in CDM mechanisms. Being a party to the UNFCCC, it is in the long-term interests of Zimbabwe to get on board and take measures that will help it meet its obligations in the Convention. Whatever misgivings may exist about these mechanisms, the consensus is that they are outweighed by the potential benefits--technology transfer, climate change mitigation, and socio-economic and environmental benefits. This is one of the avenues Zimbabwe should take to acquire EST. That said, it is reasonable for Zimbabwe to seize transfer-of-technology opportunities presented by the Kyoto mechanisms (UNDP, Issues and Options, 1998).

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2. DOMESTIC PREREQUISITES

2.1 Introduction

Participation in the pilot phase of the AIJ and the Clean Development Mechanism makes it possible for Annex I and Non-Annex I Parties to jointly achieve the twin objectives of global mitigation of climate change and sustainable development for developing countries. Under this partnership Annex I Parties receive credits for the implementation of projects in developing countries. As a party to the UNFCCC, Zimbabwe has an interest in attaining the above-mentioned objectives by participating in either the AIJ or CDM or both. Participating in the AIJ/CDM is expected to lead to emissions reduction or avoidance of GHG emissions. By participating in these mechanisms, Zimbabwe will be able to attract additional investment and income for some of its national development programmes in poverty alleviation, rural infrastructure, education, health, and other socio-economic development objectives. So far Zimbabwe has only one approved AIJ project, a mini hydro project on the Manyuchi Dam in south eastern Zimbabwe (Forsyth, 1999). The investor for this project is the E7, a consortium of electricity utilities from OECD countries. Approval for this project took two to three years partly because there were no streamlined domestic procedures for AIJ projects in Zimbabwe. In order to realise maximum benefits from AIJ programmes, the Ministry of Mines, Environment, and Tourism was officially given the task of acting as the government clearing house for AIJ projects in July 1997. This move demonstrated Zimbabwe's political will to participate in the AIJ programme. It is expected that this same ministry will continue to play the same role for CDM projects. The non-Annex I Parties in turn get technology transfers through investments in CDM projects, profits (producers rent) that can be shared with the public sector as well as sustainable development and environmental benefits associated with CDM projects. It is therefore advisable for Zimbabwe to put in place a domestic institutional framework that facilitates the country's participation in the process and derives the aforesaid benefits. Such a framework should show a clear project approval process with no red tape--i.e., the role of each institution in the process should be clear and non-duplicative. In addition to this, several aspects of the risk factors associated with the project implementation should be addressed to demonstrate to potential investors that it is worthwhile to invest in Zimbabwe. In the next section the domestic institutional arrangements that Zimbabwe would need for the CDM are described.

2.2

Proposed Institutional Arrangements

The proposed operational structure for a CDM regime in Zimbabwe could consist of the following actors: · Clean Development Mechanism Office (CDMO) · Ministry of Finance · Zimbabwe Investment Centre (ZIC) · Ministry of Mines, Environment and Tourism (MMET)

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· ·

Climate Change Office Confederation of Zimbabwe Industries (CZI)

The operational structure of these institutions is illustrated in Figure 2.1.

Figure 2.1

Proposed Institutional Arrangements for CDM Project Screening and Approval

Local Partner

CZI (Advisor)

Investor

Ministry of Mines, Environment and Tourism

Climate Change Office

Discussions

Clean Development Mechanism Office

Discussions

Ministry of Finance

Zimbabwe Investment Centre

NO

Outcome

YES

Implement 2.2.1 Clean Development Mechanism Office [Proposed]

The Clean Development Mechanism Office (CDMO) should be an inter-ministerial (Ministry of Finance and Ministry of Mines, Environment, and Tourism (MMET)) independent organ dedicated to CDM projects. It is expected to deal with all institutions that are relevant in the project cycle as well as providing technical support to on-going projects. It is to be the project-implementing arm of both ministries and will be expected to coordinate the national CDM policy and associated activities. The CDMO will be manned by people from both ministries with financial support from the government. Other functions of the CDMO will include ensuring transfer of technology, foreign currency transfer, and micro-economic benefits and defining baselines and the principle of additionality. 2.2.2 Ministry of Finance [Existing]

This ministry coordinates all foreign investment coming into the country. It will be one of the two co-ministries responsible for the political process, coordination of the policy, and implementation of CDM projects. It is essential that there is a good relationship between this ministry and MMET since they both approve CDM projects (see organogram). The Zimbabwe Investing Centre falls under this ministry. It therefore follows that in terms of administrative functions, ZIC should inform the Ministry about the projects coming into the country.

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2.2.3

Zimbabwe Investment Centre (ZIC) [Existing]

The ZIC is one of the most important actors in implementing projects in Zimbabwe. All new foreign investment into Zimbabwe has to be registered and approved by the Investment Centre when applying for an Investment Certificate. Registration or approval by the ZIC may take from 48 hours to 10 working days depending on the nature of the project. This is in accordance with the Investment Centre Act, which stipulates that within 45 days after receiving an application, the Investment Committee shall reach a decision and notify the applicant. The Investment Committee consists of the executive (chairperson), representatives from various government ministries, and three private sector board members whose role is to represent and spearhead the interests of the private sector. To streamline the project approval process, the ZIC registers projects that meet the following criteria.

· ·

Projects are in the preferred sectors, i.e., manufacturing, including agro-processing and assembling activities, and mining and tourism development. Projects in these sectors can be 100%-owned by foreign investors, but joint ventures with local investors are encouraged. The project meets all the other criteria above including satisfying the Environment Management Act and the immigration requirements. Ministry of Mines, Environment, and Tourism (MMET) [Existing]

2.2.4

This ministry coordinates all environmental programmes and activities in the country. When the CDM process is in operation, its additional responsibilities will be to jointly coordinate national CDM policy formulation with the Ministry of Finance. MMET is expected to liase with all other line ministries and government departments that have input into the CDM process. 2.2.5 Climate Change Office [Existing]

The Climate Change Office is a technical arm of the Ministry of Mines, Environment, and Tourism (MMET). It provides the link with the CDMO, UNFCCC Secretariat and the Conference of the Parties and its subsidiary bodies. 2.2.6 Confederation of Zimbabwe Industries (CZI) [Existing]

The CZI is an umbrella organisation for all Zimbabwe Industries. It will play an important role in the sense that it will be the advisor on the project implementation partnership between the investor and local partner. It is expected that after an initial agreement between the potential investors and local company, the CZI is notified on the nature of cooperation. The CZI will also be expected to disseminate relevant information on AIJ/CDM to Zimbabwe industries at large and organise relevant seminars.

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2.3

Some Crucial Elements in CDM

The following section provides some key information on crucial elements in CDM mechanisms. 2.3.1 Sustainable Development Criteria

Although Zimbabwe is positively disposed toward participating in a CDM process, it needs to determine the criteria for sustainable development on socio-economic issues, poverty alleviation, and cultural and community values. Sustainable development has only been broadly defined. This broad definition will have to be fine-tuned to address national objectives and concerns. Still under debate is whether developing countries like Zimbabwe should set the national criteria or this should be done jointly with some international authority. The merit of having joint responsibility is that it ensures international standards or indicators since it may be tempting for host countries to exaggerate the efficacy of their CDM projects. 2.3.2 Risk Management

There is a close connection between finance, risk management, and project viability. It is therefore vital that AIJ/CDM projects are structured in a way that minimise risks. In project financing, it is a normal practice to introduce guarantees and insurance mechanisms. It is therefore important for Zimbabwe to create an environment that convinces the potential investor that there is minimum project risk in the country. If need be, Zimbabwe could pool its projects together so as to enhance better risk management. The following constitute possible areas of risk: · political risks: the rules of law may change with a change of government · technology risks: for example, system failure or the unsuitability of technology in Zimbabwean conditions · financial or economic risks: for example, competitiveness or investment profitability are impacted by interest rates, exchange rate movements, and other fiscal considerations · Zimbabwe is not in a position to guarantee potential investors against risks that are associated with trends in international markets. However, project financiers can mitigate losses or major project failure through conventional insurance. This aspect is discussed in greater detail in Chapter 3. 2.3.3 Portfolio of Projects

A useful basis for an effective AIJ/CDM process is the existence of a ranked and judiciously selected pipeline of projects based on nationally acceptable criteria. This portfolio of projects should pass the screening test of project implementation in Zimbabwe. A brief description (investment cost and benefits) of each project on the basis of a uniform reporting format should be provided in the pipeline. In this study details of the project pipeline are given in Chapter 4. 2.3.4 Project Baselines

Under Article 12.5c of the Kyoto Protocol, CDM projects are required to demonstrate a reduction in emissions additional to any that would occur in the absence of certified project activity. It is therefore imperative for CDM projects to have baselines against which the reduction of emissions will be gauged and certification eventually conferred. However, the question of project baselines is part of the ongoing climate change debate. Hopefully it will be finalised in COP6.

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2.3.5

Some Remarks

It should be noted that there are still many issues that are yet to be defined in the CDM process. For example, issues of certification, verification, validation, and evaluation are not government functions but are an international responsibility since CERs are an international commodity. This study only mentions some areas of risk. It would take a detailed project with a specific detailed study to go into greater depth about risk management strategies. Coal as a source of energy is strategic for Zimbabwe. Any CDM project in the coal sector will focus on a reduction in future expansion rather than in reduction in production. The latter would imply laying off coal miners, resulting in social and possibly political unrest. Some issues such as the National Sustainable Development Criteria evolve out of political processes and decisions between the two ministries shown in the organogram. Such issues cannot be dealt with in a study of this nature. 2.3.6 Outlook for Zimbabwe

Although much work remains to be done in the clarification of how the CDM could function in the way it is defined in Article 12 of the Kyoto Protocol, Zimbabwe will find itself in an advantageous position if it effects these institutional arrangements now in preparation for a fully functioning CDM process. Zimbabwe's institutional domestic prerequisites should ensure that the CDM projects are characterised by the elements discussed in section 2.3 of this chapter. Ideally, Zimbabwe should create an infrastructure that accommodates national/political priorities and policies that enable the country to achieve the twin goals of mitigating climate change as well as attaining sustainable development under the Kyoto Protocol.

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3. DEMAND FOR GHG OFFSETS AND MATCHMAKING POTENTIAL BETWEEN DEMAND AND ZIMBABWEAN SUPPLY

3.1 GHG Emissions in OECD Countries, Target Emissions, and Expected Trading Prices

The OECD countries are responsible for about 70% of the global GHG emissions. In 1990, the OECD countries emitted about 3.388 Gg CO2. The forecasts for the development of the GHG emissions in the first commitment period 2008/12 show that an excess of GHG emissions compared to the Kyoto commitments of approximately 1.3 - 2.8 Gg CO2 equivalent is expected. Price estimates for CERs depend on demand factors involving Annex B countries, the ratification of the Kyoto Protocol, ceilings on trade, the design of final regulations, domestic reductions of OECD countries including policies used to implement domestic reductions, inclusion or noninclusion of sinks (leading to a bigger or smaller offer and thus a lower or higher price), and the CER (as well as ET offer) in the market. Most price estimates come to a price range of around US $20 per ton of CO2 equivalent for CERs including sinks and US $35 excluding sinks. As a maximum emission trading volume for Zimbabwe we can thus take all CDM projects with a marginal cost lower than US $20 including transaction, risk, certification, validation, and marketing costs and associated fees.

3.2

3.2.1

International Demand for and Zimbabwean Supply of GHG Reductions

OECD Countries: the Demand Side

Expected Demand The projected demand for GHG offsets depends on GHG growth projections and the reduction commitments in accordance with the Kyoto Protocol. Once the Protocol enters into force, the emission targets will become legally binding. Because emissions are expected to continue to rise under the business-as-usual scenario and the emissions targets will only become binding in the first commitment period, the real reductions are measured against their projected business-asusual scenario over the commitment period. This also explains to a considerable extent the differences between the projections made for this market by different models. Variations of a factor of 2 can be observed for the different estimates for the total emission requirements of Annex 1 countries and a factor of 5 for the CDM market, which also depends on outcomes of decisions such as inclusion or non-inclusion of sinks and other factors.

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Table 3.1

Estimates of the Size of the CDM Market in 2010

Size of the CDM market (MtC) Total emissions reductions required of Annex I countries (MtC) 1312 1000 1102 1298 1053 (not available) 621 Contribution of the CDM 55% 27-58% 45% 31% 43% (not available) 21-58%

EPPA Haites G-Cubed GREEN SGM Vrolijk Zhang

723 265-575 495 397 454 67-141 132-358

The international price expected for CO2 reductions depends again on the demand estimates as well as the marginal cost estimates, which again vary considerably according to sources. While Cicero estimates, e.g., marginal abatement costs of US $128 for the US, the MIT model (Ellerman) estimates them at US $279 per ton carbon. Similar discrepancies exist for Europe, where estimates range from US $58/ton (Cicero) to US $604/ton (Abare). Resulting CDM prices again depend on quantities of hot air, inclusion of sinks, supplementary costs, sellers agreements, etc. The real trade market depends not only on maximum potential trading volumes but also on real reduction costs for GHG emissions and trading prices. Experience with emission trading market prognosis shows that considerable caution should be taken regarding expected price and volume outcome. Examples are the cap-and-trade allowance system for controlling sulphur dioxide emissions in the US, where the allowance to emit one ton of SO2 was valued by the EPA at US $1,500 in 1990, but allowances traded at US $150/ton in 1995 and dropped to US $66/ton in 1996 due mainly to poor estimates that regulators could make on the cost of controlling emissions due to asymmetric information between the regulator and the economic agent responsible for the change. A similar example can be found in the RECLAIM (Regional Clean Air Incentives Market) of the South Coast Air Quality Management District in the US, where expected trading prices for NOx were assumed to be between US $4 and 5 per pound and real auctioned allowance prices traded between US $0.2 and 0.7 on an average. Growth assumptions as well as the economic reduction potentials of measures to increase energy efficiency and use renewable energies can thus be easily estimated inaccurately, leading to a much smaller than expected trading market at lower trading prices. Factors Influencing Demand The reduction needs of the different countries depend to a considerable extent on the projected growth of GHG emissions, which relies on various factors such as GDP growth, economic structure, energy and carbon intensity, etc. These factors in themselves are projections and their correlation to GHG emissions is estimated, thus leading to various uncertainties over the real growth of GHG emissions in the future.

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The major factors that will affect future trading volumes and prices are thus: - - - - - - - - There is limited availability of baseline/underlying projects and capacity to develop them. The Kyoto Protocol has not yet entered into force. Should it happen that the required amount of ratifications cannot be attained, there will be a low demand of CERs. Inclusion or non-inclusion of sinks in CDM has an effect. If sinks are eligible, the supply of CERs increases considerably and trading prices will be lower; Ceilings to trading especially advocated by the EU exert effects. CDM surcharges which wedge a price between sellers and buyers have an influence. Cartelization of supply is another factor to consider. Inefficient supply will cause trade to grow slowly. Supply can be inefficient due to high transaction costs (e.g., due to additionality criteria) and information costs. Domestic reduction potentials in Annex B countries including policies chosen are also a factor. Limited availability of baseline/underlying projects and capacity to develop them also have an effect.

The question of how sink projects are eligible under the CDM is not yet defined. This question is important especially to DCs. If sinks do not become eligible under the CDM, the amount of CERs would be reduced considerably and vice versa. 3.2.2 Recent Developments in the OECD Affecting the Demand for GHG Offsets

Many OECD countries are developing energy and environmental policies. Many of these countries have strengthened their respective policies. All these policies indicate that a good number of OECD countries are willing to reduce GHG emissions in the near future and they show how the economies and consequently the individual companies could act. These policies have a strong influence on the GHG trading volume. But it must be clearly postulated that the energy and climate policies of the OECD countries are far from being the only influencing factor on the attitude of companies in ICs. In the last 2 - 3 years some important studies have examined the domestic potential to increase the energy efficiency and the use of renewable energies in OECD countries. The results show that the goal of creating more jobs is consistent with an improvement of energy efficiency and thus a reduction of GHG emissions. A reduction of energy consumption by 30% in 2020 compared to 1990 seems feasible. The pressure on an efficient use of energy and the use of renewable energies leads to the development of new and better energy technologies as well as to improved marketing of the latter. All these trends show that at least the European OECD countries tend to fulfil a considerable share of the Kyoto commitment domestically through an orientation toward sustainable development. Finally, energy programmes currently being realised show that even voluntary approaches lead to considerable results. Enterprises can, e.g., be motivated to increase energy efficiency considerably. All these factors result in a reduced demand for trade with CO2 and other GHG emission reductions in the market and consequently in a reduced price for emission reductions. 3.2.3 Incentive for Trading

However, the trade with GHG emissions reduction makes sense due to varying marginal costs of GHG mitigation in OECD countries and DCs. Under such a scenario a domestic abatement option

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in an OECD country with hypothetical costs of US $30/t of carbon (corresponding to US $8/ton of CO2) could result in an abatement option in a DC where the investment undertaken in a project could be at a cost of US $15/ton of carbon--i.e., much lower due to the disparity in marginal abatement costs. The surplus revenue (US $15/ton of carbon minus the transaction and risk costs) could therefore potentially accrue to both buyer and seller. Here the question of sharing the benefit from trade with ERU/CER arises. The ERU/CER market is similar to a homogenous good in a competitive market with many suppliers. Zimbabwe as well as other DCs will clearly be price-takers in this respect. The potential gain of a DC arises from its producer surplus, which depends in the end on its individual marginal cost curve in generating GHG offsets in relation to the price paid for GHG offsets. 3.2.4 Zimbabwe's GHG Offer

Zimbabwe's emission figures are published in various publications. The GHG emissions of Zimbabwe are projected to increase by 38% from 1994 to 2010. Zimbabwe is party to the Convention (UNFCCC), but not an Annex I party; in the Kyoto Protocol no commitment to reduce GHG emissions is required for non-Annex I Parties. By adopting the Convention Zimbabwe has accepted some commitments but no legally binding commitments to reduce GHG emissions.

3.3

3.3.1.

Market Mechanisms

General Remarks

The Kyoto Protocol defines three flexibility mechanisms. Since Zimbabwe is not an Annex I party, emission trading with an OECD country must be defined according to article 12 of the Kyoto Protocol (CDM). But for the market as a whole, all mechanisms for mitigating GHG emissions are important. 3.3.2. Gains from Trade

The system of GHG trading (JI, CDM and IET) is based on two key facts: GHG emissions do not stop at national boundaries. And the effect on climate change of reduction or avoidance of these emissions is not connected with the source of the emissions. GHG reduction measures have increasing marginal costs after implementing so-called no regret projects. In general, the marginal abatement costs in DCs and EITs tend to be lower than in ICs. Thus investments in the protection of the climate can be done more efficiently in DCs. Through the CDM, DCs will benefit from technology transfer in the energy and industrial sectors through energy efficiency technologies and fuel switching, while at the same time protecting local environment and promoting health concerns and infrastructure development. In addition to this, if sinks are included, DCs may profit from reduced deforestation, watershed protection, and more sustainable land-use patterns. Such environmentally conscious investments will to a greater extent spearhead sustainable resource exploitation and economic growth ­ thereby providing a leverage for checking poverty threats to future generations. It is common premise that the different emission reduction costs between ICs and DCs stem largely from the varied efficiencies of energy use and wide disparity in infrastructure and technological development. An emissions market may evolve on the basis of marginal abatement cost differentials among countries obliged to and committed to emissions reduction with such activities being credited under consideration of transaction, marketing, risk, and other costs.

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Figure 3.1 shows a hypothetical situation in the future GHG market. The demand curve of all Annex B countries represents the market volume of demanded GHG reductions. The supply curve represents the offer of GHG emissions for trade through JI/CDM. The supply contains the marginal costs as well as the transaction costs, certification, verification and other costs and eventual fees. Figure 3.1 Hypothetical Situation in the GHG Market

Price at market Supply by the w orld

P1: Price in the w orld

Demand of the OECDcountries

Quantity Q1: Q uantity traded in w orld

The price P1 in Figure 3.1 is the price at a defined time and is the point of intersection of demand and supply curves. Zimbabwe is a small seller of tradable GHG reductions and thus a price taker. From the point of view of Zimbabwe, the price is fixed. The quantity traded by Zimbabwe is the intersection of the (horizontal) price curve and the country's marginal cost curve. (See Figure 3.2.) The quantity Q2 traded by Zimbabwe is a (small) part of the quantity Q1 traded in the whole world market. Involvement of DCs and EITs in a global GHG trading arrangement will reduce the costs of emissions reductions. Estimates by the OECD confirm that gains from co-operation among OECD countries are relatively smaller in view of the limited marginal abatement cost differentials. GHG trade is not completely beneficial to all parties and stakeholders in an economy: local and social issues have to be considered as well. If, e.g., coal would be substituted largely by other fuels, consequently resulting in carbon offsets, losers (e.g., coal miners) would be affected, leading to a limited expansion of activities.

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Figure 3.2

Zimbabwe's Offer at a Given Price P1

price Supply curve

P1 given by world

Quantity Q2: Quantity by Zimbabwe

3.4

3.4.1

Architecture of an Emission Market

Basic Conditions

Basically, the offset market is determined by the UNFCCC, the Kyoto Protocol, and the different decisions of the Conference of Parties (COP). Because Zimbabwe is not an Annex I country, it can trade under the CDM only. To date many problems in implementing the CDM are not yet solved: the setting of emission baselines, the determination whether or not project activities are additional to what would have occurred without a project, and the monitoring of the results will be the key parameters. Besides the parameters given by the Kyoto Protocol additional criteria must be fulfilled for a successful implementation of a project. They must also address - - - - - - - local needs, poverty eradication (job creation, providing sources of income), transfer and development of environmentally friendly technologies, improvement of institutional capacity (training, capacity building), contribution to sustainable development (biodiversity, water and air quality, tourism), national economic impact, compatibility with other environmental goals.

The institutional architecture of a GHG offset market must therefore meet the demand to consider the mentioned environmental, social, and economic criteria.

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3.4.2

Scenarios of Market Structure

With projects in the AIJ pilot phase the transaction costs of bilateral project-by-project procedures have proved to run up to 30% of the total project costs. If the transaction costs reduce the benefit substantially there will not be enough incentives in future to realise CDM projects that need significant resources for validation, monitoring, verification, and certification. Therefore simple market rules and a simple market structure have to be implemented in order to decrease transaction costs and to minimise the risk of project failure. In the absence of direct incentives for private sector involvement CDM will not take off. It is also apparent that risk and minimisation of transaction costs is a major determinant of the return on CDM projects. For effective implementation of CDM projects, the following will be necessary: i. ii. iii. iv. v. government commitment predictable, flexible regulatory framework hospitable investment climate sound financial system adequately catering for risk management government promotion i.e. public awareness and putting up CDM focal points or project appraisal centres

Free Market Scenario Annex I parties prefer market determination of prices. They would therefore purchase the leastcost emissions reduction available in DCs: a competitive and economic efficient market could arise. A cartelisation in order to sustain prices above marginal costs is unlikely due to homogeneity of the good and numerous suppliers. The emission trade will be dominated by large sellers and buyers which influence the price. According to various studies the USA might be a large buyer whereas Russia and Ukraine (in general EIT) are liable to be big sellers. The small countries involved - Zimbabwe included - would be price-takers. The potential benefit for Zimbabwe is the revenue minus production costs in the country including transaction costs, control costs and the extra charge due to the estimate of the risk premium for investments in Zimbabwe. Potentially Zimbabwe will have additional costs (or in other terms must offer GHG reductions cheaper) due basically to the following reasons: - - - - in Zimbabwe rather small projects will be realised, the country offers a comparatively unfavourable investment climate, investment risks are estimated to be high, the potential to increase projects is limited.

Prototype Carbon Fund (PCF) Scenario The World Bank has established a Prototype Carbon Fund (PCF). The PCF is a relatively small funding vehicle (ca. US $150 million) that intermediates between buyers and sellers. The objectives of the PCF are to facilitate market development and reduce risks. The major risk or costreducing benefits arising from the fund are: - - - - - risk management through a project portfolio approach, decreased sovereign risks, registered emission reduction units (improved tradability), quality assurance system (validation, verification), lower transaction costs,

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-

improved price transparency.

With the PCF the World Bank has created a "learning-by-doing" opportunity to implement emission reduction projects by companies and governments according to Joint Implementation and the CDM. The objectives of the PCF established by the World Bank are. - - - High quality emission reductions registered by the UNFCCC, Know-how creation and transfer to the ICs, EITs, and DC, and Public-private-partnership synergies.

The PCF operates as follows. ICs and companies invest money and technology through the PCF in EITs (JI) and DCs (CDM). The investors receive a pro rata share of the emission reductions, verified and certified in accordance with the Kyoto Protocol and transferred as agreed with the respective EITs and DCs. Figure 3.3 Prototype Carbon Fund Suggested by the World Bank

3.4.3

Conclusions

For GHG reductions the market does not yet exist and the modalities are not yet defined, the market price of CERs or ERUs is to date only forecast by models. It is expected to be in the order of magnitude of US $35/ton of CO2. There is a great number of proposals for the construction of offset market structures. It seems to be important that some key functions of trade must be strictly under international control to meet the above-mentioned criteria. Other functions like brokerage, monitoring, verification, and sponsoring may be realised by private entities. The following items must be under international control (e.g. COP): - - certification of project activities as eligible for the CDM (including social, environmental and economic issues), international tracking system to provide accurate information about national credits,

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- -

additionality and baseline setting, certification of emission reduction units.

National governments should meet the following tasks: - - - - estimate value of national participation, identify risks involved in participation, create domestic infrastructure, create sectoral or national emissions trajectories.

3.5

How to Position Zimbabwe in the Offset Market

An idea of developing Zimbabwe's situation in the CER market is to consider Zimbabwe as a company that sells a new product in a new and unknown market. The opportunities for Zimbabwe in this market are therefore considered from the viewpoint of marketing: Zimbabwe sells CO2 reductions to ICs. The country competes with other countries: ICs (Annex I countries), EITs, and other DCs. Thus, matchmaking advantages need to be found. 3.5.1 Forces Determining the Attractiveness for Zimbabwe in the Offset Market

Threat of Intense Rivalry There is the probability of intense competition in the market. Figure 3.4 Forces Determining Attractiveness of the Offset Market for Zimbabwe

Potential Entrants

China Poor African countries

Supplier Power

Zimbabwean Private Sector and NGO

Competition

South Africa African Countries EITs Asia & S. America

Buyer Power

USA EU OECD

Substitutes

Rockefeller Fund International IEC Global EEI WWF, CI, IUCN PhilippineNPA Petroleum IECA

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Threat of New Entrants As the trading system matures, many new entrants will enter the market. These may include countries like China, India, and "poorer" African states. The competitiveness of the latter will be increased when land use and forestry projects are eligible under the CDM. Whether and how this type of project will be eligible is unclear to date. Threat of Substitute Products There is a real threat of substitute products in this area. The following is a list of products currently available that could substitute or supplement offset trading. ­ ­ ­ ­ ­ ­ The Rockefeller Foundation has co-financed renewable energy and conservation projects with the GEF in Jamaica, Brazil, India, and Morocco and is supporting development of the Global Photo-voltaic Market Transformation Project. The International Institute for Energy Conservation has worked on climate change mitigation projects. The Global Energy Efficiency Initiative has signed a formal agreement with the World Bank. The World Bank and WWF-US produced "A Conservation Assessment of the Terrestrial Eco-regions of Latin America and the Caribbean." WWF, CI, IUCN, and the World Bank produced a proposal for the Critical Ecosystems Protection Fund (CEPF). In the Philippines the NGOs for Integrated Protected Areas (NIPA), a legally incorporated, non-profit consortium of 12 national NGOs, received a GEF grant to co-ordinate, supervise, and fund local groups to undertake management and community development activities in 10 priority protected areas in the country. The International Petroleum Industry Environmental Conservation Association (IPIECA) and the International Maritime Organisation (IMO) intend to collaborate with the World Bank with regard to environmental issues in Africa. The Forest Market Transformation Initiative (FMTI) is supported by the MacArthur Foundation, the National Fish and Wildlife Foundation, the Rocky Mountain Institute, and the Church and Dwight Company.

­ ­

While these products currently complement CDM, they can reduce the market of low-cost carbon trading, as measures are already taken inside other programs without trading the resulting carbon offset benefits. The market structure for Zimbabwe can be sketched as follows under the assumption of direct trade, i.e., no PCF existing. Demand Side It is theoretically possible that energy projects could buy offsets from an agricultural project in DCs like Zimbabwe (e.g., a power corporation wishing to expand in an Annex I country offsets its emissions by investing in a forest project in Zimbabwe providing a sink). The transaction costs of such trade are assumed to be rather high as is the "aversion" of a power corporation to trade with a partner from an unknown branch. The promoters of the energy project will probably not have expertise in forestry, thus increasing the cost. It is much more likely for companies to trade with other companies from the same holding, then from the same branch, and least frequently with unfamiliar companies. This does not confine the search to a strict "one to one mapping" of the buying sector and selling sector. The scope includes all sectors that have synergy such as supply chain synergy. Thus wood or paper mills sponsoring forestry projects have less transaction costs

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and risks attached than unrelated sector trades. Company representatives declared these preferences in a recent survey. Figure 3.5 Profile of Demand of OECD Countries

Decr easing wil of buyerto tr l ade

With other br anches

Within a br anch

De

Within a hol ding etc.

cr

s ea

g in

o pr

ba

lit bi

y

o

r ft

ad

e

Decr easing attr action of seling countr l y

Neighbour ed nations

(f away) OECD ar countr ies

DCs

Supply Side Existing trade links may also influence the readiness to trade. It is more likely that OECD countries go into trade with countries where strong trading links exist. While it may be possible for Zimbabwe to enter into a CER trade with any country, it is more likely that countries with a traditional association with Zimbabwe will be interested (e.g., it is much more likely for British or German companies to trade with Zimbabwe than, say, American companies). With regard to the traded product it is obvious that trading starts with CDM projects that have low reduction costs and only in a late and costly stage will CDM projects at high reduction costs be traded. Thus the target market will focus mainly on those Annex I countries with an existing strong trade link with Zimbabwe and on trade with CDM projects that have low reduction costs. It is in view of this that the target focus for Zimbabwe in the carbon offsets markets would be limited to those Annex I countries with which the country presently enjoys favourable trading links in projects that have low CO2 abatement costs. The basic requirement Zimbabwe has to meet is to install a CDM office that facilitates the creation and transfer of CO2 reductions. This institution must guarantee that an overall CO2 reduction is reached by singular measures. This means that one project must not reduce CO2 emissions to the debit of another field (leakage). It makes no sense if, e.g., a railway company substitutes Diesel locomotives for electric ones, thus reducing the CO2 emissions of the locomotives but increasing

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the CO2 emissions of coal-fired power plants (especially when they have a poor efficiency) which produce the necessary electricity. In this case the overall balance of CO2 emissions may easily be negative. Figure 3.6 Matchmaking Prerequisites for DCs to Get into Successful Trade

Decr easing wil to tr l ade of buyer

High CO2 ababtem ent costs

Medium CO2 abatem ent costs

D

Low CO2 abatem ent costs

a re ec

s in

g

pr

ob

a

lit bi

y

o

r ft

ad

e

Str ength of tr ading l inks

Annex 1 countr ies with str ong tr ading l inks

Annex 1 countr with ies weak tr ading l inks

Countr ies with no tr ading l inks

Therefore the certifying institution must assure that the way to fulfil the Kyoto goal, namely an overall and real reduction of CO2 emissions is assisted--i.e., it must evaluate all projects and secure that no leakage exist and that the additionality of certified projects is guaranteed. With such an institution transaction and information costs are also reduced. 3.5.2 Market Constraints and Obstacle Originating in Zimbabwe

Basically the operations of the market would hinge on a commitment by OECD to binding emission reductions, encouraging them to search for the least cost emission reduction options. In this market, DCs will have to face some important handicaps that undermine their positions. Comparative disadvantages or constraints of Zimbabwe to operate in an optimal manner in this market are elaborated in the sections below. Transaction Costs and Risks The transaction costs are an extra charge to the production costs of CO2 offsets. Together with the risk premium the production cost is determined. Zimbabwe will operate on the market if this total production cost is lower than the international CO2 price. It is thereby assumed that Zimbabwe is price taker.

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The transaction costs depend largely on legal and administrative requirements and search costs for finding optimal project partners. Independent verification also contains a certain risk for enterprises which can be translated into a transaction cost. For investment projects opportunity costs are also an important element as additional studies require not only more money but also more time, which leads to lost opportunities for profits (profits of alternative investment projects are not realised). An important further cost factor is the risk structure of Zimbabwe. It is determined by factors such as the policy-regime, the form of government/political system, the level of uncertainty or the reliability of data and information, country stability, and the economic situation. The rating of countries by financial institutions show that risks to investors in Zimbabwe are estimated to be high. It must be assumed that the rating of Zimbabwe concerning its position in the CO2 offset market is regarded to be at the same level. Therefore the extra charge to the production cost in Zimbabwe will be rather high. An additional component to the relative disadvantage of Zimbabwe compared to more developed countries lies in reduced information on the past as well as less experience with new technologies, making forecasts less reliable. This makes the definition of the projected emissions trajectory more complex and insecure. It can result in less or more certified emission reductions than projected ones. Weak Institutional and Human-Resource Capacity The implementation of new technologies as well as their operation and maintenance requires considerable manpower and competence in order to assure a real and lasting reduction of CO2 emissions. The presence or absence of such a capacity determines whether a country is regarded to be an attractive, reliable, and dependable partner. Lack of Support from the Other Players in the Market The formation of a DC seller cartel is highly improbable, for such an organisation is highly demanding and requires the fulfilment of a lot of conditions. At the same time the various countries have strongly diverging interests and prerequisites. The large number of potential sellers is the biggest obstacle to such a cartel, which would anyway have doubtful economic usefulness. Political Field The political conditions in a country influence the willingness of foreigners to invest in those countries. Therefore the opportunity of the political system in a country and its stability decide whether investments in projects and in technology transfer are made as a basis for CO2 reductions. 3.5.3 Obstacles to Zimbabwe Originating in OECD Countries

Tax Policies CO2 taxes increase the pressure to reduce CO2 emissions. Being an economic instrument they foster steps toward reducing offset costs, thus favouring CO2 trading as long as the domestic structure chosen permits such trading. Before international trading between companies can take place a national system which solves the allocation problem must be designed and come into

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force. Regulations in contrast prescribe, e.g., maximum emission rates and would thus not permit trading (e.g., maximum fuel consumption levels of car fleets). Regulation In OECD countries a strong trend toward a stricter environmentally orientated legislation has formed: laws on energy (efficiency), CO2 reduction, and other topics that eventually result in decreasing the use of fossil energy. Again the impact of such regulations on trading volumes and prices depends on the national system established and the instruments used for reducing GHG. Indications show that a relation between domestic and traded share to fulfil the Kyoto commitments could be fixed. Technical Innovation The trend to improve the efficiency of energy use leads to new technologies, more sensitive behaviour, and optimum operation of installations that end in reduced consumption. The installation of new computer generations, new screen technologies, new boiler technologies, but also new efficient production technologies and improved processes in the industry will get a boost at the beginning of the next decade. Also the transport sector is in considerable motion, especially concerning higher fuel efficiency of produced cars, e.g., the EU sets out a strategy to reach an average CO2 emissions objective of new cars of 120 grams CO2 per kilometre by 2005 (2010 at the latest), with the fleet average in 1995 being 186 g/km. The European Commission recently decided to conclude an environmental agreement with the European Automobile Manufacturers Association (ACEA) which will make the major contribution to achieving this objective. Similar agreements were made, e.g., by Switzerland, which will be complemented most probably by instruments such as car labelling or vehicle taxes based on fuel consumption, thus reducing CO2 domestically and reducing the demand for trading carbon. Higher Energy Prices It is obvious that high energy prices are favourable to realising energy efficiency measures and therefore to CO2 abatement. In Europe a big share of electricity is produced by burning fossil fuels. Increased prices of fossil fuels therefore lead to a rise in electricity prices. On the other hand, the liberalisation of the electricity market decreases the prices remarkably--above all in the industry, as this can be seen, e.g., in Norway and Germany after electricity markets have been deregulated. As a whole electricity prices for companies in Europe will drop. All the same there are big potentials for improving the energy efficiency in all economic sectors and in private households that are far from being exhausted. These potentials are profitable at today's prices and even with decreased prices. After the removal of non-technical obstacles (e.g., by information initiatives, legal incentives) they will be exploited to a big extent. Market Strategy Whenever countries or companies invest outside of the core market or start developing a new market, medium and long term trade is considered. Such considerations are also made when entering into the CO2 offset market. The interest of investing countries or companies therefore lies in countries that represent a big potential or future market to the CO2 offset buyer. Such markets are at present above all in EITs. Moreover the relation to EITs is important to European OECD countries because of historic relationship or political reasons (peace keeping, controlled transition to a market economy, etc.). The US and Canada as important non-European OECD countries will tend rather to trade with NAFTA and other countries in Central and South America for reasons analogous to European countries with EITs.

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Therefore, the chance of DCs, especially in Africa (Zimbabwe being no exception), to enter into trade with OECD countries in general is rather poor. An exemption could be countries having already strong trade relations to DCs, in the case of Zimbabwe, e.g., Great Britain. 3.5.4 Obstacles to Zimbabwe from International Constraints

Rules of CDM The rules for CDM are far from being clear. The main operational definitions are still to be defined: - - - - definition of the baselines; restrictions on trading; prerequisites of a country that enables it to trade; certification and validation issues.

Therefore the positioning of the sellers of GHG reductions is considerably unclear. In order to participate in a CDM market the following recommendations are suggested for Zimbabwe: - - declare the will to participate in the market; inform possible GHG reducers. They must be aware of opportunities and threats the new market offers. Conditions under which GHG reductions are recognised as CERs shall be communicated, especially to big energy consumers (e.g. industrial companies) and electricity producers; establish an authority/office where CERs can be announced. This office should be managed efficiently and free from political considerations to ensure high quality projects, credibility, continuity, and low transaction costs; develop mechanisms to group small projects. Otherwise transaction costs will be too high, thus reducing the amount of potential GHG projects Zimbabwe can offer; conduct training and outreach seminars and workshops to inform potential project developers, government officials, and other interested parties about CDM potentials and methods. CDM must be seen as a development potential for Zimbabwe, and interested parties have to be informed about how to take advantage of this opportunity; include unilateral CDM projects to reduce risks perceived by external investors. This also facilitates the inclusion of project realisation of national or international Non Annex I parties. More projects could thus be included in the Zimbabwean offer; clarify controlling, verification, and monitoring procedures in Zimbabwe; elaborate clear rules and regulations on how to proceed when realising a GHG reduction project, and elaborate formats including baseline and additionality calculations and other project information demands which allow project developers to provide high quality projects.

- - -

- - - -

Entering a new market is associated with certain risks, including the following. - - - The price of CERs will not be known when starting a project. This precludes knowledge of opportunities and threats associated with producing CERs. If the demand to CERs is delayed, how will the price be determined? If the Kyoto Protocol does not come into force, a total or at least partial loss of investment for the CER generation could occur.

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If Zimbabwe is in the situation of being an early market participant, some uncertainties enter the scene. - - - The first traded CERs could either be traded at a high price (for trading partners have no experience) and due to a lack of concurrence the price- making is not yet according to classic market rules. For the same reasons the price may be too low because in the initial phase the cheapest measures are realised. This leads to cheap GHG reduction costs in the demanding country as well as in the supporting country. Therefore a possible policy could be to "bank" CERs and to bring them to the market only when prices are high. This scenario will be very risky to countries like Zimbabwe, which has small sellers and therefore few possibilities to influence prices. Moreover for the reasons described in sections 3.1.2 a price forecast is rather difficult. The developments in the demand in OECD countries and developments in the supply of competing countries (especially with a big offer of CERs and later ERUs) cannot be predicted at the time.

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4. SECTORIAL GHG EMISSIONS, INVENTORY, DEVELOPMENT, AND OFFSET POTENTIAL

4.1 Introduction

This chapter of the study looks at the sectoral (energy, industry, residential, transport, land-use change and forestry and agricultural sectors) generation of greenhouse gas emissions in their historical, current, and future perspectives so as to provide the policy makers with a basis for decision making in AIJ/CDM process. The chapter will discuss the energy base in Zimbabwe and then demonstrate to the Zimbabwe government that national GHG emissions will certainly increase with economic development and demographic trends. It is hoped that the government would then see the need for seizing AIJ/CDM opportunities in reducing GHG emissions, thereby opening doors for bringing Environmentally Sound Technology (EST) into the country. The chapter also aims to show potential investors the existence of large and easily accessible GHG abatement potentials in Zimbabwe for the discussed sectors as well as sustainable developments benefits for the host country. The results of this study should strengthen the conventional view in the OECD countries that the CDM is basically an avenue for minimising Kyoto commitment costs to them. This could be achieved by OECD countries investing in emissions reduction/avoidance activities in non-Annex I parties thereby obtaining credits through the CDM. In order to meet the above objectives this chapter will discuss the relevant issues in the following sequence: main energy supply base in Zimbabwe, GHG inventories, future GHG emissions trends in different sectors, and abatement potentials and their likely development in the coming years. Finally, the chapter will present a pipeline of selected potential CDM projects.

4.2

Macro-Economic Analyses and Major Assumptions

Zimbabwe's Initial National Communication provides information on the principal sources of GHG emissions and the quantified emissions for the selected base year (1994) and projected trends based on assumed economic and technological developments. This is backed by the most recent data from the sectoral analyses. Because the current and future GHG emissions in Zimbabwe will be largely determined by the economic development of the country, a common economic scenario has been defined for the different sectors. 4.2.1 Economic Status Quo and the Zimbabwe Programme for Economic and Social Transformation - ZIMPREST (1996-2000)

The Zimbabwe Programme of Economic and Social Transformation (ZIMPREST) launched in 1998 calls for enhanced liberalisation of the economy, expanded industrial sector to provide employment for the increasing population, and an improved quality of life for the people. A recent assessment (mid-1999) of the Programme indicates that little headway has been made. The country has been going through turbulent economic times during the past twelve months. The collapse by about 50% of the Zimbabwe dollar with respect to all hard currencies has resulted

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in spiralling inflation and a great deal of instability in the economy. The net result is that targets set in the ZIMPREST are not being met. Table 4.1

Year

GDP Growth (Real GDP at 1990 prices Z$ million)

Agriculture Mining Industry Other GDP Growth%

1994 1995 1996 1997 1998 1999

3375 3119 3774 3709 3825 3901

888 935 925 884 875 889

6219 5888 6091 6323 6449 6593

9802 10117 10677 10986 11100 11312

5.3 -1.1 7.0 2.0 1.6 2.0

Source: Zimbabwe CSO Statistics, Quarterly Economic Bulletins: Standard Chartered Bank, Barclays Bank.

Table 4.1 illustrates how poorly the Zimbabwean economy has performed in comparison with the ZIMPREST minimum target scenarios for the key variables, i.e., GDP, investment, savings, and export growth. The GDP growth rate was expected to average a minimum of 6% annually between 1996-2000. This was only achieved in 1996 (7%). In 1997 GDP growth plunged to 2%. Generally, the Zimbabwean economy has been characterised by an inability to restore and maintain a stable and conducive macro-economic environment. The government has not been able to contain expenditure within the set targets with the result that inflation, interest and exchange rates continue to spiral upwards. As a consequence, economic volatility is currently being experienced in Zimbabwe. Most of the gains made prior to 1996 have been eroded. 4.2.2 Economic Outlook

There is little indication that the above trend will reverse in the short-term. However, the economy is expected to stabilise and start picking up eventually. The important consideration is what regulatory drives will lead the economy to rebound. Solutions seem to lie in implementing a tight fiscal policy, with emphasis on significant reduction in government spending. One major regulatory driver is the government's commitment to meet the economic restructuring targets set out in agreement with the IMF. This is important if the government is to continue receiving the structural adjustment credit financing. GDP growth in the short term is not expected to exceed 3%. The economy is expected to start picking up in the medium term (2005-2010), basically driven by infrastructure needs. Current forecasts support an average growth rate of 4% in the long term. There is no significant difference between this forecast and the 4.6% GDP growth rate in Initial National Communication. Thus the 4.6% GDP growth is adopted for purposes of this study for the period until 2010. For 2010 - 2020 a somewhat lower growth rate of 3.8% is expected. Although projected emissions have to move in the same direction with economic growth (or volume of production), one has to analyse carefully whether this actually means that the forecast emission projections in the Zimbabwe Initial National Communications need to be revised. What is certain is that, while the economic growth prospects for Zimbabwe look gloomy at the moment, the energy demand forecasts show normal growth (ZESA, SDP) in the short, medium and long term. This is because of unsatisfied demand and the lack of cost-competitive alternative

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forms of energy. Thus the projected emissions for the energy supply sector will not be directly affected because of the continual growth in energy demand.

4.3

4.3.1

Zimbabwe Energy Supply

Domestic Resources and Current Energy Balance

Zimbabwe is rich in natural resources including energy, as outlined in Table 4.2. Table 4.2 The Energy Resource Base in Zimbabwe Source Coal (million t) Hydro (MWe) Coal Bed Methane (million m3) Oil (million t) Solar radiation (KWh/m2.yr) Wind (m/s)

Source: Maya, R.S., et. al. SAPP Study, 1998

Potential 17 000 13 300 50 000 000 Nil 2100 3.2

The primary energy supply base and end-use distribution of fuels is shown in Figure 4.1. These pie charts portray the energy balance. The following sections describe the various forms of significant energy sources in Zimbabwe. Figure 4.1 The National Energy Balance in Pie Chart Form

Primary Energy Supply, 1996 100% = 359PJ

Other Fuels 2% Woodfuels 42% Coal 42%

Final Energy Consumption, 1996 100%= 283PJ

Other Fuels 6% Coal 15% Oil derivatives 18% Woodfuels 49%

Electricity Imports 6%

Oil derivatives 8%

E lectricity 12%

Electricity Total bulk energy supplied by ZESA, a statutory body, was 9 700 GWh in 1996. The system operated on a transmission loss rate of 2.6% and a distribution loss rate of 8.4%. Maximum demand for the operating period 1996/97 was 1 828 MW.

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Imports from Mozambique, Zambia, and Congo (DRC) amounted to 4 012.9 GWh in 1996/97, equalling 35% of the total energy consumption for that period. Currently, power imports are mostly hydro from Mozambique and the Congo (DRC) as well as thermal (coal-based) from South Africa. The current total installed capacity of 1 857 MW is made up of 666 MW of hydro power from the Zambezi and the rest is coal based [ZESA Annual Report and Accounts, 1997]. Any future expansion on the Zambezi River except for expansions limited to the Kariba South (the Zimbabwean side of the Kariba Scheme, the other being Kariba North, the Zambian side) will require the consent of Zambia and needs to be a joint investment between the two countries. This naturally limits freedom of decision for either party where expansions or new installations are concerned. As of 1999, imports stand at about 45% of bulk supply. Power imports are transmitted through interconnectors linking regional power utilities built to enhance regional electricity trade and resource sharing. This inter-connector network is critical for any mitigation options such as hydro electricity. Because of the small size of most regional economies, large-scale electricity sector development will have to be coordinated closely with the development plans of other regional partners. Those partners, which include all utilities in SADC except Mauritius, are grouped together under the Southern African Power Pool. This is a power trading and power development co-operation arrangement concluded through the Energy Protocol under SADC. Recent studies (Southern Centre and GTZ, 1998) have shown that the Power Pool is a major option for implementing power sector mitigation options. This can be achieved in two main ways. The first is to engender a regional generation and investment schedule that favours fuel switching to hydro, coupled with a conducive mechanism for cross-border power exports whereby clean hydro dominates the supply base. The second is by ensuring amicable trade but in an environment where the more efficient and cleaner coal plants are optimised and the dirtier ones are run at peak loads only. The exclusivity of power supply by ZESA has been recently altered to allow independent power producers and even consideration for ZESA to become a grid operator rather than a generator to bring competitiveness into the industry. There is also new innovation on the fuel-base tradition. Instead of coal and hydro plus a few stand-alone diesels, there is a serious chance for introducing coal-bed methane into the generation base and another possibility in the remote future to perhaps introduce natural gas fuels. Presently, however, the supply base and expansion plans are as indicated in Table 4.3. After 2000, some smaller capacities currently used for peak load may be retired. 4.3.3 Petroleum

Petroleum imports are the responsibility of the National Oil Company of Zimbabwe, a statutory body administered by the Ministry of Transport and Energy, but distribution is accomplished by private companies. Zimbabwe has no local crude oil resources and imports all its fuels as finished products. The total supply and end-use consumption is shown in the 1996 national energy balance (Figure 4.1). The three major liquid fuels - diesel, gasoline and paraffin ­ are consumed in ratios of 12:7:1. Diesel is the most important fuel for agriculture and commercial transport while gasoline is used mainly in light passenger transport. Paraffin is an important fuel for lighting and cooking in lowincome urban households. In rural households it is used mainly for lighting.

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Table 4.3

ZESA Plants, Interconnectors, and Latest Approved Expansion Plan

Station Net Capacity (MW) In-Service Date / Current Status

Refurbishment of Bulawayo Power station (Thermal) Harare (Thermal) Munyati (Thermal) Hwange Upgrade (Thermal) Kariba (Hydro) Kariba South Upgrade (Hydro) Total existing ­ thermal Total existing ­ hydro Interconnectors: Cahora Bassa-Bindura Interconnect (Hydro) SA Zambia Botswana

Planned expansions:

90 90 120 To produce the rated capacity of 920 666 84 1220 750 500 400 1200 120 1st Unit ­ 300 2nd Unit ­300 Units 1-3: 300 each 4th Unit:300 1st Unit ­ 200 2nd Unit ­ 200 3rd Unit ­ 200 4th Unit ­ 200 Thermal (coal) ­ 1800 MW Hydro ­ 800 MW

1 January, 1999 (Project Underway) Old plant Old plant All recently refurbished 2001 (Project being implemented)

1999 (Project being implemented)

October ­ 1997 (Project complete)

Hwange 7 Hwange 8 (Thermal) Gokwe Power Station (Thermal)

1st Unit ­ 2001 2nd Unit ­ 2003 (Advanced Planning stage) 2004 2007 (Advanced Planning Stage) 2010 2011 2013 2014 (Feasibility Studies Complete)

Batoka Hydro Power Plant (Hydro)

Total expansions planned

Source: ZESA, 1999

4.3.4

Coal

Coal is mined by one private company, Wankie Colliery Company Ltd. Present mining capacity is 6 million tonnes a year from both open-cast and underground mining. About 50% of this coal is sold as raw overburden coal to ZESA for a mine-head, 920-MW Hwange Power Station, which is due to be expanded by an additional 660 MW. The remainder is sold as washed and graded coal for industrial steam raising and industrial heat supplies. A second coal mine with a similar capacity is under active consideration to feed the planned Gokwe North power plant shown in Table 4.3. This mine has coal to last 200 years at the current rate of extraction.

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As indicated in the energy balance, coal supplies 42% of energy for power generation, 13.7% of energy to industry, and is a critical fuel for tobacco curing. It has limited application in transport and households. 4.3.5 New and Renewable Sources of Energy (NRSEs)

The role of NRSEs in the Zimbabwean energy sector could be quite significant. This is mainly due to the potential created by the low level of household electrification, which averages about 20%, as can be determined from Table 4.4, where the extent of electrification in the various provinces of the country is presented. Table 4.4

Province

Extent of Household Electrification Zimbabwe by Province (1992)

Household Electrified % Actual Unelectrified % Actual

Mashonaland West Mashonaland Central Mashonaland East Manicaland Masvingo Midlands Matabeleland South Matabeleland North Major City Harare Bulawayo Total Area Wise Urban

232 340 177 011 219 516 320 944 231 727 247 723 108 815 116 115 364 136 145 962 2 163 289 763 706

21.13 9.03 8.74 13.49 11.22 24.21 10.12 15.47 64.4 91.83 28.24 71.65 4.55

49 093 15 984 19 186 43 295 26 000 59 974 11 012 17 963 234 504 134 037 610 913 547 195 63 681

78.87 90.96 91.25 86.5 88.76 75.79 89.84 84.39 35.55 9.16 71.74 28.32 95.43

183 247 161 009 200 308 277 617 205 681 187 749 97 759 97 989 129 450 11 910 1 551 944 216 282 1 335 622

Rural 1 399 583 Source: Southern Centre, JICA. 1997

The large demand that remains unmet for rural electrification cannot, in the short to medium term, be met by grid extension. National policy makers are aware of this and in response there has been a significant effort to include NRSEs in the supply base to meet rural household energy needs. Recent studies conducted under the SADC Programme for Financing Energy Use in Small Scale Enterprises (FINESSE) have indicated a large market and investment potential in this sector [SADC FINESSE Study, 1998]. The study considered five different NRSEs: biogas digesters, solar home systems, solar water heating, and small-scale hydro and wind energy. The study estimated that there is a total of 256 biogas digesters installed in the country with a cost range of US $200-US $350. Zimbabwe has a large population of livestock to allow for the wide diffusion of biogas digesters for home application and for community or institutional energy supplies. There is a reliable local supply of end-use devices such as lamps and cookers. The diffusion rate for this technology has nonetheless remained impeded by cost and lack of skilled personnel to market and construct the units. If we define a micro hydro unit to be 300 kW or less, we can identify numerous options on small dams and run-off river options with a combined potential of 10 MW. Capital cost per kW invested is estimated at US $2000. To-date, a few (eight) of these options have been installed, and

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a number of them have been investigated. The latest of these, Manyuchi Dam, is a pilot phase AIJ project between E-7 and the government of Zimbabwe. In general, wind speeds in Zimbabwe are too low for the generation of electricity, although for some time now wind energy has been used primarily for the mechanical pumping of water. There are current investigations, which seem to indicate that the generation of electricity might be possible in some areas of the country. Other options such as use of biomass and the production of plant oil for fuel purposes are under active investigation. Tertiary biomass conversion has been tried. The Triangle Ethanol Plant has been producing 40 million litres of ethanol from sugar annually in years of good rainfall since the early 1980s. Ethanol is blended with petrol up to a content of 13%. National policy on NRSEs and the requisite experience with financing these systems was greatly enhanced by the UNDP/GEF Solar PV project, which started in the early 1990's and ended in 1999. This project made significant inroads into market development, financing mechanisms, institutional arrangements and policy reorientation of benefit to the NRSE sector. The project started off with a goal of installing some 9 000 PV units over a period of five years. This goal was achieved with minor adjustments to the actual figures installed, based on a 45-W unit equivalent, the most common size used in Zimbabwe. The FINESSE study projected a saturation level of 260 000 solar home systems with a combined capacity of 11.7 MW around 2010, assuming a unit panel capacity of 45 W. 4.3.6 Summary of Energy Sources

Zimbabwe has a large conventional fuel resource base: coal with total reserves of 10.6 billion tonnes, of which half a billion are proven, and hydroelectric power with a total potential of 13 300 MW mainly on the Zambezi River shared system. Coal makes up about 42% of the primary energy supply in the country, and about 70% of the domestic power generation, the remainder of internal power generation being hydro-based. Petroleum, which covers about 8% of primary supply, is exclusively imported as finished distillates. Firewood is the second dominant fuel, making up about 40% of primary supply. It constitutes a major source of energy, particularly for the rural population and the low-income urban group. Although there are no statistics to support this, it is possible that the use of wood as a fuel results in significant deforestation. Clearing land for agricultural purposes is the biggest cause of deforestation, and 1994 estimates put such clearing at over 18 000 hectares per annum [Zimbabwe Initial National Communication, 1998]. Other forms of renewable energy such as solar gas and biogas have received notable attention, but this has mainly been at research level or under diffusion activities funded on a non-commercial basis. While solar water heaters are becoming more common in high-income urban areas, the cost relative to alternative and more traditional heating appliances still makes them unobtainable for the majority of the people. In the coming years economic growth and rising residential demand will require an increased supply of all the above-mentioned fuels. There are significant expansion plans for coal-based power generation in the short to medium term (until 2004). Expansion of large-scale hydro generation on the Zambezi River, in contrast, is timed for 2010 and later and requires close coordination with neighbouring countries.

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Table 4.5

Summary of GHG Emissions in Zimbabwe, 1994 (Gg)

CO2 CH4 N2O Nox CO CO2 Equivalent

Greenhouse Gas Source and Sink Categories

Global Warming Potential 1: All Energy (Fuel Combustion + Fugitive)

A: Fuel Combustion

1.00 14 772.13 14 772.13 6 803.17 151.22 1 851.40 1 814.96 224.46 2 397.25 1 529.67 0.00

24.50 77.19 63.95 0.01 0.00 0.98 0.04 0.01 0.05 0.17 62.69 13.24 11.78 1.46

320.00 1.18 1.18 0.01 0.00 0.56 0.03 0.01 0.03 0.11 0.43 0.00

40.00 10.08 10.08

3.00 544.46 544.46 19 076.68 18 752.36 6 806.73 151.28 2 054.20 1 825.95 227.48 2 409.35 1 568.00

i. Power Generation ii. Residential iii. Transport iv. Agriculture v. Mining vi. Industry vii. Commercial & Others viii. Biomass burned for energy

B: Fugitive Fuel Emissions

10.08 0.00

544.46 0.00

3,709.36 324.32 288.65 35.67

i. Coal Mining ii. Post coal mining 2: Industrial Processes A: Mining Industries B: Metallurgical & Mineral Processing C: Beer, Wine & Spirit Manufacture D: Sugar Manufacturing E: Cement Production F: Fertiliser manufacture 3: Agriculture A: Agricultural Waste B: Enteric Fermentation C: Manure Management D: Savanna Burning 4: Land Use Change & Forestry A: Forest & Grassland Conversion B: Changes in Forest & Other Woody Biomass Stocks C: Managed forests D: Abandonment of Managed Lands 5: Waste A: Landfills B: Wastewater TOTAL 35 822.96 18 734.48 2 500.28 16 234.20 NE NE 0.00 0.00 0.00 2 316.35 23.70 1 844.00 0.00 0.00 448.65

19.08 19.08

6.05 6.05

0.21 0.04

1.38 1.38

4 732.20 1,959.70 2317.25 0.00 0.00 448.65

0.17 236.84 0.93 179.82 7.09 49.00 1.26 1.26 2.36 0.01 0.01 65.81 1,362.00 0.20 0.20 18.44 18.44 2.39 0.03 66.91 1,381.81 1.10 19.81

6.60 13 388.96 135.82 4 405.54 173.71 8 673.90 18 831.74 2 597.54 16 234.20 NE

25.15 24.31 0.84 359.52

0.00

0.00

0.00

616.06 595.60 20.46

9.63

77.40 1 946.08

56 645.63

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4.4

4.4.1

Zimbabwe GHG Emissions Inventory

Summary of National GHG Emissions 1990-1994

The latest GHG inventories from Zimbabwe were compiled in 1998 as part of the Zimbabwe Initial National Communication to the UNFCCC Secretariat (Table 4.5). The baseline year for these inventories was 1994. The method used in compiling these GHG emissions was based on the 1995 and 1996 IPCC Guidelines. The following remarks are associated with these current emissions. (a) Although the previous estimates of emissions shown in this table indicate Zimbabwe as a net sink, new arguments being put forward refute this on the premise that only the addition of biomass sequesters carbon. However, Zimbabwe still remains a massive absorber of CO2 from its standing forests and other forms of biomass. Commercial energy data are relatively accurate (~90-95 %) while the accuracy for biofuels used in rural areas is much lower (~75-80%). The accuracy level of emissions from Land Use Change of Forestry is not known because of significant uncertainties (Zimbabwe Initial National Communication, 1998).

(b)

Fig 4.2 shows the sectoral GHG emissions. Power generation from coal is the highest contributor to GHG emissions, followed by industry, transport, and agriculture. The domestic sector only accounts for 1% of commercial fuel emissions, most of which come from traditional biomass fuels. Figure 4.2 Sectoral Distribution of GHG Emissions from Commercial Fuels

Commercial & Others 10%

Industry 15% Mining 3% Agriculture 11% Transport 12%

Power generation 48%

Residential 1%

Source: Zimbabwe Initial National Communication, 1998

CO2 remains the most important pollutant of the GHGs with 63% contribution to overall emissions. Methane is second in importance with 16% followed by carbon monoxide. The oxides of nitrogen contribute a combined total of 11% (Fig 4.3).

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4.4.2

Emissions Associated with Energy Sector

Emissions from the supply side for energy arise from coal mining, post coal-mining activities except combustion at the end use point, coal conversion, to electricity and electricity generation from small diesel plants. Activity levels associated with these emissions for the chosen base year, 1994, were known from previous studies (the US Country Studies Programme, UNEP GHG Abatement Costing Studies, and the National Communication and updates in the Southern Centre/GTZ studies on Climate Change and the Southern African Power Pool, 1997). The emission levels were derived from these activity data. They are presented in Figure 4.4, which gives an overview of the main GHG emissions from various sectors. Figure 4.3 Contribution of Individual GHGs to Total Emissions in Zimbabwe

CO 10% NOx 5% N2O 6%

CO2 63% CH4 16%

Source: Zimbabwe Initial National Communication, 1998

4.4.3

Emissions from the Industrial, Residential and Transport (IRT) Sectors - Overview

In the present study, the emissions in the energy sector are restricted to sources on the supply side, i.e., emissions from coal combustion for power generation, coal mining, methane from hydro-reservoirs, etc. In turn, the emissions in industry, residential and transport (IRT) also include contributions from fuel combustion and fugitive emissions from industrial processes excluding coal mining. Fig 4.4 shows that in the IRT sectors, biomass burned for energy is the highest contributor to GHG emissions, with nearly 4 000 Gg of CO2 equivalent emissions. This is much more than emissions from industrial combustion alone, although combined industrial emissions would surpass biomass emissions. Biomass burned for energy is usually associated with rural domestic consumption with few cases of industrial and agricultural usage. Contributions to emissions of other fuels in the domestic sector are much smaller (4%) compared to the use of biomass, mainly in the form of fuelwood. Industrial fuel use and mineral processing also account for significant industrial emissions of 2 409 Gg and 2 317 Gg of CO2 equivalent, respectively.

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Industry Although it is acknowledged that energy generation is by far the principal source of CO2 emissions, industrial processes such as mining, mineral processing, and manufacturing also contribute significant quantities to emission levels of CO2 and other GHGs as shown in Figure 4.4. Figure 4.4 Sectoral Distribution of GHG Emissions /C02 Eq

T ra n s p o rt B io m a s s b u rn e d fo r e n e rg y R e s id e n tia l c o m b u s tio n F e rtilis e r m a n u fa c tu re C e m e n t p ro d u c tio n M e ta llu rg ic a l a n d M in e ra l P ro c e s s in g In d u s try (c o m b u s tio n ) M in in g In d u s trie s M in in g (c o m b u s tio n ) 0 1000 2000 3000 4000

Em is s io n s ( G g )

Source: Zimbabwe Initial National Communications, 1998

A principal source of emissions from mining operations includes the decomposition of calcium carbonate into lime, which releases CO2, and this was estimated to be 23.7 Gg. In addition, explosives used in blasting operations during mining produce N2O, estimated to be 6.5 Gg in 1994. Estimates made for 1994 indicate emissions of 1 440 Gg of CO2 from iron and steel as well as 404 Gg from the ferro-alloy sector. Insignificant amounts of NOx and CO in the order of 0.04 and 1.38 Gg, respectively, were also released during such processing. Estimates based on the IPCC methodology indicated that 448.65 Gg of CO2 were released from cement manufacture in 1994, excluding 360 Gg of CO2 arising from the combustion of coal during cement manufacture. The two major cement production plants in Zimbabwe utilise the dry processing technology that consumes less energy than the wet process route.

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Residential Sector Zimbabwe's urban population relies to a great extent on electricity and kerosene for its domestic energy needs. Use of wood in urban areas is largely restricted to periods of severe winters, which run for very short periods of time. Fuel wood is a major energy source in Zimbabwe, accounting for about 40% of primary energy supply and 50% of final energy consumption [1996, Energy Balance]. Low-income urban households consume on average 2 kg of fuel wood per day with load-limited electricity supplies and 12 kg a day for those without electricity. Over 96 % of the energy that rural households depends on comes from fuelwood; they consume on average 14.5 kg wood per household per day. Urban Waste Waste generated in Zimbabwe's urban areas is normally disposed of by land filling, recycling, incineration, and open-dumping, the latter being applicable in the case of solid waste. Liquid waste is primarily disposed of through managed treatment works. In cases where residential sites have septic tanks, they are considered to be temporary storage, as they are periodically emptied into municipal systems. The principal GHG emitted from waste is methane. According to 1994 assessments [Initial National Communication], total CO2 equivalent emissions amounted to 595.6 Gg from landfills and 20.46 Gg from wastewater. Transport Sector Road transport is another important source of GHGs in Zimbabwe. The total locally registered vehicle population has doubled between 1992 and 1998 [Central Vehicle Registry Statistics] and reached about 900 000 vehicles in 1998. The 1994 GHG emissions from transport were estimated at a total CO2 equivalent of 2054.20Gg. Commercial and Other Sectors The commercial sector is a significant contributor to GHGs emissions in Zimbabwe. In 1994, the emissions from this sector were estimated at a total of 1 568 Gg of CO2 equivalent. The main sources of emissions from the commercial and other services sector are associated with the use of liquid and solid fuel combustion in public and private institutions such as hotels, schools, hospitals, and police camps. Fuels include coal, LPG, paraffin used mainly for cooking, and to a lesser extent heating. Government departments are usually considered alone when consumption of petrol and diesel are accounted for. This is mainly because these large consumers are taken as bulk consumers and are therefore accounted for separately. 4.4.4 Emissions Associated with Land-Use Change and Forestry, Agricultural Sectors

Zimbabwe has a total land area of approximately 390 000 square kilometres. The land area under agricultural production amounts to 10 738 077 hectares, with another 20.5 million hectares covered with forests and the rest being rock outcrops, water bodies, and settlements (FC, 1996). In Zimbabwe the underlying causes of deforestation involve the interplay of historical, biological, economic, and political factors at both national, village, and household levels. The causes include population pressure for agricultural land, the demand for industrial timber production, and inappropriate government policies regarding land tenure, economic incentives, and forest settlement. Rapid population growth (2.9%) appears to be the critical factor affecting deforestation. The majority of the population depends on agriculture. Most of the increases in agricultural

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production necessary to sustain a high population come from the expansion of the area under cultivation through deforestation. The agricultural sector contributes about 14% to the GDP and employs 70% of the work force population. Emissions of GHG's occur from several sources, including burning of crop waste, enteric fermentation, manure management, and savannah burning. Using the 1994 crop production, livestock figures and the IPCC guidelines (1995), the GHG emission levels were estimated to be 13 388.96 Gg CO2 equivalent (Table 4.5). Changes in land-use and forestry activities both emit carbon dioxide (e.g., through conversion of forestland to agricultural or urban use) and have the potential to act as a sink for CO2 through improved forest management activities.

4.5

4.5.1

Emissions Projections

Objectives

The objectives of this section are to show the development of business-as-usual GHG emissions in Zimbabwe. These projections will be used to calculate the GHG reduction potentials, i.e., the basis of investors' involvement in AIJ/CDM projects in non-Annex I countries. The projections in this section are based on the projected level of economic activities and other macro-economic parameters in the country. Projections are primarily based on a projected GDP growth of 4.6% in the period 2000 to 2010 and 3.8% thereafter. It should, however, be noted that the projected GDP growth may be on the optimistic side since recent developments do not support such growth rates. GDP growth is factored into current sectoral energy intensities and GDP contribution to derive future sectoral GDP contribution. Sectoral consumption is then derived from the assumed energy intensity taking into account international improvements in efficiency as represented by the Autonomous Energy Efficiency Improvement (AEEI) Index. 4.5.2 Future Trends in GHG Emissions from the Energy Supply

GHG emissions from the energy supply are projected based on ZESA's expansion plans for thermal power generation, the coal demand schedule (see Table 4.3.), and associated coal mining activities. A high dependence on coal conversion to electricity will increase supply-side emissions significantly while a high dependence on hydro generation will reduce emissions to lower levels. It therefore follows that the following emissions projections for the power sector are based on the current thermal generation capacities and the current approved ZESA expansion plan shown earlier in Section 4.3.2. We also assume that imports will remain constant in absolute terms. This is because of the present uncertainty with the future role of imports. ZESA would prefer to import no more than its reserve margin but may not be able to hold to this preference. The present structure of excess capacity among ZESA regional suppliers indicates that these suppliers may not be able to continue supplying ZESA due to increased internal demand. Under these circumstances, it appears safe not to vary the present level of imports (i.e., projected emissions are at the upper range of what can be expected). ZESA's expansion plan shows the scheduled plant installations. The projected coal demand for ZESA's power generation and the total national coal demand is given in Table 4.6 below. This coal demand projection is based on the current consumption patterns with additional consump-

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tion at the new plants (Hwange 7 and 8 and Gokwe North). Coal consumption in a thermal power generation plant is based on the expected electrical output from the plants (in GWh) and plant efficiencies (i.e., conversion from TJ of coal to GWh of electricity). The calorific/heat values of the coal are also taken into account to estimate the quantities of coal needed to produce the required energy in joules. Table 4.6 Coal Demand Schedule (TJ)

1994 2000 2005 2010 2015

National coal demand Coal demand for power generation

132 436 72 247

162 657 78 085

193 046 120 550 62.54%

229 112 141 799 61.89%

254 439 141 799 55.73%

Coal demand for generation as 54.55% 48.01% % of national demand Source: Southern Centre/UNEP Country studies Phase II, 1993

The above coal demand schedule and IPCC emission factors for coal, diesel, and coal fugitives forms the basis of the emissions projection shown in Table 4.7. Consistent with the approach adopted in the previous sections, projections for energy use in sectors other than power generation are provided in separate sections. Table 4.7 shows that CO2 emissions from power generation are expected to approximately double until 2015. The increase will be highest between 2000 and 2005 when Hwange 7 and 8 and Gokwe North are planned to come on stream. On average, CO2 from power generation will grow at approximately 4.3% per year, which is close to the projected GDP growth of about 4.6%/year. Methane emissions from mining will grow parallel to the coal demand for power generation and industrial heat production. Table 4.7 1994 Emissions and Projected GHG Emissions from Electricity Generation and Coal Supply

1994

CH4 emissions from coal/Gg Underground mining

2000

2005

2010

2015

Mining Post mining

Surface mining

8.79 1.23 3.27 0.28

13.58

11.20 1.57 4.17 0.36

17.30

13.20 1.85 4.92 0.43

20.39

15.21 2.13 5.66 0.49

23.49

17.21 2.41 6.41 0.56

26.59

Mining Post mining

Total emissions

GHG emissions from thermal power generation/Gg

CO2 CH4 NOx CO NO2

6 803 0.01 0.01

7 313 0.16 10.45 1.31 0.27

11 290 0.25 16.13 2.02 0.42

13 280 0.30 18.96 2.37 0.49

13 280 0.30 18.96 2.37 0.49

Source: Southern Centre for Energy and Environment, 1999

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4.5.3

Future Trends in GHG Emissions from Industry (Cement Manufacturing, Industry Combustion, Mining and Metallurgical Operations)

Sectoral projections are based primarily on expected growth in the macro-economic activities described earlier. These projections are presented in Table 4.7. However, where information is available for specific projects to be implemented, estimates of energy consumption in such projects are made. This is the case with the electricity supply outlined above. The same applies to other industrial projects where enough details on production levels allow us to estimate energy use. Cement Manufacturing There are planned cement manufacturing projects which will in future contribute to GHG emissions. The projects may be expansions of existing installations or entirely new ones. Current cement production comes from two companies, namely, Portland Holdings Ltd. and Circle Ltd. A third producer, an IDC- Chinese joint venture, is presently constructing a large plant near the city of Gweru. The expansions indicated in Table 4.8 above are intended to meet the growing needs of the construction industry and replace current imports of cement or clinker. The projected CO2 emissions are expected to increase by 139 % on the 1994 levels after the implementation of the proposed projects. This would exceed projected GDP growth rates for the time being until the first commitment period (2008-2012). The new cement production facilities are planned to use the dry processing route. The total emissions indicated above include only emissions from the calcination process itself. The emissions from the coal that is used to provide the process heat for the cement production (current: 360 Gg/year) is included in the category "industry combustion" below. Industry Combustion The use of coal for combustion in manufacturing is a major source of CO2 emissions, as can be seen in Table 4.5. Projected emissions from this source are expected to follow the country's GDP growth, as was described in Section 4.2. Table 4.8 Present and Expected Capacities of the Cement Plants

Plant Current Production ( ` 000 tons) Planned Capacity Year on line

Portland Holdings ltd Circle Cement Ltd Sino ­ Idc Ltd. Total Total Emission CO2

600 300 Nil 900 448.7

1000 450 700 2 150 1 070

2001 2 002 2 000

Source: Portland, Circle & Sino - Pers. Comms .

Mining During the period between 1994 and 2010 a number of large mines are expected to come on stream. The Hartley Platinum Mine, which had reached about half of its targeted capacity when it shut down in June 1999, but it is expected to resume operation in a year. Mimosa, Ngezi and Unki

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Platinum mines on the Great Dyke are under feasibility studies, and indications are that each will produce upwards of one million tonnes of rock per year from 2001 on. Eureka Gold mine is due for full-scale production by the end of 1999. Based on anticipated tonnage of rock to be produced, the level of N2O derived from explosives used is set to increase by 350% on the 1994 levels (Eureka Mine internal Information, personal communication) Metallurgical Operations Metallurgical operations constitute one of the principal sources of CO2 emissions in the industry sector. For several years during the 1990s, the production of iron and steel at the Zimbabwe Iron and Steel Company was at levels far below normal capacity. According to company officials only 350 000 tonnes of steel were being produced during the last seven years. This was due to the fact that the large Blast Furnace No. 4 was offline for the period. The No. 4 furnace was recommissioned into production in July 1999, and when fully operational at the end of 1999, could produce about 800 000 tonnes of steel per year. Emission levels from these works are expected to increase by 50% by the end of 1999 compared to the 1994 levels. The two Ferro-chrome smelters at Gweru and Kwekwe do not have any plans for major expansions, and thus CO2 emissions projections are based on the GDP growth rate of 4.6%, as described in Section 4.2. above. This should take into account any conceivable unknown projects that could be implemented during the period. Future Trends in GHG Emissions under Residential Sector In order to make reasonable projections of emissions emanating from the urban residential sector it will be necessary to take into account new policy interventions by the government. In trying to redress the inadequacies of the past, the government has recognised the lack of adequate accommodations, which has given rise to the construction of shacks within existing premises. Often such shacks are of a low standard in terms of the provision of electricity, water and space. The new policy is intended to redirect investment into the residential sector not just from government and local authorities but more importantly, from the mobilisation of resources from the private sector. With the improvement in the quality of housing, waste generation is expected to increase correspondingly in keeping with the GDP growth rate of 4.6% until 2010 and 3.8 % for the year 2030 (Section 4.2). Projections for the residential sector are also shown in Table 4.9. Table 4.9 Emission Projections for the Industry, Commercial and Residential Sector (Gg of CO2 equivalent)

SECTOR 1994 2010 2030

Mining operations Mining combustion Metallurgical processing Commercial & Others Industry combustion Cement production Fertiliser manufacture Residential Total

1 959.7 227.7 1 849.7 1 529.7 2 406.9 448.7 6.8 595.6 9 024.8

5 889.2 684.3 2 774.6 2 998.2 4 813.8 1 346.1 10.2 1 169.3 19 685.7

10 365.9 1 205.3 4 883.3 5 876.5 8 472.2 2 369.2 13.9 2 465.3 35 651.6

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4.5.5

Future Trends in GHG Emissions in the Transport Sector

For transport-related GHG emissions, we assume a development parallel to the GDP growth described in Section 4.2. Growth in the transport sector has been erratic over the last two decades, with sharp growth experienced in the 1990s. The growth of motor vehicles over the period 1992 to 1999 can be estimated to be about 12.2% per annum and this is used to estimate emissions in year 2000. However, this growth is not likely to remain high as markets saturate. After the year 2000, it is more realistic to match growth in this sector with general economic growth as given by the GDP. This leads to the following projection shown in Table 4.10. Table 4.10

Year 1994 2000 2010 2020

Projection of GHG Emissions from the Transport Sector Based on GDP Growth Rate

CO2 1851 CH4 0.98 N2O 0.56 CO2 Equivalent 2055 Annual GDP growth Nat. com. 12.2% 4.6% 3.8%

3702 5804 8428

1.96 3.07 4.46

1.12 1.76 2.55

4 108.42 6 441.57 9 353.31

4.5.6

Future Trends of GHG Emissions in the Land-Use Change, Forestry, and Agricultural Sectors

Forestry, together with land-use change, is one of the most important sectors in Zimbabwe, both in the context of GHG emissions and general development. This sector is a major source of GHG emissions, primarily because of rapid rates of deforestation and forest degradation from cropland establishment and timber and fuelwood collection (Forestry Commission, 1996). It also represents opportunities for emission mitigation by both reducing emissions and increasing sinks. Emissions from this sector will be influenced increasingly by population demand for agricultural land at both the subsistence and the commercial agriculture level. Expansion in the demand for land is governed by the population's food requirements. Table 4.11

Gas CO2 CH4 N2O NOx CO CO2 eq.

GHG Emission Projections from Land-use Change and Forestry/Gg

Source 1994 2010 2039

Land clearing Biomass removals Forest clearing Forest clearing Forest clearing Forest clearing

Total

2 500.28 16 234.20 30.88 2.78 8.16 55.32

18 831.62

16 234.20 15 490.00 29.40 2.66 7.60 52.80

31 816.66

158.38 1 030.00 1.94 0.19 0.52 3.51

1 194.54

N.B. Decimal in the totals have been rounded. Source: Zimbabwe Initial National Communication (1998)

During the 1980-91 period the livestock herd increased by 21%, although there was a negative trend from 1991-96 due to drought (CSO 1997). If we extrapolate from the 1980-91 trend, the livestock population is expected to increase during the first 20 years, after which it should reach a

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ceiling due to constraints on land availability. Tables 4.11 and 4.12 show emission projections for these (Agriculture, Land-use Change, and Forestry) sectors for the indicated years. Table 4.12

Gas

GHG Emissions Projections from Agriculture/Gg

Source 1994 2010 2039

CO2

Land clearing Biomass removals

2 500.28 16 234.20 30.88 2.78 8.16 55.32

18 831.62

16 234.20 15 490.00 29.40 2.66 7.60 52.80

31 816.66

158.38 1 030.00 1.94 0.19 0.52 3.51

1 194.54

CH4 N2O NOx CO

CO2 eq.

Forest clearing Forest clearing Forest clearing Forest clearing

Total

N.B. Decimal in the totals have been rounded. Source: Zimbabwe Initial National Communication (1998)

4.5.7

Summary of Emission Projections

The following table summarises emission projections from all major sources in the country up to the year 2020. Emissions in 1994 are based on Zimbabwe's Initial National Communication. Emissions in later years have been extrapolated using the GDP growth rate of 4.6% up to 2010 and 3.8% thereafter. Table 4.13 Summary of Emission Projections by Source

GDP Rate 4.6 % 1994 All Energy 2000 2005 2010 GDP Rate 3.8 % 2015 2020

19 076.68 324.32 4 732.20 13 388.96 18 831.74 616.06 56 969.96

24 990.45 424.86 6 199.18 17 539.54 24 669.58 807.00 74 630.61

31 288.04 531.92 7 761.38 21 959.50 30 886.31 1 010.41 93 437.56

39 172.63 665.97 9 717.24 27 493.30 38 669.66 1 265.00 116 983.80

47 203.02 802.49 11 709.27 33 129.42 46 596.94 1 524.36 140 965.50

56 879.64 967.00 14 109.68 39 920.96 56 149.31 1 836.81 169 863.40

Fugitive Fuel Emissions Industrial Processes

Agriculture Land Use Change & Forestry Waste TOTAL Emissions

NB: The 1994 emissions are based on the Initial National Communication. It is assumed that the GDP growth rate is proportional to the emissions. The GDP growth rate is taken to be 4.6% up to 2010 after which it declines to 3.8% (see Section 4.2.2).

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4.6

4.6.1

GHG Abatement Potentials

Objectives of GHG Abatement Potentials

This section provides both the Zimbabwe government (host partner) and potential investors with the sizes and nature of the GHG mitigation potentials in the country. A pipeline of potential AIJ/CDM projects is described in detail in Annex I of the study. 4.6.2 Methodology

GHG abatement potentials were determined on the basis of the bottom-up approach method. (UNEP Greenhouse Gas Abatement Costing Studies, 1993). This method entails the identification of abatement technologies and their associated emissions savings in the identified sectors, i.e., energy, industry, residential, transport, agriculture, forestry and land-use change, and forestry. To determine the overall reduction potential of each option, assumptions on maximum diffusion rates of the technology are required. Note that these assumed diffusions are, in most cases, rough, conservative estimates. The study gives an overview of the most promising GHG abatement options. In this section we consider a pipeline of five projects (mitigation options) selected from a longer list of up to twenty one mitigation options previously studied and presented in the Initial National Communication for Zimbabwe. The strategic significance of this projects pipeline in the AIJ/CDM process is discussed in Chapter 5 below. 4.6.3 Projects Pipeline

This pipeline of projects is derived from the energy, industry, agriculture and residential sectors. Details of the projects pipeline are found in Annex I. Energy Investment in Small-Scale Hydroelectric Power Stations to Supply Rural and Peri-Urban Consumers The example for the mini-hydro project was drawn from the Osborne Dam. This investment reduces consumption of power generated from coal, thereby reducing GHG emissions associated with thermal power from coal-fired plants. The potential for mini hydro to exceed 10 000 MW and units of up to 300 kW can be supported by the hydro power in some sections of the country. This is an attractive option in areas where grid extension is expensive as a supply option and to increase the reliability of supply where grid supply is intermittent. Arrangements can be made to enter into a power purchase agreement with major suppliers such as ZESA. The penetration of this technology is assumed at 1000 kW. Agriculture and Land Use Change and Forestry Improved Technology of Tobacco Curing Agriculture contributes 14% to the GDP. Of this contribution tobacco accounts for 10% GDP and employs 152 000 people, supporting an estimated 700 000 people). Tobacco is cured using coal (mostly large-scale commercial farmers) and wood (mostly small-scale commercial farmers). The curing process causes significant CO2 emissions. The fuel wood used by the small-scale farmers is being harvested unsustainably from common property resources. The small-scale sector produces about 2% of the tobacco sold every year (6 million kg), which uses 14.5 m2 wood per 1000 kg tobacco cured. The estimated annual CO2 emissions from this sector alone is 96 325t CO2 (Annex

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I). The introduction of slot furnaces would result in a 55% reduction in CO2 emissions, as well as savings in the amount of fuelwood harvested for curing. Residential Sector Wastewater Plant This project involves the generation of power from gas produced in a sewage plant. It involves the installation of three gas engine generator sets fuelled by methane from three sewage plants. They will provide heat and 150 KW of electricity. The cover and piping of sewage gas is already installed. It is assumed that the power will be used in the sewage plant itself. This will reduce the consumption of power from the grid. A continuous production of sewage gas at the site is an important precondition for an efficient engine operation. Currently the sewage plant seems overloaded at the time. This might endanger the gas production at the site. Engine operation and maintenance must be assured by the proper training of operators. The lifetime of the project is expected to be ten years during which 159 580 tonnes of emissions (CO2 eq) are expected to be reduced. Industry Among the various mitigation options encountered in industry only the efficiency improvement in boilers is considered to offer real potential for adoption. The others­e.g., the change in furnace design type from electricity and coal to plasma arc, waste heat recovery, replacement of motor drives, etc.--are all considered too small and isolated for single project applications. Boiler Efficiency Zimbabwean industry has about 700 coal-fired boilers in service for steam generation. Their capacity ranges from as small as 30 kg of steam per hour to as large as 20 tonnes of steam per hour but the majority is in the range of 2 tonnes per hour. The largest number of installed units relies on solid fuel in the form of pulverised coal. One of the boiler manufacturing companies in Zimbabwe estimates that boiler operating efficiencies are quite low­as low as 50 %. This means half of the calorific energy from coal used in heating the boilers is lost and not put to useful work. There is therefore potential for improvement to higher levels such as 74 %. Measures to improve boiler efficiency include the replacement of old equipment or the introduction of monitoring and controlling devices. Such devices would monitor the temperature and composition of exit gases and, where necessary, make adjustments to the fuel-air ratios in order to optimise combustion. In addition, improvements in work practices such as soot cleaning and the installation of insulation on steam piping would ensure more efficient heat transfer. For the purposes of analysing this project in the context of CDM, improved performance could be achieved by replacing existing units in industry. It is easier to estimate savings by such an intervention than other measures, where quantification of savings is difficult. The analysis is based on one 2-tonnes-per- hour boiler unit. It is assumed that the analysis carried out on one unit can be replicated on 700 other units by the year 2010. The renewal of one boiler results in an annual emission reduction of 1.052 Gg CO2. For 700 boilers, the project's annual effect reaches 736.4 Gg CO2. Among many other potential CDM projects, the boiler efficiency improvement is considered to offer the best reduction potential prospects for the following reasons:

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· · ·

There is a large number of units in existence already in the country (700). As industries grow, there is a growing market for new installations, which is estimated to reach 2000 by the year 2030. The manufacture of complete boiler units and any efficiency improvement devices is carried out in Zimbabwe and hence has fewer constraints. Replication potential is high.

Energy Use of Coal-Bed Methane for Ammonia Generation This option envisages the introduction of a new ammonia conversion plant based on coal-bed methane, which was recently discovered in Zimbabwe. The methane would be mined directly for purposes of feeding the ammonia conversion plant and will not be tapped from ongoing coal mining works. The rationale for this option is that the country presently generates ammonia (used as raw material for fertiliser and explosives) from an energy-expensive, electrolysis-based system. The electrolysis plant currently has a demand of 80 MW derived from coal-fired plants. The ammonia from the CH4 plant would mitigate emissions associated with the 80 MW presently supplied to Sable Chemicals. Only one plant will be built, with a capacity to reduce 808 000 tonnes per year over the reduction period. This is a negative-cost plant but one with a very high initial capital outlay. The option has been studied quite thoroughly and would be tied to a newly proposed coal-bed methane mine. The details of the project, presented in Annex I, were derived from old data which do not reflect the present situation. These figures only serve to present the coal-bed methane enterprise as a potential CDM project. The negative cost estimates are likely to be revised given the experience with significant barriers to implementation over recent years. In the event that a donor is interested in the project, then more detailed and more accurate calculations with new data will have to be used in order to ascertain the viability of the project. The calculations as they are now in Annex I do not present a viable economic scenario. The project idea has been under discussion for along time. The major obstacle to its implementation has been the large initial financial investments required. Table 4.14 Projects Pipeline

Reference scenario C02 Reduction at assumed diffusion (tonnes per year) Reduction Cost (US$/ton C) Assumed Diffusion

Option

Coal bed methane* Mini Hydro Industrial boilers Improved tobacco curing technology Power production from sewage plant methane

NH3 from electrolysis Coal-fired power Low energy efficiency Use of more fuel wood through low energy efficiency Flaring of methane

808 000 20 000 1 052 45 480

-30 -2 1.3 1.40

1 plant 1 000kW 7000 units

15 958

29.0

1 plant

* Though coal-bed methane is presented here, it should be noted that it is still a project concept whose viability needs to be recalculated with new data. The figures presented in the table above are not representative of the current situation.

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4.7

Other Possible GHG Abatement Projects

Apart from the options given in Section 4.6 above, other possible mitigation projects from the different sectors are listed below (Table 4.15). Table 4.15

Option

Mitigation Options Analysed for the Supply Side

Reference scenario C02 reduction at assumed diffusion (tons/yr) Reduction Cost (US$/ ton) Assumed diffusion

Afforestation Biogas digester Hydro-power Central PV PV Pumps

No afforestation Fuel wood use, deforestation Coal-fired power Coal-fired power Diesel Pump

774 910 000 8 200 6 40

0.4 1.5 16.0 99.1 5 091.1

1 000 ha 100 000 digesters 1 000kw 100kw 700 pumps

Source: National Communication For Zimbabwe, 1998

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5. GHG MITIGATION IN ZIMBABWE OPTIONS AND BENEFITS

5.1 Introduction

The overall objective of this section is to illustrate the opportunities that exist in Zimbabwe for the reduction of GHGs. The country is presented with strategic and recommended options that the policy makers of Zimbabwe can use as a basis for decision-making. The conclusions at the outcome of this chapter should enable Zimbabwe to make informed decisions to respond to the opportunities and risks presented by international markets for GHG offsets under the AIJ/CDM processes. The value of potential GHG offset markets for Zimbabwe is analysed, taking into account the best sectoral mitigation options and the associated projects. The CO2 reduction potential for each option was evaluated both quantitatively and qualitatively as well. The projects were also evaluated on the basis of their environmental, ecological, economic, and social benefits. The analysis would be incomplete without a consideration of the required regulatory mitigation options and their abatement potential. Although the energy sector presents the major opportunities, other sectors have also been considered. The outputs are expected to be the options for Zimbabwe under the given circumstances, taking on board such issues as national and sectoral priorities and risk assessments. Carefully analysed criteria were used for the selection of the projects that form part of the project pipeline for Zimbabwe.

5.2

Significant Identified Mitigation Options

The summary of major findings is a synthesis of the most significant sectoral outputs, comprising a qualitative description of the proposed mitigation options, quantitative estimates of the GHG reduction potentials, as well as the associated costs. An analysis of the proposed mitigation options shows that the measures can generally be categorised into · improving combustion efficiency (boiler efficiency, tobacco curing) · environmentally clean technologies (mini-hydro) · renewable alternatives (coal-bed methane, sewage-plant methane)

5.3

The Value of the Potential GHG Market for Zimbabwe

The value of the potential CDM market for Zimbabwe is extensively discussed in Chapter 3. In order to strategically position itself in the offset markets, Zimbabwe should create appropriate domestic prerequisites. The effectiveness of these external markets will, to a large extent, depend on the local factors. Though the demand for offsets markets exists, domestic actions could also result in the reduction of GHG emission.

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By participating in AIJ/CDM processes Zimbabwe will benefit from EST with spin-offs in sustainable economic growth. Creation of a favourable investment climate by reducing risks and additional costs (transaction and production) is imperative if Zimbabwe is to participate in international markets.

5.4

Projects Pipeline

The purpose of the projects pipeline (discussed in Section 4.6.3) is to demonstrate show Zimbabwe's position, with respect to CDM under the Kyoto Protocol, to potential investors. From the pipeline, potential investors get a sample of a cross-section of projects that are candidates for financing under the AIJ/CDM process in Zimbabwe. Vital information on these projects such as annual emissions, potential GHG abatement reduction costs, the life of the projects, and replication potential and risks are given in the Uniform Reporting Formats in Annex I. Such strategic information should help Zimbabwe to realize potential benefits from the AIJ/CDM process at an early stage compared with other developing countries. Potential investors could also carry out detailed feasibility studies for projects of their interest. These projects are shown in Table 4.14.

5.5

Project Selection Criteria

General project selection criteria for AIJ/CDM are as follows.

· · · ·

The project must be compatible with and supportive of national environmental and development priorities and strategies and contribute to cost-effectiveness in achieving global benefits. The project must be officially accepted, approved or endorsed as an AIJ/CDM project. The project must bring about real, measurable, long-term environmental benefits related to the mitigation of climate change that would not have occurred in the absence of such an activity. The financing of CDM must be in addition to the financial obligations of the donor country within the framework of the official development assistance (ODA) flows. National Economic Development Priorities and Strategic Options for Zimbabwe

Strategic Options § § § § § §

Table 5.1

National Economic Development Priority § §

Sustained high rates of economic growth Speedy development in order to raise incomes and standards of living Economic empowerment and poverty alleviation

Establishment of macro economic stability by reducing government budget deficit Continuous growth in exports. Mobilising public and private sector savings and investment Generating opportunities for employment and encouraging entrepreneurial activities Investing in human resource development Providing a safety net for the disadvantaged

§

AIJ/CDM projects must fulfill national economic development priorities and be in line with set strategic options. The national economic development priorities and strategic options for Zimbabwe are outlined below in Table 5.1. A project has to have real measurable, long-term environmental benefits related to the mitigation of climate change. The principle of additionality will

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be applied for projects with real environmental long-term benefits on the mitigation of climate change that would otherwise not occur without the project. Risks and barriers to project implementation such as prohibitive capital costs must be clearly identified and demonstrated. Extra or additional financing will be over and above the already existing arrangements and obligations. The other criteria for project selection was the reduction potential. AIJ/CDM projects must also satisfy the broad national environmental priorities and strategies. These priorities are outlined in Table 5.2 . Table 5.2 National Environmental Priorities for Zimbabwe

National Environmental Priorities § Strategies § § § § §

Integrated management of Zimbabwe's eco-systems Sustainable and equitable use of natural resources Protection of the resources base and conservation of bio-diversity

Integrated land use planning Environmentally friendly production principles Waste management practices Undertake research on unsustainable resource use Develop community based environmental programmes and interventions.

§

§

Source: ZIMPREST: Zimbabwe Programme for Economic and Social Transformation, 1998

AIJ/CDM projects must satisfy sectoral environmental priorities as shown in Table 5.3. Table 5.3 Sectoral Environmental Priorities

Responsible organisations Strategies § § § § §

Sectoral priorities

Integrated management and sustainable use of natural resources and protection of the environment

Ministry of Mines Environment and Tourism

Increasing the annual afforestation rates Developing plans for conservation management and protection of the resource base Enforcing environmental and energy audits Research and development of new and renewable sources of energy Rational use of energy through demand side management and pricing policies Increase employment capacity Compliance with existing regulatory instruments Increase world market share for local products Establish programmes to safeguard social and cultural values Reduce effluent into water bodies Reduce air pollutants to acceptable standards

To promote economic growth through efficient, equitable and sustainable use of natural resources. Improve and maintain the quality of life for Zimbabweans

Ministry of Mines Environment and Tourism

§ § § § § §

Ministry of Mines Environment and Tourism

Source: Strategic Directions. Ministry of Mines, Environment and Tourism, July 1998. The National Conservation Strategy: Zimbabwe's Road to Survival. Ministry of Natural Resources and Tourism, April1998.

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5.6

Secondary Project Benefits

Besides the global reduction in GHG emissions the projects should also provide secondary benefits for the host country and the local communities. The host country secondary benefits are shown in Tables 5.4 and 5.5. Table 5.4

BENEFITS

General Benefits Accruing to Zimbabwe

DESCRIPTION

Technology Transfer Investments Environment

Encourage private sector diffusion of innovative technology that can help meet Zimbabwe `s development priorities. Expands investments in technologies and projects that reduce GHG emissions while contributing to overall host country development priorities. Reduced SO2 emissions resulting in reducing acid rain effects. Reduced pollution of air, water and soil from coal combustion products. Reduced deforestation and soil erosion from reduced forest clearing. Capacity building and skills transfer, cost saving from facilities and production processes and provision of new energy services. Improvements in general quality of life; cottage industries; improved health. Encourages additional private sector investment and dissemination of technologies and practices which contribute to sustainable development. Participants get an opportunity to influence the direction and AIJ/CDM structure beyond the pilot phase.

Economic Social benefits Promoting Sustainable Development Learning Effects

5.7

Regulatory Mitigation Options

In the Zimbabwe energy market electricity and most liquid fuels are charged prices below their economic costs. This is being worsened by current harsh economic conditions where the prices of energy products have not been adequately adjusted for the depreciation of the Zimbabwe dollar and for inflation. This means that consumers are not being given the correct price signals, for they are enjoying subsidised energy products. Table 5.5

Sector

Specific Project Benefits

Project Type Environmental Benefits § § Socio-Economic Benefits §

Industry

Boiler Efficiency

Reduced GHG emissions due to reduced consumption of coal Reduced pollution due to efficient consumption GHG emission reduction due to displacement of coal Pollution reduction GHG emission reduction at source due to replacement of electrolytic processing of ammonia (NH3)

Financial benefits from reduced coal consumption

Energy

Coal bed Methane

§ § §

§ § § §

Employment creation Reduction in power imports for ZESA Plant savings from reduced power bill. National capacity building in new gas technologies

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Mini Hydro

§ § §

Reduced emissions from clean power generation technology No hydrological-ecological Problems due to small levels of river/stream damming

§

§ §

§

Autonomous power supplies to off-grid consumers Improved amenities Possible income generating facilities of rural communities Electrification of rural health or educational centres. Financial savings from reduced coal and fuel wood consumption Financial saving from reduced consumption

Agriculture

Efficient Tobacco Curing

§

§

Reduced GHG emissions due to reduced consumption of coal and wood Reduced deforestation Reduction of methane in the atmosphere

§

Residential

Waste Water Plant

§

§

There is scope to increase the efficiency of energy use by reducing subsidies and charging prices that reflect costs. The associated benefits are threefold:

· · ·

reduced government spending, which is crucial for improving macro-economic stability as outlined in Section 4.2 of this study reduced energy demand and consequently lower GHG emissions as a result of higher energy prices paid by consumers. positive employment effects as energy prices increase relative to labour prices.

The energy saving will in effect feed into an effective demand-side management programme. If demand is curtailed this also reduces the required investments in energy supply alternatives. The same effect can also be achieved by regulations requiring utilities to engage in demand-side management and energy conservation programmes. While it is important to charge economic costs for all energy products, non-pricing regulatory measures could also assist in improving end-use energy efficiencies. This study shows that Zimbabwe, being a developing country, should give greater scope to technological, industrial, and developmental advancement. Previously regulatory mitigation options have been considered in the energy sector as a non-pricing measure to improve energy efficiency. The information below is based on the Integrated Energy Strategy Evaluation for Zimbabwe published in 1992 (ESMAP, Report No 8768-ZIM), which made an in-depth analysis of the potential to use regulations as a mitigation option in Zimbabwe. The following section outlines possible areas where regulatory measures and improvements could be introduced. In infrastructure or industrial development, innovation and expansion, there is scope for increasing efficiency by installing state-of-the-art energy-saving equipment. End-use efficiency is still low, and there are considerable opportunities in industry, transport, and public buildings to reduce energy consumption. The potential has been estimated at 15-20% of current use, half of which can be realised through low-cost measures. In monetary terms these savings were estimated to be Z$140 million. In the transport sector regulatory mitigation options could consist of improving efficiency in fuel pricing and fuel quality monitoring. Strict regulations on maintenance of vehicles and retrofitting to improve combustion efficiencies could be formulated and instituted. Public transport operators

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could be encouraged to rationalise routes and schedules as an option for reducing fuel consumption. Appropriate building codes for power levels and standards for new constructions, especially for lighting, water heating, and air conditioning, could be developed and implemented for new public buildings such as offices, schools, hospitals, as well as commercial establishments. Energy audits for existing buildings should be undertaken and, where necessary, retrofits fitted to ensure efficient ventilation, power levels, and indoor temperature control. General conservation legislation, including appliance labelling, could be introduced to comply with international environmental standards. Government taxation policies could offer grants and tax incentives and credits for GHG emission reduction projects and training related to these. These policies must be pushed through and implemented. There is also need to establish institutions that can raise awareness and provide technical knowledge on energy efficiency.

5.8

Conclusions

From the foregoing sections on the mitigation projects pipeline, structure of international markets, projects selection criteria, national domestic prerequisites, environmental and sectoral priorities, and the required regulatory measures Zimbabwe should have a clear picture of the way to move forward regarding risks, options, benefits and requirements under an AIJ/CDM framework. For Zimbabwe to gain maximum benefits (sustainable development, technology transfer, etc.) from these mechanisms, strategic decisions should be taken now on the basis of the findings from the National Strategy Study. The country should utilise this advantage by strategically ranking its options with reference to the projects pipeline and other important considerations associated with the AIJ/CDM process. In this regard there is great scope to undertake new initiatives in the areas highlighted in this chapter with the participation of both private and public sectors. Reviews should be undertaken to find areas where current legislation could be strengthened and amended or areas where new legislation should be introduced.

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6. CONCLUSIONS

The objective of the present study has been to expose the Zimbabwean authorities and potential investors to CDM projects opportunities that exist in the country. It is hoped that this study will further assist the Zimbabwe government in formulating policies targeted at involvement in AIJ/CDM projects. By taking cognisance of existing and projected macro-economic conditions and considering future trends of GHG emissions, the Zimbabwean authorities are expected to make strategic decisions aimed at maximising the country's participation in the AIJ/CDM process. This study has demonstrated that Zimbabwe has some GHG abatement potentials in the economic sectors of energy, industry, residential, agriculture and land-use change, and forestry. The estimated costs of these abatement potentials per ton of carbon were also determined so as to provide potential investors with a snapshot of the level of financial commitment required to implement any of the selected projects. The bureaucracy, baselines, and risks associated with the investment climate in Zimbabwe were also discussed within the general context of domestic prerequisites. This study has described the energy supply base of Zimbabwe-i.e., thermal power electricity generated from coal, liquid fuels (petroleum products), wood fuel, and hydroelectric power. Zimbabwe imports all of its petroleum requirements. On the basis of the 1994 baseline year, the study has demonstrated that 90% of Zimbabwe's emissions come from the energy sector. As the country develops, it is projected that these emissions will grow. From this perspective, this study puts Zimbabwe in a strategic position to take steps to reduce emissions through AIJ/CDM processes. Having discussed the emission projections, the study looks at GHG abatement potentials and their costs, lifetime, and risks. A selected pipeline of projects is also presented to give both Zimbabwean and potential foreign investors a snapshot of CDM possibilities in Zimbabwe. Finally, the present study looks at national economic development and environmental and sectoral priorities, together with possible regulatory measures, that encourage the public at large to participate in mitigation options. On the international scene the primary role of the CDM is to guide foreign corporate investment in developing countries toward goals of sustainable development. These intentions are fraught with difficulties in the sense that, on the one hand, Annex I countries want to minimise GHG abatement costs globally while, on the other hand, developing countries want to maximise resource and technology flows and minimise interference with normal foreign aid. In these North-South discussions it is appropriate that developing countries have meaningful input into how the CDM unfolds. There is support for this in the fact that the history of foreign investment and technology transfer has shown that investor-driven projects frequently fail if there is minimum local participation and acceptance at the project inception level. The way this study had been conducted is therefore appropriate in the sense that the Zimbabwe government has been involved right from the outset. This is one of the ways in which large flows of foreign investment could be channelled into sustainable development and how greenhouse-gas developments could be achieved in non-Annex I countries.

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APPENDIX: GHG PROJECTS ­ UNIFORM REPORTING FORMAT FOR AIJ UNDER THE PILOT PHASE

This Annex contains project details presented in the format of the Unified Reporting Format (URF) developed under the pilot phase of AIJ. The information is taken from organisations and institutions mentioned in the URF. Further studies are necessary, in particular, to assess and include the consequences of possible barriers of implementation in the cost calculations. Project 1 (Osborne Dam) and Project 5 (CoalBed Methane), having negative incremental costs over the baseline that make their implementation likely, have been included here because their reassessment could lead to positive cost estimates that may make them eligible for the CDM.

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PROJECT 1

A. A.1 A.2

OSBORNE DAM

Description of Project Title of Project: Osborne Dam Hydroelectric Power Generation Project Participants/actors:

Please fill in if applicable Zimbabwe Power Company ZPC Overall project management, main sponsor 12th floor, Megawatt house, Samora Machel Av. P.O. Box 377 Harare Zimbabwe +263 4 250407/9 +263 4 705193 [email protected] ------------------------------------Mupotsa Isaac F. Managing Director

+263 4 705193

Item Name of organisation): Acronym Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail: Item Name of organisation): Acronym Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail:

+263 4 705193 [email protected]

Please fill in if applicable Ministry of Rural Resources and Water Development MRRWD Water authority and owner of dam. 6TH Floor Kurima House, 89 Nelson Mandela Ave. Private Bag 7712 Harare Zimbabwe +263 4 737691 +263 4 722752

------------------------------------Kabell Terry C. Deputy Director, Designs +263 4 737691 +263 4 722733

Item Name of organizationa): Department: Function within activity: Street:

Please fill in if applicable Ministry of Mines, Environment and Tourism Climate Change Office Government Contact, Zimbabwe Nyerere Street

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Item Post code: City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel:

Please fill in if applicable P Bag 7753 Causeway Harare Zimbabwe +263 4 757 881 1/5 +263 4 757 006 [email protected] ------------------------------------Sangarwe Margaret Under Secretary +263 4 757 880

A.3

Activity:

Please fill in if applicable Installation of a 3 MWe hydro electric plant at Osborne Dam. The dam already exists, it was erected for irrigation purposes. The power will be fed into the grid. To this end, a power purchase agreement will be entered into with ZESA: ZESA will be willing to purchase power from the project because it is a renewable energy project and, because it will add capacity to the system and provide reliable backup power in the area. Uncertainties, risks, gaps: · Plant size will depend on the agreed water release plan for power generation. The indicated 3 MW take into account possible water release restrictions (to be confirmed in discussion with the Ministry of Lands and Water Resources). · Dam design has no specific provision for water take off for power generation. Appropriate modifications need to be done. · Additionality of the project's climate benefits need to be studied in detail (see Section E1). A crediting time considerably shorter than the technical life of the project seems appropriate, since the project is likely to be implemented soon even under non-CDM conditions. The project baseline assumes that an equivalent amount of electricity will be produced in a new coal-fired power plant Renewable energy Osborne Dam, Makoni District, Manicaland

Item General description - AIJ/CDM project

General description - project baseline (reference scenario) Type of project:a) Location (exact, e.g. city, region, state): Activity starting date: Expected activity ending date: Stage of activity:b Lifetime of activity if different from ending date: Technical data:

Approx. Dec. 2003: commissioning of plant Time during which the project yields certified emission reductions: 10 years (preliminary proposal) Pre-feasibility stage Technical life of investments: 20 years

Capacity: 3 MW Power generation: 21'000 MWh/year a) For example, using Intergovernmental Panel on Climate Change (IPCC) classification: energy efficiency; renewable energy; fuel switching; forest preservation, restoration or reforestation; afforestation; fugitive gas capture; industrial processes; solvents; agriculture; waste disposal or bunker fuels.

Describe existing work on the project: The project forms part of the development plan of the newly established Zimbabwe Power Company (ZPC), which is a subsidiary of ZESA. See the following documents:

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· ·

ZPC, Project Development Plan, June 1999 ZPC, Renewable Energy Projects, June 1999

ZPC's development plan includes several other power generation projects of similar size, based on hydro, waste wood, and sugar-cane wastes. A.4 Cost (to the extent possible):

CDM Project Baseline GOKWE NORTH (14000 MW)

Total Investment Technical life of investment Discount rate Levelized investment Operation and maintenance p.a. Fuel p.a. Total levelized cost p.a. Incremental cost p.a. GHG reduction p.a. (see details in Section E) Unit abatement cost Unit abatement cost

1999 Z$ Years % 1999 Z$ 1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. t CO2 eq/yr. 1999 Z$/t CO2 1999 US$/t CO2

100'000'000 20 12.5 % 15'300'000 7'000'000 -22'300'000 -1'800'000 20'000 -90 -2

114'000'000

17'400'000 2'800'000 3'900'000 24'100'000 not applicable not applicable not applicable not applicable

Describe briefly how costs are determined; specify key assumptions.

· · ·

A.5

See calculation details in the Annex to this URF. The project baseline assumes that an equivalent capacity (3 MW) is installed in a new coalfired plant and that an equivalent amount of power (21'000 MWh/yr) is produced. Exchange rate July 1999: 1 US$ = 38 Z$ Mutually agreed assessment procedures:

Not applicable to projects of NSS pipeline at the current stage B. Governmental acceptance, approval or endorsement

Not applicable to projects of NSS pipelinet at the current stage C. Compatibility with and supportiveness of national economic development and socioeconomic and environment priorities and

Describe (to the extent possible) how the activity is compatible with and supportive of national economic development and socio-economic and environment priorities and strategies Zimbabwe has an active renewable energy program, which supports the development and utilisation of renewable energy for sustainable development. The President of Zimbabwe is the current chairman of the World Solar Commission. There is need for a significant number of renewable energy projects in Zimbabwe. The Osborne Dam Hydroelectric Power Plant Project will go a long way in supporting Zimbabwe's renewable

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energy programme. The project will also provide local capacity building in small-scale hydroelectric schemes and hence increase the potential for use in hydroelectric power in Zimbabwe. It will provide jobs during construction and operation. It will provide a basis for improved access to electricity for the local rural settlements, schools and community clinics. It will encourage the development of tourist activities on the dam and hence improve the economy by providing jobs and business growth.

D.

Benefits derived from the activities implemented jointly project

Whenever possible, quantitative information should be provided. Failing that, a qualitative description should be given.

Item Please fill in Describe local environmental benefits (excluding benefits for global climate; see Section E) in detail: Describe local social/cultural benefits in detail: Describe local economic benefits in detail:

E.

Calculation of the contribution of activities implemented jointly projects that bring about real, measurable and long-term environmental benefits related to the mitigation of climate change that would not have occurred in the absence of such activities Estimated emissions without the activity (project baseline):

E.1

Description of the baseline or reference scenario, including methods applied. Specify key assumptions and emission factors used. The baseline scenario assumes that an equivalent amount of electricity is produced in a modern coal-fired power plant: (21 GWh/yr; transmission losses neglected, thermal efficiency 36%, 95 kg CO2/GJ coal) Additionality: The project is currently being developed by the commercially-oriented company ZPC. The question whether the project would not be implemented "anyway", i.e. without the CDM incentive, therefore remains to be examined in detail to determine whether the project in fact yields additional climate benefits. The main barrier to non-CDM project implementation will, most likely, be the lack of local funding in Zimbabwe, the lack of interest of international investors, and possibly the risks of the project (e.g., possibility of droughts, conflict of interest between power generation and irrigation of agricultural land). To ensure additionality of the project's climate benefits, the crediting time (time during which the project yields transferable certified emissions reductions) should be kept significantly lower than the technical life of the project (for instance, 10 years). The additionality test for the project also has to ensure that

· · ·

E.2

the project does not increase overall power consumption by supplying power to local residents that would otherwise remain unconnected to the grid and that does not have stationary (fossilfuelled) power sources the project does not replace hydro power imported from the Southern African Power Pool That, in brief, the project will actually replace power from fossil-fired sources. Estimated emissions with the activity:

Description of the project scenario, including methods applied. Specify key assumptions and emission factors used.

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Hydropower generation does not cause any direct CO2 emissions. Indirect emissions, e.g., from construction activities, are negligible. Methane (CH4) emissions from the hydro reservoir are not relevant since the reservoir already exists. Crediting time is assumed to be 10 years. Summary Table: Projected emission reductions

GHG Unit Emission per year Total emission over project life (10 years) 0

A) Project baseline scenario

B)

Project activity scenario a)

CO2 CH4 N2O other total CO2 CH4 N2O other total CO2 CH4 N2O other total

t t t t t CO2 eq. t t t t t CO2 eq. t t t t t CO2 eq.

0

20'000

20'000

C) Effect ( A-B )

20'000

200'000

Summary Table: Actual emission reductions Not applicable, since project was not yet implemented F. Bearing in mind that the financing of activities implemented jointly shall be additional to financial obligations of Parties included in Annex II to the Convention within the framework of the financial mechanism as well as to current official development assistance flows, please indicate:

Amount (1999 Z$) Amount (1999 US$)

Source of project funding including pre-feasibility phase (for each source one line) (leave blank if funding has not been agreed yet)

G.

Contribution to capacity building, transfer of environmentally sound technologies and knowhow to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties.

Describe briefly the transfer of environmentally sound technology and know-how including where appropriate the type of technology, terms, education, capacity building etc. H. Additional comments, if any, including any practical experience gained or technical difficulties, effects, impacts or other obstacles encountered.

Not applicable, since project was not yet implemented

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URF Osborne Dam - Calculation Details Exchange rate Zim$ : USD (07/99) 38

Installed capacity Capacity factor Power generation Generation efficiency Fuel consumption CO2 emission factor Yearly CO2 emission Fuel price Net calorific value Specific investment Total Investment Technical life of investments Discount rate Levelized investment Operation and maintenance p.a. Fuel p.a. Total levelized cost p.a. Incremental cost p.a. Yearly GHG reduction Unit abatement cost Unit abatement cost Crediting time Cumulative GHG reduction

kWe MWh/yr MWh/yr t CO2/MWh fuel t CO2/yr 1999 Zim$/MWh GJ/t USD/kWe 1999 Z$ years % 1999 Z$ 1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. t CO2 eq/yr. 1999 Z$/t CO2 1999 US$/t CO2 years t CO2 eq/10 yrs.

CDM Project hydro 3'000 80% 21'024 0 0 0 0

Baseline coal 3'000 21'024 36% 58'400 0.342 19'973 66 25.75 1'000 114'000'000 20 12.5% 17'420'442 2'777'770 3'854'400 24'052'611

Remarks 1) 1)

2) 3) 4)

877 100'000'000 20 12.5% 15'281'089 7'000'000 22'281'089 -1'771'522 19'973 -89 -2 10 199'728

5)

6)

Remarks: 1) Impact of higher transmission losses in the baseline case are neglected, since the uncertainty in other parameters is much higher 2) Coal price: 0.51 USD/MBtu (Source: ZPC), @ 0.293 MWh/MBtu. Note that this price is only about 10% of the world market price level. 3) Source: Revised 1996 IPCC Guidelines for Nat. GHG Inventories, Reference Manual (Specific value for Zimbabwe coal) 4) Project investment is based on the feasybility study of a similar project (Claremont hydro PP) + 10% contingency. Baseline investment is a conservative estimate for coal-fired PP excl. flue gas desulfurisation (comparison: Southern Centre assumes 1'500 USD/kW for coal-fired reference plant; GEF 1'250 USD/kW incl. FGD) 5) Source: ZPC. Project O&M is assumed as three times the salaries of the staff required to run the plant under normal circumstances. Baseline O&M is assumed as 2.05 USD/MWhe variable O&M plus 10 USD/kW/a fixed O&M. 6) Assumption: Project would have been implemented autonomously (i.e., in the baseline case) after 10 years.

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PROJECT 2

A. A.1 A.2

TOBACCO CURING

Description of project Title of Project: Improved Technology of Tobacco Curing Participants/actors:

Please fill in if applicable Ministry of Agriculture Tobacco Research Board TRB Research Officer Tobacco Research Board Harare Zimbabwe 263-4-575289/94 263-4-575288 [email protected] Jane Gonese Gonese Jane Research Officer 263-4-575289/94 263-4-575288 [email protected] Please fill in if applicable Ministry of Mines, Environment and Tourism Climate Change Office Government Contact, Zimbabwe Nyerere Street P Bag 7753 Causeway Harare Zimbabwe 263 4 757 881 1/5 263 4 757 006 [email protected] Margaret Sangarwe Sangarwe Margaret Undersecretary 263 4 757 880 Dr. Wolfram Kägi Consultant B,S,S. Economic Consultants Blumenrain 16 CH-4051 Basel

Item Name of organisation: Department: Acronym: Acronym (English): Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: WWW-URL: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail: Item Name of organisation: Department: Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Name of consultant: Function within activity: Affiliation Street: Post code: City:

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Item Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct Email:

Please fill in if applicable Switzerland +41-61-262 05 55 +41-61-262 05 57 [email protected] Dr. Wolfram Kägi Kägi Wolfram Partner of B,S,S. [email protected] [email protected]

A.3

Activity:

Please fill in if applicable In Zimbabwe, 3000 small-scale farmers produce and cure tobacco. The tobacco curing process causes significant CO2 emissions. For the curing process very simple furnaces are employed; wood is being used as fuel. The fuel wood is harvested largely and increasingly from common property resources at a level which is well above regeneration levels. Thus, the wood used for curing is not CO2-neutral (sustainably produced) biomass energy, but current production patterns cause net CO2 emissions and furthermore destroy valuable Miombo forests. By means of introducing so-called "slot-furnaces", and by the adoption of other minor changes within the furnaces of the small-scale farmers, significant emission reduction effects can be achieved. Wood fuel requirements could be reduced by up to 55%. Given baseline CO2 emissions of approximately 96'000 t CO2 per annum, annual emission reductions of approximately 53'000 t CO2 can be achieved. We assume a project life time of 11 years (2002 ­ 2012). The time horizon is chosen because the credibility of the baseline would be hampered if we were to choose a much longer time period and because potential CDM investors will be primarily interested in credits for the Kyoto commitment period (until 2012). But it is well possible that the project can be extended beyond the year 2012. The investment phase of the project is expected to last 5 years. First emission reduction effects are achieved after the first year. Once the investment is undertaken, emission reductions are achieved without major further costs. Over the life time of the project CERs of 424'000 t CO2 can be delivered. The proposed technological changes are very simple and can be carried out by the local farmers partially themselves (with some external help and some extra finance). Thus the costs of the project are moderate. Furthermore a large number of social, environmental and economic side benefits are achieved for the local population: valuable Miombe forests are protected which in turn helps to protect biodiversity in the area, prevents soil erosion and enhances watershed services of the forested land. At least 90% of the tobacco produced by small- scale farmers is cured using wood, of which 95% is harvested in an unsustainable manner. This causes biomass loss and thus net CO2 emissions of a magnitude of 96'000 tCO2/annum (see part E below for calculations) energy efficiency1

Item General description - AIJ/CDM project

General description - project baseline (reference scenario)

Type of projecta):

1 The activity of this project is the improvement of energy efficiency and the direct effect of the project is an emission reduction effect. The fuel being wood, we have an additional effect of forest protection, because the wood used is not harvested sustainably. It is now possible that this project is to be seen as a land use change or forestry project rather than an energy efficiency project. This is a (small) risk which has to be kept in mind when evaluating this project, since it is not clear to date whether land use change and forestry projects will be accepted under the CDM. However, if projects increasing the efficiency of wood fuel use should be ruled out by the CDM, many of the most sensible projects in Africa will be ruled out. Wood remains to be the prime energy base in rural Africa and the increased efficiency of fuel wood use is a major developmental requirement.

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Item Location (exact, e.g. city, region, state): Activity starting date: Expected activity ending date: Stage of activity

Please fill in if applicable Communal and resettlement farming areas in Zimbabwe

Lifetime of activity if different from ending date: Technical data:

01/01/2002 (or earlier) 31/12/2012 Project option and project partners are identified, first assessment of project potential is completed. -

Energy efficiency improvements of 55% are expected by installing slot furnaces in tobacco curing barns and by further minor improvements (which aim to increase the yield of the produced heat by improving the air circulation within the tobacco barns) a) For example, using Intergovernmental Panel on Climate Change (IPCC) classification: energy efficiency; renewable energy; fuel switching; forest preservation, restoration or reforestation; afforestation; fugitive gas capture; industrial processes; solvents; agriculture; waste disposal or bunker fuels.

Describe existing work on the project: A.4 Cost (to the extent possible)

CDM Project 15'000'000 (3'000 per annum during the initial 5 years of the project) 1'000'000 15'000'000 1'000'000 11 10 - 19'650'000 11'000-53'000 82.67 2.18 Baseline 0

Total Investment

1999 Z$

Operation and maintenance p.a. Incremental total investment Incremental operation and maintenance p.a. Project life Discount rate NPV of total project GHG reduction p.a.(see details in Section E) Unit abatement cost Unit abatement cost Exchange rate July 1999: 1 US$ = 38 Z$

1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. years % 1999 Z$ t CO2 eq/yr. 1999 Z$/t CO2 1999 US$/t CO2

0 0 0 0 not applicable not applicable not applicable not applicable not applicable

Assumptions of Cost Estimates It is assumed that the costs of improving the efficiency of tobacco barns is Z$ 5000 / barn. This cost takes into account that farmers contribute to the improvement of their barns. Furthermore we assume annual costs for the extension work of Z$ 1'000'000. These costs will have to borne during the total life time of the project to ensure that the efficiency improvement is maintained during the whole period. For the calculation of the NPV, all cash flows (both from investments and maintenance costs) are discounted. In order to calculate the costs per ton CO2 reduction, also the cash flows resulting from the sale of CO2 credits are discounted. A.5 Mutually agreed assessment procedures:

Not applicable to projects of NSS pipeline B. Governmental acceptance, approval or endorsement

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Not applicable to projects of NSS pipeline C. Compatibility with and supportiveness of national economic development and socioeconomic and environment priorities and strategies.

Describe (to the extent possible) how the activity is compatible with and supportive of national economic development and socio-economic and environment priorities and strategies Tobacco is one of the major sources of income for Zimbabwe. Increased production is expected in the years to come. This project targets small-scale tobacco farmers in resettlement areas who are a priority group within Zimbabwe's development strategy. Through the CDM project tobacco can be grown and cured using less wood thereby reducing deforestation and environmental degradation.

D.

Benefits derived from the activities implemented jointly project

Whenever possible, quantitative information should be provided. Failing that, a qualitative description should be given. If quantitative information becomes available, it could be submitted using the update(s).

(If the amount of quantitative information is too large, the source could be indicated.)

Item Describe local environmental benefits (excluding benefits for global climate; see Section E) in detail: Describe local social/cultural benefits in detail: Describe local economic benefits in detail: Please fill in Small scale farmers will use less wood to cure tobacco, thereby reducing deforestation and maintaining the biodiversity of the Miombo forests. Furthermore, forest protection reduces soil loss and enhances watershed services provided by the forest. Less time will be spent harvesting wood since small amounts will be required per cure. The surrounding Miombo forests will be maintained. Less time will be spent harvesting wood since small amounts will be required per cure.

E.

Calculation of the contribution of activities implemented jointly projects that bring about real, measurable and long-term environmental benefits related to the mitigation of climate change that would not have occurred in the absence of such activities Estimated emissions without the activity (project baseline):

E.1

In the resettlement areas of Zimbabwe, small-scale tobacco producers use wood for curing tobacco. The wood is harvested in a non-sustainable manner and use of wood thus causes net-CO2 emissions. Currently, some of the wood cut from land, which is put into agricultural production. But it is only a matter of time until these resources will have been exhausted and woodlands will be cleared solely for wood required is for tobacco curing. Furthermore, the number of small-scale farmers who engage in tobacco production is increasing rapidly, but in our baseline calculations we assume that the number of farmers curing tobacco will remain constant ­ we thus use a very conservative baseline. Communal farmers produce approximately 6 million kg of tobacco per year out of the projected 280million kg (Masuka,1999). About 1000kg of tobacco requires 14.5m3 of wood for curing (Brooker, 1995). At least 90% of the tobacco (5.4million kg) from small-scale farms is cured using wood (Flower) and we assume that 95% of the wood is non-sustainably harvested. This causes biomass loss and thus net CO2 emissions. The following factors were used in the calculations ­ ­ ­ conversion factor from m3 to t wood biomass conversion factor wood tons biomass to tons carbon conversion factor from tons carbon tC to CO2 0.7 [t/m3] 0.5 [t/t] 3.67 [t/t]

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Calculation of baseline annual CO2 emissions ­ ­

­

­ ­ ­

Total quantity of tobacco produced by small-scale farmers Tobacco cured using wood Wood used by small scale farmers: (5400000*14.5/1000) Wood unsustainably harvested to cure tobacco Wood biomass in tons Carbon loss

6'000'000 kg 5'400'000 kg 78'300 m3 74'385 m3 52'069 t 26'034 tC 96'325tCO2

Annual CO2 emissions E.2 Estimated emissions with the activity:

At the end of the project, CO2 emissions will be reduced by 55%. During the investment phase, each year 20% of the final goal is attained. The table summarises the CO2 effect of the project over the whole project life time of 10 years. Summary Table: Projected emission reductions

Year A) Project baseline scenario (in 1000 t CO2) B) Project activity scenario (in 1000 t CO2) C) Effect ( A-B ) (in 1000 t CO2) '03 96 '04 96 '05 96 '06 96 '07 96 '08 96 '09 96 '10 96 '11 96 '12 96 total 960

85

75

64

54

43

43

43

43

43

43

536

11

21

32

42

53

53

53

53

53

53

424

Summary Table: Projected emission reductions GHG Unit Emission per year Total emission over project life

A) Project baseline scenario

B)

Project activity scenarioa)

A-B

CO2 CH4 N2O other total CO2 CH4 N2O other total CO2 CH4 N2O other total

t t t t t CO2 eq. t t t t t CO2 eq. T t t t t CO2 eq.

96'000

960'000 960'000

85'000 ­ 43'000 (depending on year) 85'000 ­ 43'000 45 482 45 482

536'000 536'000 424'000 424'000

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Summary Table: Actual emission reductions Not applicable, since project was not yet implemented Summary Table: Actual emission reductions Not applicable, since project was not yet implemented F. Bearing in mind that the financing of activities implemented jointly shall be additional to financial obligations of Parties included in Annex II to the Convention within the framework of the financial mechanism as well as to current official development assistance flows, please indicate:

Amount (1999 Z$) Amount (1999 US$)

Source of project funding including pre-feasibility phase (for each source one line) (leave blank if funding has not been agreed yet)

G.

Contribution to capacity building, transfer of environmentally sound technologies and knowhow to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties.

Describe briefly the transfer of environmentally sound technology and know-how including where appropriate the type of technology, terms, education, capacity building etc.: The project should assist in changing the traditional way of doing things by broadening the responsibility and focus of project personnel by removing elements that discourage them from being concerned with sustainability. Incentives that motivate project personnel to adopt the project should be established. The project should make the local people an integral part of planning and implementation for all new activities. Continuity should be secured through participation of the project beneficiaries. Beneficiaries should adapt the project technology and institutions to their own needs and begin to initiate their own. The project should encourage institutional linkages between all tobacco farmers in the country as well as providing training in the improved technology. All the positive impacts of the projects should be communicated to the project beneficiaries. H. Additional comments, if any, including any practical experience gained or technical difficulties, effects, impacts or other obstacles encountered.

Not applicable, since project is not yet implemented

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PROJECT 3

A. A.1 A.2

SEWAGE GAS POWER

Description of project Title of project: Power generation from gas produced in sewage plant Participants/actors:

Please fill in if applicable

Item Name of organizationa): Name of organization (English): Department: Acronym: Acronym (English): Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: WWW-URL: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail: Item Name of organizationa): Name of organization (English): Department: Acronym: Acronym (English): Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: WWW-URL: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail:

Crowborough Works City of Harare Sewage City Sewage City Sewage (standard classifiers to be developed) Box 683 Harare Zimbabwe +263 4 698633

------------------------------------Manhambara Superintendent

Please fill in if applicable

(standard classifiers to be developed)

Zimbabwe

------------------------------------Corri David Consultant +263 4 620434 Mobile +263 11 606 154 + 263 4 860143 [email protected]

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a)

Organisation includes: institutions, ministries, companies, non-governmental organisations, etc. involved in the activity, i.e. research institutes associated with the project, auditors, government agency closely following the activity.

A.3

Activity:

Please fill in if applicable Installation of three gas engine generator sets fueled by Methane from 3 sewage plants will provide heat and 150 kWe of electricity. Cover and piping of sewage gas is already installed. It is assumed that the power is used in the sewage plant itself. This reduces consumption of power from the grid. Uncertainties, risks, gaps: A continuous production of Sewage gas at the site is an important precon· dition for an efficient engine operation. · Sewage plant seems overloaded at the time. This might endanger the gas production at the site. · Engine operation and maintenance must be assured by proper training of operators Fugitive Gas Capture Crowborough Works City of Harare, Zimbabwe2

Item General description ­AIJ/CDM project:

Type of project:a) Location (exact, e.g. city, region, state): Activity starting date: Expected activity ending date: Stage of activity:b) Lifetime of activity if different from ending date:c) Technical data:d)

a)

2002 (estimate) 2012 Feasibility 10yr 3 gas engine generator sets with 150kWe each.

b) c) d)

For example, using Intergovernmental Panel on Climate Change (IPCC) classification: energy efficiency; renewable energy; fuel switching; forest preservation, restoration or reforestation; afforestation; fugitive gas capture; industrial processes; solvents; agriculture; waste disposal or bunker fuels. Circle the appropriate option. Methodological work will be required to define lifetime of activities. Methodological work will be required to determine for each type of activity what the minimum data requirements are.:

A.4 Cost (to the extent possible):

Project: Sewage Plant Gas Utilisation CDM Project Baseline

Total investment Project life Discount rate Levelized investment Value of electricity generated Operation and maintenance p.a. Total levelized cost p.a. Incremental cost p.a. GHG reductions p.a. Unit abatement cost Unit abatement cost

1999Zim$ Year % 1999 1999 1999 1999 1999 T CO2 1999 Zim$/t 1999 US$/t

15'200'000 10 years 15 % 3'028'631 -3'040'000 4'662'284 4'662'284 15'958 292.2 7.7

0

0 --n. a. n. a. n. a. n. a.

2

Other sewage gas projects could be implemented in the File Plant Works City of Harare or in the cities of Bulawayo, Gweru, or Mutare. The Crowborough plant has been chosen because of data availability.

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Describe briefly how costs are determined: · Investments (400'000US$) and O&M costs (80'000US$) estimated based on a similar project in Switzerland by Ernst Basler + Partners (at 1US$ = 38 Zim$ 1999) · Efficiency of gen-set is estimated at modest 30%. This leads to 3750MWhe per year. · Electricity price of 0.375 Zim$/kWh (0.01 US$/kWh) is very low. Price might increase in the future which would make the project more profitable: Assuming a price of 0.03US$/kWh, the unit abatement costs are reduced to 2.9US$/tCO2 equivalent. A.5 Mutually agreed assessment procedures:

Not applicable to projects of NSS pipeline at the current stage B. Governmental acceptance, approval or endorsement

Not applicable to projects of NSS pipeline at the current stage C. Compatibility with and supportiveness of national economic development and socioeconomic and environment priorities

Describe (to the extent possible) how the activity is compatible with and supportive of national economic development and socio-economic and environment priorities and strategies ­ Zimbabwe has an active renewable energy program, which supports the development and utilisation of renewable energy for sustainable development. The President of Zimbabwe is the current chairman of the World Solar Commission. ­ There is need for a significant number of renewable energy projects in Zimbabwe. ­ The domestic clean energy production will make the City Works sewage plant at Crowborough less dependent from the reliability of power supply from the grid. ­ There is a large replication potential in the File Plant Works, City of Harare or in sewage plants in the cities of Bulawayo, Gweru, or Mutare.

D.

Benefits derived from the activities implemented jointly project

Whenever possible, quantitative information should be provided. Failing that, a qualitative description should be given.

Item Describe local environmental benefits (excluding benefits for global climate; see Section E) in detail: Describe local social/cultural benefits in detail: Describe local economic benefits in detail: Please fill in Capture the fugitive Methane gas from Municipal Sewage Treatment Plants and convert it into useable power and reduce it to CO2 Sewage plant is part of public works of the city. There should be a benefit deriving from the use of a waste resource.

E.

Calculation of the contribution of activities implemented jointly projects that bring about real, measurable and long-term environmental benefits related to the mitigation of climate change that would not have occurred in the absence of such activities Estimated emissions without the activity (project baseline):

E.1

Baseline is the current state of operation of the Crowborough Works City of Harare. From 5096 cubic metres of sewage gas produced per day, 3663 cubic metres are emitted directly to the atmosphere, 1433 cubic metres are used in boilers. Other assumptions:

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· · ·

E.2

Sewage gas contains 65% Methane, 35%CO2. Methane content might be higher. Greenhouse Warming Potential of Methane is 23. Electricity which is generated by gas engine generator set in the project activity case is produced by coal power plant in the baseline case at 0.95 t CO2 /MWhe. Estimated emissions with the activity:

With the activity, all sewage gas is used in 3 gas engine generator sets which produce a total of 3750MWhe/yr and heat. Assumptions:

· · · ·

The heat produced by the gen-set replaces the heat produced by the boilers in the baseline case. Low heating value of methane is 37.71MJ/m3. Efficiency of gen-set is 30% (might be higher in reality). Crediting time assumed is 10 years

Total emission over project life

Summary Table: Projected emission reductions

A) Project baseline scenario

B)

Project activity scenario)

C) Effect ( A-B )

GHG CO2 CH4 N2O other total CO2 CH4 N2O other total CO2 CH4 N2O other total

Unit t t CO2 Eq. t CO2 Eq. t CO2 Eq. t CO2 Eq. t t CO2 Eq. t CO2 Eq. t CO2 Eq. t CO2 Eq. T t CO2 Eq. t CO2 Eq. t CO2 Eq. t CO2 Eq.

Emission per year 5483 14082

54830 140820

3606 0

36060 0

15958

159580

Summary Table: Actual emission reductions Not applicable, since project was not yet implemented F. Bearing in mind that the financing of activities implemented jointly shall be additional to financial obligations of Parties included in Annex II to the Convention within the framework of the financial mechanism as well as to current official development assistance flows, please indicate:

Amount (1999 Z$) Amount (1999 US$)

Source of project funding including pre-feasibility phase (for each source one line) (leave blank if funding has not been agreed yet)

G.

Contribution to capacity building, transfer of environmentally sound technologies and knowhow to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties.

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Describe briefly the transfer of environmentally sound technology and know-how including where appropriate the type of technology, terms, education, capacity building etc. H. Additional comments, if any, including any practical experience gained or technical difficulties, effects, impacts or other obstacles encountered.

Not applicable, since project was not yet implemented

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PROJECT 4

A. A.1 A.2

BOILER EFFICIENCY IMPROVEMENT

Description of Project Title of project: Boiler Efficiency Improvement Participants/actors:

Please fill in if applicable Cochrane Engineering (pvt) ltd Same Technical Manufacturer of Steam Boilers Tilbury Road, P.O.Box ST 361, Southerton. Harare Zimbabwe 263-4-611611 263-4-611619 [email protected] See below Ndlovu Fidelis Technical Manager 263-4-611621 263-4-611610 [email protected] Please fill in if applicable Ministry of Mines,Environment,and Tourism Same Climate Change Office Government Contact, Zimbabwe Nyerere street P.Bag 7753 , Causeway Harare Zimbabwe 263-4-757 881 263-4-757 006 [email protected] See below Sangarwe Margaret Under Secretary 263-4-757 880 Please fill in if applicable Matema & Associates Consulting Ashburton Avenue 16 Ashburton Avenue

Item Name of organisationa): Name of organisation (English): Department: Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail: Item Name of organisationa): Name of organisation (English): Department: Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: WWW-URL: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Item Name of organisationa): Department: Function within activity: Street: Post code:

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City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail:

Harare Zimbabwe 263-4-573258 263-4-752214 [email protected] See below Matema Stephen Consultant 263-4-573258 263-4-752214 [email protected]

A.3

Activity:

Please fill in if applicable Project aims to replace inefficient steam boilers in operation in Zimbabwe. There are about 700 boilers currently in operation in Zimbabwe with the majority in food process industries, laundries and metal process industries. In size, they range from as small as 30kg of steam per hour to as large as 20000 Kg of steam per hour. The most common unit is the 2000 kg steam per hour. Energy Efficiency Throughout Zimbabwe

Item General description:

Type of project:a) Location (exact, e.g. city, region, state): Activity starting date: Expected activity ending date: Stage of activity:b) Lifetime of activity if different from ending date:c) Technical data:d)

Not decided Ten year activity period Project option identified 10 years

New boiler installation based on a 2 tonne unit with efficiency of 74 % an improvement from the regular 50 % on most units in operation. The unit consumes about 200 kg of coal per hour. a) For example, using Intergovernmental Panel on Climate Change (IPCC) classification: energy efficiency; renewable energy; fuel switching; forest preservation, restoration or reforestation; afforestation; fugitive gas capture; industrial processes; solvents; agriculture; waste disposal or bunker fuels.

A.4

Cost (to the extent possible):

CDM project Baseline

Total Investment Project life Discount rate Levelized Investment p.a. Fuel costs p.a. Operating & Maintenance cost p.a. Total levelized cost p.a. Incremental cost p.a. GHG reduction p.a. Unit abatement cost Unit abatement cost Exchange rate July 1999: 1 US $ = 38 Z$

1999 Z$ years % 1999 Z$ 1999 Z$ 1999 Z$ 1999 Z$ 1999 Z$ t CO2 eq. 1999 Z$/t CO2 1999 US $/t CO2

3 400 000 10 15 677457 1338624 34000 2050081 51918 1052 49.4 1.3

10 15 1981163 17000 1998163

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Description of how costs are determined: Investment cost for the 2 tonne unit was supplied by Manufacturer. Costs of operating fuel were estimated over the life of the project. A.5 Mutually agreed assessment procedures:

Not applicable to projects of NSS pipeline B. Governmental acceptance, approval or endorsement

Not applicable to projects of NSS pipeline C. Compatibility with and supportiveness of national economic development and socioeconomic and environment priorities and strategies

Describe (to the extent possible) how the activity is compatible with and supportive of national economic development and socio-economic and environment priorities and strategies This project is consistent with National policy priorities in meeting the capital renewal of Zimbabwe's industry. Many of the country's equipment and machinery is outdated and inefficient and requires replacement. It also meets the criteria for environmental standards compliance.

D.

Benefits derived from the activities implemented jointly project

Whenever possible, quantitative information should be provided. Failing that, a qualitative description should be given. If quantitative information becomes available, it could be submitted using the update(s). (If the amount of quantitative information is too large, the source could be indicated.)

Item Describe environmental benefits in detail: Please fill in The more efficient boilers will not only reduce the quantities of CO2 generated but also SO2 and dust and thus create a cleaner working environment. Increased employment creation by the adoption of newer technology. Both the manufacturer and the industries adopting the new units will hire better skilled workers to operate the units. The country stands to benefit economically in terms of: more fuel efficiency, better skills to workers etc.

Describe social/cultural benefits in detail: Describe economic benefits in detail:

E.

Calculation of the contribution of activities implemented jointly projects that bring about real, measurable and long-term environmental benefits related to the mitigation of climate change that would not have occurred in the absence of such activities Estimated emissions without the activity (project baseline):

E.1

The base line situation entails the existing situation in the country. Old boilers of low energy efficiency will continue to run in the country. E.2 Estimated emissions with the activity:

The adoption of the project will mean a programmed replacement of old boiler units by the more efficient ones resulting in operating cost savings. Fill in the tables on the following page as applicable:

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Summary Table: Projected emission reductions based on ONE BOILER UNIT

GHG Unit Emission p.a Total emission over project life

A) Project baseline scenario

B)

Project activity scenarioa)

C) Effect ( A-B )

CO2 CH4 N2O Total CO2 CH4 N2O Total CO2 CH4 N2O Total

Tonne Tonne Tonne t CO2 eq. Tonne Tonne Tonne T CO2 eq. Tonne Tonne Tonne T CO2 eq.

2834.5 0.045 0.090 2864.4 1794.0 0.028 0.057 1812.9 1040.5 0.016 0.033 1051.5

28345 0.45 0.90 28644 17940 0.28 0.57 18129 10405 0.16 0.33 10515

F.

Bearing in mind that the financing of activities implemented jointly shall be additional to financial obligations of Parties included in Annex II to the Convention within the framework of the financial mechanism as well as to current official development assistance flows, please indicate:

Amount (1999 Z$) Amount ( 1999 US $ ) -

Source of project funding including pre-feasibility phase (for each source one line) Not yet determined

G.

Contribution to capacity building, transfer of environmentally sound technologies and knowhow to other Parties, particularly developing country Parties, to enable them to implement the provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties.

Describe briefly the transfer of environmentally sound technology and know-how including where appropriate the type of technology, terms, education, capacity building etc. H. Additional comments, if any, including any practical experience gained or technical difficulties, effects, impacts or other obstacles encountered.

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PROJECT 5

A. A.1 A.2

COAL BED METHANE

Description of project Title of Project: Ammonia Produced From Coal-bed Methane Participants/actors:

Please fill in if applicable Sable Chemicals Ltd.

Item Name of organisationa): Function within activity: Street: Post code: City: Country: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail: Item Name of organisationa): Function within activity: Street: Post code: City: Country: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel: Direct fax: Direct E-mail: Item Name of organisationa): Department: Function within activity: Street: Post code: City: Country: Telephone: Fax: E-mail: Contact person (for this activity): Surname: First name, middle name: Job title: Direct tel:

Harare Zimbabwe -------------------------------------

Please fill in if applicable ZIMASCO Pvt. Ltd. Project partner (methane wells development) 6th floor Pegasus House, Samora Machel Ave PO Box 3110 Harare Zimbabwe ------------------------------------Mr. Jena Sidney Managing Director 263 4 739 622 263 4 707 758 [email protected] Please fill in if applicable Ministry of Mines, Environment and Tourism Climate Change Office Government Contact, Zimbabwe Nyerere Street P Bag 7753 Causeway Harare Zimbabwe 263 4 757 881 1/5 263 4 757 006 [email protected] ------------------------------------Sangarwe Margaret Under Secretary 263 4 757 880

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A.3

Activity:

Please fill in if applicable Production of ammonia (NH3) using coal bed methane instead of hydrogen derived from water electrolysis. The methane is to be extracted from coal seams which are not used for coal production (i.e., no capturing of vented methane). Project elements: installation of a second-hand methane based ammonia plant development of the methane well field (Save Basin) Today, ammonia is produced at the Sable Fertilizer Plant. In the project, ammonia will be produced at the well field and transported to the fertilizer plant by rail. Uncertainties, risks, gaps: Size of methane reserves remains to be assessed in detail by an independent entity. The project baseline assumes that ammonia will be produced using hydrogen derived from water electrolysis, as it is done today. The electricity required is produced in a coal-fired power station. industrial processes location of new ammonia plant to be determined

Item General description - AIJ/CDM project

General description - project baseline (reference scenario) Type of project:a) Location (exact, e.g. city, region, state): Activity starting date: Expected activity ending date: Stage of activity:b Lifetime of activity if different from ending date: Technical data:

earliest possible date to be determined to be determined pre-feasibility studies carried out approx. 15 years (=technical life of installations)

Amount of ammonia produced: 31'200 t/a Power capacity required: 3.67 MWe (project), 111 MWe (baseline) Power consumption project: 814 kWh/t NH3, or 91 TJ/a; baseline: 2'781 TJ/a; electricity saved 2'690 TJ/a a) For example, using Intergovernmental Panel on Climate Change (IPCC) classification: energy efficiency; renewable energy; fuel switching; forest preservation, restoration or reforestation; afforestation; fugitive gas capture; industrial processes; solvents; agriculture; waste disposal or bunker fuels.

Describe existing work on the project: In 1991 and 1993, the possibility of retrofitting the existing electrolysis-based ammonia plant with methane from Zimbabwean coal seams was investigated in two comprehensive studies: 08/1993: 12/1993: Status report on coal bed methane and anhydrous ammonia development (63 pages) Financial analysis - retrofitting and upgrading of Sable ammonia facility (60 pages)

Reports were prepared by C.D. Wall Chemical Engineering (PVT) Ltd., Harare, on behalf of Afpen Resources. Feasibility of three main project elements was investigated:

· · ·

coal bed methane wellfield in Zimbabwe 300 km pipeline to the Sable ammonia plant retrofit and upgrade of Sable fertiliser plant (use of methane instead of electrolysis for ammonia production)

All three elements were found to be economically viable (IRR up to 12%). Retrofit of the ammonia plant with coal bed methane was found to be more attractive (higher IRR) than the existing situation where ammonia is mostly produced by means of water electrolysis, the remainder being imported from South

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Africa. Using Zimbabwean methane also appeared superior to two other alternatives, methane imports from Mozambique fields, and coal gasification. In a later study on behalf of Afpenn, installation of a second-hand US ammonia plant at the wellfield was investigated. Emission and cost values presented below are based on this latter report (i.e., no methane pipeline is included), and on calculations prepared by the Southern Centre, Harare. Other potential uses of coal bed methane were investigated in separate studies: 04/1991: Afpen exploration - coal bed methane module 2: the production of methanol (50 pages). A.4 Cost (to the extent possible):

CDM Project Baseline

Total Investment Project life Discount rate Levelized investment Operation and maintenance p.a. Fuel p.a. (only electricity) Total levelized cost p.a. Incremental cost p.a. GHG reduction p.a. (see details in Section E) Unit abatement cost Unit abatement cost

1999 Z$ years % 1999 Z$ 1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. 1999 Z$/yr. t CO2Eq/yr. 1999 Z$/t CO2 1999 US$/t CO2

511'000'000 15 15% 87'400'000 51'100'000 35'300'000 173'800'000 -898'200'000 800'000 -1'123 -30

0

0 -3'000'000 1'075'000'000 1'072'000'000 not applicable not applicable not applicable not applicable

Describe briefly how costs are determined; specify key assumptions. The project investment includes the price of the second-hand ammonia plant, its installation, and the cost of the methane wellfield development (to be verified). O&M of the project is estimated at 10% of the investment. O&M of the baseline includes about 100'000 Z$ yearly costs, and about 3'120'000 Z$ returns from byproduct sales (78'000 tons of oxygen at 40 Z$/t O2). Fuel costs are based on electricity consumption (91,45 TJ/a and 2'781 TJ/a for project and baseline, respectively) at an average generation price of 1.39 Z$/kWhe (coal-fired plant). Exchange rate July 1999: 1 US$ = 38 Z$ A.5 Mutually agreed assessment procedures:

Not applicable to projects of NSS pipeline at the current stage B. Governmental acceptance, approval or endorsement

Not applicable to projects of NSS pipelinet at the current stage C Compatibility with and supportiveness of national economic development and socioeconomic and environment priorities and

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Describe (to the extent possible) how the activity is compatible with and supportive of national economic development and socio-economic and environment priorities and strategies Generally, the project appears to be compatible with national development strategies, since it yields local environmental and economic benefits: ­ reduced electricity consumption in the Sable ammonia plant (savings up to 100 MW / 2800 TJ), and therefore, reduced environmental impacts associated with coal-based power generation, and reduced need to expand domestic power production or to import power from abroad (improved import-export balance) ­ improved economic viability of Sable ammonia plant. Today, the plant is indirectly subsized by the Government by means of special low electricity tariffs ­ increased utilisation of domestic energy resources; employment in methane production and transfer technology and know-how transfer (no coal bed methane is produced in Zimbabwe today) ­ potential to expand methane utilisation at a later stage, e.g. methanol production for use in transport (substitution of imported liquid fuels), or direct use of methane as a fuel Detailed criteria for local economic, socio-economic and environmental assessment of CDM projects remain to be defined.

D.

Benefits derived from the activities implemented jointly project

Whenever possible, quantitative information should be provided. Failing that, a qualitative description should be given.

Item Please fill in Describe local environmental benefits (excluding benefits not been studied in detail for global climate; see Section E) in detail: Describe local social/cultural benefits in detail: not been studied in detail

Describe local economic benefits in detail:

Studies conducted in early 90ies found significant economic benefits of the project. Results remain to be updated according to latest developments.

E.

Calculation of the contribution of activities implemented jointly projects that bring about real, measurable and long-term environmental benefits related to the mitigation of climate change that would not have occurred in the absence of such activities Estimated emissions without the activity (project baseline):

E.1

The baseline scenario is based on the following assumptions: ­ the current hydrolysis-based ammonia production is maintained (31'200 t NH3/yr) ­ power production in a coal-fired plant: power consumption 2'781 TJe/yr; transfer losses 12%; coal to power conversion efficiency 35%; fuel emission factor 95 t CO2/TJe (overall emission factor 1'110 t CO2/TJe consumed) The baseline is a plausible reference scenario because the project is at present confronted with three main barriers: ­ lack of investment capital of the owner of the ammonia plant; ­ lack of experience of the local mining companies with coal bed methane production, exact size of methane reserves still uncertain; ­ coal seams are not planned to be mined after methane production, because the coal is of rather low grade. This is a rare, or even unique, situation world-wide: Usually, coal bed methane is produced in conjunction with coal mining, because it reduces the safety risks associated with high methane contents. This lack of synergy with coal production renders coal bed methane production in the Save Basin less competitive, compared with coal bed methane reserves in other regions. Due to these barriers, the project is unlikely to be implemented in the short to mid-term under non-CDM conditions. Other project alternatives, such as methane production from coal gasification or methane

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import from Mozambique wellfields, were found to be far less economically viable than the project, and are therefore not plausible reference scenarios. In conclusion, CO2 emission reductions associated with the project can be assumed not to occur in the absence of the project over the project lifetime of 10 to 15 years (i.e., emission reductions are additional). E.2 Estimated emissions with the activity:

The project scenario is based on the following assumptions: ­ same ammonia production as in baseline ­ power consumption 91 TJe/yr at 1'110 t CO2/TJe ­ ammonia production leads to CO2 emissions of 0.971 t CO2/t NH3 according to Haber Bosch process: 3 CH4 + 6 H2O 3 CO2 + 12 H2 4 N2 + 12 H2 8 NH3 ­ emissions of other GHG (CH4, N2O etc.) are negligible project life is assumed as 15 years

Summary Table: Projected emission reductions GHG Unit Emission per year Total emission over project life

A) Project baseline scenario

B)

Project activity scenario a)

CO2 CH4 N2O other total CO2 CH4 N2O other total CO2 CH4 N2O other total

t t t t t CO2 Eq. t t t t t CO2 Eq. T t t t t CO2 eq.

858'000

12'870'000

58'000

870'000

C) Effect ( A-B )

800'000

12'000'000

Summary Table: Actual emission reductions Not applicable, since project was not yet implemented F. Bearing in mind that the financing of activities implemented jointly shall be additional to financial obligations of Parties included in Annex II to the Convention within the framework of the financial mechanism as well as to current official development assistance flows, please indicate:

Amount (1999 Z$) Amount (1999 US$)

Source of project funding including pre-feasibility phase (for each source one line) (leave blank if funding has not been agreed yet)

G.

Contribution to capacity building, transfer of environmentally sound technologies and knowhow to other Parties, particularly developing country Parties, to enable them to implement the

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provisions of the Convention. In this process, the developed country Parties shall support the development and enhancement of endogenous capacities and technologies of developing country Parties. Describe briefly the transfer of environmentally sound technology and know-how including where appropriate the type of technology, terms, education, capacity building etc. The project involves the following transfers of technology and know-how to Zimbabwe: ­ coal bed methane production ­ ammonia production from methane H. Additional comments, if any, including any practical experience gained or technical difficulties, effects, impacts or other obstacles encountered.

Not applicable, since project was not yet implemented

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REFERENCES

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Adhoc International Working Group on the Clean Development Mechanism (1998) UNCTAD, Geneva Climate Change in the Global Economy: Policy Dialogues of the International Academy of the Environment: Geneva, Switzerland Central Statistics Office Annual Report, (1997) Fecher, R. Matibe, K Mavhungu. J. and Simmonds G, 1998. The Clean Development Mechanism: Key Issues for Southern Africa Paper presented at GLOBE Southern Africa Conference Partnership for Sustainability 4-5 September 1998, Cape Town Energy Sector Management Assistance Programme Report, no 8768- Zimbabwe, (1992) Forestry Commission Report, (1997) Greenhouse Gases for Zimbabwe, Ross and Touche Consultants, 1991 T. Forsyth, 1999. International Investment and Climate Change. Energy Technologies for Developing Countries. Royal Institute of International Affairs. M. Grubb, C. Vrolijk and Dr Brack , 1999. The Kyoto Protocol: A Guide and Assessment. Royal Institute of International Affairs (1999) Intergovernmental Panel on Climate Change Guide Lines 1995-6 Janssen J. 1998, "Strategies for Risk Management of Joint Implementation Investment" in: Reimer, P Smith, A. and K Thambinunthi (eds.) Greenhouse Gas Mitigation: Technologies for Activities Implemented Jointly, Elsevier, 357-365 Kyoto Protocol (1997) Donald R Larson and Paul Parks, 1999. Risks, Lessons Learned and Secondary Markets for GHG Reductions. World Bank Makarau, A and T. Ngara, 1998. Mitigation Study for Zimbabwe. Final Draft Report. Climate Change Office, Ministry of Mines Environment and Tourism, Zimbabwe S. Maya, 1998. Southern African Power Pool Study. Michaelowa A. and Dutschke M, 1999. Interest Groups and Efficient Design of the CDM Executive Board . Paper presented at the third session of the International Working on CDM in Paris,(March 1999). Michaelowa A. and Dutschke M, 1998. Creating and sharing of credits through the Clean Development Mechanism under the Kyoto Protocol HWWA Discussion Paper 6, Hamburg (1998). Mullins F and Baron R, 1997. International GHG Emissions Trading, Policies and Measures for Common Action; Working Paper 9;IEA/OECD; Paris Zimbabwe's Initial National Communication, 1998 More Employment by Ecological Management: An investigation for Germany, Switzerland and Austria. Prognos: Cologne, 1999 SADC Financing Energy Use in Small Scale Enterprises Study (1998) Southern Centre for Energy Environment Report (1999) Southern Centre Report in Collaboration with JICA (1997) Southern Centre / UNEP country Study Phase II (1993) United Nations Development Programme Issues and Options. The Clean Development Mechanism (1998) United Nations Framework Convention on Climate Change (1992) Zimbabwe Electricity Supply Authority (1999) ZESA Annual Report and Accounts (1997) ZESA System Development Plan (1998)

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