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LP6 Sustainable development and CDM projects in the Palm Oil Industry in Malaysia Michel Buron1, Syafiza Abd Hashib2, Matthieu Frappe3, Emlyn Ghennam3

ABSTRACT The Clean Development Mechanism (CDM) offers the possibility to industrialized countries to achieve their binding greenhouse gas emission reduction targets by participating in project activities that result in emission reductions in developing countries provided that it assists them to achieve sustainable development. The Palm Oil Industry in Malaysia holds a large potential to reduce GHGs emission reductions by e.g improving its waste management practices with the financial support of the Clean Development Mechanism. As several technological options are possible to achieve the same (GHG) objectives, it is crucial to look at the “Sustainability aspects” in order to promote the right solution for the future. The “Sustainable Development” is a rather broad and unpractical concept which is left to the host country (Designated National Authority, DNA) to define and evaluate. This paper proposes to apply a “quantitative assessment” (instead of qualitative) to evaluate the sustainability aspects of 3 majors CDM project types applicable in the palm oil industry. The method is using a set of criteria, indicators and weight factors in order to evaluate the complex concept of sustainability under the “Malaysian” context and is based on the multiattributive utility theory. It consists of five steps: 1. Identification of sustainability criteria and establishment of hierarchical order 2. Definition of indicators associated to the above criteria 3. Weighing the criteria to establish their importance in the local context 4. Assessment of 3 typical projects: • Biogas recovery from effluents to energy • Composting of EFB and POME • Biomass (PKS, EFB) to energy 5. Analyze of the results and conclusions. Host Countries are left with the final decision to evaluate the sustainability aspects of the proposed CDM projects based on best judgment. The proposed method paves the way to the application of a qualitative tool using measurable indicators that will assist the host country and the project proponents in their decision process. 1

CEO, KYOTOenergy Pte. Ltd., 80 Raffles Place, UOB Plaza 1, Level 36-01, Singapore 048624, [email protected] 2 CDM Project Exec, KYOTOenergy Pte Ltd, Mal. Rep Office, No 19 Jalan Dua off Jalan Chan Sow Lin, 55200 K.Lumpur,[email protected] 3 Trainee, Energy and Environment Department, École des Mines de Nantes, La Chantrerie4, rue Alfred Kastler. B.P. 20722 F-44307 NANTES Cedex 3, France

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INTRODUCTION The inception of Clean Development Mechanism (CDM) from Kyoto Protocol under the UNFCCC, aims at fostering technology transfer for global warming abatement from industrialized countries to developing countries. The CDM projects should not only reduce the emission of greenhouse gases but also contribute to the sustainable development objectives in the host countries. In Malaysia, the recent scrutiny on the palm oil industry’s practices has highlighted the benefits of project based flexible mechanism to improve i.e. waste management and utilisation of renewable energy. The Roundtable on Sustainable Palm Oil (RSPO) has set 8 principles and criteria to sustainable palm oil production, composed of legal, environmentally appropriate and socially beneficial management and operations. Sustainable development is a rather broad and unpractical concept, defined as the balancing of the fulfilment of human needs with the protection of the natural environment so that these needs can be met not only in the present, but in the future. Theoretically, different approaches and definitions of sustainable developments exist, but going into this field will lead too far from the operational and practical use of the concept. The real success of CDM projects depends upon the project’s contribution to Malaysia’s goals for sustainability. The government plays an important role because only projects that receive national host country approval can be registered as CDM projects and generates CERs. Within the past year, we have seen a rapid increase of CDM projects in Malaysia covering renewable energy, waste handling and disposal, and manufacturing sectors. It shows the support and commitment of the Malaysian government to promote sustainable solutions to the industry. Number of projects registered

As at May 2007, total project 684 Source: http://cdm.unfccc.int

300 250 200 150 100 50 0 Brazil

India

China

Mexico

Chile

Malaysia Republic Others of Korea

Figure 1: Registered CDM projects by host countries 2

As at May 2007, total CERs: 62,263,687 Source: http://cdm.unfccc.int

CERs (tCO2 x 106) 30 25 20 15 10 5 0 Brazil

India

China

Mexico

Chile

Malaysia Republic of Korea

Others

Figure 2: CERs issued by host countries The objective of this paper is to propose a tool to evaluate the sustainability of 3 typical CDM projects in the palm oil industry, and determine the most sustainable solution according to the sustainable criteria as laid down by the Malaysian government. The sustainable development aspects will be evaluated based on multi-attributive utility theory (MAUT).

1.

The Multi-Attributive Utility Theory

The MAUT method is a theoretical frame that is the base of MATA-CDM (Multi-Attributive Assessment of CDM) which is in 5 steps described below. This method has been developed in order to allow multi-dimensionality of decision making problems to be taken into account in that they used multi-criteria. The MAUT is a single synthesizing criterion approach. This method does not directly compare projects, but generates an overall utility assessment for each project based on absolutely defined value functions. The MAUT provides a formal and transparent method to deal simultaneously with multiple objectives as well as with multiple decision makers. The objective of the MAUT is to attain a conjoint measure of the attractiveness (utility) of each outcome of a set of alternatives. The MAUT decomposes the overall utility of each alternative into a number of attributes (criteria). Differences between attributes are then quantified as importance weights. Formal models are then applied to aggregate the single attribute evaluation.

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1.1 Step 1: Identification of sustainability criteria and establishment of hierarchical order The selected criteria should reflect the requirements of the host country, in this case Malaysia, as well as the preferences of the involved decision makers. These criteria are used to assess projects with respect to their contribution to sustainable development. Five criterions presented in Figure 3 have been set as a National Criteria and approved by the National Committee of CDM (NCCDM) on 18th August 2005. 1

Figure 3: Various aspects of sustainable development In order to obtain a generic model, we added other criterions to complement those set by the Malaysian Government. The result obtained is shown below in Figure 4

Figure 4: Aspects of Sustainable Development used in this study

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CDM in Malaysia & National CDM Criteria, http://cdm.eib.org.my/

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1.2 Step 2: Definition of indicators associated to the above criteria Each criterion must be supplemented with a clearly defined and assessable indicator. Indicators measure to what extent a concrete CDM project meets the sustainable development criteria. The indicators used for each criterion are shown in Table 1. The advantage of MAUT is all indicators can be measured in different units. The concept of utility allows the quantities to be normalized with different units and aggregated in a single value. For this purpose, the value of an indicator is transferred to a utility of the respective criteria by a utility function. Usually, the utility function used with MAUT varies between -1 and 1 because CDM sustainability assessment is essential to distinguish a positive or negative project contribution towards host country development. Consequently, if the project shows no difference with the baseline, its utility will be zero (0). For utility functions without representative surveys, it can be calibrated by two projects whenever possible: the baseline case for the value U = 0 and a best practice project for the maximum value U = 1. The utility functions used in this study are shown and further explained in Appendix A. Table 1: Proposed indicators to support the SD criterion SD dimensions

Environmental

Aspects of SD Air quality Water quality Soil/land quality Biodiversity Resources GHG reduction Employment

Economic

Technology transfer National economy Microeconomic Education

Social Health Quality of life Local heritage Stakeholder participation

Indicators Impact on local air quality Impact on surface and underground waters Impact on soil condition and erosion Impact on the local biodiversity Impact on the use of resources (water, electricity, fossil fuel) Impact on the GHG emissions (CERs) Impact on the number and quality (enhancements) of jobs created Impact on technology improvement Impact on energy import Financial viability of the project Impact on people education around the project activity Impact on health and safety for workers and people living around Impact on the quality of life for the local community Impact on the protected areas, historical site... Involvement of the stakeholders

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1.3 Step 3: Weighting the criteria to establish their importance in the local context According to the specific context of the host country and the preference of the decision makers involved, the relative importance of each criterion is different. To account for this, the MAUT allows the assignment of a different weighting to each sustainability criterion, respective of its utility value. The relative distribution of importance weights depends on the decision maker’s individual preferences. It shows how the particular person conceptualizes sustainable development. The methodology of MAUT allows the use of a direct or indirect method to construct attributive weights. For CDM projects, there are two different weighting methods applied, and the user could only use one or both for a better comparison: Direct Weighting and a weighting by the mean of AHP (Analytic Hierarchical Process). Direct weighting: In this method, the weightage is specified manually and total of 100 points are distributed for all selected criteria. Therefore relative important criteria would be able to be determined. An increase of one criteria weight directly leads to a decrease for another one. This method is applied at each branching of the “criteria tree” at Figure 4. To get the overall weighting of the criteria, the weights have to be aggregated as Figure 5.

Figure 5: Example of direct weight aggregation

The Analytic Hierarchical Process (AHP): This indirect method often supplements the method of direct weighting. It is based on the pair-wise comparisons. This method has been chosen to complement the first one because of two main reasons: Firstly an indirect process is unpractical to actively influence the results because the final weighting cannot be seen immediately. Therefore, the final weighting given by such a method tends to be less discriminated. Secondly, AHP provides an inconsistency check that enables the elimination of less important answers. With comparisons to direct weighting method, the pair-wise comparison is done at each branch of the “criteria tree”. All these criteria of a specific branching point are compared to each other with the help of predefined scale shown in Figure 6.

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Figure 6: Scale for pair-wise comparisons, suggested by Saaty (1980) The comparisons result can be written in a form of a judgment matrix. Usually, a matrix A of the form:

To retrieve the resulting weights of the criteria, the normalized eigenvector, λ principle was computed. This method is really precise but process would be much more difficult for the decision makers due to large number of criteria. For this study, the equal weight is used for three main criteria and for their own sub-criteria (Appendix C). Following that, a sensibility analysis will be done according to the results by giving different weights to the criteria and observation on how it impacts the final result. 1.4 Step 4: Assessment of typical project(s) Once all the previous steps are completed, the methodology is ready to be applied for CDM project types. Each criterion must consequently be rated. If a criterion is not directly measurable, it has to be estimated.

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1.5 Step 5: Analyze of the results and conclusions In this final step, all the ratings of the criteria are aggregated to a single number that reflects the total utility of the project with regards to the sustainable development criteria in the host country during the crediting period: it is named the overall utility.

U = Σ xi.ui Where U is the overall utility, xi and ui is the weighting and the utility function respectively of the criterion i. However, the utilities are between -1 to 1 and a very low grade on a given criteria may be overshadowed by a good one on another criteria, when calculating the overall utility. The evaluation of sustainability requires reaching a minimum value for each criterion. Threshold can be applied to each indicator value in order to assess this aspect. To incorporate a threshold test in the assessment of CDM projects, to the best knowledge authors, there are no existing methods that can be applied to all projects. The host country has to decide about it, according to their objectives in the different criteria (social, environmental and economic) and definition of Sustainable Development (for the minimum overall utility). Nevertheless, the aim of this paper is a comparison between three different types of projects, therefore a threshold is not a necessity.

2.

Projects overview

2.1 Biogas recovery from effluent to energy The processing of fresh fruit bunch in palm oil mill produces wastewater, known as POME (palm oil mill effluent). In order to reduce the impact of POME on the environment, the POME is treated in open lagoons before discharge. The anaerobic decay of organic matter inside the lagoons is accompanied by the production of biogas containing methane, usually released in the atmosphere in an uncontrolled manner. The project activity consists of capturing and combusting methane gas from anaerobic lagoons. It provides two benefits. Firstly, the extracted gas can be used to produce electricity or heat. And secondly, the combustion converts methane into CO2, whose greenhouse effect potential is 21 times lower than methane, resulting in emission reductions. The methane recovery is usually realized by covering the ponds with an impermeable membrane, whose edges are buried in perimeter trench. This system creates a completely anaerobic environment and ensures the capture of all off-gas produced during the process. It is also usual to cover the bottom as well, so as to avoid leakage of POME.

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To describe this project in terms of SD criteria, we will distinguish three sub-project types: -

-

-

Biogas to electricity: The biogas is combusted in a gas engine and produces power through an alternator. This power can be used for the local facilities replacing on-site power production from fossil fuel or exported to the national grid. Biogas to heat: co-combustion of biogas in the existing biomass boiler to produce steam for the milling process and electricity production. The biogas will offset part of the biomass consumed that can be sold to the market as fuel (especially palm kernel shell) Biogas destruction by flaring: no use of the energy contained in the biogas

Contribution to sustainable development Table 2: SD overview of the 3 biogas project types Biogas to electricity Environment Air quality

Biogas to heat

Biogas flaring

Reduction of toxic release such as sulfides (SO2) and methane.

Water quality

No impact on treated POME quality. The lining of the lagoons by geo-membranes greatly reduces leakage and infiltration in “water table”.

Soil/land quality

The project produces no additional soil residues (sludge). However the soil contamination due to leakage is reduced if lining is used. No significant impact on biodiversity is to be noticed. The project will consume a very small amount of electricity for its operation and will not need external water supply to operate. This project produces Generates heat and Same as baseline more electricity power results in savings of than it uses high quality biomass (e.g.: PKS) Combustion of methane results in emission reductions Offset of fossil fuel by Only biomass is production of renewable displaced Æ no electricity impact on GHG.

Biodiversity Resources

GHG reduction

Economy Employment

Short terms jobs are created during construction of the plant Long terms jobs are created for the operation and maintenance Requires specialized Average skills Average skills skills for the required for biogas required for flare maintenance of the boiler and flare Flare maintenance biogas engine(s) maintenance

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Technology transfer National economy

New equipments are bought from foreign country. The employees follow a training to acquire the new know-how. The displacement of Offset of high No impact. fossil fuel will result in a quality biomass. positive impact on the balance of payments for the country. Below average IRR (high Moderate IRR (no Moderate IRR (since investment of the biogas supplementary assets are reasonably engine(s) and low tariff assets are needed, expensive, but the of electricity) except the biogas only one revenue is recovery system) the CERs)

Microeconomic

Social Health and safety Education

It is recommended to share a percentage of the revenues from the carbon credits revenues to improve the quality of life of local community. Removal of the odors cause nuisance for the surrounding villages and workers at the mill. No impact on historical, archaeological or cultural site. Information meeting only.

Quality of life Local heritage Stakeholder

1 0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 -0.8 -1

rp

ld e

lo c

al

he

of

fe t qu

al

ity

sa

at

an

d

uc ed

th

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ho

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li f e r it ag ar t ic e ip ati ai on r w qua at li t e so r q y ua i l/ l la nd i ty qu bi od al it y iv er re s ity s G HG our ce re du s em ct i te on p ch no loy m lo en na gy t io t ra t na ns l f m eco er ic n o ro e c my on om ic

y

biogas to electricity biogas to heat biogas flaring

io n

Utility

Using the utility functions in Appendix A, the below graph is obtained. The explanation of each utility value are explained Appendix B.2

Indicators

Figure 7: SD compliance profile for three biogas project types Overall utility results:

Ubiogas-elec Ubiogas-heat Ubiogas-flaring

= 25.26 % = 16.87 % = 12.57 %

The least sustainable option is flaring.

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2.2 Composting of EFB and POME The main objective of this project is to reduce the pollution potential of organic agricultural waste to surface and ground water by an aerobic composting. It consists of composting of empty fruit bunches (EFB) while POME is added to the composting process to maintain adequate moisture level throughout the process cycle. The current disposal practice in mills without plantations (independent mills) consists of stock piling EFB (left to decay anaerobic ally) in a solid waste landfill. POME is treated in anaerobic lagoons without methane recovery to reduce the BOD/COD to acceptable levels before discharge. The project activity will result in the avoidance of a large quantity of methane which would have been released in an uncontrolled manner into the atmosphere from the anaerobic decay of EFB and POME in the landfill and lagoons respectively. Contribution to sustainable development Table 3: SD overview of composting project type Environment Air quality Reduction of CO2 and methane emissions Water quality Improvement: - Less discharge of POME into rivers/plantations - Avoidance of leachates from the biomass decay Soil/land quality Improvement: - Less leakage of POME into the soil - Avoidance of leachates from the biomass decay - The use of organic fertilizers instead of chemical fertilizer Biodiversity No impact on the biodiversity Resources Substitution of chemical fertilizer by organic compost GHG reduction Emission reduction generated from: - Avoidance of methane from natural decay of EFB - Avoidance of methane from the anaerobic lagoons Economy Employment Creation of temporary jobs during the construction and new full time employments for the operation and maintenance of the facility Technology Local technology development (process) and equipment transfer transfer National economy Reduction of use of chemical fertilizer will result in a positive impact on the balance of payment of the country. Microeconomic The project is commercially viable with an average IRR Social - It is recommended to share a percentage of the revenues from the Education carbon credits revenues to improve the quality of life of local Health and safety community. Quality of life Reduction of health and safety problems associated with uncontrolled Local heritage release of biogas in the atmosphere. - No threats to any protected areas of fragile ecosystems, no impacts on historical, archeological or cultural sites. Stakeholder Stakeholder informed participation

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1 0.8 0.6 0.4 0.2 0 -0.2 -0.4 -0.6 -0.8 -1

he ed u al th ca an tio n d sa fe qu ty al ity st ak of eh lo lif ol ca e de l r p he r ar ita tic g ip e at io n ai rq ua w lit at er y qu so il/ al i la nd ty qu al ity bi od iv er si ty re s G o ur H G c re es du ct io te em n ch p no lo y lo m gy en na tra t tio ns na fe r le co m no ic m ro y ec on om ic

Utility

Using the utility functions in Appendix A, the below graph is obtained. The explanation of each utility value are explained Appendix B.1.

Indicators

Figure 8: SD compliance profile for the composting project type The result of the overall utility is: U = 36.83%.

2.3 Biomass to energy Empty fruit bunch (EFB) and palm kernel shell (PKS) are wastes generated by the palm oil milling process at the rate of 23% and 7% respectively from fresh fruit bunches (FFB) amount processed. PKS generated by the palm oil mill are commonly used as a boiler fuel while EFB are left to decay naturally in the plantation. The project substitutes fossil fuel (industrial boilers use either natural gas or diesel oil) by installing biomass boiler(s) capable of burning EFB and/or PKS. The combustion of biomass (carbon neutral fuel) leads to the reduction of GHG emissions while methane avoidance from anaerobic decay of empty fruit bunch also leads to substantial emission reductions.

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Contribution to sustainable development Table 4: SD overview of the 2 biomass project types Biomass to Energy Thermal Energy Electricity Environment Air quality - Adequate pollution control equipment for dust emission and meeting Standards by Environment Quality Regulations, Clean Air Act 1978. - Reduction of heavy metals and sulfur in the atmosphere due to burning of fossil fuel - Reduction of methane emissions (biomass decay) Water quality Avoidance of leachates from the biomass decay results in an improvement of ground water resources and river contamination Soil/land quality Avoidance of leachates from the biomass decay results in an improvement of soil quality. Biodiversity No impact on the biodiversity Resources Reduction of fossil fuel Reduction of fossil fuel consumption consumption GHG reduction The project will contribute to GHG reduction through methane avoidance from natural decay of EFB and fossil fuel substitution Economy Employment Creation of temporary employment during local construction of the equipment and permanent employment for the operation and maintenance. High skills required for the High skills required for the operation of a biomass boiler operation of a biomass boiler, turbine and alternator Technology Technology and knowledge transfer through the importation of transfer foreign technology and a thoroughly implemented training program to ensure smooth operation of the plant. Higher technology level Higher technology level National Substitution of fossil fuel Substitution of fossil fuel economy Microeconomic IRR above average IRR generated is average (low electricity tariff) Social Stakeholder Stakeholders are invited to give inputs. participation Local heritage No threat to any protected areas of fragile ecosystems, no impact on historical, archeological or cultural sites Quality of life Avoidance of odor nuisance for surrounding villagers and workers at landfill site Education It is recommended to share a percentage of the revenues from the carbon credits revenues to improve the quality of life of local community. Health and Explosion hazard due to methane accumulation safety

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Using the utility functions in Appendix A, the below graph is obtained. The explanation of each utility value are explained Appendix B.3. 1 0.8

Utility

0.6 0.4 0.2 0 -0.2 -0.4

he edu al c th ati an on d sa fe qu ty al ity st ak of eh lo lif ol ca e l de r p her ar ita tic ge ip at io n ai rq ua w lit at y er qu so il/ al ity la nd qu al bi ity od iv er si ty re s G o ur H G c re es du ct io em n te pl ch o no ym lo gy en na tr t tio an sf na er le co m n om ic ro y ec on om ic

-0.6

Indicators

Figure 9 : SD compliance profile for biomass to energy project type The result of the overall utility is: U = 26.15%

3.

Discussions and conclusions

By comparing the project graphs and results of the overall utility functions, each SD compliance profiles can be compared and ranked. However, before commenting those results, two important points need to be considered: 1. The results and rankings slightly depend on the chosen weightings of criteria. To evaluate this dependency, two main weightings being available: - The “equal weighting”, with an equal priority given to the economy, environment and the social aspect. - Others weightings which aim at reflecting the advantages and inconvenient of each project. A sensibility analysis will be performed to evaluate the consequences of SD priorities on the ranking of the projects. 2. This study evaluates projects type without the influence of external factors, mainly the host country policy, and the host company priorities. However, the reader will have to keep in mind that the actual result of a project will be influenced by those two factors. In other words, if a project type A has been evaluated as “more sustainable” than a project type B, an actual implementation of type B may become more sustainable than an implementation of type A, because of external factors.

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Figure 10 gives an overview of the five profiles shown in part 2. Equal weighting details can be found in Appendix C. These figures are obtained after having applied equal weights: 33% for each main criterion.

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Utility

8 6

composting

4

biogas - electricity

2

biogas - heat

0

biogas - flaring

-2

biomass-energy

-4 ed uc he at al io th n an d sa fe qu ty al ity of lif sta lo e ca ke l ho he ld rit er ag pa e rti cip at io n ai rq ua l it w y at er qu al so ity i l/ la nd qu ali ty bi od iv er sit y re so u G rc H es G re du ct io em n p te l o ch y m no en lo t gy tra na ns ti o fe na r le co n m om ic ro y ec on om ic

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Indicators

Figure 10: Comparison with the equal weighting

12 10 8 6 4 2 0 -2 -4 -6 -8

composting biogas-electricity biogas-heat biogas-flaring biomass- energy

ed uc he at io al n th an d sa fe ty qu al ity of lif lo sta e c al ke ho he rit ld er ag e pa r ti ci pa tio n ai rq ua lit w y at er qu al so ity il/ la nd qu al ity bi od iv er sit y re so ur ce G H s G re du ct io n em p lo te ym ch no en lo t gy tra na ns tio fe r na le co n om m ic y ro ec on om ic

Utility

As the social criteria values of the 3 projects are almost identical, it is interesting to see how the final result is modified with a very low weight on this criterion. Figure 11 below is obtained when the following weightings are applied: 2% for each social sub-criterion 10.5% for each environment sub-criterion 7% for each economy sub-criterion

Indicator

Figure 11: Sensitivity analysis for three main projects and sub-projects.

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The overall utilities obtained are: Ucompost Ubiogas-elec Ubiomass -energy Ubiogas-heat Ubiogas-flaring

= = = = =

46.07%; 34.23%; 30.64%; 22.82%; 14.86%

There is a maximum difference of 32%, which is relatively significant. Those results show a trend according to which “composting” projects tend to be the most compliant to SD objectives, mainly due to its positive environmental and economic features. Table 5: Sensitivity analysis

Social

2 2 2 2 10

Weightings (in %) Environment Economic

10.5 12 7 5 5

7 5 12 15 5

Composting

Biogas to electricity

Biogas to heat

Biogas flaring

Biomass to energy

46.07 45.76 47.55 48.71 33.15

34.23 34.20 19.81 14.03 21.59

22.82 25.77 15.936 12.00 18.41

14.86 16.71 10.54 8.075 14.605

30.64 31.36 29.35 28.77 24.00

Table 5 shows different weightings that have been applied to the projects. For example, the SD profile for the first weighting is shown in Figure 11. From this table, it is clear that composting and flaring are respectively the most and least feasible project in terms of sustainability, although different weightings being applied. It is important to consider that this method does not give a definitive SD evaluation. The results shown are mainly based on implemented projects, and some assumptions have been made. Nevertheless the MAUT gives an idea about the sustainability of a project. The “weak” aspects of a project type are revealed. This method could also be applied to individual projects, in order to assess their compliance to the sustainable development objectives. The MAUT is an efficient tool to help in the decision process of CDM projects, where many aspects have to be taken into consideration. However, the DNA has to handle the project type evaluation carefully, and keep in mind that the success of a CDM project evaluation will depend on the consistency between the chosen MAUT weighting, local prevailing practices and the host country priorities.

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REFERENCES: 1. Atthirawong W. and MacCarthy B., 2002. An Application of the Analytical Hierarchy Process to International Location Decision-Making, England 2. RSPO, Roundtable for Sustainable Palm Oil. http://www.rspo.org/, May-June 2007 3. Sutter C., 2003. Sustainability Check-Up for CDM Projects, How to assess the sustainability of international projects under the Kyoto Protocol, Wissenschaftlicher Verlag, Berlin. 4. UNFCCC, United Nations Framework Convention on Climate Change. http://cdm.unfccc.int/index.html, May-June 2007 5. Adrian Barrera R and Americo Salvidar V, 2002. Proposal and Application of a Sustainable Development Index, Ecological Indicators pg 251-256, Elevier 6. W.K.Hoi & M.P Koh, 2003.Sustainable Biomasss Production for Energy in Malaysia, Biomass & Energy pg 517-529, Pergamon Press 7. Project Design Document, Co-composting of EFB and POME – MG BioGreen Sdn.Bhd (MGBG), Malaysia 8. Project Design Document, Biomass thermal energy plant – Hartalega Sdn.Bhd, Malaysia 9. Project Design Document, Biogas energy plant from palm oil mill effluent– Extractora del Atlantico, S.A., Champona, Guatemala

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APPENDICES Appendix A: Utility functions A.1

Social criteria:

The criterion estimates the direct impacts on social development. System boundaries to assess social development include the region where the project is implemented. Short-term effects, as well as long-term impacts during the crediting period are considered. The sub-goal of “social development” is divided into the following criteria: -

Education Health and safety Quality of life Local heritage Stakeholder participation

A.1.1.1 A.1.1.2 A.1.1.3 A.1.1.5

Education: schools, training … Health and safety: hospitals, dangers on site … Quality of life: potable water, electricity providing … Local heritage: Protected areas, historical site, displacement of local communities, respect of culture…

The evaluation basis is the social aspect referred to changes in neighborhoods habits (recreation, public transport, landscape enjoyment, etc.) arising from project activities as eventual disturbing noises and smells, higher intensity of load transport. For these 4 criteria, the same function is used: A = Considerable improvement B = moderate improvement C = no change to the baseline D = moderate negative impact E = considerable negative impact

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A.1.2 Stakeholder participation The indicator examines to what extent stakeholders are involved in the project development. Relevant stakeholders are: people living in the vicinity of the project, people who are directly involved in the project (employees and suppliers), and relevant NGOs. This scale is not based on objective values. It only serves as an example and must be defined for the specific circumstances in a host country. A = stakeholders are really active in the project B = stakeholders can participate in the decision process C = stakeholders are invited to give inputs D = stakeholders are just informed E = stakeholders are informed only upon request F = stakeholders are not involved at all Utility 1

0

Qualitative scale F

E D C B A

-1

A.2

Environmental criteria:

The environmental criteria examines to what degree the proposed project has positive or negative effects on the environment – this in addition to the GHG reductions. The sub-goal of “environmental development” is divided into the following criteria: -

Air quality Water quality Soil/land quality Biodiversity Resources GHG reduction

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A.2.1 Air quality This criterion indicates the project impacts on the air quality in the local environment and it aims at measuring the project’s contribution to the maintenance or improvement of air quality. A = Considerable increase B = moderate increase C = no change to the baseline D = moderate decrease E = considerable decrease

A.2.2 Water quality This criterion indicates the project impact on water resources, both for surface and underground waters. The goal is to aim at maintaining or increasing the quality of water resources of the country. A = Considerable increase B = moderate increase C = no change to the baseline D = moderate decrease E = considerable decrease

A.2.3 Soil/land quality This criterion evaluates the form in which the project contributes to improve soils quality. This takes into account toxic substance release, changes in land use, but also soil erosion and degradation. A = considerable good effect B = moderate good effect C = no change to the baseline D = moderate bad effect (e.g.: Landfill) E = considerable bad effect (e.g.: Erosion)

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A.2.4 Biodiversity The objective of this criterion is to evaluate the form in which the project contributes to maintenance of biodiversity. A = considerable increase of biodiversity B = moderate increase of biodiversity C = no change to the baseline D = moderate decrease of biodiversity E = considerable decrease of biodiversity

A.2.5 Resources This criterion aims to assess the change in consumption of core resources (water, fuel, electricity …), compared to the baseline. A = Considerable decrease of the use of resources B = moderate decrease of the use of resources C = no change to the baseline D = moderate increase of the use of resources E = considerable increase of the use of resources

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A.2.6 GHG reduction The objective of this criterion is to assess the reduction of GHG emissions of the project activity. To achieve this, the yearly CERs are used. The utility of this indicator will not be negative because every CDM project generates CER. Besides, it is necessary to normalize the CER by the tons of FFB processed, so that the evaluation is independent from the project size. Utility 1 0.75 0.5 0.25 0

Indicator (CERs) > 50,000 [30,000; 50,000] [20,000; 30,000] [20,000; 10,000] < 10,000

Utility

Indicator (Yearly CERs/tFFB) > 0.25 0.150 to 0.250 0.10 to 0.149 0.05 to 0.1 < 0.05

1 0.75 0.5 0.25 0

A.3

>> normalized by tFFB: 45t/hr of FFB operating 4,500hr/year = 202,500t FFB/year

Economic criteria:

A CDM project will have economic implications for the host country, and especially for the project perimeter. Short-term effects, as well as long-term impacts during the crediting period are considered. The sub-goal of this criterion is divided into the following criteria: -

Employment Technology transfer National economy Microeconomic

A.3.1 Employment The utility is the number of jobs created, divided by the total number of kt CERs during the crediting period. For this paper, we do not take into account the jobs caused by additional transport activities.

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A.3.2 Technology transfer The applied technology, its planned implementation, supply of spare parts, and expected maintenance are examined. It is estimated whether the applied technology is actually an innovation for the country and whether it can be locally maintained. The utility function is based on a logarithmic scale function, to take into account that grade D is the common practice. Utility 1 0.95 0.75 0 -1

Grade A B C D E

Description Local technology development (and equipment imported) 100% technology transferred, including core technology/equipment Core technology/equipment not transferred Equipment imported + training for employees (skills developed) Equipment imported but cannot be maintained : dependence on supplier

A.3.3 National economy This indicator evaluates the impact of the project activity on the balance of payment of the host country, in terms of energy import, or operating cost savings with significant impact on national balance. (e.g.: large project outcome: compost for instance, will avoid importations of fertilizer.) To calculate it, the yearly avoided national expense (in US$/year) must be divided by the yearly CERs (in tCO2/year). In order to compare the result with a benchmark, the figure must be normalized by a coefficient. National.economy = 0.058.

Saving.in.national.balance yearly.CERs

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A.3.4 Microeconomic This consists of an evaluation of the project contribution to microeconomic sustainability, which is measured by the cash flows in both scenarios. Using for that purpose a classic economic-financial tool, the Internal Return Rate (IRR). It is applied to the net flow of funds obtained in the comparison of both situations, with and without project implementation. This tool is only used to have an idea of the financial viability of the project.

A = Very interesting project B = Good project C = Commercially viable project D = Not very commercially project E = No viable project

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Appendix B: Assessment of CDM projects in the palm oil

B.1 Biogas recovery from POME to energy Education: Health and safety: Local heritage: Quality if life:

0.125 0.125 0.125 0.125

These 4 criteria have the same utility because the only improvement by the CDM project is typically to give 2.5% of the carbon credits revenues to support programs or initiatives to improve the quality of life of local communities. This is a slight improvement therefore the given utility is between “no change to the baseline” and “moderate improvement”. Stakeholder participation: 0.33 A meeting with all the stakeholders is organized by the company. This is the opportunity for them to be informed about the project, and ask questions directly to the project proponents. Air quality: 0.5 The air quality is moderately improved by the avoidance of toxic release such as SO2 or methane. Water quality: 0.25 No change is done in the POME process in the lagoon. However, the coverage of the bottom of the pond prevents the POME from leaking and contaminating the local water tables. Soil/land quality: 0.25 The projects activity moderately improves the soil quality, by covering the bottom of the pond and then preventing POME infiltration in the ground. Biodiversity: 0 There is no change compare to the baseline. The project has no impact on biodiversity. Resources: The 3 sub-projects, as well as the baseline, do not consume any water. The water needed for the biogas purification will be taken from the lagoon. -

-

Biogas to electricity : 1 ƒ The project produces more energy than it consumes ƒ Extra power generated: 5.26 GWh/year Biogas to heat : 0.5 ƒ The project needs some additional energy to operate. ƒ It also saves 380TJ of high quality biomass fuels such as PKS. ƒ The total impact of the project is then moderately positive. Biogas flaring: -0.25 ƒ The project needs some additional energy to operate.

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GHG reduction: -

-

-

Biogas to electricity : 0.75 ƒ Average yearly CERs : ƒ *Indicator (yearly CERs/tFFB):

36,200 tCO2/year 0.18

Biogas to heat : 0.5 ƒ Average yearly CERs : ƒ *Indicator (yearly CERs/tFFB):

24,977 tCO2/year 0.12

Biogas flaring: 0.5 ƒ Average yearly CERs : ƒ *Indicator (yearly CERs/tFFB):

24,977 tCO2/year 0.12

*Normalizing the yearly CERs with 202,500t FFB / year. Employment: - Biogas to electricity : 0.028 ƒ Jobs created: 6 ƒ Total project CERs: 217 ktCO2 - Biogas to heat : 0.023 ƒ Jobs created: 4 ƒ Total project CERs: 174.8 ktCO2 - Biogas flaring : 0.011 ƒ Jobs created: 2 ƒ Total project CERs: 174.8 ktCO2 It is considered that 4 additional employees are needed to maintain the biogas recovery system. 2 more employees are needed to maintain the new biogas engines. Technology transfer: 0 For the 3 sub-projects, new equipments are bought from foreign country. The employees follow a training program to absorb the know-how. National economy: - Biogas to electricity : 0.91 ƒ Yearly avoided electricity consumption: 5.26 GWh/year ƒ Avoided equivalent gas consumption: 15.02 GWh/year ƒ Yearly savings implied 393,000 US$/year ƒ Yearly CERs: 24,977 tCO2/year - Biogas to heat : 0 ƒ The project only saves biomass fuel, but no fossil fuel. ƒ No yearly avoided energy import. - Biogas flaring : 0 ƒ The project has no impact on the fossil fuel national importations.

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Microeconomic: - Biogas to electricity : -0.5 ƒ IRR is low, because of the high investment of the biogas engine. ƒ Estimated IRR: