"Value Maximization and Risk Management Strategy in Biodiesel projects through Carbon Finance" presented by Snehashis, Climate Change & Environmental Core Competency Cell (C2-E-C3), IIFM in ASSOCHAM International Conference - "Climate Change: Business Sustainability & Society", Nov 11, 2008

1. Value Maximization and Risk
Management Strategy in Biodiesel
projects through Carbon Finance
Snehashis Sarkar
Climate Change & Environmental Core Competency Cell
Indian Institute of Forest Management
snehashiss@gmail.com / cceccc.iifm@gmail.com

2. Context for Biodiesel
National Energy Security

Forex Savings

Livelihood generation for people

Improved social well-being

Oxygenated compound

 No SOx emission
 No CO and unburnt Hydrocarbon
Carbon Neutral fuel

Restoration of degraded land, check in soil erosion

and overall soil improvement

3. Biodiesel Value Chain

4. Risks
Risks to Farmers

 Weather, Catastrophe, Seasonality
 Little income in the first 4 -5 years
 Non-performance of Energy Crop due to unknown
reasons
 Risk of non-procurement by industry

5. Risks
Risks to Industry players

 Highly variable results reported by different
agencies
 Results are highly site-specific
 Competition with the existing conventional fuel
 Risk of Market failure
Risks to the end-user

 Price risk
 Technology failure

6. Risk Minimization Strategy
Farmers
 Portfolio of Agri-produce with Energy crop
 Pre-purchase Agreement
 Minimum Support Price
 Portfoltio of related diversified Activities
 Intercropping
 Controlled Grazing
 Honey Bee rearing in the field

7. Risk Minimization Strategy
Industry
 Crop Insurance for Energy Crops
 Weather Insurance
 Pre-purchase Agreement with the OMCs
 Minimum Support Price

8. Value Maximization Approach
Generate revenue at every step of the value chain

Link a number of Supply Chain to existing value chain

 Fruit pulp Juice of Simarouba
 De-oiled Cake
 Glycerol
Carbon Finance


9. CDM options
Value-chain based approach

(No stone left unturned)
Maximization of Carbon Credit benefits

Securitization of underlying project finance

Maximize revenue generation

Promote sustainable development


10. CDM options
Afforestation / Reforestation

Methane Recovery and subsequent co-generation

from the methane
Methane avoidance through composting

Fuel Switch


11. Approved Methodologies
Afforestation / Reforestation

1.AR-AM0002

“Restoration of degraded lands through
afforestation / reforestation”
2.AR-AM0005

“Afforestation and reforestation project activities
implemented for industrial and/or commercial
uses”

12. Approved Methodologies
3.AR-AM0006

“Afforestation / Reforestation with Trees supported
by Shrubs on Degraded Land”
4.AR-ACM0001

“Afforestation and reforestation of degraded
land”

13. Approved Methodologies
5.AR-AMS0002

“Simplified baseline and monitoring methodologies for
small-scale afforestation and reforestation project
activities under the CDM implemented on
settlements”

14. Approved Methodologies
Methane Recovery and co-generation from the

methane (AMS III.R and AMS I.C)
“Methane recovery in agricultural activities at
household/small farm level”
&
“Thermal energy for the user with or without
electricity”

15. Approved Methodologies
Methane Avoidance

AMS III.F
“Avoidance of methane production from decay of
biomass through composting”

16. Approved Methodologies
Fuel Switch

1.AM0047
“Production of biodiesel based on waste oils and/or
waste fats from biogenic origin for use as fuel”

17. Approved Methodologies
Fuel Switch

2. Draft revised AM0047 version 03
“Production of biodiesel based on waste oils and/or
waste fats from biogenic origin or from oil seeds
cultivated in dedicated plantations for use as fuel”

18. Methodologies on the progress table
Fuel Switch

SSC NM009 (Draft AMS-I.F)
“Substitution of fossil fuel in combustion engines
through biofuel from degraded land”

19. Strengths
Carbon Finance can get the biodiesel projects which

are often financially unviable, financed.
The farmers can be compensated for the limited or

no returns from plant produces during the first few
years by upfront payment of Carbon Credits.
Carbon credits as earned in hard currency, can attract

otherwise unwilling parties to finance the project.
Potential for multiple CDM projects as well as

harnessing multifarious developmental benefits from a
Value-chain based approach.

20. Weakness & Limitation
Use of some methodologies can restrict simultaneous

use of another or harnessing Carbon benefits from
multiple sources across the value chain at the same
time.
Because of high risk of the projects, the CER prices

discovered in the market may be very small.
CERs from A/R CDM are not tradable in the EU

market as per provisions of the linking directive.

21. Risk Matrix
R1. Feedstock yield/ Resource supply risk

R2. Technological risk

R3.Volumetric risk

R4. Biodiesel price risk

R5. Registration risk

R6. Risks in monitoring, verification and issuance of CERs

R7. Risks of additional policy of CDM EB

R8. Political risks in host country

R9. Risk of non-renewal of project land lease

R10. CER price risk

R11. Environment, Health and Safety risk


22. Participatory Risk Mapping
Risks are to be ranked by the CDM consultants, project

developers and financiers through collective
deliberation in order of their respective Risk Index,
which is the product of its
likelihood of materializing (L)

severity of impact (I)

This will help in prioritizing risks and adopt suitable

mitigation strategies for them.

23. Risk Map

24. Risk Index
R1, R2, R3.....R11 from left to right

25. snehashiss@gmail.com
Ph: +919977719174