Indocement CDM Project

Presentation World Bank Office Jakarta 12th August 2008

Oivind Hoidalen PT Indocement Tunggal Prakarsa Tbk.

Structure of presentation
Indocement and CDM Projects

CDM and Preparation of Methodologies

Alternative Fuel Project Blended Cement Project CDM Cycle

Milestones Indocement CDM Projects

Expected CO2 reductions Host country approval Environmental, Economical, Social and Technological Sustainability Final comments

Indocement and CDM projects

HeidelbergCement AG majority shareholder of Indocement and member of World Business Council for Sustainable Cement Production committed to sustainable cement industry centering on three pillars economic growth, ecological balance and social progress Cement industry worldwide contributes about 5% of anthropogenic greenhouse gases challenges as well as opportunities CO2-trading European emission trading scheme and CDM mechanisms for non-Annex I countries of importance since HeidelbergCement operates cement plants in several developing countries

Indocement and CDM projects

Tarjun ~ 2,5 mill tons/year

Citeureup ~ 10 mill tons/year

Cirebon ~ 2,5 mill tons/year

Indocement and CDM projects

Cement is produced by burning a mixture of raw materials comprising mainly of limestone and clay in large rotary kilns at temperatures above 1450 C. This process results in the formation of clinker which together with gypsum and other materials upon grinding to high fineness is transformed into cement. CO2-emissions are generated as follows Through Raw Meal Calcination CaCO3 = CaO + CO2 Fuel burning since the Carbon in fossil Fuels will generate CO2 CO2 generated from Power Consumption either from the grid or from on-site Power Generation On-site transportation, lighting etc.

Indocement and CDM projects

Indocements Energy efficiency
About 3.150 kJ/kg clinker About 105 kwh/ton cement

Main potential for CO2-reduction measures at Indocement

Increased use of alternative materials (Reducing Clinker content in Cement through introduction of Blended Cements) by using Limestone, Fly-ash and natural Pozzolana (Trass) Increased use of alternative Fuels by using rice husk, palm oil kernels, saw dust etc.

Initial estimations indicated that reductions of about 0,5 - 1 million tons of CO2 could be reduced annually through increased use of alternative materials and alternative fuels hence a considerable potential!

Indocement and CDM projects

Based on an overall assessment of risks and benefits, it was from beginning of the Project concluded to proceed with the World Bank (Prototype Carbon Fund PCF) acting both as a Project Developer/Consultant as well as being a buyer of a part of the CO2-reductions Reputation of the World Bank Due to the comprehensive documentation required, Indocement appointed URS (Dames and Moore), later changed to PT Solusi headed by Ibu Architrandi Priambodo

What is CDM?
CDM Projects require that a so called Baseline be established which defines
the scenario that reasonably represents the anthropogenic emissions by sources of Greenhouse Gases that would occur in the absence of the proposed project activity

Barriers have to be overcome with the help of the generated CER credits. It must be demonstrated that the CDM Project is not Business as usual As a consequence detailed and comprehensive requirements are to be met in order to safeguard that emission reductions from CDM projects are real, measurable and long-term and that they are additional to any that would have occurred without the project The project proponent requires to follow certain Baseline Methodologies which need to be approved by the Methodology Panel reporting to the Executive Board

Preparation of Methodologies
Following the modalities and procedures for CDM Projects established at COP-7 in Marrakech in 2003, in principle three Baseline Methodologies can be used
Existing actual or historical emissions, as applicable (Market Barrier Approach Blended Cement) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment (Investment Barrier approach Alternative Fuels) The average emissions of similar project activities undertaken in the previous five years in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category

Preparation of Methodologies
Indocement Project a Pioneer Project and two new Methodologies had to be developed Methodology Blended Cement Baseline Methodology for barrier testing, baseline scenario and emission reduction calculation for project activities that substitute Ordinary Portland Cement (OPC) with blended cement Methodology Alternative Fuel Baseline methodology for project activities that substitute fossil fuels with alternative fuels in cement kilns

Alternative Fuel Project

Indonesia possesses large amounts of biomass fuels such as palm kernel shells, rice husk and saw dust since such fuels are considered CO2 neutral - CO2 reductions are achieved Extensive discussions took place in Europe and the US during the 1980/1990ies as to the burning of alternative fuels in particular concerns about emissions of persistent organic constituents such as dioxins and furans Extensive stack measurements in cement kilns all over the world have confirmed that cement kilns are well suited to burn a wide range of alternative fuels in addition to biomass (car tires, oily sludge, plastics, paper, pretreated municipal wastes etc.) The use of some wastes will in addition to reducing CO2 also reduce generation of Methane from landfills thereby further reduce greenhouse gases

Blended Cement Project

A major breakthrough for wider use of Blended Cement new European Cement Standard EN-197 introduced since end of the 1990ies Standard allowed introduction of a variety of blended materials under strict quality requirements thus assuring constructive properties of concrete not to be jeopardized Composition of Blended Cements deviates from Ordinary Portland Cement OPC. Blended materials are Pozzolanic materials, high quality limestone etc. Pozzolanic materials are siliceous or siliconaluminous materials reacting with cement to form strength developing compounds

Blended Cement Project

The addition of blended materials to Ordinary Portland Cement (OPC) is limited by the Indonesian cement standard. In order to implement the CDM project for Blended Cement, Indocement had to introduce a new Indonesian Cement Standard allowing a wider use of blended materials New Indonesian Cement Standard (SNI-15-7064-2004) for Portland Composite Cement (PCC) PCC has compressive strength and other constructive properties equivalent to that of OPC

CDM Cycle

Milestones Indocement CDM Projects (1)

Project Idea Note (PIN) with Letter of Acceptance from the Ministry of Environment sent to the Prototype Carbon Fund (PCF) of the World Bank Dec 2002 Project Concept Note (PCN) sent to the PCF Mar 2003 Letter of Intent (LoI) signed with the PCF Aug 2003 Feasibility Study and Environmental Management Plans (EMPs) for each production site Citeureup, Cirebon and Tarjun prepared end of 2003 Project Design Document (PDD) jointly prepared by Indocement and the PCF including proposal for new Methodologies for Alternative Fuel Project and Blended Cement Project sent to the UNFCCC 23 Jan 2004 Indocement (and PCF) initially expected to receive final approval of both project components by May/June 2004

Milestones Indocement CDM Projects (2)

Indocements proposed methodologies required however several rounds of discussions with the Methodology Panel (MethPanel making recommendations to the Executive Board on how to calculate and monitor CO2 emission reductions) In the meantime Indocement and the PCF signed an Emission Reduction Purchase agreement (ERPA) at the Carbon Expo in Cologne 9 Jun 2004

Kyoto Protocol entered into force` February 2005

Methodology for Blended Cement Project approved by the MethPanel October 2005 a revised final consolidated version approved 19th May 2006 Methodology for Alternative Fuel Project approved by the MethPanel June 2005 a revised final consolidated version approved 28th July 2006

Milestones Indocement CDM Projects (3)

Validation process by DnV (Norway) Dec 2005 to Jul 2006 Alternative Fuel project registered by UNFCCC 27 Sep 2006 Blended Cement Project registered by UNFCCC 28 Oct 2006 Verification by TUEV SUED (Germany) Dec 2006 until beginning of 2008 First CERs finally approved on the 15th March 2008 for the Alternative Fuel Project CERs for the Blended Cement project under final revision and final approval expected soon You have to be patient entire process has taken > 5 years

CO2 reductions from biomass fuels and production of Blended Cement

CO2 SOx NOx

Fuels, Calcination, Power
Clinker (100%)

=
Alterna tive Fuels
Gyp sum + Addi tive

CO2 SOx NOx

Fuels, Calcination, Power
Clinker
Gyp sum + Addi tive

Clinker

Alterna tive Materi al s

Summary of expected CO2 reductions

Host Country Approval

Indonesia ratified the Kyoto protocol in July 2004 Indonesian Designated National Authority (DNA) established July 2005 Application with answers to a set of questions sent to the Indonesian National Authority DNA Sep 2005 DNA approval Dec 2005

CDM projects must be approved by the DNA and must in addition to reducing CO2 emissions meet specific requirements from the host country
The Indonesian DNA set up a set of criteria's with which Indocement had to comply prior to acceptance by the host country The following slides show some of these criteria's

L. Environmental Sustainability

L.1. Criteria: Environmental Sustainability

L.1.1. Indicator

Environmental Sustainability by applying natural resource usage , conservation and diversification

Applicable national and local standards threshold values for environmental quality must not be exceeded (applies to air, water and soil contamination) Biodiversity (genetic, species and ecosystem) must be maintained and genetic contamination shall not occur Compliance with land use and spatial lay-out regulations

L.1.2. Indicator

L.1.3. Indicator

L.1.4. Indicator

L. Environmental Sustainability

L.2. Criteria: Local community, safety and health

L.2.1. Indicator

Provide evidence that project activity will not give any adverse effects on health for local communities
Occupational Health and Safety regulations to be adhered to. Available documented procedures describing adequate efforts in order to prevent the occurrence of accidents as well as its remedial measures

L.2.2. Indicator

L.2.3. Indicator

E. Economical Sustainability E.1. Criteria: Local community welfare safety and health
E.1.1. Indicator
Project must not lead to any reduction in the income of the local community as a whole

E.1.2. Indicator

Describe efforts to handle potential impacts of reduced income for a parts of the community
In case of lay-offs as a result of the project activity, lay-offs must follow applicable statutory regulations Project must not lead to any reductions in the quality of services to local community

E.1.3. Indicator

E.1.4. Indicator

S. Social Sustainability

S.1. Criteria: Community Participation

S.1.1. Indicator

Have in place a consultation process for local communities

Have in place a response and follow up to comments and complaints from local communities Project shall not impair the social integrity of community Project must not lead to any conflicts among local communities

S.1.2. Indicator

S.1.3. Indicator

S.1.4. Indicator

T. Technological Sustainability

T.1. Criteria: Technology Transfer

T.1.1. Indicator

The project activity must not create dependence from foreign countries in terms of knowledge and know-how. The project shall not apply obsolete technology
Project shall improve the ability of and utilization of local technology

T.1.2. Indicator

T.1.3. Indicator

Final comments
A CDM Project must not only reduce CO2-emissions but must also lead to Sustainable Development in the Host Country Comprehensive documentation and transparency required PDD, Validation reports, Verification reports on the UNFCCC-web for public comments http://cdm.unfccc.int/ Environmental Management Plans on Indocement web-site www.indocement.co.id Challenging in a plausible way to predict investments, market developments etc. (Time Frame 10 years and more!)

Additionality Why is a project only feasible with CO2-credits and not feasible without CO2-credits
Arduous Validation and Verification processes Provide substantiation for Methodology applicability Provide substantiation for additionality Detailed Monitoring reports to follow Monitoring plan in PDD Detailed leakage calculations (Although less than 5% of Emission Reductions) Continuation of flexible mechanisms now being discussed as part of Post Kyoto Agreement Uncertain outcome!

Thank you