Environmental Pricing Of Methane Release In Gas Transmission Lines Project Context 1. Methane emissions from gas transmission is one of the main contributor of greenhouse gases. Methane is a potent greenhouse gas, mow effective at trapping heat than carbon dioxide. In the last two centuries methane emissions have more than doubled as a result of human activities. In industrialized countries the natural gas industries account for about 10% of total methane emissions. 2. The design and operating guidelines used to develop pipeline projects are based on the precepts of capacity, compliance and efficiency. Capacity projects are largely a function of pipe size, compression and load factor. Projects are designed and constructed to comply to applicable legislative and industry guidelines on integrity and environment protection. In all cases it benefits stakeholders to ensure that the transmission system is built so that it is as cost efficient as possible. Efficiency type project design relies upon the analysis of various alternatives to evaluate the option that provides the low cost alternative. 3. It has generally been the practice to enforce compliance to environmental standards through legislation. Environmental compliance legislation is often broadly based and not specific to a particular industry problem. In several cases the solution mandated by a particular piece of legislation has tended to be inefficient and ineffective.
Some countries have experimented with the pricing of environmental pollutants and allowed market forces to develop in the area. In an industry with the complexity and diversity of the natural gas transmission business, mandatory solutions imposed on the problem of methane emissions have tended to have a high degree of variability in providing cost effective reductions in emissions. A more efficient system of controlling and reducing methane emulsions is desirable. 4. A major hurdle in the effort to achieve cost effective and evident reductions in methane emissions is the lack of a widely agreed upon economic cost. Derivation of an accurate and defensible economic cost of methane emissions would allow gas transmission organizations to treat projects that reduce methane emissions as efficiency type projects where the cost of reducing emissions is inherently optimized. 5. It is the current practice of pipeline companies to price losses of gas to the atmosphere as the marginal cost of production or the sales cost. These costs do not reflect the actual full economic cost of these emissions. Omitted from these costs is the cost of the damage that these emissions to the environment in terms of contributing to global warming and decreased productivity and the subsequent cost of mitigating their effects. The methodology that could be used to establish the full economic cost of methane emissions is now becoming established within the Bank. Proposed Project Objective and Scope 6. The objectives of the project are three fold: to determine the full unit economic cost of methane emissions from natural gas transmission systems; to undertake a comparative analysis of the relative costs, benefits and effectiveness of the economic efficiency methodology compared to standard regulation; and if proven effective, to present workshops and literature to advance the use of the proposed methodology. 7. The scope of the study will be confined to the specific problem of gas transmission lines. This will provide a clear audience for the work. The output of the work will be applicable to new transmission line projects that the bank is involved with, as well as the maintenance of exiting lines throughout the world. The work will be of direct interest to industry, regulatory authorities and responsible government agencies in both developing and developed economies. 8. The study will combine the unique capabilities of the Bank in the area of environmental economics with the in depth technical and regulatory knowledge available in the ENOG group. The study will directly contribute to the cost efficiency of the gas transmission industry and in addition have significant environmental benefits. Existing Material 9. Several existing studies in and outside of the Bank have looked at the issue of environmental economics and sustainable development as well as the incorporation of environmental concerns into decision making. This project will involve the practical application of specific techniques to industry problems. Work Program 10. The proposed ESMAP activity will include the following work program: (a) Evaluation of proposed methodologies. A search will be done to find the best data and methodologies for the project. This work will determine the best way to come to a solution that will be transparent, defensible and accurate. This portion will involve a literature search and evaluation of comparable methodologies. The results of this section will be presented for peer review and the proposed methodology will be well scrutinized before any further project work is undertaken. (b) Application of methodology to specific examples. In this section of the work, specific illustrative examples will be worked out in a manner then would mimic industry practice with the inclusion of the increased cost of methane emission. These examples will be utilized in workshops and presentations. (c) Preparation of final report. Comments and suggestions from review and preliminary presentations to government industry and the regional energy and environment groups will be incorporated in the final version. (d) Implementation. A series of meetings and workshops will be set up in Washington with interested parties to demonstrate the benefits of the proposed methodology. Duration of Program 1 1. The duration of this program is approximately 12 months. Budget 12. As shown in Annex 1, the budget requirement for this study is US$79,050. Annex 1 Budget Global - Environmental Pricing of Methane Release in Gas Transmission Lines Budget Line Description 11.01 ESMAP Supervision 42,000 11.50 Consultant Fees 1 1.60 Consultant Travel 13.01 Administrative Support 15.00 ESMAP Staff Travel 16.00 Bank Staff Travel 17.00 Local Costs 2 1 .OO Sub-contract 32.00 Training 10,000 52.00 Reporting Costs 5,000 53.00 Sundries 2,300 99.00 Unallocated Costs Sub-Total 79,050 Joint UNDP 1 World Bank Energy Sector Management Assistance Programme c/o The World Bank 1818 H Street, 1V.W. Washington, D.C. 20433 U.S.A. Global Gas Leakage from Natural Gas Operations in Developing Countries Project Proposal Oil and Gas Division Industry and Energy Department The World Bank Washington DC 20433 This document has restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without UNDP or World Bank authorization. ESMAP Project Proposal Global Gas Leakage from Natural Gas Operations in Developing Countries Project Context 1. Proven gas reserves have increased from 96,422 billion m3 in 1985 to 148,223 billion m3 in 1994 worldwide. In 1985, 84% of these resources were outside North America and Western Europe compared to 89% in 1994. Gas production increased from 2,105 in 1985 to 2,663 billion m3 in 1993, while marketed gas increased from 1,742 to 2,158 billion m3 in the same period. Around 57% of the marketed gas was outside North America and Western Europe. The gas pipeline transmission network round the world is also increasing rapidly. Capacity of gas pipelines went from 178 billion m3 in 1985 to 263 billion m3 in 1993. 2. Natural gas leakage can be identified as the actual emissions to the atmosphere from venting, leakage and possibly incomplete combustion in parts of natural gas chain. Natural gas chains include all production, transportation, distribution and delivery of natural gas. 3. Natural gas is composed primarily of methane which is a potent greenhouse gas. Currently the U.S. is the largest emitter of greenhouse gases comprising 18% of global yearly total. For twenty years projections, methane contributes almost 30% of the global warming potential for greenhouse gases released in the nineties. In the U.S. the natural gas industry accounts for 10% of the total emissions. 4. Natural gas is a cost effective alternative to burning either coal or fuel oil. it's higher hydrogen to carbon ratio and it's low sulfur content means that it produces far less C02 or SO2 than other fossil fuels. The excessive leakage of methane from the natural gas systems not only wastes a valuable resources but it decreases the favorable comparison of natural gas as environmentally friendly fuel. 5. While gas leakage is relatively well regulated and monitored in North America and Western Europe very little information is available in the rest of the world which produces and markets more than half of the world gas. Proposed Project Objective and Scope 6. Be ultimate objective of this study is: (i) To survey the natural gas systems in the developing world and the system of monitory of gas leakage in each system, (ii) To rank the gas systems in descending order of possibility of occurrence of gas leakage in terms of volume of emission, (iii) To evaluate the leakage impact on the environment and the economics of leakage prevention, (iv) To recommend mitigation measures to decrease their volume, (v) To recommend regulations for acceptable levels of emissions and monitoring procedures, (vi) To recommend institutional organization, staff and systems to implement the regulations so that leakage are minimized in the future. 7. The gas systems will be grouped in five regions (i) Latin America and the Caribbean (ii) Eastern Europe and Central Asia (iii) Africa (iv) The Middle East and North Africa (e) South Asia. (f) East Asia. Existing Material 8. Information on gas leakage is available on North America and Western Europe. Very little material is available in other counties of the world. Work Program 9. The proposed ESMAP activity will include the following work program. (a) Preparation of a Preliminary Report: Two qualified consultants, with knowledge of the sector and experience in gas transmission, distribution systems and gas treatment systems, as well as gas leakage impact on the environment, regulations and institutional organizations will review existing materials, recommend surveys where data is not available, identify countries where visits need to be made, and environmental agencies to be contacted, and will prepare a preliminary report, to be reviewed internally and discussed with the IOC's operating in the area. Based on the published information and the findings in the targeted countries, the consultant will prepare a draft report on gas leakage. The Report should clearly present the recommendations to monitor the gas emissions and contingency plans to monitor excess gas leakage. The report will highlight the respective roles of the government and industry. 10. The report should discuss options as well as the impact on the environment for exceeding recommended emission levels. (a) Implementation of recommendations: The report will include a ranking of status of the gas systems, in terms of gas leakage occurrence, in different countries from highest to lowest volumes, and discuss implementation strategy to avoid leakage in the future. (b) Discussion of the report with concerned counties: The consultant will recommend a typical group of countries where the recommendations can be implemented. The countries concerned will review and provide feedback on the report and recommendations. (c) Implementation: Implementation of the recommendations which might need considerable resources will be done under a different task. Duration of Program 1 1. The duration of this program is approximately 12 months. Budget 12. As shown in Annex 1, the budget requirement for this study is US$396,000. Annex 1 Budget Global - Gas Leakage from Natural Gas Operations in Developing Countries Budget Line Description us$ ESMAP Supervision Consultant Fees Consultant Travel Administrative Support ESMAP Staff Travel Bank Staff Travel Local Costs Sub-contract Training Reporting Costs Sundries Unallocated Costs Sub-Total 396,000
