AMERICAN UNIVERSITY OF BEIRUT ENERGY ATTRIBUTES CERTIFICATES: A NOVEL MECHANISM TO SUPPORT ENERGY TRANSITION IN LEBANON by NOURA NABIL LAYSSI STOUHI A thesis submitted in partial fulfillment of the requirements for the degree of Master of Sciences to the Department of Mechanical Engineering of the Maroun Semaan Faculty of Engineering and Architecture at the American University of Beirut Beirut, Lebanon June 2020 AMERICAN UNIVERSITY OF BEIRUT ENERGY ATTRIBUTES CERTIFICATES: A NOVEL MECHANISM TO SUPPORT ENERGY TRANSITION IN LEBANON by NOURA NABIL LAYSSI STOUHI Approved by: Dr. Nesreene Ghaddar, Professor Maroon Semaan Faculty of Engineering and Architecture Advisor Dr. Hassan Harajli, Lecturer Department of Environmental Health Co-Advisor Dr. Karim Makdisi, Associate Professor Department of Political Studies and Public Administration Member of Committee Dr. Ibrahim Alameddine, Assistant Professor Department of Civil and Environmental Engineering Member of Committee Date of thesis/dissertation defense: [June 18, 2020] AMERICAN UNIVERSITY OF BEIRUT THESIS, DISSERTATION, PROJECT RELEASE FORM Student Name: Layssi Stouhi _________________Noura _________________________ Last First Middle I authorize the American University of Beirut to: (a) reproduce hard or electronic copies of my thesis, dissertation, or project; (b) include such copies in the archives and digital repositories of the University; and (c) make freely available such copies to third parties for research or educational purposes. I authorize the American University of Beirut, to: (a) reproduce hard or electronic copies of it; (b) include such copies in the archives and digital repositories of the University; and (c) make freely available such copies to third parties for research or educational purposes after : One ---- year from the date of submission of my thesis, dissertation, or project. Two ---- years from the date of submission of my thesis, dissertation, or project. Three ---- years from the date of submission of my thesis, dissertation, or project. Signature Date This form is signed when submitting the thesis, dissertation, or project to the University Libraries ACKNOWLEDGMENTS I would like to express my deepest appreciation to my committee members especially Dr. Hassan Harajli for his extremely valuable and continuous support and assistance throughout the thesis journey in addition to Dr. Nesreene Ghaddar, Dr. Karim Makdisi and Dr. Ibrahim Alameddine for their highly appreciated guidance. I would also like to extend my deepest gratitude to my parents, my sisters, my family and my friends who provided me with encouragement and patience throughout the duration of my thesis. Special thanks to my mother Nadia and father Nabil who always supported and nurtured me and never wavered in their support. v AN ABSTRACT OF THE THESIS OF Noura Nabil Layssi Stouhi for Master of Science Major: Energy Studies Title: Energy Attributes Certificates: A Novel Mechanism To Support Energy Transition In Lebanon Lebanon is slowly evolving towards reaching its international environmental commitments. Those commitments face many obstacles and challenges especially in terms of policies and regulations. We will see through this paper that neglecting the commercial and industrial sectors in Lebanon that consume more than 50% of the total electricity and responsible of 32.07% of emissions in the country is also delaying energy transition in the country. Indeed, there are no specific policies that regulate energy consumption and emissions for these sectors which negatively affect the progress towards achieving the country’s environmental commitments. Through this paper, a novel mechanism that is gradually being used in many countries across the world is suggested to support a sustainable energy transition and help reaching Lebanon’s international environmental commitments. Energy attribute certificates (EACs) is a form of corporate sourcing of renewable energy that is proposed to be introduced to the Lebanese market. EACs are however faced by many criticisms from different involved stakeholders mainly in terms of their actual contribution to additionality and decreasing greenhouse gas emissions which challenges this paper’s overall objective. There are however some new market tools such as the eco-labelled certificates that could be used in association with the EACs market to help addressing the critics and to make sure that EACs would be able to support a sustainable energy transition in Lebanon. The introduction of EACs associated with a concept based on the eco-labelled certificates but specifically tailored to the Lebanese case is studied in this paper. Our study highlights the additional benefits of an EACs market in terms of positive contribution to the Lebanese GDP from one side and the improvement of some people’s living conditions from the other side. vi CONTENTS AKNOWLEDGEMENT………………………………………………………………..v ABSTRACT……………………………………………………………………………..…..vi LIST OF ILLUSTRATIONS…………………………………………………………x LIST OF TABLES………………………………………………………………………..xi LIST OF ABBREVIATIONS……………………………………………………….xii Chapter 1. INTRODUCTION ................................................................................................. 1 2. LITERATURE REVIEW .................................................................................. 7 2.1. Different forms of corporate sourcing of renewable energy .................................................... 8 2.1.1 Direct investment in production for self-consumption (also called corporate ownership) ................................................................................................................................... 8 2.1.2 Renewable energy offerings from utilities or electric suppliers .................................. 9 2.1.3 Power Purchase Agreements (PPAs) ........................................................................ 12 2.1.4 Energy attributes certificates (EACs) or renewable energy certificates (RECs) ....... 16 3. METHODOLOGY .............................................................................................. 21 4. EACS’ CHARACTERISTICS ...................................................................... 23 4.1 Compliance EACs market ................................................................................................. 23 4.1.1 Mandatory EACs utility: The case of Lebanon ......................................................... 24 vii 4.1.2 Egypt ......................................................................................................................... 25 4.1.3 Indonesia ................................................................................................................... 27 4.2 Voluntary EACs markets .................................................................................................. 29 4.2.1 Impact of environmental initiatives on the EACs market ......................................... 31 4.2.2 Criticism of voluntary EACs ..................................................................................... 39 5. EACS IN LEBANON ........................................................................................ 52 5.1. The carbon market............................................................................................................. 52 5.1.1 Relationship between EACs and carbon trading ....................................................... 55 5.2 The International Renewable Energy Certificates (I-RECs) standard .............................. 57 5.2.1 Conditions to become an issuer ................................................................................. 60 5.2.2 Potential issuers ......................................................................................................... 63 5.2.3 The standard’s point of view in relation with the EACs critics ................................ 65 5.3 Corporations’ awareness ................................................................................................... 68 5.4 Voluntary EACs market aspects ....................................................................................... 75 5.4.1 The commercial sector and its corresponding renewable energy policies ................ 75 5.4.2 Eco-labelled certificates ............................................................................................ 76 5.5 Renewable energy potential .............................................................................................. 79 5.5.1 Solar potential ........................................................................................................... 79 5.5.2 Wind potential ........................................................................................................... 80 5.6 Different aspects of the I-RECs market in Lebanon ......................................................... 81 5.6.1 Market stability ......................................................................................................... 82 5.6.2 EACs supply and demand ......................................................................................... 83 5.6.3 Price setting process .................................................................................................. 88 5.6.4 Legislation ................................................................................................................. 91 6. ESTABLISHING THE I-RECS MARKET IN LEBANON ......... 92 6.1 Legitimacy .......................................................................................................................