Cost assessment of capacity building requirements for market mechanisms 10 March 2010 Dr. Niklas...

Cost assessment of capacity building requirements for market mechanisms

10 March 2010

Dr. Niklas Höhne, Ecofys, [email protected]

Linking developing countries to carbon markets

Recent Ecofys activities

• Identification of NAMAs and using templates to make NAMA proposals

• Testing “sector proposal templates”

• Electricity, transport, cement, iron & steel

• Tested in China and Mexico

EcofysGtriple C (Murray Ward)

www.sectoral.org


Aim of this study

• Analysis of the capacity building needs and the related cost for non-Annex I countries to reach a level of capacity that allows a successful implementation of mechanisms that link to the global carbon market

Linking developing countries to carbon markets - Cost assessment of capacity building requirements

Marion Vieweg, Claudia Doets, Marta Torres, Sina Wartmann, Padraig Oliver, Deniz Yener, Edgar Cruz, Edwin Dalenoord, Nuria Valero Esteban

Ecofys for UK Office of Climate Change, April 2009 http://www.decc.gov.uk/en/content/cms/what_we_do/change_energy/tackling_clima/emissions/emissions.aspx


Method

1. Design 3 scenarios of countries’ participation (from CDM to national ETS)

2. For 7 representative countries: capacity gap = capacity needs – existing capacity

3. Calculation of costs to overcome capacity gap

4. Scaling up country results to regions


Capacity needs

CDM

• Install a Designated National Authority (DNA)

• Define of sustainable development criteria

• Implement a one stop shop for project developers

• Prepare CDM investment guidance

• Develop enterprises in the CDM service sector


Capacity needs

National emission inventory

• Preparation of national emission inventory

• Design of legal frameworks to collect, store and verify data

National emission trading system

• Assigning coherent targets to sectors and within sectors to specific installations/operations

• Development of guidelines for monitoring, reporting, verification, enforcement and compliance

• Development of registry of transactions

• Making the business community aware

• Legally embed trading rules


Activities CDM

• Inventorise sustainable development criteria used in the country including localised MDG targets

• Scan of sustainable development criteria of neighbouring countries

• Workshop with local experts in economic and social development and environmental protection

• Proposal on sustainable development criteria setting by experts

• Government decision


Institutional readiness trading system• Explorative study on how to enlarge trade registration responsibilities of

entity(ies)

• Government decision to assign trading registration to a national entity including necessary licenses

• Propose a structure for the registry, governance of the registry and accreditation for verifiers, anticipating connection to the international trading log

• Build and maintain registry

• Formally set accreditation standard for local verifiers organisations

• Organise training on accreditation for local service providers

• Organise training on restrictions and opportunities of cap and trade system for business community

• Evaluate system operations after a year and come up with suggestions for improvement

• Adjust the registry, governance and accreditation structures


Example: Chile

Existing capacity

•CDM

•National communication

•Sectoral responsibilities

•Analytical capacity

Capacity needs

•Company level reporting, review and verification of GHG emissions

•National inventory

•National target setting across ministries


Linking scenarios

1. Assumptions

2. Methodology

3. Results

Country groups CDM classic+ Sectoral CDM Sectoral crediting National targets(no ETS)

National targets (ETS)

Scenario 1: Low ambition

Nearly industustrialised X

China X

Upper middle income X

Lower middle income X

Low income X

Scenario 2: Medium ambition


China X



Low income X

Scenario 3: High ambition


China X



Low income X

Country groups CDM classic+ Sectoral CDM Sectoral crediting National targets(no ETS)

National targets (ETS)

Scenario 1: Low ambition


China X



Low income X

Scenario 2: Medium ambition


China X



Low income X

Scenario 3: High ambition


China X



Low income X


Cost by country group


ConclusionsCosts

• First rough estimate of capacity building needs: 1 to 5 bln US$

• Most costs in the many higher middle income countries

Capacity gap

• Already high capacity for CDM, especially in the more developed and larger countries

• National emission trading requires substantial further capacity, but very country specific

• Low income countries, capacity building for CDM relative low cost per country

Important factors influencing the costs

• Scope of capacity building – fine line between CB and implementation

• Assumption on the effectiveness: here ideal situation, maximum effectiveness

• Scaling up from countries to regions

• Non-capacity related barriers: Political will, stability, access to finance

Full report: http://www.decc.gov.uk/en/content/cms/what_we_do/change_energy/tackling_clima/emissions/emissions.aspx


Backup slides


Assumptions• International agreement facilitates different linking options

• Sufficient political will for the implementation of linking options

• Funding for capacity building is available (in time and amount)

• Training capacities are available (in time and amount),

• Private investment and capacity building in support sectors (e.g. financial institutions, law firms) is mainly covered from the private sector

• Capacity on international level (governance structures, UNFCCC) are not considered

• Political stability in the countries has no negative impact on implementation

• REDD is NOT included

• No assumptions on methodological approach to capacity building


Methodological assumptions• Reference countries are representative for the whole group. The

whole group adopts the linking option as defined in the scenarios.

• Implementation of options, especially sectoral and national targets, is carried out in a way that does not give perverse incentives.

• Institutions in a sectoral approach are designed in a way to enable easy transition to a national scheme.

• Different options for implementing sectoral / national targets are not calculated, but the general capacity to implement sound implementation policies is evaluated.

• No assumptions on methodological approach to capacity building

• All calculations are in current US$1. Assumptions

2. Methodology

3. Results


Cost by country group

1. Assumptions

2. Methodology

3. Results

0

20

40

60

80

100

120

140

160

180

Nearlyindustrialisedcountries (3)

China Upper middleincome (71)

Lower middleincome (52)

Low income (49)

Av

era

ge

co

st

in M

io U

S$ Low ambition

Medium ambition

High ambition

(number of countries within the group in brackets)


Cost by cost category

1. Assumptions

2. Methodology

3. Results

0

100

200

300

400

500

600

700

800

900

1000

Measure andmonitor

Reporting Verification Policy /Legislation

Enforcing

To

tal

cost

in

Mio

US

$

Low ambition

Medium ambition

High ambition


Total cost per scenario

1. Assumptions

2. Methodology

3. Results

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Low ambition Medium ambition High ambition

To

tal c

os

t in

Mio

US

$

Low income (49)

Lower middle income (52)

Upper middle income (71)

China

Nearly industrialised countries (3)


Costs for example countries


General methodology

Definition of reference countries

Definition of linking scenarios

Capacity needs assessment

Existing capacity analysis

Capacity gap

Cost assessmentGroup of countries

Possible data load

Current capacity on MRV

Funding efforts needed it

from public institutions

from private sector

Nearly-industrialised

(ranges)

advanced developing

low income developing

Section 2

Section 5

Section 6

Section 7

Country

Scaling up

Cost assessment methodology

1. Assumptions

2. Methodology

3. Results

Section 4 Section 3


Timeline

• Scenarios are selected for 2020

• Capacity need is assessed as overall cost to bring countries to a defined capacity level

• Time lines are only considered qualitatively (e.g. assessing if the capacity building can realistically be achieved by 2020)

1. Assumptions

2. Methodology

3. Results


Categories of countries

Nearly industialised

(3)

China

(1)

Upper middle income

(71)Lower middle income

(52)

Lower income

(49)1. Assumptions

2. Methodology

3. Results

Develo

pin

g c

ou

ntrie

s


Reference countries

Nearly industialised

(3) Turkey

China

(1) China

Upper middle income

(71) ChileLower middle income

(52)Sri LankaLower income

(49) Ghana1. Assumptions

2. Methodology

3. Results

Develo

pin

g c

ou

ntrie

s


Assessing the capacity need

From the starting point of a successfully used mechanism we derived:

• Indicators and linked activities into packages to build the required level of capacity

• A questionnaire with the indicators was filled in by the country experts

• Based on the questionnaire the relevant packages profile of each reference country was defined

1. Assumptions

2. Methodology

3. Results


Cost assessment for reference countries

Estimate of cost factors

Packages per cost category

Cost categories

Cost factors

General definitions Cost assessment per reference country

Existing capacityRelevant capacity Indicator of success (formulated as question) Answer

a Assign focal point UNFCCC Is there a registered UNFCCC focal point in the host country? (check www.unfccc.int)

Yes No no

b Set-up legal entity (DNA) including technical committee screening the proposals and steering committee safeguarding consistency between ministeries

Is there a registered DNA at UNFCCC for the host country? (check www.unfccc.int)

Yes Informal/partly

No no

c Define sustainable development criteria to which all CDM projects have to adhere, based on national legislation and policy

Are host-country specific Sustainable Development criteria publicly available? (check site of Ministry of Environment, assigned DNA organisation, google if there is a separate DNA website)

Yes No no

d Are the CDM project approval procedures of the DNA publicly available? (Check DNA website)

Yes No no

How many projects are approved already by the DNA?(check DNA website and make telephone call to DNA)

>5 1 to 5 0 0

Set approval process supervised by the DNA, define fees, response times, create templates

Score

Cost per package

Packages needed per scenario per cost category

Total cost per scenario per cost category

Estimate of cost factors

Packages per cost category

Cost categories

Cost factors

General definitions Cost assessment per reference country

Existing capacityRelevant capacity Indicator of success (formulated as question) Answer

a Assign focal point UNFCCC Is there a registered UNFCCC focal point in the host country? (check www.unfccc.int)

Yes No no

b Set-up legal entity (DNA) including technical committee screening the proposals and steering committee safeguarding consistency between ministeries

Is there a registered DNA at UNFCCC for the host country? (check www.unfccc.int)

Yes Informal/partly

No no

c Define sustainable development criteria to which all CDM projects have to adhere, based on national legislation and policy

Are host-country specific Sustainable Development criteria publicly available? (check site of Ministry of Environment, assigned DNA organisation, google if there is a separate DNA website)

Yes No no

d Are the CDM project approval procedures of the DNA publicly available? (Check DNA website)

Yes No no

How many projects are approved already by the DNA?(check DNA website and make telephone call to DNA)

>5 1 to 5 0 0

Set approval process supervised by the DNA, define fees, response times, create templates

Score

Cost per package

Packages needed per scenario per cost category

Total cost per scenario per cost category

1. Assumptions

2. Methodology

3. Results


Costing the capacity need

• Packages were broken down to specific needed inputs (cost factors). These different inputs were given a cost price for each reference country

• This way a price per package was derived per reference country

• The price per package was multiplied with the package profile per reference country to derive the total cost per country

1. Assumptions

2. Methodology

3. Results


Structure of packages

Package One package capacity building would include

Number of units

Unit costs in reference country (in €)

Total costs

PeopleTravel (int) Travel (nat)

Communi-cation

Office/venue cost

Campaign support

Senior specialised technical advisor 1 800 800 800

Senior technical advisor 3 400 1,200 1,200

Days of technical advise 5 200 1,000 1,000

Days of junior technical advise 20 75 1,500 1,500

Communication cost 1 150 150 150

Travel cost 1 2,250 2,250 563 1,688

Office/venue costs 1 1,000 1,000

Campaign support 1 1,000 1,000 1,000

Total 8,900 51% 6% 19% 2% 0% 11%

Measure and monitor

Package structure is the same for all countries adjustment for China

Cost factors are country

specific1. Assumptions

2. Methodology

3. Results


Scaling up to country groups

• Cost for each resource category are corrected per country within the group compared to the reference country through :

Skilled labour GDPTravel national Country AreaTravel international Fixed per countryCommunication Average SalaryOffice/Venue use Average SalaryCampaign GDP

1. Assumptions

2. Methodology

3. Results

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