Energy, Climate and Sustainable Development CD4CDM Final Regional Workshop Asian Institute of...

Energy, Climate and Sustainable Development

CD4CDM Final Regional WorkshopAsian Institute of Technology

Bangkok, Thailand

19-21 October 2005

DNA Practicalities in CDM Project Approval Latin American Experience

Miriam HinostrozaUNEP Risoe Centre on Energy (URC)

Denmark


Content

• Institutional Structure• Project approval process• Sustainable development

criteria• CDM and SD in LA


Institutional structure Ecuador

Regulation Promotion

Project assessment& approval

National registry &Project reporting Technical & commercial

assistance

Capacity building

Informationdissemination

Policy - making

Strategic research & studies

Priority projectportfolio

CDM NationalAuthority (DNA)

Ministry for Environment

CDM Promotion Officeseparate public-private entity

presided by Ministry for Environment


Advantages • Separation of regulatory and promotion functions

• Separation of functions enables to better address development of a heterogeneous range of new capacities and skills

• CDM institutional arrangements have been agreed on by the National Climate Change Committee (NCCC). – The Board of Directors of CDM Promotion Office includes members from the

public, private & NGO sectors.

– The Ministry for the Environment is the DNA, but operates under overall guidance of the NCCC.

• DNA and CDM Promotion Office are small technical units with clear-cut responsibilities.


Disadvantages • Financial sustainability of CDM entities is not granted. • Permanence of installed capacities:

– DNA officials are not exclusively dedicated to CDM and still depend on technical assistance provided by consultants.

– CDM Promotion Office officers are consultants hired by technical cooperation programmes.

• Political instability at the M for the E affects working environment at the CDM Promotion Office (regardless its public-private nature).

• CDM Promotion Office will have to address new challenges in accordance to evolution of international emissions market.


Ecuadorian DNA

Evaluation & Approval Mechanism

DNA(Ministry for Environment)

Follow up & National Registry

Inclusion of CDMin sectoral plans

Legal Framework for carbon trade


Project Approval Process


Approval Process: Advantages• Cost-efficiency:

– Evaluation fee expected to be symbolic

• Time-efficiency: – The approval process is designed to be a streamlined process.

in less than 20 working days

• Submission of PDD is requested: – Project participants and DNA will benefit of dealing with a

consolidated project proposal.


Approval Process: Disadvantages• Request of EIA, regardless of applicable law

• Subjectivism

• Pending legal issues related to CDM

• Presumption: ‘legal framework & development plans are congruent with national sustainable development objectives’: Current evaluation criteria are based on the referred presumption.

• Lack of project-specific SD assessment of proposed project activity


Institutional Structure - BoliviaMinistry of Sustainable

Development

Vice-ministry of Natural Resources and Environment

(DNA)

Nacional Program of Climate Change Clean Clean

Development Development Office (ODL)Office (ODL)

Projects Evalutaion

Commission

Inter-institutional Council of Climate

Change


Institutional structure: weaknesses• ODL - CDM promotional office has several roles:

– Evaluation– Technical assistance to the DNA, and – Promotion of the CDM

• There is conflict of interests - the office is at the same time judge and part

• Needs to be restructured to have separate teams: one for evaluation, one for support

• Resources?


Project Approval Process - BOLIVIAProject Proponent ODL DNA

PDD

Gets the non-objection note

Technical Support Recommendation

to DNA

Presents to the DOE

Approval

Issuance of letter of approval


Approval Procedure - Advantages

• Cost-efficiency – There is no evaluation fee.

• Time-efficiency: – The approval process takes 15 working days


SD and the CDM• Two-fold objective of the CDM:

– assist Annex I parties in achieving compliance with their quantified emission limitation and reduction commitments…

• helping to reduce compliance costs– …and assist non-Annex I parties in achieving

sustainable development• involving clean technology transfer• investments flows from north to south


The Role of DNAs• Host party’s prerogative to ‘confirm whether a CDM

project activity assists it in achieving sustainable development’

• DNA has a key role in securing local development benefits of CDM projects.

• SD assessment of CDM projects is an opportunity for DNA to evaluate key linkages between national development goals and CDM project interventions


Sustainable development What to sustain?

• SD is about shifting carbon based energy economies to be more dependent on renewable energy sources

• CDM is an instrument that promotes technology innovation– Increment of EE in productive uses and final consumption

– Changes in consumption structures

– Introduction of new processes and energy transformation equipments

– Alteration in agricultural practices and LU patterns


SD Context

• National development plans• Sectoral plans• WSSD – Agenda 21• Country’s Strategy for Poverty

Reduction - PRSPs• MDGs


SD criteria• The most challenging issue for DNAs

• Most LA countries have adopted the checklist approach, to check:– Principles

• Accomplishment of national/sectoral legislation

• Contribution, relevance and coherence with national development policy

• Contribution to improve long term social and economic wellbeing of local communities

• Implementation of cleaner production systems


SD criteria– Requirements

• Certification of non-environmental sectoral legislation accomplishment applicable to the project

• Environmental Permits according to current legislation

– Criteria

• Description on how the project contributes to long term development objectives and coherency with national, regional, local and sectoral policies and strategies


SD criteria for CDM projectsEconomic Criteria:

• Reduce economic burden of energy impor ts, provide financial returns to local entities,

• positive impact on Balance of Payments,

• technology transfer, • generate employment,• sound financial

Costs/cost-effectiveness

Social Criteria: • increase equity • reduce poverty • improve quality of living • increase energy access

gender issues • Health• education and training• legal framework• Governance• information sharing

Environmental Criteria: • GHG emission reductions, • local environmental

benefits, related to e.g. air pollution, water, soil, waste

• use of exhaustible resources

• use of renewable resources

• biodiversity


SD and current CDM projects

• What kind of projects should CDM be financing?

– projects that help in the long-term transition of developing country energy sectors towards RETs


Projects in the pipelineSource: J.Fenhann, URC – 16-09-05

Type of Projects Number of Projects 2012 kCERsHydro 40 11.2%Biomass energy 35 13.2%Agriculture 27 0.8%Landfill gas 21 16.6%Fossil fuel switch 5 0.3%Wind 3 2.3%Energy efficiency, industry 2 0.6%Geothermal 2 2.2%Biogas 1 0.1%Energy distribution 1 0.2%Fugitive 1 1.6%HFCs 1 21.5%N2O 1 29.4%Latin America - Total 140 100.0%


Projects in the pipeline in LASource: J.Fenhann, URC – 16-09-05

Note: The renewables category only includes hydropower projects below 10MW

Type of Projects Number of Projects 2012 kCERsRenewables 81 29.0%Energy efficiency 3 0.8%Fuel switch 5 0.3%CH4 reduction 49 19.0%HFC & N2O reduction 2 50.9%Latin America - Total 140 100.0%


Current status of the CDM Source: J.Fenhann, URC – 16-09-05

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

% Number of Projects % 1000 CERs


Is CDM ‘working’?

• CDM is working perfectly in that it is directing funding to projects delivering big volumes of CERs at the least cost.

• Current prices seem to grant cost-efficient emission reductions for Annex I parties


Is CDM promoting SD?

• Is it promoting renewables and thus assisting in the transition away from fossil fuels?– CDM is not 'working', in that it is not driving SD and not funding

renewables

• CDM is a market = commanded by the least cost approach

• CDM is not a development fund

• CDM is not renewables promotion mechanism


Balance of two objectives of the CDM

• Lax additionality requirements increase availability of cost-efficient emission reductions.

• On the other hand, carbon prices likely to rise if strict sustainability criteria were globally applied in host parties.

• Absence of (internationally agreed) sustainability standards plus competition in the CDM supply side is resulting in a trade-off for the cost-efficiency objective.

• Additional SD benefits by paying a premium for the credits


The potential of the CDM• SD not merely a requirement of the CDM. It

should be seen as a main driver:– SD criteria are a sovereign matter to be determined

by host countries– National authorities can use SD assessment of CDM

projects to evaluate key linkages between national development goals and CDM with the aim to select and design projects in a way, where they exploit, create and maximise local development synergies.


Challenges

• There is a role of DNAs - and of other local stakeholders– Develop market niche for ‘high quality’ CERs

(particularly relevant for marginal suppliers)– credibility of the CDM system & the host country– fundamental elements of a national/regional marketing

strategy


Conclusive remarks• Contribution of projects to SD is not yet assured. • Demand preferences on financially sound

business-as-usual projects • CDM is a technology neutral mechanism • Reduced interest for projects that have additional

environmental and social benefits but that need financial returns from carbon finance market to get implemented

Energy, Climate and Sustainable Development CD4CDM Final Regional Workshop Asian Institute of...

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