DEHSt Side Event The CDM Sustainable Development Tool – Assessment and Options for Improvement 27...

DEHSt Side Event The CDM Sustainable Development Tool – Assessment and Options for Improvement27 May 2015, 15.30-16.30, Room 11, Level 0, Carbon Expo, Barcelona

Christof ArensWuppertal Institute Project Co-ordinator

Karen Holm OlsenUNEP DTU PartnershipSenior Researcher

Seite Wuppertal InstitutSlide Wuppertal Institute

Outline of side event

Aim:

Presenting and discussing findings from recent study „Analysis and

Evaluation of the Usability of the CDM EB’s SD Tool“ Commissioned by German Emissions Trading Authority Conducted by UNEP DTU & Wuppertal Institute

Agenda:

Presentation of the study: Karen Hom Olsen, Christof Arens Reaction from panelists: Ulrika Raab, Edwin Aalders, Niclas Svennigsen Discussion / Interactin with audience

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Structure of project & the presentations today

Step 1:

Assessing Sustainable Development (SD) provisions of

selected mitigation mechanisms and comparing them with the

CDM SD tool (Arens)

Step 2:

Literature review and interviews with stakeholers on usability of

the SD tool (Olsen)

Step 3:

Synthesis and recommendations (Arens)

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Step 1: Comparing SD provisions of selected mitigation mechanisms

Literature review on best practice approaches and methods

Selection of 8 approaches to Sustainability assessment for

comparison:

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Methodology

Definition of three initial assessment categories with corresponding criteria in large matrix

Synthesis of information Condensation into four final overarching

categories:

–Scope

–Type of assessment

–Review and evaluation

–Stakeholder consultation framework

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Findings of first working step

Scope

Assessment types

Monitoring and evaluation

Stakeholder processes

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Scope

Project-based approaches assess sustainability in narrow boundaries (logic of carbon offset projects)

Safeguards of the MBS: very wide assessment boundaries due to need to assess positive and negative effects of high variety of intervention types

Focus on limited number of projects types facilitates development of stringent methodologies and indicators

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Assessment Types

All except SD tool: assessment of co-benefits as well as co-costs Scoring approaches are a common method to gauge the degree of

positive/negative contributions of an activity Exclusion criteria (e.g. negative/positive lists) also common Assessment of effects on SD frequently through check lists pre-defining

parameters and criteria (SD tool approach especially noteworthy)

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Measuring & Evaluation, Stakeholder Processes

Common: ex-ante assessment of expected impacts, monitoring of activities over project duration

Some approaches, e.g. GS, require independent validation MDBs: continuous monitoring, environmental and social management systems

(risk category 1) Others: larger gaps between monitoring activities

e.g. NAMA SD tool: three-year intervals Stakehoder processes integral part of most analyzed approaches – local but also

global Grievance mechanisms mandatory in MDB safeguards (individual appeals possible in

certain cases) CCB and GS require independent mediators for arbitration processes

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Summary

highly differentiated requirements for SD assessment SD Tool in its current form quite limited Shortcomings:

no coverage of negative impacts, missing safeguards no monitoring & evaluation no stakeholder requirements, grievance mechanism

Inclusion of these elements could strengthen CDM as a whole

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Step 2Usefulness of the CDM EB SD tool


Outline:

Objective, methods and data Synopsis of literature reviewed Interview findings Usability of the CDM EB SD tool - Synthesis

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Objective, methods & dataObjective: To assess the appropriateness of the EB’s voluntary SD tool against host country needs for sustainability assessments of CDM projects and other user perspectives incl. how the SD tool may assist DNAs, project proponents and buyers in broadening consideration for SD

Methods: The work package comprises three steps: 1) Literature review of DNA and SD tool user practices for SD assessment of CDM projects, 2) Interviews with selected host country and project proponent’s experiences and needs for using the EB’s SD tool and for sustainability assessment of other mitigation actions, 3) Assessment and analysis of survey results and literature with regard to host country needs and difficulties

Data: Out of 377 peer-reviewed articles on the topic of ‘CDM and sustainable development’ found in the Web of Science by January 2015, the review covers 18 studies incl. technical and policy papers focusing on the subset of articles on governance of the CDM’s contribution to SD and particularly the role of host country DNAs. Eight in-depth interviews were conducted in the period December 2014 and January 2015 with four DNAs (Brazil, China, Uganda and Cambodia), three project developers (Norway, Chile, Switzerland) and one buyer (Government of Sweden)

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Synopsis of literature reviewed

Three issues: 1)State of knowledge on the CDM’s contribution to SD:

• Key challenges are: 1) The lack of a common definition of what sustainable development means, which makes it hard to measure and compare SD impacts across countries in an objective manner; 2) The trade-off between the two objectives of the CDM known as a ‘race-to the-bottom’ where competition among host countries for CDM investment creates an incentive to lower the SD standards to attract investment

• The High-Level Panel of the CDM Policy Dialogue in 2012 concluded that ‘it is not possible to reach a definitive conclusion on the sustainable development impacts of the CDM to date, given the insufficiency of objective data’ (Dialogue 2012)

2)Governance of the CDM’s contribution to sustainable development • A project-by-project approval of SD in CDM projects is the most widely used approach. Overall, three

types of approaches exist: 1) Assessment based on checklists and SD criteria; 2) A fund for sustainable development based on taxes and levies differentiated by project types and 3) Certification of projects according to an international or national standard for SD assessment (Koakutsu, Tamura et. al., 2012)

• The market demand for labelled credits is directly related to evidence suggesting ‘that host countries are failing to ensure SD benefits of CDM projects’ (Parnphumeesup and Kerr 2011).

3)Evaluation of the EB’s SD tool• An evaluation of the use of the tool was carried out in July 2014 with a survey being sent to 4,626

stakeholders (UNFCCC, 2014). The SD tool is found to meet its objective as a voluntary measure to highlight the co-benefits of CDM activities, while maintaining the prerogative of Parties to define their national sustainable development criteria.

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Interview findings (1)

Uganda (DNA) China (DNA) Cambodia

(DNA)

Brazil (DNA) Sweden (buyer) Green Development, Norway (PP)

Enaex, Chile (PP)

South Pole, Switzerland

(PP)Experience with SD assessment of CDM projectsWhat SD criteria are used?

Checklist No SD criteria Checklist Checklist Prioritisation of EE, RE & biogas/

methane projects. No SD criteria

DNV-GL Global Carbon Development Benefits Standard (draft)

SD criteria defined by the company

Host country SD criteria

How is the LoA decision/SD assessment made?

Ranking of SD criteria/Inter-ministerial committee

Compliance with eligibility criteria/Inter-ministerial committee

Scoring/Inter-ministerial committee

Assessment/Inter-ministerial committee

Due diligence based on draft EB CDM SD tool incl. safeguards and LSC procedures

Methodologies are developed for quantifying development benefits

Use of EB SD Tool and LoA obtained from DNA

PoA-DD the basis of LoA

Is there interest and capacity to monitor and verify SD claims?

Yes, but little capacity

No interest N/D Yes, sector ministries follow up, not DNA

Yes, SD tool is sent to PPs and SDC report for site visits & follow-up

Yes, SD benefits to be certified and sold in their own value or internalized in the CER price

Yes, the company will follow up on SD impacts

The company is client driven, so only if clients demand follow-up and will pay it

Is there a need for safeguards against negative impacts?

Guidance needed

Yes, other agencies take care of this

N/D No, safeguards and LSC are part of EIA

Yes, focus is to avoid negative impacts

No, too costly. LSC do not add value

No, we use ISO certification 1909 for quality assurance

N/D

Are there additional requirements for approval?

EIA is required except for clean technologies

EIA, oral presentation, tax, 49/51 rule, licences, ERPA

EIA is required for some projects

EIA, validation report, LSC procedures. Example of LoA withdrawn

Draft SD tool is used to structure the due diligence /SD assessment

DNAs should not be involved due to low capacity & risks of corruption

DNA Chile does not have SD criteria and do not follow up after LoA

LSC were important to DNA

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Uganda (DNA) China (DNA) Cambodia(DNA)


Enaex, Chile (PP)

South Pole, Switzerland(PP)

Experience with use of the SD toolHas the SD tool been used?

No No, there is no dialogue between PPs using the tool and DNA China

No No Yes, the draft EB SD tool is used incl. safeguards and LSC guidance

Yes, SDC report submitted to UNFCCC



What is the general view of the tool?

Very useful Not useful to China

Useful to PPs Not useful to Brazil, only to PPs

Very useful, but strong weaknesses

Very useful, but too simple. Quantification is needed

Very useful and clear

Useful, it goes into a lot of detail without quantification

Is the tool a simplification or additional effort?

Simplification N/D N/D Simplification Simplification Simplification Simplification Simplification

Options to expand use of the tool

SDC report useful for local stakeholder consultations

Could be useful in China’s national carbon trading system

Strengthen LSC procedures

No role for the tool in relation to national SD criteria

Address risks of negative impacts, LSC & safeguards for HRs. SDC report to be published with validation and verification reports

Extend use of the tool for standardization across countries

SD tool useful for other projects in the company, not only CDM

Quantification based on UNFCCC guidance, requirements for validation and verification of SD claims

Should the tool be mandatory for PPs to use?

Yes, this is being considered for issuance of LoA

No, voluntary only

N/D No, voluntary only

Yes, it gives transparency to the market

No, not all projects need it

Yes, it makes sense to MRV SD benefits

No, we only responded to a client request

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Uganda (DNA) China (DNA) Cambodia(DNA)


Enaex, Chile (PP) South Pole, Switzerland(PP)

Relevance of the SD tool beyond CDMIs there a need for quantification and monetization of SD co-benefits?

Yes No, PPs should not do more work

Maybe, but it requires more effort

Yes, this is tough. Countries must do it, a study is ongoing

No, qualitative assessment is sufficient, so far

Yes! Yes, it would be useful to get a holistic perspective on the project

Yes

Can the tool enhance domestic dialogues on SD?

Yes, SD criteria reflect macro-economic priorities

No N/D N/D Yes, the tool can enhance the credibility of CDM projects

Yes, the tool can strengthen domestic SD assessment

Yes, it would be useful for DNA if they gave us a uniform report format

Yes, it could greatly enhance the value of mitigation actions

Can the tool assist to harmonize SD efforts across mitigation mechanisms?

Yes, expanded to a NMM/FVA and NAMAs for harmonized reporting

Yes Yes, SD assessment across mechanisms should be similar

N/D Yes, the tool could harmonize SD assessment across countries for transparency

Yes, we need a common standard across mitigation mechanisms

Yes, any tool to harmonize across mechanisms would be useful

Yes, the SD tool framework is broad enough to compare across mechanisms

Is there an interest in certification of SD co-benefits?

Yes, Gov. of Uganda should do certificates based on an international standard

No Yes, a national standard would be best

N/D Yes, if good enough. The Gold Standard is a commercial tool to enhance price

Yes, a global standard incl. quantification of development benefits

Yes, third party validation and verification can show SD efforts to the world in a valid way

Yes, interest is there from the market (buyers) and from government (NAMAs)

Can human rights be strengthened through the SD tool?

Yes N/D Yes No, HRs issues are taken care of nationally

Yes, but not through DNAs

Yes, but this is political. Projects should not document compliance with HRs

The company uses the ‘UN Global Compact’ to document respect for HRs

Yes, safeguards for HRs would be useful but not demanded by clients

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Usability of the EB SD tool – a synthesis

The SD tool is not directly useful to DNAs, as it is meant for PPs to use Yet, the UNFCCC evaluation (2014) found that most DNAs plan to refer to the

tool, when conducting SD assessment for approval of CDM projects at national level (92%)

The tool is similar to the checklist approach of most host countries. It does not give an international definition of what SD means but facilitates a structured comparison that respects Parties’ prerogative to decide on national priorities

From the interviews and the literature review there is a clear, emerging interest to follow-up that SD claims are met

From the perspective of users of the SD tool, all interviewees find it very useful and simple as a standardized, qualitative approach to SD assessment. However, a number of weaknesses are identified, particularly avoiding negative impacts and attracting a premium price for carbon credits with high sustainable development benefits

Comparing user needs with host country DNA practices for SD assessment, national standards fall short of meeting expectations in the premium market

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Relevance of the SD tool beyond CDM

Overall, SD tool experience can be relevant to CDM and other mitigation actions in three ways:

1)Strengthened standards for SD assessment at the international level

2)Enhanced national standards for SD assessment based on the SD tool, e.g. by making it mandatory at national level for PPs to use the tool for issuance of LoAs and by including the SDC report as a basis for local stakeholder consultations, and

3)Market players could seek certification of SD impacts of mitigation actions based on the tool being further developed in line with general requirements for results-based finance applicable beyond CDM

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Step 3Conclusions and Recommendations


Methodology of Step 3

Matrix with different ‘offers‘ of SD assessment in different approaches (Step 1) SD reporting ‘needs‘ voiced by practitioners in the interviews (Step 2)

Recommendations in two consecutive levels: Level 1: Improvements to the SD tool Level 2: Enhancement of the SD tool

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Matrix matching „needs“ & „offers“

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Level 1 Recommendations (Amendments)

Introduce no-harm safeguardsAssessing negative impacts, p.ex. based MDGs

Develop monitoring and reporting guidelines Optional since EB82 – thorough guidance, separate from GHG monitoring

Introduce 3rd Party validation and verification of SD claims Enhancing credibility of SDC reports; separate from GHG assessment

Link enhanced stakeholder requirements to the CDM SD toolUse SDC reports as basis; combine with option for grievance mechanism

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Level 2 Recommendations (Enhancements)

Introduce UNFCCC certification of SD co-benefits - Meet interest in national certification (see Thailand); - Develop UNFCCC certification framework for DNAs with low capacity

Create a global standard for quantification of SD co-benefitsEstablish a value as basis for willingness to extra payment

1. Develop a global approval standard for quantification methodologies, 2. Allow PPs and others to develop methods for SD co-benefits

quantification compatible with their needs, and 3. Assign an institution (e.g. Meth Panel) for the approval procedure

of these methods

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Outlook

Enhanced CDM SD tool can set robust standards beyond CDM Linking and harmonization with emerging mechanisms (NMM, NAMAs...) Not only Carbon, also development relevance (Sustainable Development

Goals)

Globally harmonized SD assessment has multiple benefits:

Comparable across mechanisms Mainstreamed into national development planning Integrated into national performance measurement Ensures compliance with international requirements (e.g. GCF)

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Thank you!

For more information, please contact the project team:Christof Arens

Karen Holm Olsen

Florian Mersmann

Joergen Fenhann

Frederic Rudolph

Miriam Hinostroza

Christiane Beuermann

Fatemeh Bakhtiari

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DEHSt Side Event The CDM Sustainable Development Tool – Assessment and Options for Improvement 27...

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