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Southeast Asia: Lessons learnt from CDM experience in the region South East Asian Regional ECBI Workshop Dhaka, 8. August 2006 Matthias Krey, Perspectives GmbH [email protected]. [email protected] www.perspectives.cc. Background. Goals: - PowerPoint PPT Presentation
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[email protected] www.perspectives.cc [email protected] www.perspectives.cc Southeast Asia: Lessons learnt from CDM experience in the region South East Asian Regional ECBI Workshop Dhaka, 8. August 2006 Matthias Krey, Perspectives GmbH [email protected]
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Page 1: krey@perspectives                          perspectives

[email protected] [email protected] www.perspectives.cc

Southeast Asia:Lessons learnt from CDM experience

in the region

South East Asian Regional ECBIWorkshop

Dhaka, 8. August 2006

Matthias Krey, Perspectives GmbH

[email protected]

Page 2: krey@perspectives                          perspectives

[email protected] www.perspectives.cc

Background

Goals:• Draw lessons from promotion of CDM outside the rapidly industrialising countries

• Develop recommendations to enhance opportunities for poorer developing countries to benefit from the CDM

• Surveyed countries: Lao, Cambodia, Vietnam, Thailand, Malaysia, Singapore, Phillipines and Indonesia

Involved Institutions:• Hamburg Institute of International Economics (HWWI)

• PT Pelangi Energi Abadi Citra Enviro (Peace Reasearch and Advisory)

Page 3: krey@perspectives                          perspectives

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Overview

• Theoretical CDM potential in ASEAN

• ASEAN‘s share in the CDM

• Procedures, resources and outreach of DNAs in ASEAN

• CDM Capacity Building in ASEAN

• Recommendations for promoting CDM participation of low-income countries

Page 4: krey@perspectives                          perspectives

[email protected] [email protected] www.perspectives.cc

Theoretical

CDM project potential in

ASEAN

Page 5: krey@perspectives                          perspectives

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Methodology

Factors that influence a country’s CDM perspective

• Theoretical scope of emission reductions • Country business climate• Country CDM institutions and CDM project experience

Result: Overall competitiveness level for each country

Page 6: krey@perspectives                          perspectives

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Potential supply

Cambodia and Lao: • Potential for small scale CDM projects like mini- and micro hydro, small municipal and agricultural waste, as well as energy efficient appliancesVietnam:• Only limited number of projects with high quality and quantity CERs (EE in industry, power and households as well as RE)

Indonesia, Malaysia, The Philippines, Singapore and Thailand• High potential in energy and energy efficiency sector • Indonesia ranking first before Malaysia and Thailand• All countries except for Singapore are developing countries and are still distant to sustainable development practices

Page 7: krey@perspectives                          perspectives

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Country investment climate – FDI Inflows

FDI Inflows• Cambodia: heavily reliant on foreign assistance, troubles attracting FDI (unreliabel local government)• Lao: totally dependent on foreign aid, extremely difficult to attract FDI (poor investment climate, primitive infrastrucutre), but FDI in sector for hydropower schemes likely • Vietnam: high ability to attract and utilise relatively large amounts of FDI and ODA, but obstacles remain (inadequate infrastructure, slow privatisation process, lack of administrative capactiy...) Analogy FDI inflows – CDM investment?Prerequisites that drive the flows of tranditional FDI to destinations are likely to be dynamic driving factors for distribution of CDM Unfavourable outlook for Cambodia and Lao, difficult for Vietnam

Page 8: krey@perspectives                          perspectives

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Country investment climate

Country Overall Economic environment

Political environment

Business environment

Social environment

Singapore 1 1 1 1 1

Malaysia 2 3 2 2 2

Thailand 3 2 3 3 3

Philippines 4 4 4 4 4

Vietnam 5 6 6 5 5

Indonesia 6 5 5 6 8

Cambodia 7 7 7 7 6

Myanmar 8 8 8 8 9

Lao PDR 9 9 9 9 6

Source: Annual IPS ASEAN 9+1 Competitiveness Ranking Indices

Page 9: krey@perspectives                          perspectives

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Country CDM institutions and CDM project experience (I)

Host country CDM institutions• Cambodia, Vietnam, Indonesia, Malaysia and Philipines: Institutions meet necessary conditions to enter carbon market, not yet assessable how efficient systems work• Lao: Main functions and set-up of institutions are still under discussion (DNA not operating yet)• Thailand: Strong bureaucracy, decisions on a case-by-case basis at the cabinet level prohibit efficient approval • Singapore: Still premature process (no DNA)

Page 10: krey@perspectives                          perspectives

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Country CDM institutions and CDM project experience (II)

Climate project experience (as of June 2006)

• 6 PDDs submitted from Vietnam (3 renewable energy, 1 energy efficiency, 1 gas capture, 1 mining methane capture), 1 PDD submitted from Cambodia (Renewable electricity)• Indonesia: 2 registered projects (energy industry), 2 PDDs submitted (energy industry, waste mgmt.)• Most active country: Malaysia with 8 projects (5 registered, thereof 4 energy industry, 1 manufacturing ind; 3 under review)• 1 renewable electricity project submitted from The Philippines• Lao, Singapore, Thailand: no projects submitted yet

Page 11: krey@perspectives                          perspectives

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Country CDM competitiveness ranking

Country Overall CDM capacity CDM institutions & CDM project experience

Investment environmen

t

Vietnam B B B+ CCC

Cambodia CC C B C+

Lao PDR C- /D C C- C-

Competitive

AAA extremely highly competitive AA very competitive

A competitive BBB somewhat competitive

Regarded as risk elements

BB not totally competitive B a slightly higher chance to be successful than to fail

CCC not so competitive CC reasonably unlikely that investments in this country will be successful

C unlikely that investments in this country will be successful

D no competitive/unsuitable for CDM investments

Page 12: krey@perspectives                          perspectives

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Assessment of ASEAN‘s share in the CDM project pipeline

Page 13: krey@perspectives                          perspectives

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Number of project activities submitted

Brazil16,5%

Africa2,6%

India40,4%

China9,9%

ASEAN10.0%

European0,5%

Other Asia3,0%

Other Latin America17,1%

Share of CDM projects submitted to the UNFCCC by regions

Total:695 projects

Page 14: krey@perspectives                          perspectives

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CERs generated until 2012 of submitted project activities

Share of CER generated until 2012 by percentage

Total:613 Million CERs

Page 15: krey@perspectives                          perspectives

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ASEAN CDM project submitted to the UNFCCC by country

Page 16: krey@perspectives                          perspectives

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Type of ASEAN CDM projects submitted

Project types

Total project

type

No. of submitted project activities

Cambodia Indonesia LaoPDR Malaysia Philippines Thailand Vietnam

Cement blending 1 -- 1 -- -- -- -- --

Oil-gas 1 -- -- -- 1 -- -- --

Renewable energy for industry 1

-- -- 1 -- -- -- --

Waste 1 -- -- -- -- -- -- 1

Renewable energy for households 1

-- 1 -- -- -- -- --

Geothermal 1 -- -- -- -- 1 -- --

Wind 2 -- -- -- -- 2 -- --

Hydro 3 -- -- -- -- -- -- 3

Industry 3 -- -- -- 3 -- -- --

LFG 3 -- -- -- 1 1 1 --

Wastewater 8 -- -- -- -- 1 7 --

Biomass 17 1 4 -- 8 -- 3 --

Ag Waste 19 -- 1 -- -- 17 1 --

Total 61 1 7 1 14 22 12 4

Page 17: krey@perspectives                          perspectives

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Summary

On global scale, ASEAN CDM projects are increasing,nevertheless...

• ... Their share is still considerably low• ... They need to work on the establishment of favourable approval processes and consultancy sector, support project development• ... Real breakthrough for a considerable share on the CDM market not likely due to lack of large CDM potential

ASEAN likely to attract “niche investment”... But will not be able to play in “CDM Champions League”

Page 18: krey@perspectives                          perspectives

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Assessment of the procedures,

resources and outreach of DNAs in

ASEAN

Page 19: krey@perspectives                          perspectives

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DNA assessment - structure

Background information on DNAs

• Mandatory function: Assessing CDM projects at national level• Authority: Issuing Letter of Approval stating that the project assists the country in “achieving sustainable development” • Non-mandatory functions: Assessing technical aspects of projects, promotional activities (capacity building, marketing)...

Page 20: krey@perspectives                          perspectives

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DNA structures: Strengths & Weaknesses

High number of ministries involved, dominating role of governments Strenghts Weaknesses

Relatively strong unanimous endorsement of CDM mgmt. activities + proposed projects

Low risk of blocking of projectsdue to interest conflicts

Core budget secured by higher number of ministries

Efficiency inside DNA board rises with position of host ministry in the

governmental politic system

Poor involvement of other stakeholders

Bureaucratic, less flexible to adapt to changes in CDM procedure/markets

Staff less motivated than in mixedgovernmental-NGO model

Page 21: krey@perspectives                          perspectives

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DNA assessment: Implementation and external affairs

Approval Process• Not specified in CDM rules, each country decides on its own set-up of process• Transparent & simple rules attract more investors

Criteria for Sustainable Development• Each country has total freedom of decision on how to appraise a project’s contribution to sustainable development • No standardised criteria or indicators

Other criteria• Include the DNA‘s activities in improving the competitiveness of the host country and mobilising CDM capital flow into the country• Information dissemination and outreach

Page 22: krey@perspectives                          perspectives

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Duration of approval process

Indonesia• Theoretically fastest DNA with 30 days

Cambodia, Lao and Vietnam• 1.5 months

Philippines and Thailand• About 2 month • Philippines: Difficult to obtain approval due to emphasis in consultation and intervention of NGOs • Thailand: difficult process of approval

Malaysia• 2,5 months • Most active to produce LoA and most successful one to have projects registered with EB

Page 23: krey@perspectives                          perspectives

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Assessment of criteria for Sustainable Development - Cambodia (I)

Economic development• Use of local businesses• Reduction of import of fossil fuels

Social development• Poverty alleviation• Creation of jobs• Sound stakeholder consultation

Environmental sustainability• Reduction of pollution• Biodiversity conservation• Sustainable use of resources

Technological development• Transfer of technology• Capacity Building

Page 24: krey@perspectives                          perspectives

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Assessment of criteria for Sustainable Development - Cambodia (II)

Development criteria and indicators based on South-South-North/Gold Standard Approval Process

Each indicator is scored from -3 to +3 (with -3 stating serious negative impact, 0 no impact)

Vicious circle:• Very modest CDM potential in combination with comprehensive list of sustainable development criteria• If adapted in a relaxed manner, low quality CDM projects can get be approved• If adapted very strictly, only a few high quality projects can be realised

Page 25: krey@perspectives                          perspectives

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Assessment of criteria for Sustainable Development – Other countries

Indonesia• list of criteria includes environmental, economic, social, and technological sustainability which is project-based indicators

Singapore, Philipines and Thailand• No information on sustainability criteria availble

General problems:• Lack of project-specific assessment or methodologies to evaluate project’s contribution to Sustainable Development • No criteria are “translated” into sectoral indicators or specific quantitative standards

Page 26: krey@perspectives                          perspectives

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DNA assessment: Summary

CDM is about projects• Opportunities for CDM projects to materialise is essential for all further activities• Host country with modest CDM potential should establish a DNA in close contact with existing bodies dealing with climate change• Small and medium sized CDM countries: DNA should focus on mandatory tasks (leave judgement of feasibility and additionality to DOEs) and promotion

Not ideal models, but...• Cambodia and Vietnam DNAs are in place and improving • Lao PDR faces a critical year to finalise structure and operation before deadline for registration of CDM projects for first period is gone More assistance needed...in specific issues (legal and financial) and strengthening involvement of private, consulting sectors

Page 27: krey@perspectives                          perspectives

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Assessment of past and ongoing

CDM Capacity Building in ASEAN

Page 28: krey@perspectives                          perspectives

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Examples of Capacity Building Programmes (I)

ID MY SG TH PH

IGES ICS-CDM √ √ √

EAEF/Asia Pro-Eco √ √ √ √ √CD4CDM √

Germany (GTZ) √

Denmark (Danida) √ √ √

The Netherlands √

UNIDO √ √ √

South-South-North √ √

World Bank Carbon Finance Assist

World Bank Global Gas Flaring Reduction Initiative

ID: Indonesia, MY: Malaysia, SG: Singapore, TH: Thailand, and PH: the Philippines

Page 29: krey@perspectives                          perspectives

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Examples of Capacity Building Programmes (II)

Cambodia:• Activities: Workshops, focus on waste mgmt., renewable energy, small scale projects• Target group: Public and private sector

Lao PDR: • Activities: Support establishment and full operation of DNA• Target group: Central and local government authorities

Vietnam:• Objective: Evaluation of CDM potential in industrial sector • Target group: Industrial sector

Page 30: krey@perspectives                          perspectives

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Capacity Building Tools

Results from survey carried out by UNITAR• Workshops and stakeholder Dialogue

• Deemed useful by 64%• Common feature of all programmes

• General public training• Also popular with governmental audiences• Relatively high costs

• Writing of studies• Widely used, but limited impact due to restricted dissemination, unadjusted material for different target groups• Booklets and brochures published: Cambodia (>10), Vietnam (>15), Lao (1) with basic information on UNFCCC, Kyoto and CDM modalities

Page 31: krey@perspectives                          perspectives

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Summary

Cambodia and Vietnam: • Quite successfull in attracting international and bilateral donors for CDM Capactiy Building projects• Projects contributed significantly to establishment of DNA, and building capacity with project developers

LAO PDR: • Only one Capacity Building Programme but with an essential role of improving understanding of governmental authorities• DNA not operating yet

Capacity Building as continuous, progressive and iterative process

Further assistance needed!!

Page 32: krey@perspectives                          perspectives

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Suggestions

• Avoid replicates in scope and content already addressed• Link sufficiently with results of previous projects• Define specific target groups, focus on previously poorly involved groups like private and financial sector• Start programme with general information on climate change• Cut down on workshops aiming at general public awareness rising, but focus on on-the-job/sectoral trainings to transfer skills • Concentrate research on secoral level for information on CDM potential and „state of the art“ technologies for project developers

Page 33: krey@perspectives                          perspectives

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Recommendations for

promoting CDM participation of low-income countries

Page 34: krey@perspectives                          perspectives

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Current distribution of CDM activities

9

260

133

1217

223

0

50

100

150

200

250

300

Leastdevelopedcountries

Other lowincome

countries

India Low er middleincome

countries

Moreadvancedcountries

Upper middleincome

countries

LDCs and LICs account for a very minor share – only 4% of total projects developed (and 5.6 % of total expected CERs) worldwide so far

Data source: CD4CDM, Jun. 2006

Page 35: krey@perspectives                          perspectives

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Types of CDM projects developed in the LICs

Projects types have high potential to deliver high levels of sustainable development benefits to host countries

8

5

32

1

0123456789

Fugitiveemissions

Renewableelectricity for

grid

Renewableenergy for

user

Energyefficiency

Industrialgases

Data source: UNFCCC website as of June 2006

Types of the projects submitted and registered by the LICs

Page 36: krey@perspectives                          perspectives

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Current trend of CDM investment-flows (I)

Unequal geographical distribution of CDM investment…Developing countries with high CDM potential

attract more and more CDM projects accumulate more experience by implementation of projects strengthen their competitiveness in the CDM world market likely to attract more investment.

…at disadvantage of LICsFlow of investment is skewed toward a small sub-set of developing countries, side-stepping those LICs that need it most for the purpose of sustainable development

Page 37: krey@perspectives                          perspectives

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Current trend of CDM investment-flows (II)

Reasons for lack of investment flow into LICs

• Investors look for low marginal incremental costs, low project risk, creation of a good image

• Investors search for short-term rapid generation of CERs, but project types in LICs are mainly in renewables and A/R (lower emission reduction over a long time period)

• Small projects imply higher transaction costs

Projects are distributed through market mechanisms, which are not about fulfilling sustainable development criteria, nor about achieving a fair distribution of the projects and investments involved in them

Page 38: krey@perspectives                          perspectives

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Mobilising CDM investment into the LICs (I)

Key principles that drive the success of the CDM market

Key decisive factors from the host countries’ perspective

Result in agreed sustainable development that meets national objectives for the host country and not just CERs for the recipient country;

SD criteria

Help maximize the generation or supply of cost-effective CERs DNA operation, eligibility criteria for project proposals and experts to develop PIN/PDD

Provide reliable information and secure access for the buyers of CERs

DNA

Provide legal recourse for both buyers and sellers of CER’s DNA

Meet the needs of a wide spectrum of potentially diverse project types and proponents

CDM endowment

Provide a real incentive for a broad base of investors to invest in CDM projects and not just attract a limited band of “green” investors

CDM endowment and investment environment

Result in CDM projects that are additional to defined baselines CDM endowment and experts to develop PIN/PDD

Need of an effective DNA in host countries is over-riding factor

for facilitating CDM activities

Main challenges for effectiveness and sustainability of DNAs are shortage of finance support and human resource

for a long period

Page 39: krey@perspectives                          perspectives

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Mobilising CDM investment into the LICs (II)

• Establish transparent, quick approval processes, mainstreaming of CDM into other policies• Have a realistic view of abatement potential and costs in LICs (avoid concentration on non-attractive areas, address additionality issues proactively)• Support reliable local consultants (reduces the transaction costs, minimises consulting fee runs into the pocket of the international consultants)• Promote proactive industrial associations and private sectors to find viable CDM ideas• Long term, foster existence of competent domestic OEs (reduce transaction costs for developing CDM projects)

LICs‘ opportunity: Expeditious registration of small-scale projects and support for bundled projects with high sustainability value

Page 40: krey@perspectives                          perspectives

[email protected] [email protected] www.perspectives.cc

THANK YOU!

Matthias KreyPerspectives GmbH

Bei der Apostelkirche 2420257 Hamburg

Germany

Phone: +49 (0) 40 – 21979761Mobile: +49 (0) 176 - 2460 4014


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