Developing Programmatic CDM in Southeast Asian countries. A Project Proposal

Transcription

1 Developing Programmatic CDM in Southeast Asian countries A Project Proposal Project Secretariat Southeast Asia Network of Climate change focal points Regional Office for Asia and the Pacific United Nations Environment Programme (UNEP) UN Building, 2nd Floor Rajdamnern Nok Avenue, Bangkok 10200, Thailand Southeast Asia Network of Climate change focal points

2 1.0 Introduction Programmatic CDM (pcdm) is the first of a new generation of carbon offset programmes designed to bring carbon reductions to a mass market in developing nations. Under the traditional CDM, companies in rich nations can invest in emissions cuts made by clean energy projects in the developing world and earn CERs than can be sold for profit or used to meet greenhouse gas targets. CDM has been criticized for only focusing on individual projects and for the high administration costs of getting approval. Bundling of smaller projects that bring emissions reductions such as energy efficient lighting schemes, have proven to be expensive. A recent study by the climate change network team at DTIE, UNEP has concluded that in spite of large potential of GHG mitigation through the market based financial mechanism such as CDM, very little has been realized. This is more prominent in areas of end use energy efficiency projects. The main reason attributed to such a development is high transaction cost, small scale of project leading to small benefits and little availability of finance. Under what is called programmatic CDM (pcdm), developers can deploy projects at scale in theoretically unlimited numbers providing each uses the same approved standards or methodologies from the start. This would also result in lower transaction cost. A programme of activities (PoA) or programmatic CDM (pcdm), as it is often called, is a programme that can comprise multiple and combined emission reduction activities or projects. By aggregating the combined emission reductions of the different participants in the programme, it gives small and dispersed activities and projects that would be too small for the traditional stand-alone approach a chance to participate and profit from CER or ERU revenues. PoAs constitute a new instrument and a great opportunity for different actors, such as utilities, banks, municipalities and other private or public entities, to tap a low-cost GHG reduction and certification potential by doing their core business -reaching out to micro and small activities in private households, agriculture, small enterprises and transport. The additional revenue which can be generated by the PoA is one of the main incentives but not the only one. Synergies evolve from bringing together different actors to develop new creative programmes that go hand in hand with their core business strategy and the goal of reducing greenhouse gas emissions. Opening up new client bases and penetrating different market segments might be an incentive to banks and microfinance institutions, saving electricity an incentive to utilities in power-strapped countries. Other non-pecuniary benefits accrue for the different actors by developing PoAs. Southeast Asia Network of Climate change focal points Page 1

3 They apply distributed renewable energy (solar home systems; solar water heating, small hydro), energy-efficiency measures at the household level (distribution of efficient light bulbs), biogas flaring (methane capture from animal waste), and the installation of a waste management system (municipal waste composting). The three PoAs under the JI in Germany comprise energy efficiency at the industry level (replacement and refurbishment of low-efficiency heating boilers) and at the household level (introduction of heat pumps). 2.0 About Programme of Activities (PoA) In general the CDM programmes, known as Programmes of Activities (PoAs), are measures that are coordinated and implemented voluntarily by private or public entities that implement policies or measures leading to real GHG emission reductions. Therefore a PoA is: A voluntary action, implementing a policy, measure or stated goal, coordinated by a public or private entity, resulting in emission reductions or removals that are additional. The PoA consists of several CDM Programme Activities (CPAs). A CPA is a single, or a set of interrelated, measure(s), to reduce GHG emissions or result in net anthropogenic greenhouse gas removals by sinks, applied within a designated area defined in the baseline methodology. That means that a CPA can be the activity in one facility (such as a fuel switch in an enterprise or the installation of a biogas digester in one agricultural household) or can be grouped together reasonably because of the amount of activities (such as the replacement of incandescent light bulbs in a group or the installation of solar water heaters in households or buildings). Other criteria for grouping activities could be inter alia - geographic, chronological or according to CER amount. By definition, the overall size of a PoA is unknown at the start of the PoA implementation. Numerous CPAs can be included under a PoA either at the time of registration or during the implementation of the PoA. The private or public entity that coordinates the PoA is referred to as a PoA coordinator. A PoA has a duration of up to 28 years (up to 60 years in the forestry sector). 2.1 Baseline and monitoring The baseline of a CDM project (including a programme) is the most plausible alternative scenario to the implementation of the project (the businessas-usual scenario). A CDM methodology determines how the baseline of a particular type of project needs to be established and how the baseline emissions shall be calculated. It also defines the modalities of determination of emissions under the project scenario. The difference between baseline emissions and project emissions constitutes the emissions reductions that can be claimed under CDM (reduced by potential leakage, i.e. emissions outside the boundary of the project). Both baseline and project emis- Southeast Asia Network of Climate change focal points Page 2

4 sions need to be monitored. The required monitoring procedures are also part of a CDM methodology. Just as in regular CDM projects, the crediting period for CPAs can be either a 7-year crediting period (forestry sector: 20-year crediting period), renewable twice a single 10-year crediting period (forestry sector: 30-year crediting period). A PoA can use any approved baseline and monitoring methodology, large or small-scale An important advantage of PoAs is that the baseline for the whole programme is determined at the beginning in the project design document (PDD) for the Programme of Activities. The baseline stays consistent for each crediting period of the CPA unless the baseline is revised within a major methodology revision by the CDM executive board. The choice of methodological approaches has important implications for the programme design, especially for monitoring. There are two approaches for the quantification of the GHG emissions: (i) deemed savings approach and (ii) measurement & verification (M&V) approach. In the deemed savings approach the energy savings are estimated on the basis of stipulated values which are based on similar typical projects implemented. The savings determined for a sample of projects are applied to all the projects in the programme. In the methodology for deemed savings there are very little or no measurements and only the installation and operation of measures is verified. However in the M&V approach a representative sample of projects in the programme is selected and savings form those are extrapolated for the whole programme. The deemed savings approach is rather new and has been recently applied to the methodology for CFL project. 2.2 Documentation For registration of a CDM project cycle, a general description of the PoA, application of the used methodology and GHG reduction potential and definition of CPA has to be presented. Further additionality of the programme has also to be presented to the CDM executive board. The document in which the information is presented to the EB is the project design document (PDD) for the Programme of Activities, the CDM-PoA-DD. The second important document to be presented in the CDM project cycle is a project design document for one already existing real CDM programme activity CDM-CPA-DD. Furthermore a generic CDM-PoA-DD is requested (basically a form that is used for the submission of further CPAs). Independent auditors, Designated Operational Entities (DOEs) are used to check whether documentation conforms to the rules. The DOE has two key functions: it validates and subsequently requests registration of a proposed CDM project activity and it verifies emissions reductions of a registered CDM project activity. Although it is not required by the executive Southeast Asia Network of Climate change focal points Page 3

5 board during the preparation phase of a programme a Programme Idea Note (PIN) is prepared, which contains the identification of a promising PoA, a feasibility assessment and the eligibility under the CDM. The following formal steps have to be undertaken to develop a new PoA: STEP ACTIVITY FREQUENCY STEP 1 Development of the PoA idea and a PIN Once Initial activity STEP 2 Development of PoA Design Document and CPA Design Document, including the monitoring plan. Once Initial activity STEP 3 Approval by designated national authority (DNA) Once Initial activity STEP 4 Validation of the CDM-PoA-DD and CDM-CPA- Once Initial activity DD through a Designated Operational Entity (DOE) STEP 5 Registration with the EB of the UNFCCC. Once Initial activity STEP 6 Check whether submitted CPAs fulfill the eligibility criteria Submission of CPA Design Documents (CPA-DDs) to DOE STEP 7 Operation of record keeping system for each CPA Continuously Continuously to include the CPAs, when CPA-DD is finalized. STEP 8 STEP 9 STEP 10 Implementation of monitoring with each CPA according to the monitoring methodology Communication with DOE regarding monitoring reports Distribution of CERs to PoA Coordinator / CPA coordinator or CPA directly, depending on incentive system Continuously After each request for issuance. After each request for issuance. 2.3 The PoA coordinator The PoA coordinator has the most important role to play in the complete project. He is responsible for the structure and the business model for the PoA. The coordinator defines the programme concept and the implementation agreements. The PoA coordinator is also responsible for designing the incentive system that attracts possible programme participants (households or SME) to undertake the proposed measures and to manage the financial flows within a programme and in relation to the carbon buyers. The coordinator should be able to organize high quality monitoring system for claiming CERs. The starting point of PoA development is typically the determination of the required type and level of incentive a programme needs to offer in order to be attractive for its target group. Which type and level of incentive are most appropriate depends on the special circumstances of programme implementation but also on some more generic features, like the type of activity the programme intends to stimulate (e.g. retrofitting/rehabilitation of existing equipment, accelerated replacement of devices or new investment in equipment or purchases of appliances). Possible types of incentives include price discounts, grants, loans at favourable rates or simply pay- Southeast Asia Network of Climate change focal points Page 4

6 ments-on-delivery for achieved emission reductions. Besides economic incentives, policy incentives can also be chosen if the programme consists in implementing policy or regulation. Some of the probable PoA coordinators are energy supply companies or government owned institutions which help in policy development and implementation. Energy supply companies are often main drivers of demand-side energy efficiency measures in order to reduce peaks in energy demand and to contribute to an optimisation of power generation over time. Furthermore, for many utilities, energy saving and, also, generation of clean energy is part of their corporate responsibility strategy. Programmatic CDM can support utilities in achieving energy savings and cleaner energy generation. 2.4 Seed funding The financing of a PoA project could have different dimensions, it could be a payment on delivery programme, grant programme, loan programme or a supply programme. Depending on the type of the programme the programme coordinator or the developer has to analyse the necessity of funds to be secured or the seed funding. Seed funding is the amount of fund needed to prefinance the incentive and necessarily do not include the preparation or development cost of the project for example cost for documentation or for a boiler or a biogas plant. Except for the payment on delivery programme all other programmes namely grant programme, loan programme or a supply programme require seed funding. In payment-on-delivery the participants in the programme receive an expost payment in proportion to the achieved emission reductions. The revenues of sold certificates will be handed over to programme participants after the successful verification of the CPA. In grant programme the implementing agent offers fixed upfront payment in return for commitment by the project proponent to implement the activity. Typically the implementing agent gets the ownership of all the CERs accrued which it sells to recover the grant provided. For example purchase of efficient household appliances (cooking stoves, refrigerators, air conditioners) is examples of activities where a grant programme could become most appropriate. In subsidised loan programme the anticipated carbon revenues of the programme are used to soften loan conditions in particular to bring down interest rates. Then the lender would take the carbon delivery risk and offer uniform loan conditions to each participant in the programme. A supply programme is similar to a grant programme. Carbon revenues are used to pay for price discounts or free distribution for energy efficient Southeast Asia Network of Climate change focal points Page 5

7 devices. For example in a CFL programmes where in the incandescent lamps are replace by CFLs, the cost of the CFL is discounted so that their cost is nearly equal to that of incandescent lamps. The PoA coordinator takes the delivery risk of CERs and provides the price discount for ownership of achieved emission reductions. Supply programmes are most relevant for micro activities 3.0 Proposed approach towards development of pcdm in Southeast Asian countries In view of the large potential that exists for the implementation of small scale clean energy technologies which would lead to greater end use energy efficiency and also enhance the economic development and quality of life in Southeast Asian countries, it is proposed to help the country governments institutionalize and establish a framework for implementation of programmatic CDM projects in the country. This would not only build up the capacity of the local Designated National Authority in dealing and speedier approval of such projects but also attract attention of investors and project developers globally. The idea is to first develop and demonstrate to the policy makers and local investors the feasibility of adopting such an approach which would further lead to its implementation. The following is a step by step approach for identification and implementation of PoA in respective countries of the South East Asia. Although a common approach is mentioned herein but this would need to be modified in accordance with the individual country needs and capabilities. UNEP can play a role to a greater extent till the development of PIN as in STEP 1 of the table on page 7 and as an overall supervisor till the registration of the project with the CDM executive board. However this may vary depending on commitment of the country and the funds available. Southeast Asia Network of Climate change focal points Page 6

8 Activity No. Name of Activity Description Role of UNEP 1 Obtaining commitment of the country government 2 Identification of areas of interest and potential The host government and DNA should agree for development of a pcdm and capacity building in the area of pcdm Identification of areas like energy efficiency in SMEs, lighting sector, energy efficient products, micro hydel, biogass, biomass utilization, decentralized electricity generation, forestry etc for development of pcdm along with the CC focal point Convincing the climate change focal points and DNA of the SEA countries and obtaining commitments 1. Review of country s energy balance and country reports to identify the probable areas. 2. Obtaining consensus of the local government 3. Identification of relevant stakeholders 3 Project Identification and feasibility Identification of the project with large replication potential. Conducting feasibility study to ascertain the potential of GHG emissions savings and CERs. 1. Constituting a study to ascertain the feasibility. 2. Pilot scale implementation to demonstrate the benefits if necessary. 4 Preparation of PIN and Appointment of a PoA coordinator. Identification of institutions to take the project forward and can act as a PoA coordinator. 1. Preparation of PIN 2. Stakeholder consultation 3. Identification of an institution 4. Appointment of coordinator for PoA 5 Define the physical boundary of a PoA 6 Develop a programme of activities (PoA.) 7 Ensure that a PoA complies with all current guidance by the Board concerning the treatment of local/regional/national policies and regulations 8 Proposal of the PoA by the coordinating or managing entity Development of CPA for a particular focus area/ geographical area. 9 Ensure that all CDM Programme Activities (CPA) under its PoA are neither registered as an individual CDM project activity nor included in another registered PoA and that the CPA is subscribed to the PoA Facilitate arrangements with the coordinator or managing entity, relating to communications, distribution of CERs and change of project participants. 10 Development of PoA CDM DD And CPA CDM - DD 1. Ensure all CPAs of a PoA shall apply the same approved baseline and monitoring methodology. 2. Define the type of information which is to be provided for each CPA to ensure that leakage, additionality, establishment of the baseline; baseline emissions, eligibility and double counting are unambiguously defined for each CPA within the PoA 11 Registration of PoA Southeast Asia Network of Climate change focal points Page 7

9 4.0 Duration, scale and management of the proposed project It is anticipated that the complete project activity till the registration of the project with the CDM executive board would take 24 months for completion. This however would also depend upon the interest and commitment on the part of the local governments. Once registered the project would serve as an umbrella under which similar activities can be added on and implemented to the large geographical region and country. The implementation of the activities at the ground level could be coordinated by the Southeast Asia climate change network, DTIE, UNEP, Bangkok and could also involve national and international consultants, local institutions, the climate change focal point and DNA of the respective country. Southeast Asia Network of Climate change focal points Page 8