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Southeast Asia:Lessons learnt from CDM experience
in the region
South East Asian Regional ECBIWorkshop
Dhaka, 8. August 2006
Matthias Krey, Perspectives GmbH
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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)
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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
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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
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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 appliances
Vietnam:• 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
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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
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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
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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)
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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
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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
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Assessment of ASEAN‘s share
in the CDM project pipeline
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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
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CERs generated until 2012 of submitted project activities
Share of CER generated until 2012 by percentage
Total:613 Million CERs
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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
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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”
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Assessment of the procedures,
resources and outreach of DNAs in
ASEAN
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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)...
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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
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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
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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
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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
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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
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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
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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
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Assessment of past and ongoing
CDM Capacity Building
in ASEAN
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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
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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
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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
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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
processFurther assistance needed!!
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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
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Recommendations for
promoting CDM participation
of low-income countries
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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
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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
3
2
1
012
3456
789
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
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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
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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
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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
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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
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THANK YOU!
Matthias KreyPerspectives GmbH
Bei der Apostelkirche 2420257 Hamburg
Germany
Phone: +49 (0) 40 – 21979761Mobile: +49 (0) 176 - 2460 4014