Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 1, November 19th, 2008 The Clean Development Mechanism (CDM) in Eastern Africa Basics, opportunities, framework requirements „Energy – A Viable Business Opportunity“ Dar Es Salaam, Tanzania, June2009 Michael Franz Regional Energy Advisory Platform (East Africa) - REAP (EA) German Technical Cooperation (GTZ) Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 2, November 19th, 2008 Structure  The CDM: basic information and functionality  Opportunities for the CDM in the energy sector in Eastern Africa  Framework requirements and policy action for the CDM  Contacts Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 3, November 19th, 2008 The CDM: basic information and functionality  “Project based mechanism” under the Kyoto Protocol  Industrialized countries (ratification!) are obliged to reduce their Greenhouse gas emissions  Project based mechanisms are supposed to allow for emissions reductions efficiently, i.e. where they are relatively cheap  CDM picked up as from 2005; thereafter rapid development of the market Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 4, November 19th, 2008 The CDM: basic information and functionality  Dual objective –Climate change mitigation through reducing Greenhouse Gas Emissions ( = man-made emissions of gases that “trap” radiation and thus heat up the atmosphere ; sources: fossil fuels, chemical industry, agriculture, …) –Contribution to sustainable development (environmental, economical, social) through the direct and indirect impacts of the projects in the host countries, e.g. energy supply, energy efficiency, afforestation, employment generation, technology transfer, forex inflow … Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 5, November 19th, 2008 The CDM: basic information and functionality  Basic idea: “polluter pays”  Project reduces GHG emissions against “baseline” scenario  Examples (energy sector): reduced consumption of biomass or fossil fuels (energy efficiency), or substitution of unsustainable biomass or fossil fuels with renewable energy  Emission reductions must be additional (!!!) Workshop on Clean Development Mechanism (CDM) Polluter / Investor Project owner “Certified Emission Reductions (CER)” €

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 6, November 19th, 2008 The CDM: basic information and functionality Workshop on Clean Development Mechanism (CDM) CDM-Investment financing of baseline project Investment BAU project (Diesel Power Station) return on investment sales revenues Baseline product (kWh) generates value of CER generates CER Technological change: GHG reduction transaction costs CDM project (Hybrid Supply: Diesel- & Wind power station) additional financing  CER: a by-product (!!)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 7, November 19th, 2008 The CDM: basic information and functionality  The “project cycle” Workshop on Clean Development Mechanism (CDM) 1Project design and formulation PDD development; methodologies, EIA, stakeholder comments 2National approval Designated National Authority (DNA) confirms contribution to sustainable development 3ValidationDesignated Operational Entity (DOE) reviews project documents 4RegistrationProject developers register project with UNFCCC Executive Board (EB) 5MonitoringProject participants monitor project implementation 6VerificationDOE reviews project implementation 7CER issuanceEB issues CER

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 8, November 19th, 2008 Opportunities for the CDM in the energy sector in Eastern Africa I. Household energy  Emission reduction: reduction or substitution of non-renewable biomass (fuelwood, charcoal)  Technology: –Energy efficiency: reduced consumption through Improved Cook Stoves (ICS) –Renewable energy: substitution of fuelwood, e.g. through biogas or solar cookers  Pro: pro-poor (higher CER price possible), high impact on sustainable development  Contra: small reductions per device, large number, thus need for bundling (complicated, expensive) Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 9, November 19th, 2008 Opportunities for the CDM in the energy sector in Eastern Africa II. Renewable energy for grid connected electricity  Emission reduction: substitution of a part of the fossil fuel component of the generation mix on the grid  Technology: any RE, e.g. wind power, biomass (cogeneration, agro-industrial biogas), solar energy (PV or CSP)  Pro: relatively large projects, established technology and business models  Contra: fully dependent on enabling regulatory and policy framework Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 10, November 19th, 2008 Opportunities for the CDM in the energy sector in Eastern Africa III. Renewable energy for off-grid electricity  Emission reduction: substitution of diesel in isolated mini-grids  Technology: wind, solar, biomass (hybrids, i.e. in combination with each other or with diesel)  Pro: attractive baseline  Contra: small projects, need for bundling (complicated, expensive) Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 11, November 19th, 2008 Framework requirements and policy action for the CDM  In general: policy matters!!  The CDM works like a financing and investment instrument  It requires specialized institutions (DNA’s) with the capacity to handle the process  Very important: It requires viable underlying projects  Underlying projects either –Require enabling regulatory framework –Can benefit from regulatory instruments and policy incentives Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 12, November 19th, 2008 Framework requirements and policy action for the CDM  Prerequisite for CDM: capable institutional framework, in particular the Designated National Authority (DNA), but also other required institutions, e.g. environmental authorities (for EIA)  Minimum: institutions must have the technical and human capacities to handle the numerous requests from project participants  Ideally: institutions have capacity and financial resources to actively support project development, e.g. to compile baseline information, maintain relevant databases, engage in marketing, … Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 13, November 19th, 2008 Framework requirements and policy action for the CDM Example I: Improved cook stoves  Require: quality standards, taking into consideration local needs and customs as well as domestic and international experiences  May benefit from: –Government targets for improved cook stove usage –Integration of biomass and ICS into curricula of educational and training institutions Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 14, November 19th, 2008 Framework requirements and policy action for the CDM Example II: Grid connected renewable energy  Require: enabling framework, e.g. Feed-In Tariff or other forms of standardized PPA Important: investment security requires attractive a) tariffs, b) complementary modalities, and c) approval process; recommendation: consult competent, independent institutions  May benefit from: other incentives, e.g. direct subsidies, tax rebates, customs waivers (largely present in EAC, problem: “dual use” items) Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 15, November 19th, 2008 Framework requirements and policy action for the CDM Example III: Renewable energy in rural electrification  Require: non-exclusive policies and planning tools, i.e. no focus on fossil fuel / diesel solutions only  May benefit from –Explicit reference in planning documents, e.g. rural electrification master plans –Private sector oriented approaches, e.g. concessioning systems for rural electrification –Specific programmes with RE components –Direct subsidies and other incentives Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 16, November 19th, 2008 Who can help?  UNDP CDM Capacity Building Project  GTZ REAP  Uganda Carbon Bureau  CDM service providers, e.g. –Camco –Carbon Africa –JPMorgan Climate Care –OneCarbon –Southpole Workshop on Clean Development Mechanism (CDM)

Umwelt und Infrastruktur Regional Energy Advisory Platform – East Africa 17, November 19th, 2008 Thank you for your attention! Michael Franz Regional Energy Advisor GTZ REAP-EA / 826 / 828 Workshop on Clean Development Mechanism (CDM)