CLEAN DEVELOPMENT MECHANISM: OPPORTUNITIES FOR THE PHILIPPINES Climate Change Information Center Manila Observatory Ateneo de Manila University

Clean Development Mechanism Enables developed countries (known as Annex I countries) to meet their emission reduction commitments in a flexible and cost- effective manner Assists developing countries (non-Annex I countries) in meeting their sustainable development objectives Investors benefit by obtaining Certificates of Emissions Reductions (CERs) Host countries benefit in the form of investment, access to better technology, and local sustainable development

Value & Benefits of CDM: From a developing country perspective Attract capital for less-carbon intensive projects Encourage active participation of private and public sectors Technology transfer – environmentally friendly sustainable technologies Investment priorities in sustainable development projects

CDM contributions to Sustainable Development objectives Transfer of technology and financial resources Sustainable ways of energy production Increasing energy efficiency & conservation Poverty alleviation through income and employment generation Local environmental side benefits

Simplistic numerical example Provide electricity for a barangay “Business-as-usual” (baseline): Diesel generator sets –Cost of project $10 –Emissions 1 tC Cleaner project (CDM-eligible): Micro- hydro –Cost of project $13 –Zero Emissions

Simplistic numerical example CDM Investor (e.g. Japan) –Invests $3 ($13-$10, difference between cleaner and business-as-usual project) –Gains Certificate of Emissions Reduction of 1 tC, which it can meet some of its Kyoto Protocol commitments to reduce emissions

Simplistic numerical example WIN – WIN – WIN WIN for the host country –Sustainable development benefit: Cleaner energy production technology WIN for the Annex I country –Credits for emissions reduction WIN for the Global Environment –Emissions reduction

CDM Project Achieves Sustainable Development objectives for the host developing country Reduces GHG Emissions

Baseline and CERs CO 2 emission year Reduced emissions Project implemented Business as usual: baseline

CDM: A special product CER is a payment for the Project Developer not to produce To reduce GHG emissions Thus, the importance of special requirements –Definition of baselines –Calculation of GHG emission reductions

How CDM can matter Without CERs implemented With CERs not implemented No CDM Without CERs not implemented; with CERs implemented CDM FIRR CER income

CDM Eligible Projects Renewable energy Fuel switching End-use energy efficiency improvements Supply-side energy efficiency improvement Agriculture (reduction of CH 4 & NO 2 emissions) Industrial processes (CO 2 from cement, HFCs, etc) Sink projects (only afforestation & reforestation)

Clean Development Mechanism Types of small-scale projects that could qualify for fast- track approval procedures Renewable energy projects up to 15 megawatts (MW) of output capacity Energy efficiency improvements that reduce energy consumption on the supply and/or demand side by up to 15 gigawatt-hours (GWh)/year Other project activities that both reduce emissions at source and directly emit less than 15 kilotons (kt) of CO 2 equivalent annually

Projected Philippine CO 2 Emissions: Potential of CDM Emissions Reductions Supply

Projected Philippine CO 2 Emissions: Potential of CDM Emissions Reductions Supply

Source: ALGAS Philippine GHG Abatement Cost and Potential

MINDORO ISLAND-ORIENTAL 13,500 kW MARINDUQUE ISLAND 3,000 kW CUYO ISLAND 330 kW BUSUANGA ISLAND 330 kW PALAWAN ISLAND 9,000 kW LUBANG ISLAND 330 kW SIQUIJOR ISLAND 1,000 kW SPECIFIC WIND POTENTIAL POWER SITES CATANDUANES 2,250 kW TABLAS ISLAND 1,500 kW ROMBLON ISLAND 1,000 kW MASBATE ISLAND 3,000 kW DINAGAT ISLAND 3,000 kW POLILLO ISLAND 500 kW CASIGURAN 500 kW NORTHERN LUZON 120 MW BATANES 1,100 KW POTENTIAL CAPACITY: 160,340 kW

Solar Energy Resource Potential  Average insolation of 5- 6 kWh/sq. m/day all throughout the country

Requirements for the Philippines to Participate in CDM Ratify the Kyoto Protocol Designate the CDM National Authority

Requirements for the Philippines to Participate in CDM Status of Philippine ratification of the Kyoto Protocol Senate Committee on Foreign Affairs has sponsored the ratification on the floor of the Senate, 2 nd June 2003 Interpellation and voting during the next session of the Senate, August 2003 Need 2/3 majority of the Senate to concur in the ratification of the Kyoto Protocol

Requirements for the Philippines to Participate in CDM Status of efforts to establish CDM Designated National Authority (DNA) Proposal to make the Inter-Agency Committee on Climate Change (IACCC) as the DNA IACCC is composed of: DENR, DOST, DOE, DFA, DTI-BOI, DOTC, NEDA, DPWH, PAGASA, FMB, EMB, Philippine Network on Climate Change (NGO)

Preparation and review of the Project Baseline Study and Monitoring Plan (MP) Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Project Idea Note Project Concept Note Project Concept Document (or equivalent) Project Design Document Baseline study and ER projections Monitoring Plan Validation protocol and report Project Appraisal and related documentation Term sheet Emission Reduction Purchase Agreement PCF/CDM Project Cycle – The Manufacturing Process for CDM Emissions Reductions Initial verification report Verification report Supervision report

Preparation and review of the Project Baseline Study and Monitoring Plan (MP) Validation process Negotiation of Project Agreements Periodic verification & certification Construction and start up Project completion 3 months 2 months 3 months 1-3 years Up to 21 years Upstream Due Diligence, carbon risk assessment and documentation: $ 50K Baseline: $30 K Monitoring Plan: $25K External consultant: $25K Processing and documentation: $30k Consultation and Appraisal: $75K Negotiations and Legal documentation: $30K Carbon Asset Creation and Maintenance Costs The PCF Experience Total through Negotiations All expenses: $265 K Initial verification at start-up: $25K Verification: $10-25 K Supervision: $10-20K

Demand for CDM Projects Example: The Netherlands will reduce 100Mt CO 2 eq through CDM/JI (tender, CDM facilities etc) at average costs of ca 4 US$/ton CO 2 eq This means 400 M US$ for CERs/ERUs. Contribution to the capital costs may by be 5- 15% (at least for CERs). Consequently an investment of 4,000 M US$ is needed to generate the credits for the Netherlands. Note: Should be new and additional

Total GHG emissions in 1990 and 2010, and reduction commitments according to the Kyoto Protocol based on national communications Demand Scenario TotalGHG Emissions in 1990 (mtc) Total GHG Emissions in 2010 (mtc) Kyoto Reduction Commitment s (mtc) Excess Emissions (mtc) Kyoto Commitments minus Excess Emissions Projected Demand (at $4 per tC) in $M EU1, Australia Canada Iceland Japan New Zealand Norway Switzerland United States , Eastern Europe Former USSR1, (322.00)

CDM Funding as Additional Public funding for CDM Projects be additional to Official Development Assistance (ODA), Global Environment Facility (GEF) provided by Annex I Parties Public funding for CDM projects must not result in the diversion of ODA Funding may involve private and/or public entities

Current ‘State of Play’ Although numerically dominant, renewables account for only 9.4 million tons of the 42 MT of CO 2 equivalent being claimed (just over 20%) Single greatest source of carbon credits being claimed is hydroelectric projects

Project TypeNo. of ProjectsTons of CO 2 Mono-culture Plantation (sinks) 1 (component)4,299,951 Renewables*149,430,973 Energy Efficiency1319,392 Fuel Switching1 (component)7,741,405 Gas Capture1700,000 Waste Incineration 12,800,000 Hydro717,150,767 TOTAL2542,442,488 *Hydro projects <10 MW are counted as renewable.

CDM Project Cycle Project Participants Designated Operational Entity CDM Executive Board Project Participants Designated Operational Entity CDM Executive Board Certified Emission Reductions Design Validation/ registration Monitoring Verification/ certification Issuance Designated National Authority (DNA) for CDM Applicant Entity Executive Board and COP/MOP Designated Operational Entity Accreditation/ designation

Contents of CDM-PDD A. General description of project activity B. Baseline methodology C. Duration of the project activity/ Crediting period D. Monitoring methodology and plan E. Calculations of GHG emissions by sources F. Environmental impacts G. Stakeholders comments

Roberto C. Yap, S.J., Ph.D. Environmental Economist Climate Change Information Center Manila Observatory Ateneo de Manila University Tel Fax