Challenges of CDM for Building Energy Efficiency UNFCCC Workshop Buildings under UNFCCC Flexible Mechanisms Chia-Chin Cheng UNEP-SBCI Beihang University International Green Energy Center Bonn, Germany March 24, 2011

Largest Potential for GHG Emission Reduction in Buildings Source: IPCC 4th Assessment Report Highest GHG reduction potential Most cost effective

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Score Card for Building Projects in CDM 6 vs

Score Card for Building Projects in CDM 31 vs vs. 80

Existing Building Related CDM Methodologies

Underlying causes for low CDM and EEB uptake Long-tail characteristics of the sector- small saving, big effort Fragmentation of sector / uncoordinated stakeholders Insufficient R&D and information for new EEB technologies Insufficient EEB expertise and tools High upfront and transaction costs for tech adoption in DC Lack financing mechanism and interests for EE investments Lack of awareness and general inertia restrict uptake Source: Cheng, et al., 2008

Insert Footer: View menu, Header and Footer. Apply to All Old CDMs Rules Add to Difficulties Complex rules and procedures High transaction costs, long lead time, not enough payback Technology based methodologies are tedious to validate, monitor and verify carbon performance Difficulty in establishing baselines for new buildings Combination of different methodologies is not allowed for programmatic CDM Soft measures (energy management measures) are not taken into account, and difficult to prove in the current verification scheme Lack of mechanism to support low income sector CDM does not support mandatory national standards

CDMs Amazing Reform in Three Years Complex rules and procedures further simplify SSM Cancun decisions High transaction costs, long lead time, not enough payback programmatic CDM and institutional reform Technology based methodologies are tedious to validate, monitor and verify carbon performance new methodologies use whole building and simulation approach Difficulty in establishing baselines for new buildings standardized baseline Combination of different methodologies is not allowed for programmatic CDM addressed in EB 47 Soft measures (energy management measures) are not taken into account new methodology with whole building approach Lack of mechanism to support low income sector new scenario allowed CDM does not FULLY support national standards

Insert Footer: View menu, Header and Footer. Apply to All CDM has performed a substantial reform, but…. For a large-scale uptake of building sector CDM CDM ALONE is NOT a sufficient incentive The construction sector does not respond well to economic and voluntary incentives alone. CDM ALMOST has to piggyback with other stronger and large- scale incentives Directly clash with additionality rules Possible two larger scale incentives in building sector Government policies and standards are much stronger mechanisms to drive large-scale actions Voluntary certification schemes started penetrating DC market CDM needs to be ready to FULLY support government policies, building codes and NAMAs

Insert Footer: View menu, Header and Footer. Apply to All CDM Complements Government Policies Government policies is much stronger to overcome generic barriers: enforcing compliance from top down mobilizing a large number of various stakeholders creating a market demand and providing rules kick starting R&D of new tech. and deployment of existing tech. creating incentives for co-benefits that do not have market value CDM is a strong mechanism to support policy intervention bottom-up approach to supplement top-down nature of government policies provide necessary means and resources to help regulated entities comply increase quality and depth of policy implementation, particularly in small business and individuals SBCIs Assessment of policy instruments for reducing greenhouse gas emissions from buildings shows: The construction sector does not respond well to economic/voluntary incentives alone. Successful policies need to combine regulatory, fiscal, economic and capacity building elements. Experience indicates that regulatory tools (e.g. enforced standards) are most efficient and cost effective.

Insert Footer: View menu, Header and Footer. Apply to All CDMs Bottom-up Support for Long-Tail Building Projects CDMs bottom-up approach to overcome difficulties in small scale investment– with strong policy initiative in place Project and program based approach is especially suitable for long-tail projects individual mitigation opportunities are tackled one-by-one, project-by- project, CPA by CPA Replicability makes scaling up of successful project modules easier publicly available project documents and methodologies could facilitate project replication programmatic CDM could potentially enable a large number of replications for small project activities provide necessary means and resources to accelerate &deepen compliance

Insert Footer: View menu, Header and Footer. Apply to All CDMs quality assurance mechanisms to induce change of practice built-in quality control mechanisms and strict MRV requirements could ensure long-term compliance induce change of business practices and internalization of energy saving behavior are the most important co-benefit of the CDM adopting CDM is already additional maintain the benefit in simulation based methodology Enhance private investment in EE buildings reduce risks for small size projects by coordinated aggregation CDMs built-in quality control measures reduce risks of project default and help to enhance project quality enable life-cycle based financing CDM revenue to pay for transaction and MRV & management costs CDMs Bottom-up Support for Long-Tail Building Projects

Insert Footer: View menu, Header and Footer. Apply to All Making CDM facilitate implementation of building codes and regulations set sector-wide standardized baselines for diff. buildings and climate Implement performance based building standards and include CDM crediting for projects going beyond compliance requirements maintain CDMs project and program based mechanism and allow CDM to help with implementation of mandatory standards non-binding targets, easily acceptable by fast developing countries CDM & Regulatory Reform for Buildings Core concepts for energy performance based methodology energy performance based building codes, MRVs, methodologies and indicators- KWh/m2 Allow flexibility in building design and encourage renovation Consistent regulatory logic, MRV method and tools for entire project life- cycle Based on good benchmarking & quantitative management tools Suitable for long-tail, dispersed projects, e.g. buildings, SMEs, and rural

Insert Footer: View menu, Header and Footer. Apply to All Encouraging Signs in Current CDM Projects Public policies provide strong incentive for CDM project uptake Existing voluntary initiatives start to integrate with CDM Strong interest and uptake of building related p-CDM projects when the methodology is made right Internalization of EE behaviors and change of business culture in CDM projects

Short-term Challenge Establish facilitating methodologies based on industry and CDMs good practices Medium-term Challenge Develop standardized baselines and benchmarking for DC Performance based- SBCI common carbon metrics Revisit additionality rules for buildings building codes- no additionality benchmarked additionality The Avenue Forward……. Long-term challenge CDM to fully support policy and NAMAs

Coming Up… UNEP Risoe Working Paper CDM, NAMAs and the Building Sector: a Two-Track Financing Mechanism for Post-2012 SBCI Common Metrics For More Information: