UNEP RISØ Centre on Energy, Climate and SD Capacity Development for the CDM : Outlook and Experiences CDM Investment Forum Marrakech, Morocco April 21 – 22, 2004 Myung-Kyoon Lee

UNEP RISØ Centre on Energy, Climate and SD –Donor: the Netherlands Ministry of Foreign Affairs –Implementing Agency: UNEP RISØ Centre on Energy, Climte & Sustainable Development –Phase I: Feb – 2nd quarter of 2003, preparation of national work plans –Phase II: 3rd quarter of 2003 – end of 2005, implementation of national work plans Overview of CD4CDM

UNEP RISØ Centre on Energy, Climate and SD –generating a broad understanding of the CDM in the developing countries –developing institutional capability and human capacity of the developing countries to fully participate as equal partners with developed countries in the formulation and implementation of the Clean Development Mechanism (CDM). Main goals

UNEP RISØ Centre on Energy, Climate and SD –three small / medium sized countries each from four regions –Asia: Cambodia, the Philippines, Viet Nam –Latin America: Bolivia, Ecuador, Guatemala –Middle East & North Africa: Egypt, Jordan, Morocco –Sub-Saharan Africa: Côte d’Ivoire, Mozambique, Uganda Participating Countries

UNEP RISØ Centre on Energy, Climate and SD –sensitizing government supports for the CDM –developing capacity of policy makers –establishing institutional framework for the CDM projects –strengthening capabilities of the public and private sectors –creating a pipeline of the CDM projects Main Tasks

UNEP RISØ Centre on Energy, Climate and SD Implementation Strategy 1 Project manager RCs CTs Regional Coordinator for Asia Regional Coordinator for LA Regional Coordinator for ME&NA Regional Coordinator for SSA URC studies, surveys, training courses, workshops, seminars, consultations, information sharing and dissemination Analytical Work Coordinator

UNEP RISØ Centre on Energy, Climate and SD –On-site implementation –Background materials: internal expertise, involving regional centres and hiring external experts Implementation Strategy 2

UNEP RISØ Centre on Energy, Climate and SD National work plans –National teams were set up and working on national work plans. –All 12 countries finished work plans and getting into phase II. Introduction to the CDM –Translation into local languages: French, Arabic, Spanish, Vietnamese, Cambodian, Portuguese, Chinese, Japanese, Korean Main Outputs in Phase I

UNEP RISØ Centre on Energy, Climate and SD Current Progress Asia Latin America ME & NASSA Phase I completed KP ratification Cambodia, Philippines, Viet Nam Bolivia, Ecuador, Guatemala Morocco, R Jordan, A Egypt, S Uganda, A DNA Viet Nam, Cambodia Bolivia, Ecuador Morocco, Egypt, Jordan none Regional workshops Mar Nov Dec Mar (baseline & PDD) Apr. 2004

UNEP RISØ Centre on Energy, Climate and SD –Combining with other components such as UNDP and the World Bank: Morocco and the Philippines, African countries –Advisory body invited: NL, UNFCCC, WB, UNF, UNIDO, UNDP, ADB, WBCSD –New members to AB: IGES, e7 –Information sharing with private sector Information Sharing and Collaboration

UNEP RISØ Centre on Energy, Climate and SD –Establishing and making institutional framework operational: mid three sub-Saharan African countries, the Philippines and Guatemala - Training DNA staff and the private sector participants (project developers, financial sector, academia and research institutions, NGOs) –Finishing Background Materials –Identifying projects and creating project pipelines - some countries already have identified project portfolios - Morocco will have an investment forum in April inviting potential buyers –cooperation with other organizations and possible replication - AB meeting - Collaborating with IGES and e7 & UNDESA - CDCF plus with the WB Main Activities in Phase II

UNEP RISØ Centre on Energy, Climate and SD –Introduction to the CDM: 2002 –CDM Information and Guidebook: Dec –Peru’s Institutional strategy to promote the CDM – CDM legal issues Guidebook –CDM and Sustainable Development –Guidebook on developing baselines for CDM projects –Bundling of small-scale CDM projects –Case studies on the contribution of the CDM to SD in selected LA countries (Bolivia, Ecuador, Colombia, Uruguay) –Financial issues in the CDM Development of Background Materials

UNEP RISØ Centre on Energy, Climate and SD –A popular guidebook to introduce the CDM to the general public. –It summarizes the essence of the CDM including : a historical overview : a brief overview of the CDM project cycle : the national values and benefits of participation in the CDM : a national strategy to promote the CDM. –It illustrates several examples of possible CDM projects based on previous AIJ, ALGAS, and PCF projects –Published and distributed in 2002 and translated into 9 languages. Introduction to the CDM

UNEP RISØ Centre on Energy, Climate and SD –Focusing on the project cycle and PDD as well as touching various aspects of the CDM –Ch. 2 overviews the CDM drawn upon ”Introduction to the CDM” by URC summarizing brief project cycle and the national values and benefits of participation in the CDM. –Ch. 3 visits the issue of SD from the perspective of a CDM project. This chapter presents an example of SD indicators and major steps of an SD evaluation of CDM projects. –Ch. 4 explains each step of the project cycle with informative tables and numbers. –Ch. 5 shows how to fill out the PDD. CDM Information and Guidebook (1)

UNEP RISØ Centre on Energy, Climate and SD –Chapter 6 provides an overview on impact of CERs on project viability, sources of funds and risk management. –The last chapter, Chapter 7, reviews recent CER market transactions and price trends. –Appendices present frequently asked questions and answers, a short overview of existing guidelines, and a possible future list of eligible CDM projects categories. CDM Information and Guidebook (2)

UNEP RISØ Centre on Energy, Climate and SD –It shows the way in which Peru has designed an institutional strategy to promote the projects eligible for the CDM. –The description of this process might be useful to other countries interested in establishing DNA to participate in the CDM. –Peru’s activities in the CC negotiation and Peruvian legal and instutional context for the CDM –In Operationalization of DNA, it describes problems encountered and how Peru has solved them including composition and structure of DNA and how to finance it. Peru’s Institutional strategy to promote the CDM

UNEP RISØ Centre on Energy, Climate and SD –Providing an overview of how CDM projects can be evaluated in the context of SD. –Following a general introduction on the linkage of CDM to SD, presented is the national development context of evaluating SD impacts of CDM projects. –Introduction of SD in relation to CDM projects –Short overview of what will be involved in an SD evaluation of CDM projects –How to select and evaluate indicators –How to use the SD evaluation in decision making –Case studies illustrating different indicators and approaches –Short overview of how other CDM capacity building projects or guidelines address SD aspects of CDM CDM and Sustainable Development

UNEP RISØ Centre on Energy, Climate and SD –Two CD4CDM project countries (Bolivia and Ecuador) and two other countries in LA (Colombia and Uruguay) –Each country will undertake a few specific case studies to describe the way the country is to assess the contribution of the CDM projects to national SD: one EE, one RE + one sink project, but different project types from different countries –Case studies include how the criteria and SD indicators are applied in existing CDM project proposals Case studies on the contribution of the CDM to SD in selected LA countries

UNEP RISØ Centre on Energy, Climate and SD –The main objective is to provide developing country stakeholders with advice on legal and regulatory pitfalls host country CDM stakeholders need to watch for during the various stages of CDM project development. –The Guidebook is intended to give as much examples and hints as possible on what could go legally wrong in a CDM project and the type of risks that may face both the CDM investor and the host country, while presenting logical and simple legal, contractual, and/or regulatory solutions. –Want to show how developing countries can take care of their own interests and at the same time develop efficient CDM projects through alternative legal framework and CDM contractual agreements. CDM Legal Issues Guidebook

UNEP RISØ Centre on Energy, Climate and SD –Baseline is a key component for a CDM project to be validated and to generate CERs. –Baseline guidebook aims to provide project developers and other stakeholders of the CDM with a clear definition of baseline and calculation methodologies for different types of CDM projects. Guidebook on developing baselines for CDM Projects (1)

UNEP RISØ Centre on Energy, Climate and SD –key components of developing baseline methodology –the steps to use baseline methodologies for small scale projects –the step wise approach to the selection of project specific baselines –application of baseline methodology for selected projects –the issues in developing baseline for A&R projects –Annex will present some of the econometric and optimization models, such as LEAP, MARKAL, ENPEP used for analysis of baseline emissions. Presented will be the model structure, data requirements, underlying assumptions and limitations of these models. Guidebook on developing baselines for CDM Projects (2)

UNEP RISØ Centre on Energy, Climate and SD –The main objective of the guideline is to present the implications of CERs as an additional CDM project benefit and to present approaches in dealing with several financial issues associated with CER generation. –Chapter 1 will analyze the impact of CERs on project viability and will discuss issues related to carbon revenues, transaction costs, etc. –Chapter 2 will analyze CER implications on project finance. This will review the emerging arrangement in CER procurement and the new sources of project funds. This part will also present how the CERs could improve the debt carrying capacity of the project. –Chapter 3 will present new risks associated with CER generation and the approaches in mitigating these risks. –Chapter 4 will present the emerging CER market development and the implications of the proposed linkage with the EU-ETS, CER buyers and transactions, and emissions reductions price trends. Financial Issues in the CDM

UNEP RISØ Centre on Energy, Climate and SD –Criteria: small-scale CDM projects –Rationale - high transaction costs - a large number of EE and RE projects meeting SD and host priority criteria are small-scale –Advantages - simplified baseline and monitoring methodology can be used - small-scale project developers can also benefit from the CDM –Issues to be covered: approaches and procedures - how to bundle and what type of projects? - how to address issue of differing baselines and monitoring requirements? - who should bundle? - what kind of arrangements are possible between stakeholders? - what kind of capacity and infrastructure are needed? Bundling of Samll Scale CDM Projects

UNEP RISØ Centre on Energy, Climate and SD –CDM projects are not automatically realized. –International regulations on the CDM - a Party to the KP - DNA in place to approve CDM projects - NSS could identify many potential CDM projects in participating countries but could not move on due to the lack of institutional framework. –CDM is an investment scheme and investors want - a well-developed institutional set-up, e.g. one-stop shopping - clear and transparent rules - a well-defined approval process - a low transaction cost e.g. a short approval process and a low fee Why Institutional Capacity Building?

UNEP RISØ Centre on Energy, Climate and SD –Donor competiton - NSS: Germany and Australia in Indonesia, Swiss and Germany in China –Uncoordinated workshops without follow-up - At the beginning, the workshops made a contribution to raise awareness but from a certain level, little value added. –Flow back of a high share of project budgets into investor country or international consultants –No funding for real institution buildings - the lack of institutions is the major barrier Source: Axel Michaelowa, CDM Host country institution building, 2003 Experiences from Previous CB Activities

UNEP RISØ Centre on Energy, Climate and SD –The progress depends on various factors - a high level political commitment - initial capacity related to CC - capability of country teams: political connection and private network –Coordination among and participation of relevant ministries important - particularly ministries in charge of energy, industry, economy, transportation and agro-forestry –Adaptation is a more urgent issue in many developing countries - but international politics should be taken into account –Trust among URC, RCs, and country teams is a key factor. –Delegation of authority to other players –Country driven, needs-based approach: tailor-made prescription Experiences from CD4CDM

UNEP RISØ Centre on Energy, Climate and SD –view CC as opportunity as well as risk –trust-building and confidence-building –a market-oriented, customer-oriented approach –awareness raising particularly for policy makers –in the initial decision-making process of a country, a top-down approach is normally more efficient than a bottom-up approach: a high level commitment –integrating the climate process into national development strategies to give a higher priority to climate change –mobilizing the existing expertise: building upon the current institutional framework as much as possible rather than making a whole new structure, particularly in small countries –political stability and predictability –stability of professional staff: institutional memory –Transparency and efficiency: clearly defined rules and regulations including approval process and fees, SD criteria, and national priorities –learning by doing through a specific project is more efficient General Recommendations