1. Options to Foster the Development Dividend Meeting of the Expert Task Force of the IISD Development Dividend Project March 27-28, 2006 Vancouver Deborah Murphy, IISD

2. Outline of Presentation Objective of the Paper Options –Additionality –Programmatic CDM –Small-scale CDM projects –Expanding the roles for sinks projects Brazilian case study –Improved regional distribution

3. Options for Fostering the CDM: Objective of Paper Explore options, with an emphasis on improving the Development Dividend (quality and quantity) of CDM projects Address the concerns noted in the original paper – business noting that there were too few projects at too high a price, with developing countries and civil society noting that projects did not meet SD priorities

4. Additionality Actions taken to address controversy surrounding this issue – EB has requested input and will report back at COP/MOP2 EB ruling in Nov. 2005 attempts to address perverse incentive related to additionality and the CDM – countries not penalized for enacting progressive policies/ regulations as baseline can account for situation prior to adoption of KP

5. Additionality – Challenges/Barriers Methods to address additionality have been criticized for their complexity, high cots, resistance to standardization, weak environmental integrity and susceptibility to gaming A key criticism – additionality consideration has focused on “intent”

6. Additionality – Challenges/Barriers Additionality tool – reaction mixed. Criticized for its project-by-project approach and a focus on investment additionality May have led to a narrow interpretation of additionality and many believe the use of the tool is mandatory in practice.

7. Additionality – Options for Fostering the Development Dividend Short-term Development of tools/assessment methods based on environmental additionality Medium to Long-term Additionality assessment through multi-project baselines based on benchmarks or performance standards

8. Programmatic CDM Decision to includes programs in CDM, coupled with decision on national/sectoral policies may have opened door to increased development dividend Programmatic CDM is similar to single-site projects, as must comply with all procedures and modalities of the CDM.

9. Programmatic CDM – Challenges/Barriers Immediate concern – obtaining approval for methodologies from the EB Specific methodological requirements may pose challenges – project boundary, leakage, baselines, additionality, free riders, double counting, crediting period, monitoring

10. Programmatic CDM – Options for Fostering the Development Dividend Short-term Timely approval of programmatic CDM methodologies Analysis of the nature of opportunities presented through programmatic CDM Medium- to Long-Term Capacity building to develop programmatic baselines and additionality tools

11. Small-scale CDM Projects TypeTotal # ProjectsTotal # SS Projects % of Total Projects that are SS % of Type of Total SS Projects Biomass energy1548957.80%29.70% Hydro1097667.90%24.70% EE industry824150%13.70% Wind763244.70%11.30% Agriculture701927.10%6.30% Biogas241458.30%4.70% Fossil fuel switch281139.30%3.70% Solar55100%1.70% Landfill gas5247.70%1.30% Other5493.00% Total of all project types 65430045.90%100%

12. Small-scale CDM Projects Level of Development/Total Country for CDMNumber2012 kCERs ProjectsTotalSS% of SS totalSS% of SS Least Developed Countries9666.70%3877127933.00% Other Low Income Countries27716961.00%2364053693015.60% Lower Middle Income Countries2238739.00%1842562523113.70% Upper Middle Income Countries1333526.30%33594178532.30% More Advanced Countries12325.00%757872420.30% World65430045.90%836266715358.60%

13. Small-scale CDM Projects – Challenges/Barriers High transaction costs relative to expected emission reduction benefit and upfront nature of costs Rules for bundling may limit the number of CDM projects in a bundle and not allow developers to meet critical mass Definition of projects – renewable energy, energy efficiency and other projects may not be equitably defined

14. Small-Scale CDM Projects– Options for Fostering the Development Dividend Short-term Redefine Small-scale projects to focus on environmental impacts Simplified procedures for Small-scale projects based on Development Dividend criteria Medium- to Long-term Develop a positive list of Small-scale projects/sectors that do not require an Additionality Test

15. Expanding Sinks Projects Two A/R projects, China and India, at the validation stage One approved methodology for large-scale projects, one for SS A/R projects May be an important area for the Development Dividend, as opportunity to involve countries with few energy-based CDM projects

16. Expanding Sinks Projects – Challenges/Barriers Sinks projects expected to play a minor role in the 1 st commitment period – technical difficulties, long-term nature of investments, and controversial Concern that sinks projects divert resources from urgent task of reducing fossil fuels related to GHG emissions “Bad” projects (e.g., monoculture plantations with few community benefits) Expiring nature of tCERs and lCERs EU-ETS at present excludes forestry projects

17. Expanding Sinks Projects – Avoided Deforestation: Case Study from Brazil A/R projects can contribute to DD, but avoided deforestation has potential to make large contribution. Potential for Brazil’s principle contribution toward GHG emission reductions through control and avoidance of deforestation in the Amazon – releases 200 M tons of CO2/yr

18. Sinks Case Study: Brazil Proposed economic development plans in the Amazon could convert 120,000 to 270,000 km 2 in in next 25-35 years. In the order of 2.5 to 6 billion tons of C in the same time period. Development projects such as PROAMBIENTE, could help to control deforestation and frontier expansion through sustainable economic alternatives.

19. Sinks Case Study: Brazil Based on reformulation of government program of agricultural credit. Credit provided to farmers who invest sustainable forms of agriculture and forest conservation. 3 pools of money – Agricultural credit fund for agricultural investments Environmental fund will compensate farmers for investments in environmental protection, up to 40% of total agricultural loan value. Support Fund will be used to set up regional centres that provide outreach, training, including monitoring of carbon

20. Sinks Case Study: Brazil Phase I expected to result in 960,000 tons of avoided CO2 emissions per year and 150,000 tons of sequestered carbon Environmental benefits: lower incidence of fire, lower sedimentation, increased biodiversity values Socio-economic benefits: increased employment, higher income, lower incidence of water-related illness, improved nutrition

21. Expanding Sinks Projects – Options for Fostering the Development Dividend Short-term Encourage the inclusion of credits from sinks projects in the EU-ETS Medium- to long-term Expand the definition of CDM Sinks projects to include avoided deforestation

22. Improved Regional Distribution Level of Development/CountryIn PipelineReg. requestRegistered Number% Least Developed Countries91.60% 4 Bangladesh30.50% 1 Bhutan10.20% 1 Cambodia10.20% Nepal20.30% 2 Tanzania10.20% Uganda10.20% Other Low Income Countries27742.60%434 India26039.80%330 Other Low Income Countries172.80%14 Lower Middle Income22334.20%956 Upper Middle Income13320.30%1039 Other More Advanced121.80%13 World654100.00%24136

23. Improved Regional Distribution of CDM Projects – Challenges/Barriers Lack of capacity – 18 of 48 have DNAs Market-based nature of mechanism determines that many LDCs not attractive to investors Nature of opportunities – many investors seeking short-term rapid generation of CERs, many opportunities in LDCs are in renewables and A/R, which create relatively few emissions over a long time period.

24. Improved Regional Distribution – Options for Fostering the Development Dividend Medium to Long-term Establish the fundamentals to ensure LDCs are sources of CERs in the post-21012 regime

25. Options for Fostering the Development Dividend Short-term Development of Additionality Tools based on environmental additionality timely approval of Programmatic CDM methodologies Analysis of the nature of opportunities presented through programmatic CDM Redefine Small-scale Projects to focus on environmental impacts Simplified procedures for Small-Scale Projects Encourage the inclusion of credits from Sinks projects in the EU-ETS

26. Options for Fostering the Development Dividend Long-term Capacity building to develop programmatic baselines and additionality tools Additionality assessment through multi-project baselines based on benchmarks or performance standards Develop a positive list of Small-scale projects/sectors that do not require an additionality test Expand the definition of CDM Sinks projects to include avoided deforestation Public procurement programs to purchase CERs from LDCs Establish the fundamentals to ensure LDCs are sources of CERs in the post-2012 regime