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Southeast Asia Lessons learnt from CDM
experience in the region South East Asian
Regional ECBI Workshop Dhaka, 8. August
2006 Matthias Krey, Perspectives
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Background

• Goals
• Draw lessons from promotion of CDM outside the
  rapidly industrialising countries
• Develop recommendations to enhance opportunities
  for poorer developing countries to benefit from
  the CDM
• Surveyed countries Lao, Cambodia, Vietnam,
  Thailand, Malaysia, Singapore, Phillipines and
  Indonesia
• Involved Institutions
• Hamburg Institute of International Economics
  (HWWI)
• PT Pelangi Energi Abadi Citra Enviro (Peace
  Reasearch and Advisory)

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Overview

• Theoretical CDM potential in ASEAN
• ASEANs share in the CDM
• Procedures, resources and outreach of DNAs in
  ASEAN
• CDM Capacity Building in ASEAN
• Recommendations for promoting CDM participation
  of low-income countries

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Theoretical CDM project potential in ASEAN

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Methodology

• Factors that influence a countrys CDM
  perspective
• Theoretical scope of emission reductions
• Country business climate
• Country CDM institutions and CDM project
  experience
• Result Overall competitiveness level for each
  country

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Potential supply

• Cambodia and Lao
• Potential for small scale CDM projects like
  mini- and micro hydro, small municipal and
  agricultural waste, as well as energy efficient
  appliances
• Vietnam
• Only limited number of projects with high
  quality and quantity CERs (EE in industry, power
  and households as well as RE)

• Indonesia, Malaysia, The Philippines,
• Singapore and Thailand
• High potential in energy and energy efficiency
  sector
• Indonesia ranking first before Malaysia and
  Thailand
• All countries except for Singapore are
  developing countries and are still distant to
  sustainable development practices

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Country investment climate FDI Inflows

• FDI Inflows
• Cambodia heavily reliant on foreign assistance,
  troubles attracting FDI (unreliabel local
  government)
• Lao totally dependent on foreign aid, extremely
  difficult to attract FDI (poor investment
  climate, primitive infrastrucutre), but FDI in
  sector for hydropower schemes likely
• Vietnam high ability to attract and utilise
  relatively large amounts of FDI and ODA, but
  obstacles remain (inadequate infrastructure, slow
  privatisation process, lack of administrative
  capactiy...)
• Analogy FDI inflows CDM investment?
• Prerequisites that drive the flows of
  tranditional FDI to destinations are likely to be
  dynamic driving factors for distribution of CDM
• ? Unfavourable outlook for Cambodia and Lao,
  difficult for Vietnam

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Country investment climate
Source Annual IPS ASEAN 91 Competitiveness
Ranking Indices
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Country CDM institutions and CDM project
experience (I)

• Host country CDM institutions
• Cambodia, Vietnam, Indonesia, Malaysia and
  Philipines Institutions meet necessary
  conditions to enter carbon market, not yet
  assessable how efficient systems work
• Lao Main functions and set-up of institutions
  are still under discussion (DNA not operating
  yet)
• Thailand Strong bureaucracy, decisions on a
  case-by-case basis at the cabinet level prohibit
  efficient approval
• Singapore Still premature process (no DNA)

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Country CDM institutions and CDM project
experience (II)

• Climate project experience (as of June 2006)
• 6 PDDs submitted from Vietnam (3 renewable
  energy, 1 energy efficiency, 1 gas capture, 1
  mining methane capture), 1 PDD submitted from
  Cambodia (Renewable electricity)
• Indonesia 2 registered projects (energy
  industry), 2 PDDs submitted (energy industry,
  waste mgmt.)
• Most active country Malaysia with 8 projects (5
  registered, thereof 4 energy industry, 1
  manufacturing ind 3 under review)
• 1 renewable electricity project submitted from
  The Philippines
• Lao, Singapore, Thailand no projects submitted
  yet

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Country CDM competitiveness ranking
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Assessment of ASEANs share in the CDM project
pipeline
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Number of project activities submitted
Total 695 projects
Share of CDM projects submitted to the UNFCCC by
regions
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CERs generated until 2012 of submitted project
activities
Total 613 Million CERs
Share of CER generated until 2012 by percentage
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ASEAN CDM project submitted to the UNFCCC by
country
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Type of ASEAN CDM projects submitted
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Summary

• On global scale, ASEAN CDM projects are
  increasing,
• nevertheless...
• ... Their share is still considerably low
• ... They need to work on the establishment of
  favourable approval processes and consultancy
  sector, support project development
• ... Real breakthrough for a considerable share
  on the CDM market not likely due to lack of large
  CDM potential
• ASEAN likely to attract niche investment
• ... But will not be able to play in CDM
  Champions League

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Assessment of the procedures, resources and
outreach of DNAs in ASEAN
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DNA assessment - structure

• Background information on DNAs
• Mandatory function Assessing CDM projects at
  national level
• Authority Issuing Letter of Approval stating
  that the project assists the country in
  achieving sustainable development
• Non-mandatory functions Assessing technical
  aspects of projects, promotional activities
  (capacity building, marketing)...

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DNA structures Strengths Weaknesses
High number of ministries involved, dominating
role of governments Strenghts Weaknesses
Relatively strong unanimous endorsement of CDM
mgmt. activities proposed projects Low risk of
blocking of projects due to interest conflicts
Poor involvement of other stakeholders
Bureaucratic, less flexible to adapt to changes
in CDM procedure/markets
Core budget secured by higher number of
ministries
Staff less motivated than in mixed governmental-NG
O model
Efficiency inside DNA board rises with position
of host ministry in the governmental politic
system
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DNA assessment Implementation and external
affairs

• Approval Process
• Not specified in CDM rules, each country decides
  on its own set-up of process
• Transparent simple rules attract more
  investors
• Criteria for Sustainable Development
• Each country has total freedom of decision on
  how to appraise a projects contribution to
  sustainable development
• No standardised criteria or indicators
• Other criteria
• Include the DNAs activities in improving the
  competitiveness of the host country and
  mobilising CDM capital flow into the country
• Information dissemination and outreach

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Duration of approval process

• Indonesia
• Theoretically fastest DNA with 30 days
• Cambodia, Lao and Vietnam
• 1.5 months
• Philippines and Thailand
• About 2 month
• Philippines Difficult to obtain approval due to
  emphasis in consultation and intervention of NGOs
  
• Thailand difficult process of approval
• Malaysia
• 2,5 months
• Most active to produce LoA and most successful
  one to have projects registered with EB

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Assessment of criteria for Sustainable
Development - Cambodia (I)

• Use of local businesses
• Reduction of import of fossil fuels

Economic development

• Poverty alleviation
• Creation of jobs
• Sound stakeholder consultation

Social development

• Reduction of pollution
• Biodiversity conservation
• Sustainable use of resources

Environmental sustainability

• Transfer of technology
• Capacity Building

Technological development
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Assessment of criteria for Sustainable
Development - Cambodia (II)

• Development criteria and indicators based on
  South-South-North/Gold Standard Approval Process
• Each indicator is scored from -3 to 3 (with -3
  stating serious negative impact, 0 no impact)
• Vicious circle
• Very modest CDM potential in combination with
  comprehensive list of sustainable development
  criteria
• If adapted in a relaxed manner, low quality CDM
  projects can get be approved
• If adapted very strictly, only a few high
  quality projects can be realised

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Assessment of criteria for Sustainable
Development Other countries

• Indonesia
• list of criteria includes environmental,
  economic, social, and technological
  sustainability which is project-based indicators
• Singapore, Philipines and Thailand
• No information on sustainability criteria
  availble
• General problems
• Lack of project-specific assessment or
  methodologies to evaluate projects contribution
  to Sustainable Development
• No criteria are translated into sectoral
  indicators or specific quantitative standards

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DNA assessment Summary

• CDM is about projects
• Opportunities for CDM projects to materialise is
  essential for all further activities
• Host country with modest CDM potential should
  establish a DNA in close contact with existing
  bodies dealing with climate change
• Small and medium sized CDM countries DNA should
  focus on mandatory tasks (leave judgement of
  feasibility and additionality to DOEs) and
  promotion
• Not ideal models, but...
• Cambodia and Vietnam DNAs are in place and
  improving
• Lao PDR faces a critical year to finalise
  structure and operation before deadline for
  registration of CDM projects for first period is
  gone
• More assistance needed
• ...in specific issues (legal and financial) and
  strengthening involvement of private, consulting
  sectors

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Assessment of past and ongoing CDM Capacity
Building in ASEAN
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Examples of Capacity Building Programmes (I)
ID Indonesia, MY Malaysia, SG Singapore, TH
Thailand, and PH the Philippines
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Examples of Capacity Building Programmes (II)

• Cambodia
• Activities Workshops, focus on waste mgmt.,
  renewable energy, small scale projects
• Target group Public and private sector
• Lao PDR
• Activities Support establishment and full
  operation of DNA
• Target group Central and local government
  authorities
• Vietnam
• Objective Evaluation of CDM potential in
  industrial sector
• Target group Industrial sector

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Capacity Building Tools

• Results from survey carried out by UNITAR
• Workshops and stakeholder Dialogue
• Deemed useful by 64
• Common feature of all programmes
• General public training
• Also popular with governmental audiences
• Relatively high costs
• Writing of studies
• Widely used, but limited impact due to
  restricted dissemination, unadjusted material for
  different target groups
• Booklets and brochures published Cambodia
  (gt10), Vietnam (gt15), Lao (1) with basic
  information on UNFCCC, Kyoto and CDM modalities

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Summary

• Cambodia and Vietnam
• Quite successfull in attracting international
  and bilateral donors for CDM Capactiy Building
  projects
• Projects contributed significantly to
  establishment of DNA, and building capacity with
  project developers
• LAO PDR
• Only one Capacity Building Programme but with an
  essential role of improving understanding of
  governmental authorities
• DNA not operating yet
• Capacity Building as continuous, progressive and
  iterative process
• Further assistance needed!!

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Suggestions

• Avoid replicates in scope and content already
  addressed
• Link sufficiently with results of previous
  projects
• Define specific target groups, focus on
  previously poorly involved groups like private
  and financial sector
• Start programme with general information on
  climate change
• Cut down on workshops aiming at general public
  awareness rising, but focus on on-the-job/sectoral
  trainings to transfer skills
• Concentrate research on secoral level for
  information on CDM potential and state of the
  art technologies for project developers

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Recommendations for promoting CDM participation
of low-income countries
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Current distribution of CDM activities
Data source CD4CDM, Jun. 2006
LDCs and LICs account for a very minor share
only 4 of total projects developed (and 5.6
of total expected CERs) worldwide so far
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Types of CDM projects developed in the LICs
Types of the projects submitted and registered by
the LICs
Data source UNFCCC website as of June 2006
Projects types have high potential to deliver
high levels of sustainable development benefits
to host countries
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Current trend of CDM investment-flows (I)
Unequal geographical distribution of CDM
investment Developing countries with high CDM
potential ? attract more and more CDM
projects ? accumulate more experience by
implementation of projects ?
strengthen their competitiveness in the CDM world
market ? likely to attract more investment.
at disadvantage of LICs Flow of
investment is skewed toward a small sub-set of
developing countries, side-stepping those LICs
that need it most for the purpose of sustainable
development
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Current trend of CDM investment-flows (II)

• Reasons for lack of investment flow into LICs
• Investors look for low marginal incremental
  costs, low project risk, creation of a good image
• Investors search for short-term rapid generation
  of CERs, but project types in LICs are mainly in
  renewables and A/R (lower emission reduction over
  a long time period)
• Small projects imply higher transaction costs
• ? Projects are distributed through market
  mechanisms, which are not about fulfilling
  sustainable development criteria, nor about
  achieving a fair distribution of the projects and
  investments involved in them

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Mobilising CDM investment into the LICs (I)
Need of an effective DNA in host countries is
over-riding factor for facilitating CDM
activities
Main challenges for effectiveness and
sustainability of DNAs are shortage of finance
support and human resource for a long period
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Mobilising CDM investment into the LICs (II)

• Establish transparent, quick approval processes,
  mainstreaming of CDM into other policies
• Have a realistic view of abatement potential and
  costs in LICs (avoid concentration on
  non-attractive areas, address additionality
  issues proactively)
• Support reliable local consultants (reduces the
  transaction costs, minimises consulting fee runs
  into the pocket of the international consultants)
• Promote proactive industrial associations and
  private sectors to find viable CDM ideas
• Long term, foster existence of competent
  domestic OEs (reduce transaction costs for
  developing CDM projects)
• ? LICs opportunity Expeditious registration of
  small-scale projects and support for bundled
  projects with high sustainability value

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THANK YOU! Matthias Krey Perspectives GmbH Bei
der Apostelkirche 24 20257 Hamburg Germany Phone
49 (0) 40 21979761 Mobile 49 (0) 176 -
2460 4014
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