CDM Analysis from Taiwan Perspective

1
CDM Analysis from Taiwan Perspective

• Chien-Ming Lee
• Institute of Resource Management ,
• National Taipei University
• April 11, 2003 Taipei

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Contents

• Preface
• What is the CDM(Clean Development Mechanism)?
• Rules of Procedure of the CDM
• Models of CDM
• Survey Preference of Taiwanese Corporation
• SWOT Analysis
• Key Issue and Challenges
• Concluding Remark

3
Ratification of the Kyoto Protocol

• Criteria55 Parties to the Convention Accounting
  for 55 of the total carbon dioxide(CO2) emission
  of annex 1 parties for 1990
• 106 parties have ratified (more than 55 parties)
  and total percentage of developed countries
  emission is 43.9(less than 55)
• Widespread political support suggests Protocol
  may enter into force in early 2003

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Structural of Abatement Strategies (OECD, 2010)
5
CDM Capital Flow Evaluation(2010)(Austin and
Faeth et al.,1998)
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What is the CDM?

• Article 12 of the Kyoto Protocol Two Main
  Purpose
• CDM shall be able to assist Parties not included
  in Annex I in achieving sustainable development
• And to assist Parties included in Annex I in
  achieving compliance with their quantified
  emission limitation and reduction commitments
  under article 3

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Commitment under article 3(relative to 1990
emission level)
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• CDM project were seen primarily as an agreement
  where developed countries invest (throughout
  financial and technology transfer) in a
  developing country
• The process will be controlled by an Executive
  Board(EB) which will recommend the approval of
  projects and ratify emission reductions achieved.
• CDM projects must meet the host country criteria
  for sustainable development.

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• Emission reductions must be additional to any
  that would have occurred in the absence of the
  certified project activity?
• Emission reductions will be certified by
  Operational Entities(OE) approved by the
  Conference of the Parties(COP/MOP)
• Once actual emissions have been audited and
  verified the reductions can be certified and the
  permits that should be equivalent to allocated
  entitlements.

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• These certified emission reductions(CERs) can be
  accrued from 2000 for use between 2008-2012
• Article 12 refers to certification of reductions
  and independent auditing and verification of
  project activities.

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Rules of Procedure of the CDM

• First report of the Executive Board of the
  CDM(28 August 2002, FCCC/CP/2002/3)
• 11 Chapter and 39 rules

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(No Transcript)
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Small Scale CDM Projects

• In accordance with paragraph 6(c) of decision
  17/CP.7
• To develop and recommend to the Conference of
  the Parties, simplified modalities and procedures
  for the following small-scale clean development
  mechanism project activities

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Three Types of Small-Scale CDM Project

• Type I renewable energy project activities with
  a maximum output capacity equivalent to up 15
  megawatts(or an appropriate equivalent)
• Type II energy efficiency improvement project
  activities which reduction energy consumption, on
  the supply and demand side, by up to equivalent
  of 15 gigawatt hours per year

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• Type III other project activities that both
  reduction anthorpogenic emissions by sources and
  directly emit less than 15 kilotonnes of carbon
  dioxide equivalent annually.

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Type I CDM Project Categories

• Electricity generation by the user/ household
• Mechanical energy for the user/ enterprise
• Thermal energy for the user
• Electrical generation for a system

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Type II CDM Project Categories

• Supply-side energy efficiency improvements
  transmission and distribution activities
• Supply-side energy efficiency improvements
  generation
• Demand-side energy efficiency programmes for
  specific technologies
• Energy efficiency and fuel switching for specific
  technologies
• Energy efficiency and fuel switching measures for
  building

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Type III CDM Project Categories

• Agriculture
• Switching fossil fuels
• Emission reductions in the transport sector
• Methane recovery
• Other small-scale project

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Typical areas for CDM project

• Energy supply
• Energy demand
• Transport
• Waste management
• Agriculture
• Sequestration

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Energy supply

• Fuel switching
• Renewable energy
• Refurbishment of existing power generation
• Introduction of new technologies for power
  generation including CHP
• Transmission and distribution losses(primary
  energy carriers, electricity, heating)

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Energy Demand

• Replacement of lighting, cooling, heating and
  transport equipment
• Efficient operation of existing equipment

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Transport

• Reduction in transport demand
• Modal shift
• More efficient technologies
• Fuel switch

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Waste Management

• Capture and utilisation of landfill/waste water
  emission

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Agriculture

• Change in land use practices
• Capture and utilisation of animal waste methane
  emissions
• Improved feed to reduce livestock methane
  emissions

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Sequestration

• Afforestation
• Reforestation
• Forest protection
• Forest management
• Sequestration in soils

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Procedure of CDM Project

• CDM project realisation can be dividend into
  three stages
• Pre-appraisal
• Appraisal
• Implemented

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Pre-appraisal stage

• Project proponent should
• Formulate a project concept(including background,
  purpose, brief description, output)
• Find an investor
• Implement a baseline study

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Appraisal stage

• Development of project document(PD)
• Validation of PD(including baseline by host
  country, investor and independent entity
  designated by CDM Executive Board(EB) under the
  UNFCCC)

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Implementation stage

• Compromise physical realisation of the project
• Monitoring and reporting
• Certification and verification
• Credits sharing

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CDM project activity cycle
PP
Host country approval
National CDM Units(DNA)
Investor Country approval
CDM EB
DOE Approval registration
Project Implementation
monitoring
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Verification Certification (DOE)
CDM EB
appeals
Issue CERs
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Legend

• PP Project Participants
• AE Applicant Entity
• EB Execute Board of the CDM
• DOE Designated Operational Entity(any private or
  public body that has been accredited by EB and
  designed by COP/MOP)
• DNA Designates National Authority(the request
  for registration needs to include a written
  approval of voluntary participation by the DNA of
  each parties involved)
• CER Certified Emission Reductions

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Designation of an operational entity
Check of requirement
AE
recommends
COP/MOP
EB
Summit of request of accreditation
Designates (accreditation)
Spot check
Review of accreditation every 3 year
OE
Validates CDM Proj.
Verifies Certifies CERs
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The difference between CDM and Ordinary
investment project
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Highly Transaction Costs

• Conventional projects 57
• CDM projects 2530(world bank data),including
• Project development costs
• Project registration costs
• Monitoring, verification certification of
  emission reductions
• Adaptation proceeds Administration expenses

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Form of Application for Accreditation

• Part1 General
• Part2 Information Regarding Your Organization
• Part3 Information on Senior Staff
• Part4 Proposed Scope of Accreditation
• Part5 Declaration

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Models of CDM

• The Unilateral Model
• The Bilateral Model
• The Multilateral Model
• The Mutual fund(Global Carbon Fund)
• The Hybrid Model

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The Unilateral Model

• Host countries creating CERs without foreign
  investors
• Project Sponsor
• Investor
• Owner Trader of CERs
• Players
• Host country investors/government
• Independent auditors, verifiers, certifiers,etc.
• Executive Board

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Advantages Disadvantages

• Possible Advantages
• Portfolio Bundling
• Eliminate potentially Contentious Negotiations
• Low Transaction Costs
• Possible Disadvantages
• Limited Financing Capacity
• Limited Project Development Management Skills
• Incentives for Baseline Inflation
• High investment Trading Risks

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The Bilateral Model

• Investor-Host partnership
• without minimum institutional involvement
• Players
• Foreign investors
• Host country partners
• Independent auditors, verifiers, certifiers,
  accreditors etc.
• Executive Board

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Advantages Disadvantages

• Possible Advantages
• Ease of Project Implementation
• Flexibility Speed in Negotiations
• Minimum Bureaucracy
• Vigorous Primary Secondary Markets
• High Efficiency Cost-Effectiveness
• Possible Disadvantages
• Incentives for Baseline Inflation
• Increased Investment Risk
• Distributional Equity not Assured
• High Transaction costs

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The Multilateral Model

• A centralized institutional structure (e.g. World
  Bank)
• Common Project Portfolio
• Centralized Decision-Making Management
• Centralized Trading Function
• Players
• Foreign investors
• Host country partners
• Independent auditors, verifiers,
  certifiers,accreditors etc.
• Executive Board

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Advantages Disadvantages

• Possible Advantages
• Economic of Scale
• Risk Diversification
• Low Transaction costs
• Honest Broker
• Promote Equitable Allocation of Funds
• Stimulate Primary Secondary Trading

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• Possible Disadvantages
• Bureaucratic Inefficiencies
• Lack Least-Cost Incentives
• Lack of Transparency
• Market Power/Monopoly Player
• Conflict of Interest

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The Mutual Fund Model

• A System of Mutual Funds as Financial
  Intermediaries
• CDM Authority as Regulator
• Possible Advantages
• Economies of Scale
• Low Transaction Costs
• Risk Diversification for Investors
• Low Market Power Risk
• No Conflict of Interest

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• Vigorous Primary Secondary Markets
• High Efficiency Cost-Effectiveness
• Possible Disadvantages
• Strong Negotiating Leverage vis-à-vis Host
  Countries
• Shortage of Projects in Early Phase of Market
  Development

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CERs
Country CDM Fund

• Investor
• CDM fund

funding
Project Design
Validation
DOE EB
Issue CERs
Monitoring
Verification and certification
The Hybrid Model
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Survey Preference of Industries(2000)

• Sample 45 industries entity(energy-intensive
  industries)
• survey items
• CDM understanding
• CDM preference
• Ability to transfer technology and financial
• Expected Cooperation countries

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CDM Understanding
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Ability to transfer technology and financial(be
an Investor)
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CDM Preference
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Cooperation Countries(investor)
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Cooperation Countries(host)
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SWOT Analysis for Joining CDM---- Industries in
General

• Strength
• CERs can both be used to trade-off domestic
  mitigation obligation and company financial asset
  portfolio. double dividend
• Mainland China business opportunity
  abundant.easy to entry China market
• Highly internationalization, easy to implement
  CDM projectenough ability
• Government provides incentives and supports
  industries to joining CDM

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Weakness

• Taiwan special international political
  situation..high transaction cost(risk)
• Designates National Authority havent building
  yet..capacity building not sufficient
• Scarcity experience..the timing a litter bit
  late
• No chance to be a host

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Opportunities

• Increase environmental and social
  benefits..enforce enterprise sustainable
  development
• Improve energy saving technology
  innovation.reduction cost much
  cheaper(innovation)
• Benefits greater than other investment
  opportunities.catch new investment opportunities

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Threat

• Low approved rate
• High risk of CERs increasing CDM investment
  uncertainty
• CDM related information are incompletely
• Potential competition may come from other
  countries with more advanced reduction technology

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The CDM and Taiwanese Company Basic Scenarios

• Taiwan Between Annex 1 and Non-Annex 1, and
  summit voluntarily emission reduction plan.in
  the secondary commitment period
• Business as usual

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Case 1

• Taiwanese companies would quickly move into a
  position of being aggressive CDM investors and
  developers in the region and beyond to meet
  domestic obligations
• Courage international enterprise investing Taiwan
  CDM project

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Case 2

• Taiwanese companies just only a CDM investor who
  can invest carbon fund or invest other countries
  CDM project
• Domestic industries would look at their own
  capacity to supply emission reductions into the
  domestic marketplace(if we have established
  domestic emission trading system)

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Key issues and Challenges

• Strength communication with UNFCCC
• Capacity building as soon as possible
• The needs of well CDM Propose(especial identify
  the additional condition)
• Establish International compatible verification
  and certification institute(or system)
• Encourage corporation participate CDM project
• Decreasing transaction cost

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Strategies( enterprise dimension)

• Enforce CDM information collection
• Well Utilisation carbon fund mechanism
• Transfer oversees investment project from a CDM
  project
• Set up accurately emission inventory

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Conclusion Remark

• The CDM could create a great chance for
  developing countries to profit from projects
  that reduce greenhouse gas emissions and improve
  the economic and environmental situation in the
  host county
• Potential opportunities risks of engagement in
  CDM getting understood

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• CDM concept possesses
• Vision of chart a cleaner growth for
  developing countries
• Potential financial and technological incentives
  to help realize the vision
• Window of opportunity for sustainable development
  

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• Optimization of these financial incentives can
  only take place through
• Enforcement of Host analytical capacity
• Directing CDM flows as per national sustainable
  development priorities

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• Capacity Building as soon as possible
• Baseline methodologies
• Verification and certification system
• More pilot experiences
• Establish Sustainable development indicators

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List of Sustainable Development Indices

• Economical
• Social
• Environmental

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Economical Indices

• Environmentally sound technologies
• Energy-efficiency improvement and cost reduction
• Attraction of foreign investments for sector
  development
• Perfection of tariff policy
• High/efficient resource utilisation
• Skill upgradeability

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Social Indices

• Local employment potential
• Additional income for farms and local businessmen
• Improvement of conditions for local school,
  hospitals etc.
• Improvement of business culture
• Intellectual capacity building of population
• Improvement of population health

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Environmental indices

• Rational use of land and water resources
• Abatement of air pollution both toxic compounds
  and GHG
• Use of renewable energy(wind, water, solar)
• Decrease of payment for environmental pollution
• Reduction of toxic waste under production

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Thank You for Your Attention