1. krey@perspectives.cc www.perspectives.cc Southeast Asia: Lessons learnt from CDM experience in the region South East Asian Regional ECBI Workshop Dhaka, 8. August 2006 Matthias Krey, Perspectives GmbH krey@perspectives.cc

2. krey@perspectives.cc www.perspectives.cc 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)

3. krey@perspectives.cc www.perspectives.cc Overview Theoretical CDM potential in ASEAN ASEAN‘s 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

4. krey@perspectives.cc www.perspectives.cc Theoretical CDM project potential in ASEAN

5. krey@perspectives.cc www.perspectives.cc Methodology Factors that influence a country’s CDM perspective Theoretical scope of emission reductions Country business climate Country CDM institutions and CDM project experience Result: Overall competitiveness level for each country

6. krey@perspectives.cc www.perspectives.cc 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

7. krey@perspectives.cc www.perspectives.cc 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

8. krey@perspectives.cc www.perspectives.cc Country investment climate CountryOverallEconomic environment Political environment Business environment Social environment Singapore11111 Malaysia23222 Thailand32333 Philippines44444 Vietnam56655 Indonesia65568 Cambodia77776 Myanmar88889 Lao PDR99996 Source: Annual IPS ASEAN 9+1 Competitiveness Ranking Indices

9. krey@perspectives.cc www.perspectives.cc 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)

10. krey@perspectives.cc www.perspectives.cc 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

11. krey@perspectives.cc www.perspectives.cc Country CDM competitiveness ranking CountryOverallCDM capacityCDM institutions & CDM project experience Investment environmen t VietnamBBB+CCC CambodiaCCCBC+ Lao PDRC- /DCC- Competitive AAAextremely highly competitiveAAvery competitive AcompetitiveBBBsomewhat competitive Regarded as risk elements BBnot totally competitiveBa slightly higher chance to be successful than to fail CCCnot so competitiveCCreasonably unlikely that investments in this country will be successful Cunlikely that investments in this country will be successful Dno competitive/unsuitable for CDM investments

12. krey@perspectives.cc www.perspectives.cc Assessment of ASEAN‘s share in the CDM project pipeline

13. krey@perspectives.cc www.perspectives.cc Number of project activities submitted Share of CDM projects submitted to the UNFCCC by regions Total: 695 projects

14. krey@perspectives.cc www.perspectives.cc CERs generated until 2012 of submitted project activities Share of CER generated until 2012 by percentage Total: 613 Million CERs

15. krey@perspectives.cc www.perspectives.cc ASEAN CDM project submitted to the UNFCCC by country

16. krey@perspectives.cc www.perspectives.cc Type of ASEAN CDM projects submitted Project types Total project type No. of submitted project activities CambodiaIndonesiaLaoPDRMalaysiaPhilippinesThailandVietnam Cement blending 1 -- 1 Oil-gas 1 -- 1 Renewable energy for industry 1 -- 1 Waste 1 -- 1 Renewable energy for households 1 --1 Geothermal 1 -- 1 Wind 2 -- 2 Hydro 3 -- 3 Industry 3 -- 3 LFG 3 -- 111 Wastewater 8 -- 17 Biomass 17 14--8 3 Ag Waste 19 --1 171-- Total61 171 1422 124

17. krey@perspectives.cc www.perspectives.cc 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”

18. krey@perspectives.cc www.perspectives.cc Assessment of the procedures, resources and outreach of DNAs in ASEAN

19. krey@perspectives.cc www.perspectives.cc 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)...

20. krey@perspectives.cc www.perspectives.cc DNA structures: Strengths & Weaknesses High number of ministries involved, dominating role of governments StrenghtsWeaknesses Relatively strong unanimous endorsement of CDM mgmt. activities + proposed projects Low risk of blocking of projects due to interest conflicts Core budget secured by higher number of ministries Efficiency inside DNA board rises with position of host ministry in the governmental politic system Poor involvement of other stakeholders Bureaucratic, less flexible to adapt to changes in CDM procedure/markets Staff less motivated than in mixed governmental-NGO model

21. krey@perspectives.cc www.perspectives.cc 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 project’s contribution to sustainable development No standardised criteria or indicators Other criteria Include the DNA‘s activities in improving the competitiveness of the host country and mobilising CDM capital flow into the country Information dissemination and outreach

22. krey@perspectives.cc www.perspectives.cc 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

23. krey@perspectives.cc www.perspectives.cc Assessment of criteria for Sustainable Development - Cambodia (I) Economic development Use of local businesses Reduction of import of fossil fuels Social development Poverty alleviation Creation of jobs Sound stakeholder consultation Environmental sustainability Reduction of pollution Biodiversity conservation Sustainable use of resources Technological development Transfer of technology Capacity Building

24. krey@perspectives.cc www.perspectives.cc 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

25. krey@perspectives.cc www.perspectives.cc 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 project’s contribution to Sustainable Development No criteria are “translated” into sectoral indicators or specific quantitative standards

26. krey@perspectives.cc www.perspectives.cc 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

27. krey@perspectives.cc www.perspectives.cc Assessment of past and ongoing CDM Capacity Building in ASEAN

28. krey@perspectives.cc www.perspectives.cc Examples of Capacity Building Programmes (I) IDMYSGTHPH IGES ICS-CDM√√√ EAEF/Asia Pro-Eco√√√√√ CD4CDM√ Germany (GTZ)√ Denmark (Danida)√√√ The Netherlands√ UNIDO√√√ South-South-North√√ World Bank Carbon Finance Assist World Bank Global Gas Flaring Reduction Initiative √ ID: Indonesia, MY: Malaysia, SG: Singapore, TH: Thailand, and PH: the Philippines

29. krey@perspectives.cc www.perspectives.cc 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

30. krey@perspectives.cc www.perspectives.cc 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 (>10), Vietnam (>15), Lao (1) with basic information on UNFCCC, Kyoto and CDM modalities

31. krey@perspectives.cc www.perspectives.cc 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!!

32. krey@perspectives.cc www.perspectives.cc 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

33. krey@perspectives.cc www.perspectives.cc Recommendations for promoting CDM participation of low-income countries

34. krey@perspectives.cc www.perspectives.cc Current distribution of CDM activities 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 Data source: CD4CDM, Jun. 2006

35. krey@perspectives.cc www.perspectives.cc Types of CDM projects developed in the LICs Projects types have high potential to deliver high levels of sustainable development benefits to host countries Data source: UNFCCC website as of June 2006 Types of the projects submitted and registered by the LICs

36. krey@perspectives.cc www.perspectives.cc 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

37. krey@perspectives.cc www.perspectives.cc 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

38. krey@perspectives.cc www.perspectives.cc Mobilising CDM investment into the LICs (I) Key principles that drive the success of the CDM market Key decisive factors from the host countries’ perspective Result in agreed sustainable development that meets national objectives for the host country and not just CERs for the recipient country; SD criteria Help maximize the generation or supply of cost-effective CERsDNA operation, eligibility criteria for project proposals and experts to develop PIN/PDD Provide reliable information and secure access for the buyers of CERs DNA Provide legal recourse for both buyers and sellers of CER’sDNA Meet the needs of a wide spectrum of potentially diverse project types and proponents CDM endowment Provide a real incentive for a broad base of investors to invest in CDM projects and not just attract a limited band of “green” investors CDM endowment and investment environment Result in CDM projects that are additional to defined baselinesCDM endowment and experts to develop PIN/PDD 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

39. krey@perspectives.cc www.perspectives.cc 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

40. krey@perspectives.cc www.perspectives.cc THANK YOU! Matthias Krey Perspectives GmbH Bei der Apostelkirche 24 20257 Hamburg Germany Phone: +49 (0) 40 – 21979761 Mobile: +49 (0) 176 - 2460 4014