How to develop a NAMA by scaling-up ongoing programmatic CDM activities On the road from PoA to NAMAs Berlin, April 2011 Prepared for: KfW Bankengruppe and Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (BMU) Prepared by: South Pole Carbon Asset Management Ltd

2 Approach Imagine you are the head of the DNA in a developing country. Your Minister of Environment calls on you to please come up with a concrete design for a pilot NAMA for your country. She wants something very concrete and workable. You have never done this before but you then have a brilliant idea: –why not just look at the PoA that was submitted for approval recently and see whether you can use it and its operational design elements as a starting point for the design of a concrete NAMA. What steps do I have to take to get there?

3 Introduction to the Study Key Observation A NAMA includes design elements that are structurally similar to PoA Questions How can PoAs act as starting points to scale-up mitigation actions within a NAMA framework? Which PoA design elements are useful for NAMA design? What concrete suggestions can we provide to a NAMA designer who is tasked with the development of a NAMA using key building blocks of an existing PoA? Which recommendations can we provide going forward? Approach Develop a methodological framework for scaling-up PoA Apply this method to four case-study Analyze results and prepare recommendations

4 Methodological Framework for Scaling Up PoA Guidance for NAMA designers Module 1: Understand the PoA: what is its scope, eligibility criteria, implementation arrangements, which GHG emission categories does it target? Module 2: Analyze four key technical PoA design elements re: their suitability for scaling up: eligibility criteria, baseline setting procedure, MRV process and PoA management Use the outcome of this process to identify if PoA design is a) already fully applicable, b) needs to be adjusted or c) needs to be developed for NAMA design. Module 3: Evaluate the domestic policy and institutional framework to assess whether the existing framework is supportive of NAMA implementation or not. Module 4: Identify follow-up actions for NAMA readiness based on the need for adjustments and new designs as identified in module 2.

5 What are the PoA’s eligibility criteria? Should the eligibility criteria be adjusted to include additional activities under a NAMA, such as expansion to other sectors and intervention- types? Should the eligibility criteria be adjusted to be able to scale-up activities through the involvement of additional implementation entities? Is the PoA limited to a region? Should its geographical coverage be increased to a national scale? Should the eligibility be adjusted to target emission reductions from the same IPCC GHG emission categories under a NAMA? Module 2: Guiding Key Questions Eligibility Criteria

6 How is the baseline set in the PoA? Is the baseline setting applicable to a NAMA? Can the baseline be adapted by introducing standardization elements? Can the baseline be simplified in the context of a NAMA? Can the PoA baseline be used to set targets for the NAMA? Module 2: Guiding Key Questions Baseline Setting

7 What are the key monitoring requirements of the PoA? Are the PoA monitoring requirements workable in a NAMA context or would they be too difficult to implement? Can a NAMA-level GHG inventory and its related MRV system be upgraded and operated using the PoA as a starting point? Who is responsible for monitoring and managing the verification process? What is the capacity of the relevant entities in the PoA to estimate, collect and manage GHG emissions in a NAMA context? Module 2: Guiding Key Questions MRV Procedures

8 How is the PoA management structure set-up? Who is managing the CME? Could the CME play a crucial role in managing a NAMA? If not, would it be possible to transform the PoA CME into an entity with the institutional capacity to manage a NAMA? Are the current incentives/regulations sufficient to successfully manage a NAMA? If not, what additional incentives/regulations would be needed to successfully manage a NAMA? Module 2: Guiding Key Questions PoA Management

9 NAMA Draft Design Sheet Uganda Country: UgandaSub sector: Grid-connected RE Development in East Africa Scope and targetScope: grid-connected renewable energy generation through a feed-in-tariff and carbon credit generation. Target: increase share of RE in the generation mix above baseline levels. Eligibility criteria All grid-connected RE technologies (not only small-scale), Large-scale interventions, including hydro, Fuel-switching activities. Fit with existing act. / value-add Strongly supports existing support mechanisms Baseline The NAMA baseline is identical to the PoA baseline MRV procedures NAMA MRV can be based on CDM MRV requirements. Data is generally available. Proposed structure CME is experienced to provide NAMA relevant support services but not NAMA coordinator, i.e. Uganda Electricity Board Incentive system/ regulations Negotiated feed-in-tariffs (usually low). Additional support could be: -Concessional financing for the construction of new RE facilities and/or -Supplemental payments to feed-in-tariffs (per green kWh) to increase financial attractiveness of new RE development Link NAMA – Carbon market LDC status: eligible for post 2012 EUETS. No pressure to scale-up to NAMA unless for perceived additional benefits, i.e. support payments above financed through international support mechanism

10 Lesson-learnt & Recommendation PoA elements can serve as building blocks for NAMA design Recommendation: a systematic assessment of NAMA suitability of CDM methods.

11 Lesson-learnt & Recommendation Key Differences between PoA and NAMA CriteriaNAMAPoA Environmental Integrity Managed on the sector- level Managed on the activity level MRVFor all GHG sources that meet eligibility criteria Participating GHG sources only IncentivesCarrots (different flavors) and sticks Carrots only (one type only (CER)) Baseline setting Political: “appropriate”Pseudo-technical: “additional”

12 Lesson-learnt and Recommendation Integration facilitates scaling-up, but avoidance of double-counting of ER must be managed using a robust approach Strong integration of PoA and domestic policies facilitates scaling-up Recommendation Ensure strong policy integration in the design of PoAs to facilitate the scaling-up to NAMAs. Co-existence of NAMAs and PoAs in the same sector is possible if double-counting is avoided using a robust approach A NAMA (contributing to domestic targets) competes with PoA (contributing to third Party targets): how to differentiate which ER count towards domestic energy efficiency target vs. carbon credits? Recommendation The only and most robust solution in the short-term is to: i)issue CERs to the PoA and then ii)deduct those issued CERs from the NAMA achievement. PoA reform and NAMA design agenda need to connect to address double-counting (among other issues).

13 Lesson-learnt and Recommendation Gain more practial experience with scaled-up PoA and pilot NAMA More real life experience with PoA is needed to better understand key scaling-up issues and to inform PoA reform agenda More practical experience with NAMA design will facilitate negotiation process to define operationalization of NAMA concept. Recommendation Launch pilot NAMA that are driven by existing and suitable PoA and examine their fit into the domestic policy landscape. Examine how the role of PoA in NAMA framework contributes to PoA reform/streamlining of rules.

14 Open Issues that require further investigation Double Counting Coordination between PoA & NAMA procedures to ensure simplification and co- existence Standardization potential JI-style simplification De-centralization of CDM EB authority for PoA under NAMA Guidance for AWG LCA re NAMA design Credited NAMA = supported NAMA plus PoA and/or new mechanism?

15 Thank You for Your Attention Ingo Puhl Tel

16 Back-Up Slides

17 The Result: a NAMA that co-exists with a PoA = a supported NAMA with PoA to provide “crediting” function PoA is established –Standard process Host country defines NAMA –Through systematic scale-up of PoA using useful and adjustable PoA design elements –Clarifies procedure for avoidance of double-counting of emission reductions NAMA and PoA operate –PoA: CDM MRV, NAMA: NAMA MRV –Using mix of (integrated) incentives –NAMA compliance management takes account issued PoA CER. PoA is driven by NAMA policy objectives This design provides full crediting functionality on NAMA level using existing (operational) mechanism Sector emissions (BAU) in country A (monitored in accordance with intl. rules) NAMA target sector emissions Domestic & supported actions CPA PoA

18 Introduction to Market Based Mechanisms Using price signals to identify & implement least-cost abatement options To reduce the cost of complying with a defined emissions cap

19 Context: Scaling up of baseline & credit mechanisms CDM Project-by-project approach Every project needs to establish –Eligibility/additionality –Emission Baseline –MRV plan Pass UN validation and registration Monitor, report and complete verification of carbon credits Driven by initiative of project owners, not policy High complexity, high cost that create commercial risks and access barriers for small projects Sector emissions in country A (not monitored (well)) CDM projects

20 Context: Scaling up of baseline & credit mechanisms Programmatic Approach Program needs to establish –Eligibility/additionality –Emission Baseline –MRV plan –CME Operating Structure –Pass UN validation and registration Activities need to: –Complete inclusion –MRV of carbon credits Driven by “aggregator” & public policy Reduced complexity & cost for activities Sector emissions in country A (not monitored (well)) CPA PoA

21 Context: Scaling up of baseline & credit mechanisms Domestic, Supported, Credited NAMA Host country defines: –Scope/coverage/activities –NAMA baseline and target –Requested support –Implementation arrangements –Crediting: Benchmarks/baselines for “surplus” actions (procedures not defined) Host country registers & operates NAMA –Regular MRV of all NAMA sources –Implement mix of incentives, incl. carbon credits for surplus activities –Emissions “true-up” Driven by domestic policy priorities Implementation of activities facilitated by incentives and regulation Discussion on credited NAMA postponed to December 2012 Sector emissions (BAU) in country A (monitored in accordance with intl. rules) NAMA target sector emissions Actual NAMA emissions in country A (monitored in accordance with intl. rules) Domestic & supported actions Surplus actions

22 Drivers for Scaling-Up from PoA to NAMA EU limitation on importing CER from project-based approaches Sector-baselines might open the door for “NAMA CER” “Mainstreaming” international cooperation mechanisms into domestic policy Potentially simplified PoA implementation modalities for PoA under a NAMA Learning from existing mechanisms (vs. reinventing the wheel)

23 PoA Case Studies and their NAMA Scale Equivalent

24 Next Steps Strengthen NAMA readiness Country: Uganda Sub sector: Grid-connected RE Development Fit with existing activities / value- added  To prepare a concrete design of a supported NAMA based on supplemental payments for RE and associated supporting activities. Baseline  n.a. MRV procedures  Improve the quality and efficiency of data collection (including automation), develop country-specific fuel emission factors. Proposed structure  See above under “fit with existing activities” Incentive system/ regulations  See above under “fit with existing activities” Link NAMA – Carbon market  To conduct a high-level policy dialogue with the Government re: their interest to participate in a pilot NAMA in relation to the development of grid-connected renewable energy.

25 Next Steps Strengthen NAMA readiness India EE for Energy-Intensive SME Industries Follow-up Action for NAMA Readiness Eligibility criteria Evaluate/assess the potential for expansion of furnaces and burners in similar energy-intensive SME industrial sectors, including power and steam generation, fertilizer, cement, aluminum, textile, pulp & paper, glass, etc. Create a useful classification system/ categories of equipments (size, etc) for the development of category-specific benchmarks. Fit with existing activities / value-added Obtain detailed information on the applicability of the Indian energy efficiency scheme (current phase) and its planned future expansion. Assess the potential interaction between a PoA, the NAMA and the EEC scheme. Baseline Develop standardized baselines for this equipment type based on CDM method AMS II.D, applicable version. MRV procedures Develop MRV procedures for collecting and analyzing activity data for this equipment type, (e.g. energy use fuel requirements, output) and design MRV infrastructure (e.g. who collects what, how often, and under what mandate). Proposed structure Assess coordination between NAMA and PoA coordinating entities (capacity building needs). Incentive system/ regulations Evaluate take-up of EE investment activity and assess performance of the existing PoA incentive system after first year of PoA operation. Link NAMA – Carbon market Offer support to the Indian Govt. to design a conceptual framework for a NAMA in this sector and explore its interaction with a PoA.

26 NAMA Draft Design Sheet India Fit with existing activities / value-add Contributes to 20-25% emission intensity reduction target per unit of GDP by Supplements energy efficiency certificate mechanism (currently for large energy users only) Baseline NAMA-level baseline data for SME is currently missing. NAMA baseline should be established retroactively and be disaggregated to the facility level. CPA contribute a share of its CER to NAMA target. MRV procedures Mandatory reporting of activity data for all facilities covered by this NAMA (BEE managed) CPA already report to CDM requirements. Country: IndiaSub sector: EE in SME Productive Industries Scope and target Scope: to improve the energy efficiency of furnaces and burners in energy-intensive SME industries throughout India. Target: to reduce energy consumption by at least 20% per unit of production. Eligibility criteria All furnaces & burners operating in energy-intensive SME industries that are not covered under the India EEC scheme incl. measures that do not comply with AMS II.D. Proposed structure NAMA coordinated under National Mission for Enhanced Energy Efficiency (i.e. by BEE) NAMA-level monitoring and reporting by BEE Technical advisory and financial support by ISTSL and SIDBI Incentive system/ regulations All activities shall be eligible for the financial support provided under the 2001 Energy Conservation Act and SIDBI EE financing facility (plus CER for PoA eligible activities). Link NAMA – Carbon market NAMA shall not encumber the CER granted to the PoA Issued CER need to be deducted from NAMA achievements when determining NAMA target compliance. NAMA could purchase CER from this PoA (or any other) to cover an eventual shortfall of emission reductions on the NAMA level.