An Update on the Clean Development Mechanism National Workshop on Baseline Methodologies CD4CDM Project (Phase II) Sami Kamel, Ph.D. UNEP RISOE Center, DenmarkCasablanca 28 January 2004

2 Capacity Development for CDM (CD4CDM) Project Background   CD4CDM is a U$10 million project funded by the Netherlands Ministry of Foreign Affairs.   Project is being implemented in 12 developing countries by the United Nations Environment Programme (UNEP) through its UNEP RISØ Centre (URC) in Denmark.   Three countries each from four regions:   Asia: Cambodia, the Philippines, Viet Nam.   Latin America: Bolivia, Ecuador, Guatemala.   Middle East & North Africa: Egypt, Jordan, Morocco.   Sub-Saharan Africa: Côte d’Ivoire, Mozambique, Uganda.

3 Project’s Development Objectives Create an enabling business and regulatory environment for CDM investments in the target countries through: Developing institutional capability and human capacity among public and private institutions in order to fully participate as equal partners with developed countries in the formulation and implementation of CDM projects. Support the establishment of Designated National Authorities (DNAs). Establish national investment strategies, regulatory framework and procedures for CDM investments. Create a pipeline of CDM projects.

4 Kyoto Protocol: Ratification and Entry-into-force Entry into force requires 55 Parties to the Convention + Annex I Parties accounting for 55% of 1990 CO2 emissions from that group to ratify. Possible combinations for entry into force: US + EU-15 US + Russian Federation + one other major emitter EU + Russian Federation + Japan + Canada + Poland or Australia Already Ratified: European Union, Japan, & Canada (total less than 55%). Already Rejected: United States (36% of Annex I emissions) & Australia (2.2 % of Annex I emissions). Undecided: Russia (17.4% of Annex I emissions). Non-Annex I countries (Developing countries): Many already ratified although GHG reduction is voluntary.

5 The Future of Kyoto Protocol: Possible Scenarios Status Quo: KP is not ratified but neither abandoned by any country. Parties stay in the current uncertain state waiting for further signals from Russia. Could mean continuation of CDM activity though at a slower pace. Abandon KP: More countries join US and Australia in rejecting KP on the grounds that it is unlikely to come into force. Negotiation of a new instrument with the intention of bringing US on board. New instrument could focus on clean energy technology transfer, renewable energy targets, and bilateral agreements focusing on, for example, sinks. Re-Open KP: EU fed up of waiting for Russia to ratify and re-opens KP to change most controversial sections and bring the others back to the table.

6 Comparison between Total vs. Per Capita emissions: US & China

7 CDM Concept CDM is to allow Annex I countries meet part of their emission reduction requirements for first commitment period at lower costs in non-Annex I countries than could be done domestically. Annex I countries are allowed to acquire Certified Emission Reductions (CERs) by implementing GHG mitigating projects in non-Annex I countries. ODA (Official Development Assistance) funds can not be used in CDM investments.

8 There is no white list for technology used in CDM projects (only a negative list). CDM sectoral examples: End-use energy efficiency improvement. Supply-side energy efficiency improvement. Renewable energy. Fuel switching. Industrial processes. Waste management/biomass. Negative List: Sinks (only afforestation and reforestation – No forest management). No nuclear projects.

9 Key Players in the CDM Process CDM Executive Board (EB). Designated Operational Entities (DOE). Designated National Authorities (DNA). CDM Project Developers/Investors.

10 CDM Executive Board (EB) Ten members (fixed) and ten alternating all with specialized technical expertise. Responsibilities include: Review & approve new methodologies related to baseline and monitoring plans. (Note: methodologies approved by EB could be used for other future projects). Provision of simplified procedures for small scale CDM. Accreditation of Designated Operational Entities (DOEs). Develop and maintain a CDM Project Registry. Establish Panels (Accreditation Panel and Methodologies Panel). Issue CERs. EB have held 11 meetings and Meth Panel 8 meetings (meetings documentation is available on UNFCCC’s CDM web site).

11 Registration of CDM Projects   The CDM registry is being constructed and expected to be ready by first quarter of It will contain public information on all CDM projects: issuance, holdings, transfer and acquisition of CERs.   At the EB6, the following fees were decided for the registration of a CDM project. The fee for small-scale CDM projects has been reduced to U$5,000:

12 Designated Operational Entities (DOE) Independent third party assigned by EB to conduct auditing of CDM project activities in host countries. Project developers choose the DOE they wish to deal with. Key responsibilities: Validate proposed CDM projects on basis of set criteria. Verify and certify reduction in GHG from CDM projects through monitoring of project management and transparency. Maintain publicly available list of all approved and on-going CDM projects and the amount of CERs approved for each project. Will post the PDD for 30 days for comment before final approval.

13 Update on DOEs 19 entities have applied for accreditation (Applicant Entities – AE): 10 Western Europe, 1 US (Nexant), 6 from Japan, 1 South Korea, and 1 Malaysia. No AEs from Africa, MENA, or South America. EB7 approved “Procedures for Accreditation of Operational Entities for CDM.” Procedure consists of: Desk review by an Accreditation Team (AT) (completed for 13 AEs). On-site assessment by AT (completed for 6 AEs). Witnessing activity by AT (completed for 4 AEs). Four AEs received “Indicative Letter” and therefore will be ready to become Designated Operational Entities early next year.

14 Applicant Entities

15 Designated National Authority (DNA) A country-level focal point for CDM, to be based in Ministry of Environment, Energy, or other relevant institution. DNA responsibilities include: Responsible for issuing Letter of Approval confirming the CDM project contributes to sustainable development in the host country. DNA of investor’s country will send similar letter to DOE in support of the project. Link between international CDM investors and potential projects in the country. May be involved in marketing of CDM project pipeline. Will establish national CDM regulations, strategy, and criteria for sustainability and approval. Monitor CDM sector in the country. To date, 34 countries have informed the UNFCCC of their establishment of DNAs (5 of which are Arab countries).

16 Emerging DNA Strategies DNAs to be active in global marketing of local CDM projects: Philippines plan to use their DNA to globally market CDM projects in the country. DNAs offering incentives (reducing transaction costs) to attract CDM investors: Peru DNA promises to complete the whole project approval process in 45 days at no charge!

17 CDM Investor Key responsibilities: Prepare Project Design Document (PDD). Propose baseline methodology and ensure additionality criteria. Calculate expected GHG reductions and CERs. Obtain all permits and approvals from DNA. Secure project financing.

18 PDD Content and Update Note 1: PDD for Small scale CDM contains same sections but only annexes 1 and 2 are required. Note 2: Annexes 3 & 4 have been removed and will be done separately by project developer only in case of a new methodology is being proposed. EB has just released new guidelines on how to propose a new methodology.

19 DNA DOE 1 DNA DOE 2 EB

20 CDM Status Summary Approved baseline methodologies: 6 (could be used by other projects). Pending baseline methodologies: 16. Of which the first is Zafarana 120 MW Wind Farm submitted by the Japan Bank for International Cooperation. Baseline methodologies recommended for approval: 3. Project Registry will be ready by first quarter of Details for Sinks (Aforestation and Reforestation) CDM projects were approved. At EB12 it was decided to develop a Frequently Asked Question section on the UNFCCC CDM web site.

21 Continue: CDM Status Summary Accredited DOEs: None. Registered Projects: None. Host countries: None. Buyer countries: None. Issued CERs: None. Carbon price estimate in end-2012 by poll at Annual General Meeting of International Emissions Trading Association in later October: 12 Euro/t CO2.

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23 For More information on CDM