Regional Cooperation in Promotion and Sustaining CDM Initiatives A Case of ASEAN

1. Regional Cooperation in Promotion and Sustaining CDM InitiativesA Case of ASEAN WEERAWAT CHANTANAKOME, Ph. D. Executive Director ASEAN Centre for Energy (ACE) Jakarta, Indonesia * A paper presented at the Asian Regional Workshop on “Capacity Development for the Clean Development Mechanism (CD4CDM), October 19-21, 2005, AIT, Bangkok, Thailand--- “Exploring Cooperation in CDM Implementation in ASEAN”

2. OUTLINE OF PRESENTATION • Introduction to ASEAN and ACE • CO2 Emission & Reduction: ASEAN Profile • Status of Climate Change Treaties and CDM PROJECTS in ASEAN countries • CDM Investment Structures • Forecast CO2 Emission and Reduction / Market Value and Investment Opportunities • ASEAN CDM Host Country & Institutional Arrangements: • CDM Institutional Capacity Building • Way forwards for Cooperation

3. The ASEAN Geography Myanmar Vietnam PACIFIC OCEAN Lao PDR South China Sea Thailand Philippines Cambodia Gulf of Thailand Malaysia Brunei Darussalam Singapore Indonesia INDIAN OCEAN

4. INTRODUCTION • ASEAN, one of the most dynamic economic regions of the world, • A heterogeneous mix of economies with greatly varying energy resource endowment and energy development situation. • In spite of these differences, the ten (10) ASEAN countries have common aspirations in achieving the Goals of Sustainable Energy Development and Utilization.

5. ABOUT ACE • Established on January 1, 1999 as an inter-governmental organization that is guided by a Governing Council composed of the Senior Officials on Energy (SOE Leaders) of the ASEAN countries. • Took over all the commitments, responsibilities, liabilities, and assets of the 10-year long ASEAN-EC Energy Management Training and Research Centre (AEEMTRC). • Core funding is provided by an Energy Endowment Fund established from equal contributions of the ten Member Countries and managed by a fund manager of the ASEAN Secretariat.

6. Charter of ACE • ACE is envisioned to be a catalyst for the economic growth and development of the ASEAN region by initiating, coordinating and facilitating regional as well as joint and collective activities on energy. • To realize this vision, the Centre will accelerate the integration of energy strategies within ASEAN by providing relevant information, state‑of‑the‑art technology, and expertise to ensure that over the long-term, necessary energy development policies and programs are in harmony with the economic growth and the environmental sustainability of the region.

7. Organizations in the ASEAN Energy Sector ASEAN HEADS OF STATE/GOVERNMENT OTHER MINISTERIAL MEETINGS OTHER MINISTERIAL MEETINGS A M M AMMST ASEAN S G A E M A M E M A S C S O M COST S O M E ASCOPE ASEAN CENTRE FOR ENERGY (ACE) LEGEND: AEBF: ASEAN Energy Business Forum AEM: ASEAN Economic Ministers AFOC: ASEAN Forum on Coal AMEM: ASEAN Ministers of Energy Meeting AMM: ASEAN Ministerial Meeting AMMST: ASEAN Ministerial Meeting on Science & Technology ASC: ASEAN Standing Committee ASCOPE: ASEAN Council on Petroleum COST: Committee on Science & Technology EE&C SSN: Energy Efficiency and Conservation Subsectoral Network HAPUA: Heads of ASEAN Power Utilities/Authorities NRSE SSN: New & Renewable Sources of Energy Subsectoral Network SCNCER: Sub-Committee on Non-Conventional Energy Research S G: Secretary General SOM: Senior Officials Meeting SOME: Senior Officials Meeting on Energy REPP-SSN: Regional Energy Policy and Planning – Sub Sector Network REPP-SSN NRSE SSN EE & C SSN HAPUA AEBF AFOC SCNCER ASEAN SECRETARIAT

8. ASEAN Vision 2020 …."establish interconnecting arrangements in the field of energy utilities for electricity, natural gas and water within ASEAN through the ASEAN Power Grid and Trans-ASEAN Gas Pipeline, and promote cooperation in energy efficiency and conservation, as well as the development of new and renewable energyresources." 5

9. Economic Profile Source: ASEAN+3 Energy Security Forum, Fereidun Fesharaki, FACTS Inc./EWCI Ltd., Cebu, Philippines, February 11, 2004

10. Economic Profile • ASEAN registering a 6.2 per cent GDP growth rate in 2004. • Projections for the 2005 year-end are also positive: ADB forecasts a 5.7 per cent GDP growth for Southeast Asia and 6.6 per cent for Asia in 2005-06 on the back of export growth and FDI expansion, including continued growth of China and India.

11. Economic Profile • An additional US$ 10 increase in oil prices would restrain GDP growth by 0.6 per cent on the average. In ASEAN, many countries recently trimmed their growth, citing rising fuel costs

12. CO2 Emission & Reduction: ASEAN Profile CO2 EMISSION FROM FUEL COMBUSTION 1990-2001 Source: IEA, 2000; IEA – 2003 (IPCC)

13. ENERGY POLICY ISSUES: ENVIRONMENT CO2 Emissions Based on Electricity Demand Forecast 2020 (BAU) vs. Kyoto Protocol (KP) Year Conditions 1 Business As Usual (BAU) is CO2 Emission based on electricity demand forecast 2020. 2 Agreed worldwide CO2 reductions under Kyoto Protocol is 5.2% of 1990 CO2 emission levels. 3 Dollar value of CO2 emission reduction is 5.5 USD/MT CO2 as in recent transactions.

14. ENERGY POLICY ISSUES: ENVIRONMENT Graph Showing CO2 Emission Based on Electricity Demand Forecast 2020(BAU vs. Kyoto Protocol)

15. ENERGY POLICY ISSUES: ENVIRONMENT Total CO2 Reduction from RE and EE&C Plans in 2020in Mil. T CO2

16. ENERGY POLICY ISSUES: ENVIRONMENT CO2 Reduction from RE and EE&C Plans in 2020 of ASEAN Countries vs. KP with BAU as Baselinein Million Tons CO2

17. ENERGY POLICY ISSUES: ENVIRONMENT Comparison of CO2 Emission on Three Scenarios: BAU, RE & EE&C Plans and KP

18. Status of Climate Change Treaties in the ASEAN

19. CDM PROJECTS IN ASEAN COUNTRIESSource: www.cdmwatch.org

20. CDM Investment Structures • Unilateral model • developing country would itself undertake actions to reduce emissions and then subsequently trade the CERs (certificate of emissions reductions) produced through such action on the international market . • Bilateral model • countries or private entities would negotiate agreements among themselves. Together, they would set criteria and rules for crediting. • Multilateral model • countries would offer projects for emission reductions to the CDM, to be picked up by the highest bidder in Annex 1 countries. Interested developing countries could each present a portfolio of projects and seek financial and technical support for their implementation. • Hybrid model • Combines features of unilateral and multilateral models.

21. Unilateral CDM 1. Project Development, Design and Financing Ideas Capacity Financing Host 2. Validation of Project Design 3. Monitoring by Project Operators CERs Operational Entities/ Executive Board 4. Verification and Certification

22. Unilateral CDM • Attractive to countries with sufficient capacity and resources to select, develop, finance, and operate sustainable development • Ensures that projects are closely knit with national sustainable development plans • Can promote wider international CDM participation

23. Bilateral CDM 1. Project Development, Design and Financing ANNEX 1 Investors Ideas Capacity Financing Host 2. Validation of Project Design 3. Monitoring by Project Operators CERs Operational Entities/ Executive Board 4. Verification and Certification

24. Bilateral CDM • Consistent with conventional modes of foreign direct investment (FDI) • Provides most flexibility to project developers • Consistent with the existing development assistance practices • Concerns: • Large majority of FDI is concentrated in a small set of countries (China, Mexico, Brazil – 50 %) – will not deliver a geographic distribution of project • Bilateral approach favors large capital intensive infrastructure project – small renewable and energy efficiency projects may be rendered non competitive.

25. Multilateral CDM ANNEX 1 Investors CERs $ 1. Project Development, Design and Financing CDM Fund Ideas Capacity Financing Host 2. Validation of Project Design 3. Monitoring by Project Operators CERs Operational Entities/ Executive Board 4. Verification and Certification

26. Multilateral CDM • May increase bargaining power to developing countries – dealing with fund managers whose mandate is compatible with their interests • Help shelve investors for the risks of individual project failures • Possible arrangements • Single supplier – give the greatest control over CDM investment flows but could slow the market development and create large inefficiencies • Multiple fund – variety of institutions operate, competing and co-existing CDM funds

27. Hybrid CDM Annex 1 Private Investors Other Multilateral CDM Funds Domestic Investment $ CERs $ CERs $ CERs 1. Project Development, Design and Financing Ideas Capacity Financing National CDM Fund 2. Validation of Project Design 3. Monitoring by Project Operators CERs Operational Entities/ Executive Board 4. Verification and Certification

28. Forecast CO2 Emission and Emission Reductionfrom Energy Sector for the ASEAN Countries(2001-2010) * Using business-as-usual (BAU) as baseline

29. Market Value of Emission Reductions *2001-2010 in ASEAN: Investment Opportunities * - Using business-as-usual as baseline - Assuming USD 5.5 per ton CO2

30. Summary of Markets/ Investment Opportunities from Clean Energy Initiatives in ASEAN(in million US Dollars)

31. Conclusion • The Clean Energy Development Market and Business Opportunities in the ASEAN Region during 2001-2010 range between 44 Billion USD and 85 Billion USD • Taking the proper gears for the RESCOs, the ESCOS and the CDM PromotionCompanies should be a way to prosper in this market.

32. ASEAN CDM Host Country • The large ASEAN countries have a varied and considerable CDM potential, particularly regarding bio-energy and geothermal. • The most attractive ASEAN CDM host country at the moment is likely to be Indonesia. Vietnam and Malaysia have institutions in place and thus fulfill the necessary conditions. • Thailand and the Philippines still have to clarify their approval procedures, but already have a considerable project pipeline.

33. Institutional Arrangements for CDM in ASEAN countries • Cambodia, Laos, Malaysia, Thailand and Vietnam have notified their DNA • Indonesia is likely to notify its DNA after the recent ratification of the Kyoto Protocol. • The Philippines are in the process of setting up the DNA. (?) • Brunei, Myanmar and Singapore have not yet started preparations. (?)

34. CDM Institutional Capacity Building in ASEAN • ASEAN have experience in developing CDM policies, setting up institutional arrangements and implementing CDM procedures. • Local capacity and experience is still limited in some countries. Within the region, therefore, the exchange of experience and co-ordination can support the implementation of CDM. • Needs for capacity building in ASEAN are: - Operational skills of DNA - Technical CDM project assessment - Establishment local Operational Entities - Awareness raising in longer term - Project development: * CDM life cycle or preparing proposals * Financing or transactions

35. Ongoing Capacity Building Projects in the ASEAN region • CDM-ASEAN (ASEAN region) - Energy sector, institutional • Japan IGES-MOE (Indonesia, Cambodia, Thailand, Vietnam, Philippines) - all levels of capacity building • WB/ESCAP (Northeast, Southeast and South Asia) - all levels of capacity building • CD4CDM/UNEP (Vietnam, Cambodia, Philippines) - Awareness building, project development, institutional • GTZ project on CDM institution building (Indonesia / Cambodia - Vietnam) - Procedures, DNA, project clearing house • Danish CDM capacity building (Thailand / Malaysia) - DNA, procedures, project development, awareness • UNDP (Philippines) - Institutional, project development, awareness • SouthSouthNorth (Indonesia) - Project development, sustainability criteria • Asia Pro-Eco (Cambodia, Laos, Vietnam)

36. Problems & Recommendations • Most projects are successful. Some problems, however, have been identified which limit the effectiveness of the projects: – Some overlap exist in scope and content – Projects do not sufficiently build on results of previous projects – The target group is sometimes not specific enough – Capacity building should start by raising awareness on the general issue on climate change since most people have very limited knowledge on the issue, then relate it to the more specific CDM issues. – The project activities are often limited to workshops and do not involve (on-the-job) training. – The role of local government in CDM is not clear and not adequately targeted in the capacity building projects Ref: Pelangi, 2004, Jakarta, Indonesia

37. Recommendations • Several recommendations have been made to increase the effectiveness of capacity building: – Improved evaluation of past projects – Stricter assessment of proposals by the recipient country and organisations beforehand – Capacity building should not be limited to transfer of knowledge but also include transfer of skills (on-the-job training) – Improved coordination of activities. This is mainly the responsibility of the recipient (host) country. – Better exchange of information or results between projects

38. ASEAN Existing Body for Cooperation: Way Forwards… • Roles of ASEAN Secretariat, ASEAN Centre for Energy (ACE), ASEAN CCI, complementary to the activities on the national level. • A future ASEAN Climate Change Initiative could facilitate the transfer of best practice and the exchange experiences within ASEAN. • The ongoing CDM-ASEAN Project (ACE/EAEF) can be seen as a first step (or pilot) towards establishing a regional framework for exchange of experience. • The possibility of the establishment of an ASEAN CDM Fund to fund CDM projects • ASEAN Senior Official Meeting on Energy (SOME) • ASEAN MINISTERS ON ENERGY MEETING (AMEM)

39. A Commitment…. “…However, the ASEAN people are becoming aware that the climate is actually changing… and their awareness may be the key to future change…”

40. THANK YOUwww.aseanenergy.org