Governing Clean Development

1. Governing Clean Development Prof. Peter Newell Contact: P.Newell@uea.ac.uk

2. Background • ESRC Climate Change Leadership Fellowship: 2008-2011 • Set of research activities over 3 years • Research: Field work, interviews & questionnaires • Workshops & training events • PG conference • Dissemination: Working paper series, academic publications & policy briefs

3. The Challenge: Meeting energy needs in a carbon-constrained world • Today 1.6 billion people are without electricity. • Electricity demand in developing countries is projected to increase three to five times over the next 30 years • 57% of future power sector investment will occur in developing countries (UNFCCC 2007). • Without a significant change of course, most of this will be fossil-fuel based electricity production that will exacerbate climate change. • Need for large-scale transitions to low carbon economy

4. Background • Growing interest in the potential for clean development projects, supported through and beyond the CDM, to reconcile the needs of poorer groups for access to affordable and reliable energy sources with the need to tackle climate change. • Now a range of institutions, initiatives and mechanisms whose common aim is to enable the provision of clean development, ensuring social and environmental benefits, particularly for poorer countries of the global South. • Lack of systematic, comparative research across scales on governance dimensions of clean development: …beyond CDM, range of public and private actors involved • Re-framing the question of clean development in terms of its role in enabling broader socio-technical and political transitions in energy sector: the governance of energy investment

5. 1. Which features of the actors, institutions and policy-making processesinvolved in the governance of clean development are resulting in effective outcomes in terms of climate action and developmental benefits, which are not and why? (and what can be done about it!) 2. Why do common international initiatives produce such uneven impacts and outcomes once mediated by national and local level institutionsand policy processes? Big Questions

6. Why governance? • Need for political analysis of the relationship between energy-economy-environment since power and interests are at the heart of this. • Collective ability to meet this challenge requires unprecedented political and institutional change beyond merits or otherwise of particular proposals, technologies and innovations: Overcome resistance, build new coalitions • Assessing issues of governance means addressing both the distributional(who gets what and why?) and processual aspects (who decides and how?) of the governance of clean development and the links between them • Existing work suggests that where robust and inclusive institutions are in place, more equitable outcomes for host communities are likely (Brown and Corbera 2003)

7. Cross-cutting governance dimensions a) Coordinationand coherence among the ‘providers’ of CD b) Questions of autonomy and power to steer and direct project and investment flows in CD on the part of CD ‘recipients’ c) Processualissues of participation and consultation of other ‘stakeholders’ in relation to identifying energy needs and delivering projects + ownership d) Managing the conflicts and trade-offs between social and environmental costs and benefits associated with projects and investments and between investors and host communities e)Competing mandates: reducing compliance costs over contributing to sustainable development; a market? a development fund? a renewables promotion mechanism? f) Distributional issues: the circulation of CD finance within and between countries.

12. A governance framework • Who governs? • How do they govern? • What is to be governed (and what is not)? • On whose behalf?

13. Who governs?

14. Phase Documentation Key Players Project Design PDD Project Developers, Funds, Investors, NGOs Executive Board for new methodologies Validation Validation Report DOE Letter of Approval DNA Registration Executive Board Monitoring Proper Documentation Project Participants Verification Verification Report DOE Certification Executive Board CERs Issuance of CERs Executive Board, CDM Registry Administrator Project Participants Adaptation Tax Administrative Tax In the world of the CDM

15. CDM Executive Board • Made up of 10 members from Parties to KP • Political economy of lobbying around approval, country and project/sector bias (Michaelowa & Michaelowa) • Questions around capacity to deal with levels of applications, demand for guidance on additionality etc • Questions about transparency of information about decisions (methodologies > specific project decisions) • Transaction costs: screens out smaller projects with greatest localised SD benefits.

16. Beyond CDM: Global governance of CD • Climate Investment Funds • IRENA • REEEP • Asia Pacific Partnership

17. Private Governance • Key yet neglected element • Increasingly clear that what will decide the degree to which climate change impacts the poor will be determined not principally by governments but by powerful range of market actors. Private sector investments currently constitute 86% of investment and financial flows that will need to be steered towards clean development goals (UNFCCC 2007). • Private flows to areas already attracting FDI and with better infrastructure: guided by profit or CSR value of CERs rather than SD. Brand concerns could lead to race to top (gold standard etc) • Understanding their role, strategy and power implies broader notion of governance: without formal authority, traditional sanctions, through supply chains, co-regulation, partnership and steering

18. What is to be governed and what is not?

19. Un-governed CD • Private finance in general • Export credit mechanisms • Bulk of business supply-chains • Trade • VERs? • Governed CD • CDM: CERs • World Bank: CIFs, IFC • Aid Flows Spheres of governance/un-governance

20. CDM in context • Only a tiny fraction of trade, aid, production and finance is governed by public bodies charged with tackling climate change. Official Development Assistance (ODA) funds are currently less than 1% of investment globally (UNFCCC 2007). • WWF has calculated that the amount of finance that the CDM will mobilise is a fraction of not only existing investment and ODA but also of GEF- less than half what is provided by the GEF

21. Active neglect: The un-governance of clean development • The regulated space of CDM governance is just one small part of a much larger challenge of governing flows into sectors that need to consistent with the goal of a lower carbon future. • As CDM Watch put it (2004:7): ‘Any discussion about the future of the CDM must also address the fact that it, and the carbon market itself, exist on the margins of huge financial flows to carbon-intensive energy projects in the South’. • Challenge of mainstreaming clean development

22. Coherence & Contradiction • Effectiveness of CD initiatives contingent on actions (and inactions) of other key actors • World Bank still key driver of fossil fuel investments: less than 30 percent of the World Bank’s lending to the energy sector has integrated climate considerations into project decision-making. As late as 2007, more than 50 percent of the World Bank’s $1.8 billion energy-sector portfolio did not include climate change considerations at all (WRI 2008)

23. Coordination • What is to be governed and by whom? • GEF? World Bank CIF? Multinational Climate Change Fund? • Duplication, turf wars: implies different patterns of participation, accountability and voice & overall direction of CD investments

24. How do they govern?

25. Governance approaches • Environmental regulation: legal (CDM, KP) and soft law (standards and certification: Gold standard, VCS) • Non-environmental regulation: energy, trade agreements (new trade round? Cooperation agreements with EU + US + Australia on energy and environment (Australia-China Partnership, EU-China Partnership on Climate Change, US-India on nuclear energy, EU-India energy cooperation) • Also: Through partnerships, supply chains, through aid

26. Governance forms • Public governance of public finance • Public governance of private finance • Private governance of private finance Different mandates, Constituencies, Resource bases Accountability ties, Styles of consultation, Regions of operation Sectoral biases Complex, overlapping forms of CD with uneven outcomes

27. Public governance of public finance Bilateral and multilateral aid GEF Public governance of private finance Prototype Carbon Fund Climate Investment Funds REEEP Private governance of private finance Voluntary Carbon Standard Gold Standard Examples

28. Governance actors Supply side governance • International governance of CD: • Private governance: Through and by market actors • National and local governments ‘Governance from above’ ‘Governance from below’ Demand side governance

29. Public-Private Partnerships: CDM • CDM is underpinned by a collaborative network structure in which nation and non-state actors collaborate in a partnership arrangement. • This confers on non-state actors, such as the DOEs ‘a variety of voluntary, self-formal and formal roles in formulating policy responses and implementing international agreements’ (Streck 2004: 297).

30. Public-Private Partnerships: Prototype Carbon Fund ‘The broad range of actors that cooperate and play an active role in the success of the operations of the fund, ranging from public and private participants to country officials, private entities in non-Annex 1 as well as Annex 1 countries, private verifiers and NGOs, are crucial for the PCF’s success. Only because all these actors play an integral role in making the PCF work, in applying and revising its rules and broadening its impact, can the PCF design and implement successful projects’. (Streck 2004:317)

31. REEEP • The Renewable Energy and Energy Efficiency Partnership (REEEP) is an international public-private partnership funded by governments, businesses and development banks aimed at addressing this issue. • REEEP is focussed on the development of market conditions that foster sustainable energy and energy efficiency and works to structure policy and regulatory initiatives for clean energy. • Established in 2002 at the World Summit on Sustainable Development, REEEP is today recognised by international processes, such as the G8, the Gleneagles Dialogue and the Asia Pacific Economic Corporation Working Group, as a key delivery vehicle for accelerating the global uptake of renewables and energy efficient technologies. • REEEP partners are from 71 countries although 22% originate in Asia. • The partnership currently has more than a hundred projects in its portfolio and, in October 2008, issued a new project call of more than €4.3 million, particularly for projects in priority countries – Brazil, China, India and South Africa.

32. Asia-Pacific Partnership on Clean Development & Climate • (APP) is a public-private partnership that brings together the governments and private sectors of Australia, China, India, Japan, Korea, the United States and, since October 2007, Canada – countries that collectively account for more than half the world’s economy, population and energy use (APP 2008). • Though the APP is voluntary and non-legally binding, it is intended to be ‘politically binding’. The Partnership does not contain any emission reduction targets • It aims to produce forms of cooperation to reduce ‘greenhouse gas intensities’ of economic activities thus allowing overall emissions to grow as long as energy is being used more efficiently. • The APP aims to facilitate investment in clean technologies, goods and services, accelerate the sharing of energy-efficient best practices, and identify policy barriers to the diffusion of clean energy technologies. • The APP created eight public-private Task Forces for specific sectors: aluminium, buildings and appliances, cement, Cleaner Fossil Energy, coal mining, Power Generation and Transmission, Renewable Energy and Distributed Generation, and Steel. • The US based Policy and Implementation Committee (PIC), comprising representatives from the partners, governs the overall framework, policies and procedures of the Partnership, guides the Task Forces and periodically reviews progress of the Partnership. • As of July 2008, 123 projects had been endorsed by the PIC, though it is too early to comment on delivery of tangible benefits. The Partnership is based on a highly decentralised structure whereby a project or activity involving any two or more Partners that contributes to the objectives of the Partnership is eligible for inclusion in the Partnership.

33. Neo-liberal CD governance Bears all hallmarks of broader forms of neo-liberal environmental governance: • Emphasis on market solutions • Efficiency over equity as central determinant of policy • State role reduced to ‘steering’ in co-regulation arrangements • (Creative) accountancy and auditing as tools of performance • Key role of many architects of neo-liberal economy (WB) • Many policy tools set up to deliver privatisation (deal with monopolies, anti-competitive behaviour etc) not well placed to deliver clean energy policies (Smith)

34. Varieties of national CD governance • Reflect power as: • Capacity to attract investors on favourable terms/to align CD finance with broader developmental goals • Resources to manage requests, oversee implementation • Global market position/attractiveness of domestic markets/stability of investment climate • Political culture: channels of participation, democratic space • Regulatory styles: Uneven degrees of regulation (light touch – highly interventionist) • Different ideas about how to achieve SD and significant autonomy to define this for themselves- reflected in use of taxation etc.

35. An interesting case of a country with enormous potential to advance clean development but currently has very few projects registered, particularly in comparison to its neighbour Brazil. Establishing why this is the case and in turn, addressing what can be done about it will be critical if Argentina is to fulfill its commitment to control carbon emissions; a commitment that will require a reduction of emissions of between 2-10% compared with the expected level of emissions. Argentina has begun establishment of a legal framework to support and promote the use of renewable energy in the country. The objective of Argentina’s renewable energy law is to promote renewable energy electricity generation and technology research, demonstration, and implementation. Argentina’s renewable energy policy calls for 8% of electricity to be generated from renewable energy sources in 10 years. Future renewable energy installations include geothermal, tidal, biomass, landfill gas, and biogas facilities as well as large hydro facilities (over 30 MW). Beyond potential for a vast increase in the uptake of renewables, the forestry and agriculture sectors present untapped potential. ARGENTINA

36. INDIA • Leading participant across all sectors and project sizes in the CDM to date. • Vast range of projects in manufacturing (cement industry), wind power, biomass, cogeneration, waste heat recover and many small-scale projects. • Diversity of projects within the country provides a unique opportunity to explore ideas about how institutions can create convergence and synergy between social and developmental outcomes. • According to the 11th New and Renewable Energy five-year plan proposed by the government of India, from 2008-2012 the renewable energy market in India will reach an estimated US $19 billion. The Indian government has also set specific targets for renewable energy; expecting renewable energy to contribute 10% of total power generation capacity by 2012.  • Furthermore, as home to one third of the world’s poor people, India assumes a central role in donor efforts to tackle poverty and therefore projects that can genuinely capture developmental as well as environmental benefits are at a premium.

37. SOUTH AFRICA • One of few African countries to have projects registered under the CDM. These include projects on landfill gas, fuel switching projects and urban housing energy upgrades. • South Africa is also the continent's greatest emitter of greenhouse gases, with energy production overwhelmingly dependent on fossil fuel and with large coal reserves it amongst the world’s top coal exporters. • Whilst South Africa faces a significant challenge in how to reduce the energy intensity of its economy, particularly in the mining and manufacturing sectors, the country has enormous potential for CDM activity development: South Africa is the most advanced country both technologically and economically in Africa and has a well developed transportation, energy and communication infrastructure. • With about a third of households, mainly in rural areas, lacking access to electricity, projects have the potential to achieve sustainable development objectives that are a high priority for the South African government. It is important, therefore, to establish what lessons may be gleaned from the governance of these projects that could be applicable both within South Africa and beyond to the region as a whole.

38. Challenge presumptions about nature of governance • Assumptions about: • state capacity • functioning markets and active participants in them and • engaged civil society with the political and democratic space in which to operate ……do not pertain to most of the world most of the time yet often underpin policy models and academic theory • Beyond ideal types towards actually existing governance

39. On whose behalf?

40. Processual Issues • Who is served by the existing structure of CD governance? • Whose priorities? Crowded field of actors seeking to access resources and define role for themselves: at expense of coordinated, effective, demand-driven responses? • Questions about responsiveness of key actors: WB in particular • If CD tied to broader neo-liberal energy reform agenda, changes the priorities and could undermine support of many LDCs

41. Distributional Issues • Investment opportunities > environmental or SD rationales: latter harder to quantify, preference for quantifiable commodity • Low-hanging fruit > enabling clean energy transitions • Uneven distribution by region

42. 70% of CERs in 1st 1.5 years were issued for abating gases other than CO2 • Doesn’t always follow that RE and EE produce most sustainable development benefits • Also the case that the exhaustion of some of the HFC opportunities and possible changes of rules may produce more investments in RE and EE. (Paulsson 2009) (Paulsson 2009)

43. Distribution by region

44. Distribution by host country

45. Key characteristics of CD governance at moment • Uncoordinated: across levels, between actors and within government • Incoherent(from a point of view either of addressing poverty or reducing GHGs) • Uneven (in terms of regional and sectoral coverage, who they benefit, balance between public and private) • Network-oriented (APP, REEP): Multi-actor, across scale, mix of public and private. Could make them more flexible, adaptable, ‘light-footed’, but also leave key gaps in terms of participation, accountability, responsiveness. • Un-governance of CD:The actors and institutions which ascribe themselves the label clean development actors are rarely those which yield most power over clean development.

46. Worst case scenario ‘If it operates within the current policy perversity in which the Kyoto Protocol and CDM exist alongside massive North-South financial flows to fossil fuels, then it will fail. A real solution to climate change and sustainable development must divert these flows, not create carbon markets alongside them’. (CDM Watch 2004:8)

47. Best case scenario • Unilateral CDM for those countries with capacity to do this: fund projects, store or sell credits • Pro-active national energy strategies that address energy-economy-environment nexus: forward-looking, integrated participatory and deliberative • Sectoral approaches able to enable large-scale transitions • New incentives to invest in neglected sectors and regions: use of aid, trade, CDM rules to produce development and SD weighting • Issue-linkages and side-payments: trade deal on energy services and technologies combined with support for low-tech innovation, joint venture and partnerships on specific technologies • Greater policy integration + coherence among key actors

48. Bridging parallel worlds • We have parallel worlds of clean development; the self-identified, deliberate, intentional and interventionist forms of CD and the every day practices of project and development and investment characterised as ‘(clean) development as usual’, but which is either largely not responsive to the social and environmental imperatives of clean development, or responsive to one or other aspect but not both. • This remains the greatest challenge: how to move clean development from being the irregular and the additional to being the normal and the mainstream.

49. What does this sort of framework illustrate? • Governance blind-spots and their implications: Where action is required • Processual issues: Accountability gaps, deficits in participation • The importance of institutional design and policy processes (mandates, consultation, resources, state capacity) & need for reform • Scope for pro-poor clean development policy in developing countries: Questions of autonomy and power • Distributional issues: Sectoral and regional differences (what level of public and private flows are subject to clean development governance)

50. In Sum • Engage in policy debates about future of clean development and how to integrate climate and development policy more effectively • Theoretically: develop and challenge existing accounts of where governance occurs, how and by whom (global governance, private, hybrid, self and civil regulation) in this critical area of policy