Regional Distribution Challenges

1. Regional Distribution Challenges 7th UNFCCC CDM Joint Co-ordination Workshop (JCW) Bonn By Steve Thorne SSN Africa 12th/13th March 2010

2. Contents • Reasons for unequal distributions • Recent innovations by Regulators • Increasing credit flows • Reduction in transaction costs • Some examples • Some conclusions Reference: slides from UNDP (Matt Spanagle), KuyasaCDM team, GERES (William Battye) and Advocacy Body on Climate and Development

3. Reasons for unequal distributions… • Climate Change and Development are not linked. • Emissions in many LDCs and poorer areas are small and spread out – high transaction costs for low return. • LDCs and many DCs do not have enabling environments for the development of a carbon market. • Private finance has limited experience with derivatives, public finances chases development in industries they know (agriculture, mining, power, processing etc.). • Limited capacity, lack of transparency, limited active promotion, little leadership. • Conservative utilities and distributers, fossil tax income, limited interest in decentralised modern energy etc. • Limited technical capacity (not skills) in the design of projects

4. Tools to encourage take up • Reduce the transaction costs • Increase the income from credits • Increase the credits

5. Recent innovations by Regulators to reduce costs • Programmes of Action (maturing and seeing application) • Small-scale debundling for emissions sources <1% of cap • Micro-scale facility • Use of more than one methodology in a PoA • Increasing interests in benchmarks, default emissions, and other simplifications in approach • Gold Standard allows for micro-scale additionality waiver in LDCs, inclusion of suppressed demand in cookstove, biogas and water purification methodologies and lower validation and verification requirements • Loans for LDCs, reduction/removal of registration fees, etc. • More can be done to reduce validation and verification costs

6. Increasing carbon credit flows • Simplification using “benchmarks”, “deemed performance” and/or accounting for suppressed demand • These accounting simplifications should reduce requirements for measuring consumption • Project scenarios include where poverty or lack of infrastructure exist – accounting for suppressed demand • Baseline scenarios can be divided into technology/fuel and consumption • Technology/fuel is not difficult (precedents exist) • Consumption could include ex-post consumptions at level of service, minimum service levels, or predicted service levels

7. Suppressed demand • Paragraph 46 of the Modalities and Procedures: “The baseline may include a scenario where future anthropogenic emissions by sources are projected to rise above current levels, due to the specific circumstances of the host Party.” • Restated in the COP 15 outcomes: paragraph 35 of “Further guidance related to the CDM.” Encourages the EB to further explore again in COP 16… • Energy demand is constrained as a result of poverty or lack of infrastructure • Suppressed demand can be included if proof of livelihoods improving can be shown/if it not Minimum Service Levels apply • Precedent AMS ID, GS cook stoves, biogas and clean water preparation and Kuyasa CDM project #0079 • Treatment of increases in future anthropogenic emissions of host countries by SSC WG… The SSC WG 27th meeting annex 7

8. Types and treatments of suppressed demand (SD)

9. Types – let’s consider examples and possible treatments • Immediate release of suppressed demand i.e. development starts with project start – few problems • Livelihoods not improving - development doesn't start in project period • Livelihoods already improving - development already underway

12. Ceramic water purifiers - Cambodia

13. Projects are mostly in areas of severe poverty (where people do not have access to safe water, lack of infrastructure etc) • Suppressed demand for • Water consumption: • difficult access, lack of infrastructure, poor quality/contaminated source • Fuel type and quantity: • often biomass residues and plastics used and HH do not boil properly > 3mins • Water boiling practice: • lack of knowledge, time, cost of fuel relative to the disposable income and a high risk of post treatment contamination Over time each of these variables will change alongside economic development: • over what time frame? • where and how is it measurable and verifiable?

14. Suppressed Demand Service Satisfied or projected Service (BaU) Minimum Service Level Increasing Wealth/ Resources/ Infrastructure Suppressed Demand Service Level Minimum Demand Current (unsatisfactory) Service Level time

15. Suppressed Demand Emissions BaU Emissions, Satisfied Service Conservativeness Emissions (tCO2e) Minimum Service Level Suppressed Demand Emissions Service Level Avoided Emissions Creditable Current Emission Level Current Service Level Emission Reductions Project Emissions, Satisfied Service time

16. Ceiling installation - Public Works

17. Energy services and energy consumption – business-as-usual ___ Energy Service ___ Baseline Energy energy service Energy consumption time

18. SUPPRESSED DEMAND INTERVENTIONS ___ Energy Service ___Baseline Emissions ___ Energy Service Intervention ___Project emissions energy service GHG emissions time

19. Energy Services and Consumption that take Suppressed Demand for service into account ___ Energy Service ___ Baseline Carbon emissions ___ Energy Service intervention ___Carbon emission after clean energy service intervention A are Existing Emissions energy service B are Existing Emissions + Future Avoided Emissions Energy Consumption B A time

20. National pledges and Low Carbon Development Strategies Emissions (BaU) Avoided Emissions Emissions (tCO2e) Emissions (LCDS) 2000 2010 2030 2050

23. Some conclusions… • The majority of people on earth live in poverty without access to modern services • We all agree (I hope) that suppressed demand exists, but • But, how do we credit it without eroding the integrity of the CDM and flooding the market with credits? • How do we not include it and live with the perversity of waiting for development to become dirty before being interesting to carbon markets? • How do we ensure that it results in real and measurable emissions reductions – this is an opportunity for the regulation of carbon markets to account for suppressed demand • 2012 is the UN year of Energy Access!

24. Way forward to decrease costs and increase credits • Improve enabling environments for Clean Development • Decrease transaction costs further • Define typologies • Agree on treatment of typologies with respect to baselines and consumption and prepare methodology module for SD • Help regulators and market feel comfortable with “real and measurable” in the absence of monitoring consumption • Invitation to contribute to Gold Standard led project on preparing methodologies for African access to carbon