Challenges of CDM for Building Energy Efficiency

1. Challenges of CDM for Building Energy Efficiency UNFCCC Workshop Buildings under UNFCCC Flexible Mechanisms Chia-Chin Cheng UNEP-SBCI Beihang University International Green Energy Center Bonn, Germany March 24, 2011

2. Largest Potential for GHG Emission Reduction in Buildings • Highest GHG reduction potential • Most cost effective Source: IPCC 4th Assessment Report

3. Largest Potential Resides in Developing Countries Source: IPCC 4th Assessment Report Insert Footer: View menu, Header and Footer. Apply to All

4. Score Card for Building Projects in CDM 2008 6 vs. 2700

5. Score Card for Building Projects in CDM 2011 31 vs. 5935 2 vs. 80

6. Existing Building Related CDM Methodologies

7. Underlying causes for low CDM and EEB uptake • Long-tail characteristics of the sector- small saving, big effort • Fragmentation of sector / uncoordinated stakeholders • Insufficient R&D and information for new EEB technologies • Insufficient EEB expertise and tools • High upfront and transaction costs for tech adoption in DC • Lack financing mechanism and interests for EE investments • Lack of awareness and general inertia restrict uptake Source: Cheng, et al., 2008

8. Old CDM’s Rules Add to Difficulties • Complex rules and procedures • High transaction costs, long lead time, not enough payback • Technology based methodologies are tedious to validate, monitor and verify carbon performance • Difficulty in establishing baselines for new buildings • Combination of different methodologies is not allowed for programmatic CDM • Soft measures (energy management measures) are not taken into account, and difficult to prove in the current verification scheme • Lack of mechanism to support low income sector • CDM does not support mandatory national standards Insert Footer: View menu, Header and Footer. Apply to All

9. CDM’s Amazing Reform in Three Years • Complex rules and procedures  further simplify SSM Cancun decisions • High transaction costs, long lead time, not enough payback  programmatic CDM and institutional reform • Technology based methodologies are tedious to validate, monitor and verify carbon performance  new methodologies use whole building and simulation approach • Difficulty in establishing baselines for new buildings  standardized baseline • Combination of different methodologies is not allowed for programmatic CDM  addressed in EB 47 • Soft measures (energy management measures) are not taken into account new methodology with whole building approach • Lack of mechanism to support low income sector new scenario allowed • CDM does not FULLY support national standards

10. For a large-scale uptake of building sector CDM CDM ALONE is NOT a sufficient incentive The construction sector does not respond well to economic and voluntary incentives alone. CDM ALMOST has to piggyback with other stronger and large- scale incentives Directly clash with additionality rules Possible two larger scale incentives in building sector Government policies and standards are much stronger mechanisms to drive large-scale actions Voluntary certification schemes started penetrating DC market  CDM needs to be ready to FULLY support government policies, building codes and NAMAs CDM has performed a substantial reform, but…. Insert Footer: View menu, Header and Footer. Apply to All

11. CDM’s bottom-up approach to overcome difficulties in small scale investment– with strong policy initiative in place Project and program based approach is especially suitable for long-tail projects individual mitigation opportunities are tackled one-by-one, project-by-project, CPA by CPA Replicability makes scaling up of successful project modules easier publicly available project documents and methodologies could facilitate project replication programmatic CDM could potentially enable a large number of replications for small project activities provide necessary means and resources to accelerate &deepen compliance CDM’s Bottom-up Support for Long-Tail Building Projects Insert Footer: View menu, Header and Footer. Apply to All

12. CDM’s quality assurance mechanisms to induce change of practice built-in quality control mechanisms and strict MRV requirements could ensure long-term compliance induce change of business practices and internalization of energy saving behavior are the most important co-benefit of the CDM adopting CDM is already additional maintain the benefit in simulation based methodology Enhance private investment in EE buildings reduce risks for small size projects by coordinated aggregation CDM’s built-in quality control measures reduce risks of project default and help to enhance project quality enable life-cycle based financing CDM revenue to pay for transaction and MRV & management costs CDM’s Bottom-up Support for Long-Tail Building Projects Insert Footer: View menu, Header and Footer. Apply to All

13. The Avenue Forward……. • Short-term Challenge • Establish facilitating methodologies based on industry and CDM’s good practices • Medium-term Challenge • Develop standardized baselines and benchmarking for DC • Performance based- SBCI common carbon metrics • Revisit additionality rules for buildings • building codes- no additionality • benchmarked additionality • Long-term challenge • CDM to fully support policy and NAMAs

14. Coming Up… • UNEP Risoe Working Paper CDM, NAMAs and the Building Sector: a Two-Track Financing Mechanism for Post-2012 • SBCI Common Metrics • For More Information: www.unepsbci.org www.uneprisoe.org