CDM Experience in Southeast Asia: Lessons Learnt and Recommendations for Developing Countries

1. Southeast Asia: Lessons learnt from CDM experience in the region Oxford Fellowships Oxford, August 28, 2006 Axel Michaelowa, Perspectives GmbH michaelowa@perspectives.cc michaelowa@perspectives.cc www.perspectives.cc

2. Background • Goals: • Draw lessons from promotion of CDM outside the rapidly industrialising countries • Develop recommendations to enhance opportunities for poorer developing countries to benefit from the CDM • Surveyed countries: Cambodia, Indonesia, Lao PDR, Malaysia, Philippines, Singapore, Thailand and Vietnam • Involved Institutions: • Hamburg Institute of International Economics (HWWI) • PT Pelangi Energi Abadi Citra Enviro (Peace Reasearch and Advisory)

3. Structure of presentation • Theoretical CDM potential in ASEAN • Theoretical scope of emission reductions • Country business climate • Country CDM institutions and CDM project experience • ASEAN‘s share in the CDM • Procedures, resources and outreach of DNAs in ASEAN • CDM Capacity Building in ASEAN • Recommendations for promoting CDM participation of low-income countries

4. Potential supply • Cambodia and Lao PDR: • Potential for small scale CDM projects like mini- and micro hydro, small municipal and agricultural waste, as well as energy efficient appliances • Vietnam • Only limited number of projects with high quality and quantity CERs (EE in industry, power and households as well as RE) • Indonesia, Malaysia, The Philippines, • Singapore and Thailand • High potential in energy and energy efficiency sector • Indonesia ranking first before Malaysia and Thailand • All countries except for Singapore are developing countries and are still far from sustainable development practices

5. Country investment climate • FDI Inflows • Cambodia: heavily reliant on foreign assistance, impossibility to attract FDI (unreliable local government) • Laos: totally dependent on foreign aid, extremely difficult to attract FDI (poor investment climate, primitive infrastructure), but FDI in sector for hydropower schemes likely • Vietnam: high ability to attract/utilise relatively large amounts of FDI and ODA, but obstacles remain (inadequate infrastructure, slow privatisation process, lack of administrative capacity...) • Analogy FDI inflows – CDM investment? • Prerequisites that drive the flows of traditional FDI are likely to be dynamic driving factors for distribution of CDM •  Unfavourable outlook for Cambodia and Laos, much better for Vietnam

6. CDM institutions • Host country CDM institutions • Malaysia, Vietnam: DNA formally operational for several years but number of approvals limited compared to CDM leaders (India, Brazil, China) • Cambodia, Indonesia, Philippines: DNA only formally set up recently, no experience how efficiently it works • Laos: Main functions and set-up of institutions are still under discussion (DNA not operating yet) • Thailand: Strong bureaucracy, decisions on a case-by-case basis at the cabinet level prohibit efficient approval • Singapore: Still premature process (no DNA)

7. CDM project experience Registration and submission for registration • Most active country: Malaysia with 12 projects (5 registered, 4 renewable energy, 1 manufacturing ind; 3 under review, 4 submitted – all ) • Vietnam: 2 registered (1 renewable, 1 gas flaring reduction), 4 submitted (3 renewable energy, 1 energy efficiency, 1 gas capture) • Indonesia: 2 registered projects (energy industry), 2 submitted ones (energy industry, waste mgmt.) • Cambodia:1 registered project (renewable electricity) • 2 projects (1 renewable electricity, waste mgt) submitted from the Philippines • Lao, Singapore, Thailand: no projects submitted yet

8. Country CDM competitiveness ranking

9. Share of CDM projects submitted to the UNFCCC Total: 695 projects

10. Share in CERs generated until 2012 of submitted project activities Total: 613 Million CERs

11. ASEAN CDM projects submitted to the UNFCCC by country

12. ASEAN CDM potential • On global scale, ASEAN CDM projects are increasing, nevertheless... • ... Their share is still rather low • ... They need to work on the establishment of favourable approval processes and consultancy sector, support project development • ... Real breakthrough for a considerable share on the CDM market not likely due to lack of large CDM potential • ASEAN likely to attract “niche investment” • ... But will not be able to play in “CDM Champions League”

13. DNA structures: Strengths & Weaknesses High number of ministries involved, dominating role of governments StrengthsWeaknesses Relatively strong unanimous endorsement of CDM mgmt. activities + proposed projects Low risk of blocking of projects due to conflicts of interest Poor involvement of other stakeholders Bureaucratic, less flexible to adapt to changes in CDM procedure/markets Core budget secured by higher number of ministries Staff less motivated than in mixed governmental-NGO model Efficiency inside DNA board rises with position of host ministry in the governmental politic system

14. DNA assessment: Implementation and external affairs • Approval Process • Not specified in CDM rules, each country decides on its own set-up of process • Transparent & simple rules attract more investors • Criteria for Sustainable Development • Each country has total freedom of decision on how to assess a project’s contribution to sustainable development • No standardised criteria or indicators • Other criteria • DNA‘s activities in improving the competitiveness of the host country and mobilising CDM capital flow into the country • Information dissemination and outreach

15. Duration of approval process • Indonesia • Theoretically fastest DNA with 30 days, but rounds • Cambodia, Laos and Vietnam • 1.5 months (latter has only 3 rounds per year!) • Philippines and Thailand • About 2 months • Philippines: Difficult to obtain approval due to emphasis in consultation and intervention of NGOs • Thailand: difficult process of approval • Malaysia • 2.5 months • Most active to produce LoA and most successful one to have projects registered with EB

16. Assessment of criteria for Sustainable Development - Cambodia (I) • Use of local businesses • Reduction of import of fossil fuels Economic development • Poverty alleviation • Creation of jobs • Sound stakeholder consultation Social development • Reduction of pollution • Biodiversity conservation • Sustainable use of resources Environmental sustainability • Transfer of technology • Capacity Building Technological development

17. Assessment of criteria for Sustainable Development - Cambodia (II) • Development criteria and indicators based on South-South-North/Gold Standard Approval Process • Each indicator is scored from -3 to +3 (with -3 stating serious negative impact, 0 no impact) • Dilemma • Very modest CDM potential in combination with comprehensive list of sustainable development criteria • If used in a relaxed manner, low quality CDM projects can get be approved • If used very strictly, only a few high quality projects can be realised

18. Assessment of criteria for Sustainable Development – Other countries • Indonesia • list of criteria includes environmental, economic, social, and technological sustainability (project-based indicators) • Philippines and Thailand • No information on sustainability criteria available • General problems • Lack of project-specific assessment/methodologies to evaluate project’s contribution to Sustainable Development • Criteria not “translated” into sectoral indicators or specific quantitative standards

19. DNA assessment: Summary • CDM is about projects • Host country with modest CDM potential should establish a DNA in close contact with existing bodies dealing with climate change • Small and medium sized CDM countries: DNA should focus on mandatory tasks (leave judgement of feasibility and additionality to DOEs) and promotion • Not ideal models, but... • Cambodia and Vietnam DNAs are in place and improving • Lao PDR faces a critical year to finalise structure and operation before de-facto deadline of CDM projects for 2008-12 is gone • More assistance needed • ...in specific issues (legal and financial) and strengthening involvement of private, consulting sectors

20. Examples of Capacity Building Programmes (I) ID: Indonesia, MY: Malaysia, SG: Singapore, TH: Thailand, and PH: the Philippines

21. Examples of Capacity Building Programmes (II) • Cambodia • Activities: Workshops, focus on waste mgmt., renewable energy, small scale projects • Target group:Public and private sector • Lao PDR • Activities: Support establishment and full operation of DNA • Target group:Central and local government authorities • Vietnam • Objective: Evaluation of CDM potential in industrial sector • Target group:Industrial sector • Indonesia • Objective: Functional DNA • Target group:Ministry of Environment

22. Capacity Building Tools • Workshops and stakeholder dialogue • Deemed useful by 64% (UNITAR survey) • Common feature of all programmes • Problem: skimming of attendance fees by ever the same government officials (Indonesia) • General public training • Also popular with governmental audiences • Relatively high costs • Background papers • Widely used, but limited impact due to restricted dissemination, unadjusted material for different target groups • Booklets and brochures published: Cambodia (>10), Vietnam (>15), Lao (1) with basic information on UNFCCC, Kyoto and CDM modalities

23. Lessons learned • Avoid replication in scope and content • Linksufficiently with results of previous projects • Define specific target groups, focus on previously poorly involved groups like private and financial sector • Start programme with general information on climate change • Cut down on workshops aiming at general public awareness rising, but focus on on-the-job/sectoral trainings to transfer skills • Concentrate research on sectoral level for information on CDM potential and “state of the art“ technologies for project developers

24. Current distribution of CDM activities Data source: CD4CDM, Jun. 2006 LDCs and LICs account for a very minor share – only 4% of total projects developed (5.6 % of total expected CERs)

25. Types of CDM projects developed in the LICs Data source:UNFCCC website as of June 2006

26. Current trend of CDM investment flows (I) • Vicious circle • Developing (middle-income) countries with high CDM potential •  attract more and more CDM projects accumulate more experience by project implementation •  strengthen their competitiveness •  likely attract more investment • …at disadvantage of LICs • Investors look for low marginal costs and low project risk • Investors search for short-term rapid generation of CERs, but project types in LICs are mainly in renewables and A/R (lower emission reduction over a long time period) • Small projects imply higher transaction costs

27. Mobilising CDM investment into the LICs (I) Need of an effective DNA in host countries is over-riding factor for facilitating CDM activities Main challenges for effectiveness and sustainability of DNAs are shortage of finance and human resources for a long period

28. Mobilising CDM investment into the LICs (II) • Establish transparent, quick approval processes, mainstreaming of CDM into other policies • Have a realistic view of abatement potential and costs (avoid concentration on non-attractive areas, address additionality issues proactively) • Support reliable local consultants (reduces the transaction costs, minimises consulting fees flowing to international consultants) • Promote proactive industrial associations and private sectors to find viable CDM ideas • Promote local DOE offices (reduce transaction costs for developing CDM projects) •  LIC opportunity: Expeditious registration of small-scale projects and support for bundled projects with high sustainability value