Progress Report on Phase I of the UNEP Project in Egypt “Capacity Building Development For

1. Progress Report on Phase I of the UNEP Project in Egypt “Capacity Building DevelopmentFor The Clean Development Mechanism”

2. Phase I Country Report Outline I. Introduction I.1. Project background I.2. Capacity development needs II. Country Circumstances Relating to Cc and CDM II.1. Institutional arrangement in the context of climate change Country-specific institutional arrangement and its potential linkage with this project II.2. Prior & on-going activities related to CC II.3. Prior & on-going activities related to the CDM and perspectives for CDM III. Country Specific Issues in Relation With The UCCEE/UNEP Project III.1. Institutional arrangement for the implementation of the project III 1. 1. Focal point III 1. 2. National institution (Technical Support Entities) III 1. 3. participants III.2. Status of the contractual arrangements with national institution (Technical Support Entity) and MOU with government III.3. Evaluation of institutional and overall capacity in relation with the CD for CDM project III 3. 1. Focal point III 3. 2. National institution (Technical Support Entity, TSE) III 3. 3. National institution Iv. Status OF Objectives, Outputs & Activities In Phase I IV.1.Tasks in Phase I: completion of a work plan for phase II presentation of the workplan for phase II, and description of the activities IV.2. Outputs: workshop proceedings & presentation files, work plan, etc. V. Notes From Initial Contacts With Stakeholders Iv. List Of Potential Participants & Stakeholders In The Project Annex-I: Detailed National Work Plan Annex-II: Workshop proceedings & presentation

3. I. Introduction and objectives • The United Nations Environment Program (UNEP) has launched the project “Capacity Development for the Clean Development Mechanism” with financial support from the Dutch Government. • The UNEP Collaborating Center on Energy and Environment (UCCEE) is the supporting organization contracted by UNEP to implement the project.

4. General Objectives • generating in participating developing countries a broad understanding of the opportunities offered by the Clean Development Mechanism, and • developing the necessary institutional and human capabilities that allows them to formulate and implement projects under the CDM.

5. I.2. Capacity development for the CDM needs The CD for CDM project objectives: 1-Definition of regulatory framework that supports CDM activities, 2- Identify prospective CDM projects, 3- Formulate investment plans, 4- Validate CDM projects, and 5- Monitor and report the results of CDM activities. The main products of this preparatory phase are: 1- Establishment of a country specific strategy approach in order to obtain the highest degree of political support. 2- Designate an appropriate focal point agency that will coordinate national CDM activities and investments. 3- Prepare terms of reference and determine the organizational structure for the focal point agency. 4- Develop a multi-year work plan for promoting national CDM activities and investments. 5- The phase-I progress depicts the previous products.

6. II. Country Circumstances Relating to CC and CDM • II.1. Institutional Arrangement in the Context of Climate Change • Governmental institutions potentially participating in the CDM. • Private Sector Institutions and NGOs in Egypt with CDM Potential. • Institutions and Authorities responsible for the foreign direct investment system of Egypt • Annex-III.( 1 ) encounters the most important current initiatives for GHG reduction in Egypt.

7. Existing National Governmental Institutions Ministry of State for Environ-mental Affairs Ministry of Electricity & Energy Ministry of Agri- culture Ministry of Industry & Technological Development Ministry ofTransport Ministry ofPetroleum -Egyptian Environmental Affairs Agency (EEAA) Climate Change Unit- Environmental Protection Fund (EPF) - New & Renewable Energy Authority (NREA) -Organization of Energy Planning (OEP) -The Egyptian General Petroleum Corporation (EGPC) -Egyptian Natural Gas HoldingCompany “EGAS” - Tabbin Institute for Metallurgical Studies (TIMS) -Egyptian Accreditation Council (EGAC) The Central Department for Afforestation & Environment Existing Governmental Institutions Potentially Participating in the CDM

8. EXISTING PRIVATE SECTOR INSTITUTIONS AND NGOs Federation of Egyptian Industries (FEI) Private Audit/ Consulting Firms World Energy Council Environmental NGOs The Egyptian Energy Service Business Association (EESBA) Energy Efficiency Council (EEC) Private Sector Institutions and NGOs in Egypt with CDM Potential

9. Different Authorities and Their Roles & Responsibilities in the Foreign Direct Investment System of Egypt

10. Different Authorities and Their Roles & Responsibilities in the Foreign Direct Investment System of Egypt

11. II.2. Prior & on-going activities related to Climate Change (CC) • The prior and on-going activities are divided into two main issues: - Policies - Measures for reducing GHG emissions • Adopted by: • Governmental firms and; • Complementary voluntary activities by non-governmental organizations.

12. II.2.1. Prior activities related to Climate Change • The following are the activities related to the climate change and prior to the CDM. • a. Egypt’s Climate Change National Action Plan (ECCNAP) • The project deals with both the assessment of Egypt’s vulnerability to the adverse impacts of climate change as well as the assessment of the potential GHG mitigation. • Within the assessment GHG mitigation, the project has been providing an in-depth coverage of the financial, environmental, social and economic impacts of a set of seven energy efficiency technologies. • These technologies are fuel substitution, co-generation, combustion control, waste heat recovery, efficient lighting, use of renewable energy and steam condensate recovery.

13. Egypt Climate Change National Action Plan [ECCNAP] final objective: • Building capacity for Egypt to respond to UNFCCC, it was: • Strengthening Egypt’s capacity to comply with the requirements of the UNFCCC, • Institutionalizing the national communication to comply with the UNFCCC, and • Contributing to the emergence of Egyptian approaches and responses to the UNFCCC.

14. Approaches: • Training of experts, • Setting-up of seminars, workshops and studies related to climate change, and • Establishing close links with regional UNEP/GEF projects in general and taking part in international training programs

15. C. Egypt’s Initial National Communication on Climate Change • The Initial National Communication on Climate Change (NCCC) was issued in the year 1998 as a necessary document for evaluation of Egypt’s inventory of green house gases. • It is one of the main documents on which the National Strategy Study (NSS) on clean development mechanism (CDM) was based.

16. II.2.2. On-going activities related to Climate Change • These initiatives can be classified into: • Institutional, (encountered in item II.1) • Technical and • Strategic initiatives.

17. a. Institutional Initiatives The Institutional Initiatives are encountered in item II.1, “Institutional arrangement in the context of climate change”

18. b. Technology/Market Initiatives • Technology Cooperation Agreement Pilot Project (TCAPP) • Acknowledging technology transfer as one of its highest priorities, Egypt is focusing on such initiatives as the Technology Cooperation Agreement Pilot Project (TCAPP), in cooperation with the U.S. Country Studies Program. • The TCAPP is chartered to develop consensus among key Egyptian organizations on a set of high priority, climate-friendly, technology issues aimed at successful commercialization. • Results are expected to produce candidate technology transfer areas for consideration under the guidance of the National Climate Change Committee. Market development plans for selected technologies are currently underway.

19. Promotion of Wind Energy for Electricity Generation • This is an active program within the Ministry of Electricity and Energy, through the New and Renewable Energy Authority. • Supported by many international donors, this project aims at installing 600 MW of wind turbine by the year 2010. • The first 300 MW is already contracted through different donors, and most of them are scheduled to be operating by 2006.

20. Fuel Cell Bus Demonstration Project • Funded by the GEF, the UNDP is currently supporting fuel cell bus projects in Cairo, The demonstration in Cairo features eight fuel cell buses with associated hydrogen production and supply facilities. • The program will run for five years, with three years devoted to driving, monitoring and testing performance. • Service is targeted for implementation in the year 2001. • With a focus on technology transfer, Egypt hopes to expand the success of this demonstration in its transportation fleet.

21. Other Projects are: • Hybrid-Electric Bus Technology in Egypt • Natural Gas Motorcycles • Methane Recovery from Landfills • The Integrated Solar Thermal/Natural Gas Power Plant at Kuraymat • The Energy Efficiency Improvement and Emissions Reduction Project • Fuel Switching

22. C. Other Activities in Egypt for GHG Emissions Reduction Egyptian Energy Efficiency Council (EEC) programs The Energy Efficiency council (EEC) is a voluntary consortium of public and private sector organizations associated with the generation, distribution, and use of energy resources in Egypt. The council currently includes 12 organizations representing seven Ministries and two organizations representing the views and interests of the private sector. Its aim is to oversee the development of a national energy efficiency strategy that will be used as a roadmap to increase Egypt’s efficient use of its natural resources.

23. d. Overview on Current GHG Emissions in Egypt and Projection of Emissions Until 2017 • The latest comprehensive inventory of GHG emissions and sinks (removals) for Egypt has been compiled for the fiscal year 1990/1991 (July 1st, 1990 – June 30, 1991). • The net GHG emissions of Egypt in 1990 were 106,608 Gg of CO2 equivalent, while the total GHG sinks in the land use sector recorded 9,900 Gg of CO2 equivalent. CO2 is the main greenhouse gas in Egypt. It represented about 72% of the total GHG emissions in 1990. • The main emitters of GHG in Egypt are fuel combustion in the energy (22%), industry (21%), transport (18%), sectors. • The total energy-related emissions (”All energy”) are responsible for 71% of the total GHG emissions. • Therefore, the sectors energy production, industry and transport are the primary target for GHG emission reductions measures.

24. Total = 106,708Gg All energy emissions, % GHG All energy emissions = 71% of total GHG Sector Percentage Share of Net GHG Emissions, 1990/1991 Source: Extracted from OECP (1998)

25. The estimation of Egypt’s GHG emission projection until 2017 for the all energy sector is based on the SNAP project at OEP. For the waste sector, the GHG emission growth rate was estimated at 1.6% annually based on the assumed annual average population growth rate. GHG Emission Projection for all Sectors (in 1000 Gg of CO2 equivalent)

26. C S C U S $ T o n C Marginal Abatement Cost Curve for Egypt

27. Summary of Technologies, Saved Carbon and Cost of Saved Carbon

28. Main comments about: • The Energy Efficiency technologies Previous studies (such as SNAP, 1997 and ECEP, 1998) also support the current results. • Implementing the energy efficiency in different sectors in Egypt may result in GHG reduction between 1 to 2 million Ton C under the conservative and optimistic scenarios respectively. • The waste management sector • Renewable energy, • The transportation projects • LULUCF activities,

29. 1.2.2 Analysis for International Market for Certified Emission Reductions (Demand) Principal Results of the CERT Model in the Standard Scenario

30. Egypt's Position in the International GHG Offset Market Standard, 100%, Medium 70% and low 50% sail of GHG emissions

31. II.3.Prior & on-going activities related to the CDM and perspectives for CDM • The National strategy study (NSS) on CDM • Institutional Needs for the Implementation of CDM in Egypt • National CDM Committee and CDM Unit • As for the institutional framework, two levels of coordination are proposed, the first is a national committee for CDM and the second is CDM implementation unit. • The mandate of such a CDM unit will include the following: • Undertaking CDM activities as pertains to awareness and promotion; • Issuing guidelines for the proposed CDM projects as well as following up CDM project activities initiated in Egypt; • Acquiring various approvals and permits on behalf of CDM investors without having them go through a timely and tiresome process themselves. This will lower transaction costs considerably and thus, be instrumental in catalyzing CDM projects in Egypt; and; • Liaise and coordinate with line ministries and governmental agencies to prepare position papers for Egypt on CDM and representing Egypt in international meetings and conferences in this field; • Coordinating technical capacity building; • Facilitating pilot CDM projects and build relations with potential CDM investors.

32. Facilitating pilot CDM projects and build relations with potential CDM investors. The proposed CDM Unit will be responsible for the day-to-day activities of CDM. It will be the executive secretariat of the National Committee on Climate Change in the area of CDM. This Committee nonetheless, will be regarded as the executive board or policy-making body for the CDM in Egypt. As for other institutional and logistical prerequisites, Egypt has to look for international broker firms to promote for CDM projects and carry out matchmaking with Egyptian partners. Nonetheless, financial auditing firms in Egypt can play a role in various CDM related activities. They require, however, intensive capacity building in this field in terms of awareness, skills and human resources. Many of these firms can utilize the expertise and experience of their international partners and alliances in the area of CDM. This will inevitably lead to strengthening and enhancing the domestic skills and capabilities of those auditing firms in the field of CDM project related activities and services.

33. Egyptian non-governmental organizations can play an important and instrumental role in implementing CDM projects in Egypt. Accordingly, this role needs to be strengthened and encouraged. One general recommendation regarding institutional, legal and technical prerequisites is that there is a pressing need for capacity building for CDM related activities in Egypt. This is required for the various agencies and institutions acting as stakeholders in the investment process in Egypt. It is also urgently needed to advise the Egyptian Accreditation Council, (EGAC) to take the necessary actions for recognition of national institutions. The CDM project cycle mainly consists of project validation, monitoring, verification and may be certification on both national and regional basis. This recognition requires capacity building for the national institutions to meet the required qualifications of operational entities set forth within the CDM decision adapted at COP-7.

34. Tasks to be carried out prior to the initiation of the CDM project Table ( 5 ) summarizes the tasks to be carried out prior to the initiation of the CDM project cycle activities. These tasks can be conducted by the following options: Option (1): through which government agencies play the only or main role in fulfilling such task. Option (2): whereby the private sector and NGOs play the only or main role in fulfilling such task. Table 5: Tasks to be Carried Out Prior to the Initiation of the CDM Project Cycle Activities

35. Tasks in the CDM Project Cycle Project eligibility measures, National and international Validation Registration is the formal acceptance of a validated project as a CDM project Monitoring is the systematic surveillance and measurement of after being implemented aspects related to the implementation and the performance of a CDM Verification is the periodic independent review and ex-postdetermination by a designated international entity of the emission reductions by sources and/or enhancements of removals by sinks that have occurred because of a specific project. Certification is the written assurance by a designated international entity that during the verification period a project has achieved the stated emission reductions and/or removals by sink in compliance with all project performance criteria. A ‘Certified Emission Reduction’ (CER) unit shall be equal to one metric ton of CO2 equivalent emissions reduced or sequestered arising from a CDM project. Issuance is the formal release of CERs based on a certification by a designated international entity. International entities shall certify the emission reductions resulting from a validated project upon request from a project participant.

36. CDM Project Cycle Flow Chart

37. A Note on Transaction Cost The transaction costs and any rent seeking in CDM projects should be minimized as much as possible in order to achieve a more efficient and cost-effective CDM mechanism in Egypt. The anticipated CDM unit will, through its “one stop shop”, facilitating and coordination role be to a large degree responsible for low transaction costs in CDM projects. wherever this issue need to be addressed on more global level under UCCEE/UNEP project and on national level at the time of implementation of phase II.

38. Options in CDM Design Arrangements for International CDM Co-operation Unilateral CDM Bilateral and Multilateral CDM Groups of Small Projects Fast Track for Small Projects

39. III. Country Specific Issues In Relation With The UCCEE/UNEP Project • Objectives Assigned to the Work Plan • Through the period from 2003 to 2005, it is required to realize the following objectives: • Establishment, development of an operational Designated National Authority Of CDM • Awareness enhancement • Capacity development among relevant national stakeholders • Development of a pipeline of marketable CDM projects, this ‘shopping list’ includes all the necessary documentation for soliciting investments. The package will be dynamically overviewed and updated. • The Designated National Authority (DNA) is a part of a National well-planned institutional setting. The following are the suggested institutional arrangements.

40. III.1. Institutional Arrangement For The Implementation Of The Project • A suggested regulatory framework that supports CDM activities is defined in the following arrangements. • III.1.1. Focal point • The Egyptian Environmental Affairs Agency (EEAA), through its Climate Change Unit (CCU), is the official technical focal point for climate change activities in Egypt. In this capacity, the EEAA/CCU is also identified as the Focal Point Agency (FPA) for the duration of the present project. • At some time in the future, a CDM Unit (also referred to in UNFCCC terms as a Designated National Authority (DNA)) is expected to be established. The establishment and development of this CDM Unit or DNA is a principal objective of the project.

41. III.1.2. National institution (Technical Support Entity) • A Technical Support Entity (TSE) will be assigned to implement certain project tasks on behalf of the FPA, under direct contract to the UNEP Collaborating Center on Energy and Environment (UCCEE). The entity UCCEE is the supporting organization contracted by UNEP to implement the present project. • The relationship of the TSE to the FPA is specified in a Memorandum of Understanding between the FPA (EEAA/CCU) and the TSE, while the assignment for the remainder of the project will be decided towards the end of Phase 1). The MoU between FPA and TSE will also refer to the contractual relationship of the TSE to the UCCEE. The draft MoU is attached as Appendix 3. • Technical support on methodological issues related to the CDM will also be provided to the FPA and TSE by the Regional Center (APEX in the case of the region in question).

42. Suggested relations between the main entities involved in the CDM activities

43. For the first year, the CDM Unit is suggested to be consist of: • A full-time executive director • A secretariat consisting of an expert for training and public relation including mass media, an economist, preferably with technical background. • The direct human resources needed for the CDM Unit itself for the first two years are estimated within 3-5 staff. They are supposed to be assigned primarily by EEAA. After initiation of CDM projects for implementation, it is expected to be self-funded by local and foreign partners of CDM. • The technical support for CDM regulatory framework is planned to be supplied by Technical Support Entity (TSE). The following are criteria for the selection of the national institution for conducting the project activities at national level. • 5 to 10 years experience in conducting Climate Change studies • A good knowledge of the CDM related issues and stakes at national and international levels • Capacity to undertake focused technical studies and researches relevant to CDM • Expertise (or capacity to mobilize expertise) in the main areas concerned by CDM (Energy, Industry, Forestry, Agriculture, waste); • Capacity to undertake capacity development programs • Capacity to undertake and handle training programs and workshops • A minimum of five years experience in conducting mitigation assessments • Capacity to liaise and coordinate between the experts involved in the activities of the project at national level; • Capacity to mobilize the stakeholders to be targeted by the project • Capacity to liaise with the national authorities in charge of the climate change and CDM activities

44. Suggested Role of the Designated National Authority (DNA) for CDM in the Implementation of the CDM Work Plan • The national committee for CDM is expected to recommend the policies, submit them to the EEAA committee for approval and forming the CDM implementation unit and follow up of implementation to cover the following tasks: • Preparation of the scope of work and putting rules for current work of the CDM-Implementation Unit. • Studying and reviewing of Egypt’s NSS for preparation of the CDM project packages. • Approving the plans, follow up the implementation of the CDM activities broken down in the modules above, while the implementation work is expected from the CDM implementation unit. • Suggesting the legislations required for CDM implementation facilitation. • Preparing intergovernmental agreements (memorandum of understanding) with possible investor countries or institutions for the implementation of CDM projects.

45. III.1.3. Participants • Participants can be defined as the Consulting engineers, representatives from private enterprises and other stakeholders receive training in key GHG abatement technologies, CDM methodologies and project cycle. • Capacity Development Among Relevant National Stakeholders • Define steps to assist local firms in developing capacity for project validation, verification and certification. • Develop a database for local firms having capacities for CDM project implementation, validation and verification. • Resources are expected to be provided through the available climate change donor funding, later fees will cover the training costs. These activates are to be carried out by existing institutions such as training university centers and CDM technology suppliers.

46. Awareness Enhancements Activities The following is the suggested list of activities required for awareness raising: 1. Definition of the targeted groups, e.g. technology suppliers for CDM consulting engineers and registration of interested parties in database. 2. Communication with the key players through networking and publications and seminars. 3. Participation and presentations in existing conferences, industry fairs and other suitable forums (industry associations, NGOs, etc.). Organizing between 2 to 3 workshops annually for investors and candidate project hosts for promotion of GHG reduction through CDM. Emphasis will be laid on the private sector and the use of existing structures. The CDM unit will mandate most activities to specialized companies, governmental and non-governmental institutions, making optimal use of existing skills, manpower and networks. Resources needed for the CDM unit staff is supposed to be allocated by governmental contribution. Funding of activities and campaign is expected to stem from governmental contributions (also in kind), foreign donations and contribution by CDM customers.

47. Development of A Pipeline Of Marketable CDM Projects 1. This module consists of establishment of feasibility studies for 1-3 most promising CDM project candidates in Egypt. The studies include the assessment of the technical and financial project feasibility, the evaluation of the eligibility under CDM, the evaluation of environmental and socio-economic impacts and the assessment of the proposed financing schemes. 2. The studies should be carried out in close cooperation with potential investors and candidate project host. Resources for project package preparation are suggested to be funded by potential investors and candidate project host while supported by governmental in kind contributions.

48. III.2. Status of the contractual arrangements with national institution (Technical Support Entity) and MOU with government Currently there is a preliminary acceptance for entities that will be sharing in the institutional setting for the second phase of the project. Official documents will be coming into force by issuance and acceptance of the present report as the coming logical step towards CDM implementation.

49. III.3. Evaluation of institutional and overall capacity in relation with the CD for CDM project • The Focal point capacity • The Egyptian Environmental Affairs Agency (EEAA), through its Climate Change Unit (CCU), is the official technical focal point for climate change activities in Egypt. In this capacity, the EEAA/CCU is also identified as the Focal Point Agency (FPA) for the duration of the present project. In this concern, the EEAA/CCU has the full capacity for taking the responsibility of the FPA. • National institution (Technical Support Entity) • For the present phase, Tabbin Institute for Metallurgical Studies TIMS assumed the responsibilities for the phase I of the present project. Tabbin Institute, TIMS has a long experience in the energy efficiency work and environmental issues. Tabbin Institute, TIMS was contracted by EEAA for implementation of the NSS on CDM. • National institution (complementary institutions for CDM) • Egypt has a lot of governmental and non-governmental entities that are eligible for sharing in the CDM activities. These entities are well defined in item (II.1)

50. Complementary Outputs Suggested To The Work Plan • Implementation of the first pilot project, establishment of national criteria and baseline for CDM • A published annual Egyptian CDM report, • An annual training package on CDM activities