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Institutional Arrangement for CDM: Case of Peru First Extended Regional Workshop CD4CDM Project Siem Reap, Cambodia 24- 26 March 2004 Sami Kamel, PhD UNEP RISOE Center, Denmark. Background.
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Institutional Arrangement for CDM: Case of Peru First Extended Regional Workshop CD4CDM Project Siem Reap, Cambodia 24- 26 March 2004 Sami Kamel, PhD UNEP RISOE Center, Denmark
Background • This presentation based on the results of the study: "Peru's Institutional Strategy to Promote the Clean Development Mechanism" (2004). • Authors Maria Paz Cigaran and Particia Iturregui, staff members of Peru's DNA. • Study sponsored by UNEP RISOE Center as part of analytical work implemented under CD4CDM Project. • Purpose of study to present and disseminate Peru’s institutional CDM experience among other developing countries.
Country Context • Highest environmental authority is CONAM (National Council for the Environment) est. 1996: • Reports directly to Prime Minister’s office. • An Environmental Affairs Office established in each ministry to strengthen issue of environment within operations of each ministry. • All offices report to CONAM and operate under its directives. • They submit proposals for emission reductions, and perform quality assurance/approve EIAs. • All energy, mining, industrial processes, transport, infrastructure projects are required to submit an EIA for approval. • FDI laws designed with various types of incentives to attract foreign investors. Allow for free access to local financing sources, free flow of profits and dividends.
Continue: Country Context • Climate Change a priority in government’s environmental agenda: • Political commitment to play a proactive role in CC and CDM negotiations. • The National Strategy on Climate Change (mitigation, adaptation, & CDM) was incorporated into the National Environmental Plan in October 2003. • Regional governorates are required to formulate and approve climate change strategies. • Submitted First National Communication to UNFCCC June 2001. • Peru ratified Kyoto Protocol September 2002.
Peruvian National Strategy Study (NSS) • Implemented by World Bank, Swiss and national experts: • Assessed potential for CDM in the country. • Identified a pipeline of 25 CDM projects: • Feasibility study (3), Pre-feasibility (9), Project Profile (7), PIN (6). • Energy, transport, LULUCF, solid waste, and industrial processes projects. • Proposed a national CDM strategy. • Created awareness & experience in project preparation among local CDM stakeholders during the preparation of the NSS.
Strategic Considerations • When designing the national CDM strategy, Peru took into consideration: • Latin American countries have relatively high marginal abatement costs compared to Asian countries like India and China, two potential major CDM players. • In Peru, energy sector makes substantial use of hydropower & less dependent on carbon than many Asian countries. • Other Latin American countries have good experience in GHG market (75% of carbon financial flows for CDM in 2001/2002 were allocated to Latin America). • At U$4 per tCO2, Peru has potential for exporting CERs worth U$5-10 million per year (including LULUCF projects) through two to five projects per year, depending on size of projects.
Continue: Strategic Considerations • Peru should offer “Unique Window” where all CDM government issues be covered by only one state authority. • National CDM project approval process should be transparent with full public and private participation.
CDM Project Approval Participants • For CDM project approval, an Ad Hoc committee is formed per project-basis (meets only when there is a project to approve): • Permanent committee members: • National Council for the Environment (CONAM) – DNA. • National Environment Fund (FONAM). • State Office for Promotion of Private Investment (ProInversion). • Ministry of Foreign Affairs. • International Cooperation Agency. • Project-related committee members: • Line-ministry related to project sector. • NGO (from project locality). • National EIA expert. • Other national expert(s) as needed.
National Council for the Environment(CONAM) Roles & Responsibilities: • Peruvian Designated National Authority (DNA). • Hosts the Climate Change Unit (& national CDM office): • Monitor & register CDM activities in the country. • Follow up and comply with EB decisions. • Devise actions to overcome barriers to CDM. • Produced the First National Communication for the UNFCCC. • Issues CDM project approvals: • Possible Conflict of Interest if CONAM also promotes CDM Projects; task assigned to the Private Sector Investment Authority (Proinversion).
National Environment Fund(FONAM) Roles and Responsibilities: • Organizes and coordinates with CONAM national CDM capacity building activities: • Trained 55 people in different entities on developing PINs. • Assists CDM project participants in pre-investment phase of CDM projects (identification, preparation, and data gathering). • Permanente member of all CDM Project Approval Committees. • National Focal Point for the Prototype Carbon Fund (PCF).
State Office for Promotion of Private Investment(ProInversion) Roles & Responsibilities: • Promotion & marketing of Peruvian CDM projects through various channels. • Act as the first window for international CDM investors interested in projects in Peru. • Identify & remove barriers to CDM project implementation and approval: • Organize capacity building programs for local private sector and project financing entities. • Voice the demands of local private sector in international CDM negotiations. • Work on incorporating CDM promotion strategies within the national Foreign Direct Investment (FDI) promotion plan.
Incentives for CDM Investors • A 45 days self-imposed deadline for completion of approval process (no specific penalty for delays). • Approval process (costing $4,800) is free of charge to minimize transaction cost: • Each concerned entity cover its own share of the cost for approval (67% covered by DNA). • Decision to be re-visited once Peru establishes its name as a CDM destination. • Promote small social investment in project locality: • Improves sustainable development prospects • Improves likelihood for approval by national CDM committee & EB. • Three to four CDM projects were approved using this process. All approvals completed within the 45 days deadline.
Key Challenges • Complying with self-imposed 45 days deadline while securing full involvement of relevant entities (the more entities involved, the more likely the potential delay in the approval): • CONAM circulated and approved a National CDM Operational Procedure among all relevant ministries & stakeholders. • CONAM having an office in each line-ministry facilitates project approval process. • CONAM continuously holding various workshops and meetings to raise awareness among relevant stakeholders.
Continue: Key Challenges • Lack of CDM project formulation capabilities among public and private sector entities. • Approach adopted by the government? • Trained 20 national experts from industry, energy, waste management, agroforestry, and transportation sectors on CDM project structuring and formulation. • Financing institutions received special training on evaluation of CDM projects. • Two key objectives for the government: • Build local project formulation capacities in strategic CDM sectors. • Reduce local transaction cost through smooth and simple project approval process.
A Responsive Setup for DNA • CONAM continuously assessing adequacy of current institutional setup and project approval process. • Portion of project approval cost covered by DNA is from CONAM budget. • If number of projects increases beyond DNA capacity: • CONAM will allocate separate budget for DNA. • Will charge a fee for the 45 days-approval. • Will hire external consultants to review and assess submitted CDM projects to facilitate work of ad hoc committee.
Conclusion & Lessons Learned • Key ingredients for a successful CDM sector in a host country: • Political will within the government. • Clear & adequate institutional & regulatory arrangement for CDM. • Requirements for compliance of CDM projects with national environmental & sectoral planning should be simplified to facilitate project approval process. • A host country should aim at minimizing local transaction costs. • Local financial sector could play key role in CDM projects (core-financing portion).
Continue: Conclusion & Lessons Learned • A host country should market its CDM projects to a diversified market and not to rely completely on one potential CERs buyer (e.g. PCF). • Operation of the DNA needs to be frequently assessed to maintain an efficient local CDM process. • DNA budget could be initially covered by government but later a DNA should generate some sort of income.
