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Clean Development Mechanism

CLEAN DEVELOPMENT MECHANISM: OPPORTUNITIES FOR THE PHILIPPINES Climate Change Information Center Manila Observatory Ateneo de Manila University. Clean Development Mechanism.

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Clean Development Mechanism

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  1. CLEAN DEVELOPMENT MECHANISM: OPPORTUNITIES FOR THE PHILIPPINESClimate Change Information CenterManila ObservatoryAteneo de Manila University

  2. Clean Development Mechanism • Enables developed countries (known as Annex I countries) to meet their emission reduction commitments in a flexible and cost-effective manner • Assists developing countries (non-Annex I countries) in meeting their sustainable development objectives • Investors benefit by obtaining Certificates of Emissions Reductions (CERs) • Host countries benefit in the form of investment, access to better technology, and local sustainable development

  3. Value & Benefits of CDM:From a developing country perspective • Attract capital for less-carbon intensive projects • Encourage active participation of private and public sectors • Technology transfer – environmentally friendly sustainable technologies • Investment priorities in sustainable development projects

  4. CDM contributions to Sustainable Development objectives • Transfer of technology and financial resources • Sustainable ways of energy production • Increasing energy efficiency & conservation • Poverty alleviation through income and employment generation • Local environmental side benefits

  5. Simplistic numerical example Provide electricity for a barangay • “Business-as-usual” (baseline): Diesel generator sets • Cost of project $10 • Emissions 1 tC • Cleaner project (CDM-eligible): Micro-hydro • Cost of project $13 • Zero Emissions

  6. Simplistic numerical example • CDM Investor (e.g. Japan) • Invests $3 ($13-$10, difference between cleaner and business-as-usual project) • Gains Certificate of Emissions Reduction of 1 tC, which it can meet some of its Kyoto Protocol commitments to reduce emissions

  7. Simplistic numerical example WIN – WIN – WIN • WIN for the host country • Sustainable development benefit: Cleaner energy production technology • WIN for the Annex I country • Credits for emissions reduction • WIN for the Global Environment • Emissions reduction

  8. CDM Project • Achieves Sustainable Development objectives for the host developing country • Reduces GHG Emissions

  9. Business as usual: baseline CO2 emission Reduced emissions Project implemented year Baseline and CERs

  10. CDM: A special product • CER is a payment for the Project Developer not to produce • To reduce GHG emissions • Thus, the importance of special requirements • Definition of baselines • Calculation of GHG emission reductions

  11. Without CERs not implemented; with CERs implemented Without CERs implemented With CERs not implemented No CDM CDM How CDM can matter FIRR CER income

  12. CDM Eligible Projects • Renewable energy • Fuel switching • End-use energy efficiency improvements • Supply-side energy efficiency improvement • Agriculture (reduction of CH4 & NO2 emissions) • Industrial processes (CO2 from cement, HFCs, etc) • Sink projects (only afforestation & reforestation)

  13. Clean Development Mechanism Types of small-scale projects that could qualify for fast-track approval procedures • Renewable energy projects up to 15 megawatts (MW) of output capacity • Energy efficiency improvements that reduce energy consumption on the supply and/or demand side by up to 15 gigawatt-hours (GWh)/year • Other project activities that both reduce emissions at source and directly emit less than 15 kilotons (kt) of CO2 equivalent annually

  14. Projected Philippine CO2 Emissions: Potential of CDM Emissions Reductions Supply

  15. Projected Philippine CO2 Emissions: Potential of CDM Emissions Reductions Supply

  16. Philippine GHG Abatement Cost and Potential Source: ALGAS

  17. BATANES 1,100 KW CASIGURAN 500 kW NORTHERN LUZON 120 MW POLILLO ISLAND 500 kW MARINDUQUE ISLAND 3,000 kW CATANDUANES 2,250 kW LUBANG ISLAND 330 kW TABLAS ISLAND 1,500 kW MINDORO ISLAND-ORIENTAL 13,500 kW ROMBLON ISLAND 1,000 kW BUSUANGA ISLAND 330 kW MASBATE ISLAND 3,000 kW CUYO ISLAND 330 kW DINAGAT ISLAND 3,000 kW PALAWAN ISLAND 9,000 kW POTENTIALCAPACITY: 160,340 kW SIQUIJOR ISLAND 1,000 kW SPECIFIC WIND POTENTIAL POWER SITES

  18. Solar Energy Resource Potential • Average insolation of 5- 6 kWh/sq. m/day all throughout the country

  19. Requirements for the Philippines to Participate in CDM • Ratify the Kyoto Protocol • Designate the CDM National Authority

  20. Requirements for the Philippines to Participate in CDM • Status of Philippine ratification of the Kyoto Protocol • Senate Committee on Foreign Affairs has sponsored the ratification on the floor of the Senate, 2nd June 2003 • Interpellation and voting during the next session of the Senate, August 2003 • Need 2/3 majority of the Senate to concur in the ratification of the Kyoto Protocol

  21. Requirements for the Philippines to Participate in CDM • Status of efforts to establish CDM Designated National Authority (DNA) • Proposal to make the Inter-Agency Committee on Climate Change (IACCC) as the DNA • IACCC is composed of: DENR, DOST, DOE, DFA, DTI-BOI, DOTC, NEDA, DPWH, PAGASA, FMB, EMB, Philippine Network on Climate Change (NGO)

  22. PCF/CDM Project Cycle – The Manufacturing Process for CDM Emissions Reductions Preparation and review of the Project Project completion • Project Idea Note • Project Concept Note • Project Concept Document (or equivalent) 3 months Baseline Study and Monitoring Plan (MP) Up to 21 years • Project Design Document • Baseline study and ER projections • Monitoring Plan Periodic verification & certification 2 months • Verification report • Supervision report Validation process 1-3 years 2 months • Validation protocol and report 3 months Construction and start up Negotiation of Project Agreements • Initial verification report • Project Appraisal and related documentation • Term sheet • Emission Reduction Purchase Agreement

  23. Carbon Asset Creation and Maintenance Costs The PCFExperience Preparation and review of the Project Project completion • Upstream Due Diligence, carbon risk assessment and documentation: $ 50K 3 months Baseline Study and Monitoring Plan (MP) Up to 21 years • Baseline: $30 K • Monitoring Plan: $25K Periodic verification & certification 2 months • Verification: $10-25 K • Supervision: $10-20K Validation process 1-3 years 2 months • External consultant: $25K • Processing and documentation: $30k 3 months Construction and start up Negotiation of Project Agreements • Initial verification at start-up: $25K • Consultation and Appraisal: $75K • Negotiations and Legal documentation: $30K Total through Negotiations • All expenses: $265 K

  24. Demand for CDM Projects Example: • The Netherlands will reduce 100Mt CO2eq through CDM/JI (tender, CDM facilities etc) at average costs of ca 4 US$/ton CO2eq • This means 400 M US$ for CERs/ERUs. Contribution to the capital costs may by be 5-15% (at least for CERs). Consequently an investment of 4,000 M US$ is needed to generate the credits for the Netherlands. • Note: Should be new and additional

  25. CDM Funding as Additional • Public funding for CDM Projects be additional to Official Development Assistance (ODA), Global Environment Facility (GEF) provided by Annex I Parties • Public funding for CDM projects must not result in the diversion of ODA • Funding may involve private and/or public entities

  26. Current ‘State of Play’ • Although numerically dominant, renewables account for only 9.4 million tons of the 42 MT of CO2 equivalent being claimed (just over 20%) • Single greatest source of carbon credits being claimed is hydroelectric projects

  27. Project Type No. of Projects Tons of CO2 Mono-culture Plantation (sinks) 1 (component) 4,299,951 Renewables* 14 9,430,973 Energy Efficiency 1 319,392 Fuel Switching 1 (component) 7,741,405 Gas Capture 1 700,000 Waste Incineration 1 2,800,000 Hydro 7 17,150,767 TOTAL 25 42,442,488 *Hydro projects <10 MW are counted as renewable.

  28. CDM Project Cycle Applicant Entity Executive Board and COP/MOP Accreditation/ designation Project Participants Design Designated Operational Entity Designated Operational Entity Validation/ registration Designated National Authority (DNA) for CDM CDM Executive Board Monitoring Project Participants Verification/ certification Designated Operational Entity CDM Executive Board Issuance Certified Emission Reductions

  29. Contents of CDM-PDD A. General description of project activity   B. Baseline methodology   C. Duration of the project activity/ Crediting period   D. Monitoring methodology and plan   E. Calculations of GHG emissions by sources   F. Environmental impacts   G. Stakeholders comments

  30. Thank you Roberto C. Yap, S.J., Ph.D. Environmental Economist Climate Change Information Center Manila Observatory Ateneo de Manila University Tel +63 2 426-6144 Fax +63 2 426-6070 rcyapsj@observatory.ph

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