WHAT FUTURE FOR THE CDM? AN ASSESSMENT OF KEY CDM REGULATORY DEVELOPMENTS IN 2011 AND THEIR IMPLICATIONS POST 2012

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1 WHAT FUTURE FOR THE CDM? AN ASSESSMENT OF KEY CDM REGULATORY DEVELOPMENTS IN 2011 AND THEIR IMPLICATIONS POST 2012 BBL BY FELICITY C. SPORS SEPTEMBER 2011

2 Content Key reform goals of EB in 2011 Summary of the critical reforms contributing to the achievement of reform goals Assessment of implications and the way forward

3 Key reforms needed to make CDM relevant Scale up Standardised approaches e.g. sector benchmarks, deemed savings, policy programs. Move away from project by project approach Doable in dev. areas Efficient process Reduction in transaction costs for processing Practical i.e. data requirements managable in developing country/area contexts. Decentralise QA/QC responsibility from EB to DOEs and DNAs better able to assess realities on ground. Streamline processing without compromising environmental integrity.

4 Reform 1: Standardized Baseline (SB) Guidelines Standardization process (PMT provided 3 inputs) Framework for the development & assessment of sector SBs DNAs to submit standard country specific measures for baselines. Based on submissions EF for sectors accepted where relevant. M & P, CMP decisions Framework for SBs Methodologies Tools Standard Baselines CDM Projects PoA CPA

5 Reform 1: Standardized Baseline (SB) Guidelines cont.. Implications Move towards scaled up sector approach. National/regional carbon crediting schemes under CDM? Opens door for new initiatives under CDM e.g. policy crediting. Secretariat to provide capacity building support to DNAs. Once in place SBs will greatly reduce transaction costs. Empowerment of DNAs/host countries New role of UNFCCC as QA/QC for standardized measures. Scale up Doable in developing context Efficient process

6 Reform 2. Positive technology lists for micro scale Micro-scale guidelines (EB60 annex 25) Introduced automatic additionality for micro projects in LDCs or SIDs or in special underdeveloped zone identified prior 28 May (PMT input March 2011) Technology lists proposed by DNAs deemed additional. (Clarification provided EB62. PMT 6 submissions) Implications DNAs can select specific technology types that will be automatically additional once approved by EB. IMPACT Scale up Doable Greater efficiency.

7 Reform 3: Approach for Suppressed Demand Definitions: Suppressed demand energy services provided are insufficient to meet human development needs. Minimum service level = a proxy for satisfied demand. The issue: Baseline setting based on historic emissions does not account for suppressed demand. Impact: Projects in LDCs are not financially viable under CDM. New 2 step approach Step 1. Identify baseline for SD situation (barrier analysis & ranking a/c to quality of service) Ranking Baseline technology service ( Quality of service) Eliminate Baseline Alternatives through Barrier Analysis 1 LED e.g., Investment/Infrastructure 2 CFL e.g., Investment/Infrastructure 3 Incand. Lamp e.g.,investment/infrastructure 4 Efficient Kerosene Lamp No barrier hence is the baseline 5 Less efficient Kerosene lamp

8 Reform 3: Approach for Suppressed Demand (cont) STEP 2: Identification of satisfied service level cap ( i.e. peer reviewed studies, benchmarks Emissions (tco2e) Current Emission Level BaU Emissions Creditable Satisfied service level Avoided Emissions Emission Reductions Service Level Project Emissions, Satisfied Service time

9 Reform 4 Tool for electricity system EF Old Version of Tool: Emission Factor (EF) = zero for electricity imports from connected electricity systems in other countries Revised Version of Tool: (EB60 & EB62) Addresses the issue of electricity imports from connected electricity systems located in other countries. Impact: Doable - increases viability of projects in LDCs

10 Reform 5: Effective registration date & MPs pre/post Kyoto Effective registration date (EB59) From 11 December 2010, projects approved by EB have registration date of projects = the date when a complete request for registration had been submitted. (PMT 2 submissions on this issue) MPs pre/post Kyoto (EB62) EB62 clarified : PPs may choose to adjust monitoring periods (MPs) to coincide with the end of the first commitment period. If requests for issuance cover monitoring periods starting before 31 December 2012 and ending after, a pro-rata approach shall be used. (PMT submitted unsolicited letter on this issue and raised issue at EB meetings): IMPACT Greater efficiency and reduction in transaction costs.

11 Reform 6: Progress on PoA liability DOE liability better defined : liable if DOE is found to have failed to conduct an assessment of compliance with the eligibility criteria in accordance with the established assessment requirements (i.e. VVM). Check of CPAs in is limited to CPAs that were included during preceding year or had their first issuance in the preceding 6 months. Sec. will assess options for excess issuance outside DOE control. A cap on the total liability Options for passing liability to CME (i.e. CME responsible for inclusion DOE assess management system) CER levy imposed on all PoAs to create a reserve.

12 Conclusions Essential to retain momentum of CDM reform that has made revolutionary changes to Scale up Make sure CDM is doable in developing country context. Ensure efficiency of processes. Reforms show that the existing structures that are being established to empower local governments and enable crediting to reach LDCs and under developed regions. Benefit of building on CDM experience is consistency across different trading regimes allowing for fungibility of credits UNFCCC can ensure environmental integrity of approaches

13 The way forward Support PoAs Support PoAs because PoAs a) support development and climate change mitigation. b) basis for bottom up Nationally Appropriate Mitigation Actions (NAMAs) Work to return to original concept Program of Activities (PoA) additionality assessment, with automatic inclusion of CDM project activity (CPA) Validation shifted to verification to reduce transaction costs. Monitoring over stock of units not artificially per included "CPA Further work to address liability concerns of DOEs.

14 The way forward Learn from implementation of SBs Continue to gain practical experience on options for SBs Explore options under UNFCCC for fasttruck/automatic registration for projects using standardized baselines that conform to their guidelines. Explore options for National/regional frameworks on SBs. Could country sector strategies be approved as SB under CDM? What data will be needed for policy SBs under the existing crediting framework. What fluidity will there be between different trading schemes and will the UNFCCC SB framework develop to ensure consistency/quality between schemes. Is this possible?

15 Thankyou for listening Questions? Send me an e mail fspors@worldbank.org

16 Contents of the SB framework Definition of the four MABS Grouping of ER activities of a project into components of same characteristics for baseline Setting using one MABS Criteria for the identification of the applicable MABS Algorithm for the identification of the baseline based on each MABS Procedure for baseline emissions calculation for the baselines

17 Standardised Baselines Guidance

18 Standardised Baselines Guidance

19 Standardised Baselines Guidance

20 Standardised Baselines Guidance

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22 Definition of micro scale

23 Expansion of Micro-scale ruling to CPAs

24 Communication on Policy Matters (EB62) 1. Communication initiated by the Board and support structure Board/secretariat & DNAs Global/regional DNA forum meetings (No. of meetings to be decided in MAP) Interaction with global DNA forum Chair at EB meetings (2 times a year) Board/CDM-AP/secretariat AEs/DOEs Interaction at EB meetings (every meeting) Interaction at CDM-AP meetings (2 times a year) Board/support structure stakeholders Interaction at EB meetings (every meeting) Calls for input, targeted workshop (when preparing new/revised regulatory docs having significant impact on stakeholders) System-wide consultation workshops (round tables, Joint Coordination Workshop) (No. of workshops decided ea. Yr.) 2. Communication initiated by stakeholders The secretariat shall directly respond to queries wherever possible. AEs/DOEs Board/support structure DNAs Board/support structure Project participants/civil society Board/support structure

25 Communication on Case Specific Issues 1. Disclosure of case-specific submissions status On UNFCCC website 2. Communication with the Board/support structure Minor editorial issues shall not lead to rejection of submissions The secretariat shall initiate communication prior to decision making where appropriate DOE/PPs shall be given an opportunity to initiate communication with the secretariat to clarify issues raised Detailed modalities shall be included in relevant operational procedures New Communication introduced through procedures include: EB/DNA interaction at EB meetings Stakeholders may comment on annotated agenda Summary of inputs made after call for inputs will be published. Non case specific request for clarification guidance or feedback poss via mail. Mandates communication with stakeholders on cases at earliest time poss.

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27 Significant Deficiencies standard (EB 63 to review) PoA liability addressed? Erroneous Inclusion PoA Response from DOEs: 1. Limit to instances of gross negligence and fraud. 2. Remove clauses which disqualify CDM projects. (para 2a-e). 3. There must be a time limit for re-assessing the validation of additionality. 4. Withdrawal of accreditation should not be automatic in cases of fraud but suspend individual responsible. 5. Threshold for triggering a review should be defined. i.e. Not done for 10 CERs. 6. Total amount of CERs that a DOE may have to replace needs to be capped. 7. Define supporting evidence as clearly defined, detailed & fully substantiated project specific evidence DOE liability: where the DOE is found to have failed to conduct an assessment of compliance with the eligibility criteria in accordance with the established assessment requirements (i.e. VVM). Check of CPAs in is limited to CPAs that were included during preceding year or had their first issuance in the preceding 6 months. Sec. will assess options for excess issuance outside DOE control. Not defined yet. Just a statement in EB report. a) a cap on the total liability b) options for passing liability to CME c) introduction of CER levy imposed on all PoAs to create a reserve.