Parallel Session:CDM Project Development: Parallel Session: CDM Project Development Structure of Presentation (Moderator: Assoc. Prof. Dr. Sirinthornthep Towprayoon, KMIT Thonburi) 13:30 – 13:55 Integrating CDM into Sustainable Development Policy JBIC SAPI Team: Mr. Michinobu AOYAMA (25 minutes) 13:55 – 14:10 Rising Carbon Fund – Japan Carbon Finance JCF Carbon Finance: Mr. Joichi KIMURA (15 minutes) 14:10 – 14:30 Case Study – Experience from AT Biopower Project AT. Biopower Co.: Mr. Jakrit Wantanatada (20 minutes) 14:40 – 16:00 MNRE Comments, and Discussion (80 minutes)


CDM,Tool for Sustainable Development: CDM, Tool for Sustainable Development March 11, 2005 SAPI Team for Japan Bank for International Cooperation (JBIC)


Contents: Contents 1. CDM and the Link to Sustainable Development (SD) 2. Good Practice Cases National Project Selection Criteria (Brazil & Egypt) Model CDM Projects (Colombia & Chile) 3. CDM Potential and Barriers in Thailand


Key Features of CDM: Key Features of CDM CDM draw both public and private capital, as new and additional sources for sustainable development (SD) Emissions reduction (ER, return of CDM) are paid upon annual independent verification. Such payment on delivery functioned as a collateral to achieve sustainability ER purchase agreement provides additional cash flow to project, thus increases its financial stability CDM payments are in hard currency, reducing financing risk for foreign lenders CDM contributes to global environment as well as local environment CDM usually provides a participatory approach for host country and local community


1. CDM and the Link to SD: 1. CDM and the Link to SD CDM is a tool under the Kyoto Protocol to combat climate change and meanwhile achieve SD in developing countries Selection of SD criteria and assessment of SD impacts of CDM projects is left to the host countries No clear guidance and no specific requirements regarding a minimal standard for SD SD dimension of the CDM in many cases is handled as an “add-on”, rather than a main driver for CDM projects source: cd4cdm


General SD CriteriaIdentified by Host Countries: General SD Criteria Identified by Host Countries In order to handle the SD as a main driver for CDM, what kind of aspects should developing countries consider? Social Criteria Economic Criteria Environmental Criteria source: cd4cdm


SuggestedCDM SD focus Areas (1/3): Suggested CDM SD focus Areas (1/3) Social Dimension Increase equity Increase energy access Gender issues Education and training Health Alleviate poverty Legal framework Governance Information sharing Remark: underline indicates Brazil’s criteria. source: UNEP cd4cdm


SuggestedCDM SD focus Areas (2/3): Suggested CDM SD focus Areas (2/3) Economic Dimension Generate employment Reduce economic burden of energy imports Provide financial returns to local entities Positive impact on BoP Technological change Cost-effectiveness remark: underline indicates Brazil’s criteria. source: UNEP cd4cdm


SuggestedCDM SD focus Areas (3/3): Suggested CDM SD focus Areas (3/3) Environmental Dimension GHG emission reduction Local environmental benefits Pollution, water, soil, waste Use of exhaustible resources Use of renewable resources Biodiversity remark: underline indicates Brazil’s criteria. source: UNEP cd4cdm


2. Good Practice Cases National Project Selection Criteria (Brazil): 2. Good Practice Cases National Project Selection Criteria (Brazil) Brazil’s Criteria for the SD Evaluation of CDM Projects Social Criteria Assess the commitment of the project to social and workplace responsibilities, health and education programs and defense of civil rights Assess the direct and indirect effects of the quality of life of low-income population, nothing the socio-economic benefits provided by the project Economic Criteria Assess the degree of technological innovation and the technologies used in activities. Assess the possibility of reproduction of the technologies used, their demonstration effect, and evaluating the equipment origin, the existence of royalties and the need for international technical assistance Assess the contribution to regional development in terms of integration of the projects with other socio-economic activities in the region Environmental Criteria Assess the mitigation of local environmental impacts caused by the project source: UNEP cd4cdm


National Project Selection Criteria (Egypt: 1/3) : National Project Selection Criteria (Egypt: 1/3) (1) Misr Elmonifia Cogeneration (Textile) Install a 3.5MW gas turbine cogeneration system & waste heat boiler (2) Control Systems and Energy Saving Equipment at Zenotex Dyers Implementation of Measurement & Control Systems and Energy Saving Equipment to improve the effects of energy conservation and emission reduction (3) Install Dedicated CNG Engines to Replace Low Efficiency Diesel Engines Replace locally manufactured 100 NG operated bus diesel engines annually. The initial investment cost is 12.3 M$ and the marginal incremental abatement costs are -300.6 $/tC. (4) Establishment of Forest Plantations and Shelterbelts Around 10th of Ramadan City (LULUCF) Protect city area of winds and greening of the area. The initial investment cost (2 years) is 473,251 $ and the marginal incremental abatement costs are 12.29$/tC. The establishment of carbon sinks will lead to GHG sequestration of 38,926 tC in total, corresponding to 1,946 tC/y. (5) CDM 60 MW Wind Farm On the red sea in Comparison with BAU 45 MW Steam Turbine (Mixed fuel). The initial investment cost is 54 M$ and the marginal incremental abatement costs are 30.2 $/tC source: UNEP CD4CDM


National Project Selection Criteria (Egypt: 2/3): Screening suitable projects from all sectors, but focusing on the highest ER potential such as; Energy generation Renewable energy applications Transportation Energy efficiency in industry LULUCF (Afforestation/Reforestation) Based on screening, an initial portfolio of 22 projects were selected source: UNEP CD4CDM National Project Selection Criteria (Egypt: 2/3)


National Project Selection Criteria (Egypt: 3/3): National Project Selection Criteria (Egypt: 3/3) Calculating cost of the selected projects, providing information on marginal abatement cost, the cost of saved carbon, GHG reduction potential, and the expected payback period Each project was assessed on national SD criteria; Social dimension Economic dimension Environmental dimension Criteria from the perspective of international investors Based on the SD assessment, 7 projects were selected for the CDM pipeline in Egypt source: UNEP CD4CDM


SD Criteria, indicators & WeightsEgypt National Strategy Study (1/2): SD Criteria, indicators & Weights Egypt National Strategy Study (1/2) Criteria Indicators Allocated Weight 1.Social (10) Employment 10 2.Economic (80) Infrastructure 10 Export Potential/ import substitution 10 Payback period 30 Energy savings 20 State of technology 10 Criteria Indicators Allocated Weight 3.Environmental (20) Improvement in environmental performance 20 4.Criteria from I’ntl Investors’ View (70) Profitability 20 Investor Image 20 Project risk 30 Total 180 (L=0, M=1, H=2, Maximum total score = 360) source: UNEP CD4CDM


Model CDM Project(Colombia Jepirachi Wind Power Project): Model CDM Project (Colombia Jepirachi Wind Power Project) National CDM Eligibility and SD Criteria (proposed): Compliance to the existing legal framework such as property rights, rights over natural resources, certificates, licenses; environmental impact studies; rights of local communities; compatibility with government policy Project Description: 19.5 MW wind power facility sponsored/ operated by a utilities company who contributed 100% of project financing Completed in January 2004, the wind generators deliver 68.3 GWh/year PCF purchased 800,000 tCO2 ER by 2.8 million US$ SD contribution: Facilitating future investments by demonstration at a commercial level Increasing the share of renewable energy, and contributing technology transfer of wind power Supporting community-driven projects financed by transfers and compensation Water desalinization plant powered by wind power facility source: PCF annual report


Model CDM Project(El Canada Hydropower Project in Guatemala): Model CDM Project (El Canada Hydropower Project in Guatemala) National CDM Eligibility and SD Criteria: Not clear. Project Description: 43 MW run-of-river hydroelectric plant, developed/ operated by a private local company Started generating electricity in November 2003, 178 GW/yr, 140,000 tCO2/yr GHG reduction Financing For Renewables: $27 million in debt financing from the IFC and Netherlands Development Bank Demonstrate carbon finance a critical element in financing renewable energy Using the country’s renewable sources, and provides relatively clean and filtered water Benefiting Both the Environment and Local Communities: Local communities benefit from power produced by the project Protect a number of water sources found in surrounding area Conserve sub-surface water, and directly benefit the local community Reforest properties of the landowner and watershed area as additional mitigation source: PCF annual report


Model CDM Project(Chile Chacabuquito Small Hydro Project): Model CDM Project (Chile Chacabuquito Small Hydro Project) National CDM Eligibility and SD Criteria: All requirement is compliance to the existing legal framework Project Description: 26MW run-of-river hydropower project, developed by a power company with investment cost of US$37 million Deliver one million tons of ERs to PCF Participants, and receive US$3.5 million in return from PCF A Powerful Development Tool For Latin America: Electricity for industrial & residential consumers, and replaced the coal and thus reduced pollution Employment of local people at the plant, roads & bridges construction, provides new access to small villages Carbon finance was instrumental in the developer's decision to proceed with the project Demonstrates the potential and value of CDM as a powerful development tool for Latin America in renewable energy sector Lesson learned: Excellent project sponsor with strong knowledge of the core business Meet all host country requirement for this type of projects Financial analysis and due diligence prepared before PCF involvement Credible baseline and additionality determination Local authorities were aware of the requirement & showed strong support Good public/ private understanding of CDM projects at host country level source: World Bank carbon finance Unit


Model CDM Project(South Africa - The Durban Landfill Gas to Energy Project): Model CDM Project (South Africa - The Durban Landfill Gas to Energy Project) National SD Criteria for CDM: Environmental impacts (Local environment, natural resources, Biodiversity) Economic impacts (Macro economy, technology transfer, policy alignment) Social impacts (Development alignment, social equity & poverty alleviation) Project Description: Emissions reduction by enhancing collection of landfill gas at three landfill sites Displace coal-fired power electricity by landfill gas PCF will purchase 3.8 million tons of GHG ERs upon EIA completed A Pioneer Project in Every Sense of the Word: Indicative of the potential of landfill-gas-to-energy projects throughout the world Demonstrate carbon finance to revolutionize waste management PCF provides additional social benefits (additional 20 cents/tERs) to fund a BHN program Eligible activities include waste management and recycling programs that benefit poorer residents; such as vocational training, education and skill enhancement for poorer Municipality residents; or waste management or educational activities that lead to job creation Activities address community needs, are in line with Durban’s Integrated Development Plan and Sustainable Development Plan source: PCF annual report


3. CDM Potential and Barriers in Thailand: 3. CDM Potential and Barriers in Thailand In the light of the previous case studies, how should Thailand promote CDM in the context of SD? How to exploit potential CDM projects in alignment with development policy? What are the barriers? Source: World Bank Carbon Finance Unit


CDM Potential in Thailand (1/2): CDM Potential in Thailand (1/2)


CDM Potential in Thailand (2/2): CDM Potential in Thailand (2/2)


CDM Barriers in Thailand: CDM Barriers in Thailand Financial Barriers Lack of premium financial incentives to spur CDM initiatives Rigidity in financial climate-sound projects, because of strict business regulation and goals Under-developed raw material markets – which could undermine biomass renewable energy projects High investment requirements for “non-traditional” business Institutional Barriers Various types of problems related to stakeholders participation Institutional inadequacy to deal effectively with CDM projects Difficulty with inter-agency coordination Information Barriers Low local awareness and capacity to accommodate the CDM Lack of adequate information on specific mitigation options and technologies that might be suitable for CDM projects Limited access to accurate information about the business or technology, resulting a perceived high business risk and less financial efficiency Source: UNIDO 2002


Major CDM Market Players: Major CDM Market Players ER Sellers: ER Buyers: Asian Countries Japanese Firms source: PCF HCC Meeting, 2005


Time is Running out ! (for Thailand ?): Time is Running out ! (for Thailand ?) Major projects such as wind power, energy efficiency, waste to energy, small-scale CDM in addition to hydropower, geothermal energy, coal to gas power, etc. can take 3 or more years due to: Capital allocation and approval process Planning approval, stakeholders engagement etc. Construction lead times Alignment with facility shutdown schedule Small amount of emission reduction in the early operating period Position of Thailand CDM Host Country Rating (PointCarbon) India BBB- Chile BBB- Brazil BB+ Peru B+ South Korea B+ China B+ Mexico B Morocco B Malaysia B South Africa B- Vietnam CCC+ Indonesia CCC- Thailand CCC- In February 2005, Netherlands and Indonesia agree to contract 2 million CERs to sell to Dutch


Thank you !: Thank you ! For further information, please contact JBIC Representative Office in Bangkok (Mr. Yasushi NEGISHI) TEL: +66-2252-5050 FAX: +66-2252-5514 E-mail: y-negishi@jbic.go.jp JBIC SAPI Team (Mr. Michinobu AOYAMA) TEL: +81-3-5276-7323 FAX: +81-3-5276-2656 E-mail: a5381@n-koei.co.jp