Regional Distribution Challenges

7th UNFCCC CDM Joint Co-ordination Workshop (JCW) Bonn

By Steve Thorne SSN Africa

12th/13th March 2010

Contents• Reasons for unequal distributions• Recent innovations by Regulators• Increasing credit flows• Reduction in transaction costs• Some examples• Some conclusions

Reference: slides from UNDP (Matt Spanagle), KuyasaCDM team, GERES (William Battye) and Advocacy Body on Climate and Development

Reasons for unequal distributions…

• Climate Change and Development are not linked.• Emissions in many LDCs and poorer areas are small and

spread out – high transaction costs for low return.• LDCs and many DCs do not have enabling environments for

the development of a carbon market.• Private finance has limited experience with derivatives,

public finances chases development in industries they know (agriculture, mining, power, processing etc.).

• Limited capacity, lack of transparency, limited active promotion, little leadership.

• Conservative utilities and distributers, fossil tax income, limited interest in decentralised modern energy etc.

• Limited technical capacity (not skills) in the design of projects

Tools to encourage take up

• Reduce the transaction costs• Increase the income from credits• Increase the credits

Recent innovations by Regulators to reduce costs

• Programmes of Action (maturing and seeing application)• Small-scale debundling for emissions sources <1% of cap• Micro-scale facility• Use of more than one methodology in a PoA• Increasing interests in benchmarks, default emissions, and

other simplifications in approach• Gold Standard allows for micro-scale additionality waiver in

LDCs, inclusion of suppressed demand in cookstove, biogas and water purification methodologies and lower validation and verification requirements

• Loans for LDCs, reduction/removal of registration fees, etc.• More can be done to reduce validation and verification costs

Increasing carbon credit flows

• Simplification using “benchmarks”, “deemed performance” and/or accounting for suppressed demand

• These accounting simplifications should reduce requirements for measuring consumption

• Project scenarios include where poverty or lack of infrastructure exist – accounting for suppressed demand

• Baseline scenarios can be divided into technology/fuel and consumption– Technology/fuel is not difficult (precedents exist)– Consumption could include ex-post consumptions at level

of service, minimum service levels, or predicted service levels

Suppressed demand• Paragraph 46 of the Modalities and Procedures: “The baseline

may include a scenario where future anthropogenic emissions by sources are projected to rise above current levels, due to the specific circumstances of the host Party.”

• Restated in the COP 15 outcomes: paragraph 35 of “Further guidance related to the CDM.” Encourages the EB to further explore again in COP 16…

• Energy demand is constrained as a result of poverty or lack of infrastructure

• Suppressed demand can be included if proof of livelihoods improving can be shown/if it not Minimum Service Levels apply

• Precedent AMS ID, GS cook stoves, biogas and clean water preparation and Kuyasa CDM project #0079

• Treatment of increases in future anthropogenic emissions of host countries by SSC WG… The SSC WG 27th meeting annex 7

Types and treatments of suppressed demand (SD)

Types – let’s consider examples and possible treatments

• Immediate release of suppressed demand i.e. development starts with project start – few problems

• Livelihoods not improving - development doesn't start in project period

• Livelihoods already improving - development already underway

Ceramic water purifiers - Cambodia

• Projects are mostly in areas of severe poverty (where people do not have access to safe water, lack of infrastructure etc)

• Suppressed demand for– Water consumption:

• difficult access, lack of infrastructure, poor quality/contaminated source

– Fuel type and quantity: • often biomass residues and plastics used and HH do not boil

properly > 3mins– Water boiling practice:

• lack of knowledge, time, cost of fuel relative to the disposable income and a high risk of post treatment contamination

Over time each of these variables will change alongside economic development:

• over what time frame? • where and how is it measurable and verifiable?

Suppressed Demand Service

Ser

vice

Lev

el

Satisfied or projected Service (BaU)

Minimum Service Level

Incr

easi

ng

Wea

lth

/ Res

ourc

es/

Infr

astr

uct

ure

Current (unsatisfactory) Service Level

time

Suppressed Demand Minimum

Demand

Current Emission Level

Suppressed Demand Emissions

Ser

vice

Lev

el

BaU Emissions, Satisfied Service

Minimum Service Level

Em

issi

ons

(tC

O2e

)

Current Service Level

time

Suppressed Demand Emissions

Project Emissions, Satisfied Service

Emission Reductions

Avoided Emissions

Conservativeness

Cre

dit

able

16

Ceiling installation - Public Works

Energy services and energy consumption – business-as-usual

ener

gy s

ervi

ce

En

ergy

con

sum

pti

on

___ Energy Service

___ Baseline Energy

time

SUPPRESSED DEMAND INTERVENTIONS en

ergy

ser

vice

GH

G e

mis

sion

s

___ Energy Service

___ Baseline Emissions

___ Energy Service Intervention

___ Project emissions

time

Energy Services and Consumption that take Suppressed Demand for service into account

ener

gy s

ervi

ce

En

ergy

Con

sum

ptio

n

___ Energy Service

___ Baseline Carbon emissions

___ Energy Service intervention

___ Carbon emission after clean energy service intervention

time

A

B

A are Existing Emissions

B are Existing Emissions + Future Avoided Emissions

National pledges and Low Carbon Development Strategies

2000 2010 2030 2050

Em

issi

ons

(tC

O2e

)

Emissions (BaU)

Avoided Emissions

Emissions (LCDS)

Some conclusions…

• The majority of people on earth live in poverty without access to modern services

• We all agree (I hope) that suppressed demand exists, but• But, how do we credit it without eroding the integrity of the

CDM and flooding the market with credits?• How do we not include it and live with the perversity of

waiting for development to become dirty before being interesting to carbon markets?

• How do we ensure that it results in real and measurable emissions reductions – this is an opportunity for the regulation of carbon markets to account for suppressed demand

• 2012 is the UN year of Energy Access!

Way forward to decrease costs and increase credits

• Improve enabling environments for Clean Development • Decrease transaction costs further• Define typologies• Agree on treatment of typologies with respect to baselines

and consumption and prepare methodology module for SD

• Help regulators and market feel comfortable with “real and measurable” in the absence of monitoring consumption

• Invitation to contribute to Gold Standard led project on preparing methodologies for African access to carbon