National Workshop on Capacity Development for Clean Development Mechanism

Eugenio Lopez Center, Antipolo City9-11 December 2002

DOCUMENTATION OF PROCEEDINGS

EXECUTIVE SUMMARY

Financially supported by the Dutch Government, the United Nations Environment Programme has launched the project Capacity Development for the Clean Development Mechanism. The UNEP Collaborating Centre on Energy and Environment (UCCEE), at the Risø National Laboratory, Denmark is the supporting organization contracted by UNEP to implement the project.

The project will help to establish greenhouse gas (GHG) emission reduction projects that are consistent with sustainable development goals, particularly projects in the energy sector. It will develop national capabilities so that persons in the countries are at the project’s conclusion capable of analyzing the technical and financial merits of projects and negotiating possible finance agreements with Annex I (developed) countries or investors.

The project aims at 1) generating in participating developing countries a broad understanding of the opportunities offered by the Clean Development Mechanism (CDM), and 2) developing the necessary institutional and human capabilities that allow them to formulate and implement projects under the CDM.

Twelve countries have been selected to participate in the project. Cambodia, Vietnam and the Philippines are Asian countries participating in the project.

In the Philippines, the project is being implemented by the Inter-Agency Committee on Climate Change (IACCC), which is the focal point for climate change in the country. UCCEE has contracted the Climate Change Information Center (CCIC), Manila Observatory, Ateneo de Manila to assist the IACCC in carrying out the project and to conduct the day-to-day implementation of the project.

During September to December 2002, the project has been in its preparation phase. The main output of this phase is a Work Plan for Capacity Development for the CDM in the Philippines. This multi-year Work Plan covering 2003-2005 is the blueprint for the activities that will be conducted under this project.

CCIC is responsible for drafting this Work Plan. The draft Work Plan is a consolidation of elements gathered through research, data gathering, interviews, consultations, meetings, seminars and conferences.

The draft Work Plan will be the principal document for discussion at a National Workshop on Capacity Development for the Clean Development Mechanism to be held on December 9-11, 2002, at the Lopez Center, Antipolo City. The Workshop aims to

Present the proposed Work Plan; Discuss the comprehensiveness, suitability and feasibility of the Work Plan; Solicit comments, suggestions and revisions which will make the Work Plan more

appropriate;

Build consensus that the Work Plan be endorsed for fund sourcing and implementation.

The Work Plan aims to carry out the following ten tasks of Capacity Development for CDM in the Philippines:

2.1 Information Campaign and Awareness Raising2.2 Capacity Development for Senior National Policy-Makers2.3 Capacity Development for Mid-Level Policy-Makers2.4 Establishment of the CDM National Authority2.5 Capacity Development for the CDM National Authority2.6 Capacity Development for Project Developers2.7 Capacity Development for Project Financiers2.8 Capacity Development for NGOs, Local Communities, National Research

Institutions, and Academe2.9 Investment Promotion for CDM Projects2.10 Creating a Pipeline of CDM-Eligible Projects

For each of these tasks, an objective is defined, an indicator is formulated, expected outputs are stated.

For each output, a list of activities that will produce this output is presented.

For each activity, the purpose, target beneficiaries, inputs, outputs and timeline are outlined.

The National Workshop aims to have the draft Work Plan discussed, revised, agreed upon, adopted and owned by as wide a CDM stakeholder participation as possible. Participants in the National Workshop is composed of members of the IACCC, representatives of other government agencies, private sector developers of CDM-eligible projects, representatives of non-governmental organizations, national research institutions and the academe, representatives of auditing firms and ISO certifiers. By the end of the National Workshop, it is expected that there will be strong consensus that the Work Plan be endorsed for funding and implementation.

INTRODUCTION

The activity started off with an invocation given by Dr. Roberto Yap of the Climate Change Information Center. Participants from the government, private and civil society sectors attended the workshop. To get a general picture of representation in the activity, participants were asked to introduce themselves and from what organization they come from. In turn, Dr. Yap introduced the project staff members so the workshop participants would know whom to approach should they have queries about the activity in general.

After the proper introductions were made, Dr. Yap introduced Dr. Daniel McNamara, SJ, PhD of the Manila Observatory and Dr. Subhes Bhattacharyya of the Asian Institute of Technology to give some welcoming remarks.

WELCOME REMARKS

Dr. Daniel McNamara, SJ, PhDManila Observatory

Fr. Dan began his speech with a brief look at the state of the glaciers some 140 years ago which he read about in a magazine. Then he proceeded to narrating the history of the Manila Observatory to introduce the institution to the participants. Many years ago, the Observatory was concerned primarily with the climate, focusing on typhoons. It wanted to help Metro Manila, and later the whole Philippines, understand more about the climate. During its early years, the private sector, particularly the business sector, funded the Observatory because they were the ones most concerned with the climate in relation to their business. They wanted to know whether it was safe to dock at the Manila Bay or not. At present, the Observatory continues to study climate change through the Climate Change Information Center, which is the host of the workshop in progress.

He then welcomed the participants, on behalf of CCIC and the Manila Observatory, to the workshop stating that Clean Development Mechanism is an opportunity to develop cleaner technologies, financial partnerships and development which is economically and financially viable. This is the reason why many sectors and different stakeholders are very much interested in participating in the CDM process.

Dr. Subhes Bhattacharyya, PhDAsian Institute of Technology

Dr. Bhattacharyya’s presentation described their institution’s focus which is the energy sector. With regard to the onset of CDM, he stated that small and medium size countries are much more in need of capacity development for CDM. He described the two phases of capacity development project: the preparatory phase (which is to be completed by January 2003) where idea is to establish national focal point, and the development of training and capacity needs of various stakeholders to create a pipeline of CDM-eligible projects which will start by February 2003 to be continued for another 3 years.

His presentation also included the objectives, tasks and expected outputs of the project. (Please refer to Annex 3.1 for more details). After which, he welcomed the participants to the workshop and hoped for a fruitful activity for all.

The floor was opened to entertain further questions on Dr. Bhattacharyya’s presentation. The following were the issues and concerns raised by the workshop participants.

Open Forum:

COMMENT(S) and CLARIFICATION(S) RESPONSES (as given by Dr. Bhattacharyya)

Do you have a concept on how to go about developing the pipeline for CDM projects? (Ms. Supetran, UNDP)

For this project, there is no single format. Flexibility is given to the national team to develop projects according to their own national context. The entire project forecasts at the national level. The team is tasked to find out a standardized process through consultations with other stakeholders. The project will take place

over the next 3 years and usually include energy sector projects. We might look for other sector projects but for the meantime, we focus on the energy sector.

Rephrasing my question, will the project provide resources for the country to improve on mitigation projects for example? (Ms. Supetran, UNDP)

The first task is to have an inventory of projects from all agencies. Is there an agency that this project can rely on? An example I can give would be the Vietnam study funded by the World Bank (project strategy for CDM). The study found out that there are some synergies where this project can work on. Capacity required for identifying CDM-eligible projects can be included in what will be funded by the project.

We have received reports that other countries, Thailand and India, have been benefiting from CDM projects from cogeneration. Is this true? Does it mean that these countries already have more developed capabilities to undertake projects of their own? (Mr. Cortez, Philippine Sugar Millers Association)

I cannot confirm that now. My personal knowledge is that projects have not begun in any country yet. Other countries may have bigger potential to attract bigger investors (China, for example), however. India, for example, might be taking some advantage on possible funding. On the other hand, as regards Thailand, they have decided not to get involved in CDM.

There are some assistance from NEDO regarding model CDM projects where the requirement should not be less than $20M. On the other hand, for NRE it’s not less than $4M. So now, we’re having a hard time identifying these projects and we don’t know what projects are eligible under this. (Mr. Anunciacion, DOE-EED)

That is one thing that we hope for in this workshop - to address concerns such as the one you raised. (Fr. Bobby Yap, CCIC)I agree that no country has begun this but India has seen the potential in store for establishing an information center so they took advantage of that now (e.g., plans have been mapped out) (Dr. McNamara, CCIC)There are even some countries, like Vietnam for example, who want to start the projects immediately. As a country, it may also be helpful if we can identify projects and start as soon as the country can.

I don’t think there was an inventory of legislations included in the presentation that could affect this mechanism. There are legislations recently passed that provide barriers to the development of these projects. The electric power restructuring act’s universal charge for power generators can be an example. Sugar millers worried about this because it can affect the industry and to think that we use waste materials for power generation (Mr. Cortez, Philippine Sugar Millers

It can be part of the work plan. Such a proposed activity can be incorporated into the structure.

Association)Projects can be done on a parallel level. We are, for example, doing family hydro projects now. Our primary concern is that there is no CDM authority as of now to look at the projects. Things should start to be done as early as now. (Mr. Roaring, REAP)

WORKSHOP OBJECTIVES AND AGENDADr. Roberto Yap, SJ, PhDClimate Change Information Center

Dr. Yap then proceeded to presenting the workshop objectives and agenda. As a backgrounder, he made mention of two things that need to be done before the CDM is fully implemented: the country needs to ratify the protocol first. As of now, the DFA has endorsed the document to the office of the President and is waiting to be endorsed to the Senate Committee on Foreign Affairs. A workshop, prior to the current one being conducted has formulated, a petition addressed to the Office of the President, stating the urgency of ratifying the Protocol at the soonest possible time. Second, each country has to set up a CDM National Authority to oversee CDM processes in the country.

He continued by discussing the background of the project. He described the structure and flow of the two-day activity for the benefit of the participants. (Please refer to Annex 2 for more details). Afterwards, he introduced the next speaker, Ms. Joyceline Goco, Head of the IACCC Secretariat, to talk about the UNFCCC, the Kyoto Protocol and an introduction on CDM.

The UNFCCC, the Kyoto Protocol and the CDMJoyceline A. GocoPhilippine Inter-Agency Committee on Climate Change Secretariat

Ms. Goco discussed the background policies behind the development of flexibility mechanisms where CDM is under. Additional information on emissions trading being practiced in the US even before the Kyoto Protocol was shared. The sulfur industries gave caps to other industries. In turn, the savings from pollution that were generated have been sold or bought by industrial companies. One major point of consideration especially in the climate change negotiations is that emission reduction projects should address sustainable development objectives, especially of non-Annex 1 countries. The Kyoto ratification document is still with legislative division under the Office of the President.

As regards the CDM, questions have been raised concerning real and long-term definitions. Validation, verification and certification were seen as necessary for transparency purposes. An adaptation fund will be established to help countries adapt to the impacts of climate change. The supplementarity percentage (how much Annex 1 countries are allowed to reduce using the CDM) is still in question. Finally, Ms. Goco ended with a hopeful note that with an Asian representative in the CDM-EB from Malaysia, developing countries’ needs will indeed be addressed. (Please refer to Annex 3.2 for more details)

The floor was opened for comments and clarifications on the topic. The following points were issues raised during the open forum.

Open Forum:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S) as given by Ms. Joy GocoIf I remember correctly, the UNFCCC has set a target of 5% emission reduction by 1990 level? Is that still being enforced now? (Mr. Senga, WWF-Philippines)

This was not achieved. There is no quantified emission limitation target set in the Convention per country. A target of 5.2% was set under the Kyoto Protocol.

There is a condition for developed countries to go back to their 1990 levels. However, they have to prove real, demonstrable processes. It is under that particular debate that developed countries can be forced to reduce emissions. In 1995, it was estimated that they had to spend around $20B a year. Economics has always been a major consideration for the US not ratifying. However, under the Convention, they can still be forced to reduce emissions. (Ms. Supetran, UNDP)

Just to clarify, the Kyoto Protocol is under the Convention. The US have signed the Convention but have not ratified the Kyoto Protocol. (Dr. Yap, CCIC)

Is there a process by which the CDM can be implemented clearly? Some developed countries might choose the cheaper way which is actually logical. But there are some projects which are questionable in terms of being qualified under the CDM. Are there mandated bodies in the country to address that concern? (Mr. Senga, WWF Philippines)

The project cycle includes a component where government is tasked to look at the project whether it really addresses sustainable development objectives in line with GHG mitigation measures. Such is a component of a country-driven paradigm. Developed countries get a lot from the CDM hence we should be more watchful as to what projects should and will be implemented by the country. Sectors should know what capacities need to be addressed and developed since the CDM process is a multi-sectoral process where the decision will not just lie on one agency alone.

From what I understand, the Philippines has no commitment to reduce GHG based on 1994 data? (Ms. Alim, SGS)

If we do not commit, then do we have data on GHG in the country? If not, we might

Under the Convention, we have no commitments. However, if we look at the Medium Term Philippine Development Plan, the country’s involvement in NRE is already a mitigation measure in itself. But this is, nonetheless, seen as a win-win solution since it will also address our sustainable development objective.

Reference materials like the 1990 GHG emissions inventory, the 1994 baselines, and another one being currently formulated

be accepting projects from other countries without us knowing our baselines. (Ms. Alim, SGS)

also on GHG emissions inventory are available. We do have data and statistics on emissions. We have also trained sectors on emissions inventory using IPCC methodology, since it’s the accepted methodology right now. We cannot, however, compare the Philippines with other countries in terms of GHG emissions since our emissions are very little in comparison with that of the developed countries.

Regarding additionality and technology transfer, if there was no technology transfer during that project, then is it not qualified as a CDM project? (Mr. Ronquillo, HEDCOR)

If, for example, a local NGO has done a project and developed technology without any foreign grant, is it not qualified? (Mr. Ronquillo, HEDCOR)

Procedures on those topics are still in question. Reforestation and afforestation, for example, are still questionable when it comes to technology transfer component.

Going back to the history of negotiations, when developed countries exceed emissions, they are obliged to pay. Why then are developed countries involved in CDM? Two major reasons can be cited: a) for additional capital which may not be obtained under a business-as-usual scenario; and b) as developing countries, for us to have an opportunity to obtain capital for our projects. Community-based projects can qualify. This can actually be part of the national criteria. There might not be a transfer of technology since what is used is indigenous but we need money to develop the technology. Development, therefore, of qualified projects will also depend on the national policies. Two options are available in this area: we can either get a new technology or get additional capital for projects which we may not have without the existence of additional capital. (Ms. Supetran, UNDP)

Where does the investment come in? (Mr. Evangelista, Shell Renewables)

Ideally, before. If investments come after, then it’s mere buying of CERs. Hence, we need to be watchful. Otherwise, what could we get out of it? Maybe by the time the project finishes, CER prices are way below what’s expected. With us getting nothing out of it. With this, it will just be usual market buy and sell.

The CDM Project CycleDr. Roberto Yap, SJ, PhDClimate Change Information Center

To level off participants’ awareness of the CDM, Dr. Yap identified the different steps in the CDM project cycle. This he related to the ongoing project being conducted by the CCIC in coordination with IACCC and with funding support from the UNEP-RISO. A multi-year work plan on capacity development for CDM in the Philippines is being developed and will be implemented by the IACCC. The work plan’s implementation will be managed by the CCIC of the Manila Observatory. Different tasks under the proposed workplan were identified. Under each task was an objective and indicator that the task has indeed been implemented properly. Common among all the tasks is the importance of information awareness among the stakeholders. Stakeholders were categorized between and among the policymakers, project developers, project financiers and civil society or the NGOs, academe and research institutions. Each sectoral stakeholder was tasked with a certain component under the project cycle and was responsible of tackling relevant issues and formulating decisions on the said issues. (Please refer to Annex 3.3 for more details)

The floor was opened for questions, comments and clarifications. The following were the points raised by the participants regarding the topic.

OPEN FORUM:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S)I don’t think that hydro is the prominent project option for Mindanao. They’re for coal, actually. With regard to the Investment Promotion Office, isn’t this being done already? Why should we duplicate? Personally, I think the establishment of the CDM National Authority and the ratification of the Protocol are delayed because DENR and DOE are arguing as to who will own the CDM process. (Mr. Ronquillo, HEDCOR)

It is not an argument as to who owns the project because the project proponent owns the project. If DOE owns the process, a conflict of interest might arise because they are a proponent. Sectoral agencies are part of the review and evaluation –all sectors are involved. Delay is not due to the conflict. Briefings have been done to the Chief of Staff to the senate because it will be the staff orienting the senates for concurrence of the Protocol. (Ms. Goco, IACCC)

Plans for Establishing the Philippine CDM National AuthorityLaurie NavarroAlternative Energy Development and Consultant to the UNDP CDM Operational Framework Project

Ms. Navarro’s presentation started with a brief presentation as to what the CDM national Authority is. Her definition involves the National Authority’s function in terms of evaluating potential CDM projects and making sure that the project is in line with the country’s sustainable development objective. She then proceeded to the functions of the National Authority. She differentiated between its mandatory and regulatory functions. An enumeration of required competencies in relation to the establishment of a CDM National Authority were also identified. The report also differentiated between the functions of the National Authority against that of the government agencies. Following the CDM project cycle, emphasis was given on the role of the different stakeholders in the evaluation of project design documents because they will also be responsible in making sure that the

criteria formulated and developed by IACCC is truly in line with sustainable development goals. (Please see Annex 3.4 for more details)

The floor was opened for questions, comments and clarifications. The following were the points raised by the participants regarding the topic.

Open Forum:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S) as given by Ms. Laurie Navarro

Upon indication of activities and capabilities, have you sat down with DOE and DENR to talk about the tasks? Could they still accept the tasks given their current responsibilities? (Ms. Alim, SGS)

We haven’t sat down with them yet. We request, though, for the respective agencies’ mandates. That’s why we see this as an opportunity to ask stakeholders what they think about the National Authority.

Is there a timeline for establishing the Authority? If ever we agree that the IACCC plays the role, will it be recognized by the CDM Executive Board? (Mr. Senga, WWF-Philippines)

Definitely. There are no set rules as to how the authority is established. It is up to the country’s decision. (Dr. Yap, CCIC)

As long as it is endorsed by the DFA, it does not matter who the national authority is (Ms. Goco, IACCC)

What resources are required? (Mr. Roaring, REAP)

The study enumerates this. (Ms. Navarro, AED)

Who is going to decide as to whom the National Authority will be? (Mr. Ronquillo, HEDCOR)

The decision has to be endorsed by the DFA (Ms. Goco, IACCC)

The Focal point will. Under its Administrative Order, the government decides. (Ms. Navarro, AED)

Will the functions of the National Authority then be the same as that of the validator’s? My concern, therefore, is that the National Authority will be doing the validator’s task. (Mr. del Rosario, Mistubishi Securities)

The National Authority is tasked to register project. Actual validation is done by an independent entity. The National Authority will only facilitate that process. Its main task is to register a project as a Philippine project. Otherwise, if a proposal is not registered then there is no project. Registration is almost automatic. If a project gets registered with the Executive Board, then it is a qualified project. (Dr. Yap, CCIC)

If the National Authority does not approve, d we then say that the project is useless? (Ms. Alim, SGS)

Yes. That is why criteria is very important (Dr. Yap, CCIC)

The quorum, after raising all the necessary points, broke off for a one-hour lunch break.

Day 1: Afternoon Sessions

The afternoon started off with presentations by different project developers in the renewable energy and fuel-switching sectors. An open forum followed suit after all the project developers presented their case studies.

CASE STUDIES PRESENTATION

Barriers to Developing Small Scale Hydropower in the PhilippinesRene RonquilloHydro Electric Development Corporation

Mr. Ronquillo started off his presentation with an introduction on his company which is Hydro Electric Development Corporation. Putting an emphasis on their company’s vision of promoting and developing clean energy, they have installed a considerable number of mini-hydro power plants in the north. He then proceeded to enumerating policies and laws that affected the development of hydropower in the country (RA 7156, RA 9136 and RAs 6957 and 7718). Challenges identified in developing hydropower were mostly because of the lack of market for hydropower plants, poor load factors, poor maintenance systems and geographic location. Since most mini-hydropower plants are in remote areas, the only market would be the cooperatives. Most often than not, though, cooperatives are not bankable. High costs in the different stages of the project often hinder the full implementation of hydropower projects as well. The unfamiliarity of banks on NREs, coupled with limited financing mechanisms and very high collaterals make it more difficult for small businesses to avail of loans. Mr. Ronquillo’s major recommendation to improve the NRE business is to create a market especially for hydropower. This way, loans and projects are more easily granted and availed of. (Please refer to Annex 3.5.1 for more details)

CDM Type Micro Hydro Projects: A Case StudyGrace YenezaPreferred Energy Incorporated

Ms. Yeneza gave emphasis on CDM as a competitive process, on it being driven by the availability of developing country projects operating below the baselines and on it being an excellent opportunity for the Philippines to fund projects for sustainable development. Certain technical requirements for CDM include baseline study, mitigation analysis, validation/verification and certification. According to Ms. Yeneza, one challenge the micro hydro sector has to face up to is the fact that micro hydro is relatively small and are dispersed and in remote areas. The current GOP approval process makes it even harder for projects to get implemented. Capacity building in the areas of awareness on CDM, baseline setting, benefit capture, project aggregation and preparation of the required documentation necessary under the project cycle are only some of the needs identified by Ms. Yeneza. Recommendations included the establishment of a governmental environment conducive for CDM projects, implementation of processes necessary to fast-track and the appropriate capacity building programs to address and make effective the stakeholders involved in the CDM process. (Please refer to Annex 3.5.2 for more details)

PV/Solar Energy Projects for CDMVic RoaringRenewable Energy Association of the Philippines

After hearing two of his colleagues in the hydro sector, Mr. Roaring was faced with a much bigger challenge in the solar sector. This is mainly because for PV, a 150,000 panels that would produce only as much as 100 watts is already a relatively “huge” capacity to obtain. 15 MW is already a minimum economic level considering transaction costs. Capacity for formulating guidelines on bundling together is, therefore, needed. As part of his recommendations, Mr. Roaring stated the need to optimize, as a country, CDM provisions and guidelines to our advantage. Furthermore, he proposed that the country support initiatives aimed at baseline standardization, streamlining of verification and monitoring, fast-tracking of small projects and the assignment of the amount of $10/CER ton which is equivalent to 75 kg@ SHS + 4 kg /wp. (Please refer to Annex 3.5.3 for more details)

Case Study on Fuel SwitchingJoy GonzalesPhilippine National Oil Company

Ms. Gonzales stated that the main barrier of the fuel-switching sector is really the lack of knowledge on CDM. They could not entirely relate CDM to their natural gas project mainly because of the fact that they do not know much about CDM. Another capacity development need also would be some information on developing baselines. This can be measured through GHG inventory and emission reduction measure. Ms. Gonzales clarifies that natural gas is still fossil fuel even if there are no emissions. It can even be considered non-renewable. Efficiency in this aspect would not just depend on the supply of fuel (in this case, it would be natural gas) but it is also dependent on the efficiency of the vehicle to be fully effective. (Please refer to Annex 3.5.4 for more details)

After all the project developers presented their case studies, the floor was opened for comments, clarifications and suggestions by the workshop participants on the topic. The following points were raised during the open forum.

Open Forum:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S)Since the Carribbean wind farm project is already being evaluated as a possible CDM project, where is the CDM there in the figures you have been giving? (Mr. Anunciacion, DOE-EED)

Andy del Rosario of Mitsubishi Securities would know more about the project. Unfortunately, he left already. In approximation of the costs, it is a total project cost of $2 million plus. If you’re able to sell that for $5/ton, then you have about $2.87 million. That’s how you value the CDM. The more emission reductions you have, the greater the value it will be for the project developer. (Ms. Yeneza, PEI)

Who put up the investment cost? Did the project proponent come from the host country? Who’s going to put up the deal? Is it the project developer who’s an entity of the host country? (Ms. Supetran, UNDP)

The example was just to show what is now being evaluated and to identify projects most likely to attract buyers. I say yes to all your questions. (Ms. Yeneza, PEI)

If we would notice, all these show one

point: that CDM is really marginal – an icing on the cake – and what you get is only an additional revenue because you are reducing carbon emission. One can only reduce so much. Remember that the Annex 1 countries’ interest is only in the CERs. As a clarificatory point on additionality: it is the difference that will make a stakeholder tip over to cleaner technology. (Dr. Yap, CCIC)

This then brings us to the basic issue that if we allow them, we can help them reduce at a very low cost. This is precisely the reason why developing countries do not particularly like this. It is because they are going back to the point of reducing at a very low cost. We must be very vigilant about the whole process of negotiations and deal setting. (Ms. Supetran, UNDP)

Will the baselines be on a national or project level? Sec. Perez has said that the target of the Philippines is 50% NRE so if that’s our baseline, then the only thing that would be CDM-able would be beyond that. At this point, therefore, it would be a disincentive for policy makers to create new baselines for NRE. It would be more costly if we set up higher baselines for NRE now. I would suggest that we affix ourselves to 30% for now. Is there an aspect on CDM that is descriptive of a national baseline? (Mr. de Castro, CRREE)

What would have happened if the CDM didn’t happen? The baseline then should be a business-as-usual scenario. The least-cost option can be considered as the baseline as can be gathered from risk analyses. As regards small-scale projects, the CDM Executive Board has now published simplified procedures to address / set baselines for small-scale projects. The basis of which will be where baselines are easier to establish. (Ms. Yeneza, PEI)

I was wondering why we don’t have a case study for a wind farm project? There are two big wind farm projects going on in Ilocos Norte – one is a 25 MW and another is 40 MW project. Are these considered CDM projects? Funding for these projects come from Japan and Denmark. Are there projects in the pipeline already being qualified under CDM? (Mr. Senga, WWF-Philippines)

They are indeed CDM-eligible. We must, however, ask if they are being funded by ODA. We have to remember that CDM is over and beyond the ODA. We have to be careful about this. If there is a component that is not ODA, then it can be considered CDM-able. (Dr. Yap, CCIC)

The 25 MW project may be considered CDM-able. The part with funding from DANIDA, however, may have to be separated since it is an ODA. (Ms. Yeneza, PEI)

We should consider the CDM on a marginal basis. If the wind project per se is already good for the country, then let it be with or without the CDM. CDM is for marginal projects. An example would be

the family hydro projects that we are working on. The extra dollar we can make from CDM may be looked at in this case. (Mr. Roaring, REAP)

If projects are funded by ODA and unilateral in nature, can you offer that also for CDM? Referring to the sample project that Grace cited, if there is a project funded by a certain organization and it’s not an ODA, then can it be considered a CDM project already? (Ms. Supetran, UNDP)

So we’re saying that it is really project-specific then? (Ms. Supetran, UNDP)

Just a reminder, these may be questions asked by the national approving authority. Again, we might be forgetting another criterion for the country’s sustainable development agenda. What then is the additional benefit / development objective of selling of CERs other than just getting the money?

If only a part of the microhydro project is ODA, it can be improved using CDM funds. This part using the funds can then be considered CDM-able. (Dr. Yap, CCIC)

The waste-to-energy is funded purely by the private sector without any government funding. This can also be used as another example. The project developer can look at CDM funding to improve the system towards further efficiency. Otherwise, project might not push through without the additional funding from CDM. That can be an example of a CDM-able project. (Ms. Yeneza, PEI)

As a project developer, I present 100 MW of electricity. If I have a project that only needs a few cents to be viable, then CDM can help in that. CDM then makes the project viable. (Mr. Ronquillo, HEDCOR)

Part of the package is to find out that if so many units are available in a country, we need to look at the development costs then look at the quality and benefits of the project. Afterwards, we can then disseminate technology to as much market as possible. CDM is an enticing factor. It can be considered an additional developmental mileage for the project. (Mr. Roaring, REAP)

It is good that we are talking about small projects. But as a banker, I would not really bet on a project that could not compete with the mainstream. We shouldn’t forget that there are alternatives that could possibly provide better margins. One such option is nuclear energy. I understand that it was deliberately excluded. This could possibly be another policy reference of the group. CDM is very different from a seminar I attended years ago. In this seminar, the polluter must desist and pay for the damage. So if these developed countries are the number one polluters, they must do remediation work and not gain atonement by keeping developing countries underdeveloped.

We are living right now in a single world whether we accept it or not. It’s a ballgame we have to play. Not because they pollute doesn’t mean we don’t have any responsibility in doing our part. I don’t mean to be submissive – just being an optimist realist. (Mr. Roaring, REAP)

Looking back at Ms. Goco’s presentation, there are 4 ways to meet emissions reduction target. People everywhere have to reduce GHG emissions. Then on top of that, to help them, a little bit will go to the different mechanisms. A sustainable development criteria needs to be placed there to ensure development on the part of the developing country. (Dr. Yap, CCIC)

(Mr. Bongolan, Asiatrust Bank)We have to grasp opportunities available for us, developing countries. Policies government will be making (whatever they endorse) should ensure that sustainable development is prioritized. As I said, it’s going to be a competitive thing, and if we don’t make the most out of that opportunity, the funding will just go someplace else where the mechanisms are ready if we don’t grab it. (Ms. Yeneza, PEI)

In the pursuit of sustainable development for host countries, we should remember that sustainable development is bigger than just new and renewable energy. As a matter of fact, some energy from NREs can be used for unsustainable practices. There are still some underlying inconsistencies. I’m trying to look for more meaning beyond NRE. It’s not just power generation through cleaner mechanism but I’d like to know what else is there in terms of sustainable development? (Mr. Evangelista, Shell Renewables)

In our case, most of our projects were developed in unenergized barangays so upon our coming in, a couple of things happened. Considering that Benguet and Ambuklao are always flooded, they were not accepted at first. However, different things happened. Among them were:

We made sure that barangays were energized right after plants started operating through electric coops in the area;

If we hadn’t developed hydro plants there, they would have waited another 10-15 years for electricity to come into the area;

Population increased after energization because former residents from the area came back. This is an indicator that quality of life improved. The countryside has undergone development;

The people started doing different things;

Houses started improving; Taxes have helped the community

a lot more. Hence, as far as SD is concerned,

NRE helps countryside through employment, investment and technology transfer;

Ever since, we get municipal resolutions asking for hydro projects installation there;

The only thing, though, is that there’s no market (Rene Ronquillo, HEDCOR)

You can actually have a variety as long as it reduces emissions and contributes to sustainable development. (Ms. Supetran, UNDP)

Sustainable development is a very loose concept. Hence, we really need to identify our set of criteria to ensure the integrity of project. (Dr. Yap, CCIC)

I am dismayed because the major contributor to GHG emissions is not ratifying the protocol. Another thing is, upon mention of transaction costs, pre-CDM would be very costly (approx. $100,000) then post-project costs are really expensive as well. With consultants being part of the work and getting credited, then that leaves us with very little. Even for aggregate projects, CDM is even more costly. We should do some real economic studies on this. There seems to be a very strong hype for CDM right now and so, as a word of caution, we should look at this realistically where we act on the bases of of good financial and economic analyses. (Mr. de Castro, CRREE)

What you say perfectly makes sense. As regards the US not ratifying, we have to accept it as a given. That’s their decision so there is nothing much we can do about it. Despite that fact, there is still a market for CERs. As regards the cost, we have to look with wide eyes open here. We need to make sure that you do not, as a project developer, take on all the costs. Financial packaging should indicate how much of the project cost should be borne by the CDM investor. That’s why for the host country, they should make sure that process doesn’t entail additional costs and stick to a framework which is efficient, transparent and cost-effective. (Dr. Yap, CCIC)

Is there a clear-cut set of guidelines as to how much they have to reduce? (Mr. Corsame, PNOC)

I have no certain figures as to how much Annex 1 countries need to reduce domestically. But there are no figures involved depending on which mechanism is used. The hot air produced from those belonging to economies in transition after the 1990 level need not reduce anymore because their emissions abruptly went down after a period of recession. Let’s hope that the European Union doesn’t only use emissions trading so JI and CDM would be utilized more. (Dr. Yap, CCIC)

If we are able to get these projects going then we are able to encourage the private sector to invest and do big projects. This then still leaves the government with the funds necessary to do marginal projects. We, as a country, can strategize to be able to benefit greatly from CDM. (Ms. Yeneza, PEI)

OPEN FORUM FOR THE CDM NATIONAL AUTHORITY

In place of small group workshop sessions, the floor was opened for comments by the participants on the CDM National Authority. Going back to Ms. Navarro’s slides, Dr. Yap gave emphasis on the slide containing information about the interim National authority, its awareness promotions activities and the timeframe for evaluation. Issues and concerns focused mainly on including a greater percentage of private sector participation in the whole process. The following issues and concerns were raised by the workshop participants:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S)There seems to be a small representation for private sector to the IACCC. Which organizations compose the IACCC? (Mr. Roaring, REAP)

I second Mr. Roaring’s suggestion. I would also like to know the composition of IACCC. (Mr. Ronquillo, HEDCOR)

We should understand that the context back in 1992 was that climate change was only starting during that time. The stakeholders needed to look into the science of climate change. Hence, with DENR as chair, PAGASA co-chairs. (Dr. Yap, CCIC)

Is that a healthy figure now? This is going to be an endeavor of the government and private sector. However, with the way things are, is the private sector representation good enough? (Mr. Roaring, REAP)

The IACCC can call on other entities to take part in the activities. If we change the Administrative Order, we have to go to the President and it will take a long time. (Ms. Supetran, UNDP)

It’s not so much the membership but the track record. Are we having a good track record of facilitating climate change activities and efforts in the Philippines right now? (Ms. Yeneza, PEI)

A track record that can be cited would be that the IACCC is always consulted when a new project that is GEF-related needs to be endorsed. (Dr. Yap, CCIC)

Indeed, the workplan that we are putting together contains private sector representation in the National Authority. (Dr. Yap, CCIC)

When the mini-hydro law was passed, it was given to the DOE for endorsement, but until now, they haven’t done anything and this has been for the last 10 years already. So for the IACCC to not only supervise but also to promote, we have to put someone from the private sector. (Mr. Ronquillo, HEDCOR)

Proper representation from each sector is needed. A balance is needed in the aspect of representation so it wouldn’t be

As far as representing the private sector, there is the Department of Trade and Industry in the IACCC. It is not, however, a secret that DENR leadership is always changing so some programs are hampered/hindered from full implementation. It is simply a reality that we are faced with. (Violy Conde, NEDA)

politicized. Otherwise, that might bog the whole system down again. (Mr. Guarin, DBP)

According to the Grid Code, the Grid Management Committee involves a broad cross-section of all stakeholders. What then does DPWH have to do with CDM? (Mr. Ronquillo, HEDCOR)

Climate change is not only about CDM. Climate change is also about adaptation. (Ms. Supetran, UNDP)

For climate change, we need to look beyond CDM because it’s only a small component of climate change. (Dr. Yap, CCIC)

It has always been intended, since years ago, to expand the membership of the IACCC. However, this was not taken care of anymore. (Ms. Conde, NEDA)

For development policy, it might be good to have representation. We’re now looking at a monster bureaucracy. Environmental Compliance Certificates (ECC) application has all data you need to create CDM baselines. They have many experts there in DENR. (Mr. Bongolan, Asiatrust Bank)

Except for the baselines, yes, ECC has all the data CDM stakeholders would need. (Dr. Yap, CCIC)

Since CDM is equated with that of sustainable development, there should then be a representation of the 3 sectors namely: government, private and NGO sectors. Another question would be with regard to the involvement of PCSD in the CDM. What is its role in the CDM? (Ms. Yeneza, PEI)

IACCC always works vis-a-vis the PCSD. They are of the same stature because both created were by an AO and an EO. The PCSD is always the first to know about IACCC decisions. Ms. Navarro’s flowchart might give the participants an idea as to how the committee works. There are some activities that only one agency is tasked to work on. As regards ministry approval, it’s a given that some staff work has been done regarding these. (Ms. Supetran, UNDP)

As a Philippine Network on Climate Change (PNCC) representative in the IACCC, I share the view expressed earlier regarding the need to expand the composition of the committee in the light of current developments and I think there is really a need to strengthen the existing committee including the creation of sub-committees to take charge of different aspects of climate change (adaptation and mitigation, for example). There are discussions on the creation of a CDM National Authority but we should consider that a climate change office should embody a broader office looking not only at the mitigation aspect (CDM

for instance) but also adaptation. (Mr. Sales, PNCC)

Dr. Yap led the discussions as to what the National Authority should cover – promotion or regulation?

COMMENT(S) and CLARIFICATION(S) RESPONSE(S)There will definitely be a conflict of interest. How can you promote, and at the same time, restrict yourself? (Ms.Yeneza, PEI)

My concern would be funding/resources to be used in setting up this office. If this is going to be a problem, then it might be better to make do with what we have right now. (Mr. Ronquillo, HEDCOR)

The DOE would volunteer itself in the promotion of energy efficiency, and new and renewable energy with or without CDM money. (Mr. Anunciacion, DOE-EED)The CDM can also be promoted through the ICC (which consists of DOF, NEDA, Central Bank, Office of the President through PMS, DENR) and the Technical Working Group (where NEDA is its secretariat). The evaluation is solely done by NEDA. The recommendation of project comes from the NEDA secretariat then the TWG then up to the Cabinet level. However, projects being evaluated in this case are that of the Official Development Assistance (ODA). The environmental aspect of the project is done through the ECC. Nonetheless, the Committee requires that projects are done with ECC. The Committee is involved in requiring organizations to submit. The criteria is also the same in terms of financials and other aspects of the project. It is difficult to convene the members though. As an alternative, therefore, two cabinet meetings are held every month. (Ms. Conde, NEDA)

IACCC’s task may be too full. If one is ministerial in nature, it would be hard. In a working committee, it would be nice to put private sector to do the nitty-gritty details of the project. This can be a possible option or compromise. (Mr. Roaring, REAP)

It is true that multi-sectoral participation is important. We are then able to gather all expertise available to review the projects. The IACCC approves projects but the TWG should

also be knowledgeable about different aspects of the project/topic. For us in the DOST, for example, when we study technology, we also ask the expertise of private sector because we simply know about the science but not the technological aspect. (Dr. Tenorio, DOST)

First, I think we should look at how the DNA functions: its operational mandate, where it will get its funding, how much money will be allocated for DNA, and what its role will be. If it is going to be part of the whole process, does it mean that validating and certifying activities will also be done by the same office? (Mr. de Castro, CRREE)

How? What are the procedures? (Mr. de Castro, CRREE)

In terms of the project cycle, the National Authority’s role is clear that it is, indeed, responsible for registering projects. Furthermore, there is also a suggested fee structure for sustainability purposes (Dr. Yap, CCIC)

That will then be another regulatory function under the Kyoto Protocol if it is ratified. (Ms. Supetran, UNDP)

Since funding will be coming from government, then it’s the most practical option to make IACCC the National Authority for CDM. Private sector can be invited to help them out. But to come up with a new office will prove to be very hard. (Mr. Roaring, REAP)

The IACCC is an international commitment so the government should recognize this international commitment when it ratifies the Protocol. (Ms. Conde, NEDA)

Dr. Yap further led the discussions into that of establishing a separate promotional office. Should we come up with a separate office tasked to promote CDM? Or do we depend on the various departments’ investment promotions offices?

COMMENT(S) and CLARIFICATION(S) RESPONSE(S)An office like CCIC can take on the responsibility of promotions. If we may ask, though, would there be budget allocated for promotional activities? (Mr. Roaring, REAP)

I’m not sure of the amount that will be allocated in case. But initially, if there are pipeline projects to be developed, investment forums or workshops, there might be funds that can be allocated for this but only for initial activities. However, we need to know how it really works. What would be the decision-making mechanisms? Is it consistent with national and international criteria? (Dr. Bhattarcharyya, AIT)

We have worked with IACCC for GEF projects but not en banc. (Mr. Sales, PNCC)

If decisions on climate change projects need to be arrived at, the committee discusses projects en banc then decide en banc as well. The duration will vary depending on the length of the document. (Ms. Conde, NEDA)

The official focal point for Philippine affairs is the Department of Foreign Affairs. The IACCC supports the DFA. Once authority is set up, DFA will promote that Kyoto has been ratified. The DFA, on the other hand, once the authority

has been set up, will promote the National Authority. (Ms. Supetran, UNDP)

How about in terms of project endorsements? (Ms. Yeneza, PEI)

Approval should be with the National Authority. At the end of the day, it will be the National Authority who will decide and tell the CDM Executive Board that this is a Philippine project. If nobody sends a complaint against it, then it’s registered. That was actually what Laurie was suggesting - if there is no objection, then the National Authority is assigned. (Dr. Yap, CCIC)

The government has been setting up too many fast-track one-stop shop projects. They haven’t really done their job so far. (Mr. Bongolan, Asiatrust Bank)

Hopefully, they will really work as a one-stop shop with efficient processes. (Mr. Ronquillo, HEDCOR)

The crucial thing here is the definition of procedures. If it is a one stop shop then it should be cost-effective and transparent. This office should then be able to set up procedures that are easy to follow and clear enough to understand. The National Authority will have a multi-sectoral board to formulate guidelines, procedures and day-to-day operations run by a staff. The board is then tasked to oversee these operations. Despite the presence or absence of new projects, the board should undergo constant meetings and assemblies. (Dr. Yap, CCIC)

As an example, the LLDA has board of directors deciding on resolutions as to how the establishment will go about their operations. (Atty. Ibay, CCIC)

It is always easy to put up a framework, and rules on paper. The real problem of the matter though is “Can we deliver?” I like the idea of having the key for service approach. The main idea should be if they deliver, they get funding. But if they do not then they get punished. But how many agencies really deliver on requirement? The Authority then should support the fee for service structure. In this should also be included some disincentives for non-performance. (Ms. Yeneza, PEI)

We can use the LLDA example for this. They have an environmental user fee (lake for waste disposal into lake). For DNA to be self-sustaining, we have to be clear that it’s not an ideal entity able to generate its own funds so funds go back to authority and other projects under the CDM. (Atty. Ibay, CCIC)

Is it possible to set up a structure that has the same setup as that of the certification industry wherein there will be an international body who will audit the National Authority? (Ms. Alim, SGS)

Yes. That is actually the task of the CDM Executive Board. (Ms. Supetran, UNDP)

Is there funding for the operational framework’s actual structure? (Dr. Yap, CCIC)

As far as we know, as indicated by the Dutch embassy, they are ready to help set up the Authority but only to a certain point. They will

help in the screening processes but it is the responsibility of the government to set aside a particular office to take on the task. Hence, they are putting money for capacity building to make the office functional and to deliver services in the process. We are also looking at other sources but it is also a matter of principle. Funding organizations will not fund the same activities of same government entities. (Ms. Supetran, UNDP)

Are we allowed to create a private entity to run the CDM National Authority for sustainable purposes? (Dr. Tenorio, DOST)

The basic rule is that it should be a government body because it will be responsible for registering projects. As to how it is run, it would depend on the country. (Dr. Yap, CCIC)

We might be creating too many layers. Before validation, we should be consistent with other Philippine laws and other requirements. If there are too many, then there might not be any projects approved in the process. We have to make the roles simple. (Ms. Esguerra, UNDP-EPIC)

The private sector is important. But there is also a need to put a check and balance mechanism so that conflict of interest is avoided. Second, private sector representation is important but it should also be balanced by an equally sufficient civil society representation. (Mr. Senga, WWF Philippines)

There are several models mentioned but there are also a lot of lessons learned from these kinds of partnerships. Probably, the IACCC could commission a research to look into partnerships to see what works and what doesn’t work so we have more basis of recommending what should be the alternative. (Ms. Yeneza, PEI)

The UNDP has a project on this. We are actually helping out Ms. Navarro gather feedback on this. We know that Partnership for Clean Air has equal representation and it works very well. We then recommend that part of the project of UNDP is to look at these aspects and integrate them into the project. (Dr. Yap, CCIC)

What is the timeframe for the UNDP Project? (Ms. Yeneza, PEI)

It will be up to December. Consultations should be conducted to give feedback on Ms. Navarro’s proposal. There will be another formal consultation for the National Authority. (Ms. Supetran, UNDP)

To address the need to have an interim National Authority, why not put NEDA into place since they have been evaluating projects, they know the national development plan very well, they

chair the PCSD? I agree that it’s hard to gather representatives from different agencies. It is difficult to come up with a quorum so it’s going to be problematic if IACCC will be the one to handle it. Let’s have multi-sectoral participation instead in the development of the national criteria – an extensive consultation of all stakeholders also in the formulation of guidelines. Once the national criteria and guidelines have been put in place, I believe one agency (or entity) can handle the responsibility of the National Authority. We just need clear cut guidelines and criteria. On whether our National Authority should also handle the promotion of the development of CDM projects, this we can be left to the different sectors involved. The Department of Energy, for example, has its own investment promotions office which the other departments can also establish/create. (Ms. Gonzales, PNOC)

DAY 2: 11 December 2002

The second day of the workshop started off with a presentation from project financiers, both local and international. Mr. Pim Kieskamp of the Asian Development Bank (ADB), Undersecretary Osorio of the Philippines Department of Finance (DOF) and Mr. Rey Guarin of the Development Bank of the Philippines (DBP) presented case studies, challenges and recommendations to overcome possible barriers to financing CDM projects.

CDM Project Financing: Multi-Lateral Sources of CDM FundingPim KieskampAsian Development Bank

Mr. Kieskamp started off with a list of requirements for various projects under the CDM. One striking characteristic of CDM is its stringent documentation of baseline and monitoring because the Annex 1 countries have to comply with the Protocol target and they would want to do it in a cost-effective way. He then stated the importance of a country’s documentation of their GHG emissions. According to Mr. Kieskamp, there are already many financing schemes existing for NRE. He sees micro-credit as a more viable financing scheme for rural areas. Further he relays that investors do not invest in marginal projects due to risks. He then classifies CDM projects as projects with additional risks – indeed, riskier than the other projects.

As to why the Netherlands is very much into climate change, he narrates that they are the ones very much affected. Dikes and other infrastructure have been established because of their problem on project sea level rise. A part of their national income goes into international cooperation. However, the CDM is a bit different since it is more of an investment. CDM is a business. Emissions are bought at the lowest possible price. From their country’s national budget, US $ 300 M goes to CDM with Asia as the biggest market, answering therefore, the question as to whether CDM has a future in the market or not. Indeed, China and India are the biggest markets followed by Indonesia, Philippines, Cambodia and Pakistan. ADB is one of the unilateral agencies helping developing countries build their capacities for CDM, including the conduct of pre-feasibility studies. (Please refer to Annex 3.6 for more details)

Open Forum:

COMMENT(S) and CLARIFICATION(S)

RESPONSE(S) as given by Pim Kieskamp of the Asian Development Bank

Please enlighten us on the pressure on Annex 1 countries to comply. (Mr. Roaring, REAP)

At this moment, it only says that the Protocol is legally binding. With regard to compliance, discussions are ongoing to address issues on how to do that. The scheme is not new if you’re talking about Europe. We have already set quotas (e.g., we’re not allowed to fish an X amount of herring. What you do is to buy the quota. If compliance is not met, then we penalize or sanction the violator). With regard to the penalties, I am not yet sure as to what and how much the penalties and sanctions under the CDM would be. What is important is the manner as to how you develop/organize yourself internationally. There needs to be a legally

binding target so sanctions can be enforced.

You mentioned a $4/ton value of CER in the CDM. How does that compare with the internal reductions within the Netherlands? (Mr. de Castro, CRREE)

Going back to ALGAS, the study was used to determine which option is most attractive to carry out in terms of mitigation measures. CDM financing packages are more or less financially attractive. If the value is set to $4/ton, then it is financially attractive. If, however, it is at a $8/ton value, it’s a little bit less attractive. With $4/ton for CO2, it can enable them to do their own compliance internally. In the Netherlands, we have quite advanced monitoring system in emissions inventory so this part of the whole process is of no additional cost. The balancing point is that they are not going to tell this in the UN negotiations. It is, however, going to the direction of $10-$15/ton CO2. These figures, however, are not yet certain.We have to do domestic actions. But we also need to comply via CDM and JI.

Are CERs different in value because of the cost of living in other countries? (Mr. de Castro, CRREE)

Japan, for example, has this problem. But their system is already quite efficient. The cost of domestic action is, indeed, very high.

How do the CERs, through CDM, compare with that of emissions trading? What’s the percentage of 100 million tons to be complied with by the Netherlands as compared with that of domestic action? (Mr. de Castro, CRREE)

They would be equivalent to 50% of our emissions target. That gives us 200 megatons of CO2 out of our final target for reduction through domestic action. The concept of additionality would be included in other percentages allotted for emissions trading, joint implementation and CDM. No CERs will be sold with respect to Emissions Trading. Annex 1 countries can trade CERs later. Surplus reductions from assigned amounts can be traded for emissions trading. Russia’s hot air, for example, has led to its 1990 level. They already have a surplus which they can trade in the emissions trading scenario. There won’t be one price on an international level. CDM is much more worth than emissions trading. This is one thing that WWF is also working on for cleaner CDM projects.

What is life after CER? Is it subject to the usual computed rate of return for any foreign investment an Annex 1 country goes to? How will the funds drop into our laps? Now, it’s a specially funded loan by local banks. However, right now, it’s only the banks with actual capability to lend actual cash. (Mr. Bongolan, Asiatrust Bank)

What I’m trying to show you is that CDM project is equal to energy elements with CDM elements as well which makes it a bit more difficult. How do you finance CDM projects? Like normal projects. Only thing is that you want to ensure additional risks (as is included in the concept of additionality). In principle though, it’s going to be a normal type of loan. Otherwise, it won’t be sustainable anymore. You have to generate CERs depending on contracts and baselines. What we can do now is to develop projects with

additional CDM aspects. Hopefully, this will be taken by banks later on. There may be some countries/owners willing to pay additional costs for baseline requirements. Some Dutch facilities finance some part of additional cost. As regards how much, I still cannot specify.

Financing CDM-Eligible ProjectsNieves OsorioUndersecretary, Department of Finance

The Undersecretary of Finance identified, in her discussion, some possible sources of financing for future CDM projects. Despite the ballooning deficit situation, there are also special funds that Congress has created in the past and which may be tapped for future programs and projects. For this, however, CDM proponents and stakeholders need to talk with the fund administrators. The following sources have been mentioned in her statement:

The Clean Air Act has special funds RA 8479 passed in 1999, creates a special account or a special appropriations act

wherein the development budget committee allots program appropriations to certain deficit situations

The Environmental Revolving Fund which is a fund from the National Pollution Control Commission. This has been in existence ever since the Marcos time under PD 1086.

Another special fund created in 1990 is the Toxic Substances and Hazardous Nuclear Waste special fund. These are sourced from administrative fees ranging from Php 10,000.00 to Php 50,000.00. CDM projects related to toxic substances may source out some funds from here. It can also be used for projects and research activities.

Air Quality Management Funds where one source is that of emission fees from a number of industrial firms. The funds from this source can be used for:

o Containment removal of government in air pollution caseso Guarantee restorations of ecosystems

The incoming Secretary of DENR is an advocate of solid waste management and there’s another special account for that. These accounts have been sourced from fines and penalties. With regard to waste management related CDM projects, these funds can be tapped to use for: studies on how to enhance proper solid waste management, research, technical assistance, monitoring and evaluation.

The ICC (Investment Coordination Committee) can also be tapped in this respect. This is where government projects are reviewed. CDM stakeholders can make a presentation to the technical board. The cabinet committee will only rely on technical board’s decision. The system is that of indirect financing. The technical board might not be very open when it comes to new projects coming in so information is badly needed in this respect. In this regard, the Undersecretary stated her support of accompanying the stakeholders in an ICC meeting to make an appeal to the Committee.

Hospitals can also be tapped. They are very much conscious of the fact that they have to take care of their wastes.

In the coming years, we will be undergoing some streamlining in the government. We will be asking the private sector to be part of government efforts. This can be initiated through informing cabinet members about CDM and climate change.

We are now in the process of closing another project on power. The project is situated in Mindanao, where the pollution is not as bad as in Metro Manila. The recently-concluded project set up coal power plant. The agreement has been signed since 1998 but it is only now that the deal has come to a close. We had to make sure that the project will make use of the clean coal technology. The German partner for the project has used clean coal in other countries as well. The team composed of the Department of Environment and Natural Resources (DENR), Department of Energy (DOE), and the Department of Finance (DOF), has been there to oversee the initial installation of the project. The former secretary of DENR ensured the community and other stakeholders that counter mechanisms for potential pollution by the power plant has also been established.

The Undersecretary further states that private sector participation is key to sustainable projects because even donors themselves are very much receptive towards private groups approaching them. Preference towards the private sector in implementing and monitoring projects have been affirmed by the Undersecretary in her statement since the said sector can make sure that proper monitoring is done and the funds will be used properly as well.

NGOs are another matter of concern because there has been a project on protected areas funded by World Bank and was supposed to be handled by the consortium of NGOs. Unfortunately, the NGOs involved quarreled among themselves so the project did not progress. The Undersecretary expressed hope that NGOs involved in CDM will not have the same problem over again.

As regards institutions that can handle CDM projects, her report revealed a very limited list of government institutions that effectively take part in the CDM process. As of the moment, only DBP is very much involved in the development of CDM. The Philippine National Bank (PNB) is just in transition. Landbank , on the other hand, has a very focused mandate. They could actually tap farmers who are a big source of biomass waste.

A frustration in government that she shares is that once a group learns of a certain government agency going into a certain project, beneficiary institutions expect that government will dole out and sustain the whole process. The private sector, therefore, will be more effective in these areas of project implementation.

The floor was opened for comments and clarifications on the topic. The following points were issues raised during the open forum.

Open Forum:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S) as given by Undersecretary Osorio of the

Department of FinanceAs regards the coal-fired power plant in Mindanao, there are actually 3 reasons why a lot of NGOs oppose this project:

There is no such thing as a clean coal project. While toxic emissions can be reduced, climate change issue is about carbon. However clean it is, it still emits carbon;

This project was there since 1998. I am sure that when he was talking about that, he’s very much aware that this project has been endorsed prior to his statement. He may have been referring to other future plans when he said that.

Climate change is a global problem. Even if Mindanao doesn’t have that much emissions, it still goes up into the atmosphere, it still contributes to the global problem.

Investing in these kind of technologies tend to stunt the development of the NRE industry. If we do not effect paradigm shift now, it will take a longer time for NRE to take off. We’ve embarked on a trade mission to Europe to market NRE projects in the Philippines. Secretary Perez, in his statement, accounts that while we cannot shut down coal fired power plants because of power shortage, no new power plants shall be put up instead to give space for NRE market. But if we still continue to provide financing to these technologies, it will be a major reason why NRE will have more difficulty in terms of gaining market in this country. (Mr. Senga, WWF-Philippines)

I would just like to react to the statement that nothing came out of the Protected Areas fund. Our NGO, PRRM, was part of this. In fairness to the whole event, while admittedly there have been some management and operation problems with regard to fund management, there have been positive impacts that have been generated by the project especially in terms of developing community-based approaches to resource management and developing sustainable livelihood assistance to local communities. Although only a small portion of the fund was utilized, there have been other positive impacts like the distribution and acquisition of CADCs and increase in biodiversity in other protected areas. (Mr. Sales, PNCC)

But this should be reported to the World Bank because they have been telling that nothing happened. The financing institutions’ conception is that since nothing happened therefore the project did not move at all.

The National Authority will involve some funding. Whoever funds the Authority will have authority over it. Even if the composition is mostly government, the private sector wants to have representation and participation in the said process. (Mr. Roaring, REAP)

Country members of the World Energy Council in each country opted to have it to be a private organization where the government is also a member of. One of these days you can sit down with PCEG (Presidential Commission for Effective Governance) to put up council with multi-sectoral participation.

Who can use these special funds you mentioned? If these are going to be for CDM,

You have to approach and get an audience of the fund administrators

what are the steps? (Mr. Montemayor, FPE) particularly DENR and DOE administrators. There are government projects being opened for partners. We don’t encourage hiring more people for expertise. Rather, we would have some private sector partners to do the job. These will remain public funds but will also be open to partners as long as there is proper accounting of funds. The difficulty of using special funds has to be discussed with the permanent committee handling it and not just the Department of Budget Management (DBM). This has to be programmed for a certain year. By February, government agencies will be submitting plans for 2004.

DBP-Funded Renewable Energy ProjectsRey GuarinDevelopment Bank of the Philippines

Mr. Guarin started off with the CDM’s costs on the project developer. It would require a project developer US $20,000.00 for normal projects and US $10,000.00 for small-scale projects. According to Mr. Guarin, there should be percentages allotted in project costing. He presented some investment structure costs and risks namely:

o Safetyo Liquidity which focused on the loan structure. Currently, there are no

flexibility mechanisms. An exit mechanism is very much needed to ensure investors of a way out after the investment has been accomplished.

o Yield where the question lies between the projected versus the actual returnso CERs wherein the projected is compared and constrasted with that of the

actual emissions reduction. Insurance/guarantee for both sides is needed to protect investors from risk of delivery failure since the cost of production might be higher than what the project may be.

He stated the importance of looking into the projects from a manager’s point of view, with liquidity as a major barrier to be hurdled. CDM can be seen as an investment management tool. He even suggested that the country come up with special carbon funds similar to ADB’s Prototype Carbon Fund. We can come up with different funds and group them all together so that diversification efforts can be addressed.

As part of efforts to improve liquidity, we can tap local markets, local first or foreigner then implement the concept of “paluwagan.” The carbon funds may especially be beneficial for small-scale project developers, especially for CDM project developers. (Please refer to Annex 3.7 for more details)

Open Forum:

COMMENT(S) and CLARIFICATION(S) RESPONSE(S)We should ask people how big they think CDM is going to be in the Philippines. CDM is not easy to do especially with all the rules and regulations you have to comply with. On the financial side, the projects that will qualify for CDM are supposed to be marginal projects. Otherwise, if they are easy to do, then it’s a business-as-usual scenario. On the project financing side, how can you give loans to projects that will be reasonable and how? What are the sources of cheap funding for DBP? With all the changes, 11% interest, where is the source of cheap funding for such marginal projects? (Ms. Ramos, Mitsubishi Securities)

Presently, it is still quite limited. The carbon fund can be an ideal source for this activity. An effective exit mechanism can produce the necessary yield. Since stock exchange is dead, people can do new mechanisms. The economies of scale as manifested in the PCF could ensure that these will be replicated into some similar project. Such a replication process will bring down the transaction cost making CDM projects more applicable. (Mr. Guarin, DBP)

What I presented was the potential and that’s what the Annex 1 countries need to comply with. It’s always an argument on demand and supply. What is the offer from developing countries given a certain amount of compliance on the side of the Annex 1 countries? Even without a hot air trek, they have to comply. Hopefully, developing countries would do more incentives than disincentives. If you take the 7 year baseline theory, then by 2005, you would have to have produced credits. We should take not that it takes at least a year to develop good projects. The Philippines needs to be organized in 1 year. Otherwise, investors would go to another country with all the facilities ready. The government might have to take additional risks to adapt to this problem. (Mr. Kieskamp, ADB)

The CDM is exciting. We keep on asking this question over and over because it’s time for us in the Philippines to have a realistic view of just how big the CDM is for us. At this point, there are NRE and EE projects we can take on. We have a wonderful map of the potential areas but how many projects being implemented would really qualify for CDM? How many of these would be able to connect to a grid? If these are stand alone projects or those not connect to the grid, it might not be qualified under the CDM because there won’t be any buyers. It’s a matter of coming up with an aggregate story for the Philippines. We have to come up with a strategy for CDM. Already, we’re finding a hard time looking for baselines. Also take note that CERs are

but generic. (Ms. Ramos, Mitsubishi Securities)

A 2-year preparation stage would be ideal. Hopefully, we would be able to avail of this before the second stage because there might not be a second chance of this happening. One can’t stop CDM projects now with all preparations happening. What we can do is fit all the projects into it. (Mr. de Castro, CRREE)

The Netherlands is doing it already. We have been doing some verification and other activities under the project cycle. We are actually pressuring CDM-EB that “these are our procedures!”. CERUPT and PCF experts are also in charge of advising the CDM EB as to how to hold the system. Hence, all PCF and CERUPT projects will be credited. As regards your second point, it has a lot to do with risks. Are you willing to take the risk? If not, then you’re just developing the projects now. If there’s a second commitment period, we’ll see. Then we’ll take other projects with the knowledge that with the CDM there is more or less a tension/field for sustainable development and emissions reduction. Sustainable development would encourage the implementation of more small scale projects. High GHG emission reduction through large scale will benefit the host country. For both, the decision should be to do them both. Solutions may be found in medium scale projects, semi-large scale, projects in rural areas (biomass for electricity), small-scale sugar pulp and paper – as long as they are not the big ones because they do not necessarily address the sustainable development objectives of the country. Projects to be registered must be those that are most acceptable by the CDM-EB and the host country. (Mr. Kieskamp, ADB)

First it was only CDM, now it’s about financing. The problem is very big. How much does a CER cost anyway? $4/ton carbon? What if you put it at $275/ton? How much value then for the CER? But isn’t it the case that even in markets, there’s a par value and a basis for the market amount of CERs? (Mr. Montemayor, FPE)

It would depend on the project. There are two buyers for this: the PCF and the Dutch fund and they’re dictating the price right now. It’s a market mechanism. If there’s an oversupply of carbon credit, then it can really be very cheap. (Ms. Ramos, Mitsubishi Securities)

The prices are risky. It would all depend on the market. (Dr. Yap, CCIC)

Before you have a hydro project implemented, you have to do full study. The difficulty here is in tapping the funders. It is difficult to approach investors without a reputable consultant doing a study on risks. You can’t start prior to the project itself. How can you put all these information together?

For the projects that we have already financed, an initial activity we’ve done and are still doing is that we first look at potential areas for hydro projects. Then, we look for some possible proponent. Right now, the first target is the LGUs nearest to the potential areas. The Project Preparation

50% equity is all right. The proponent would be seriously willing to put up with it. But this would focus more on the LGUs and not entrepreneurs. We should consider that LGUs are so dependent on national revenue. (Mr. Abaya, CEPALCO)

What I hear from private sector is that you want balance sheet financing instead of project financing, hence, there are not too many entrepreneurs participating in the process? (Mr. Abaya, CEPALCO)

But I thought DBP could do better instead of just balance sheet financing? (Mr. Abaya, CEPALCO)

Revolving Fund (PPRF) gives a low cost of 60% with 50% equity payable within 3 years after the contract has started. We’ve been doing this for the past two years and right now, projects in the pipeline are all with the LGUs. It has, so far, been very hard to get the private sector to participate in this. (Ms. Salvatierra, DBP)

This process is not only followed by DBP but also with that of other banks. (Ms. Salvatierra, DBP)

Hopefully, we’d get the chance to check into the collateral requirements to make it more affordable for potential borrowers. We intend to come up with loan guarantee for NRE projects. (Mr. Guarin, DBP)

DBP can handle up to 50% of the total cost of a detailed feasibility study amounting to Php1 million. 50% will be shouldered by the private sector then the other 50% will be a conditional loan/grant. However, these are all under negotiations. We’re not yet certain as to what the specific conditions are. The borrower could shoulder the rest. This is the initial scheme of PPRF. Also, there are DBP schemes already approved by UNDP through the PDF B project. All these will be included in the full project. (Ms. Navarro, AED)

UNEP, Paris under TIE through their Sustainable Alternative Network is also providing a 50% grant for feasibility studies p to $50,000.00. (Mr. Kieskamp, ADB)

From the point of view of the point source, how much is the project development cost? Are we talking about the same figure? (Dr. Tenorio, DOST)

If you’re well managed, just checking the books will be quite simple if you have ready information. The project in itself may be easy to monitor. If you have already done measuring of your emissions, then it will be quite simple to differentiate between a diffused and point source. Point source is more easily approved though. Once again, costs can go down. The technical stuff are getting easier (data gathering for example) (Mr. Kieskamp, ADB)

Baselines are evolving. Once they are approved then we can proceed. We should

not start from zero because we didn’t have to develop methodology from scratch. Project costs will then go down. You can even propose your own methodology and if it gets approved, it can be used/replicated by others as well. (Dr. Yap, CCIC)

There are two types of projects that can be developed: one which is marginal and another with a detailed feasibility study. A project may already be developed but not yet implemented. We need to look at projects we already have and see if they are CDM-eligible. We don’t look only at new projects but also those on the shelf which have not yet been implemented. (Mr. Kieskamp, ADB)

Is DBP assisting project proponents or merely helping them develop CDM-eligible projects? If so, then DBP is not an institution actually taking the risk in case CERs do not prove to be profitable? (Mr. Montemayor, FPE)

We are assisting project proponents on how to develop CDM projects. Once they come up with feasible projects, we make it feasible under the CDM. We identify projects – either existing or new - then look for mechanisms to protect them from delivery failure. CERs are really evolving. They are an open-ended thing. But it would depend as to which is more effective in terms of pursuing the program faster than it should be. (Mr. Guarin, DBP)

On an average cost of $4/ton, I’d like to know if there are component costs between CDM projects. Most CDM projects in other countries are tree plantations or large hydro which are not additional in nature. (Mr. Sales, PNCC)

Within CERUPT, we have a regulation that prices range from $1 CO2 through carbon sequestration, $2 for fuel switch, $3 for cogeneration, $4 for hydro, $5 for solar and so on. Why such a scheme? Solar home systems will lead more to sustainable development objectives. The same is true with fuel switching. At this moment though, the market is set by the Dutch because they’re the only ones moving in the direction already. Personally, I’m not sure if the PCF is moving as well. It is very much dependent on the facility of mechanism itself and varies from country to country. (Mr. Kieskamp, ADB)

A lot of us here are involved in small-scale projects. Is there an option of DBP fund being used for the wholesale of small-scale PV projects? (Mr. de Castro, CRREE)

Right now, DBP is working with the World Bank. The World Bank provides some funds ($20 M). For small-scale PVs, they are referred to national financing institutions for re-lending. We also have funds available for wholesale banking sector. (Ms. Salvatierra, DBP)

Tasks Group 1 Group 2Task 1: Information Campaign and Awareness

1.1 Specify plan – clearly state measurements and measurable outputs, time table and who will execute

1.2 Simplify info materials1.3 Creation of a CDM promotion office –

“help desk” or information desk to market CDM concept

1.4 Expand 1.2 – IEC activities must be sectoral to provide venue for exhaustive discussions of issues, concerns of each specific sector; “concerned” basis

1.5 Should be under Task 10 Include FIs as part of the stakeholders – both public and private and other clubs and associations interested to engage in CDM Projects

1.61.71.81.9

Task 2: Capacity Development for Senior National Policy Makers2.1.1 On indicator – on word “agreement” Meet with Investment Coordinating

Committee (ICC)2.1.2 Do specific plan by defining

measurable outputs, time table and those who will execute

2.1.3 Talk to the senior technical staff and secretary level to generate full support from key decision makers in government

2.2.1 Inventories will be basis of CDM background material – 2.1.2 wherein

2.2.22.2.32.3.12.3.22.3.3

Task 3: Capacity Development for Mid-Level Policy Makers3.13.23.33.4

Task 5: Capacity Development for CDM National Authority5.1.1 Specify plan through measurable

outputs, time frame and party(ies) responsible

5.1.2 Who will be responsible for the

formulation of operational guidelines on CDM projects? Define necessary legal, institutional and policy framework for CDM

5.1.3 Who will review the operation/overall performance of the National Authority? What will be the role of higher level body to oversee performance of DNA?

5.2.1 To whom will the National Authority be accountable? What particular department or office should the DNA be accountable to?

5.3.15.3.25.3.35.3.4

Task 6: Capacity Development for Project Developers6.1 Vis-à-vis CDM goal

Briefing on SD goals should focus on CDM

6.26.36.46.56.6 Should be under Task 16.76.86.9 Should be under DNA

Registry should be for all possible CDM projects

6.106.11

Task 7: Capacity Development for Project Financiers7.1.17.1.27.1.37.1.47.1.57.2.17.2.2

Another activity for outputs: develop capacity to put up a managed carbon funds and carbon risk funds how to set up and manage such to attract investors

Task 8: Capacity Development for NGOs, Local Communities, National Research Institutions and Academe

8.18.28.3

8.48.58.68.78.8

Task 9: Investment Promotion for CDM Projects9.1.1 Deleted

Sectoral thing ex. DOE has own investment promotion office; specific desk for investment promotion for CDM

Creation of separate CDM promotion office from the regulatory office and the National Authority

9.1.29.1.39.2.19.2.29.2.39.2.49.2.59.2.69.2.79.2.89.2.9

Task 10: Creating a Pipeline of CDM-eligible Projects10.1.1 Should be actually output of all

capacity development activitiesPriority should be to push for the ratification of the Kyoto Protocol Come up with a list of stakeholders and identify someone who would champion CDM and to focus the information campaign

10.1.210.1.310.2.110.2.210.2.3

Group 1 suggested some stylistic editing changes in the work plan. The group basically suggested that the writers of the work plan change the word “committed to” into “capable of” in the output matrix.

Additional changes in the workplan:

Certain activities can be lumped together to avoid duplication in the work plan. Capacity development should focus on people learning about the CDM. Task 10

should then be the output of capacity development activities. Capacity development for validation, verification and certification should also be

included, not just for DOEs per se but for risk redundancy measures needed for baseline monitoring

Guidelines should be made in consideration of the review process that the National Authority should undergo. We should look at the review schedules. If there too many reviews, it might serve as a discouragement on the part of the project proponents. Focus not only be on the setting up of the Authority but also on the guidelines and procedures that the Authority should follow.

Additional inputs as regards the National Authority’s promotional and regulatory functions were solicited from the participants. The following issues and concerns by the participants representative of different sectors:

In the future, there will be help desks and call centers instead of each governmental bureau taking care of help desks. A centralized format is more efficient for help desks to take care of information dissemination, promotion activities, school dissemination, and to serve as a technical arm for certain departments.

To have an office taking care of both promotion and regulation would be conflicting. Promotion is marketing while regulation means restriction. There will definitely be conflict of interest.

To come up with another office may mean too much work on the staff. We need to operationalize marketing and promotion? If marketing means promoting

existing technology, then there would be possible conflict. But if promotion is on a general basis, then it’s what the National Authority can do.

As long as there is no conflict of interest and so far as we preserve the integrity of the national authority then we should preserve the independence of the regulatory body as well.

The registry of projects is another kind of promotion. With this kind of promotional activity, we may not need to establish a new promotional arm anymore. The CDM registry will serve as a promotion in itself.

Financial dealings will be handled by the project developers and not by the National Authority so there is, actually, no conflict of interest.

Anyone can promote but only one can regulate. Consider the corruption in the system. It is better to avoid this in CDM as early as we can.

There should be guidelines to protect national interest. A procedure on the approval of projects should be formulated and formalized. The review process should include a multi-sectoral membership. It should include all probable stakeholders interested and those who can participate in the project.

Transparency is major. During the early stage of the National Authority, there should be an entity responsible

to start up promotion. If this is placed in yet another office, you may have an active regulatory organization but it may not be effective in jumpstarting the movement for CDM. Its promotional function then should be put in its early stage. Its regulatory function could come later. It’s only a matter of placing the responsibilities in the right order. This can be seen in Task 1 of the work plan.

CLOSING REMARKS

After the certificates were awarded to the participants who stayed for the two days of activity, Dr. Bhattacharyya, Ms. Goco and Dr. Yap delivered the closing remarks.

According to Dr. Bhattacharyya, he learned a lot from the workshop. He informed the participants that there will be a regional workshop to be held in Bangkok this coming January. He thanked the participants for their active contribution to the two-day activity. He also asked for their support for the program for the next three years.

Ms. Joy Goco of the IACCC thanked the participants for staying for the two-day workshop. She acknowledged the different sectors’ interest in CDM implementation. Like Dr. Bhattacharyya, she sought for the stakeholders’ support in the process even in the early stages of implementation of the national operational framework. As regards capacity

development components that could not be addressed by RISO, she made mention of organizations like the Ministry of Economy and Trade in Japan who has also stated their interest in involving themselves in the Philippines’ capacity development efforts. Streamlining is definitely needed to avoid overlaps in the capacity development framework and also to avoid resource wastage in the process.

Dr. Yap, as a final remark, recognized that the whole process is not easy. It is complicated and challenging but he remains an optimist. CDM is still an exciting venture and all of us share an optimism that something good will come of this and we can help in the reduction of greenhouse gas emissions. As a final note, he stated that this is just the beginning. He also indicated that there will, indeed, be more partnerships in the future.

With that, the facilitators bid the participants farewell and wished them a safe drive home.