A possible solution to the lack of energy efficiency projects is the use of programmatic CDM. Briefly, programmatic CDM is a programme of activities, these activities be-ing for example several small projects, bundled together into one methodological and administrative unit. Reasons that allow for the possibility of solving some of the prob-lems energy efficiency technologies face include that a programme of activities has lower transaction costs per unit of emissions, allowing energy efficiency projects, with their complex and costly monitoring and low CER-return, to reach high enough CER returns to stimulate their development.
The idea of a sectoral approach to CDM has been defined in different ways. It has been called policy based and government driven, or a bundling of projects, or programmatic project activities, or sectoral crediting. The Executive Board has decided that you can have bundles of projects, and you can have a programme of activities, but you cannot have a policy or a standard as a CDM project. But, there has not been clear guidance provided in terms of operational details yet. It is unclear whether this guidance will come in the implicit form (from experience based on the Executive Board’s analysis of each case) or be defined explicitly [WIC 2006, Varming 2005, UNFCCC 2005, Holmboe 2006].
While a policy (being an expression of intent) is not allowed as a programmatic CDM project, a “programme of activities addressing mandatory local/ regional/ national poli-cies and regulations are permissible provided it is demonstrated that these polipoli-cies and regulations are not enforced as envisaged. If they are enforced, the effect of the PoA is to increase the enforcement beyond the mandatory level required” [Executive Board 2006c].
In other words, enforcement of policies and laws is allowed as a project. This puts into the perspective the Chinese situation (the compliance gap existing related to many policies in China), mentioned in Section 6.1.
The discussions surrounding programmatic CDM relate to larger discussions of the Kyoto Protocol, namely that the Protocol can be a perverse incentive for countries not to enforce climate-change regulations, using the Protocol as an excuse for not pro-moting the good of the country and the planet. The definition of additionality, as I understand it, is that the Protocol represents action above and beyond what countries
would normally do, and it should not replace policy-making that a country would nor-mally undertake. In the same way, programmatic CDM should represent action above and beyond what the laws of a country require, and not substitute law-making - and this is especially relevant in the case of a programme which includes several smaller projects3.
Issues that need to be resolved/tested in connection with programmatic CDM are:
how to determine the baseline, additionality, crediting period, project boundaries, cost-benefit distribution, and how to avoid double counting [WIC 2006, Varming 2005]. The calculation of emissions reductions will be rather complex and may require experimenta-tion with different methods4. The staff requirements for coordination of a programmatic CDM will be high [Hayashi and Michaelowa 2007]. Early on the Meth Panel also raised several questions for the Executive Board to consider in its decision-making process [Meth Panel 2006a].
The Executive Board has said that additionality as a whole will involve showing why, without the CDM, the “proposed voluntary measure/ standard would not be im-plemented, or the mandatory policy/ regulation/ standard would not be enforced, or that the programme of activities will lead to a greater level of enforcement of the ex-isting mandatory policy/ regulation/ standard” [Executive Board 2007a]. This is the same principle of additionality for non-programmatic CDM. Here too should the idea of additionality conditions being different for projects that increase sustainable devel-opment be implemented. “Additionality assessment (to exclude free-rider effects) needs careful consideration. It is not very clear yet on which level additionality assessment must be conducted: on the programme level, on the individual participant level, or both?” [Hayashi and Michaelowa 2007].
The UNFCCC COP/MOP 1 and 2 decisions ([UNFCCC 2005, UNFCCC 2006]) have increased the momentum of programmatic CDM projects, and “the Meth Panel/Executive Board have worked on guidance related to the registration of project activities under a programme of activities as a single CDM project activity and recently finalized its work.” [Hayashi and Michaelowa 2007] . The Executive Board announced after its 32nd meeting that the way has been further “cleared for Kyoto mechanism to boost green investment in developing countries. [The CDM] is set to scale up, in reach, scope and effectiveness, as a result of new procedures and guidance for programmatic CDM”
[Executive Board 2007d]. (See [Executive Board 2007c] for further details.)
“The possibility of clustering several small activities into one single CDM project activity, using a single PDD, is of particular importance for energy efficiency activities because individual activities are often too small for stand-alone CDM project activities even under simplified SSC-methodologies” [WB-CFU 2006]. The potential impact of
3A programme could conceivably be energy efficiency projects in factories of a specific sector, or perhaps it can also include action from many individuals, for example exchange of incandescent for efficient lightbulbs. These examples show the different issues relating to programmatic CDM: definition of what is a policy or a programme or a standard, and whether these are voluntary or obligatory, and whether effects are directly traceable or not.
4[Hayashi and Michaelowa 2007] have identified a random experimentation approach and a technol-ogy penetration approach to calculating emission reductions, and which has been used by the Executive Board in different instances. The random experimentation consists of sampling a number of units and comparing that to a number of units outside the project, while the technology penetration approach consists of comparing technology penetration rates with and without the project, by means of a survey.
The latter approach is complicated and has not been favoured.
The CDM and energy efficiency: how to approve a district heating methodology?
MSc Environmental Policy thesis, C´assia Simons Janu´ario
programmatic CDM is that it can contribute to sector-wide transformations and lower costs, which are both good for more renewable energy and energy efficiency projects.
The sustainable development brought by the projects will still not be reflected in the CER prices, and it may affect the CER prices in a negative way (lowering their value because more projects will come online). It may also make worse the geographical imbalance in CDM projects, leaving behind the poorest countries because they dont have the administrative capacity to handle CDM projects or programmes [WIC 2006, Varming 2005].
Programmatic CDM has the potential to bring on sector wide changes as it can, for example, be applied to a sector or manufacturers of a specific material or product. This has a much larger potential for decarbonising economies than a single project in a single factory. Programmatic can, in this way, make climate change part of the growth of the sectors targeted. Also, civil society, politicians and policy-makers would be involved and this may affect the decisions that impact on the environment and on climate change.
The development of the economy may also be stimulated as suppliers come in to cater to the new standards [Holmboe 2006].
4.3 Summary
The Kyoto Protocol is a first step in a worldwide attempt to address global warming.
It represents a feat in international environmental policy, in that so many nations with differing interests and priorities were able to agree on a way of working together to solve this problem. The Clean Development Mechanism, the CDM, is one of the flexible mechanisms of the Protocol, allowing developed countries to set up projects in devel-oping countries, these projects reducing emissions and counting towards the obligations of the developed countries.
The Protocol and the CDM have, however, many problems. Many details of the functioning of the mechanisms were not worked out until years after the Protocol was agreed upon, and some details are still being hammered out. The integrity, credibility and fairness of the institutions has much value, for what is the worth of an international climate regime that no one can trust? And yet, this carries with it some practical problems of access and communication.
The time frame of the agreement is short in light of the lifetime of some of the possible investments that could help solve the global warming problem and bring sus-tainable development to many countries. The bottom up approach for CDM project types leaves room for innovation but also much uncertainty for investors. Host country administrative procedures for projects can cause delays and confusion due to unclear guidelines. Developing countries have barriers related to financing, poverty, lack of ex-pertise, equipment and technology, higher costs for obtaining reliable information, lack of long term planning, institutional culture, limitations coming from building design and lack of appropriate policies and programmes. The cost for setting up a CDM project, especially with a new methodology, are high. So even when an energy efficiency project is financially more attractive these barriers can keep it from happening.
The existing and proposed CDM projects tend to fall into only a few categories of world emissions. There is much potential for reducing emissions in transport, for example, and some energy efficiency measures, but these kinds of projects do not carry
the same financial returns as other projects. There is no doubt that many of the approved industrial gas projects reduce CO2e, but they often do not contribute to sustainable development. This fact could potentially undermine future support for the Kyoto Protocol, reducing our chances of handling climate change.
Many projects that can contribute to sustainable development, aside from often not bringing many financial rewards, are also more methodologically complex. To cite an example, energy efficiency projects have faced many problems due to this complexity.
The working out of an acceptable method for calculating emission reductions, and mea-suring additionality, is difficult. Assessing leakage and the rebound effect have also played a part in the difficulty. All this, plus the cost of generating CERs compared to the expected value and volume of the return, have combined to reduce the number of projects that promote sustainable development in the CDM. Perhaps some changes may be called for in order to boost the development component of the Clean Development Mechanism.
The Executive Board of the CDM is constrained by a lack of resources, and this affects the time taken to review proposals and the grade a project can receive. Work by experts must be done in addition to their ‘day jobs’, limiting the time they have to dedicate. Parties to the Protocol, however, have other priorities aside from climate change, and may not be prepared to fund the administrative bodies of the UNFCCC in an adequate way.
Programmatic CDM may be one way of reducing costs and increasing CER output, creating more energy efficiency projects. The practical procedures for programmatic CDM, however, need to be defined and tested and are bound to be more complex than the CDM rules already are, making it difficult to handle.
Chapter 5
District Heating and Cooling
“Can you imagine an urban area with individual supply of electricity and wa-ter, and with each house having its own sewage and garbage disposal system?
These services are almost always supplied by public or private companies - so why should each house have its own furnace, which takes up space, pollutes and requires the house owner’s attention for operation and maintenance?”
[Randløv 2001]
This chapter will introduce district heating and cooling and CHP, and discuss the advantages of these technologies for reducing greenhouse gas emissions and boosting sustainable development. Here is where the indicators for social and environmental sustainability presented in Chapter 3 will be used. The reason this information is presented is to show why this is a relevant technology for CDM projects and why, therefore, more effort should be made to increase these and other energy efficiency methodologies in the CDM.