This paper examines the synergies and possibilities of scaling up the implementation of dispersed, demand-side Energy Efficiency (EE) efforts using the emerging programmatic CDM (pCDM) concept. Executive Summary
Improving energy efficiency (EE) is one of the most promising approaches for achieving cost-effective global greenhouse gases (GHG) reductions. However, it is severely underrepresented in the Clean Development Mechanism (CDM) portfolio. Just 10 percent of the emission reduction credits traded in the carbon market are from EE projects. In particular, small, dispersed, end-use EE measures—which entail significant GHG mitigation potential, along with other clear, local, and direct sustainable development benefits—have been largely bypassed by the carbon market.
Under the World Bank’s Sustainable Development Network Integration “Challenge Fund Initiative,” a joint “ESMAP - Carbon Finance Unit” team examined the synergies and possibilities of scaling up implementation of dispersed, demand-side EE efforts using the emerging programmatic CDM (pCDM) concept. This paper focuses on the key recommendations of this analysis, the potential scaling-up opportunities, and underlying operational synergies between EE programs in developing countries and pCDM.
The modalities of traditional CDM have been set for individual, stand-alone, emission reduction projects that are implemented at a single point in time (e.g., one renewable energy power plant). While CDM rules allow “bundling” of several of these projects together for registration purposes, the specific sites where they will occur must be known ex-ante and they must all occur at the same point in time. These conditions generally cannot be met by most dispersed demand-side EE programs, whose emission reductions occur over a period of time and in numerous locations (households/industries/cities). In addition, participants in energy-efficiency programs may not be known at the outset because the program may depend on gradual take-up of incentives.
The December 2005 COP/MOP decision to include “programs of activities” (PoAs) in the CDM opens the door to scaling up implementation of dispersed end-use EE activities. A PoA is a program coordinated by a private or public entity that provides the organizational, financial, and methodological framework for emission reductions to occur. The program itself does not achieve the reductions, but rather provides the enabling environment for others to do so. The specific measures through which the emission reductions are achieved are “CDM program activities” (CPAs). These must all apply the same methodology, be implemented in the same type of facility or structure, and be coordinated by the same managing entity. However, they can occur in an unlimited number of places and can be implemented over time up to 28 years.
Many observers have been concerned that the CDM Executive Board has approved few EE methodologies. While the pCDM approach opens the CDM door more widely to energy efficiency, it is likely that not all EE programs, or at least not all aspects of EE programs, will be deemed eligible for the CDM in the short term. In the CDM, project activities have to be “traceable.” That is, the resulting emission reductions must be the directly attributable to the project, and measurement of emission reductions must be robust and unambiguous. Our analysis shows that EE programs that can be shown to directly replace inefficient technologies, or provide financing/financial incentives to do so, are more likely to qualify for the CDM. Policy-based EE programs (e.g., raising energy prices or reducing import taxes on energy-efficient equipment) are important for the increased uptake of EE equipment and activities, but may have more difficulty demonstrating direct causality—which is a key CDM criterion.
Our analysis also found that application of many dispersed end-use EE efforts as PoA need not wait for the development of specific CDM baseline and monitoring methodologies. There are three already approved simplified EE methodologies for small-scale CDM (SSC) projects, and these have been modified to account for leakage and are authorized to be used in the context of PoAs. Because the small scale methodologies must be applied at the CDM Program Activity (CPA) level, the overall program savings level can exceed the small-scale threshold (maximum savings of 60GWh per year) as long as each CPA does not exceed the threshold.
In order to highlight the issues raised in this paper, a Global Environment Facility (GEF) energy efficiency project in Uruguay has been selected as an illustrative case study, and is presented in this paper.
Read the ESMAP Technical Paper 120/07 here
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