Download Ph.D. Thesis Proposal

Institutional Arrangement for CDM:
Case of Peru
First Extended Regional Workshop CD4CDM Project
Siem Reap, Cambodia
24- 26 March 2004
Sami Kamel, PhD
UNEP RISOE Center, Denmark
Background

This presentation based on the results of the study: "Peru's
Institutional Strategy to Promote the Clean Development
Mechanism" (2004).

Authors Maria Paz Cigaran and Particia Iturregui, staff members of
Peru's DNA.

Study sponsored by UNEP RISOE Center as part of analytical work
implemented under CD4CDM Project.

Purpose of study to present and disseminate Peru’s institutional CDM
experience among other developing countries.
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Country Context


Highest environmental authority is CONAM (National Council for the
Environment) est. 1996:

Reports directly to Prime Minister’s office.

An Environmental Affairs Office established in each ministry to
strengthen issue of environment within operations of each ministry.
 All offices report to CONAM and operate under its directives.
 They submit proposals for emission reductions, and perform
quality assurance/approve EIAs.

All energy, mining, industrial processes, transport, infrastructure
projects are required to submit an EIA for approval.
FDI laws designed with various types of incentives to attract foreign
investors. Allow for free access to local financing sources, free flow of
profits and dividends.
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Continue: Country Context

Climate Change a priority in government’s environmental agenda:



Political commitment to play a proactive role in CC and CDM
negotiations.
The National Strategy on Climate Change (mitigation, adaptation, &
CDM) was incorporated into the National Environmental Plan in October
2003.
Regional governorates are required to formulate and approve climate
change strategies.

Submitted First National Communication to UNFCCC June 2001.

Peru ratified Kyoto Protocol September 2002.
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Peruvian National Strategy Study (NSS)

Implemented by World Bank, Swiss and national experts:

Assessed potential for CDM in the country.

Identified a pipeline of 25 CDM projects:
 Feasibility study (3), Pre-feasibility (9), Project Profile (7), PIN (6).
 Energy, transport, LULUCF, solid waste, and industrial processes
projects.

Proposed a national CDM strategy.

Created awareness & experience in project preparation among local
CDM stakeholders during the preparation of the NSS.
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Strategic Considerations

When designing the national CDM strategy, Peru took into consideration:

Latin American countries have relatively high marginal abatement costs
compared to Asian countries like India and China, two potential major
CDM players.

In Peru, energy sector makes substantial use of hydropower & less
dependent on carbon than many Asian countries.

Other Latin American countries have good experience in GHG market
(75% of carbon financial flows for CDM in 2001/2002 were allocated
to Latin America).

At U$4 per tCO2, Peru has potential for exporting CERs worth U$510 million per year (including LULUCF projects) through two to five
projects per year, depending on size of projects.
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Continue: Strategic Considerations

Peru should offer “Unique Window” where all CDM government
issues be covered by only one state authority.

National CDM project approval process should be transparent with
full public and private participation.
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CDM Project Approval Participants

For CDM project approval, an Ad Hoc committee is formed per projectbasis (meets only when there is a project to approve):

Permanent committee members:
National Council for the Environment (CONAM) – DNA.
 National Environment Fund (FONAM).
 State Office for Promotion of Private Investment (ProInversion).
 Ministry of Foreign Affairs.
 International Cooperation Agency.


Project-related committee members:
Line-ministry related to project sector.
 NGO (from project locality).
 National EIA expert.
 Other national expert(s) as needed.

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National Council for the Environment
(CONAM)
Roles & Responsibilities:

Peruvian Designated National Authority (DNA).

Hosts the Climate Change Unit (& national CDM office):
 Monitor & register CDM activities in the country.
 Follow up and comply with EB decisions.
 Devise actions to overcome barriers to CDM.

Produced the First National Communication for the UNFCCC.

Issues CDM project approvals:
 Possible Conflict of Interest if CONAM also promotes CDM Projects;
task assigned to the Private Sector Investment Authority (Proinversion).
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National Environment Fund
(FONAM)
Roles and Responsibilities:

Organizes and coordinates with CONAM national CDM capacity building
activities:
 Trained 55 people in different entities on developing PINs.

Assists CDM project participants in pre-investment phase of CDM projects
(identification, preparation, and data gathering).

Permanente member of all CDM Project Approval Committees.

National Focal Point for the Prototype Carbon Fund (PCF).
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State Office for Promotion of Private Investment
(ProInversion)
Roles & Responsibilities:

Promotion & marketing of Peruvian CDM projects through various channels.

Act as the first window for international CDM investors interested in projects
in Peru.

Identify & remove barriers to CDM project implementation and approval:

Organize capacity building programs for local private sector and project financing
entities.

Voice the demands of local private sector in international CDM negotiations.

Work on incorporating CDM promotion strategies within the national Foreign
Direct Investment (FDI) promotion plan.
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Project Approval Procedure
Procedure
Responsible Party
1. Submit PDD & request national approval
letter (PIN is optional)
CDM Investor
2. PDD sent to all members of Ad Hoc
CDM Project Committee
DNA
3. Visit project location/interviews. Produce
a report on sustainable development &
locals’ opinion
DNA
4. Call & hold the Ad Hoc CDM Project
Committee meeting
DNA
5. Committee meeting: Assess contribution
to sustainable development (case by case
analysis) & interview the investor
6. Letter of Approval issued for investor &
Executive Board
Total Approval Process: 45 days
Cost per project: $4,800
Ad Hoc CDM Committee
DNA/CDM Committee
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Incentives for CDM Investors

A 45 days self-imposed deadline for completion of approval process (no
specific penalty for delays).

Approval process (costing $4,800) is free of charge to minimize transaction
cost:
 Each concerned entity cover its own share of the cost for approval (67%
covered by DNA).
 Decision to be re-visited once Peru establishes its name as a CDM
destination.

Promote small social investment in project locality:
 Improves sustainable development prospects
 Improves likelihood for approval by national CDM committee & EB.

Three to four CDM projects were approved using this process. All approvals
completed within the 45 days deadline.
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Key Challenges

Complying with self-imposed 45 days deadline while securing full
involvement of relevant entities (the more entities involved, the more
likely the potential delay in the approval):

CONAM circulated and approved a National CDM Operational
Procedure among all relevant ministries & stakeholders.

CONAM having an office in each line-ministry facilitates project
approval process.

CONAM continuously holding various workshops and meetings to raise
awareness among relevant stakeholders.
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Continue: Key Challenges

Lack of CDM project formulation capabilities among public and private
sector entities.

Approach adopted by the government?
 Trained 20 national experts from industry, energy, waste management,
agroforestry, and transportation sectors on CDM project structuring
and formulation.
 Financing institutions received special training on evaluation of CDM
projects.

Two key objectives for the government:
 Build local project formulation capacities in strategic CDM sectors.
 Reduce local transaction cost through smooth and simple project
approval process.
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A Responsive Setup for DNA

CONAM continuously assessing adequacy of current institutional setup
and project approval process.

Portion of project approval cost covered by DNA is from CONAM
budget.

If number of projects increases beyond DNA capacity:

CONAM will allocate separate budget for DNA.

Will charge a fee for the 45 days-approval.

Will hire external consultants to review and assess submitted CDM
projects to facilitate work of ad hoc committee.
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Conclusion & Lessons Learned

Key ingredients for a successful CDM sector in a host country:
 Political will within the government.
 Clear & adequate institutional & regulatory arrangement for CDM.

Requirements for compliance of CDM projects with national environmental
& sectoral planning should be simplified to facilitate project approval
process.

A host country should aim at minimizing local transaction costs.

Local financial sector could play key role in CDM projects (core-financing
portion).
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Continue: Conclusion & Lessons Learned

A host country should market its CDM projects to a diversified market
and not to rely completely on one potential CERs buyer (e.g. PCF).

Operation of the DNA needs to be frequently assessed to maintain an
efficient local CDM process.

DNA budget could be initially covered by government but later a
DNA should generate some sort of income.
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Peruvian DNA web site
for more information:
www.conam.gob.pe
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