1. Belarus Environmental Centre: Legal and Financial Framework Lessons from International Experience Amit Bando Minsk, Belarus November 30, 2009 ambando@gmail.com

2. Agenda What is the role of the Environmental Centre? The international experience Convention-specific requirements: UNFCC The way forward2 3. Potential Role of a National Environmental CentreBelarus signs international agreements/treaties and pledges to adhere to the protocols of environmental conventionsCentre is focus of national and regional/oblast capacity building: legal, financial, technical, infrastructure and human resourcesEnvironmental Benefits: compliance with international conventions, politically acceptable; environmental protectionEconomic Benefits: inward investment, job creation & technology benefits3 4. The Environment Centre Needs a Legal Basis National law(s) provide an overall framework Specific legislation and implementing guidelines are needed to establish the Centre National Legislation should Tie the Centre to national obligations Define the overarching goals of the Centre Establish a Designated National Authority (DNA) as the Centres home Create provisions for modifications of roles and responsibilities Establish a timeline for implementation Supporting rules, regulations and guidelines should be established4 5. The Environmental Centre Needs Financial Support Initially, public funds will likely be required Using a phased-in approach priority activities should be conducted on a fee-for-service basis Private sector participation should be encouraged Within a specified time-period, most services should be fee-based A portion of the fees should be allocated to cover administrative costs Additional funds should be directed to capacity building and workforce development to support the Centres activitiesPrivate sector could be active partner Provide selected services -- certified by Centre Provide relevant data and technical advice Sponsor certain activities 6. Agenda What is the role of the Environmental Centre? The international experience Convention-specific requirements: UNFCC The way forward6 7. The US experience The US Environmental Protection Agency (USEPA) was established by an Executive Order of the President in late 1970 Based on an in-depth institutional analysis - primarily the Ash Council Focus on executive reorganization of diverse agencies that impacted each other but were moving in different directions Big issue was what to do with natural resource management -- ultimately USEPA was separated from Department of the InteriorUS Federal model is decentralized and there is considerable devolution of authority from the national to the sub-national levelLegal support developed to support the institutional structure 8. The US experience -- continued USEPA coordinates with other agencies to ensure compliance with international convention requirements, including Montreal Protocol on ozone depletion Basel Convention on chemical contamination United Nations Convention on climate change Convention on international trade in endangered species ?????Convention on trans-boundary pollution Stockholm Convention -----??? Convention on land degradationPrograms were established to cover, among others Solid waste management Chemical and hazardous waste Air quality from stationary and mobile sources Water quality 9. The US experience -- continued Initially relied on command-and-control regime (CAC)Over time, reliance on CAC and market-based-incentives (MBIs)Active participation from private sector including Toxic Release Inventory (TRI) Certified laboratories for analysis Voluntary disclosures Superfund clean-up Cap-and-trade regimeRelatively transparent data collection and dissemination processStrong emphasis on public participation -- especially in EIA process 10. The China experience At first, environmental units and analytical centers within each MinistryEventually, separate Ministry of Environment with central and provincial analytical laboratoriesRelies on command-and-control regime (CAC) with few market-basedincentives (MBIs)Close links with academic institutions for sampling analysis and monitoringSuccess with promoting environmental investments -- CDM; based on good project development dataSuccessful at monitoring large scale industry; EIAs required for large facilities 11. The India experience Ministry of Environment and Forestry has national and provincial analytical laboratoriesRelies on combination of CAC and MBIsSuccess in developing National Pollution Control Centers that collect data and conduct analysis -sell services for fee and train internationallyStrong network of state facilities for testing and monitoring; enhanced technical capabilities in modeling and testingSuccess with promoting environmental investments -- CDMDeveloped reliable baseline data for medium size facilities and industrial zonesActive public participation, especially through NGOs 12. The Philippines experience Department of Environment and Natural Resources (DENR) relies on combination of CAC and MBIsSuccess in developing reliable databases for certain sectors: e.g., forestry, sugar energy productionGood central facilities for testing and monitoring, but weak provincial units -- difficulty with monitoringSuccess at involving private sector in certain locations to help defray costs of monitoring and enforcement through corporate governance approach Laguna Lake Development Authority (LLDA)Regional leader in technical capabilities 13. Agenda What is the role of the Environmental Centre? The international experience Convention specific requirements: UNFCC The way forward13 14. Every international convention has specific requirements Belarus is a signatory to 21 international conventions and protocols -and is an Annex-1 country under the UNFCC To promote economic development goals, the nation may need to adhere to EU and WTO norms To attract foreign direct investment (FDI), authorities need to create an investment friendly environment -- an enabling environment An example: the United Nations Framework Convention on Climate Change (UNFCC) is an important international convention Promotes national action plan on climate change Involves mitigation and adaptation options Involves public-private-partnerships Promotes international investments through CDM and related investments via the verifiable emissions reductions (VERs) 15. Investments through VERs are viable options for Annex-1 countries under the UNFCC Belarus is an Annex-1 country under the UNFCCTo promote economic development goals, the nation will need to attract foreign direct investment (FDI)Projects developed under UNFCC norms to generate VERs are a viable optionThe VER market is growing rapidly with active VER registries in Europe, Australia and the US -- market expected to grow post 2009The CDM process fro generating CERs is a sound prototype for VER generation 16. Example: UNFCC provides the basis to evaluate climate change projects Kyoto Protocol (1997) The Protocol creates legally binding obligations for 38 industrialized countries to return their emissions of greenhouse gases to an average of 5% below their 1990 levels by 2012Marrakech Accords (2001) Define the principles of the Kyoto Protocols flexible mechanisms: the Clean Development Mechanism (CDM), Joint Implementation (JI) and Emissions Trading (ET)16 17. In 3 years, the CDM has sparked a $5 billion/year market Number of Projects in the CDM Pipeline, January 2005 February 20083,035 2,838 2,593Compound Monthly Compound Monthly Growth Rate = 13% Growth Rate = 13%2,285 1,759Approximately 3 billion Approximately 3 billion CERs by 2012 CERs by 2012 1,14167 Jan 0583118171Mar May Jul 05 05 05275440554Sep Nov Jan 05 05 066477491,3111,8851,495883Mar May Jul 06 06 06Sep Nov Jan Mar 06 06 07 07May July Sep Nov Jan 07 07 07 07 08 17 18. UNFCC Guidelines: how a CDM project generates carbon credits Greenhouse gas emissionsCarbon credits (CERs) Carbon credits (CERs) represent the difference represent the difference between the baseline and between the baseline and actual emissions actual emissionsProject start Project startHistorical TrendTime 18 19. UNFCC guidelines: Kyoto gases that can earn credits There are over 30 atmospheric greenhouse gasesBut only 6 attract carbon credits: Carbon dioxide (CO2)Methane (CH4)Nitrous oxide (N2O)Perfluorocarbons (CxFx)Hydrofluorocarbons (HFCs)Relevant to biocarbon & industrial projectsSulfur hexaflouride (SF6)Relevant to industrial projects19 20. UNFCC methodology: each of these gases has a different warming potential Each of these gases has a different radiative forcing capability and a different atmospheric residence timeNeed for a common currency, so that all carbon credits are denominated in the same waySolution: develop a relative scale, using CO2 as a reference gas 20 21. UNFCC methodology: global warming potentialGreenhouse Gas Greenhouse Gas (GHG) (GHG)Global Warming Global Warming Potential (GWP) Potential (GWP)Carbon dioxide Carbon dioxide11Methane Methane21 21Nitrous oxide Nitrous oxide310 310Perfluorocarbons Perfluorocarbons6,500 9,200 6,500 9,200Hydrofluorocarbons Hydrofluorocarbons140 11,700 140 11,700Sulfur hexafluoride Sulfur hexafluoride23,900 23,900Relative scale everything is measured relative to CO2 e.g. methane is 21 times more potent as a greenhouse gas than CO2 e.g. sulfur hexafluoride is 24,000 more potent!21 22. UNFCC methodology: global warming potentialGreenhouse Gas Greenhouse Gas (GHG) (GHG)Global Warming Global Warming Potential (GWP) Potential (GWP)Carbon dioxide Carbon dioxide11Methane Methane21 21Nitrous oxide Nitrous oxide310 310Perfluorocarbons Perfluorocarbons6,500 9,200 6,500 9,200Hydrofluorocarbons Hydrofluorocarbons140 11,700 140 11,700Sulphur hexafluoride Sulphur hexafluoride23,900 23,900Carbon credits are always expressed in terms of carbon dioxide equivalence (CO2e) e.g. 1 tonne of CO2 = 1 tCO2e (= 1 carbon credit = 1 CER) e.g. 2 tonnes of CH4 = 42 tCO2e (= 42 carbon credits = 42 CERs) e.g. 2 tonnes of SF6 = 47,800 tCO2e (= 47,800 carbon credits = 47.8 kCERs)22 23. UNFCC requirement: additionality Environmental additionality the project produces fewer greenhouse gas emissions than the baseline scenario It is essential that the project achieve environmental additionality otherwise, it will not generate any carbon credits! However, the project developer must also usually demonstrate that, without carbon revenues, the project would not be viable and/or commercially attractive this is known as financial additionality23 24. UNFCC guideline: additionality benchmark analysisRevenue / NPV / IRRChoose an appropriate financial indicator and compare it with a relevant benchmark value: e.g. required return on capital or internal company benchmarkInvestment thresholdProject without carbon elementProject with carbon elementCarbon revenue Carbon revenue makes the makes the project attractive project attractive relative to relative to investment investment alternatives alternatives Project without Project without carbon revenue carbon revenue is profitable is profitable but not but not sufficiently sufficiently profitable profitable compared with compared with alternatives alternatives24 25. UNFCC requirement: crediting period CDM mitigation projects Project developers have two crediting period options: A maximum of 7 years, which can be renewed up to 2 times (i.e. a potential total crediting period of 21 years) A maximum of 10 years, with no option for renewalCDM sequestration projects (forestry) Project developers have two crediting period options: A maximum of 20 years, which can be renewed up to 2 times (i.e. a potential total crediting period of 60 years) A maximum of 30 years, with no option for renewal 25 26. A maximum of 10 years with no option of renewalGreenhouse gas emissionsUNFCC requirement: crediting periodStarting date of Starting date of the crediting the crediting period periode scen baselin der the ons un i Emissari oEmissions under the project scenario10 yearsNo renewal No renewal 26 27. 6 to 12 months CDM project CDM project development development // PDD PDD Host country Host country approval approvalProject Project validation validationCDM Executive BoardDNAProject Project feasibility feasibility assessment assessment // PIN PIN1.5 months Crediting period of the projectDOEProject DeveloperUNFCC and the CDM project cycleProject Project verification verificationProject Project registration registrationCER CER issuance issuance27 28. Costs of a typical CDM project Pre-Registration CDM CostsPost-Registration CDM Costs 53,000US$ 164,500Assumes a 10-year Assumes a 10-year project. project.34,000111,50010,00077,500 67,50016,500 38,00051,00013,000Initial Monitoring ValidationIndicative CDM Cost Profile For A Typical CDM ProjectOngoing Verification By DOEOngoing Annual MonitoringRecurrent costs Recurrent costs discounted at 3% discounted at 3% annual rate to express annual rate to express in present-value in present-value terms. terms. Registration costs, Registration costs, Administration Fee Administration Fee and Adaptation Fund and Adaptation Fund Levy not included. Levy not included.PDD PIN 28 29. Using the UNFCC as an example we recognize multiple needs The UNFCC itself requires signatories to adhere to requirements and increase capabilities in several areas Legal, regulatory and policy Economic and financial Technical analysis Infrastructure Human resourcesOther Conventions have similar (and often different) requirementsThe Environmental Center needs to meet the multiple requirements 30. Agenda What is the role of the Environmental Centre? The international experience Convention specific requirements: UNFCC The way forward30 31. Establish an enabling environment Conduct a needs assessment to identify priority sectors and gaps in CAC regimeDevelop and strengthen standards, permit process, monitoring protocols and enforcement mechanismsDevelop laws, implementing regulations and institutional supportDevelop baseline data, starting with priority sectorsDetermine evaluation methods and guidelines 32. Establish an enabling environment - continued Initiate active participation with academia to develop baseline data as well as sampling, monitoring and analytical capabilitiesPromote training to develop a cadre of qualified professionalsPromote regional cooperation and awareness to create a unifying force on environmental issues in international discussionsActively seek out sources of international investment flows -- using the CDM model to generate VERsCreate a more transparent busines investment climateAddress financial risk and repatriation issues to ease investment flows 33. Programmatic CDM offers new opportunities -- can be used Regular CDM Regular CDM to generate VERs Size-Distribution of Potential CDM Project Sites Single site, stand-alone Single site, stand-alone projects projects Carbon upgrades Carbon upgrades Bundled CDM Bundled CDMNumber of installations / units Bundling several Bundling several projects under a single projects under a single PDD PDD All projects must be All projects must be identified ex ante, and identified ex ante, and must start at the same must start at the same time time Programmatic CDM Programmatic CDMlargemedium Installation / unit sizesmall Addresses the long Addresses the long tail of small units tail of small units Permits sector-wide Permits sector-wide transition to low-carbon transition to low-carbon economy economy Particular relevance to Particular relevance to non industrial sector non industrial sector 33 34. An Example: Overall Methodology for Energy Sector Analysis Step 1Step 2Step 3Demand ForecastR eg ressi o n M et h odLeast-cost Generation & Transmission Expansion (Using Horizon-year Plan) Planning StudyS im u lat ion M od elsCosts and Benefits QuantificationW illingness to-Pay Energy Supply IncrementalStep 4Environmental ImpactsEconomic Analysis Sensitivity and Risk AnalysisBene fits Trans fer MethodSpreadsheet Calculat ion