Institutional Arrangement for CDM:Institutional Arrangement for CDM:

Case of PeruCase of Peru

Regional Meeting for DNAsRegional Meeting for DNAs

CD4CDM Project CD4CDM Project

Marrakech, MoroccoMarrakech, Morocco

23 April 200423 April 2004

Sami KamelUNEP RISOE Center, Denmark

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BackgroundBackground

This presentation based on the results of the study: This presentation based on the results of the study: ""Peru's Institutional Strategy to Promote the Peru's Institutional Strategy to Promote the Clean Development Mechanism"Clean Development Mechanism" (2004). (2004).

Authors Maria Paz Cigaran and Particia Iturregui, staff Authors Maria Paz Cigaran and Particia Iturregui, staff members of Peru's DNA.members of Peru's DNA.

Study sponsored by UNEP RISOE Center as part of Study sponsored by UNEP RISOE Center as part of analytical work implemented under CD4CDM Project.analytical work implemented under CD4CDM Project.

Purpose of study to present and disseminate Peru’s Purpose of study to present and disseminate Peru’s institutional CDM experience among other developing institutional CDM experience among other developing countries. countries.

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Country ContextCountry Context

Highest environmental authority is CONAM (National Highest environmental authority is CONAM (National Council for the Environment) est. 1996:Council for the Environment) est. 1996:

Reports directly to Prime Minister’s office.Reports directly to Prime Minister’s office.

An Environmental Affairs Office established in each An Environmental Affairs Office established in each ministry to strengthen issue of environment within ministry to strengthen issue of environment within operations of each ministry.operations of each ministry.

All offices report to CONAM and operate under its All offices report to CONAM and operate under its directives. directives.

They submit proposals for emission reductions, and They submit proposals for emission reductions, and perform quality assurance/approve EIAs.perform quality assurance/approve EIAs.

All energy, mining, industrial processes, transport, All energy, mining, industrial processes, transport, infrastructure projects are required to submit an EIA for infrastructure projects are required to submit an EIA for approval.approval.

FDI laws designed with various types of incentives to FDI laws designed with various types of incentives to attract foreign investors. Allow for free access to local attract foreign investors. Allow for free access to local financing sources, free flow of profits and dividends. financing sources, free flow of profits and dividends.

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Continue: Country ContextContinue: Country Context

Climate Change a priority in government’s environmental Climate Change a priority in government’s environmental agenda:agenda:

Political commitment to play a proactive role in CC and Political commitment to play a proactive role in CC and CDM negotiations.CDM negotiations.

The National Strategy on Climate Change (mitigation, The National Strategy on Climate Change (mitigation, adaptation, & CDM) was incorporated into the National adaptation, & CDM) was incorporated into the National Environmental Plan in October 2003. Environmental Plan in October 2003.

Regional governorates are required to formulate and Regional governorates are required to formulate and approve climate change strategies.approve climate change strategies.

Submitted First National Communication to UNFCCC June Submitted First National Communication to UNFCCC June 2001.2001.

Peru ratified Kyoto Protocol September 2002.Peru ratified Kyoto Protocol September 2002.

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Peruvian National Strategy Study (NSS)Peruvian National Strategy Study (NSS)

Implemented by World Bank, Swiss and national experts:Implemented by World Bank, Swiss and national experts:

Assessed potential for CDM in the country.Assessed potential for CDM in the country.

Identified a pipeline of 25 CDM projects:Identified a pipeline of 25 CDM projects: Feasibility study (3), Pre-feasibility (9), Project Feasibility study (3), Pre-feasibility (9), Project

Profile (7), PIN (6).Profile (7), PIN (6). Energy, transport, LULUCF, solid waste, and Energy, transport, LULUCF, solid waste, and

industrial processes projects.industrial processes projects.

Proposed a national CDM strategy.Proposed a national CDM strategy.

Created awareness & experience in project Created awareness & experience in project preparation among local CDM stakeholders during preparation among local CDM stakeholders during the preparation of the NSS.the preparation of the NSS.

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Strategic ConsiderationsStrategic Considerations

When designing the national CDM strategy, Peru took into When designing the national CDM strategy, Peru took into consideration:consideration:

Latin American countries have relatively high marginal Latin American countries have relatively high marginal abatement costs compared to Asian countries like India and abatement costs compared to Asian countries like India and China, two potential major CDM players.China, two potential major CDM players.

In Peru, energy sector makes substantial use of hydropower In Peru, energy sector makes substantial use of hydropower & less dependent on carbon than many Asian countries.& less dependent on carbon than many Asian countries.

Other Latin American countries have good experience in Other Latin American countries have good experience in GHG market (75% of carbon financial flows for CDM in GHG market (75% of carbon financial flows for CDM in 2001/2002 were allocated to Latin America).2001/2002 were allocated to Latin America).

At U$4 per tCO2, Peru has potential for exporting CERs At U$4 per tCO2, Peru has potential for exporting CERs worth U$5-10 million per year (including LULUCF projects) worth U$5-10 million per year (including LULUCF projects) through two to five projects per year, depending on size of through two to five projects per year, depending on size of projects. projects.

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Continue: Strategic ConsiderationsContinue: Strategic Considerations

Peru should offer “Peru should offer “Unique Window”Unique Window” where all CDM where all CDM government issues be covered by only one state government issues be covered by only one state authority.authority.

National CDM project approval process should be National CDM project approval process should be transparent with full public and private participation.transparent with full public and private participation.

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Key Players in National CDM Process:Key Players in National CDM Process:1. National Council for the Environment1. National Council for the Environment

(CONAM)(CONAM)

Roles & Responsibilities: Peruvian Designated National Authority (DNA). Peruvian Designated National Authority (DNA).

Hosts the Climate Change Unit (& national CDM office):Hosts the Climate Change Unit (& national CDM office): Monitor & register CDM activities in the country.Monitor & register CDM activities in the country. Follow up and comply with EB decisions.Follow up and comply with EB decisions. Devise actions to overcome barriers to CDM.Devise actions to overcome barriers to CDM.

Produced the First National Communication for the Produced the First National Communication for the UNFCCC.UNFCCC.

Issues CDM project approvals:Issues CDM project approvals: PossiblePossible Conflict of Interest Conflict of Interest if CONAM also promotes if CONAM also promotes

CDM Projects; task assigned to the Private Sector CDM Projects; task assigned to the Private Sector Investment Authority (Proinversion).Investment Authority (Proinversion).

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2. National Environment Fund2. National Environment Fund(FONAM)(FONAM)

Roles and Responsibilities:Roles and Responsibilities:

Organizes and coordinates with CONAM national CDM capacity Organizes and coordinates with CONAM national CDM capacity building activities:building activities: Trained 55 people in different entities on developing PINs. Trained 55 people in different entities on developing PINs.

Assists CDM project participants in pre-investment phase of Assists CDM project participants in pre-investment phase of CDM projects (identification, preparation, and data gathering).CDM projects (identification, preparation, and data gathering).

Permanente member of all CDM Project Approval Committees.Permanente member of all CDM Project Approval Committees.

National Focal Point for the Prototype Carbon Fund (PCF).National Focal Point for the Prototype Carbon Fund (PCF).

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3. State Office for Promotion of Private 3. State Office for Promotion of Private InvestmentInvestment

(ProInversion)(ProInversion)

Roles & Responsibilities:Roles & Responsibilities: Promotion & marketing of Peruvian CDM projects through Promotion & marketing of Peruvian CDM projects through

various channels.various channels.

Act as the first window for international CDM investors Act as the first window for international CDM investors interested in projects in Peru.interested in projects in Peru.

Identify & remove barriers to CDM project implementation Identify & remove barriers to CDM project implementation and approval: and approval: Organize capacity building programs for local private sector and Organize capacity building programs for local private sector and

project financing entities.project financing entities.

Voice the demands of local private sector in international CDM Voice the demands of local private sector in international CDM negotiations.negotiations.

Work on incorporating CDM promotion strategies within the Work on incorporating CDM promotion strategies within the national Foreign Direct Investment (FDI) promotion plan. national Foreign Direct Investment (FDI) promotion plan.

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CDM Project Approval ParticipantsCDM Project Approval Participants

For CDM project approval, an Ad Hoc committee is formed per For CDM project approval, an Ad Hoc committee is formed per project-basis (project-basis (meets only when there is a project to approvemeets only when there is a project to approve):):

Permanent committee members:Permanent committee members:

National Council for the Environment (CONAM) – DNA.National Council for the Environment (CONAM) – DNA. National Environment Fund (FONAM).National Environment Fund (FONAM). State Office for Promotion of Private Investment State Office for Promotion of Private Investment

(ProInversion).(ProInversion). Ministry of Foreign Affairs.Ministry of Foreign Affairs. International Cooperation Agency.International Cooperation Agency.

Project-related committee members:Project-related committee members:

Line-ministry related to project sector.Line-ministry related to project sector. NGO (from project locality).NGO (from project locality). National EIA expert.National EIA expert. Other national expert(s) as needed.Other national expert(s) as needed.

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Project Approval ProcedureProject Approval Procedure

ProcedureProcedure Responsible PartyResponsible Party

1. Submit PDD & request 1. Submit PDD & request national approval letter (PIN is national approval letter (PIN is

optional)optional)

CDM InvestorCDM Investor

2. PDD sent to all members of Ad 2. PDD sent to all members of Ad Hoc CDM Project Committee Hoc CDM Project Committee

DNADNA

3. Visit project 3. Visit project location/interviews. Produce a location/interviews. Produce a

report on sustainable report on sustainable development & locals’ opiniondevelopment & locals’ opinion

DNADNA

4. Call & hold the Ad Hoc CDM 4. Call & hold the Ad Hoc CDM Project Committee meetingProject Committee meeting

DNADNA

5. Committee meeting: Assess 5. Committee meeting: Assess contribution to sustainable contribution to sustainable development (case by case development (case by case

analysis) & interview the investoranalysis) & interview the investor

Ad Hoc CDM CommitteeAd Hoc CDM Committee

6. Letter of Approval issued for 6. Letter of Approval issued for investor & Executive Boardinvestor & Executive Board

DNA/CDM CommitteeDNA/CDM Committee

Total Approval Process: 45 daysTotal Approval Process: 45 days

Cost per project: $4,800 Cost per project: $4,800

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Incentives for CDM InvestorsIncentives for CDM Investors

A 45 days self-imposed deadline for completion of approval A 45 days self-imposed deadline for completion of approval process (no specific penalty for delays).process (no specific penalty for delays).

Approval process (costing $4,800) is free of charge to Approval process (costing $4,800) is free of charge to minimize transaction cost:minimize transaction cost: Each concerned entity cover its own share of the cost for Each concerned entity cover its own share of the cost for

approval (67% covered by DNA).approval (67% covered by DNA). Decision to be re-visited once Peru establishes its name as Decision to be re-visited once Peru establishes its name as

a CDM destination.a CDM destination.

Promote small social investment in project locality:Promote small social investment in project locality: Improves sustainable development prospectsImproves sustainable development prospects Improves likelihood for approval by national CDM Improves likelihood for approval by national CDM

committee & EB. committee & EB.

Three to four CDM projects were approved using this process. Three to four CDM projects were approved using this process. All approvals completed within the 45 days deadline.All approvals completed within the 45 days deadline.

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Key ChallengesKey Challenges

Complying with self-imposed 45 days deadline while Complying with self-imposed 45 days deadline while securing full involvement of relevant entities securing full involvement of relevant entities ((the more the more entities involved, the more likely the potential delay entities involved, the more likely the potential delay in the approvalin the approval):):

CONAM circulated and CONAM circulated and approvedapproved a National CDM a National CDM Operational Procedure among all relevant ministries & Operational Procedure among all relevant ministries & stakeholders. stakeholders.

CONAM having an office in each line-ministry CONAM having an office in each line-ministry facilitates project approval process.facilitates project approval process.

CONAM continuously holding various workshops and CONAM continuously holding various workshops and meetings to raise awareness among relevant meetings to raise awareness among relevant stakeholders.stakeholders.

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Continue: Key ChallengesContinue: Key Challenges

Lack of CDM project formulation capabilities among Lack of CDM project formulation capabilities among public and private sector entities.public and private sector entities.

Approach adopted by the government?Approach adopted by the government? Trained 20 national experts from industry, energy, Trained 20 national experts from industry, energy,

waste management, agroforestry, and transportation waste management, agroforestry, and transportation sectors on CDM project structuring and formulation.sectors on CDM project structuring and formulation.

Financing institutions received special training on Financing institutions received special training on evaluation of CDM projects.evaluation of CDM projects.

Two key objectives for the government:Two key objectives for the government: Build local project formulation capacities in strategic Build local project formulation capacities in strategic

CDM sectors. CDM sectors. Reduce local transaction cost through smooth and Reduce local transaction cost through smooth and

simple project approval process.simple project approval process.

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A Responsive Setup for DNAA Responsive Setup for DNA

CONAM continuously assessing adequacy of current CONAM continuously assessing adequacy of current institutional setup and project approval process.institutional setup and project approval process.

Portion of project approval cost covered by DNA is from Portion of project approval cost covered by DNA is from CONAM budget.CONAM budget.

If number of projects increases beyond DNA capacity:If number of projects increases beyond DNA capacity:

CONAM will allocate separate budget for DNA.CONAM will allocate separate budget for DNA.

Will charge a fee for the 45 days-approval.Will charge a fee for the 45 days-approval.

Will hire external consultants to review and assess Will hire external consultants to review and assess submitted CDM projects to facilitate work of ad hoc submitted CDM projects to facilitate work of ad hoc committee. committee.

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Conclusion & Lessons LearnedConclusion & Lessons Learned

Key ingredients for a successful CDM sector in a host Key ingredients for a successful CDM sector in a host country:country: Political will within the government.Political will within the government. Clear & adequate institutional & regulatory arrangement Clear & adequate institutional & regulatory arrangement

for CDM. for CDM.

Requirements for compliance of CDM projects with national Requirements for compliance of CDM projects with national environmental & sectoral planning should be simplified to environmental & sectoral planning should be simplified to facilitate project approval process.facilitate project approval process.

A host country should aim at minimizing local transaction A host country should aim at minimizing local transaction costs. costs.

Local financial sector could play key role in CDM projects Local financial sector could play key role in CDM projects (core-financing portion).(core-financing portion).

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Continue: Conclusion & Lessons Continue: Conclusion & Lessons LearnedLearned

A host country should market its CDM projects to a A host country should market its CDM projects to a diversified market and not to rely completely on one diversified market and not to rely completely on one potential CERs buyer (e.g. PCF).potential CERs buyer (e.g. PCF).

Operation of the DNA needs to be frequently assessed Operation of the DNA needs to be frequently assessed to maintain an efficient local CDM process.to maintain an efficient local CDM process.

DNA budget could be initially covered by government DNA budget could be initially covered by government but later a DNA should generate some sort of income.but later a DNA should generate some sort of income.

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Peruvian DNA web site Peruvian DNA web site for more information:for more information:

www.conam.gob.pewww.conam.gob.pe