Académique Documents
Professionnel Documents
Culture Documents
Nr. 1/2007 A joint initiative of BEA International and the Climate Business Network
The Philippines
Copyright 2007
Table of contents
EDITORIAL .............................................................................................................................................................2
THE PHILIPPINE DNA EXPERIENCE: FACING THE CHALLENGES OF AN EMERGENT CDM MARKET IN
DEVELOPING A VIABLE SYSTEM FOR ACHIEVING SUSTAINABLE DEVELOPMENT BY JOYCELINE A.
GOCO AND CHARMION GRACE S.G. REYES....................................................................................................3
CDM CAPACITY BUILDING LESSONS LEARNED, BY SANDEE G. RECABAR, MARINA T. MALLARE AND
BRODERICK S. SAPNU, CDM SERVICES OF KLIMA CLIMATE CHANGE CENTER, MANILA
OBSERVATORY ....................................................................................................................................................8
REALIZING THE POTENTIAL OF CDM PROJECTS IN THE PHILIPPINES, BY JEANETTE S. LAURENTE,
CDM ADVISOR, AND ALAN SILAYAN, SENIOR CDM ADVISOR, CARBON FINANCE SOLUTIONS,
INCORPORATED.................................................................................................................................................10
Editorial
This is the first country-specific issue of the CDM Investment Newsletter and hopefully the first of
many with a country focus. Previous issues have covered regions (Africa, Asia, Latin America, and
Eastern Europe), sectoral concerns (renewable energy, energy efficiency, transport, and carbon
sequestration), cross-cutting issues (legal, finance, small-scale projects and alternative models of
emission reduction), international agendas (MDGs, and the Linking Directive) and DNAs. This
issue has a little of each approach, starting with coverage of the latter, the DNA, including
sustainable development concerns/MDG goals, and an elaboration of potential sectors for CDM
(including small- and large-scale projects), all firmly anchored within a geographic perspective.
The Philippines signed the Kyoto Protocol in spring 1998 and ratified towards the end of 2003.
However, it was only in 2006 that the first CDM Philippine project was registered by the Executive
Board, but then another six followed in quick succession and now there are 24 in the official
pipeline (at stages from validation onwards)!
The country has proven to be attractive for capacity building programmes/projects (as outlined in
the article on page 8) and for enticing foreign investors/CER buyers (Finland, Japan, Netherlands,
and the United Kingdom are already Party to the registered projects). Also, the Philippines has
already signed a number of MoUs with Annex I Party governments and a new one is under
negotiation with Austria.
However, as can be ascertained from the articles on the DNA (page 3) and the CDM potential
(page 10) there are still improvements to be made in the operations of submitting and approving
CDM projects and plenty of opportunity in hitherto untapped sectors and technologies, not to
mention other regions of the country.
In this latter respect, the Editor was the invited resource speaker on the CDM at the first meeting of
2007 of the Cagayan Valley Industry and Energy Research and Development Consortium,
(CVIERDC), in Region II, situated in Luzon. The meeting was attended by 36 representatives of
Local Government Units, academia and the private sector. It was clear that, apart from a few, the
participants had little detailed knowledge of the workings of the CDM or its potential for sustainable
development, investment promotion and technology transfer. There is, apparently, still a significant
need for outreach both to regions outside of Metro Manila as well as to different sectors that could
benefit from CDM projects.
Side trips within Region II underscored the points concerning CDM potential made in the article on
page 10 that there are numerous and various types of opportunities for CDM projects, especially in
The CDM Investment Newsletter is a facilitating initiative. The Editors do not accept responsibility for any errors,
inaccuracies, omissions or any loss that may result directly or indirectly from reliance on information in the articles in
the Newsletter. However, the Editors do strive for high quality content and therefore reserve the right to accept or
refuse to include any article or other information offered for inclusion in future issues. Views presented/positions taken
in articles are those of the authors and do not necessarily reflect those of the Editors.
Goal 1: A viable and vibrant economy (stable income and reduction of poverty and inequality);
Goal 2: A caring social system (cohesion, peaceful co-existence, fairness and welfare to
develop Filipino potential);
Goal 3: Ecological integrity (a clean environment and productive natural resource base);
Goal 4: A responsible governance system (accountable institutions and empowerment of adult
Filipinos).
In addition, the Sustainable Integrated Area Development (SIAD) Programme created local SD
councils to operationalize plans at the local level while the Medium Term Development Plan
(MTPDP) for 2004-2010 stresses the urgent need to properly manage natural resources and
protect the environment to improve the quality of life of Filipinos and that of the future generations.
The Environment and Natural Resources Sector of the MTPDP aims to promote investments and
entrepreneurship through the sustainable and more productive utilization of natural resources (e.g.
through liberalizing/streamlining and refocusing the Environmental Compliance Certificate system;
linking community-based programmes and small/medium scale projects to sources of finance and
markets; implementing at least 10 CDM project activities and shifting from technology generation to
technology transfer as well as providing technical assistance, best suitable practices and
technologies).
THE PHILIPPINE CDM APPROVAL PROCESS will support the above policy objectives through
transparent, credible and efficient procedures conducive to investments and consequently, socioeconomic growth, particularly for the rural communities. A set of criteria, encompassing the three
dimensions of sustainable development, guide the DNA in determining which proposed CDM
project activities optimally address the Philippine agenda:
To ensure that the CDM process is aligned with the national objectives, priority development
strategies, plans and programmes, project activities that will have an overall positive impact on the
SD goals will be encouraged by the DNA.
ALTHOUGH THE NATIONS TOTAL GHG CONTRIBUTION TO THE ATMOSPHERE IS
MINIMAL2, the Philippines is one of the Asian countries with good CDM potential, having a wide
range of viable options for emission reduction activities, for example: renewable energy (wind,
solar, geothermal and mini-hydro power generation in the rural provinces), biomass energy
systems from agro-industrial wastes (rice husks, coconut shells and bagasse) and bio-fuel (bioethanol/bio-diesel for use in transport and boilers in processing plants); clean alternative
technologies in waste to energy (waste heat, waste gas, animal and agricultural waste
management, landfill gas to energy and industrial wastewater treatment); industrial fuel switching
(cement and metal industries); reforestation and afforestation (rehabilitation and enhancement of
priority watersheds); and energy efficiency measures (rural electric cooperatives and
business/industry establishments). These are just some of the areas that present significant
opportunities for both small- and regular-scale CDM projects that may substantially contribute to
sustainable development of the country.
The Philippine DNA has already granted approval to 8 project activities, 7 of which have been
officially registered as CDM projects and one provisionally registered by the CDM Executive Board.
This achievement is a dramatic leap from a position of uncertainty in mid-2005 to being placed
among the top 10 CDM host countries with the highest number of registered CDM project activities.
Among potential CDM host countries in the Southeast Asian region, the Philippines can now be
considered the second most attractive country after Malaysia, which presently hosts 12 registered
projects.
The 8 project activities approved by the DNA reduce an estimated 247,885 tCO2-equivalent
annually. Although the waste management sector dominates (with 6 projects located in Central and
Southern Luzon5 small-scale piggery waste-to-energy technologies and 1 large-scale
wastewater treatment project at an ethanol plant), the 2 that come from the renewable energy
sector (large-scale wind and geothermal power plants situated in the northernmost part of Luzon
and in Central Visayas, respectively) contribute an estimated 53.2% of the expected emission
reductions.
The following projects, submitted to the DNA for approval, collectively reduce an estimated
150,244 tCO2-equivalent per year:
While the current CDM projects are located in Luzon, the other two major islands of the Visayas
and Mindanao show good potential with, inter alia, the following project activities applying for
approval:
CDM
CAPACITY
BUILDING
LESSONS
LEARNED, by Sandee G. Recabar, Marina T. Mallare
and Broderick S. Sapnu, CDM Services of klima Climate
Change Center, Manila Observatory
CAPACITY BUILDING IS CRUCIAL TO THE REALIZATION OF CDM. It empowers key
stakeholders with the necessary information and skills needed to maximize opportunities offered by
engaging in this mechanism. It also serves as an important step towards the development of
streamlined regulatory policy frameworks necessary for effective implementation and facilitation of
CDM projects.
In the Philippines, the klima Climate Change Center, part of the Manila Observatory, plays an
active role in building the capacities of relevant CDM stakeholders. The Center has conducted
several capacity building activities, funded by different donor agencies, in collaboration with the
Philippine Inter-Agency Committee on Climate Change (IACCC) and the Environmental
Management Bureau (EMB) of the Department of Environment and Natural Resources (DENR).
These activities aimed to provide technical assistance to various stakeholders (e.g. government
agencies, project developers, consultants, NGOs, and local government units) on the different
aspects of CDM.
THE FIRST CAPACITY BUILDING PROJECT OF klima was Capacity Development for the Clean
Development Mechanism (CD4CDM), launched by the United Nations Environment Programme
(UNEP) with financial support from the Government of the Netherlands; UNEP contracted the
UNEP Risoe Centre (URC) to implement the project. Twelve developing countries took part in the
project with the Asian Institute for Technology serving as the regional hub for implementation in
Asia, covering Cambodia, the Philippines and Vietnam. klima was nominated by the IACCC to
implement the project in the Philippines.
CD4CDM-Philippines was a three-year project (2003-2005) that aimed to generate a broad
understanding on the opportunities offered by the CDM and to develop the necessary institutional
and human capabilities to implement CDM projects. CD4CDM-Philippines identified five tasks:
During the three-years, the project was able to increase the awareness of critical stakeholders
through its various activities (public briefings, workshops, technical tutorial courses) around the
1
country . By its end, the project was able to provide assistance to 78% of the identified potential
8
Partnerships and strengthening linkages with various institutions and organizations is key
in spreading awareness among stakeholders. Co-organizing events has proven to be
useful in reaching more stakeholders;
A good working relationship with the IACCC and DENR is critical for the success of CDM
development in the Philippines. The IACCC is responsible for formulating policies to
address climate change while DENR and its support institutions are responsible for
approving CDM projects.
Private institutions such as klima, on the other hand, are responsible for promoting and
building awareness on CDM. Such structural arrangements have been ideal for promoting
CDM and developing the capacity of stakeholders. Maintaining strong ties among these
institutions is crucial;
Identifying the interests and needs of various stakeholders is important when conducting
and organizing capacity building activities. This requires flexibility in their preparation to
ensure that resources and opportunities are maximized. Organizing tailor-made activities is
an effective approach that enables specific stakeholders to maximize their benefits under
the CDM;
Efficient and streamlined (CDM-relevant) institutional policies and regulatory frameworks
would improve the investment climate of the Philippines and increase the development of
CDM projects;
Maintaining a CDM website was very helpful in promoting CDM awareness. klima, under
the CD4CDM project, housed the very first website in the Philippines devoted specifically
to the CDM. It provided useful links and information on both domestic and international
CDM issues;
Funding agencies (developed states and multilateral agencies) played a crucial role in
providing the necessary financial resources to jumpstart the process of building capacity;
without their assistance, such capacity building efforts would not have taken place. Project
developers and government agencies certainly benefited from the workshops.
Article of Dr. Roberto Yap entitled Building Capacity-Strategies and Achievements for a more detailed discussion on the
different activities done by the project. It also includes some statistics of the types of stakeholders who attended the
activities.
2
Article of Mrs. Marina Mallare entitled CDM Project Pipeline in the Philippines for a more comprehensive discussion on
the Philippine CDM projects monitored and received assistance from the project.
Landfill, 35,843,
9%
methane
capture
projects,
157,982,
38%
renewable
energy,
220,099,
53%
10
First, the power generation sector in the Philippines is still mainly composed of natural gas,
coal and oil. Despite the best efforts of the Philippine Department of Energy to tap the
countrys rich indigenous resources, coal and oil are still projected to occupy a good slice
of the generation pie in the coming years. The Philippine government has high hopes of
decreasing this share of non-renewable resources by promoting wind, biomass, solar,
hydropower and bio-fuels. After all, studies reveal that the Philippines can harness as
much as 760,000MW of wind energy, an average of 5.0 to 5.1 kilowatts per square meter
per day of sunlight annually, approximately 1,784MW for on-grid applications of mini
hydropower, and a good supply of bagasse and other by-products of agricultural
production in the country;
Second, the garbage being generated that amounts to around 10.67 million tons per year
offers a good potential for landfill projects, as well as the wastes generated from various
industrial processes and livestock that can be subjected to anaerobic digestion;
Third, cement production and other industrial processes can be tapped for various fuelswitch and energy efficiency projects;
Fourth, is the extreme need for the Philippines to salvage its degrading forests, which have
lost more than half of their vegetation in recent decades;
Finally, with almost 7 percent increase in the rate of registered vehicles in 2004, which
brings a total of more than 5 million vehicles plying the streets in the country, transportation
projects that reduce transport emissions are recommended as well.
In the field of renewable energy, the RE Bill might actually hold the key to pushing for more
CDM projects. If all goes to plan, the RE Bill should be passed in the senate soon, . This
will provide a clear context within which all future RE projects will operate and will set clear
and well-defined parameters, as well as clear-cut benefits, for RE project operation thereby
increasing market confidence in renewable energy investments. The deregulation of the
energy industry in the Philippines, as legislated under the EPIRA law, has, and still plays a
key role in mainstreaming RE projects, as well as in fostering the wholesale electricity spot
market. On the downside, however, is the high cost needed to start these kinds of projects
(the technologies will need to be imported from developed countries and the huge initial
investments);
In the waste management sector, the Solid Waste Management Act provides a directive for
local government units (LGUs) to provide sanitary landfills for their constituents. A lot of
LGUs are beginning to see the potential of capturing the methane in such landfills for new
sources of energy and carbon credits. However, they are having a difficult time in
complying with the Act in the absence of financial and technical support. While the
technology is there, there are only a handful of organizations that would consolidate all
necessary needs/systems for a landfill to be in place: i.e. financing, technology, design,
etc.; here lies a large potential for companies to fill the gap;
For other methane capture projects, the Clean Water Act stipulates that a non-permeable
liner be in place for areas where waste is deposited. Technology to capture methane from
this type of project is available from providers of equipment for raising livestock, but the
lack of an organization that will match the technology with the users needs prevents the
full potential of methane capture projects from being realized; in addition, the sources of
livestock waste are small backyard farms (almost 75 percent of hogs, 94 percent of cattle
stock and 99 percent of carabao stock in 2006);
As an agricultural nation, there is also a huge potential in the Philippines for biomass
energy from rice hull/husk, sugarcane bagasse, coconut husks etc. One must be in the
right region and have the proper processing technologies to benefit from the potential to
produce biomass fuel and, once again, there is a need to find (technology) experts who
can process the existing potential for biomass and who could match the needs of biomass
providers and biomass users;
In the industry sector (cement, paper, steel, and chemicals) it would be necessary to obtain
a large-enough pool of facilities in a particular branch in order to make the available
11
environmental technologies economically viable and for them to be perceived as being less
risky;
In the transportation sector on the other hand, the challenge has remained the monitoring
of transport project activities. But there are high hopes for a lucrative CDM market for this
sector with the recent passage of the Biofuel Bill that requires 5 percent bio-ethanol blend
within the next two years;
But perhaps an overarching driver that will ultimately dictate the pace of Philippine
participation is the Philippine DNA itself. Agreed, the structure is in place and project
approval is moving, but at a slow pace. More than a year after its installation, still only a
handful of projects have been approved and a number of projects are pending approval.
Steps are being taken (i.e. capacity building) to increase the pace of projects being
approved and, if all goes as planned, a spurt of CDM projects is expected be seen coming
through the Philippine DNA.
GHG reduction potential a project must first and foremost have a potential for GHG
reduction. The larger the potential, the better the chances for CDM financing and the
greater the chance of getting it registered ahead of the others. For example, CaFiS has
encountered a number of projects with good sustainable development benefits, but the
GHG contributions are so small that the transaction costs cannot be covered by the CDM,
hence the projects do not push through or must wait to be bundled with other small ones;
Technology project proponents must use tested and available technology. Experimental
technology, while it may have huge potential for GHG reduction, will first have to be
validated and measured against its claims. Moreover, the technology must be complete
as often auxiliary technologies, required for monitoring emission reductions, may not be
part of the technology package. Among the CDM projects that have achieved success in
application and processing are those with a solid technology background, i.e. wind and
methane capture from manure and wastewater;
Project finance a critical component of any project. In the Philippines where the financial
products are not as sophisticated as in other countries, project financing is often missing
and/or lacking in many project proposals. Local banks are still testing the CDM waters, with
it often taking years for clean energy projects to obtain loans for their projects;
CDM transaction cost a project proponent who is not aware of the availability of carbon
credits or may perceive such to be highly risky will not be willing to pay the transaction
costs. It still takes a lot of work to convince local project proponents to initiate financing the
CDM component of their projects; most CDM projects in the Philippine pipeline are
sponsored, i.e. the transaction costs are paid by external entities in advance or are
subsidized.
Another critical factor in realizing the potential of the CDM in the Philippines is the structure of CDM
transactions. Having a deal structure that is suitable for and beneficial to both project proponent
and carbon buyers is critical.
Deal structures in the Philippines for carbon credits have evolved since the beginning of the CDM.
Initially, even when the Kyoto Protocol had not yet entered into force, the World Bank, through the
Prototype Carbon Fund, had already contracted the first project in the Philippines; focusing on
renewable energy, an Emission Reduction Purchase Agreement (ERPA) was signed at a price
reflecting the high risk the Bank was taking as this was one of the first CDM projects in the world.
At that time, project financing was handled by the project proponent either through a grant or debt
from development banks in the country and the transaction costs were borne by the PCF.
As more projects emerged other transaction structures also surfaced. In particular a unilateral
approach became prevalent among project developers that, typically more liquid than most, chose
to shoulder much of the risk from project finance and the transaction costs. These companies also
chose to make the most out of the carbon credit benefits by banking them until an appropriate time
or a until good offer was made.
Now there are other, more creative deal structures, such as those where carbon buyers are
interested in investing directly in the project in exchange for an ERPA signed early on in the
12
Early
Transactions
Evolving
Transactions
Current
Transactions
Future
Project proponent
High
risk,
not
willing
to
pay
transaction costs
No risk
Transactions
Interested in trading
credits themselves
Credit buyers
Willing
to
pay
transaction costs
Low ERPA prices
No project finance
Unilateral
transactions do not
necessarily involve a
buyer
High
awareness
CDM
of
Upfront
payment
credits
of
with
for
project
transaction
THE SEVEN REGISTERED PROJECTS IN THE PHILIPPINES, as well as those validated, have
satisfied all prerequisites and have used the strategic sectoral drivers, which may make or break
their CDM participation, to their advantage. This has led to the Philippines being on board the
CDM. However, it is unfortunate that the countrys potential for CDM has not been fully tapped
either because some strategic drivers are not yet fully in place or they are there but are not fully
utilized. Project-specific circumstances that hinder the fulfillment of any of the identified
prerequisites for CDM participation also hinder maximum utilization of the countrys potential.
1
Ed: Other carbon buyers are increasingly purchasing credits post facto, i.e. once projects have been registered and/or
when CERs have been issued. This completely reduces the risk profile for obtaining the credits and is mostly linked to the
European compliance market with subsequently higher prices paid per unit.
2
Ed: However, several national CDM programmes do have such a scheme built into their contracting procedures.
Readers that are interested in presenting their experience or activities are requested to submit an outline to the editors
(newsletter@climatebusiness.net); details on type of content and the publication schedule can be found on our Web
site http://www.climatebusiness.net. Please note that articles should not exceed 2,000 words!
Readers might be interested in the business news facility on CBNets Web site http://www.climatebusiness.net which
presents some of the recent and historical (last 3 years) electronic press cuttings on the business aspects of climate
mitigation activities. The items show the title and introductory lines as well as provide a link to the full article.
13
Bureau of
Environmental
Analysis
(BEA International)
Dr. Patrick Karani
Mt. View # 121
Westlands off Waiyaki Way
P.O. Box 15953 Nairobi 00100
Kenya
Tel: +254(020)631174,(020)631433
Fax: +254(020)631421
Web: http://www.beainternational.org/
Contact info@beainternational.org
Climate Business
Network
(CBNet)
Contributors
Joyceline A. Goco (joy goco (joygoco@yahoo.com),Supervising Environmental Management
Specialist at EMB and Member of the CDM Secretariat of the DNA and Charmion Grace S.G.
Reyes, Technical Specialist, EMB-UNDP Project on the Establishment of the CDM National
Authority
Sandee G. Recabar (sandee@observatory.ph), Marina T. Mallare (marina@observatory.ph)
and Broderick S. Sapnu, CDM Services of klima Climate Change Center, Manila Observatory
Jeanette S. Laurente, CDM Advisor (jlaurente@cafisinc.com), and Alan Silayan, Senior CDM
Advisor (asilayan@cafisinc.com), Carbon Finance Solutions, Incorporated
14