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Efficiency Standards can and should be Improved
Will the CDM allow it?
Is the CDM an appropriate vehicle for improving national regulations that will lead to greenhouse gas emission reductions? A project methodology submitted to the CDM EB in December, 2004 (given the reference number NM0072) seeks to do just that.
Submitted in conjunction with a project in Ghana, the methodology is designed to measure the impact of introducing mandatory minimum energy efficiency standards on unitary electrical appliances like room air conditioners. Such a standard changes the energy use of the sector as new, more efficient equipment is bought. CERs would be issued on the basis of the comparison between the fossil fuel emissions attributable to the sector as changed, and those under a hypothetical baseline using standard equipment.
Groundbreaking
The proposal draws on work done in co-operation with the Collaborative Labeling and Appliance Standards Program (CLASP), an initiative of the US Alliance to Save Energy, Lawrence Berkeley National Laboratory and the International Institute for Energy Conservation. It is an example of groundbreaking best practice in the kind of regulation that has had significant positive impacts in Annex I countries. In short, a well-designed, useful policy, which, according to the NM0072 Project Design Document, would save Ghana 15 Mt in CO2 emissions over the coming 21 years, for room air conditioners alone.
The role of government regulation has already featured in several methodologies. The lack of regulation is frequently invoked as one sign of additionality (for example, no requirement to destroy HFC emissions or methane from landfills helps make these activities CDM-eligible); in other cases, the presence of regulation is taken as irrelevant to the baseline given the unlikelihood of compliance; in others, the question arises as to how to determine the baseline if policy promotes certain technologies, as in renewable energy price support.
Qualitatively different
Guidance from EB-16 went part way to clarifying how to interpret these cases. Notably, it indicates that CERs can be earned in sectors that are favoured by government policy1: if wind power is promoted with requirements or subsidies, these should not be part of the baseline, making the opportunity for earning credit greater. However, NM0072 argues that the policy itself is the project, and this is qualitatively different from the guidance of the EB, which seems to refer to projects acting in a regulatory environment, rather than establishment of that environment itself.
In Ghana, years of effort have already been made in bringing appliance efficiency legislation to the point of implementation, and it has already been promoted as a model for Western Africa. However, lack of funding for a testing laboratory makes the standard impossible to operationalise. Ghana’s technology needs assessment of 2003 identifies a general problem: “Lack of the necessary financial resources… [has] undermined the laudable policy directives.”
Not at all clear-cut
CERs earned through a project must be shown to have some recognisable positive impact on the project, allowing it to overcome barriers that make it additional. It could be argued that lack of funding for a lab is a case of a financial barrier as mentioned in the EB’s additionality tool. But the situation is not at all clear-cut: the government certainly has enough money - it is just a question of priorities.
Unlike options for an investment project where IRRs or other measurable factors can be compared, one cannot easily weigh the economic rationale for government spending decisions against each other. Why does the military get a new tank while the environment agency does not get a new testing centre? How can these be compared? The developers are well aware that their project falls outside of the usual conception of a CDM project, but do not enter into the debate of whether it is compatible with the current conception of the CDM. The baseline methodology notes that “implementing an appliance standard - as with any policy - is a political process,” and indeed once one enters into politics rather than simple project finance, the questions get tougher.
CDM wringer
Perhaps the most important question to arise from discussion of this project is, why is it that a policy so deserving of support, with such clear-cut benefits, has to go through the CDM wringer to get funded? If it does not get approved, that means either the CDM has to be changed, or other means of support must be found. While the former option will no doubt come under discussion as post-2012 negotiations heat up, the latter should not be ignored. Policy support is logical, replicable and ripe for assistance from international institutions on a grant basis. A similar policy to Ghana’s was made possible in Egypt through funding for a testing lab from the Egyptian government, UNDP and GEF.
Such legislation is also a good example of creating an ‘enabling environment’ much discussed in the technology transfer context. Whether this is distinct from and incompatible with a market-based instrument like the CDM is a discussion the EB should probably have. But whether as part of the CDM or not, good ideas like this should not have to work so hard to get the funding they need.
Discussion Platform in JIQ Issue December 2004
Mr Wytze van der Gaast and Mr. Joris Laseur on Unilateral CDM
Discussion Platform in JIQ Issue October 2004
Mr Donald Goldberg and Mr. Kevin Baumert on Action Targets
Mr Andreas Oberheitmann and Mr. Manuel Frondel on CDM in China
Discussion Platform in previous JIQ Issues
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