Operationalizing the Sustainable Development Criteria: issues and practicalities in Ecuador

Marcos Castro R.CORDELIM – CDM Promotion Office

Third Regional Workshop of the UNEP/Risoe Centre Project CD4CDMAugust 19-20, 2004Santa Cruz de la Sierra, Bolivia

Challenges

Two-fold objective of the CDM:

• assist Annex I parties in achieving compliance with their quantified emission limitation and reduction commitments…

• …and assist non-Annex I parties (i.e. developing countries) in achieving sustainable development.

Host party’s prerogative to ‘confirm whether a CDM project activity assists it in achieving sustainable development’

• DNA has a key role in securing local development benefits of CDM projects.

• SD assessment of CDM projects is an opportunity for DNA to evaluate key linkages between national development goals and CDM project interventions

Challenges (2)

In addition: While current VER prices seem to grant cost-efficient emission reductions for

Annex I parties, contribution of projects to sustainable development is not yet assured.

• Demand preferences on financially sound business-as-usual projects

• Reduced interest for projects that have additional environmental and social benefits but that need financial returns from carbon finance market to get implemented

Trade-off between two core objectives of the CDM: • Lax additionality requirements increase availability of cost-efficient emission reductions.

• On the other hand, carbon prices likely to rise if strict sustainability criteria were globally applied in host parties.

• Absence of (internationally agreed) sustainability standards plus competition in the CDM supply side is resulting in a trade-off for the cost-efficiency objective.

Single non-Annex I parties have no direct incentives to implement strict sustainability criteria?

There is a role of DNAs (and of other local stakeholders) in order to reverse this tendency.

• Develop market niche for ‘high quality’ CERs (particularly relevant for marginal suppliers such as Ecuador)

• credibility of the CDM system & the host country

• fundamental elements of a national/regional marketing strategy

Project approval procedure adoptedby the DNA

National institutional setting for the CDM

Regulation Promotion

Project assessment& approval

National registry &Project reporting Technical & commercial

assistance

Capacity building

Informationdissemination

Policy - making

Strategic research & studies

Priority projectportfolio

CDM NationalAuthority (DNA)

Ministry for Environment

CDM Promotion Officeseparate public-private entity

presided by Ministry for Environment

Ecuadorian DNA

The Ministry for Environment is Ecuador’s Designated National Authority for the CDM (as per resolution of the National Climate Change Committee). The DNA technical coordination has been assigned to the Ministry’s Climate Change Unit.

The DNA adopted the ‘procedures for national approval of CDM project proposals’ (emissions reduction projects), as per Ministerial Accord of April 2003.

• As well, it has adopted complementary procedures for (i) approval of small-scale CDM project proposals and for (ii) endorsement of CDM project ideas (emissions reduction & carbon removal projects).

Additional tools, including project submission guide (for project participants) and project assessment guide (for DNA evaluators) are being prepared. Ongoing internal discussion of draft versions.

Policy note on ‘sector priorities for CDM project implementation’ has been drafted and is also being discussed at the MoE (prior discussion & adoption by NCCC).

• Focus: power generation, waste management, transportation sector.• Notwithstanding, it just encompasses cross-references to broad policy goals

established in existing frame of relevant laws and sector plans.

Other ongoing activities ( see next workshop presentation)

Ecuadorian DNA: evaluation process

Project Participants DNA Relevant stakeholders

Project presentation

Evaluation process

National Approval

Project submissionbased on Project

Presentation Document

Preliminary Reviewbased on check list

Agreement Notebased on standard format

Draft Reportbased on AssessmentGuide

Final Reportbased on AssessmentGuide

Issuance of Letter of National Approval

- Consultations institutions- Stakeholder comments

Complete?

Clarifications?

Approved?

Requests & adjustments

4 days

10 days

5 days

Project Participants DNA Relevant stakeholders

Project presentation

Evaluation process

National Approval

Project submissionbased on Project

Presentation Document

Preliminary Reviewbased on check list

Agreement Notebased on standard format

Draft Reportbased on AssessmentGuide

Final Reportbased on AssessmentGuide

Issuance of Letter of National Approval

- Consultations institutions- Stakeholder comments

Complete?

Clarifications?

Approved?

Requests & adjustments

4 days

10 days

5 days

Approval criteria - overview

Project Document Project participants DNA

Annex: nat’l requirements based on presentation guide based on evaluation guide

(A) Compliance with applicable legal framework (sector/local scope)

Applicable legal prerequisites for proposed project activity.Attachment of relevant licenses, certificates, others.

Check on integrality & consistency. Consultations with relevant authorizing entities.

(B) Congruence with relevant national/sector/local development policies/plans

Explanation on how the proposed project activity is congruent with development policies/strategies.

Assessment of evaluators: individual briefing and joint recommendation on approval.

(C) Discussion of environmental, socioeconomic and technological impacts (w/o further guidance)

Explanation on how positive impacts will be achieved and negative impacts mitigated.

Individual briefing and joint recommendation on approval.

Annex: int’l requirements / /

CDM Project Design Document (PDD as defined by the CDM-EB)

Submission of PDD that has been or will be submitted for validation by OE.

Review of PDD. Relevant observations may require joint revisions with participants & validator.

Approval procedures: strengths

Some strengths: Consultation of interested stakeholders ensured:

Though specific procedures need to be tested and eventually adjusted.

Cost-efficiency: Project participants will incur in near zero costs when preparing the project for national approval request. Though not established yet, the evaluation fee is expected to be symbolic. Further on, monitoring of project performance in regards to approval criteria is currently not requested.

Time-efficiency: The approval process is designed to be a streamlined process. The DNA is committed itself to carry on the whole process in less than 20 working days (not taken into account time for clarifications & adjustments by project participants). Compare time frames in the international validation & registration stages.

Submission of PDD is requested: Project participants and DNA will benefit of dealing with a consolidated project proposal. Experience has shown that project participants often request a LoA in early stages of project development, when information is still weak and many key (design and financial) questions still unsolved.

Approval procedures: weaknesses

Key weaknesses: Problematic definition of mandatory provisions (requirements A&B), i.a.:

• Not consistent with not-binding nature of sector plans/strategies. • Requirement of EIA for all kind of projects.

Lack of a consistent set of core SD goals, issues & criteria• Information requirements are limited to ‘identify’ broad dimensions

potentially affected by project interventions.

High degree of subjectivism: • Open space for arbitrary interpretations by project participants and DNA

evaluators, due to loose description of information requirements and lack of project presentation & project evaluation guidelines.

No provisions for ensuring relative assessment of project-specific impacts • Comparison of project scenario against a reference case (baseline

scenario/best practices) is not specified.

Project performance in regards to ‘anticipated’ SD impacts is not addressed• Review of project design (tasks/measures/strategies), beyond simple

statements on potential positive/negative impacts. • Provisions for monitoring and ex-post evaluation.

Considerations for improvement of approval procedure

Core goalCDM project contributes to SD

Dimensions of Sustainable Development

Action sideProject development & implementation

Social Economic Environ. Institutional ….

Control sideProject evaluation & monitoring

Sustainability issues

Targets

Strategies

Tasks

Guidelines

Sustainability principles

Criteria

Indicators (qual/quant)

Verifiers

Norms / rules

Underlying hierarchical framework

Adjusted from [CEPE, 2003]

Overview: improving approval procedure

Key task Description

Step 1

Review of national development policies & strategies.

Step 2

Establishment of critical sustainability principles and criteria at project-level, based on development goals & priorities.

Identification of core criteria for each dimension of sustainable development. Selected criteria should reflect national development priorities while being relevant for project-level interventions.

Step 3

Improvement of assessment & approval method, taking into account (1) clear-defined critical SD criteria and (2) current DNA approach based on requiring qualitative assessment to project developers.

Subtasks include:1.Development of guidance for qualitative assessment of

criteria, i.e. for adequate selection and assessment of (qualitative) indicators by project developers.

2.Definition of thresholds for non-compliance of critical criteria. Definition of verifiers & rules for project approval.

3.Revision of scope of DNA assessment. For instance, incorporate provisions for ensuring monitoring of project performance in regards to SD targets.

4. Incorporation of corresponding approval conditions.

Step 4

Adjustment of assessment tools, addressing diverse needs for application by project developers and by evaluators.

Particularly, this would include:Elaboration of project presentation guideline/format (for project developers’ reporting on contribution to SD) and project evaluation guideline/sheets (for DNA evaluators). Development of sector-specific evaluation procedures & tools. As well, simplified evaluation procedures & tools for small-scale projects.

Process of establishing core SD criteria

Key considerations for improving assessment method

1. Determine comprehensive frame of sustainability issues, while providing flexibility for suitable qualitative assessment by project participants

• Establishment of clearly defined set of core sustainability criteria• Guidance for selection & assessment of key indicators/verifiers

2. Delimitation of spatial & temporal scope of sustainability assessment• Adopt standard procedure for defining the system boundaries that underlies

SD evaluation of a particular project.

3. Ensure relative assessment of a project’s contribution to SD goals• The project’s contribution to SD goals ( compliance of criteria) should be

assessed against a reference case. Determine the nature of such a reference case (e.g. baseline scenario, business-as-usual) .

4. Clear-cut provisions for assessing project design & performance• Assessment scope should go beyond identification of potential impacts, but

rather review if project design coherently targets achievement of SD benefits. • Incorporate cost-efficient provisions for monitoring and ex-post evaluation of

project interventions (in regards to SD impacts).

5. Establish consistent & transparent decision rules!• Might proof challenging, due to underlying qualitative assessment