Belarus Environmental Centre:
Legal and Financial Framework
Lessons from International Experience
Amit Bando
Minsk, Belaru...
Agenda
What is the role of the Environmental Centre?
The international experience
Convention-specific requirements: UNFCC
...
Potential Role of a National Environmental Centre

Belarus signs
international
agreements/treaties
and pledges to
adhere t...
The Environment Centre Needs a Legal Basis







National law(s) provide an overall framework
Specific legislation an...
The Environmental Centre Needs Financial Support






Initially, public funds will likely be required
Using a “phased...
Agenda
What is the role of the Environmental Centre?
The international experience
Convention-specific requirements: UNFCC
...
The US experience


The US Environmental Protection Agency (USEPA) was established
by an Executive Order of the President...
The US experience -- continued


USEPA coordinates with other agencies to ensure compliance with
international convention...
The US experience -- continued


Initially relied on command-and-control regime (CAC)



Over time, reliance on CAC and ...
The China experience


At first, environmental units and analytical centers within each Ministry



Eventually, separate...
The India experience


Ministry of Environment and Forestry has national and provincial analytical laboratories



Relie...
The Philippines experience


Department of Environment and Natural Resources (DENR) relies on combination of
CAC and MBIs...
Agenda
What is the role of the Environmental Centre?
The international experience
Convention specific requirements: UNFCC
...
Every international convention has specific requirements








Belarus is a signatory to 21 international convention...
Investments through VERs are viable options for Annex-1
countries under the UNFCC


Belarus is an Annex-1 country under t...
Example: UNFCC provides the basis to evaluate climate change
projects
Kyoto Protocol (1997)
The Protocol creates legally b...
In 3 years, the CDM has sparked a $5 billion/year
market
Number of Projects in the CDM Pipeline,
January 2005 – February 2...
UNFCC Guidelines: how a CDM project generates carbon
credits
Greenhouse gas emissions

Carbon credits (CERs)
Carbon credit...
UNFCC guidelines: ‘Kyoto gases’ that can earn credits
There are over 30 atmospheric greenhouse gases…But only 6
attract ca...
UNFCC methodology: each of these gases has a different
warming potential
Each of these gases has a different ‘radiative fo...
UNFCC methodology: global warming potential

Greenhouse Gas
Greenhouse Gas
(GHG)
(GHG)

Global Warming
Global Warming
Pote...
UNFCC methodology: global warming potential

Greenhouse Gas
Greenhouse Gas
(GHG)
(GHG)

Global Warming
Global Warming
Pote...
UNFCC requirement: additionality
Environmental additionality – the project produces fewer
greenhouse gas emissions than th...
UNFCC guideline: additionality – benchmark analysis

Revenue / NPV / IRR

Choose an appropriate financial indicator and co...
UNFCC requirement: crediting period
CDM mitigation projects
• Project developers have two crediting period options:
– A ma...
A maximum of 10
years with no
option of renewal

Greenhouse gas emissions

UNFCC requirement: crediting period

Starting d...
6 to 12 months
CDM project
CDM project
development
development
// PDD
PDD
Host country
Host country
approval
approval

Pro...
Costs of a typical CDM project
Pre-Registration
CDM Costs

Post-Registration
CDM Costs
53,000

US$ 164,500

Assumes a 10-y...
Using the UNFCC as an example we recognize multiple
needs


The UNFCC itself requires signatories to adhere to requiremen...
Agenda
What is the role of the Environmental Centre?
The international experience
Convention specific requirements: UNFCC
...
Establish an “enabling environment”


Conduct a needs assessment to identify priority sectors
and gaps in CAC regime



...
Establish an “enabling environment” - continued


Initiate active participation with academia to develop baseline data as...
Programmatic CDM offers new opportunities -- can be used
Regular CDM
Regular CDM
to generate VERs
Size-Distribution of Pot...
An Example: Overall Methodology for Energy
Sector Analysis
Step 1

Step 2

Step 3

Demand Forecast

R eg ressi o n
M et h ...
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Belarus: Capacity Building for SEA

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Belarus: Capacity Building for SEA

  1. 1. Belarus Environmental Centre: Legal and Financial Framework Lessons from International Experience Amit Bando Minsk, Belarus November 30, 2009 ambando@gmail.com
  2. 2. Agenda What is the role of the Environmental Centre? The international experience Convention-specific requirements: UNFCC The way forward 2
  3. 3. Potential Role of a National Environmental Centre Belarus signs international agreements/treaties and pledges to adhere to the protocols of environmental conventions Centre is focus of national and regional/oblast capacity building: legal, financial, technical, infrastructure and human resources Environmental Benefits: compliance with international conventions, politically acceptable; environmental protection Economic Benefits: inward investment, job creation & technology benefits 3
  4. 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 Centre’s “home”  Create provisions for modifications of roles and responsibilities  Establish a timeline for implementation Supporting rules, regulations and guidelines should be established 4
  5. 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 Centre’s activities Private sector could be active partner    Provide selected services -- certified by Centre Provide relevant data and technical advice Sponsor certain activities
  6. 6. Agenda What is the role of the Environmental Centre? The international experience Convention-specific requirements: UNFCC The way forward 6
  7. 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 Interior  US Federal model is decentralized and there is considerable “devolution” of authority from the national to the sub-national level  Legal support developed to support the institutional structure
  8. 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 degradation Programs were established to cover, among others     Solid waste management Chemical and hazardous waste Air quality from stationary and mobile sources Water quality
  9. 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 regime  Relatively transparent data collection and dissemination process  Strong emphasis on public participation -- especially in EIA process
  10. 10. The China experience  At first, environmental units and analytical centers within each Ministry  Eventually, separate Ministry of Environment with central and provincial analytical laboratories  Relies on command-and-control regime (CAC) with few market-basedincentives (MBIs)  Close links with academic institutions for sampling analysis and monitoring  Success with promoting environmental investments -- CDM; based on good project development data  Successful at monitoring large scale industry; EIAs required for large facilities
  11. 11. The India experience  Ministry of Environment and Forestry has national and provincial analytical laboratories  Relies on combination of CAC and MBIs  Success in developing National Pollution Control Centers that collect data and conduct analysis -sell services for fee and train internationally  Strong network of state facilities for testing and monitoring; enhanced technical capabilities in modeling and testing  Success with promoting environmental investments -- CDM  Developed reliable baseline data for medium size facilities and industrial zones  Active public participation, especially through NGOs
  12. 12. The Philippines experience  Department of Environment and Natural Resources (DENR) relies on combination of CAC and MBIs  Success in developing reliable databases for certain sectors: e.g., forestry, sugar energy production  Good central facilities for testing and monitoring, but weak provincial units -- difficulty with monitoring  Success 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. 13. Agenda What is the role of the Environmental Centre? The international experience Convention specific requirements: UNFCC The way forward 13
  14. 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. 15. Investments through VERs are viable options for Annex-1 countries under the UNFCC  Belarus is an Annex-1 country under the UNFCC  To 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 option  The VER market is growing rapidly with active VER registries in Europe, Australia and the US -- market expected to grow post 2009  The CDM process fro generating CERs is a sound prototype for VER generation
  16. 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 2012 Marrakech Accords (2001) Define the principles of the Kyoto Protocol’s flexible mechanisms: the Clean Development Mechanism (CDM), Joint Implementation (JI) and Emissions Trading (ET) 16
  17. 17. In 3 years, the CDM has sparked a $5 billion/year market Number of Projects in the CDM Pipeline, January 2005 – February 2008 3,035 2,838 2,593 Compound Monthly Compound Monthly Growth Rate = 13% Growth Rate = 13% 2,285 1,759 Approximately 3 billion Approximately 3 billion CERs by 2012 CERs by 2012 1,141 67 Jan 05 83 118 171 Mar May Jul 05 05 05 275 440 554 Sep Nov Jan 05 05 06 647 749 1,311 1,885 1,495 883 Mar May Jul 06 06 06 Sep Nov Jan Mar 06 06 07 07 May July Sep Nov Jan 07 07 07 07 08 17
  18. 18. UNFCC Guidelines: how a CDM project generates carbon credits Greenhouse gas emissions Carbon credits (CERs) Carbon credits (CERs) represent the difference represent the difference between the baseline and between the baseline and actual emissions actual emissions Project start Project start Historical Trend Time 18
  19. 19. UNFCC guidelines: ‘Kyoto gases’ that can earn credits There are over 30 atmospheric greenhouse gases…But only 6 attract carbon credits: • Carbon dioxide (CO2) • Methane (CH4) • Nitrous oxide (N2O) • Perfluorocarbons (CxFx) • Hydrofluorocarbons (HFCs) • Relevant to biocarbon & industrial projects Sulfur hexaflouride (SF6) Relevant to industrial projects 19
  20. 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 time Need for a ‘common currency’, so that all carbon credits are denominated in the same way Solution: develop a relative scale, using CO2 as a reference gas 20
  21. 21. UNFCC methodology: global warming potential Greenhouse Gas Greenhouse Gas (GHG) (GHG) Global Warming Global Warming Potential (GWP) Potential (GWP) Carbon dioxide Carbon dioxide 11 Methane Methane 21 21 Nitrous oxide Nitrous oxide 310 310 Perfluorocarbons Perfluorocarbons 6,500 ––9,200 6,500 9,200 Hydrofluorocarbons Hydrofluorocarbons 140 ––11,700 140 11,700 Sulfur hexafluoride Sulfur hexafluoride 23,900 23,900 Relative 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. 22. UNFCC methodology: global warming potential Greenhouse Gas Greenhouse Gas (GHG) (GHG) Global Warming Global Warming Potential (GWP) Potential (GWP) Carbon dioxide Carbon dioxide 11 Methane Methane 21 21 Nitrous oxide Nitrous oxide 310 310 Perfluorocarbons Perfluorocarbons 6,500 ––9,200 6,500 9,200 Hydrofluorocarbons Hydrofluorocarbons 140 ––11,700 140 11,700 Sulphur hexafluoride Sulphur hexafluoride 23,900 23,900 Carbon 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. 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 additionality 23
  24. 24. UNFCC guideline: additionality – benchmark analysis Revenue / NPV / IRR Choose an appropriate financial indicator and compare it with a relevant benchmark value: e.g. required return on capital or internal company benchmark Investment threshold Project without carbon element Project with carbon element Carbon 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 alternatives 24
  25. 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 renewal CDM 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. 26. A maximum of 10 years with no option of renewal Greenhouse gas emissions UNFCC requirement: crediting period Starting date of Starting date of the crediting the crediting period period e scen baselin der the ons un i Emiss ari o Emissions under the project scenario 10 years No renewal No renewal 26
  27. 27. 6 to 12 months CDM project CDM project development development // PDD PDD Host country Host country approval approval Project Project validation validation CDM Executive Board DNA Project Project feasibility feasibility assessment assessment // PIN PIN 1.5 months Crediting period of the project DOE Project Developer UNFCC and the CDM project cycle Project Project verification verification Project Project registration registration CER CER issuance issuance 27
  28. 28. Costs of a typical CDM project Pre-Registration CDM Costs Post-Registration CDM Costs 53,000 US$ 164,500 Assumes a 10-year Assumes a 10-year project. project. 34,000 111,500 10,000 77,500 67,500 16,500 38,000 51,000 13,000 Initial Monitoring Validation Indicative CDM Cost Profile For A ‘Typical’ CDM Project Ongoing Verification By DOE Ongoing Annual Monitoring Recurrent 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. 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 resources  Other Conventions have similar (and often different) requirements  The Environmental Center needs to meet the multiple requirements
  30. 30. Agenda What is the role of the Environmental Centre? The international experience Convention specific requirements: UNFCC The way forward 30
  31. 31. Establish an “enabling environment”  Conduct a needs assessment to identify priority sectors and gaps in CAC regime  Develop and strengthen standards, permit process, monitoring protocols and enforcement mechanisms  Develop laws, implementing regulations and institutional support  Develop baseline data, starting with priority sectors  Determine evaluation methods and guidelines
  32. 32. Establish an “enabling environment” - continued  Initiate active participation with academia to develop baseline data as well as sampling, monitoring and analytical capabilities  Promote training to develop a cadre of qualified professionals  Promote regional cooperation and awareness to create a “unifying force” on environmental issues in international discussions  Actively seek out sources of international investment flows -- using the CDM model to generate VERs  Create a more transparent busines investment climate  Address financial risk and repatriation issues to ease investment flows
  33. 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 CDM Number 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 CDM large medium Installation / unit size small •• 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. 34. An Example: Overall Methodology for Energy Sector Analysis Step 1 Step 2 Step 3 Demand Forecast R eg ressi o n M et h od Least-cost Generation & Transmission Expansion (Using Horizon-year Plan) Planning Study S im u lat ion M od els Costs and Benefits Quantification W illingness to-Pay Energy Supply Incremental Step 4 Environmental Impacts Economic Analysis Sensitivity and Risk Analysis Bene fits Trans fer Method Spreadsheet Calculat ion

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