European Climate Policy Research Seminars                (ECPRS)Climate Research Program CLIPORE and the Centre for Europe...
Summary & Conclusions 1Inherent in the CDM concept was theexpectation that the Clean DevelopmentMechanism might broaden th...
Summary & Conclusions 2It is generally accepted that the CDMhas underperformed and that thissituation is likely to continu...
Summary & Conclusions 3It is hoped that once these issues aresettled, the CDM could live up to itsexpectations to direct F...
Summary & Conclusions 4However, …but may be there is a bigflaw in our argument aboutFDI/CDM…?                             ...
Summary & Conclusions 5This report analyses the relation betweenForeign Direct Investment and the CDM.  It describes vario...
Summary & Conclusions 6The author of this report cautions againstover-simplification and concludes thatCDM financial flows...
Generic CDM Transaction TypesThe basic CDM transaction models from the perspective of  the Annex I (developed country) ent...
The Wishful Scenario 1Inherent in the CDM concept was theexpectation that the Clean DevelopmentMechanism might broaden the...
The Wishful Scenario 2The assumption was that productionof CERs would also give thesubsidiary or affiliate of a MNC acompe...
The Current RealitiesThe CDM Portfolio update presented by JaneEllis of OECD at the 2005 SB-meetings in Bonnoffers causes ...
Geographical Spread Uneven                                         Industry             FDI inflows in selected regions in...
The current FDI realitiesWhile CDM is slowly emerging, therealities of FDI at global level shouldnot be forgotten, they ar...
FDI Inflows in Selected Regions in 2003           FDI inflows in selected regions in 2003             (percentage of globa...
Traditional & Potential CDM-Related              Determinants of FDI Inflows 1TNC Motive   Selected     Additional        ...
Traditional & Potential CDM-Related                Determinants of FDI Inflows 2TNC Motive Selected     Additional        ...
FDI Flows and CDM Market Potential 1From a global perspective, current trends inFDI flows give some indication of theprefe...
FDI Flows and CDM Market Potential 21. CDM demand comes from both   governments and the private sector, which   might have...
FDI Flows and CDM Market Potential 32. Conversely, not all TNCs have an interest in   Kyoto compliance instruments such as...
FDI Flows and CDM Market Potential 44. FDI might flow to sectors/economies   that do not represent large CDM   potential. ...
FDI Flows and CDM Market Potential 55. FDI flows to companies do not guarantee   investments in climate change mitigation ...
FDI Flows and CDM Market Potential 66. The necessary institutional prerequisites,   specialized capacity and incentives to...
Implications and Need for Further                  Research 1This paper suggests that the simplisticassumption that CDM fi...
Implications and Need for Further                   Research 21. the sources of demand (countries; government   vs. privat...
European Climate Policy Research Seminars                (ECPRS)Climate Research Program CLIPORE and the Centre for Europe...
Note: This publication has been made available by CSEND with the agrement of the author.                        The Centre...
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20081002 rs cdm ecprs seminar oct 2005 vs 3

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20081002 rs cdm ecprs seminar oct 2005 vs 3

  1. 1. European Climate Policy Research Seminars (ECPRS)Climate Research Program CLIPORE and the Centre for European Policy Studies (CEPS) Brussels, 4 October, 2005 Hype or Reality: Can the CDM trigger FDI? Dr. Raymond Saner CSEND, www.csend.org CSEND 2005
  2. 2. Summary & Conclusions 1Inherent in the CDM concept was theexpectation that the Clean DevelopmentMechanism might broaden the traditionaleconomic determinants of foreign directinvestment flows.Such an additional investment opportunitymight act as an economic driver and directForeign Direct Investment (FDI) towardsenvironmentally supportive investments,such as access to new markets for climate-friendly technologies or services. © CSEND, 2005
  3. 3. Summary & Conclusions 2It is generally accepted that the CDMhas underperformed and that thissituation is likely to continue.Reasons typically listed includegovernance of the Executive Board,CDM objectives, eligibility of projects,or the functioning of emissionsmarkets. © CSEND, 2005
  4. 4. Summary & Conclusions 3It is hoped that once these issues aresettled, the CDM could live up to itsexpectations to direct FDI towardsgreener technologies. © CSEND, 2005
  5. 5. Summary & Conclusions 4However, …but may be there is a bigflaw in our argument aboutFDI/CDM…? © CSEND, 2005
  6. 6. Summary & Conclusions 5This report analyses the relation betweenForeign Direct Investment and the CDM. It describes various CDM transaction types, provides current CDM project data, presents general FDI flows presented to main destinations of FDI, and finally examines the possible links between FDI and CDM potential. © CSEND, 2005
  7. 7. Summary & Conclusions 6The author of this report cautions againstover-simplification and concludes thatCDM financial flows are not correlatedwith FDI flows at present.Ways to make CDM more attractive totrans-national companies would deservefurther exploration. © CSEND, 2005
  8. 8. Generic CDM Transaction TypesThe basic CDM transaction models from the perspective of the Annex I (developed country) entity are: Investment in CDM projects: equity investment, i.e., direct via joint venture companies/wholly owned subsidiaries or indirect (portfolio) investments via purchase of securities. Such equity based investment provide equity for co-financing of projects that generate CER credits (investor receives profit/ROI and CERs; Purchase of yet-to-be-generated CERs: forward contract (e.g., in the form of a carbon purchase agreement) or call option to purchase a specified amount of CERs generated by a CDM project upon delivery, perhaps with some up-front payment; CER trade in secondary markets: spot or options transactions in existing CERs. © CSEND, 2005
  9. 9. The Wishful Scenario 1Inherent in the CDM concept was theexpectation that the Clean DevelopmentMechanism might broaden the traditionaleconomic determinants of foreign directinvestment flows…That multinational companies (MNC)perceive new CDM-related businessopportunities (such as the production ofCERs by foreign affiliates (and theirsubsequent internal use or sale). © CSEND, 2005
  10. 10. The Wishful Scenario 2The assumption was that productionof CERs would also give thesubsidiary or affiliate of a MNC acompetitive advantage (e.g. energyefficiency improvements). © CSEND, 2005
  11. 11. The Current RealitiesThe CDM Portfolio update presented by JaneEllis of OECD at the 2005 SB-meetings in Bonnoffers causes for optimism and pessimism alike. On the positive side, CDM projects haveincreased to 5 registered CDM projects, 8 othersare requested for registration by the CDMExecutive Board of which 3 are under reviewand 110 CDM projects are under validationwhich could generate 16.9 Mt Co2-eq. © CSEND, 2005
  12. 12. Geographical Spread Uneven Industry FDI inflows in selected regions in 2003 (percentage of global FDI inflows) Publicly funded Private, not-for-profit Private, for-profit institutions institutions institutions Developing excl. Universities in China International neighboring Research Universities donors and countries 20% lenders Provincial and regional institutions Least developed countriesRegional higher Government, Professional schoolseducation 1% including ministries of education, finance, Vocational schools planning, labor China 10% Distance education: The Primary and can operate at all levels Developed commercial secondary and in all sectors of a arena schools countries higher education 69% Trained labor Nongovernmental Educated force organizations citizens © CSEND, 2005
  13. 13. The current FDI realitiesWhile CDM is slowly emerging, therealities of FDI at global level shouldnot be forgotten, they are.. © CSEND, 2005
  14. 14. FDI Inflows in Selected Regions in 2003 FDI inflows in selected regions in 2003 (percentage of global FDI inflows) Developing excl. China 20% Least developed countries 1% China 10% Developed countries 69% © CSEND, 2005 (Source: Taffere Tesfachew & Karl P. Sauvant, 2005)
  15. 15. Traditional & Potential CDM-Related Determinants of FDI Inflows 1TNC Motive Selected Additional CDM Economic CDM Drives relevance to Determinants TNCsMarket- Per capita income New/expanded TNC technology Market size markets for: providersSeeking Climate friendly TNC providers of Market growth Access to technologies in CDM-related regional/global developing services (e.g., markets countries consulting, CDM-related brokerage, services certification)Resource Access to labour Access to TNC emitters of Access to raw greenhouse gas greenhouse gasesAsset- materials reduction (CERs) in regulatedSeeking Adequate markets infrastructure Market intermediaries2005 © CSEND,
  16. 16. Traditional & Potential CDM-Related Determinants of FDI Inflows 2TNC Motive Selected Additional CDM Economic CDM Drives relevance to Determinants TNCsEfficiency Differential Low-cost TNCs emitters of comparative greenhouse gas greenhouse gasesSeeking advantages reductions via CDM in regulated Better projects markets deployment of Investment in TNCs without global resources foreign affiliate home country technology greenhouse gas upgrades liabilities compensated with CERsStrategic Access to new Access to TNC providers of competitive complementary CDM-relatedAsset advantages CDM assets services (e.g.,Seeking possessed by consulting, 2005 © CSEND,
  17. 17. FDI Flows and CDM Market Potential 1From a global perspective, current trends inFDI flows give some indication of thepreferences of capital. One element in common with the CDM is the quality of the general business environment. But FDI flows do not necessarily reflect CDM market potential, for a number of reasons: © CSEND, 2005
  18. 18. FDI Flows and CDM Market Potential 21. CDM demand comes from both governments and the private sector, which might have different motivations and preferences. And private sector demand is not all associated with TNCs that operate in developing markets. © CSEND, 2005
  19. 19. FDI Flows and CDM Market Potential 32. Conversely, not all TNCs have an interest in Kyoto compliance instruments such as CERs from CDM projects and therefore might not have a compelling incentive to make the required additional investment in climate mitigation.3. CDM transactions are predominantly in the form of CER trade, rather than equity investment in CDM projects, and not all equity investment in CDM projects will be in the form of direct FDI. © CSEND, 2005
  20. 20. FDI Flows and CDM Market Potential 44. FDI might flow to sectors/economies that do not represent large CDM potential. Vice versa India is expected to be a major supplier of CERs, but its inward FDI is low and non-equity FDI mainly flows to the telecom, IT and business services sectors, which do not have substantial CDM potential. © CSEND, 2005
  21. 21. FDI Flows and CDM Market Potential 55. FDI flows to companies do not guarantee investments in climate change mitigation efforts that meet CDM criteria, although technologies that are transferred to developing countries in connection with FDI generally tend to be more modern and environmentally "cleaner" than what is locally available (OECD, 2002). Greenfield FDI may even increase absolute greenhouse gas emissions. © CSEND, 2005
  22. 22. FDI Flows and CDM Market Potential 66. The necessary institutional prerequisites, specialized capacity and incentives to facilitate CDM investments and to keep transaction costs low… …might be lacking in potential CDM host countries. © CSEND, 2005
  23. 23. Implications and Need for Further Research 1This paper suggests that the simplisticassumption that CDM financial flows willbe correlated closely with FDI flows maynot hold and warrants further analysis.Further research is needed to determinehow developing country entities canattract CDM investment or enhance theirability to export CERs. This will requiremore detailed analysis of: © CSEND, 2005
  24. 24. Implications and Need for Further Research 21. the sources of demand (countries; government vs. private; sectors and their CDM preferences),2. the dynamics of evolving carbon markets,3. the different CDM transaction models (equity investment in CDM projects vs. ex ante CER purchase agreements vs. secondary market CER trades),4. the national determinants of CDM financial flows, and5. the possible links between trade flows, FDI and CDM. © CSEND, 2005
  25. 25. European Climate Policy Research Seminars (ECPRS)Climate Research Program CLIPORE and the Centre for European Policy Studies (CEPS) Brussels, 4 October, 2005 Thank you for your attention! Dr. Raymond Saner CSEND, www.csend.org CSEND 2005
  26. 26. Note: This publication has been made available by CSEND with the agrement of the author. The Centre for Socio-Eco-Nomic Development (CSEND) aims atpromoting equitable, sustainable and integrated development through dialogue andinstitutional learning.http://www.csend.org/programmes-a-serviceshttp://www.csend.org/about-csendhttp://www.csend.org/project-sampleshttp://www.csend.org/csend-grouphttp://www.csend.org/knowledge-areahttp://www.csend.org/csend-portraitshttp://www.csend.org/community-of-artistsDiplomacy Dialogue is a branch of the Centre for Socio-Eco-Nomic Development(CSEND), a non-profit R&D organization based in Geneva, Switzerland since 1993.http://www.diplomacydialogue.org/missionhttp://www.diplomacydialogue.org/about-ushttp://www.diplomacydialogue.org/projectshttp://www.diplomacydialogue.org/publicationshttp://www.diplomacydialogue.org/conferenceshttp://www.diplomacydialogue.org/dialogue-forumhttp://www.diplomacydialogue.org/partnershttp://www.diplomacydialogue.org/linkshttp://www.diplomacydialogue.org/contacthttp://www.diplomacydialogue.org/sitemap

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