Challenges of CDM for Building Energy Efficiency

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Challenges of CDM for Building Energy Efficiency
UNFCCC Workshop Buildings under UNFCCC
Flexible Mechanisms Chia-Chin Cheng UNEP-SBCI
Beihang University International Green Energy
Center Bonn, Germany March 24, 2011
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Largest Potential for GHG Emission Reduction in
Buildings

• Highest GHG reduction potential
• Most cost effective

Source IPCC 4th Assessment Report
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Largest Potential Resides in Developing Countries
Source IPCC 4th Assessment Report
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Score Card for Building Projects in CDM
2008
6 vs. 2700
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Score Card for Building Projects in CDM
2011
31 vs. 5935
2 vs. 80
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Existing Building Related CDM Methodologies
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Underlying causes for low CDM and EEB uptake

• Long-tail characteristics of the sector- small
  saving, big effort
• Fragmentation of sector / uncoordinated
  stakeholders
• Insufficient RD and information for new EEB
  technologies
• Insufficient EEB expertise and tools
• High upfront and transaction costs for tech
  adoption in DC
• Lack financing mechanism and interests for EE
  investments
• Lack of awareness and general inertia restrict
  uptake

Source Cheng, et al., 2008
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Old CDMs Rules Add to Difficulties

• Complex rules and procedures
• High transaction costs, long lead time, not
  enough payback
• Technology based methodologies are tedious to
  validate, monitor and verify carbon performance
• Difficulty in establishing baselines for new
  buildings
• Combination of different methodologies is not
  allowed for programmatic CDM
• Soft measures (energy management measures) are
  not taken into account, and difficult to prove in
  the current verification scheme
• Lack of mechanism to support low income sector
• CDM does not support mandatory national standards

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CDMs Amazing Reform in Three Years

• Complex rules and procedures ? further simplify
  SSM Cancun decisions
• High transaction costs, long lead time, not
  enough payback ? programmatic CDM and
  institutional reform
• Technology based methodologies are tedious to
  validate, monitor and verify carbon performance ?
  new methodologies use whole building and
  simulation approach
• Difficulty in establishing baselines for new
  buildings ? standardized baseline
• Combination of different methodologies is not
  allowed for programmatic CDM ? addressed in EB 47
• Soft measures (energy management measures) are
  not taken into account ?new methodology with
  whole building approach
• Lack of mechanism to support low income sector
  ?new scenario allowed
• CDM does not FULLY support national standards

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CDM has performed a substantial reform, but.

• For a large-scale uptake of building sector CDM
• CDM ALONE is NOT a sufficient incentive
• The construction sector does not respond well to
  economic and voluntary incentives alone.
• CDM ALMOST has to piggyback with other
  stronger and large- scale incentives
• Directly clash with additionality rules
• Possible two larger scale incentives in
  building sector
• Government policies and standards are much
  stronger mechanisms to drive large-scale
  actions
• Voluntary certification schemes started
  penetrating DC market
• ? CDM needs to be ready to FULLY support
  government policies, building codes and NAMAs
  

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CDM Complements Government Policies

• Government policies is much stronger to overcome
  generic barriers
• enforcing compliance from top down
• mobilizing a large number of various stakeholders
• creating a market demand and providing rules
• kick starting RD of new tech. and deployment of
  existing tech.
• creating incentives for co-benefits that do not
  have market value
• CDM is a strong mechanism to support policy
  intervention
• bottom-up approach to supplement top-down nature
  of government policies
• provide necessary means and resources to help
  regulated entities comply
• increase quality and depth of policy
  implementation, particularly in small business
  and individuals
• SBCIs Assessment of policy instruments for
  reducing greenhouse gas emissions from
  buildings shows
• The construction sector does not respond well to
  economic/voluntary incentives alone.
• Successful policies need to combine regulatory,
  fiscal, economic and capacity building elements.
• Experience indicates that regulatory tools (e.g.
  enforced standards) are most efficient and cost
  effective.

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CDMs Bottom-up Support for Long-Tail Building
Projects

• CDMs bottom-up approach to overcome difficulties
  in small scale investment with strong policy
  initiative in place
• Project and program based approach is especially
  suitable for long-tail projects
• individual mitigation opportunities are tackled
  one-by-one, project-by-project, CPA by CPA
• Replicability makes scaling up of successful
  project modules easier
• publicly available project documents and
  methodologies could facilitate project
  replication
• programmatic CDM could potentially enable a large
  number of replications for small project
  activities
• provide necessary means and resources to
  accelerate deepen compliance

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CDMs Bottom-up Support for Long-Tail Building
Projects

• CDMs quality assurance mechanisms to induce
  change of practice
• built-in quality control mechanisms and strict
  MRV requirements could ensure long-term
  compliance
• induce change of business practices and
  internalization of energy saving behavior are the
  most important co-benefit of the CDM
• adopting CDM is already additional
• maintain the benefit in simulation based
  methodology
• Enhance private investment in EE buildings
• reduce risks for small size projects by
  coordinated aggregation
• CDMs built-in quality control measures reduce
  risks of project default and help to enhance
  project quality
• enable life-cycle based financing
• CDM revenue to pay for transaction and MRV
  management costs

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CDM Regulatory Reform for Buildings

• Core concepts for energy performance based
  methodology
• energy performance based building codes, MRVs,
  methodologies and indicators- KWh/m2
• Allow flexibility in building design and
  encourage renovation
• Consistent regulatory logic, MRV method and tools
  for entire project life-cycle
• Based on good benchmarking quantitative
  management tools
• Suitable for long-tail, dispersed projects, e.g.
  buildings, SMEs, and rural

• Making CDM facilitate implementation of building
  codes and regulations
• set sector-wide standardized baselines for diff.
  buildings and climate
• Implement performance based building standards
  and include CDM crediting for projects going
  beyond compliance requirements
• maintain CDMs project and program based
  mechanism and allow CDM to help with
  implementation of mandatory standards
• non-binding targets, easily acceptable by fast
  developing countries

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Encouraging Signs in Current CDM Projects

• Public policies provide strong incentive for
  CDM project uptake
• Existing voluntary initiatives start to
  integrate with CDM
• Strong interest and uptake of building related
  p-CDM projects when the methodology is made
  right
• Internalization of EE behaviors and change of
  business culture in CDM projects

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The Avenue Forward.

• Short-term Challenge
• Establish facilitating methodologies based on
  industry and CDMs good practices
• Medium-term Challenge
• Develop standardized baselines and benchmarking
  for DC
• Performance based- SBCI common
• carbon metrics
• Revisit additionality rules for buildings
• building codes- no additionality
• benchmarked additionality

• Long-term challenge
• CDM to fully support policy and NAMAs

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Coming Up

• UNEP Risoe Working Paper
• CDM, NAMAs and the Building Sector a Two-Track
  Financing Mechanism for Post-2012
• SBCI Common Metrics
• For More Information

www.unepsbci.org www.uneprisoe.org