Has CDM come of age in the Philippines?

During the recently concluded Carbon Forum Asia 2008 held in Suntec City, Singapore, Michael Dreyer, vice president of Koelnmesse-Asia, co-organizer of the conference together with the International Emissions Trading Association (IETA), noted that “from 2006 to 2007, Asia's CDM market grew by nearly 200 percent, signaling the region's emerging dominance in the global Carbon Market".

The market he is referring to is where carbon credits are traded for projects under the Clean Development Mechanism (CDM) which is under the auspices of the Kyoto Protocol. This market has been growing at a torrid pace in the past three years; from $40.1 billion in 2006 to $66.4 billion in 2007 and should easily top the $100 billion mark by the end of this year. Despite this huge elephant of a market, it is largely invisible in the country.

The Conference noted however, that while China and India lead the pack in the number of CDM projects registered at close to 640, the Philippines, Thailand and Vietnam are not too far behind.

This is welcome news. Has CDM come of age here?

The Philippines is not considered a major contributor to the total greenhouse gas (GHG) emissions worldwide simply because we are not huge consumers of energy on a per capita basis. But we do have a large potential for projects that could generate carbon credits as Carbon Emissions Reduction (CER) certificates that could be traded on the Carbon Market.

 This potential is being watched by mostly foreign vulture investment funds and financing institutions which smell the fragrance of money. That such is the case can be seen by the keen interests of these foreign financiers to ante these projects.

 At the latest count, there are 20 CDM registered projects in the country while much more projects are in the pipeline. Being registered means the project is formally accepted by the Executive Board of the United Nations Framework Convention on Climate Change (UNFCCC), the body in charge of this activity, of a validated project as a CDM project activity. Registration is the prerequisite for the verification, certification and issuance of CERs related to that project activity.

These are, in the order of latest to earliest registered, and the date of registration:

 * First Farmers Holding Corporation (FFHC) Bagasse Cogeneration Plan-10 Sep 08

* Makati South Sewage Treatment Plant Upgrade With on-site powerR-24 Jun 08

* Hedcor Sibulan 42.5 MW Hydroelectric-06 Jun 08

* Laguna de Bay Community Waste Management Project: Avoidance of methane production from biomass decay through composting-16 Mar 08

* Quezon City Controlled Disposal Facility Biogas Emission Reduction Project-01 Feb 08

* The Anaerobic Digestion Swine Wastewater Treatment with On-Site Power Bundled Project-17 Dec 07

* Goldi-Lion Agricultural Development Corporation Methane Recovery and Electricity Generation Project-08 Sep 07

* Bondoc Realty Methane Recovery and Electricity Generation Project-07 Sep 07

* Superior Hog Farms Methane Recovery-07 Sep 07

* D&C Concepcion Farms, Inc. Methane Recovery and Electricity Generation Project-26 Aug 07

* Philippine Sinter Corporation Sinter Cooler Waste Heat Recovery Power Generation Project-05 May 07

* San Carlos Renewable Energy-13 Apr 07

* Paramount Integrated Corporation Methane Recovery and Electricity Generation-31 Jan 07

* 20 MW Nasulo Geothermal Project-10 Dec 06

* Gaya Lim Farm Inc. Methane Recovery-30 Oct 06

* Uni-Rich Agro-Industrial Corporation Methane Recovery and Electricity Generation-28 Oct 06

* Joliza Farms Inc. Methane Recovery-23 Oct 06

* Gold Farm Livestocks Corporation Methane Recovery and Electricity Generation-21 Oct 06

* Wastewater treatment using a Thermophilic Anaerobic Digestor at an ethanol plant in the Philippines-01 Oct 06

* NorthWind Bangui Bay Project-10 Sep 06

 The biggest in terms of carbon dioxide equivalent reduction is the bagasse co-generation plant at close to 120,000 tons/per annum. Other major ones include Hedcor’s Sibulan hydro (95,174 tons), ethanol plant (95,876 tons) and the Bangui Bay wind farm (56,788 tons). Most of the rest are fairly small with reductions in few thousands tons and the credits are better traded in an alternative voluntary carbon market in which smaller players can participate.

 Unfortunately, our businessmen, financial institutions, investment banks and entrepreneurs have not taken advantage of such opportunities mainly through lack of understanding or awareness that such opportunities exist.

Are we ready for CDM?

Kreditanstalt fur Wiederaufbau (KfW), the German Development Bank, is opening doors for Philippine companies to tap financing for Clean Development Mechanism projects under the Kyoto Protocol during a presentation at a seminar held August 19, 2008 at the Renaissance Hotel in Makati.

Karin Sittler, vice president of the KfW Carbon Fund, said the financing modes could include direct loans, equity investments, assistance in the project preparation or even in helping consolidate small CDM projects.

The latter is required for small projects taken individually which may not qualify under the mechanism.

CDM is a mechanism under the Kyoto Protocol whereby countries that have committed to reduce their greenhouse emissions, but are unable to immediately do so, may buy so-called carbon credits generated by green energy and environmental projects in other countries.
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The Bangui Bay wind project:

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However, Environment and Natural Resources Undersecretary Manuel Gerochi's opening remarks which stressed the need to ensure that such CDM projects truly benefit the developing country and his distrust over the eventual beneficiaries of the Certified Emissions Reduction (CER) credits underscore the general lack of understanding by our policy makers

“Don’t look at it as an economic good to be traded,” Gerochi said, as quoted by the Philippine Star, adding that such endeavors “must be mutually beneficial to us.”

To put it at a right perspective, the United States, the most industrialized country on earth as well as the United Kingdom, I believe, did not ratify the Kyoto Protocol. This is understandable as the U.S. is responsible for some 22% of greenhouse gases (GHG) emissions worldwide. Despite the reluctance of the federal government to ratify the treaty, many individual states have forged ahead with their green projects initiatives in the energy sector.

The offsetting of GHG emissions is premised on global warming, which means that no matter where the GHG are emitted, these could contribute to climate change. The countries who have ratified the protocol have committed to reduce their GHG emissions by 5.2% p.a. from a baseline level in 1990 until 2012.

The CDM is not a permanent fixture; it is a stopgap measure which arose from a practical realization that GHG emission cannot be done overnight. All the CER certificates generated from such projects will be retired by then.

The CDM allows financing of green projects such as solar, wind, geothermal, or even reforestation, which must be Gerochi's concern, which otherwise would have been prohibitive without it.

The resulting carbon trading offers an upside for the financing entities--that is, it allows them to recover part of the cost of money used in financing. Many of the financing institutions such as the Asian Development Bank or the International Finance Corporation of the World Bank, as well as private Carbon Funds usually arrange to buy the carbon credits generated from these green projects.

The prices of these tradable financial instruments have been rapidly increasing during the past two years owing to increased demand.

That Germany takes a lead in carbon financing is hardly surprising. It pioneered in putting in place renewable energy initiatives starting 1n 1990 which resulted in the explosive growth of solar and wind energy systems in that country.

The report also indicates Gerochi shares the concern the technology for such projects has to be acquired at a substantial cost from the developed countries who themselves do not or are not willing to incur the cost to reduce their own emissions.

We are not sure what the technology Gerochi is talking about. Examples of local projects qualified under the CDM are the 24.75 MW Bangui Bay wind project in northern Philippines, the 20-MW geothermal project of Energy Development Corporation in Negros Oriental and the various small biomass projects at various stages of developments--projects that hardly need expensive technologies. For the case of geothermal, the technology relies on local expertise.

If Gerochi is typical of our policy makers, then it underlines our general lack of appreciation of, and readiness to embrace the CDM and the resulting growth in carbon trading both at the regulated and the voluntary (over-the-counter, or OTC) markets.

Sittler could have merely scratched her head in disbelief.