MEND Final Technical Report
(Sep 2002)
Project Flyer *zip*
Appendix E: MEND Workshop Report,March 2002: Promoting Poverty Reduction
through the CDM
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Moving towards Emissions Neutral Development (MEND):
Can the CDM deliver on poverty reduction?
Key
conditions for the CDM to work for the benefit of poorer communities
This two-year research project examines the developmental potential of the CDM and investigates strategies to encourage CDM investment flows to small to medium developing countries. The research was carried out in Bangladesh, Colombia, Ghana and Sri Lanka, four small to medium countries whose total greenhouse emissions contributed less than ½ a percent of global emissions in 1997.
Most models agree that the countries with growing emissions profiles, such as Russia, China and India will benefit the most from the CDM, and regions such as Africa will benefit the least in a pure price-driven market. So, how much sustainable development can the CDM be expected to deliver to the smaller developing countries, and to poorest communities within developing countries?
BACK to menu Results of MEND
The project types with the highest direct development benefits vary across the MEND focus countries and reflect the diverse poverty profiles in those countries. However, certain conclusions can be drawn.Poverty is generally a rural phenomenon in the MEND countries, and as such, the highest-ranking projects are aimed at the rural communities, and are aimed at providing energy services to unelectrified communities, and at increasing the returns from agricultural and forestry activities.Grid-connected electricity generation projects also tend to score highly if they focus on the consumption of biomass (thereby providing added value to waste biomass or the production of biomass), because some of the benefits accrue to the rural population.The majority of projects scoped were energy-related projects, which potentially give rise to benefits such as:
- improving income levels;
- economic development through enterprise development;
- improving access to clean water;
- improving access to health services;
- improving sanitation levels;
- promoting gender equality through reducing the time women spend on collecting fuel wood and water;
- improving access to education and information;
- improving levels of security.
Many projects were found to have considerable replicability suggesting that these projects are susceptible to being treated in a programmatic fashion for the purposes of baseline selection, verification and monitoring. The bundling of such projects and the development of common standards for their approval offers a way of reducing transaction costs, a key barrier to investment in smaller-scale development-focused projects.Financial support mechanisms to small-scale, development-focused projects may be required, even with lowered transaction costs.
For some CDM project types (some grid-connected projects, efficient wood stove projects and industrial energy efficiency projects) carbon value over the 21-year crediting period covers a large part or the whole cost of the project, dispelling the belief that development-focused CDM projects are necessarily more expensive than the CDM transactions seen to date. For other projects (in general the off-grid renewable energy generation projects) the mitigation costs are prohibitively expensive to develop commercially.Dedicated purchasing programmes for some types of development-focused projects will be necessary if the poverty reduction potential of the CDM is to be maximised.
The report sets out areas of capacity building that could facilitate small to medium developing countries to participate in the CDM more equally. A large part of capacity building to enable developing countries to attract CDM investment flows is at the initiation stage of CDM implementation, and is related to policy and legal requirements.The report recommends delivery strategies for capacity building.
Box 1 Methodology
used in MEND
Assessing
the poverty reduction potential of the CDM
The
research established poverty baselines against which scoped CDM projects with a
particular development focus were compared in order to assess the developmental
potential of the CDM. The poverty baseline was constructed adopting a country
indicator approach as a starting point to identify key national poverty
priorities. To account for regional and geographical disparities in access to
key public assets, as well as social and cultural factors, an iterative,
consultative process with the stakeholder steering groups and the project
partners was undertaken. National
poverty strategies, and other national development strategies as well as the
international development targets were considered. Development priorities were rated high, medium and low. The
priorities identified by the steering groups were cross-referred with a broad
range of national strategy documents and UNDP development indicators. Project partners selected ten projects, each
in consultation with national steering groups, from a range of sectors.
Assessing capacity building needs
Capacity building needs were identified by scooping indicators of capacity at each stage
of the CDM project cycle.The same set
of indicators were analysed using the UNDP capacity building framework which categorises
capacity in terms of awareness, skills and expertise; institutional and policy;
and legal.Gap analysis was carried out
to assess the level of capacity present in the MEND focus countries to
implement the CDM.
The approach to the research
was consultative in nature: the project partners established steering
committees and national stakeholder groups to assist in the research.
Key conditions for the CDM to work for the benefit of poorer communities
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Policy:Poverty reduction needs to be at the heart of climate change policy-making. At the same time, greenhouse gas mitigation objectives should be integrated into existing sectoral policies and strategies.
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Actors and institutions:There is little representation of poverty-focused actors and institutions in the climate change mitigation agenda in the focus countries.At present, climate change stakeholders are not sufficiently "plugged in" to poverty reduction policy directions, and vice versa.This means that synergies are not being identified, and conflicts may occur. Efforts should therefore be made to increase dialogue between these stakeholder groups.Links between different sets of micro level actors, for example, financing institutions, development groups, NGOs, agricultural organisations, other trade and community groups and regional government should be strengthened, as well as links between these micro-level stakeholders and national institutions;
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Institutional:developing countries do not have the capacity to run a whole range of institutional structures on sustainable development, climate change and poverty reduction.Therefore, new institutional capacity to enable CDM projects to take off should be developed within existing institutions.
- Project design is crucial in maximising the developmental impact of the CDM project.The aim should be to implement clean technology projects that provide a wide range of services.
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National poverty baselines have made clear that poverty is context-specific. Any analysis of the impact of the CDM on poverty reduction is therefore necessarily country-specific.
- Climate change strategies in developing countries should include in their focus the overlap between greenhouse gas mitigation and national development objectives.
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A significant aim of capacity building should be on developing an enabling environment for the implementation of the CDM.This includes raising awareness among all relevant stakeholder groups, developing a climate change strategy and supporting policy framework; assessing technology needs as the input into the country climate change strategy; developing a regulatory framework for CER transactions and technology development and developing a CDM focal point.
- Other capacity building actions relate to standardising procedures for project assessment and approval.These type of capacity building actions reduce the transaction costs associated with developing the carbon value of CDM-type projects.
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It is important to note that even with reduced transaction costs, development-focused projects may need support with the transaction costs in order to encourage the investor to spend resources in developing the project design document.Alternatively, some guarantee that the project is eligible for trading may be required. Support for risk mitigation mechanisms for under-performance or non-performance of the project and financial measures to lend the cash equivalent of future CER streams would further help these projects.
The CDM can reinforce and contribute to poverty reduction objectives, but to encourage this requires an enabling environment and a clear policy strategy that puts development objectives at the heart of its formulation, and involves all sets of stakeholders involved in the development process. MEND has developed a methodology to assess the development potential of the CDM and to assess the capacity required to implement a CDM that focuses on sustainable development for the poorer communities as much as on least cost mitigation.
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