Lower uptake of CDM in LDCs: Lessons from promotion of developing financial mechanisms

Vinay Deodhar CDM Technical Advisor, Deputy Team Leader, TSF ADB Technical Session 5

Outline of presentation
Market based mechanism essentials CDM specific requirements Experience of successful host countries Investment climate in LDCs and countries with lower CDM projects Suggested measures to foster projects South South cooperation examples ADB efforts and suggestions

Market based mechanism essentials

Market based mechanisms like CDM/JI need
Presence of financial market Functional economic laws and institutions Operational banking and financing institutions Working judiciary Working stock and commodities markets Freedom to local investors to invest in securities, companies, projects and different instruments Functional FDI approval system and reasonable level of protection Functioning energy markets and systems Available manpower for absorption of new technologies

CDM Specific requirements Experience of successful HCs

CDM involves clean energy, urban infrastructure or man-made GHG mitigation projects Needs manpower that possess or has access to technologies for such projects Ownership or Transfer of rights to such technologies is essential Right climate for fostering or investment in technologies is essential Two models or combinations for technology acquisition are possible
First, indigenous technology development Second, transfer/licensing of technology

Successful CDM Host country models

Open financial markets to foster project/investments in general e.g. India, Indonesia Government supported promotion e.g. China, Vietnam

Investment climate in LDCs and countries with lower CDM projects

Business environment is the nexus of policies, institutions, physical infrastructure, human resources, and geographic features that influence the efficiency with which economic activity takes place. As per the World Development Report of 2005, Investment climate is a combination of factors and perceptions that shape decision making by business on investment Ease of doing business is dependent on: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, closing a business Many of the LDCs are characterized by absence of a conducive investment climate
Ref: Improving the investment climate: Status and proposals on the way forward East Africa International Business Forum 2008

Problematic Factors for Doing Business in Developing countries

Political Factors Government Instability, Policy Instability, Corruption, Inefficient Government bureaucracy Economic factors Absence of financial institutions, absent or ineffective financial /economic laws, Inflation, Access to financing, Foreign currency regulations, Tax rates and regulations, Inadequate supply of infrastructure, very low levels of GDP Human resource and social factors Restrictive labour regulations, Inadequately educated workforce, Poor work ethic in national labour force, Crime and theft, poverty

Suggested measures to foster projects

Improving policy, legal and regulatory framework for investment and growth Improving governance, infrastructure and utilities Improving financial services, creating enabling financial environment, creating the essential economic/financial infrastructure like stable banking system Developing human capital and entrepreneurship Improving regulatory environment, providing incentives for private investment, guarantees and risk mitigation

South South cooperation examples

Creating and strengthening financial institutions
Use of special purpose fund (created from interest differential of a KfW loan) for Capacity building of industrial development and Development financial institutions through exchange of officials from India to institutions in Nepal, Sri Lanka, Bhutan, Ghana, Jamaica etc. in the mid seventies to early nineties (ICICI-India)

Knowledge exchange as an effective tool for development

South-South and triangular knowledge exchange more than 110 cases in development cooperation shared in Bogota conference e.g. Barefoot college on rural energy

Programs to foster regional cooperation

Multilateral e.g. ADBs GMS, CAREC, BIMP-EAGA Bilateral aid e.g. South Asia Regional Initiative on Energy of USAID

ADB Efforts in LDCs

There are 14 LDCs and 16 SIDS in Asia and the Pacific ADB is supporting projects in 6 LDCs and 4 SIDS ADB has also provided technical assistance to several of these countries in establishing DNAs and building CDM capacity (ALGAS) ADB held first workshop for enhancing regional distribution of CDM projects in September 2010 ADB assistance for LDCs is not only focused on climate change mitigation but also covers adaptation to it as well as overall sustainable development

Suggestions for future work

While UNFCCC loan scheme is expected to take off soon, ADB will continue to provide financial and knowledge based support to LDCs ADB could also facilitate South-South cooperation to bring experiences gained by successful CDM host countries This could be in the form of investments, technology transfer and technical support Development of Standardized baselines for LDCs Post 2012 support on identifying NAMAs and Sectors in LDCs that can lead to mitigation of CC and revenues for LDCs

Thanks for your attention. Happy to respond to your queries.

For information contact: Vinay Deodhar: vdeodhar.consultant@adb.org Jiwan Acharya: jacharya@adb.org