Análisis de Resultado

The aim of this research has been to assess the barriers to the large scale implementation of CDM projects by South African municipalities, using the Gauteng Municipalities as the case study. The research further set out to establish how many CDM project development opportunities for Gauteng municipalities remain untapped. In the literature review, known barriers were identified; the level of achievement in overcoming the barriers prevalent during earlier years of CDM by South Africa was established. Three groups of role players in the South African CDM industry were interviewed, in order to verify, from different perspectives, the extent to which these barriers were still relevant in the study period (2009-2011). The three groups comprised the European CER buyers, the CDM consultants in South Africa and the municipal officials.

South Africa has made good progress with developing policies to surmount barriers to CDM implementation. In Section 2.8 known barriers to CDM implementation were discussed. The majority of such barriers were found to be still relevant. One important barrier that has been removed is the tax implication of carbon credits (Certified Emission Reduction – CER – certificates); South Africa announced that the revenue for the primary generation of a CER certificate would be tax exempt from 2009 (an important step taken by the government to support the CDM market). Secondary trading of CER certificates would remain liable to taxation however.

The slow overall development of renewable energy CDM projects in South Africa has been attributed largely to the challenges faced by the renewable energy industry. One of the most important of these difficulties was the lack of a framework for the sale of renewable electricity into the national power grid. To unlock such barriers, the government established the Renewable Energy Feed-In Tariff (REFIT) scheme in 2008 to subsidise renewable electrical power generation. However, after extensive delays, REFIT was scrapped in 2011 (before it had been implemented) and replaced with a competitive bidding process called the Renewable Energy Independent Power Producer Programme (REIPPP).

Analysis of the structured interviews with the three groups of respondents revealed a consensus of focus on renewable energy, energy efficiency, landfill gas and bio-energy projects. A positive factor, this implies a good alignment of priorities between project

developers and CER buyers, and it diminishes the risk of producing CERs that would not be attractive to the buyers. Such project opportunities can be further explored by the municipalities to extend their project portfolios. The wide range of renewable energy and energy efficiency projects available presents South Africa with an opportunity to offset emissions from coal-fired power stations and generate revenue from the sale of carbon credits, while still making a contribution to sustainable development.

Landfill gas has been identified as a specific opportunity, which the Gauteng municipalities could utilise to participate in the CDM market, through mitigating methane emissions from solid waste disposal sites. It has been noted, with concern, that the average time for such projects to achieve CDM registration has been four to five years. Specific examples are the eThekwini and Ekurhuleni municipalities, (among the earliest players in the CDM market). While some of the delays stemmed from the CDM process itself, most were related to legal issues (e.g. sale of CERs as a non-tangible asset of the municipality).

Whereas municipalities can earn CERs by simply flaring the landfill gas, an opportunity exists to produce even more carbon credits through using the gas for the generation of electricity. This should be approached with caution - so far only one project in SA has managed to achieve such approval. The challenges facing this sector included the sale of electricity into the grid (because there were no approved feed in tariffs (refer above to the stalled REFIT scheme)).

Most of the barriers pertaining to these project types related to internal municipal procedures (including the stringent procurement rules set by the Municipal Financial Management Act (MFMA)). Furthermore lack of capacity and technological barriers pose a risk to CDM project development, as these projects are most often developed on a trial and error basis, which delays the progress. Basically, the municipalities are on the right track in terms of the type of projects being developed. The challenge that remains is producing sufficient volume to see South Africa taking up a substantial share of the investment channelled by CDM projects into developing countries. (Note - post COP 17: The intention of the European Union to restrict CER purchases to the Least Developed Countries could limit the viability of any further CDM purchases of this type in South Africa (designated as an ‘Advanced Developing Country (ADC))).

It was the view of the CER buyers that the electricity prices in South Africa are too low and this makes it difficult for renewable energy projects to compete. It has been observed that, since the country’s 2008 power crisis, electricity prices have soared drastically (25% per annum for three successive years). This, together with the new renewable energy bidding process for power purchase agreements, strengthens the case for renewable energy projects.

It has been established that there is a considerable pool of experts in South Africa who could have assisted municipalities to increase the number of CDM projects developed.

Coupled with that, there have also been a number of regular capacity building activities taking place in the country. This should have been accessed to assist municipalities to increase their CDM portfolio; bureaucracy in decision making and complicated rules in engaging external consultants were identified as hindrances. The inherent conservative nature of South African municipalities when venturing into new initiatives and technologies, reinforced by the constraints of the Municipal Finance Management Act, remain challenges - these limitations have led to South Africa developing smaller and fewer CDM projects.

There are several European compliance CERs buyers who are actively seeking CERs from African projects. There is extensive knowledge about the South African CDM market amongst CER buyers, CDM project developers and consultants. Nevertheless, because of the uncertainties regarding the CDM status after 2012 (end of the first period of commitment to the Kyoto Protocol), South African project developers have been increasingly reluctant to initiate new projects (especially in the period leading up to COP 17). The discounted price factor of the post 2012 CERs (a drop of >50% in the spot price) has been further contributed to scepticism.

European CER buyers, on the other hand, have been assuring the project developers that there would be a market for sale of CERs because this market is linked to the EU Emission Trading Scheme (which extends up to 2020). Even though adamant about market prospects, these buyers’ opinions were informed of the status of the climate negotiations at the time of the interviews. While the decision to extend the Kyoto Protocol for a second commitment period (up to 2017) was taken at COP 17, several major players in the CDM market (including Russia, Japan and Canada) have withdrawn from the Kyoto Protocol.

These have countries joined the USA (which has never ratified the Kyoto Protocol). This effectively leaves the EU as the only major player in CER trading under CDM.

It should be noted that most CER buyers in Europe are also signatories to the European Union Emission Trading Scheme (UE-ETS). UE-ETS is preparing for the roll-out of its third phase (running from 2013 to 2020). Under this phase, an EU ruling that dictates that the EU-ETS signatories will only trade CERs with the Least Developed Countries (LDCs) after 2012. This excludes Advanced Developing Countries (i.e. South Africa, China, India and Brazil). It is therefore apparent that the CDM market in South Africa is indefensible.

The country will have to work harder to attract buyers from outside the EU to sustain SA’s carbon market.

The CER purchasers who were actively seeking projects during 2011 were very particular about project eligibility. Projects in the early stages of the CDM registration process were the least likely to be considered since the risk of non-delivery would be high when compared with, for example, projects that had already undergone validation.

As discussed in Section 4.7, the barriers within the CDM process would continue to make it difficult for project developers to risk funding the upfront transaction costs of the CDM registration while the market was facing uncertainty. This was especially the case with municipalities when, in addition to the CDM barriers, there are known internal barriers within municipal administrations that would delay the process even further.

As much as CDM will continue post 2012, the level of benefit for South Africa is unclear considering the drastic reduction in the pool of CER buyers. Unfortunately, South Africa did not take full advantage of the opportunity when CDM was at its peak, (mainly because of the barriers stated throughout this paper). South Africa stood a good chance to capitalise on carbon financing but the conservative nature of the country in implementing large scale projects restricted the growth of the CDM market.

5.2 Recommendations

CDM was initiated to propel the investment in cleaner technologies in developing countries by developed countries. However, the structure of CDM is such that the project developer in a developing country needed to make upfront investments to cover project development and CDM transaction costs. The funds from developed country buying carbon credits are

usually only channelled to the project in the final stages, requiring the project developer to carry most of the CDM registration and project development risk. As much as CDM had good intentions, the lengthy, tedious and highly priced process of registration discouraged participation by many project developers (who may have had good ideas but weak financial and organisational influence) and who were unable to persuade financial and municipal organisations to support the project development. If there are still to be South African players interested in participating in the future CDM market (and generating opportunities for further climate-funded development) then the following recommendations bear consideration:

 It is recommended that South African national government set up a CDM development fund that would assist project developers and municipalities to access bridging funds for CDM projects. Such a fund would circumvent the difficulties municipalities have in pre-financing future savings generated by an intangible asset.

 The public sector as a whole needs to play an active role in promoting CDM and its benefits. Creating awareness is good and well, but at this stage of the market, the national government needs to have a dedicated office that facilitates growth of the CDM market. Government should not limit itself to authority role that focus mainly on project review and approval, as well as policy direction. Furthermore the public sector (all spheres of government) need to play a proactive role in developing CDM projects and not leave the responsibility on growing the South African carbon market entirely on the private sector.

 Provincial and local governments have an active role to play.

 For municipalities to gain strength in the CDM market, capacity building is required for the political leadership in order to highlight the significance that CDM could play in community development. Projects within the scope of the expanded Programme of Activities (POA) scheme that could enhance the livelihood of communities e.g. efficient cook-stoves, solar water heaters, distribution of energy efficient light bulbs, and off-grid solar home systems, need to be prioritised in municipalities as they address community needs while earning carbon credits.

 Municipalities need to build a strong pool of expertise in the field of CDM and have dedicated personnel to navigate the administrative and legal landscape of the CDM process.

 The country needs to capitalise on the benefit offered by Programme of Activities, in order to reduce transaction costs and maximise the impact of CDM on sustainable development. In developing POAs, developers will have to target projects that have proven success, learn from the lessons by their predecessors and avoid falling into the same pitfalls. South Africa had good projects to offer, even though the sizes of the projects were smaller, making it difficult to attract the interest of CER buyers. Going forward, South Africa will have to take bold steps to develop projects that produce a large number of CERs.

 Local governments need to operate in a business-like mode to make the most of the technical and financial benefits offered by CDM, and to develop a profit oriented mentality while rendering efficient service delivery to their citizens. This will help to identify opportunities within the CDM that can propel them towards such goals.

________________________

Overall, besides the large pool of expertise and multiple players, there remain a formidable number of barriers for the implementation of municipal CDM projects in South Africa. The inherent conservatism and legal constraints within municipalities; the long lead times for project approval; the uncertainties in the CDM market post 2012 (notwithstanding the tentative second commitment period); and the legal restriction on purchase of CERs by the EU counties only to the LDCs (which excludes South Africa) continue to present challenges for the South African CDM market. All combined factors make it improbable for South Africa to generate a significant revenue stream from the sale of CERs beyond 2012. South Africa’s contribution to climate protection and greenhouse gas emission reductions will have to be financed through other mechanisms.

REFERENCES

Abele, C. (2008), CDM Market Brief – China, DEG – Deutsche Investitions- und Entwicklungsgesellschaft, Germany, www.deginvest.de, accessed 15 November 2010.

Alliance to Save Energy (2007), Guidelines for financing municipal energy efficiency projects in the commonwealth of independent states, Renewable Energy and Energy Efficiency Partnership (SA), Washington DC.

Brohé, A., N. Erye and N. Howarth (2009), Carbon Markets, Earthscan, London.

Chauke, L. (2009), Designated National Authority CDM Approval Process, Presentation at the EnerKey Gauteng Municipalities CDM Workshop, 24-25 March 2009,

Johannesburg, www.enerkey.info.

Cosack, C. (2009), Financing CDM Projects: Supporting CDM Project Development.

Presentation at the EnerKey Gauteng Municipalities CDM Workshop, 24-25 March 2009, Johannesburg, www.enerkey.info.

Curnow, P. and G. Hodes (2009), Implementing CDM Projects: Guidebook to Host Country Legal Issues, UNEP Risø Centre, Copenhagen.

De Coninck, H. (2011), CCS in the CDM: Potential Issues, Presentation at the SB 34 side event, COP 17 Preparatory Negotiations, 17 June 2011, Bonn.

De Sepibus, J. (2009), The environmental integrity of CDM mechanism - A legal analysis of its institutional and procedural shortcomings, NCCR Trade working paper, Zurich.

Department of Environmental Affairs and Tourism (2005), NEMA Regulations for Establishment of the Designated National Authority for Clean Development Mechanism, No. R. 721, 22 July 2005, Pretoria.

EVI (2011) Summary and Analysis of COP17- The UN Climate Change Conference at Durban. The UN Climate Change Conference at Durban. Report, Emergent Ventures International Inc., San Francisco, 6 pp.

Fay, J., F. Kapfudzaruwa and L. Na (2010), A comparative analysis of CDM in China and South Africa, conference on Putting a Price on Carbon: Economic Instruments to Mitigate Climate Change in South Africa and Other Developing Countries, 23-24 March 2010, ERC, University of Cape Town.

Fischer, M. (2009), New Business in Africa. Presentation at the Gauteng Municipalities CDM workshop, 24-25 May 2009, Johannesburg, www.enerkey.info.

Gilder, A. (2006), Support for the development and uptake of CDM projects in the

industrial sector: Country Report South Africa, UNIDO Pilot Project in Cooperation with Austrian Industry, Imbewu Sustainability Legal Specialists (Pty) Ltd, Parkwood, Johannesburg, 83 pp.

Gilder, A., L. Nell, B. Jordaan (2011), Future prospects for the South African carbon

markets, Discussion Paper, Information sharing event, The Future of Carbon Markets, Johannesburg, 21 September 2011. Discussion document, Imbewu Sustainability Legal Specialists (Pty) Ltd, Parkwood, Johannesburg, 8 pp.

Gilder, A., and M. Basterfield (2006), International Climate Change Law, Imbewu Enviro-Legal Specialists (Pty) Ltd, SA CDM Update, Johannesburg.

Goldblatt, M. (2009), City of Johannesburg Carbon Finance Guidelines, pamphlet, City of Johannesburg.

Hagbrink, I. (2010), http://blogs.worldbank.org/climatechange/why-so-few-carbon-projects-africa (accessed on 23 March 2010)

Hayashi, D., A. Michaelowa, B. Dransfeld, M. Niemann, M. A. Marr and K. Opperman (2009), POA Blueprint Book: Guidebook for POA Coordinators under CDM/JI, KfW Bankengruppe, Frankfurt am Main.

International Energy Agency (2011), CO2 emissions from fuel combustion: Highlights, Paris, www.iea.org/co2highlights/co2highlights.pdf , accessed 3 March 2011.

Jarman, M. (2007), Small Guide to Big Issues: Climate Change, Jacana Media (Pty) Ltd (in association with Oxfam GB), Johannesburg.

Jockel, W. (2009), GHG Services of TÜV and project experience. Presentation at the EnerKey Gauteng Municipalities CDM Workshop, 24-25 March 2009, Johannesburg, www.enerkey.info.

Jung, M. (2005), Host country attractiveness for CDM non-sink projects, Energy Policy, Vol. 34, pp. 2173-2184.

Karani, P. (2002), Technology transfer to Africa - constraints for CDM operations, RE Focus, May/June 2002, pp. 20-23.

Kelly, R. (2008), CDM Projects: The financial perspective. Presentation at United Nations Development Programme 27 May 2008.

Kothari, C. R. (2004), Research Methodology Methods & Techniques, 2^nd edition, New Age International, New Delhi.

Little, G., T. Maxwell and M. Sutherland (2007), Accelerating implementation of Clean Development Mechanism in South Africa, South African Journal of Economic and Management Science (SA-JEMS), Vol. 4, pp. 395-311.

MacKay, D. J. C. (2009), Sustainable Energy: Without Hot Air, UIT Cambridge, England.

Marcu A. (2011) Post Durban: Moving to a fragmented carbon market world? Centre for European Policy Studies (CEPS), Brussels, 4 pp.

McNeill, P. and S. Chapman (2005), Research Methods, 3^rd edition, Taylor & Francis, New York.

Michaelowa, A. and F. Jotzo (2005), Transaction costs, institutional rigidities, and the size of the CDM, Energy Policy, Vol. 13, pp. 511-513.

Orlando, B. (2007), Financial and banking aspects of carbon trading. Presentation at International Conference on CDM and Carbon Markets, 18 April 2007, New Delhi.

Parramon, M. (2009), Clean Development Mechanism: Legal considerations. Presentation at the EnerKey Gauteng Municipalities CDM Workshop, 24-25 March 2009,

Johannesburg, www.enerkey.info.

Pearson, B. (2007), Market failure: Why CDM won't promote clean development, Journal of Cleaner Production, Vol. 15, pp. 247-252.

Pedersen, M. (2009), Contractual Issues of CDM. Presentation at in-house training for Embassy of Denmark, 11 November 2009, Pretoria.

Ramchander, P. (2004), Towards the responsible management of socio-cultural impact of township tourism. Unpublished PhD thesis, University of Pretoria, South Africa.

Risø National Laboratory for Sustainable Energy (2010), Technical University of Denmark, Several CDM projects underway in Africa, 15 March 2010.

Sa, H. (2010), The future of the Kyoto Protocol: From Cancun to Durban. Presentation at The Information Sharing Event on Cancun 2010: Impacts on carbon markets towards Durban 2011, 2 April 2011, Imbewu Sustainability Legal Specialists (Pty) Ltd, Parkwood, Johannesburg.

Sippel, M. and A. Michaelowa (2010), Does global climate policy promote low carbon cities? Lessons learned from the CDM. Paper presented at UNFCCC Climate Talks, June 2010, Bonn.

Stiles, G. (2008), Programmatic CDM in South Africa – A worthwhile endeavour? 25 Degrees, Volume 3, http://www.25degrees.net/index.php?option=com_zine&

view=publication&id=1&Itemid=53 , accessed 23 April 2011.

Thomas, S., Dargusch, P., Harrison, S., Berbohn, J. (2010), Why are there so few

afforestation and reforestation Clean Development Mechanism Projects, Land Use Policy, Vol. 27, pp. 880-887.

UN ESCAP (2007), Climate Change Action in Asia and the Pacific, UN ESCAP, Bangkok.

UNFCCC (2002), Report of the seventh session Conference of the Parties (COP7), Marrakesh, 29 October to 10 November 2001

UNFCCC (2009) Kyoto Protocol Status of Ratification, UNFCCC, Bonn.

UNFCCC (2009), Draft decision COP 15 Copenhagen Accord, 18 December 2009, UNFCCC, Bonn.

Valentine, G. (2005). Tell me about …: using interviews as a research methodology. In R.

A. Flowerdew and D. Martin (Eds.), Methods in Human Geography - A Guide for Students Doing a Research Project, 2^nd edition, pp. 110-127, Prentice Hall, London.

WBGU (2010) Climate policy post-Copenhagen, Policy Paper No. 6, 5 pp., German Advisory Council on Global Change, Berlin.

Wilson, C. M. (2007), Barriers & drivers to the implementation of the Clean Development Mechanism within Nelson Mandela Bay Municipality: A case study, Unpublished MBA thesis, Rhodes University, Grahamstown, South Africa.

Winkler, H., D. van Es (2007) Energy efficiency and CDM in South Africa: Constraints and opportunities, Journal of Energy in Southern Africa, Vol. 18, pp. 18-38.

Woods, P. (2006), Qualitative Research, Milton Keynes, United Kingdom.

Yamin, F. (2005), Climate Change and Carbon Markets, Earthscan, London.

Yap, R. C. (2008), CDM: An overview of financial mechanisms, Presentation at the

Yap, R. C. (2008), CDM: An overview of financial mechanisms, Presentation at the