B CNG THNG

Clean Production and Energy Efficiency Project

D n tit kim nng lng v sn xut sch hn ti Vit Nam


WORKSHOP ON
ENERGY EFFICIENCY VOLUNTARY AGREEMENT IN
INDUSTRY: INTERNATIONAL EXPERIENCES AND PRIMARY
DESIGN FOR VIETNAM


HI THO
THA THUN T NGUYN TIT KIM NNG LNG
TRONG CNG NGHIP: KINH NGHIM QUC T V THIT
K S B CHO VIT NAM





Ngy 06 thng 05 nm 2013
Khch sn Melia H ni
Policy instruments:
Voluntary Agreements
The what & why of VA programmes
on industrial energy efficiency
Dian Phylipsen, international consultant
1st stakeholder conultation, June 5, 2013, Hanoi P
Objective of the Presentation
Explain what voluntary agreements are and
how they work
Outline the pros and cons of voluntary
agreements compared to other policy
instruments
Indicate what is needed to develop and
implement a voluntary agreement
Voluntary negotiated agreements
A spectrum of policy instruments, often distinguishing:
Unilateral commitments:
Unilateral statements and pledges by individual companies or
associations to address a prominent policy issue or to demonstrate
their general commitment to a goal
Public voluntary schemes:
Initiatives set up by governments, which define performance
criteria and membership conditions, but where participation is
voluntary. (e.g. national or international eco-labels)
Voluntary or negotiated agreements:
Formal contracts between industry and public bodies to address
specific environmental problems. Participation in voluntary, but
closed agreements may or may not be legally binding depending on
national rules
Participation vs target-setting
Participation is by definition voluntary
Though some countries diverge from this
Target-setting, once entered into an agreement,
can be unilateral, negotiated or imposed:
Unilateral: company unilaterally decides what target
to adopt, with little or no influence from government
Negotiated: company and government negotiate the
target the company will adopt
Imposed: the government decides what target the
company must adopt
VA
Advantages VAs over regulation
Voluntary agreements:
Can generally be introduced faster
Involve lower administrative costs
Offer greater flexibility in the choice
of targets, and allow the inclusion of soft
targets, which might result in additional savings
Ensure greater co-operation by manufacturers,
resulting in a proactive role in defining feasible
and effective efficiency targets
Advantages VAs over economic
instruments
Voluntary agreements:
Require less public funding resources
than subsidies, preferential loans,
depreciation schemes, etc
Less impact by freeriders that take money without
additional effort
Provide a stronger relation to the environmental
outcome through the target, where this is more
uncertain with economic instruments
Choosing a policy instrument
Choice of policy instrument depends on
objective of the scheme!
Voluntary or mandatory participation?
Unilateral, negotiated or imposed targets?
Standard or market-based?
Targets & timetables or
diagnostics, capacity building,
facilitation?
Pros and cons of types of policies
Participation
Voluntary:
Higher buy-in from
participants, stronger
support from sectors
Mandatory:
Higher participation, larger
coverage of energy/
emissions, increased level
playing field among industry
Targets
Unilateral:
Higher buy-in from partici-
pants, feasible targets
Negotiated:
High buy-in participants,
more commitment both
sides, incentives by govern-
ment
Imposed:
Simple process of target-
setting, more influence
government on target
Pros and cons policies, contd
Standards or market-based?
Standards:
More certainty on
environmental outcome at plant
level. Simpler to manage and
participate in.
Market-based system:
Higher flexibility for
participants, more cost-
efficient, cheaper to meet
target. More support from
industry (compared to above)
(energy/carbon tax)
Targets & timetables
More certainty about
environmental outcome,
progress to targets
Broader participation
Diagnostics, capacity building,
facilitation
High support from industry
Can be first step, leading to
other types of policies
Industry arguments for joining
Avoid energy/carbon tax
Energy savings,cost reduction
Long-term certainty about energy cost
Voluntary action for the environent
Avoid tougher (future) policy alternatives
(regulation, taxation)
Have more influence on policy direction,
targets
Important elements of a VA
Participants, roles & responsibilities
Who participates and who is responsible for what?
Target-setting
What kind of targets are used in the Vas, how are they established and
who determines the target level?
Incentives & sanctions
What kind of support does the government offer to VA participants in
return of participating in the VA and meeting the agreed targets?
What happens if companies do not participate or do not meet their
targets?
Monitoring, Reporting, Verification, Compliance & Enforcement
Is MRV required, and if so by whom?
Are MRV rules prescribed, and is independent verificaiton required?
Who carries out the oversight and determines non-compliance?
What are the consequences of non-compliance?
Agreement parties & roles
Government
Develops policy
Establishes programme goals
Determines main principles &
rules
Defines incentives & sanctions
Finances programme imple-
mentation and incentives
Intermediary (energy agency)
Administers programme
Provides technical support
Carries out enforcement
Provides incentives and
applies sanctions
Sector association
Negotiate sector target
Motivate members
Capacity building
Provide technical
support to members
Companies
Carry out energy audit
Prepare & implement energy
efficiency plan
Meet agreed target
Monitor perfor-
mance
Steps in VA development
Sectoral vs company targets
If both sector targets and company targets are
adopted, how do they relate to each other?
Under joint liability agreements, all companies in
affected sectors are penalised if environmental
objectives are not met
Individual liability agreements impose sanctions
against individual non-compliers.
In practice, many agreements employ both
Sectoral targets can:
Serve as guidance for company targets, without
compliance & enforcement
Act as stand-alone targets, in addition to company
targets, with its own compliance & enforcement
For further information:
Dian Phylipsen
Phylipsen Climate Change Consulting
Phone: +31 6 55 80 46 19
E-mail: D.Phylipsen@PhylipsenConsulting.com
Senior Associate SQ Consult
www.SQConsult.com
D.Phylipsen@SQConsult.com
P
Phylipsen Climate Change Consulting
Lessons learned on Voluntary
Agreements
International experiences with VA
programmes on industrial energy
efficiency
Dian Phylipsen, international consultant
1st stakeholder conultation, June 5, 2013, Hanoi P
Objective of the review (Task 1)
Identify lessons learned from international
experiences with voluntary agreements (VAs) on
industrial energy efficiency
Developed countries (update from earlier work)
Developing countries: China, South Korea,
Indonesia
Develop a conceptual design for a voluntary
agreement programme in Vietnam -> later
Overview of the presentation
Countries and programmes analysed
Focal areas in the analysis
Overview of programmes
Dutch voluntary agreements
Short overview of developed countries experience
Selected developing countries experience
Lessons learned for a VA programme in Vietnam
Countries & programmes analysed
1. Dutch covenants
Long Term Agreements (LTAs): 1989-2020
Benchmarking Agreement (BM): 2000-2012
2. Covered in LTA Uptake project and 2010 report:
Netherlands, UK, Denmark,
Sweden, Finland, Norway, Belgium
3. Newly added countries
Germany, France, Ireland, Switzerland, Australia,
Canada, New Zealand, Japan
China, South Korea, Indonesia
Focal areas
1. Roles and responsibilities of parties involved
2. Target-setting
3. Monitoring, reporting, verification,
compliance, enforcement (MRVCE)
4. Incentives and sanctions
Participation
Target achievement
Early experiences with VAs
Long-TermAgreements and the
Benchmarking Agreement in the
Netherlands
Voluntary agreements timeline NL
1992 (VA period: 89-00)
Long-Term Agreement on Energy Efficiency (LTA)
2000 (VA period: 00-12)
2nd generation LTA (LTA-2) energy use <0.5PJ/yr
Benchmarking agreement (BM) - > 0.5 PJ/yr
2005 (trading periods: 05-07, 08-12, 13-20)
EU Emissions Trading System (EU ETS)
2007 (VA period: 05-20):
3rd generation LTA (LTA-3)
2012 (VA period:
Long-term agreement for Energy-intensive ETS
companies (LEE)
Netherlands: LTA-1
Target:
~20% efficiency improvement in 2000 compared to 89;
29 agreements, 1000 companies, 90% of industrial
energy use (including energy companies)
Reasons for involvement:
Have more influence on policy direction, targets
Avoid tougher policy alternatives (regulation, taxation)
Participants:
Companies, sector associations
Ministry of Economic Affairs: target-setting, incentives;
Energy agency (intermediary): implementation, oversight,
enforcement
Netherlands: LTA-1
Targets set only at sectoral level
Companies obligations:
Establishing and implementing
Energy Efficiency Plan (EEP)
Monitoring & reporting
Incentives:
Energy tax deduction
Subsidies for energy audits
Early depreciation energy efficient
equipment
No alternative legislation
Successful?
Targets were more then met
(22.3%!)
Energy consumption increased!
Netherlands: LTA-2/3
For companies with energy use <0.5 PJ/yr
Targets set at sector AND company level;
Expansion to other themes:
Energy savings in entire production chain + renewables
(LTA2); + material efficiency (LTA3)
34 agreements, 906 companies
Company obligations:
establish EEP, implement energy management system,
implement profitable measures, monitor results
LTA2: Achieved: 19% between 1998 and 2005
Target LTA3:
30% improvement between 2005-2020
Of which 20% within plant borders, 10% outside
Netherlands: Benchmarking agreement
For companies with energy use >0.5 PJ/yr
Targets set at company or plant level
To be among the 10% most efficient plants in the
world (by sector/product category)
6 power companies (100% of energy use), 97
industrial companies (94%)
Company obligations:
establish top-of-the world, meet target, monitor
results
Achieved: 0.8%/yr efficiency improvement
(LTA achieved 1.5%/yr)
An overview
Summarising developed country
experiences
VA Features
NL NO SE BE
(Wl)
FI DK UK IR
Voluntary nature X X X X X X X X
Defined timeframe (long-term) X X X X X X X X
Negotiated between participant
representatives and authorities
X X X X X
Sector reference energy
consumption defined
X X X X X X
Target for energy reduction defined X X X X X
Depends
on sector
Target for CO
2
reduction defined X
Depends
on sector
Commitments for the authorities to
support target achievement
X X X X X X X
Commitments for agreement
participants
X X X X X X X X
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Industrial energy use coverage (%)
Reasons for joining the VA
NL NO SE BE
Wl
BE
Fl
FI DK UK IE
Energy or CO2 tax exemption X
(large)
X X X X X X
Avoid future taxation X X X
Avoid regulation X X
Long-term guarantee on energy
cost
X
Cost reduction / energy saving X X X X X X
Voluntary action for environment X X
Commitments
Financial incentives
Selected developing countries
Experiences in China, South Korea
and Indonesia
China: Top-1000 programme
VA pilot carried out in the steel sector in Shandong province
with aimfor national roll-out (00-03)
Participants:
Shandong Economic and Trade Commission (ETC), the State
Economic and Trade Commission (SETC), the China Energy
Conservation Association (CECA), selected steel companies in
Shandong
Targets set for 2005, based on 2002 base year
Activities carried out:
Assessment of current EE performance, identification of
improvement potentials and costs, developing capacity building
on these topcis, as well as MRV and VAs as a policy instrument,
provision of tools
Conclusion: Chinese companies would only sign a voluntary
agreement if ordered to do so by government
China: Top-1000 programme contd
As part of 11
th
FYP, mandatory energy savings agreements
were made between national government and the Top-1000
energy-consuming enterprises (later rolled out at provincial
level)
Enterprise energy savings targets for 2006-2010 set by
NDRC based on sectors allotted contribution to the FYP
energy savins target, taking into account general technology
level in enterprise, if known
Results:
Programme goal was 100 Mtce (2.9 EJ), achieved: 150 Mtce
Conclusion:
Target was not sufficiently ambitious
(not based on estimate of savings potential)
Government role & responsibilities
National government:
Established guiding principles and goals of the program
Published a list of the Top-1000 enterprises by name
National Bureau of Statistics (NBS):
Established information system for Top-1000
enterprises
Organized training on data collection and reporting ; and
Tracked, collected and reviewed data submitted by the
enterprises
Analyzed the progress of the program
Government role & responsibilities
Energy saving authorities of the province, district, or city:
Collaborated with related organizations to lead and
implement the Top-1000 program
Tracked, supervised, and managed energy-saving activities of
enterprises
Local authorities:
Oversaw enterprises in their energy management, energy
auditing, and energy reporting requirements
Monitored enterprises through audits and sampling
Promoted use of new mechanisms such as target-setting
agreements
Encouraged enterprises to meet energy saving targets and
attain international advanced levels ahead of schedule
Enterprise role & responsibilities
Meet energy savings target laid down in agreement
Establish a sound energy measuring and statistical system
Regularly submit energy utilization status reports
information on energy consumption, energy efficiency, cost-
effectiveness of energy savings, energy-efficiency measures
Conduct energy audits following the Chinese energy
auditing standard to
Analyze existing situation, identify key issues and potentials,
provide feasible and practical energy-saving measures
Submit initial energy audit reports to provincial govern-
ments for review
Develop energy conservation plans based on energy audits
and formulate energy conservation plans annually
Incentives & sanctions
Financial incentives available under Ten Key Projects programme]
If monitoring system and can prove savings > 10ktce:
200 RMB/tce saved per year($29) for enterprises in East China to 250
RMB/tce.yr ($36) in poorer regions (Mid/West China)
If targets are not met
Regions and enterprises do not receive annual rewards/honorary titles
Leaders in state-owned enterprises do not receive annual evaluation
awards
Officials would not be promoted
For non-compliant enterprises a notice of criticism is circulated,
approval of energy-intensive projects or additional industrial land use
may be suspended, no favorable exemption policies will be applied.
For non-compliant state-owned enterprise, its leader does not receive
any type of awards, no matter how well the enterprise is doing in
other aspects.
MRVCE
Annual reporting to National Bureau of Statistics
and provincial energy conservation centers (ECCs)
Verification by provincial ECCs, with on-site spot
checks by ERI
Provincial ECCs provide provincial report to
provincial authority and NDRC
Identified weaknesses:
No independent third party verification
No structural publication of results
No clear correlation between reported results,
evaluation and policy revision
South Korea: evolving programmes
Voluntary Agreement Programme for Energy
Savings and GHG Reductions: 1998
Companies with energy use > 5000 toe/yr
as of 2004: energy use >2000 toe/yr
15 companies in 1998 increasing to 1300 in 2009
Managed by KEMCO
Emissions Target Management Scheme: 2012
Managed by sector ministries, more stringent
emissions: facilities > 25kt/yr; companies > 125kt/yr
570 companies
Transition to Emissions Trading System: 2015
490 companies, 68% of national emissions
Participation and target-setting
Voluntary Agreement:
Voluntary participation
Target: recommended >5% energy savings over 5
years, compared to year before agreement (based on
sector targets set in legislation)
Proposed by company, limited influence KEMCO
Emissions Target Management Scheme:
Mandatory participation
Target negotiated with sector ministry, based on
sectoral target, reflecting specific circumstances
Emission Trading System:
Mandatory participation
Targets still to be set by Ministry
C
Government roles & responsibilities
Government:
Provides support in the form of funds and tax incentives
Performs monitoring and evaluation to achieve the goals in
collaboration with businesses
KEMCO (in VA):
Evaluation of implementation plan submitted by the business
(makes suggestions, provides support, but will not demand
changes on the basis of evaluation results.
Providing technical support for target setting, formulation of
implementation plan, consultation on technologies
Evaluation of business reports on annual achievements
Selection of excellent business places (rewards)
Company roles & responsibilities
Voluntary Agreement:
Conclude a 5-target agreement with local government
Present energy saving/GHG emission reduction goals,
implementation schedules, implementation methods, etc.
Submits implementation plan to KEMCO, incl current
status of business, recent record of saving, plans for next 5
years, energy saving systems, etc.
Achieve proposed goals
Submit recorded achievement to KEMCO on annual basis
via a business report (no verification required)
Emissions Target Management System:
Similar activities, but target agreement, implementation plan
and reporting are submitted to the relevant ministry and are
to be verified.
Incentives & sanctions
Voluntary Agreement:
Low-interest loans and tax incentives
Technical support by KEMCO, media support
Reduction of administrative burden (less energy audits
required, exemption other environmental obligations)
Award of Excellent business status to best performers
Loss of access to support on non-compliance
Emissions Target Management System/ETS:
Financial support for businesses vulnerable to
competitive disadvantage
Financial incentives and tax credits for green
technologies
Financial penalty on non-compliance (ETS)
MRVCE
Voluntary Agreement:
Annual reporting to KEMCO
No prescribed monitoring protocols
No verification required
No sanctions on non-compliance
Emissions Target Management System/ETS:
Annual reporting to sector ministry
Using prescribed methodologies according to
international standards (mainly EU ETS)
Verification required according to international
standars
Financial penalty on non-compliance (ETS)
Indonesia:
Cement emission reduction scheme
AFD-funded project:
Data gathering at plant level (energy, production,
emissions, technology)
Assessment of emission mitigation potential and cost
at sector- and installation-level
Capcity building on MRV
Target-setting, based on potential and cost data,
different scenarions, different ambition levels
Stakeholder consultations
Drafting regulation
Discussion of incentives
Roadmap for further development, including capacity
building
Example target-setting scenarios
Current emission intensity, differentiated intermediate targets
(2020), and final target (2030) for different existing plants
C1
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514 (level 5)
772 (level 1)
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Current emission intensity, differentiated intermediate targets
(2020), and final target (2030) for different existing plants
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772 (level 1)
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Marginal abatement cost curve
Follow-up: Sectoral roadmap
In 2010, BAPPENAS (the Indonesian National Planning
Agency) published the International Climate Change Sector
Roadmap for the industry sector
Identifies cement sector as priority sector
Recommended negotiating a Climate Change Cooperative
Agreement for cement sector for 2010 2014, modelled on
UK or Dutch VAs (LTAs).
Agreements must contain target-setting process,
benchmarking, energy audits, energy savings action plans, the
appointment of energy managers at each facility, information
and training workshops, measuring and monitoring progress
towards targets, annual reporting, program evaluation and
incentives and supporting policies, such as a CO2 tax rebate
as a reward for meeting emission reduction targets.
Follow-up: regulation sets targets
Ministerial regulation adopted in 2012 by Ministry of
Industry
Sets targets for emission intensity:
Voluntary: 2% reduction of CO2/t cement by 2015
Mandatory: 3% reduction of CO2/t by 2020
Likely not based on assessments in AFD project, but on
earlier documentations (no analytical basis)
Progress by companies absent, as
implementation of regulation and MRVCE
system is lagging
Cement sector is also a pilot sector in Indonesias Market
Readiness Proposal under the World Banks Programme
for Market Readiness
Government roles & responsibilities
Responsibility of Ministry of Industry as per regulation:
Capacity building for emissions reduction activities
Implementation of Environmental & Energy
Management
Development of technical guidelines and procedures to
calculate emissions intensity
Development of incentive mechanisms for emissions
reduction activities
Formulation and harmonization of related policies
Development of MRV system in cement industry
Socialization of related policies
Implementation of MRV system
Company roles & responsibilities
Other than reducing emissions to meet their target,
enterprise obligations are as yet unclear
Regulation mentions obligation to implement energy
management systems (in place since 06 in energy
conservation regulation from Min of Energy & Mineral
Resources)
All facilities with energy use >6000 toe/yr have the
obligation to implement energy management
Companies must appoint an energy manager, conduct
energy audits and implement recommendations from the
audits
Implementation of MERM regulation has not yet
reached full scale, supporting mechanisms are needed.
Lessons learned
Input to the development of the
Vietnamese VA programme
Important:
Means must match end!
Indicators must match
policy objectives and
drivers
Monitoring must match
objectives and drivers
Lesson learned
Lessons learned: 7 golden rules
A good negotiation position of the government;
Clear and quantified targets;
Clear timetables;
Long lasting government support;
For large energy intensive companies;
Physical energy efficiency monitoring;
Clear monitoring guidelines;
Independent verification.
Lessons learned: a summary
Initiating a VA is easier when there is good co-operation between authorities and industry
The VA programme needs effective carrots and sticks, a defined long-term timeline and
adequate transparency.
Goals should be challenging but not discouraging, while the monitoring procedure should
be reliable and guarantee confidentiality.
Major risk is definition of targets that are not demanding/little more than Business-as-
Usual (BaU) developments. Happens especially if:
Targets are not negotiated
There is insufficient information to establish saving potential/cost
Government is unduly biased towards industry arguments
An open negotiation process, where other stakeholders are invited to comment on the
target, avoids the conclusion of closed deals cut between the public authority and industry,
which may endorse little more than the BAU.
In developing countries, also the negotiation position of industry deserves attention, as
both the availability of sufficient information, data and technical expertise and the power
position vis--vis government may be limiting factors in successful, balanced negotiations.
Lessons learned: VA development
Lessons learned: more insights
Best design of VA programme depends on
country circumstances and culture
VA programmes evolve over time:
Increasing mandatory character, more stringent
enforcement systems or stronger incentives
Voluntary -> mandatory -> emissions trading
Reflecting picking of low-hanging fruits in early
phases, need for more stringent approaches to
drive further improvements later on
Lagging implementation measures can seriously
limit the effectiveness of the VA programme
For further information:
Dian Phylipsen
Phylipsen Climate Change Consulting
Phone
Mobile
E-mail: D.Phylipsen@PhylipsenConsulting.com
Senior Associate SQ Consult
www.SQConsult.com
P
Phylipsen Climate Change Consulting
Draft design VA programme
for Vietnam
Conceptual design and preliminary
elaboration of programme design
Dian Phylipsen, international consultant
1st stakeholder conultation, June 5, 2013, Hanoi P
Objective of the Presentation
Outline the conceptual design of the VA
programme for Viet Nam
Present the assumptions used in the preliminary
elaboration of a draft design programme
Present the preliminary design of the programme
based on these assumptions
Obtain stakeholder feedback to draft design
First significant input from stakeholders,
important for revision of draft design in next steps
Outline of the Presentation
Main elements of the conceptual design
Outstanding questions
Steps in VA development piloting & roll-out
Assumptions for elaborating a preliminary draft
design programme
First opportunity to respond
More detailed presentation of draft design
Further opportunity to respond
Conceptual design VA programme
A voluntary agreement, i.e. participation is voluntary
Targets negotiated between governments and candidate sectors/companies
Covering energy-intensive industrial sectors
Target-setting based on assessment of energy efficiency improvement potentials
and costs
Target-setting (and monitoring of progress to target) based on physical and
quantifiable measures
Long-term time horizon, predefined timing evaluation, revision, renewal
Government incentives to support companies in fulfilling their obligations
Uniform and transparent monitoring & reporting rules to be set upfront by
government
Regular reporting of monitoring results & progress to targets to oversight
organisation
Application of sanctions on miss-reporting and non-compliance to be applied by the
oversight organisation, with predefined criteria for non-compliance
Outstanding questions (report 1)
Intermediary (government) organisation
Will (over time) an intermediary organisation be established to carry
out implementation & compliance tasks on the government side or
will all government tasks be carried out by MOIT, also on the long run?
Role for local governments
Is a role foreseen for local governments in either providing support or
carrying out oversight, or will this be organised fully at the national level?
Role for sector associations
Will sector associations be a party to the agreement, and if so will they have a
facilitating/supporting role or will there also be a sectoral target in the
agreements?
Policy objective
What are the broader aims behind the VA programme on industrial energy
efficiency and what are the consequences for the type of target to be defined
(absolute, relative, based on projections, defined in technical or economic terms).
Outstanding questions contd
Time horizon for the agreements and targets
Would a 10-year agreement period, with an interim target after
5 years be feasible? Would participants have to be in compliance
every year, or can this be assessed over multiple years?
Feasibility of different types of incentives
Are there economic or political reasons that limit the use of energy
taxes as an incentive for participation and compliance? Are there other limitations
to incentives (cultural, budgetary, legal, capacity, etc)?
Compliance culture
What consequences does the compliance culture in Vietnam have for the design of
the VA programme, in terms of incentives for participation and compliance and
sanctions and in terms of how to organise the oversight and enforcement?
Steps in VA development
Piloting and roll-out
Revision
0.
Prepa-
ration
1.
Initi-
ation
2.
Nego-
tiation
3. Imple-
mentation
4.
Evalu-
ation
Selection pilot sectors
Assessment improvement potentials pilot sectors
Development financial incentives
Development energy service sector capacity
Design VA programme & implementation guidelines
Selection of pilot companies
Establishment of incentives & sanctions
Establishment of MRV and compliance system
Negotiations with pilot companies
Implementation in pilot companies
Monitoring performance in pilot companies
Evaluation of VA programme
effectiveness in pilot companies
Decision-making on roll-
out & necessary revisions
Pilot phase
Revision
0.
Prepa-
ration
1.
Initi-
ation
2.
Nego-
tiation
3. Imple-
mentation
4.
Evalu-
ation
Revision of programme design
Assessment improvement potentials other sectors
Negotiations with roll-out companies
Implementation in roll-out companies
Monitoring performance in all companies
Regular evaluations programme
effectiveness
Decision-making on
renewal/revisions
Roll-out phase
Assumptions for draft design (report 2)
Intermediary (government) organisation
MOIT will be responsible for policy development & strategic decision-making.
In the Pilot phase, MOIT will also be responsible for implementation &
compliance tasks on the government side, while capacity building will take
place with an intermediary organisation that can take over such role in a
later stage.
Role for local governments
Local governments can provide support to companies within their region. Oversight,
however, will be centralised to ensure equal treatment across different regions.
At a later stage, it can be considered to devolve oversight responsibilities to the regions,
if sufficient safeguards can be put in place for the equal treatment.
Role for sector associations
Both sector associations and individual companies can be a party to the agreement, and
sectoral targets will be established in case sufficient companies from within a sector join
the VA. If a sector association does not participate, companies can sign individual
agreements. In addition, sector organisations will have a facilitating/ supporting role in
the agreement programme.
Assumptions for draft design contd
Policy objective
The policy objective is assumed to be to increase energy efficiency, without
limiting growth opportunities for industry. Therefore, the target is defined in
terms of annual energy efficiency improvement rates compared to a historic
base year, defined in physical units and including both fuel and electricity
consumption for a more system-optimal measurement of energy efficiency.
Time horizon for the agreements and targets
Agreements will be closed for a 10-year period, with an interim target after
5 years be feasible. For the initial years a company is participating, more frequent
evaluations will take place. Compliance will be assessed on an annual basis, with some
(limited) flexibility across years.
Feasibility of different types of incentives
No specific limitations on the type of incentives are assumed, though the importance of
a balanced set of incentives as well as the notion of general budget limitations will be
taken into account.
Compliance culture
It is assumed that both strong incentives and strong enforcement will be needed to
ensure sufficient participation in the VA programme and compliance with the agreed
targets. In this context, also potential provisions for increasing the binding character of
the agreement will be developed
Draft VA Programme Design
Preliminary elaboration based on
pre-consultation assumptions
P
Based on assumptions as laid out in draft report 2, i.e. before
feedback from stakeholders could be obtained.
Input received during this workshop and other meetings during
this mission will be taken on board in the revision of report 2.
Structure of discussion
Organised under 4 headings:
Roles and responsibilities
Target-setting
Monitoring, reporting, verification, compliance and
enforcement (MRVCE)
Incentives & Sanctions
For each:
Defining elements
Preliminary choices/recommendations
Roles & responsibilities - elements
Elements of scope of participation who?
Government entities vs industry entities
Sector associations vs companies
Companies vs sites or installations
Eligible sectors
Size and minimum participation threshold
Other
State-owned vs private companies
?
Government roles & responsibilities
Role MOIT as per Law on Energy Efficiency & Conservation:
Issuing legislative documents, strategies, policies, programs, national
plans on energy efficiency & conservation, organizing the implementation
Coordinating with Ministries, ministerial-level agencies, Peoples
Committees at provincial level for State management on energy efficiency
& conservation
Organising national energy database system
Disseminating legal regulations on energy efficiency & conservation
Organising scientific research, technology transfer and application in the
field of energy efficiency & conservation
Inspecting, monitoring and handling of complaints and resolving violations
in energy efficiency & conservation activities in accordance with the law
Government roles & responsibilities
Recommended role MOIT in the VA programme (continuously):
Setting goals and objectives for the agreement programme
Developing the institutional capacity of sector associations, the
intermediary and/or independent experts (and ensuring sufficient
financial support)
Deciding on the design of the VA programme
Developing incentives to support participants in reaching their objectives,
ensuring sufficient resources and adopting the required legal framework
Developing and implementing a compliance and enforcement regime,
(including data management rules to ensure confidentiality and protect
commercially sensitive data)
Government roles & responsibilities
Recommended role MOIT in the VA programme (contd):
Ensuring consistency with other policy objectives and legislation, and
where needed, liaise with other ministries to address inconsistencies
Determining timeline and frequency for the evaluation of the
programmes effectiveness, the responsible organisation and the
evaluation methodology
Proposing revisions to the agreement programme on the basis of
frequent evaluations
Communicating to other key players and the general public the relevance
and advantages of negotiated agreements as an energy policy instrument,
its goals and periodic results.
Government roles & responsibilities
Recommended role intermediary in the VA programme (done
by MOIT in pilot phase):
Providing guidance, training and support to participants, as well as
concrete tools e.g. for carrying out energy scans, auditing, energy
management, benchmarking, energy efficiency planning, etc.
Data collection, processing and management
Validating individual participants deliverables & progress reports
Running the programmes compliance and enforcement system
Monitoring participants progress to target and evaluating and reporting
on the programmes effectiveness to other key players
Promoting the agreement scheme to new interested companies or sectors.
If it is decided that no intermediary is set up to carry out these tasks
in the roll-out phase, MOIT will continue to carry out this tasks, also
on the longer term.
Feedback?
In case it is decided that the People Committees will have a stronger
role, it needs to be ensured that sufficient capacity is available at the
local level to carry out the associated responsibilities and that the
treatment of participants is consistent across different regions.
Feedback?
Industry roles & responsibilities
Foreseen role associations and companies in VA programme:
Sector associations coordinate the sectoral effort by proposing or
negotiating a sectoral target, setting the overall ambition level for the
sectors participants. In addition, they play a facilitating role in mobilising
the sector and providing technical support
Individual companies take on individual targets to meet under the
agreement
Recommended status of sectoral vs company targets:
Targets will be set at both levels
Sector target will be to provide direction for companies in their target-
setting negotiations
Compliance with company targets will be the focus of the incentives
provided by government and the enforcement activities
Industry roles & responsibilities
Recommended role sector associations in the VA programme:
Encouraging their members to join the agreement
Guiding and training participants in wide scope of agreement subjects
Proposing sector agreement goals and participating in the negotiations
with the government on target-setting and incentives
Motivating and supporting members in actively fulfilling their
agreement obligations
Actively inform members about development & implementation
of the VA programme
Defining annual sector reporting and data collection
Participating in development and demonstration projects
Participating in further development & modification of the VA programme
Industry roles & responsibilities
Recommended role companiess in the VA programme:
Carrying out an energy audit to support the target-setting process
Setting up an energy management and reporting system
Training corporate staff in energy management issues
Defining energy efficiency targets
Drawing up & implementing an energy conservation plan
Taking energy issues into account when purchasing new equipment/systems
Implementing profitable energy-saving measures
Monitoring & reporting energy use & energy-saving improvements annually
Reporting improvements and/or difficulties faced by the company annually
Participating in pilot projects
In case it is deemed important that also the sectoral targets are
complied with, provisions will be needed to attribute (part of) the
sectoral non-compliance to the individual companies from that sector
participating in the VA programme.
Feedback?
Company vs site targets
Recommended in the VA programme:
Agreement parties can be defined as companies, or as individual sites or
installations, in which case a company with multiple sites would have
multiple targets.
Propsed to have targets set at the individual site level, but with the
flexibility for multi-site companies to reach their total energy efficiency
target across their sites.
Monitoring will be done at the individual site level
Reporting on progress to target will take place both at the site level and
the company level.
Both target-setting and monitoring methodologies need to be able to
accommodate differences between companies and sites in (portfolios of)
products
Size and minimum threshold
No principle reason for excluding small installations
Often done to reduce the complexity of the scheme and
to reduce transaction costs for both government and
industry, without significant impact on the overall energy savings that can
be reached
Minimum thresholds can be defined in terms of annual energy consumption,
in production capacity or annual emissions
Recommended in the VA programme:
No minimum participation threshold is established for the Vietnamese VA
programme as no information is available on the size distribution in the
relevant sectors in Vietnam or how improvement potentials and compliance
costs vary with size.
If subsequent steps indicate that the cost/benefit ratio for including
small installations is problematic, minimum thresholds can be
developed at that stage. In that case, care must be taken to avoid
distortions of competitiveness resulting from VAs only covering a part
of the sector.
Feedback?
Other elements
Eligible sectors
In principle, all sectors could participate in the VA programme
Subject to the possibility of defining transparent & robust methodologies
for target-setting and monitoring progress to targets
For reasons of simplicity, it is recommended that the VA programme starts
with the more energy-intensive and concentrated sectors (limited number
of large players), with the possibility to expand to other sectors later
State-owned versus private companies, national/international companies
No distinction should be made between state-owned enterprises and
private companies, or between national and international companies in
terms of participation
Organisational set-up of the VA programme and its rules must make sure no
undue advantages or disadvantages arise for any sub-set of participants
(including issues of data access and confidentiality)
Target-setting - elements
Definition of type of target
Definition of baseline
Definition of sysem boundaries
Time horizon, interim target, flexibility
Company targets vs site targets, pooling
Correction factors
Supporting obligations
Establishment of ambition level
Negotiation parties
Negotiation basis
Type of target
An energy efficiency improvement target or an
energy savings target?
Defined as a change compared to a baseline (either
historic or projected) or as a target level to be
reached (e.g. a benchmark energy efficiency level)?
Defined in relative terms (%) or absolute terms (GJ to be reduced)?
Defined in terms of final energy consumption or primary energy
consumption (also accounting for conversion losses)?
Recommended:
A relative energy efficiency target, allowing for industrial growth
To avoid sub-optimal developments in energy supply, the target
should be defined in terms of primary energy consumption
Baseline
Target compared to a:
Historical baseline
Compared to energy use or emissions in a historic reference year
or reference period
Projected future baseline
Compared to projected energy use or emissions in a future year or
period on the basis of a scenario (often expressed as a (%) change
compared to a business-as-usual (BaU) scenario)
Recommended:
Target is defined compared to a historic base year (s)
Using an approach that allows for a growth in production
System boundaries
Sector boundaries
Installation or site boundaries
Process boundaries
Chain boundaries
Energy carrier boundaries
Recommended:
Target includes both core process and utilities, leaving the choice
of measures to implement to reach the target to participants.
Start with a narrow focus, i.e. on-site energy efficiency
improvement only, though looking at the consumption of primary
energy carriers to take into account the conversion losses in the
production of purchased energy carriers
Time horizon, interim targets &
flexibility
Do participants only need to achieve the target defined for
the end of the agreement or are interim targets imposed?
Interim targets allow earlier identification of a lack of
progress and an earlier intervention to strengthen the participants efforts
Do the same sanctions apply when interim targets are missed as when the
final target is not met?
Recommended:
Establish interim targets, especially in the beginning of the process, to
allow for lessons learned at an early redirection
A 10-year target period (duration of an individual agreement), which a 2-
yr and a 5-yr intermediate target
All targets subject to sanctions on non-compliance, but softer sanctions
on non-compliance with interim targets
Flexibility provision allows target achievement with a year (under certain
conditions)
Correction factors
A number of situations can be agreed
where missing the target is not held against the
participant, i.e. are considered force majeure
Specific correction factors could be allowed to account
for negative impact of certain situations on energy
efficiency that are outside the participants control
Examples could be:
The exclusion of prolonged periods of down-time or start-
up during which efficiency is lower than usual
The implementation of environmental protection measures
required by law that increases energy consumption
Ambition level
This is a political choice, the outcome of
the negotiating process
Informed by the assessment of the energy efficiency
improvement potential at
the sector level; and
the individual participant level
Ambition level cannot be set without information about
the incentives available to the participants
Negotiations on individual VAs are based on the assessment of energy
efficiency improvement potentials at the individual participant level.
A simpler option is when target-setting and negotiations are only
based on the sector-level assessment of potentials and costs, or an
intermediary approach, starting with the sector potential, with some
adjustments o reflect site specifics
This is simpler, quicker and cheaper, but differences between
companies are not/only limitedly reflected and efficient and
inefficient companies are treated the same.
Feedback?
Proposed target definition
Energy Efficiency Index (EEI)
The energy consumption in the year in question to produce the total
output in that year, divided by the energy consumption that would have
resulted had the same production been made with the energy efficiency
in the reference (base) year.
Structural changes during the target period are separated from
energy efficiency changes.
Corrections that are allowed include:
Changes in energy consumption due to change in manufactured or
purchased intermediary materials
Changes in energy consumption resulting from more stringent product
specifications
Energy to meet more stringent environment, safety or health
requirements
Proposed target definition
The EEI is calculated as followed:
EEIx= (Ex- corr) * 100
(Vx * (E0/V0))
In which:
EEIx = the Energy Efficiency Index in year x
E0 = Energy consumption in the base year
Ex = Energy consumption in year x
V0 = Production volume in the base year
Vx = Production volume in year x
corr = Corrections, correcting actual energy consumption for the factors
allowed
Proposed target definition
Simpler targets can also be defined, e.g. a percentage reduction in total energy
consumption, or a % reduction per tonne of product. This would be easier to
establish and monitor.
However, its simplicity also means that what is being measured is not really
(changes in) energy efficiency, but the result of a number of different drivers of
energy consumption: production volume, product mix and quality, energy
efficiency and other factors. As such, it would be very difficult to assess whether
participants have really improved their energy efficiency in line with their
commitments, or whether energy savings result from other developments.
Feedback?
It is recommended to include supporting obligations in the agree-
ment in addition to the quantitative target in order to motivate
participants into concrete actions and to provide guidance on what
measures could contribute to reaching the target:
The commitment to implement profitable measures identified in
the energy audit or the energy conservation plan
The commitment to phase out inefficient or outdated technology
Feedback?
MRVCE- elements
Elements of scope of participation
Prescription of what needs to be monitored, how, how
often and by whom
Prescription of what needs to be reported, how often,
by whom and how
Prescription of whether independent third party
verification is required, and if so, by whom, how
Establishment of the compliance and enforcement
regime
MRVCE- guidelines
Detailed rules and guidelines needed for:
Detailed guidelines on the system boundaries
and definitions for target-setting
Detailed requirements that energy audits and
energy conservation plans must meet
Detailed methodology for monitoring & reporting, incl templates
Detailed methodology on how to measure progress to target,
including potential correction factors allowed
Detailed methodology on how to pool efforts and targets across
sites for multi-site companies
Detailed guidelines on when and how to allow flexibility in
meeting interim targets
Incentives & sanctions - elements
Incentives
Technical support
Financial support
Administrative support
Awareness raising and public recognition
Sanctions could include:
Loss of access to positive incentives
Financial penalties
Naming and shaming
Incentives & sanctions have a crucial role in a successful VA
programme and a balanced set of sticks and carrots is very
important.
Incentives & sanctions
Until the work within the CPEE project on solutions to
facilitate the financing of energy efficiency investments
has been completed, the recommendations on (financial)
incentives and sanctions to be provided can only be made
here in generic terms
Incentives & sanctions
For all incentives and sanctions it is very important that:
They are sufficiently strong to motivate participants
both to join the agreement and to achieve the agreed targets
Sufficient early clarity exists about their nature and level at the
start of discussions with candidate participants to inform their
decision-making about joining the agreement and the negotiations
with the government about the target
Sufficient insurance is provided to participants about the
continuity of the incentives and sanctions and sufficient time
periods will be allowed in case of any significant changes during
the agreement period
Incentives & sanctions
Recommended
Technical support on identifying improvement options and the calculation
of their potentials and costs, the development of energy management
systems and the training of staff, the development of energy conservation
plans, the implementation of monitoring systems, the preparation of
monitoring reports
Subsidies for energy audits, development of energy conservation plans
Subsidies for institutional development
Tax exemptions or tax reduction, e.g. on corporate income tax and
import/export tax as mentioned in the Law on Energy Efficiency and
Conservation, or on new taxes introduced especially in relation to the VA
programme
Incentives & sanctions
Recommended
Early depreciation options and/or soft loans for investment in energy
efficiency measures
Administrative support in permitting and reducing duplicate reporting
requirements
The threat of imposing other more stringent regulation instead of the VA
programme
Preferential treatment in public procurement
Public recognition of good performance and naming & shaming of laggards
Loss of access to incentives available under the VA programme and the
Law on Energy Efficiency and Conservation
For further information:
Dian Phylipsen
Phylipsen Climate Change Consulting
Phone: +31 6 55 80 46 19
E-mail: D.Phylipsen@PhylipsenConsulting.com
Senior Associate SQ Consult
www.SQConsult.com
D.Phylipsen@SQConsult.com
P
Phylipsen Climate Change Consulting