CDM INVESTMENT NEWSLETTER

Nr. 1/2007 A joint initiative of BEA International and the Climate Business Network

The Philippines
Copyright 2007

CDM Investment Newsletter Nr. 1/2007

Table of contents
EDITORIAL .............................................................................................................................................................2
THE PHILIPPINE DNA EXPERIENCE: FACING THE CHALLENGES OF AN EMERGENT CDM MARKET IN
DEVELOPING A VIABLE SYSTEM FOR ACHIEVING SUSTAINABLE DEVELOPMENT BY JOYCELINE A.
GOCO AND CHARMION GRACE S.G. REYES....................................................................................................3
CDM CAPACITY BUILDING LESSONS LEARNED, BY SANDEE G. RECABAR, MARINA T. MALLARE AND
BRODERICK S. SAPNU, CDM SERVICES OF KLIMA CLIMATE CHANGE CENTER, MANILA
OBSERVATORY ....................................................................................................................................................8
REALIZING THE POTENTIAL OF CDM PROJECTS IN THE PHILIPPINES, BY JEANETTE S. LAURENTE,
CDM ADVISOR, AND ALAN SILAYAN, SENIOR CDM ADVISOR, CARBON FINANCE SOLUTIONS,
INCORPORATED.................................................................................................................................................10

Editorial
This is the first country-specific issue of the CDM Investment Newsletter and hopefully the first of
many with a country focus. Previous issues have covered regions (Africa, Asia, Latin America, and
Eastern Europe), sectoral concerns (renewable energy, energy efficiency, transport, and carbon
sequestration), cross-cutting issues (legal, finance, small-scale projects and alternative models of
emission reduction), international agendas (MDGs, and the Linking Directive) and DNAs. This
issue has a little of each approach, starting with coverage of the latter, the DNA, including
sustainable development concerns/MDG goals, and an elaboration of potential sectors for CDM
(including small- and large-scale projects), all firmly anchored within a geographic perspective.
The Philippines signed the Kyoto Protocol in spring 1998 and ratified towards the end of 2003.
However, it was only in 2006 that the first CDM Philippine project was registered by the Executive
Board, but then another six followed in quick succession and now there are 24 in the official
pipeline (at stages from validation onwards)!
The country has proven to be attractive for capacity building programmes/projects (as outlined in
the article on page 8) and for enticing foreign investors/CER buyers (Finland, Japan, Netherlands,
and the United Kingdom are already Party to the registered projects). Also, the Philippines has
already signed a number of MoUs with Annex I Party governments and a new one is under
negotiation with Austria.
However, as can be ascertained from the articles on the DNA (page 3) and the CDM potential
(page 10) there are still improvements to be made in the operations of submitting and approving
CDM projects and plenty of opportunity in hitherto untapped sectors and technologies, not to
mention other regions of the country.
In this latter respect, the Editor was the invited resource speaker on the CDM at the first meeting of
2007 of the Cagayan Valley Industry and Energy Research and Development Consortium,
(CVIERDC), in Region II, situated in Luzon. The meeting was attended by 36 representatives of
Local Government Units, academia and the private sector. It was clear that, apart from a few, the
participants had little detailed knowledge of the workings of the CDM or its potential for sustainable
development, investment promotion and technology transfer. There is, apparently, still a significant
need for outreach both to regions outside of Metro Manila as well as to different sectors that could
benefit from CDM projects.
Side trips within Region II underscored the points concerning CDM potential made in the article on
page 10 that there are numerous and various types of opportunities for CDM projects, especially in
The CDM Investment Newsletter is a facilitating initiative. The Editors do not accept responsibility for any errors,
inaccuracies, omissions or any loss that may result directly or indirectly from reliance on information in the articles in
the Newsletter. However, the Editors do strive for high quality content and therefore reserve the right to accept or
refuse to include any article or other information offered for inclusion in future issues. Views presented/positions taken
in articles are those of the authors and do not necessarily reflect those of the Editors.

CDM Investment Newsletter Nr. 1/2007

the agriculture/renewable energy sector, as well as through waste utilization. CVIERDC will attempt
to catalogue this potential during this year in order to attract carbon investors into their part of the
country.
The Editor also had the opportunity to discuss potential CDM projects with government
representatives, research institutes and Philippine private sector businessmen and investors that
indicated the interest, especially of the latter group, to contribute to identification and development
of projects. One area that has aroused a great deal of interest from all sides in the Philippines is
bio-fuel, particularly bio-diesel. There are large tracts of degraded and un-used land that would be
suitable for fuel crops but also for afforestation / reforestation and large areas of government lands
will soon be opened for bidding for leasehold rights (including by outside companies) for these
purposes.
Further indications of the seriousness with which the Philippines is engaging in bio-fuels are the
recent announcement in the press that the countrys Bureau of Investments will be promoting such
developments through various incentive schemes (e.g. reduction of duties and taxes on equipment
and crop planting and breeding material), a requirement for oil companies to blend bio-fuels and a
bio-diesel conference that will be held in Manila in the spring (to cover commercial issues for the
entire value chain from feedstock, to technology to sales and marketing and trading issues).
CBNet and partners are currently examining the potential for developing CDM projects in some of
these areas. Land areas for fuel crop and A&R plantations are being discussed, technologies are
being reviewed that would be suitable for processing and refining bio-diesel (also utilizing Jatropha)
and technology providers, carbon buyers and investors are being invited to express their interest in
joining one or more such activities. Should you be interested, please contact us at
bazaar@climatebusiness.net.

The Philippine DNA Experience: Facing

the Challenges of an Emergent CDM
Market in Developing a Viable System for
Achieving Sustainable Development1 by
Joyceline A. Goco and Charmion Grace S.G. Reyes
THE REPUBLIC OF THE PHILIPPINES is an archipelagic Asian country that has a total coastline
of 36,289 kilometers around its 7,107 culturally rich and naturally diverse islands. The country has
a humid tropical marine climate (high temperatures and heavy annual rainfall) with agriculture and
the service sectors as the countrys economic mainstays. Although regarded as a medium-sized
2
th
nation (land area of 300,000 k ), the Philippines is the 14 most populous (89.5 million in July 2006
rising from ca. 21 million in 1996). About half of the population resides in rural areas, with 48%
living on less than USD 2/day with little or no access to basic services. From its 79 provinces and
117 cities, only the residents of Metropolitan Manila and a few urban areas on the main island of
Luzon are considered the least poor in the nation. Consuming an average of 335,000 barrels of oil
per day, the bulk of which is imported , and carrying the 37th biggest external debt (USD 65.71
billion in 2005), socio-economic development and poverty alleviation irrefutably remain the
countrys top priorities.
The complex and interrelated issues of poverty, energy and environment, which are expected to be
further worsened by the adverse effects of climate change, continue to undermine the progress of
the nation toward meeting the Philippine Agenda 21 and Millennium Development Goals.
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CDM Investment Newsletter Nr. 1/2007

Therefore, resources coming from Overseas Development Assistanc (ODA) need to be augmented
by new sources of finance and technical assistance together with the political will to commit such
resources to the needs of marginalized groups; accessing the Clean Development Mechanism
(CDM) is one such innovative, supplementary, measure to help achieve national (sustainable)
development objectives.
The Philippine Government ratified the Kyoto Protocol in November 2003 and designated the
Department of Environment and Natural Resources (DENR) as the Designated National Authority
(DNA) for CDM on 25 June 2004 by virtue of Executive Order No. 320, thereby completing the
basic eligibility requirements for participating in the CDM. To create a workable management
system for this mechanism, DENR, in consultation with relevant CDM stakeholders, released its
rules and regulations governing the approval process on 31 August 2005 through departmental
Administrative Order No. 2005-17.
The experience gained and lessons learned by the Philippine Designated National Authority (DNA),
in initial implementation of the CDM, provides guidance on how to effectively utilize this mechanism
to help shift to a sustainable and less greenhouse gas (GHG)-intensive development.
THE PHILIPPINES IS REGARDED AS ONE OF THE FIRST NATIONS TO SUBSCRIBE TO THE
CONCEPT OF SUSTAINABLE DEVELOPMENT, designing its Philippine Strategy for Sustainable
Development (PSSD) in 1989 and establishing the Philippine Council for Sustainable Development
(PCSD) in September 1992 to oversee implementation of the countrys commitments under the Rio
Convention; the country signed the United Nations Framework Convention on Climate Change
(UNFCCC) in June of the same year. In 1996, the PCSD, in close partnership with civil society and
other non-government participants, coordinated the formulation of the Philippine Agenda (PA) 21,
the broad sectoral sustainable development blueprint for the Philippines, and presently oversees its
implementation.
According to PA 21, the essence of sustainable development is the harmonious integration of a
sound and viable economy, responsible governance, social cohesion and ecological integrity. The
product of broad multi-stakeholder consultations, PA 21 adopted the following sustainable
development goals:

Goal 1: A viable and vibrant economy (stable income and reduction of poverty and inequality);
Goal 2: A caring social system (cohesion, peaceful co-existence, fairness and welfare to
develop Filipino potential);
Goal 3: Ecological integrity (a clean environment and productive natural resource base);
Goal 4: A responsible governance system (accountable institutions and empowerment of adult
Filipinos).

In addition, the Sustainable Integrated Area Development (SIAD) Programme created local SD
councils to operationalize plans at the local level while the Medium Term Development Plan
(MTPDP) for 2004-2010 stresses the urgent need to properly manage natural resources and
protect the environment to improve the quality of life of Filipinos and that of the future generations.
The Environment and Natural Resources Sector of the MTPDP aims to promote investments and
entrepreneurship through the sustainable and more productive utilization of natural resources (e.g.
through liberalizing/streamlining and refocusing the Environmental Compliance Certificate system;
linking community-based programmes and small/medium scale projects to sources of finance and
markets; implementing at least 10 CDM project activities and shifting from technology generation to
technology transfer as well as providing technical assistance, best suitable practices and
technologies).
THE PHILIPPINE CDM APPROVAL PROCESS will support the above policy objectives through
transparent, credible and efficient procedures conducive to investments and consequently, socioeconomic growth, particularly for the rural communities. A set of criteria, encompassing the three
dimensions of sustainable development, guide the DNA in determining which proposed CDM
project activities optimally address the Philippine agenda:

Economic well-being (anti-poverty goals) through provision of livelihood and economic

opportunities for the community, new financial resources for GHG reducing activities, and
promoting the use of cleaner, more efficient and environment-friendly technologies while
providing proper safety nets and compensatory measures to affected stakeholders;
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CDM Investment Newsletter Nr. 1/2007

Ecological integrity, through sustainable use of natural resources, improving local

environmental quality while complying with national policies and standards;
Education and training (social order) to build capacities of local stakeholders, enhance access
to local resources and services for vulnerable groups and promote local participation in the
project.

To ensure that the CDM process is aligned with the national objectives, priority development
strategies, plans and programmes, project activities that will have an overall positive impact on the
SD goals will be encouraged by the DNA.
ALTHOUGH THE NATIONS TOTAL GHG CONTRIBUTION TO THE ATMOSPHERE IS
MINIMAL2, the Philippines is one of the Asian countries with good CDM potential, having a wide
range of viable options for emission reduction activities, for example: renewable energy (wind,
solar, geothermal and mini-hydro power generation in the rural provinces), biomass energy
systems from agro-industrial wastes (rice husks, coconut shells and bagasse) and bio-fuel (bioethanol/bio-diesel for use in transport and boilers in processing plants); clean alternative
technologies in waste to energy (waste heat, waste gas, animal and agricultural waste
management, landfill gas to energy and industrial wastewater treatment); industrial fuel switching
(cement and metal industries); reforestation and afforestation (rehabilitation and enhancement of
priority watersheds); and energy efficiency measures (rural electric cooperatives and
business/industry establishments). These are just some of the areas that present significant
opportunities for both small- and regular-scale CDM projects that may substantially contribute to
sustainable development of the country.
The Philippine DNA has already granted approval to 8 project activities, 7 of which have been
officially registered as CDM projects and one provisionally registered by the CDM Executive Board.
This achievement is a dramatic leap from a position of uncertainty in mid-2005 to being placed
among the top 10 CDM host countries with the highest number of registered CDM project activities.
Among potential CDM host countries in the Southeast Asian region, the Philippines can now be
considered the second most attractive country after Malaysia, which presently hosts 12 registered
projects.
The 8 project activities approved by the DNA reduce an estimated 247,885 tCO2-equivalent
annually. Although the waste management sector dominates (with 6 projects located in Central and
Southern Luzon5 small-scale piggery waste-to-energy technologies and 1 large-scale
wastewater treatment project at an ethanol plant), the 2 that come from the renewable energy
sector (large-scale wind and geothermal power plants situated in the northernmost part of Luzon
and in Central Visayas, respectively) contribute an estimated 53.2% of the expected emission
reductions.
The following projects, submitted to the DNA for approval, collectively reduce an estimated
150,244 tCO2-equivalent per year:

piggery waste-to-energy in Luzon;

wind energy in Luzon;
rice husk-based boiler installation for heat/steam generation at two laundry facilities in
Metropolitan Manila area (recently submitted for validation and expected to reduce 44,680
tCO2-equivalent annually3;
swine wastewater treatment bundled project of three pig farms in Southern Luzon and one
other farm in Northern Mindanao with a combined estimated annual average of 18,265
tCO2-equivalent emission reductions (also undergoing validation).

While the current CDM projects are located in Luzon, the other two major islands of the Visayas
and Mindanao show good potential with, inter alia, the following project activities applying for
approval:

waste heat recovery for power generation at a steel plant;

swine wastewater treatment in Mindanao;
mini-hydro power generation in Mindanao;
bagasse cogeneration from sugarcane mills in Visayas;
landfill gas to energy in Visayas.

CDM Investment Newsletter Nr. 1/2007

Other potential project activities being explored by project developers in these regions are:
wind energy;
biomass energy systems utilizing rice husks;
waste-to-energy such as methane recovery from landfills, wastewater treatment from food
processing, palm oil and abattoir effluents;
waste gas utilization at a steel factory;
energy efficiency at a cement factory; and
reforestation of watersheds.
With the growing interest in CDM from a wider spectrum of national and international stakeholders,
the Philippine DNA is now faced with the challenge of sustaining the momentum and continues
with efforts to: enhance the capacity of its support mechanisms; strengthen partnerships with
relevant agencies; encourage dialogue with various CDM players; intensify information and
education initiatives; improve upon the national approval criteria; and sharpen up its internal rules
of procedure to carry out its functions more effectively.
BUILDING ON THE EXPERIENCE GAINED, national approval of a CDM project largely depends
on its particular contribution to sustainable development and authorization of the project
participants. Certain observations are worth reflecting on in this context and upon other DNA rules
and regulations:

The CDM objective of contributing to the achievement of sustainable development goals of

the host country has not received the attention it deserves. Delays in the processing of
applications are partly due to vague, general and rhetorical descriptions of projects
supposed contribution to this end (via the required Sustainable Development Benefits
Description document), forcing the evaluators to request additional information. Such a
superficial approach invariably leads to a stark absence in practical and meaningful action
for achieving sustainable development in the affected community. The sustainable
development criteria proscribed by the DNA are broad allowing freedom in identifying
project level indicators. Unambiguous, projectlevel benchmarks are supposed to be set by
the project participants themselves to map progress toward a target that is linked to
national and local development plans. One simple way of achieving this is through due
diligence and appropriate public involvement with the affected stakeholder groups. In
addition, the goals of PA 21 and other relevant national policies (SIAD, MTPDP,
Investment Priorities Plan, of the local government units as well as the relevant laws, rules
and regulations) need careful review for crucial points of interaction with the proposed
project to ensure that its contributions will be in harmony with the national and local
priorities;
Other requirements help to determine a projects compliance with Philippine national laws
and policies, particularly those under the jurisdiction of the DENR and the DNAs partner
agencies. Given that the CDM requirement for a Letter of Approval (LoA) is just one of
several for the registration of the project activity and may be issued to a project already in
operation, the DENR Administrative Order No. 2005-17 also stipulates that DNA approval
shall not exempt the project proponent from complying with applicable laws, rules and
regulations. Examples are
o A certified true copy of the valid Certificate of Non-Coverage (CNC) or the
Environmental Compliance Certificate (ECC), whichever is applicable and a
related statement of oath
o A certified true copy of a valid Discharge Permit for the project and related
laboratory assessments of wastewater quality
o A certification from the Fertilizers and Pesticides Authority on the quality of the
treated wastewater that is planned to be used as liquid fertilizer;
Documentation of the Stakeholders Consultation is an additional requirement through
public consultation (interim guidelines for their conduct, based on the elements of the
guidelines under the Environmental Impact Assessment System are available);
Project participants must be authorized by the DNA so proofs of their legal capacity must
be complete and consistent across all documentation submitted. In addition, a statement
under oath that the concerned entity is in good standing and does not have any pending
cases against it under Philippine laws must be submitted as well as a written elaboration of
its management experience.
6

CDM Investment Newsletter Nr. 1/2007

THE PHILIPPINE DNA HAS AMBITIOUSLY TARGETED A TIMELINE of 20-25 and 15-20
working days to process applications for regular and small-scale project activities, respectively. In
some cases, this target has been met by the support mechanisms of the DNA but delays have
been encountered in the course of the evaluation of submissions, in particular, due to requests for
additional information on the sustainable development contribution of a project and clarifications
with respect to proof of legal capacity. These delays lead to the project application being omitted
from the agenda of the CDM Steering Committee until such time as the complete and accurate
documentation is available. Another reason for delays can be attributed to the composition of the
Steering Committee due to high-ranking officials designated as members and alternates (given
their many other duties and responsibilities); setting a suitable schedule within the desired timeline
and achieving a quorum are challenges to the CDM Secretariat.
To adress experienced delays, the DNA: intends to formalize a protocol of operations, particularly
at the CDM Steering Committee level; is improving upon the conditions necessary to attract both
local and foreign investors for CDM projects by making the approval process as well as the CDM
project cycle less cumbersome for implementers of projects; has prepared the GHG Emission
Reduction Monitoring and Reporting Guideline4 and a manual on Emission Reduction Purchase
5
Agreements (ERPA): A Sellers Perspective , both with the support of the Japan International
Cooperation Agency (JICA) and its Study Team led by the Mitsubishi UFJ Securities Co., Ltd.
To further strengthen the capacity, presence and visibility of the DNA so that it can effectively
promote CDM to a broad range of stakeholders, a CDM Helpdesk and online information
clearinghouse were established within the CDM Secretariat Office at EMB-DENR in January 2006,
to facilitate communication and resource-sharing for those to develop CDM project activities in the
Philippines. The Helpdesk seeks to respond promptly to inquiries from interested parties through
meetings, phone calls, facsimile transmission and electronic mail. Currently, the Helpdesk receives
an average of 25 inquiries per month, many of which are of similar, general, nature. It is expected
that the number of technical questions will increase over time while the basic inquiries will gradually
decline as the information posted on the clearinghouse is enriched.
The online information portal serves as the first port of call for all types of inquiries including
information on: the CDM in general; background on the Philippines as a potential host country;
Philippine CDM practice/DNA approval procedures (interim guidelines, documentary requirements,
national policies and regulations); the CDM project portfolio; capacity building initiatives of the DNA
(summarizing the principal efforts to realize and promote CDM in the country); and a Questions
and Answers page (frequently asked questions, and submission of new inquiries or requesting
additional information). The site (http://www.cdmdna.emb.gov.ph) will be updated regularly.
WHILE IT CAN BE SAID THAT THE PHILIPPINE DNA AND CDM DEVELOPMENT IN THE
COUNTRY is moving forward at an acceptable pace, the initial results of all efforts reveal the
extent of work that still needs to be done. A sustainable DNA is crucial to maintaining the
attractiveness of the Philippines as a CDM host country. While political leadership matters (and
CDM is consistently gaining importance at all levels of the DNA), effective mobilization of resources
to ensure full operation (staff, budget and functionality of structures) is essential. Other CDM
stakeholders (industry associations, pertinent government agencies and public utilities) should be
encouraged to make relevant information available so that data reflecting the realities of various
sectors is available to a broad range of CDM users.
The CDM provides an opportunity to foster sustainable development in the country, to make it a
natural part of decision-making. Time will tell if CDM projects have an impact on our development
goals and help to improve the lives of Filipinos at the local level. Let us give the CDM a chance to
work the way it was intended to and move us beyond a carbon-intensive life style towards a
cleaner, equitable and more respectful form of development.
References:
Estimation of Local Poverty in the Philippines. National Statistical Coordination Board (NSCB) in cooperation with the World
Bank. November 2005.
Internal reports and documents. CDM Secretariat at EMB, Philippine DNA for CDM - DENR.
Making Sense of the Millennium Development Goals: An Alternative Perspective by Civil Society. Sixto K. Roxas III, Ben S.
Malayang III, Ramon L. Fernan III and Imelda Perez. Published by the Philippine Sustainability Watch Network. December
2005.
Official website of the Philippine DNA for CDM. http://www.cdmdna.emb.gov.ph. CDM Secretariat at EMB, Philippine DNA
for CDM - DENR.
Official website of the UNFCCC, http://www.unfccc.int. Accessed December 2006 and January 2007.

CDM Investment Newsletter Nr. 1/2007

Philippine Department of Environment and Natural Resources (DENR) As the Designated National Authority (DNA) for
Clean Development Mechanism (CDM): Institutional Structure, Procedures and Sustainable Development Criteria. Paper
presented by the EMB at the Capacity Development for Clean Development Mechanism (CD4CDM) Workshop, 18-21
October 2005, Bangkok, Thailand.
The Philippines Initial National Communication on Climate Change. December 1999. Philippine Inter-Agency Committee on
Climate Change, DENR with financial assistance from the Global Environment Facility through the United Nations
Development Programme. Submitted to the UNFCCC.
The
World
Factbook
2006.
Central
Intelligence
Agency
(CIA),
USA.
https://www.cia.gov/cia/publications/factbook/geos/rp.html, page last updated on 30 November 2006. Accessed on 07
December 2006.
1 Views presented in this article are entirely the authors and do not necessarily reflect the views or positions of the
Philippine Government or the CBNet on the issues discussed.
2 The Philippines Initial National Communication on Climate Change. December 1999. Submitted to the UNFCCC.
3 Based on the list found at http://cdm.unfccc.int/Projects/Validation, and attached Project Design Documents as of January
2007; same source as well for the bundled project proposal mentioned in the subsequent statement.
4 A practical guideline (basic issues and essential steps) for CDM project developers, principally small scale project
proponents, in implementing approved monitoring plans and reporting GHG emission reductions.
5 Legal advice on ERPAs has, to date, mainly been provided from the buyers side thus putting sellers at a disadvantage.
This manual is aimed at the seller and seeks to bring more transparency to the process by highlighting some of the risks to
the seller, and offering advice on how to approach an ERPA negotiation.

CDM
CAPACITY
BUILDING
LESSONS
LEARNED, by Sandee G. Recabar, Marina T. Mallare
and Broderick S. Sapnu, CDM Services of klima Climate
Change Center, Manila Observatory
CAPACITY BUILDING IS CRUCIAL TO THE REALIZATION OF CDM. It empowers key
stakeholders with the necessary information and skills needed to maximize opportunities offered by
engaging in this mechanism. It also serves as an important step towards the development of
streamlined regulatory policy frameworks necessary for effective implementation and facilitation of
CDM projects.
In the Philippines, the klima Climate Change Center, part of the Manila Observatory, plays an
active role in building the capacities of relevant CDM stakeholders. The Center has conducted
several capacity building activities, funded by different donor agencies, in collaboration with the
Philippine Inter-Agency Committee on Climate Change (IACCC) and the Environmental
Management Bureau (EMB) of the Department of Environment and Natural Resources (DENR).
These activities aimed to provide technical assistance to various stakeholders (e.g. government
agencies, project developers, consultants, NGOs, and local government units) on the different
aspects of CDM.
THE FIRST CAPACITY BUILDING PROJECT OF klima was Capacity Development for the Clean
Development Mechanism (CD4CDM), launched by the United Nations Environment Programme
(UNEP) with financial support from the Government of the Netherlands; UNEP contracted the
UNEP Risoe Centre (URC) to implement the project. Twelve developing countries took part in the
project with the Asian Institute for Technology serving as the regional hub for implementation in
Asia, covering Cambodia, the Philippines and Vietnam. klima was nominated by the IACCC to
implement the project in the Philippines.
CD4CDM-Philippines was a three-year project (2003-2005) that aimed to generate a broad
understanding on the opportunities offered by the CDM and to develop the necessary institutional
and human capabilities to implement CDM projects. CD4CDM-Philippines identified five tasks:

Conduct information campaigns and awareness raising;

Strengthen the capacity of policy-makers;
Support establishment of the institutional framework for the CDM;
Strengthen the capacity of private and public sector players (project developers, financiers,
NGOs, local communities, national research institutions and academe); and
Create a pipeline of CDM projects.

During the three-years, the project was able to increase the awareness of critical stakeholders
through its various activities (public briefings, workshops, technical tutorial courses) around the
1
country . By its end, the project was able to provide assistance to 78% of the identified potential
8

CDM Investment Newsletter Nr. 1/2007

CDM projects ranging from technical assistance to their facilitation and promotion in several market
2
fora .
klima WAS ALSO INVOLVED IN the Establishment of the Clean Development Mechanism (CDM)
National Authority, Operational Framework and Support Systems for the Philippines. This was a
project under the DENR for which EMB was the executing agency. klima conducted several multistakeholder consultations on behalf of EMB which served as a platform to help create a
streamlined operational framework for the DNA. klima also provided expert guidance in the
framing of the rules and regulations together with the functions and responsibilities of the DNA and
its support institutions.
ANOTHER CAPACITY BUILDING PROJECT in which klima was involved was the Integrated
Capacity Strengthening for Clean Development Mechanism (ICS-CDM) project. This was part of
the capacity building initiative of the Japanese Ministry of Environment (JME), for which the
Institute for Global Environmental Strategies (IGES) was appointed as implementing agency. klima
conducted a three-day workshop in 2003 on the different aspects of CDM for key personnel of
DENR to prepare them for their role as the Philippine DNA. In 2005-2006, klima conducted several
CDM training workshops for the different support institutions of the Philippine DNA. These activities
sought not only to enhance human capacities but also to strengthen these institutions policy
framework and to enhance synergies among them for more effective implementation of their
respective roles in the national approval process. klima also published a baseline guidebook with
assistance and funding from this project.
Experience from earlier activities under this project, building capacity in institutions that play a role
in the national approval process, indicated the need to also build capacity of project developers in
order to increase the pipeline of CDM projects. Therefore, the 2006-2007 programme of activities
is focused on providing workshops and technical training courses for this group of stakeholders in
the regions of Luzon.
THE FOLLOWING LESSONS HAVE BEEN LEARNT during the past four years implementing
capacity building activities:

Partnerships and strengthening linkages with various institutions and organizations is key
in spreading awareness among stakeholders. Co-organizing events has proven to be
useful in reaching more stakeholders;
A good working relationship with the IACCC and DENR is critical for the success of CDM
development in the Philippines. The IACCC is responsible for formulating policies to
address climate change while DENR and its support institutions are responsible for
approving CDM projects.
Private institutions such as klima, on the other hand, are responsible for promoting and
building awareness on CDM. Such structural arrangements have been ideal for promoting
CDM and developing the capacity of stakeholders. Maintaining strong ties among these
institutions is crucial;
Identifying the interests and needs of various stakeholders is important when conducting
and organizing capacity building activities. This requires flexibility in their preparation to
ensure that resources and opportunities are maximized. Organizing tailor-made activities is
an effective approach that enables specific stakeholders to maximize their benefits under
the CDM;
Efficient and streamlined (CDM-relevant) institutional policies and regulatory frameworks
would improve the investment climate of the Philippines and increase the development of
CDM projects;
Maintaining a CDM website was very helpful in promoting CDM awareness. klima, under
the CD4CDM project, housed the very first website in the Philippines devoted specifically
to the CDM. It provided useful links and information on both domestic and international
CDM issues;
Funding agencies (developed states and multilateral agencies) played a crucial role in
providing the necessary financial resources to jumpstart the process of building capacity;
without their assistance, such capacity building efforts would not have taken place. Project
developers and government agencies certainly benefited from the workshops.

CDM Investment Newsletter Nr. 1/2007

IN SUMMARY, previous capacity building projects have helped in promoting CDM in the
Philippines. However, the modalities and procedures of CDM are still evolving and require
continuous learning and updating of knowledge. For instance, there are always clarifications issued
and new methodologies being approved by the CDM Executive Board and more project types are
becoming eligible under the CDM, resulting in greater participation from other, hitherto absent
sectors. Therefore, there is a need to continue conducting capacity building activities.
References:
Mallare, Marina. (2006). CDM Pipeline in the Philippines. In Ram M. Shrestha, S. Kumar and M. Anisuzzaman (Eds.),
nd
Proceedings of 2 Extended Regional Workshop on Capacity Development for Clean Development Mechanism (CD4CDM).
(pp. 61-67). Pathumthani, Thailand: Asian Institute of Technology.
Yap, Roberto. (2006). Building Capacity-Strategies and Achievements. In Ram M. Shrestha, S. Kumar and M. Anisuzzaman
nd
(Eds.), Proceedings of 2 Extended Regional Workshop on Capacity Development for Clean Development Mechanism
(CD4CDM). (pp. 101-118). Pathumthani, Thailand: Asian Institute of Technology.
http://www.klima.ph/cd4cdm
http://www.cdmdna.emb.gov.ph
http://www.cd4cdm.org
1

Article of Dr. Roberto Yap entitled Building Capacity-Strategies and Achievements for a more detailed discussion on the
different activities done by the project. It also includes some statistics of the types of stakeholders who attended the
activities.
2
Article of Mrs. Marina Mallare entitled CDM Project Pipeline in the Philippines for a more comprehensive discussion on
the Philippine CDM projects monitored and received assistance from the project.

Realizing the Potential of CDM Projects in

the Philippines, by Jeanette S. Laurente, CDM
Advisor, and Alan Silayan, Senior CDM Advisor, Carbon
Finance Solutions, Incorporated
THE PHILIPPINES HAS COME A LONG WAY IN CONTRIBUTING to the reduction of
greenhouse gasses (GHG) and mitigating the effects of climate change since ratifying the Kyoto
protocol in 2004. With a portfolio consisting of seven (7) registered CDM projects totaling 240,303
tons of co2e in 2006, and a substantial number of projects being validated, the Philippines is
certainly responding to the CDM. Realizing its full potential will, however, require an alignment of
efforts among private, government and non-government sectors.
At a glance, the current CDM portfolio falls far short of the immense potential that the countrys
natural and indigenous resources can offer the CDM market. Looking at the publicly-validated
projects from a sectoral point of view, renewable energy captures more than half of the CER values
in the Philippines while methane capture and landfill projects are close behind. Other than
renewable energy (hydropower, geothermal) and waste management projects, there are only a
small number of biomass cogeneration projects but none of these have been publicly validated so
far. There are also developments for a large scale bio-ethanol plant, a fuel-switch transport project
and an energy efficiency project for a cement facility, but these are still working towards the
validation stage. While there is one known forestry project with a PDD, it might take a longer time
to reach validation stage due to the relative paucity of methodologies.

Landfill, 35,843,
9%

methane
capture
projects,
157,982,
38%

renewable
energy,
220,099,
53%

10

CDM Investment Newsletter Nr. 1/2007

Contrast this actual CDM portfolio with the potential that the country can offer:

First, the power generation sector in the Philippines is still mainly composed of natural gas,
coal and oil. Despite the best efforts of the Philippine Department of Energy to tap the
countrys rich indigenous resources, coal and oil are still projected to occupy a good slice
of the generation pie in the coming years. The Philippine government has high hopes of
decreasing this share of non-renewable resources by promoting wind, biomass, solar,
hydropower and bio-fuels. After all, studies reveal that the Philippines can harness as
much as 760,000MW of wind energy, an average of 5.0 to 5.1 kilowatts per square meter
per day of sunlight annually, approximately 1,784MW for on-grid applications of mini
hydropower, and a good supply of bagasse and other by-products of agricultural
production in the country;
Second, the garbage being generated that amounts to around 10.67 million tons per year
offers a good potential for landfill projects, as well as the wastes generated from various
industrial processes and livestock that can be subjected to anaerobic digestion;
Third, cement production and other industrial processes can be tapped for various fuelswitch and energy efficiency projects;
Fourth, is the extreme need for the Philippines to salvage its degrading forests, which have
lost more than half of their vegetation in recent decades;
Finally, with almost 7 percent increase in the rate of registered vehicles in 2004, which
brings a total of more than 5 million vehicles plying the streets in the country, transportation
projects that reduce transport emissions are recommended as well.

SEVERAL CONCLUSIONS CAN BE DRAWN FROM THIS SEEMINGLY CONTRASTING DATA.

First perhaps, one should look at the strategic sectoral drivers that support, on one hand, the
countrys quest to obtain a piece of the CER pie, while, on the other hand, the country has so far
failed to turn its potential into actual projects:

In the field of renewable energy, the RE Bill might actually hold the key to pushing for more
CDM projects. If all goes to plan, the RE Bill should be passed in the senate soon, . This
will provide a clear context within which all future RE projects will operate and will set clear
and well-defined parameters, as well as clear-cut benefits, for RE project operation thereby
increasing market confidence in renewable energy investments. The deregulation of the
energy industry in the Philippines, as legislated under the EPIRA law, has, and still plays a
key role in mainstreaming RE projects, as well as in fostering the wholesale electricity spot
market. On the downside, however, is the high cost needed to start these kinds of projects
(the technologies will need to be imported from developed countries and the huge initial
investments);
In the waste management sector, the Solid Waste Management Act provides a directive for
local government units (LGUs) to provide sanitary landfills for their constituents. A lot of
LGUs are beginning to see the potential of capturing the methane in such landfills for new
sources of energy and carbon credits. However, they are having a difficult time in
complying with the Act in the absence of financial and technical support. While the
technology is there, there are only a handful of organizations that would consolidate all
necessary needs/systems for a landfill to be in place: i.e. financing, technology, design,
etc.; here lies a large potential for companies to fill the gap;
For other methane capture projects, the Clean Water Act stipulates that a non-permeable
liner be in place for areas where waste is deposited. Technology to capture methane from
this type of project is available from providers of equipment for raising livestock, but the
lack of an organization that will match the technology with the users needs prevents the
full potential of methane capture projects from being realized; in addition, the sources of
livestock waste are small backyard farms (almost 75 percent of hogs, 94 percent of cattle
stock and 99 percent of carabao stock in 2006);
As an agricultural nation, there is also a huge potential in the Philippines for biomass
energy from rice hull/husk, sugarcane bagasse, coconut husks etc. One must be in the
right region and have the proper processing technologies to benefit from the potential to
produce biomass fuel and, once again, there is a need to find (technology) experts who
can process the existing potential for biomass and who could match the needs of biomass
providers and biomass users;
In the industry sector (cement, paper, steel, and chemicals) it would be necessary to obtain
a large-enough pool of facilities in a particular branch in order to make the available
11

CDM Investment Newsletter Nr. 1/2007

environmental technologies economically viable and for them to be perceived as being less
risky;
In the transportation sector on the other hand, the challenge has remained the monitoring
of transport project activities. But there are high hopes for a lucrative CDM market for this
sector with the recent passage of the Biofuel Bill that requires 5 percent bio-ethanol blend
within the next two years;
But perhaps an overarching driver that will ultimately dictate the pace of Philippine
participation is the Philippine DNA itself. Agreed, the structure is in place and project
approval is moving, but at a slow pace. More than a year after its installation, still only a
handful of projects have been approved and a number of projects are pending approval.
Steps are being taken (i.e. capacity building) to increase the pace of projects being
approved and, if all goes as planned, a spurt of CDM projects is expected be seen coming
through the Philippine DNA.

CaFiS HAS IDENTIFIED SPECIFIC PREREQUISITES/FACTORS that determine success in

getting a project to be registered under the CDM, based on the strategic drivers and how local
stakeholders currently play on the CDM field:

GHG reduction potential a project must first and foremost have a potential for GHG
reduction. The larger the potential, the better the chances for CDM financing and the
greater the chance of getting it registered ahead of the others. For example, CaFiS has
encountered a number of projects with good sustainable development benefits, but the
GHG contributions are so small that the transaction costs cannot be covered by the CDM,
hence the projects do not push through or must wait to be bundled with other small ones;
Technology project proponents must use tested and available technology. Experimental
technology, while it may have huge potential for GHG reduction, will first have to be
validated and measured against its claims. Moreover, the technology must be complete
as often auxiliary technologies, required for monitoring emission reductions, may not be
part of the technology package. Among the CDM projects that have achieved success in
application and processing are those with a solid technology background, i.e. wind and
methane capture from manure and wastewater;
Project finance a critical component of any project. In the Philippines where the financial
products are not as sophisticated as in other countries, project financing is often missing
and/or lacking in many project proposals. Local banks are still testing the CDM waters, with
it often taking years for clean energy projects to obtain loans for their projects;
CDM transaction cost a project proponent who is not aware of the availability of carbon
credits or may perceive such to be highly risky will not be willing to pay the transaction
costs. It still takes a lot of work to convince local project proponents to initiate financing the
CDM component of their projects; most CDM projects in the Philippine pipeline are
sponsored, i.e. the transaction costs are paid by external entities in advance or are
subsidized.

Another critical factor in realizing the potential of the CDM in the Philippines is the structure of CDM
transactions. Having a deal structure that is suitable for and beneficial to both project proponent
and carbon buyers is critical.
Deal structures in the Philippines for carbon credits have evolved since the beginning of the CDM.
Initially, even when the Kyoto Protocol had not yet entered into force, the World Bank, through the
Prototype Carbon Fund, had already contracted the first project in the Philippines; focusing on
renewable energy, an Emission Reduction Purchase Agreement (ERPA) was signed at a price
reflecting the high risk the Bank was taking as this was one of the first CDM projects in the world.
At that time, project financing was handled by the project proponent either through a grant or debt
from development banks in the country and the transaction costs were borne by the PCF.
As more projects emerged other transaction structures also surfaced. In particular a unilateral
approach became prevalent among project developers that, typically more liquid than most, chose
to shoulder much of the risk from project finance and the transaction costs. These companies also
chose to make the most out of the carbon credit benefits by banking them until an appropriate time
or a until good offer was made.
Now there are other, more creative deal structures, such as those where carbon buyers are
interested in investing directly in the project in exchange for an ERPA signed early on in the
12

CDM Investment Newsletter Nr. 1/2007

project. This is clearly a more aggressive structure often implemented by international carbon
traders whose main product is the CERs themselves. A structure like this ensures them of credits
early on in the project implementation stage.1
In the future, as carbon buyers become more aggressive and the market becomes more
competitive, it may happen that carbon buyers become interested in making upfront payment for
the future delivery of credits from projects. Today this is seen as a high risk structure that no
company enters into2. In the future however, as technologies, project development and the
international framework becomes more reliable, such a structure may actually become more
feasible.
The table below summarizes the evolving nature of transaction structures in CDM development in
the Philippines. While all of these structures are still present in the market, what is clear is the
increasing creativity and aggressiveness with which deals are being made.
CDM
transactions
stage
of
development

Early
Transactions

Evolving
Transactions

Current
Transactions

Future

Project proponent

High
risk,
not
willing
to
pay
transaction costs

Unilateral, carries all

investment risks and
transaction costs

Better informed about

carbon credits

No risk

Transactions

Interested in trading
credits themselves

Credit buyers

Willing
to
pay
transaction costs
Low ERPA prices
No project finance

Unilateral
transactions do not
necessarily involve a
buyer

Willing to pay for part of

project costs
Higher ERPA prices

High
awareness
CDM

of

Upfront
payment
credits

of

More aggressive deal

structures
ERPA,
finance
Pays
costs

with
for

project

transaction

THE SEVEN REGISTERED PROJECTS IN THE PHILIPPINES, as well as those validated, have
satisfied all prerequisites and have used the strategic sectoral drivers, which may make or break
their CDM participation, to their advantage. This has led to the Philippines being on board the
CDM. However, it is unfortunate that the countrys potential for CDM has not been fully tapped
either because some strategic drivers are not yet fully in place or they are there but are not fully
utilized. Project-specific circumstances that hinder the fulfillment of any of the identified
prerequisites for CDM participation also hinder maximum utilization of the countrys potential.
1

Ed: Other carbon buyers are increasingly purchasing credits post facto, i.e. once projects have been registered and/or
when CERs have been issued. This completely reduces the risk profile for obtaining the credits and is mostly linked to the
European compliance market with subsequently higher prices paid per unit.
2
Ed: However, several national CDM programmes do have such a scheme built into their contracting procedures.

Readers that are interested in presenting their experience or activities are requested to submit an outline to the editors
(newsletter@climatebusiness.net); details on type of content and the publication schedule can be found on our Web
site http://www.climatebusiness.net. Please note that articles should not exceed 2,000 words!

Readers might be interested in the business news facility on CBNets Web site http://www.climatebusiness.net which
presents some of the recent and historical (last 3 years) electronic press cuttings on the business aspects of climate
mitigation activities. The items show the title and introductory lines as well as provide a link to the full article.

13

CDM Investment Newsletter Nr. 1/2007

Bureau of
Environmental
Analysis
(BEA International)
Dr. Patrick Karani
Mt. View # 121
Westlands off Waiyaki Way
P.O. Box 15953 Nairobi 00100
Kenya
Tel: +254(020)631174,(020)631433
Fax: +254(020)631421
Web: http://www.beainternational.org/
Contact info@beainternational.org

Climate Business
Network
(CBNet)

Dr. Peter Pembleton

Managing Editor
newsletter@climatebusiness.net
Frankenberggasse 9/10
A-1040 Vienna, Austria
T: +43 (0) 6991 9748451 (mobile)
F: +43 (1) 913 4058
Web: http://www.climatebusiness.net/
General queries info@climatebusiness.net

Contributors
Joyceline A. Goco (joy goco (joygoco@yahoo.com),Supervising Environmental Management
Specialist at EMB and Member of the CDM Secretariat of the DNA and Charmion Grace S.G.
Reyes, Technical Specialist, EMB-UNDP Project on the Establishment of the CDM National
Authority
Sandee G. Recabar (sandee@observatory.ph), Marina T. Mallare (marina@observatory.ph)
and Broderick S. Sapnu, CDM Services of klima Climate Change Center, Manila Observatory
Jeanette S. Laurente, CDM Advisor (jlaurente@cafisinc.com), and Alan Silayan, Senior CDM
Advisor (asilayan@cafisinc.com), Carbon Finance Solutions, Incorporated

14