colombia final market readiness proposalthepmr.org/system/files/documents/pmr colombia - final mrp...

PMR Partnership Assembly – Cologne, Germany May 25-27, 2014

Colombia Final Market Readiness Proposal

May 25, 2014


MRP focus and objective

The MRP is aimed at developing carbon market instruments in Colombia’s transport sector.

Final MRP contains same instruments as draft:

• (i) Credited NAMAs in the urban transport sector;

• (ii) Domestic offset scheme

• (iii) Assessing the introduction of a performance standard for vehicles combined with allowances


3

MRP draft presentation (Mexico) PMR Colombia team discussions and own summary of

issues Discussion with PMR consultants on issues where

clarification was sought Development of new version for internal review PMR feedback received PMR feedback responded and included into final MRP Final MRP produced Discussion with high-level government stakeholders in 4

ministries (MoT, MoE/MADS, DNP, MoF) Assessment of PMR fund operationalization

Process of Revising MRP


4

DNP, MoE and MoT provide greater feedback as to past and current projects, which help structure counterpart funding:

Sustainable transport policy concept (MoT)

Performance standard assessment (MoE/MADS)

Carbon tax (DNP)

Government cooperation agency created and involved in assessment of PMR funds operationalization

Update on Context


5

Issue / question Response

Clarification sought on the

difference between domestic offset

scheme and NAMA crediting

Covered via seeking avoidance of double-counting

A little bit puzzled on ‘performance

standard & ‘feebates’, and its

potential

During implementation a study is previewed which shall

look at different systems for performance standards

and different experiences thereby suggesting a system

apt for Colombia and learning from other experiences

Offset scheme would be financed by

national public monies?

Not public monies as these do not enter the general

budget but are earmarked taxes

Clarify the offset part of the

compensation/offset scheme

Buyers are the fund itself which receives the money from

the fuel tax i.e. indirectly the Colombian fuel users buy

Colombian transport offsets thus the transport sector itself

cleans up some of its emissions (new diagram included)

The price of fuel might influence

the consumers’ choice of vehicle

technology and the choice of

private vs. public transport.

These “effects” are already included in the estimated

elasticity. The effect of mode-switch, if it actually occurs,

would be reflected in lower fuel consumption and covered

with the elasticity. It might be an efficient instrument in

terms of low transaction cost and simplicity but not a

useful instrument to reduce GHG emissions

Feedback and responses

“domestic offset scheme”:

System including a

transport levy which will be

earmarked in order to

support transport projects?

it includes validation and

registration with a

transparency and

independence making a simple,

transparent and creditworthy

system


BB1: The Big Picture


ENREDD+

ECDBC

EPFD

PNACC

National Development Plan 2010 – 2014

(CONPES 3700 / 2011: Policy for Climate Change)

The Colombian Low

Carbon Development

Strategy

The REDD+

National Strategy

The Strategy for

financial

protection against

natural disasters

The National

Adaptation Plan for

Climate Change,

Climate policies


BB2: Policy framework


Conclusions of instrument assessment

• NAMAs could be established for urban transport projects as well as for CO2 performance standards of vehicles.

• A domestic offset scheme, funded by the income from a low carbon levy, could be implemented at the same time or in a 2nd step.

• A stand-alone carbon tax in the transport sector, or the inclusion of transport in an ETS, are not considered viable

• A performance standard is considered as an interesting instrument and can be effectively combined with a MBI based on allowance or permit trading.

• Work in Colombia on NAMAs, compensation funds, performance standards strengthen the implementation


BB3: Core Technical and Institutional/Regulatory Market Readiness Components


Proposed institutional setup for PMR implementation

NAMA Entity & Domestic Offset Administrator

UMUS

Program / NAMA Participant 1

Municipality


Private Transport Company


Transport PPP

Second-Level

Verificator

ICONTEC/Expert Panel

Fiduciary & Fund Financial Manager

APC or UMUS

Management Board Inter-Ministerial

Committee

MinTrans

UMUS

MinHac

CONFIS

MADS

DCC

DNP

DIES

Liaison to

UNFCCC

DCC


Proposed financial setup for MBI management

tbd


BB4: Planning for market-based Instruments in Colombia’s transport sector


1. Scaled-Up GHG Crediting Instrument for Transport NAMAs

• NAMAs developed following a standardized and structured step-wise development methodology. Proposed:

– urban transport NAMA,

– NMT/TOD NAMA (NMT+)

– vehicle performance standard NAMA


Existing transport NAMAs in Colombia Action Stage Sector Sub-sector Objective

Improvement of

road-based freight

sector

Proposal/Planning Transport Road vehicles

cargo Accelerate the renovation of the cargo vehicle fleet

with the aim to improve economic competitiveness

and environmental performance of the freight

transport sector Electric vehicles

NAMA Concept Transport road vehicles

cargo and

passenger

Substitute conventional vehicles with electric

vehicles. The penetration of electric vehicles

should reach 20% for the passenger sector, 30%

for taxi fleets and 30% for urban freight. Transit-oriented

development Concept Transport Passenger

transport Integrate climate change mitigation variables into

local land-use plans and urban planning. Supported

by NAMA Facility. Non-Motorized

Transport idea Transport NMT No specifics yet

Urban Transport idea Transport Passenger

transport No specifics yet

Demonstration and

assessment of

battery-electric

vehicles for mass

transit in Colombia

Pilot studies (being

analyzed with GEF

cooperation)

Transport Passenger

transport Promote battery-electric, large-capacity vehicles

for mass transit in Colombia by means of

removing technology, regulatory, awareness and

financial barriers, as a measure to reduce GHG

emissions and improve local air-quality Low-carbon and

Efficient National

Freight Logistics

Initiative

Pilot studies (being

analyzed with GEF

cooperation)

Transport Freight

transport To reduce GHG and criteria pollutants emissions

from freight transportation operations in Colombia


2. Domestic Offset Instrument for Transport

• National compensation fund for domestic transport offsets.

• Compensation fund financed from a carbon tax on transport fuels

• Funds used to finance domestic reduction projects in the transport sector.

• Carbon levy would partially replace the fuel surplus tax (see graph)

75 75

25 24.5

0.5

0

20

40

60

80

100

120

Existing fuel

price

composition

Proposed fuel

price

composition

carbon tax

Surcharge

Regular cost

Indicative

exercise with

1 USD / liter

consumer

price (w/ 0.5

cent carbon

tax/levy)

Sugerencia: Me parece importante presentar un poco mas sobre el concepto del domestic offset scheme, financiado a partir de una revision del transport (carbon) levy ya existente. Esto me parece importante.

Sugerencia: En una 2da lamina, se podria incluir el ejercicio de Grutter sobre el impacto de este instrumento, en cuanto a con un levy bajo, cuantos ‘offsets’ se podria comprar a proyectos nacoinales (ver tabla que incluyo en su informe).

2012

gasoline

price:

128 c/ l

levy


Offset fund/credits logic


3. Performance Standard for Vehicles with Permit/allowance trading

• Performance standard for vehicles combined with allowances • Allowances can be traded between importers and producers. • EU: maximum CO2 emissions per km for car fleets (manufacturer or

importer level). • Legislation sets binding emission targets for new car and van fleets. • Only fleet average is regulated: manufacturers balance vehicles w/

emissions above the limit value curve and vehicles below the curve. • If average CO2 emissions of a manufacturer's fleet exceed its limit

value in any year, it has to pay an excess emissions premium for each car registered

• Based on the penalty price, importers or manufactures can therefore have an incentive to sell cars with low GHG emissions with a lower profit rate and put a levy on cars with higher GHG emissions (avoiding the penalty).

Sugerencia: Siilar a mi sugerencia para el instrumento 2, domestic offset instrument. En este caso, quizas aun puedes complementar con un grafico/esquema. Y/o, si se resalta el impacto potencial del performance standard (datos de Grutter)


An example scenario

146.67

177.50

125.00

0

50

100

150

200

250

300

Car A1 Car A2 Car A3 Fleet

Average

Car B1 Car B2 Car B3 Car B4 Fleet

Average

Car C1 Car C2 Car C3 Fleet

Average

Importer A Importer B Importer C

Example: Vehicle emissions (grCO2/km)

150 grCO2

max

trading


BB5: Organization, Communication, Consultation and Engagement


Key agencies

Main agencies involved • Ministry of Environment and Sustainable Development (MADS) • Ministry of Transportation • Ministry of Finance • National Planning Department • APC (Government Cooperation Agency) Others identified as relevant agencies: • Ministry of Mines and Energy • Ministry of Industry, Commerce and Tourism • Ministry of International Commerce


Capacity needs to be addressed

ID Capacity Building Area Description

1 Baseline setting, GHG ER

estimation, SD valuation and

MRV principles

Methods of baseline setting in transport; determination of ERs

including baseline, project and leakage emissions; identification

and quantification of SD impacts; MRV elements. 2 Management Domestics Offset

(DO) fund Key aspects and guidelines for managing a DO fund including

project identification, project approval process, control, guidance

documents, QA, communication strategy, reporting etc. Includes

initial training and follow-up / hand-holding 3 NAMA Operation and

Management UMUS will have to train its staff and develop internal guiding

documents to operate the NAMAs 4 Verification: Training of Trainers UMUS/ICONTEC will need to train validators / verifiers. This TA

will prepare them to be trainers. 5 NAMA / Domestic Program IT

System Operation UMUS will have to use IT-based solutions to manage, record and

track progress of the Domestic Offset Program and the NAMAs 6 Knowledge Management (KM

Strategy Operation The IT Program mentioned above should contain KM provisions

and UMUS will have to be trained specifically on using those to

avoid losing the acquired capacity.

7 Local level Capacity building at the local level on issues of carbon market instruments in transport sector, where relevant


MRP budget, counterparts, timeline, and assessment of fund operationalization


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Activity Deliverable Timing Funding

MBI 1: NAMA Development Urban public transport NAMA development NMT+ NAMA development Performance Standard NAMA development External validation of NAMAs 3 entities

Overall Budget $1,200,000

Request to PA $100,000

MBI 2: Domestic Compensation Fund

Detailed fund structuring Development of guiding documents and templates Procedures and guidelines for assessing baselines

Overall Budget $550,000


MBI 3: Performance Standard for Vehicles

Study to assess international experience Stakeholder involvement for performance standards Detailed MRV system for implementation



Activities, Deliverables, timing and Funding for PMR (1)

Ojo plata


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Activity Deliverable Timing Funding

Capacity Building Packages Baseline setting, GHG ER estimation, SD valuation and MRV principles Management of the Domestics Offset fund NAMA Operation and Management Verification: Training of Trainers IT System Operation Knowledge Management



Operation of MBI Management Entity

Development of manual for costing, management of entity and running MRV Training to potential participants to the DO Program



MRV development Baseline Determination Monitoring Verification


Request to PA $1,150,000

Communication and stakeholder engagement

Communications strategy Consultation mechanisms Capacity building and knowledge management



Activities, Deliverables, timing and Funding for PMR (2)

Ojo

plata


Timeline (1)

ID Activity Year 1 Year 2

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

MBI 1: NAMA Development

1 Urban public transport NAMA development, including baseline studies (fuel efficiency studies, occupation rate studies), MRV concept and financial structuring

2 NMT+ NAMA development, including baseline, MRV concept, household survey design and approach and pilot household surveys and financial structuring

3 Performance Standard NAMA development, including regulatory assessment, baseline setting, MRV concept and financial structuring

4 External validation of NAMAs 3 entities

MBI 2: Domestic Offset Scheme

4 Detailed fund structuring, including regulations and work concept

5 Development of guiding documents, templates for project development, validations and verifications

6 Procedures and guidelines for assessing baselines, emission reductions and MRVs for domestic offset programs

MBI 3: Performance Standard for Vehicles

6 Study to assess international experience with performance standard and design possible approaches for Colombia

7 Stakeholder involvement for performance standards

8 Establishment of a detailed MRV system for implementation

Sugerencia: Esta y las siguientes laminas con matrices sugiero mantenerlas ‘for completeness’ y para dar el mensaje que se lo tiene estudiado/programado. Mas, entiendo que no te tomaras tu tiempo en revisarlas y presentarlas, no? Sugiero simplemente saltarlas al momento de llegar aca.


Timeline (2)


Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

Capacity Building Packages

9 Baseline setting, GHG ER estimation, SD valuation and MRV principles

10 Management of the Domestics Offset (DO) fund

11 NAMA Operation and Management

12 Verification: Training of Trainers

13 NAMA / Domestic Program IT System Operation

14 Knowledge Management (KM System Operation)

Operation of MBI Management Entity

15 Administration costs: Set-up, training of dedicated staff, operational costs (NAMA Entity)

16 Staff and office costs UMUS for MBI program

17 Management costs: Document management, GHG accounting, issuance, tagging and certification of generated ERs, cost of other decision-support tools

18 Marketing & Communication Costs

19 Training to potential participants to the DO Program/NAMAs on the type of projects, methodologies, GHG ER and SD calculations, etc.

20 IT management

21 Costs for running MRV system

TOTAL


MRV timeline

ID Activity Year 1 Year 2 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

Baseline Determination 1 Occupation rate studies 2 Fuel efficiency studies 3 Overall baseline urban transport 4 Household survey design and approach 5 Household surveys (pilots) 6 Overall baseline NMT+ Monitoring 7 MRV detailed approach urban transport 8 MRV detailed approach NMT+ 9 Passenger surveys year 1 (4 cities) 10 Household surveys year 1 (4 cities) 11 Monitoring report urban transport year 1 12 Monitoring report NMT+ year 1 Verification 13 Detailed system design incl. procedures and

templates

14 Capacity building verifiers 15 Capacity building registry 16 Cost validations international (2 units)


BB5 activities timeline


Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

1 Communications strategy

2 Consultation mechanisms

3 Capacity building and knowledge management


35

Summary of Total PMR Funding Request for Implementation Phase

Issue / component Total Budget Request to PA

MBI 1: NAMA Development $1,200,000 $100,000

MBI 2: Domestic Compensation Fund $550,000 $140,000

MBI 3: Performance Standard for Vehicles $100,000

$150,000

Capacity Building Packages $400,000 $200,000

Operation of MBI Management Entity $1,300,000 $900,000

MRV $1,6500,000 $1,150,000

Communication and stakeholder engagement $700,000

$360,000

TOTAL $6,200,000 $3,000,000

Ojo plata


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Colombia acknowledges the need to review options to potentially receive funds from PMR

Work has moved forward in evaluating how to operationalize the funds, to avoid delays in implementation

Steps taken towards operationalization of PMR Fund


How to operationalize PMR funds?

• Assessment developed PMR Colombia team

– Fiscal year, assignment of funds

– Previous experience from MoE

– Existing funds and executing agencies

– Advise from governmental entities, World Bank


How to operationalize PMR funds?

General

option

Pro’s Con’s Assessment

Single entity

– APC (Col

coop agency)

Available budget

allocation 2015

Can receive and

administer funds

Not WB approved

Adds one step to

contractual process

Once WB approval is done, best

option.

Single entity

– UMUS

WB approved

executing entity

• Not enough

2015 budget

allocation

• May not be able

to receive funds

Second best option

Multiple

entities

(MoT, MoE,

DNP, MoF)

Directly with

each entity

involved

Very difficult to

operationalize

Last resort

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