Energy

Developing Financing Model for Energy Efficient Practices in the PRC

Date posted: 
Nov 18 2008

The China Utility-Based Energy Efficiency Finance Program (CHUEE) is established to provide market-based solutions that will promote novel and sustainable financing model to promote energy efficiency in the private sector. In March 2008, participating banks in the CHUEE program approved 70 energy efficiency loans, with a loan portfolio of US$ 243 million. Interestingly, projects financed by the loans contribute to a net annual reduction of greenhouse gases of 4.3 million tons.

Responsible Party: 
Regulated Community
I. Objectives or Impact: 

Pressures from population growth create a heavy demand for energy resources. In China, economic growth puts a heavy toll on energy resources. Since 2001, energy consumption was seen to increase much faster than GDP. The increase in the country’s living standards created a demand for products. Also, the flourishing of the heavy industry in China is quite rapid due to its growing position in the world market as a competitive player in the sector. Interestingly, the demand pressures might naturally prompt producers to churn out large volume of products at the expense of efficiency, especially in energy use. The China Utility-Based Energy Efficiency Finance Program (CHUEE) is established to provide market-based solutions that will promote novel and sustainable financing model to promote energy efficiency in the private sector.

II. Description of the Good Practice (Outputs): 

Past experiences show that investments and efforts to promote energy efficiency, both in the household and firm levels, can be profitable. For example, conversion to less carbon-intensive energy sources is doable, and in fact can be a source of income. However, a major barrier to actual implementation is the scarcity in financing. It is typical that local banks have a skeptical view on the profitability of environment projects per se. Also, the guidelines of banks are often not aligned with the peculiarities of environment and renewable energy projects (e.g. long gestation periods, issues on track records of borrowers). Also, banks are most often not equipped to evaluate these projects. The International Finance Corporation (IFC) of the World Bank leverages its experience with renewable projects in promoting energy efficiency via the development of novel financial models and schemes. The CHUEE program is co-funded by the IFC, the Global Environment Facility, and the Finnish and Norwegian governments. The program offers a risk-sharing facility for partner banks and tailored advisory services that aim to develop the partner banks’ capacity to appraise projects, and at the same time develop its approval process and credit-underwriting procedures.

III. Outcomes or Results: 

Recently, the IFC signed a memorandum of understanding with the China Export-Import Bank to provide capacity building on the bank’s environmental and social risk management policy and practices for overseas investment. Since 2007, more than 1,400 product managers, credit officers, and loan officers from 100 business outlets in the country received energy efficiency financing training from the IFC. The participating banks included the Industrial Bank, the Bank of Bejing, and Shanghai Pudong Development Bank. Industrial Bank is the initial bank partner in the program. The linkage between IFC and the Industrial Bank started in 2004, with the IFC’s initial investment of US$ 52 million on the bank. The first-phase of the risk-sharing arrangement in 2006 made possible the creation of a facility that has been used to leverage a portfolio of US$ 65.7 million of energy efficiency equipment and project loans for small and medium-scale projects. Projects typically pursued were industrial boiler retrofitting, wasted heat recovery, co- and tri-generation projects for district heating, power saving, and optimization of industrial energy use. The initial efforts of the IFC and Industrial Bank attracted two prominent international co-investors, namely the Hang Seng Bank of Hong Kong and Singapore’s GIC Special Investments. In March 2008, participating banks in the CHUEE program approved 70 energy efficiency loans, with a loan portfolio of US$ 243 million. Interestingly, projects financed by the loans contribute to a net annual reduction of greenhouse gases of 4.3 million tons.

A. Policy Framework: 

One of the crucial steps for endeavors like this is how to fully incorporate a lending program for environment projects within the bank. Given the financial viability of environment projects, resistance from the top management of formal institutions is present. In the case of the CHUEE program, a memorandum of understanding was undertaken between IFC and the partner bank. A careful and explicit risk-sharing arrangement needs to be laid out due to perceived technical and financial risks of energy conservation investments and lending among industrial enterprises and banks.

On the side of the government, policy and regulatory interventions are required complements to encourage industrial enterprises to invest on energy efficient practices. This is pressing given a presence of the large size and share of energy-intensive industries in the economy. Strong regulatory policies, especially command-and-control schemes, and monitoring activities, might be required especially if inefficient practices are already widespread.

B. Budgetary and Financial Requirements: 

(see materials and resources; further information)

C. Human Resources: 

Initially, reliance for technical support for evaluation from outside expertise might be heavy. In China, support was given for staffing development, capacity building, and training. Trainings were also provided to instill due-diligence on skills related with project development and appraisal of energy efficient projects.

D. Material Resources: 

Aside from the financing requirements and support for partner banks, resources might also be required for energy conservation investment promotion, particularly via project demonstrations. Testing of business models and institutional arrangements will require resources for pre-investment activities like feasibility studies and the development of new financing mechanisms.

E. Institutional Support: 

For programs that aim to introduce novel practices, support from the banking sector might be required. For China, the IFC supported a series of national workshops to present successful case studies of subprojects.

F. Planning, Scheduling or Sequencing of Activities: 

The gestation period of programs that aim to promote sound practices on energy conservation is long, especially given perceptions on the nature of environmental investments. For China, the memorandum of understanding occurred in 2004. The initial years might just be devoted towards analyzing the capabilities of the banking sector with regard to business development. The development of strategies, financing models, and appropriate sectoral arrangements and practices, might occur after two years. Scaling-up of the lending activities might happen during the later years of the program.

V. Further Information: 

Preventive Air and Noise Pollution Programs in Small Communities: The Case of Palawan, Philippines

Date posted: 
Nov 19 2009

Various programs that aim to minimize air and noise pollution from the transport sector are being implemented. These programs are usually conducted in areas with large and dense population or areas where flow of traffic and people are heavy. The aim is to improve air quality via the application of command and control schemes or market based instruments in the transport sector. Interventions could also involve introduction of alternative technologies (e.g. electric buses) or arrangements (e.g. limitation on number of vehicles via coding schemes).

Responsible Party: 
Regulated Community
I. Objectives or Impact: 

Various programs that aim to minimize air and noise pollution from the transport sector are being implemented. These programs are usually conducted in areas with large and dense population or areas where flow of traffic and people are heavy. The aim is to improve air quality via the application of command and control schemes or market based instruments in the transport sector. Interventions could also involve introduction of alternative technologies (e.g. electric buses) or arrangements (e.g. limitation on number of vehicles via coding schemes). However, there are few cases which showcase the promotion of air and noise pollution minimization in small communities. The common argument is that in small areas, air and noise pollution are relatively minimal. This notion tends to look at policies on pollution as curative rather than preventive. Also, if unchecked, the pace of growth has a greater tendency to overtake policy on pollution and environment. Thus, it becomes equally relevant for small communities and rural areas to undertake policies that would prevent air and noise pollution. The case of Palawan showcases possible preventive interventions that can be put into place. It also makes a point that preventive interventions are effective and could even be less costly to undertake. The objective of the effort is to promote awareness on the need to undertake preventive policies on air and noise pollution in small cities or rural communities.

II. Description of the Good Practice (Outputs): 

The Asian Development Bank extended a technical assistance to Puerto Princesa, the city government of Palawan in the Philippines, for the identification of strategies that will reduce air and noise pollution from tricycles. The tricycles are targeted since this is the prime mode of transportation in the area. Also, if unchecked in terms of the number of vehicles, this sector can be a potential source of air and noise pollution in the city. The activities of the assistance involved the following components: (1) improving tricycle emissions by strengthening the operators’ and members’ technical and managerial knowledge base, (2) establishment of a fund that will be used for possible purchases of cleaner technologies by operators, and (3) enhancing the city government’s capacity in enforcing the Clean Air Act (e.g. roadside emission monitoring). A crucial activity undertaken by the project is soliciting the support of the stakeholders via consultations during the project’s implementation phase. In particular, a micro-finance institution is tapped to administer and manage the operators’ and drivers’ multi-purpose fund.

III. Outcomes or Results: 

Interestingly, the project’s strength is increasing the know-how of those who actually operate and use the tricycles. From the point of view of operators, there is an incentive for this since it ultimately affects their day-to-day earnings. Through demonstration and training, drivers were taught how to give proper preventive maintenance or basic clean-up of tricycles. For the initial training, a total of 161 tricycle drivers benefited. Currently, other associations are requesting the same demonstration training. With regard to the air quality management training, the Philippine Nuclear Research Institute (PNRI) was engaged to provide training on the handling, operating, and maintenance of the air samplers. The PNRI also oversaw the training on the collection of air samples and analysis of the collected samples for the presence and concentration of particulate matters. On roadside emission monitoring, the Environment Management Bureau (EMB) administered the training.

A. Policy Framework: 

The effort required various forms of arrangements given the channels undertaken by the project. In terms of the establishment of funds, a Letter of Engagement (LE) or a Memorandum of Agreement (MOA) might be required. The MOA or LE is needed to lay down rules on how the fund will be established and disbursed. On the side of regulation, rules identifying who would eventually perform the task of monitoring air quality need to be determined. A legal delineation of duties of the relevant local government divisions is required. Also, the identification of the office or staff who would be the eventual enforcers would need clearance from other national agencies. In the case of Palawan, sanction from the Department of Transportation and Communication/Land Transportation Office was required.

B. Budgetary and Financial Requirements: 

(see materials and resources)

C. Human Resources: 

The program would involve upgrading of skills of operators. Training on proper engine maintenance for operators and drivers are required. On monitoring of emissions and air quality, existing personnel in the local government can be used. However, these personnel will need certification from national agencies tasked with handling the transport sector and monitoring air quality. For the case of Palawan, involvement from the EMB and the DOTC was critical. With the use of equipment for air sampling, the local government should also have a staff dedicated on the proper maintenance and use of the equipment. This would require training on the setting up and operation of the samplers, and the proper handling storing, and transporting of the air filters.

D. Material Resources: 

The program will require additional capital equipment that will be used for air quality monitoring and road emission testing. For Palawan, a high volume air sampler was required. Machines needed for the handling, storing, and analysis of air samples are also critical.

E. Institutional Support: 

The program is dependent on the support of both public and private institutions like non-government agencies, national agencies and offices, and local communities. For Palawan, the setting up of fund required the support of the Negros Women for Tomorrow’s Foundation. Support from the Department of Science and Technology was also solicited with regard to the provision of technologies on cleaner production.

V. Further Information: 

Air and Noise Pollution Strategies for the Tricycle sub-sector in Palawan, Philippines: Project Interim Report. www.adb.org www.povertyenvironment.net

Sharing of Innovation on Pollution and Recycling: The Case of Eco-Patent Commons

Date posted: 
Nov 29 2009

Technologies that promote pollution control and prevention, recycling, and energy efficiency have already been developed by many industries and companies. These technologies and practices were products of the research and development efforts by industries. There are benefits to be derived from sharing of these technologies. However, some of these technologies are considered to contribute to the competitive advantage of companies.

Responsible Party: 
Regulated Community
I. Objectives or Impact: 

Various technologies and practices to protect the environment have already been developed in many countries. These practices include energy conservation via improved energy efficiency, pollution prevention, and recycling. Interestingly, these practices have shown to be effective and in fact are embraced by the private sector. One of the barriers though is that these practices are considered to be a private asset. Companies may not be willing to share these technologies so as to preserve competitive advantage in terms of cost efficiency. Given this scenario, other countries or companies would not be able to access these successful and deemed effective technologies. However, it is recognized that certain patents on environment practices may not be a source of competitive advantage. These technologies can create greater benefits if recognized as a “common commodity”. Innovation, similar to that attained in the open source technology market, may be had if such commodity is accessible to other parties. The practice aims at encouraging various forms of innovations that will improve efficient use of resources in producing manufactured commodities. Innovations geared towards proper disposal of wastes are also encouraged.

II. Description of the Good Practice (Outputs): 

The Eco-Patent Common was conceived in Switzerland and New York by the World Business Council for Sustainable Development. Its aim is to make certain technologies accessible to potential users, specifically those who would not be able to afford royalty payments. The identified “commons” will be in a searchable website hosted by the World Business Council for Sustainable Development (WBCSD). It will be dependent on pledges made by participating companies. Practices that can be pledged would be those pertaining to (1) energy conservation, (2) pollution prevention, (3) use of environmentally preferable inputs and materials, (4) materials reduction, and (5) recycling.

Currently, the WBCSD brings together 200 international companies with a common commitment of pushing for sustainable development though the sharing of good technologies and disposal practices.  Members are drawn from 30 countries and 20 industrial sectors. 

 

III. Outcomes or Results: 

The establishment of the Eco-Patent Common is expected to benefit both the contributors and the users. Participation in the Eco-Patent will likely produce global recognition for businesses pursuing activities and innovations geared towards sustainable development. At the same time, by making a practice or technology accessible, it can be a catalyst for further innovation by other users. Also, as opposed to making the innovation public or open to all, the eco-patent would still give the contributor a certain amount of control. The contributor can terminate use if users will assert patents against the contributor. As of date, various companies pledged to support the Eco-Patent Commons. IBM, Nokia, and Sony were among the first group of companies that gave commitment to the Eco-Patent Commons. Recently, Xerox, DuPont, and Bosch pledged their support to the endeavor. The newly pledged patents include technology that converts non-recyclable plastics into fertilizers, automotive technologies that would enable efficient fuel consumption, and technologies that enable recycling of optical discs.

A. Policy Framework: 

Laws of participating countries need to be harmonized to jointly recognize the possibility of participating in the Eco-Patent endeavor. Agreements, especially between private sector contributors and users, pertaining to use, scope, termination, and other conditions of use need to be spelled out clearly.

B. Budgetary and Financial Requirements: 

(not applicable)

C. Human Resources: 

In promoting this endeavor, various expertise would be required. In particular, an over-all body composed of experts from various fields need to be established. Particularly, experts on international law and Intellectual Property Rights might be needed.

D. Material Resources: 

The entire system might also be information-intensive. A sole unit devoted to collecting, cataloguing, disseminating, and monitoring the flow of technology contributions need to be established.

E. Institutional Support: 

The endeavor was made possible due to the support and commitment extended by the private sector. With novel technologies, financial support from the government might also be required. This endeavor will also be heavy on government involvement, since laws on IPR and patents need to be harmonized. Inputs and linkage with the World Intellectual Property Office (WIPO) might be required

F. Planning, Scheduling or Sequencing of Activities: 

(not applicable)

V. Further Information: 

World Business Council for Sustainable Development (www.wbcsd.org)

Promotion of Cleaner Production in the PRC

Date posted: 
Nov 17 2008

Industrial growth is the primary driver for the rapid development of China. However, the growth experienced in the industrial sector was accompanied by heavy consumption of resources, resulting to generation of pollution. Interestingly, large firms were not solely responsible for the generated pollution in the country. Small and medium-scale enterprises (SMEs) located in villages and towns also contributed to the pollution problem. The pace of development and the growth of the industries put pressure in China’s resource use. Air pollution also is a threat due to coal combustion.

Responsible Party: 
Compliance
I. Objectives or Impact: 

Industrial growth is the primary driver for the rapid development of China. However, the growth experienced in the industrial sector was accompanied by heavy consumption of resources, resulting to generation of pollution. Interestingly, large firms were not solely responsible for the generated pollution in the country. Small and medium-scale enterprises (SMEs) located in villages and towns also contributed to the pollution problem. The pace of development and the growth of the industries put pressure in China’s resource use. Air pollution also is a threat due to coal combustion.

The Cleaner Production Law promotes cleaner production, efficiency of the utilization rate of resources, and reduction and avoidance of generation of pollutants. The law mainly addresses the problems caused by overuse of resources due to utilization of outdated technologies and facilities. The law particularly helps small and medium-scale enterprises to shift production practices. This is quite important in the country since SMEs play an important role in economic development. However, these firms also have a substantial share in industrial pollution loads.

The law also identifies the key role of local governments in providing solution to the problem. This is quite critical since SMEs are more often than not, are clustered together. Most of the SMEs are township and village enterprises which uses outdated technologies and facilities.

II. Description of the Good Practice (Outputs): 

The Cleaner Production program is touted as the key strategy for achieving sustainable development. The application of the program started from the conduct of demonstration projects in industrial sectors. The program also has a long history in the country. It started laying foundation by focusing on the introduction of the methodology, personnel training, and demonstration. This initial phase extended from 1992 to 1997. From 1998 to 2002, efforts were geared towards the study and formulation of the law.

From the policy formulated, it was identified to use compulsory mechanisms. This came in the form of direct restriction of toxic and harmful substances, particularly for SMEs. It also required the industry to adopt waste abatement plans and release environment reports.

Support mechanisms were also provided by the law. This came in the form of provision of expertise, information, technologies, and funding for cleaner production practices. Various incentives are given to firms in order to induce them to shift production practices. Products produced from wastes and materials reclaimed from wastes benefit from reduced taxation or exemption from value-added tax. Costs incurred for cleaner production auditing and training are also allowed to be booked as operating costs for the firms. Funds from the Small and Medium-Sized Enterprise Development Fund are also set aside to support cleaner production for SMEs. In some provinces, R&D programs supportive of cleaner production are given priority in application of bank loans.

III. Outcomes or Results: 

Interestingly, in provinces where the local economy is more developed, firms responded positively on economic incentives. In some provinces and cities, more stringent regulations are required because of the severity of environment problems. There are a number of cases where firms and enterprises failing national standards on environmental standards become compliant given the clean production law. Firms initially started with pursuing cleaner production by looking at end-of-pipe treatment. Eventually, some firms realized that disposal costs increases production costs and creates negative image for the entire company.

One firm, HeNan Lotus Monosodium Glutamate Group Limited, showed gains on profit margins when it adopted cleaner production techniques. Initially, pollution control was pursued via end-of-pipe treatment efforts. Eventually, the firm combined this effort with material substitution and recycling. Interestingly, the procedure they applied for end-treatment resulted to the production of solid fertilizers which yields considerable profit for the company (annual profit of RMB 280 million yuan).

The firm also integrated environment targets in the production management level. Bonuses are distributed according to conditions of cleaner productions. Specifically, with outstanding achievements, staff bonuses can be elevated by five percent. On the other hand, non-attainment of environment targets results to cutting down of bonus by one percent and five percent for staff and leaders respectively.

IV. Essential Elements for Success: 

Policy Framework: Enabling Policy, Regulation, Inter-agency/Multiparty Agreements

The Cleaner Production law is a product of careful promotion, awareness campaigns, and demonstration projects.  In its initial stage, cleaner production was integrated with the existing environment policies of the country.  Support from the regional and local Environment Bureaus was solicited.  Modified policies supportive of cleaner production were also introduced, namely: policy on environmental impact assessment and pollution discharge licensing system. 

Provinces also promoted cleaner production by pursuing supporting activities at the local level.  These activities came in the form of establishment of funds for cleaner production processes, setting evaluation standards, promotion of the use of environmental labels in products, IECs, and offering of tax and price incentives.

Human Resources and Skills

Since the cleaner production promotes eventual shift of production approaches, training and awareness raising were conducted on the earlier stages.  Training programs came in the form of demonstration projects.  These primarily targets managers and technical staff directly involved in the production management.  Cooperation with other countries during the demonstration projects was present during the demonstration projects. 
   
Material and Resources & Institutional Support

Since a shift of production techniques can be costly for a firm, support for cleaner production efforts is necessary.  The establishment of funding mechanisms supportive of cleaner production is necessary.  Tax and price incentives play a key role in assisting firms.  Economic departments and local governments also adopted policies that encourage cleaner production.  Specific endeavors like material replacement, conventional technologies process innovation, solid fertilizer production, and methane utilization are encouraged.

V. Further Information: 

Tianzhu Zhang and Jining Chen. Promoting Cleaner Production in China. 2008 (http://www.chinacp.com/EN/PolicyDetail.aspx?id=41)

Case Studies of Cleaner Production in China http://www.chinacp.com/EN/Case.aspx

Cleaner Production in China (Environmental Legislation) http://www.chinacp.com/EN/PolicyDetail.aspx?tp=Law&id=38

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