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Joint Implementation As Development Policy - the Case of Costa Rica A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Dutschke, Michael; Michaelowa, Axel Working Paper Joint Implementation as Development Policy - The Case of Costa Rica HWWA Discussion Paper, No. 49 Provided in Cooperation with: Hamburgisches Welt-Wirtschafts-Archiv (HWWA) Suggested Citation: Dutschke, Michael; Michaelowa, Axel (1998) : Joint Implementation as Development Policy - The Case of Costa Rica, HWWA Discussion Paper, No. 49, Hamburg Institute of International Economics (HWWA), Hamburg This Version is available at: http://hdl.handle.net/10419/19204 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu HWWA-Diskussionspapier Nr. 49 Joint Implementation as Development Policy – The Case of Costa Rica by Michael Dutschke Axel Michaelowa November 1997 HWWA-Institut für Wirtschaftsforschung – Hamburg Neuer Jungfernstieg 21, 20347 Hamburg Telefon: +49-40/3562-0, Telefax +49-40/351900 Internet: http://www.hwwa.de Papers published in this series are preliminary. Comments and criticism are welcome. If you wish to quote from a paper please contact the author beforehand. ISSN 1432-4458 Joint Implementation as Development Policy - The Case of Costa Rica Michael Dutschke1, Axel Michaelowa2, Summary Joint Implementation (JI) is a potentially powerful instrument of climate policy that could lead to a high amount of additional financial flows to developing countries. Nevertheless, many NGOs and developing country representatives are very skeptical about JI and fear that it would not take into account development priorities and create new kinds of de- pendence on industrial countries. Therefore, developing countries and industrial coun- tries found a compromise at the Berlin Conference of the Parties as they instituted a pilot phase for JI lasting until 2000 which does not allow crediting of reduction achieved via JI. The paper discusses first results of the JI pilot phase in Costa Rica which could be im- portant for the evaluation of the whole pilot phase. This country has a relatively high level of economic and social development and a well-developed environmental policy which is comparable to that of advanced industrial countries. It is a major destination for ecotourism. Nevertheless, it suffers from high deforestation due to unequal distribution of land, migration and cattle ranching as well as plantation expansion. Moreover, trans- port emissions are rising rapidly and fossil fuel electricity generation is growing despite a target of phasing out fossil fuels completely. Costa Rica's knowledge base is high and capacity building almost not necessary. Thus, Costa Rica was able to develop creative environment policy instruments such as debt- for-nature swaps and biodiversity prospecting to attract foreign funding. It is not sur- prising that it was the first developing country to open a JI office, develop project ap- proval criteria and host JI pilot projects. The framework for JI in Costa Rica can there- fore be described as ideal compared to the average developing country. Nor is it surprising that more than half of the approved pilot projects in developing countries are situated in Costa Rica. Nevertheless, the success can at best described as mixed. Only a third of the projects are actually funded though several of them seem to be profitable even without a value for carbon. Most of them are proposed by US entities. To attract more funding, the JI office now certifies tradable carbon certificates and en- 1 Hamburg Institute for Economic Research (HWWA), Neuer Jungfernstieg 21, 20347 Germany, Phone +49 403562479 Fax +49 402991855, e-mail: [email protected] 2 177 Bd. de la République, 92210 St.-Cloud, France IV Joint Implementation as Development Policy - The Case of Costa Rica courages multi-sector large-scale projects where transaction costs are lower and coher- ence with national development objectives can be more easily checked. It directs its at- tention to public JI investors such as the Norwegian government. The renewable energy projects suffer from the unrealistic target to phase out fossil fuels by 2001 thus making JI projects in this sector impossible from that time. Therefore the bulk of projects concern forestry which is prone to uncertainties in calculation of emis- sion sequestration. A comparison of the estimates shows wildly differing assumptions in baselines and sequestration capacity of the forests. Whether actual project implementa- tion conforms to the plans remains to be seen. An independent verification of project results is being undertaken. The analysis of the Costa Rica case shows that JI can be only successful in the long run if the industrial countries offer incentives for investors and if baseline determination rests on a clear set of guidelines. Human and technical capacities are necessary but not suffi- cient conditions for successful JI in developing countries. They seem to be able to pre- vent complete project failures, though and can lead to innovative approaches. The issue will only be settled if large-scale JI investment is forthcoming under a regime of legally binding emission targets for industrial countries. Then the ability to process huge number of project proposals and check whether they conform to development priorities as well as monitoring and verification becomes crucial. Table of Contents 1 JI and developing countries 1 1.1 The potential 1 1.2 Positive Externalities 4 1.3 Baseline scenarios 5 1.4 Reasons for resistance against JI 6 1.5 Institutional issues 9 2 Costa Rica as JI host country 10 2.1 Environmental conditions and policy 10 2.1.1 Deforestation and forestry policy 11 2.1.2 Agriculture and environment 14 2.1.3 Population and settlement structure 14 2.1.4 Energy production and policy 14 2.1.5 Industry and environment 15 2.1.6 Tourism 16 2.2 Joint Implementation in National Politics 17 2.2.1 Legal and Institutional Issues 18 2.2.2 Developing the Instrument of Cooperation 19 3 Current JI Projects in Costa Rica 21 3.1 Forestry Projects 22 3.1.1 Preservation Projects 22 3.1.2 Reforestation Projects 27 3.2 Energy Projects 35 3.2.1 Wind Power 36 3.2.2 Water Energy 40 4 Conclusions 45 4.1 Conflicting Baselines 45 4.2 Project Forms 46 4.3 Criteria 47 4.4 Procedure of Approval 48 JI and developing countries 1 JI and developing countries 1.1 The potential International climate policy faces the dilemma that only industrial countries and countries in transition have committed themselves to emission targets whereas the developing countries with prevailing high emission intensities and low abatement costs (Pachauri, 1994) have not accepted such targets. It would be inefficient for the former countries to restrict emission reduction to domestic measures if marginal reduction costs are lower abroad (Jones, 1994). Therefore, the concept of Joint Implementation (JI) has been dis- cussed at length in the international negotiations concerning the UN Framework Con- vention on Climate Change. It also became a focus for socio-economic research (Kuik et al., 1994; Jepma, 1995). A pilot phase for JI until the year 2000 was agreed upon in the Berlin Conference of the Parties in 1995. JI functions as follows: Firstly, reductions achieved abroad are credited to the home country's reduction target. Secondly, domestic emitters who can prove reductions abroad are granted relief from domestic climate policy instruments which are a necessary condi- tion for the application of JI (Michaelowa, 1996). Such concessions are proportional to the reduction achieved. If an emissions tax is in force, the concession would be equal to the tax payments that would have to be made for corresponding emissions at home. There is a huge potential for JI throughout the developing world. For example, substitu- tion of outdated Chinese coal power plants with an efficiency of approximately 20% through state-of-the-art power generation technology with an efficiency level of between approximately 42% (lignite power station) and 55% (gas-fired combined heat and power station) could achieve an emission reduction of over 50%. By transferring know-how, it is possible to ensure that technically feasible efficiency levels are also achieved in prac- tice. Similarly, emissions caused by the production and transport of fossil fuels can also be reduced. In areas with no access to the electric grid, stand-alone photovoltaic or wind systems could be installed. Moreover, electrical transmission losses could be reduced relatively easily,
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