Printed in Austria V.03-85800–October 2003–400 CLEAN DEVELOPMENT MECHANISM (CDM) investor guide UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna International Centre, P.O. Box 300, A-1400 Vienna, Austria Telephone: (+43 1) 26026-0, Fax: (+43 1) 2692669 UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION E-mail: [email protected] Internet: http://www.unido.org economy environment employment CLEAN DEVELOPMENT MECHANISM (CDM) investor guide BRAZIL GLO/99/H06 Brazil UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION Vienna, 2003 The designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of firm names or commercial products does not imply endorsement by UNIDO. Material in this publication may be freely quoted or reprinted, but acknowledgement is requested, together with a copy of the publication containing the quotation or reprint. This publication has not been formally edited. ii Acknowledgements Special acknowledgement is due to Prof. Roberto Schaeffer, Energy Planning Programme, COPPE Federal University of Rio de Janeiro for the coordination of the research effort and drafting the report. The preparation of this report was supported by Ms. Claude Cohen and Mr. Ricardo Cunha da Costa who were involved as research assistants in research and drafting. The project was supported by UNF funding and managed by Ms. M. Ploutakina, Industrial Development Officer, Energy Efficiency and Climate Change, UNIDO. Senior counterpart staff: Claude Cohen, research support expert and Ricardo Cunha da Costa, research support expert. List of people contacted and/or met Augusto Jucá, UNDP Emílio Lebre La Rovere, COPPE/UFRJ Giovanni Barontini, De Rosa, Siqueira, Almeida, Mello, Barros Barreto e Advogados Associados (DRSAMBBAA) Daniela Lobão de Carvalho, De Rosa, Siqueira, Almeida, Mello, Barros Barreto e Advogados Associados (DRSAMBBAA) Ivonice Aires de Campos, MCT Jose Domingos Gonzalez Miguez, MCT José Roberto Moreira, CENBIO and NEGAWATT Laura Valente de Macedo, FORUMCLIMA Ludovino Lopes, Menezes e Lopes Advogados Ricardo Esparta — Ecoinvest Leonardo Ribeiro (MMA/SQA) Adriano Santhiago de Oliveira (MMA/SQA) Acknowledgements iii Foreword Global problems require global solutions and innovative policy instruments. They also require considerable cooperation within the international community and among its institutions, including those of the United Nations, in order to forge the necessary capacity at all levels to achieve the desired policy targets. Such has been the experience of UNIDO in imple- menting its component of the global project that brought together three United Nations agencies — UNDP, UNIDO, UNCTAD — as well as UNFCCC, which has been generously sup- ported by UNF funding. To combat the growing global threat of climate change from increasing anthropogenic greenhouse gas (GHG) emissions, the international community agreed on the Kyoto Protocol in 1997 in Kyoto, Japan. Since then the global efforts led by the United Nations have con- centrated on elaborating rules and modalities for the implementation of the Kyoto Protocol and its mechanisms, particularly the Clean Development Mechanism (CDM). The CDM and other Flexibility Mechanisms of the Kyoto Protocol offer the world for the first time a unique opportunity to deliver cost-effective GHG emission reductions while at the same time advancing sustainable development and the transfer of cleaner, energy-efficient technolo- gies and processes that hold the promise of reduced environmental effects, less costly energy services and ultimately improved competitiveness and greater access to global markets. While rules and modalities for the CDM has been largely completed with the guidance pro- vided by the Marrakech Accords and the subsequent COP meetings, the technical details of CDM project development and promotion remain complex, resulting in prohibitively high transaction costs, particularly for small-scale projects. A considerable capacity-building effort is required by the international community to enable developing countries to participate in the CDM. UNIDO, in cooperation with UNDP, UNCTAD and UNFCCC, has been actively involved in assisting Member States gain greater knowledge and expertise on technical issues pertaining to the identification and design of CDM projects in industry. The CDM Investor Guide for Brazil is an example of the UNIDO contribution to the capac- ity-building effort undertaken by the United Nations and those of its agencies for help developing countries, in this case Brazil, to attract CDM investment. The report provides much detail on Brazil´s energy system and the industrial sectors that have considerable mit- igation potential and are likely to become central to CDM activities, as well as details on the institutional and organizational mechanisms that shape the CDM process in the country. The report also provides an up-to-date list of on-going projects together with contact addresses for project sponsors and developers. The Guide will serve as a tool in helping Brazil establish bilateral ties with potential CDM investors in Japan through the UNIDO Industrial and Technology Promotion Office (ITPO) in Tokyo. The UNIDO network of ITPOs will be used Foreword v in the future to help other Member States to build their national capacity for CDM and forge ties with potential CDM investors abroad. The CDM Investor Guide for Brazil is the first in a series of similar publications that will address CDM as an investment mechanism to leverage investment in industrial projects that deal with the mitigation of the GHG emissions associated with industrial production and the industrial use of energy. The next issue of the Guide will be devoted to South Africa and will focus on bringing GHG abatement project potential in the industrial sector to the attention of potential investors through UNIDO´s ITPO network. vi CDM Investor Guide Brazil Summary Brazil was the first country to sign the United Nations Framework Convention on Climate Change (UNFCCC), on 4 June 1992, and the Brazilian National Congress ratified it on 28 February 1994. The Convention entered into force for Brazil on 29 May 1994, 90 days after its ratification by the National Congress. Brazil also played a seminal role in the development of the Clean Development Mechanism (CDM). In party discussions before the Third Conference of the Parties (COP3), held in Kyoto, Japan, in 1997, the Brazilian government proposed that, if a developed country exceeded its greenhouse gas (GHG) emissions requirements, an economic penalty would be assessed, and this would be collected in a Clean Development Fund. Monies from this fund would be directed to developing countries, which, then, would use these funds for mitigation pro- jects designed to prevent or mitigate global climate change. During the COP3 discussions the proposal evolved into the CDM, a full-fledged flexibility mechanism of the Kyoto Protocol. This “CDM Investment Guide for Brazil,” aims at providing CDM project proponents in the country, and CDM investors interested in CDM opportunities in the country, with reliable, updated sources of information regarding CDM opportunities in the energy and industrial sectors of Brazil. Although it is apparent that CDM could operate in other sectors of the Brazilian economy as well, including the potential applicability of CDM sinks in the forestry sector, or the potential for CDM projects in the transportation sector as well, the focus of this report is the energy and the industrial sectors. The report was produced from February 2002 through February 2003 and provides: ● An overview of the institutional infrastructure for climate change/Kyoto Protocol activi- ties and the current views and position of Brazil respect to climate change issues; ● An analysis of the energy sector in Brazil, discussing the potential, and priorities, for CDM projects in both the supply and demand sides; ● An analysis of the industrial sector in Brazil, discussing the potential, and priorities, for CDM projects in this sector with respect to process change, fuel substitution and energy efficiency gains; ● A review of the current state of CDM project development in Brazil, types of projects, location, status of development, etc; ● Some final conclusions; and ● A list of institutions/organizations that are involved with climate change and CDM activ- ities in Brazil, and that could be a useful source of information and contacts for CDM project proponents and investors in Brazil. The main findings of the report are that: ● Global climate change and greenhouse gas emissions are perceived as being very impor- tant issues for Brazil, and the country is, indeed, conducting a variety of efforts in the area of climate change and CDM (including the development of criteria and indicators Summary vii for appraising CDM projects in the country). Brazil already has an institutional infrastruc- ture for climate change that is well-prepared to deal with CDM projects, including the Interministerial Commission on Global Climate Change, created for the purpose of coor- dinating the actions of the government in this area, with the authority to verify whether CDM project activities conform with the sustainable development objectives of the country and, if so, emit a formal approval of the CDM project activities in Brazil;