Title: Transaction cost reduction for small-scale Clean Development Mechanism (CDM) Projects in Thailand / Reducing the operating costs of small-scale Clean Development Mechanism (CDM) projects in Thailand
Author: Sanna Salmela
Year: 2006
Keywords: N/A
Themes: Environmental Politics and Policy, Development Management, Innovation for Inclusive Development
Advisor(s): Sitanon Jesdapipat
The full thesis available here.
Abstract: Reliable, environmentally friendly, and readily available energy sources are crucial components in supporting sustainable development at the local community level, especially in developing countries. Renewable energy projects tend to reduce greenhouse gas emissions and are funded through the Clean Development Mechanism (CDM). The primary objective of this thesis is to find ways to reduce the high costs of implementing small-scale CDM projects. Combining several small projects into a single large project is one option. However, a key question remains: how exactly can costs be reduced through consolidation? To answer this question and explore alternative solutions, this research focuses on small-scale wastewater treatment and natural gas production projects on pig farms in Thailand. The main conclusion of this research is that the simplified procedures of the United Nations Framework Convention on Climate Change (UNFCCC) do not significantly reduce the costs of small-scale CDM projects involving 10,000 and 5,000 pigs, resulting in average greenhouse gas emission reductions of 4231 and 2116 per year, respectively. While project consolidation can reduce operational costs, the actual cost reduction is insufficient. However, incorporating smaller projects still yields less results than projects without the Clean Development Mechanism, and the cost of certifying greenhouse gas emission reductions (CER) is also significantly higher than incorporating entire projects. The second conclusion is that project consolidation alone cannot significantly reduce the cost of CDM projects. With increased policy options, project consolidation has increased to a sufficient level, even though the cost of certifying greenhouse gas reductions remains low. Therefore, the third conclusion is that these operational costs can be reduced to a level that is at least feasible for some consolidated projects. However, with current government support for natural gas technology, the associated technological risks and costs must be considered. It can be clearly concluded that only the 10,000-pig farming project is feasible within a consolidated program. Thus, it can be concluded that the 10,000 and 5,000-pig farming projects might be feasible as small-scale CDMs unless operational costs are reduced. However, some of these projects are still unfeasible because they cannot be developed under small-scale CDMs with even slight increased effort. Therefore, the final conclusion is that reducing operational costs is key to realizing these small-scale CDMs. Furthermore, small-scale CDMs may bring local benefits or address real local problems while simultaneously raising global environmental concerns, if efforts are made to achieve this. Developing our capabilities can make cost reduction a reality. An environmentally friendly, reliable source of energy, and access to it, can be seen as a critical element in supporting sustainable development at the local community level. Additionally, for developing countries in particular, eg renewable energy projects have the potential to reduce greenhouse gas emissions and provide finance through the clean development mechanism (CDM). The main objective of this thesis is to explore how the high transaction costs of small-scale CDM projects can be reduced. Bundling several small-scale CDM projects together and developing them as one larger CDM project bundle is one option. The key question remains, however, how such a transaction is reduced through bundling in reality. To investigate this and other policy options, this research study focuses on small-scale wastewater and biogas projects at Thai pig farms. One main conclusion of this research study is that the UNFCCC simplified modalities and procedures do not reduce the CDM project cycle transaction costs sufficiently for the single small-scale projects of 10,000 pigs and 5,000 pigs, which generate in average 4231 tCO[subscript2e] and 2116 tCO[subscript2e] of emissions reductions annually. Bundling per se can reduce these transaction costs further, however, the smaller project bundles stay less viable than the projects without CDM and the transaction costs per CER remain in a high range for all bundles. The second main conclusion is therefore that bundling per se does not sufficiently reduce the CDM project cycle transaction costs. With the additional policy options the viability of the bundles is increased to a sufficient level even with the low price of CER. Therefore, the third main conclusion is that the transaction costs can be reduced to a viable level at least for some project bundles with these transaction costs reductions. Yet, when the current government biogas technology subsidies, technology risk and cost of bundling are considered, it becomes clear that only the project of 10,000 pigs in bundles can possible be viable enough in reality. Therefore, finally, it can be concluded that the projects of 10,000 pigs and 5,000 pigs would never be realized as small-scale CDM projects unless the transaction costs were reduced. And yet, some of these projects are not so unviable that they could not be developed under small-scale CDM with some additional effort. Therefore, the last main conclusion is that transaction cost reduction is central to the realization of these small-scale CDM projects. Moreover, these small-scale CDM projects could bring about local benefits, or in fact solve local problems, while addressing global concerns, if effort is put in developing capacities that enhance the realization of the transaction cost reductions.
