Not just a lot of hot air

In a previous article in this column, lawyer Raoul R. Angangco gave a comprehensive description of the mechanics of the Kyoto Protocol, enumerating the tools found there to achieve its goals.

Most of the tools, such as Joint Implementation, Emissions Trading and Joint Fulfillment of Commitments are only open to developed countries. The Clean Development Mechanism (CDM), however, is particularly relevant to our country since this is the only mechanism whereby the Philippines can directly participate in the Kyoto Protocol.

The mechanics of the CDM begin with the delineation in the Kyoto Protocol of its signatories into two kinds of parties, Annex I parties (made up of developed countries) who have commitments to reduce their greenhouse-gas emissions (GHG); and Non-Annex I parties, who do not have specific emission-reduction commitments but are nonetheless participants in the Kyoto Protocol. The Philippines is a Non-Annex I party.

The CDM, defined in Article 12 of the Kyoto Protocol, is a mechanism whereby Annex I parties or legal entities within these countries are allowed to invest in GHG emission-reduction or removal projects in Non-Annex I countries, in exchange for Certified Emissions Reduction units (CERs).

There are 13 CDM-approved project scopes, which include clean-energy generation, mineral production, waste handling and disposal and afforestration and reforestration. At present, there are 1,018 projects registered with the CDM executive board of the United Nations, the world body that oversees and approves CDM projects.

The CERs are the incentive for Annex I parties to participate in CDM projects. A CDM project may generate multiple CERs as each metric ton of carbon-dioxide equivalent reduced, abated or sequestered will be issued a CER.

Thus, the more carbon-dioxide equivalents are reduced or abated, the more CERs the project will produce. The CERs are issued to the owners of the CDM project. They may then profit by selling and trading the CERs to Annex I countries or private entities who can use the CERs as “carbon credits” to offset their GHG-reduction commitments under the Kyoto Protocol or their local laws. Currently, 135,615,717 CERs have been issued worldwide.

The Philippines has not lagged behind in setting up the legal framework by which a CDM project may be established. Pursuant to the Kyoto Protocol, a Designated National Authority (DNA) must be appointed to give approval to a potential CDM project. In this country, the DNA is the Department of Environment and Natural Resources (DENR). The DENR has issued the necessary guidelines for its approval of CDM projects in DENR Administrative Order 2005-17.

As of March 2008, only 19 of the 55 CDM projects approved by the DENR are registered with the CDM executive board. The registered projects include renewable energy projects, such as the NorthWind Bangui Bay Project, electricity-generation facilities, sewage-treatment facilities and, with the abundance of piggeries in the country, methane-recovery projects.

With the increasing price of oil and its deleterious effects, the country stands to gain most through renewable-energy projects under the CDM. However, renewable-energy projects in the Philippines comprise only a minority of the projects seeking approval for CDM status. Most of the potential CDM projects are small-scale methane-reduction or wastewater projects.

Given the capital-intensive nature of renewable-energy projects, this is understandable. Nonetheless, this is a pity given the untapped incentives and potential for setting up such projects in the country, particularly wind-power renewable-energy projects. 

The Department of Energy (DOE) has included investments in renewable energy in its Power Development Plan. Currently, incentives are given to renewable-energy projects through their inclusion in the 2007 Investment Priority Plan. To this end, the DOE has aggressively pushed for the development of wind power as a source of renewable energy. 

The great interest in wind power is due to its many advantages, which explains why it is the fastest-growing energy source in the world. Wind-power projects are eligible for CDM registration because it is a clean fuel. It does not produce greenhouse gases. It is abundant, free, renewable and indigenous to the Philippines. Moreover, it provides the local end-users with cheaper electricity.

A recent study showed that the country has a capacity of 76,600 megawatts (MW) of wind-energy resource potential. The same study found that the best wind-energy sites are in the following areas: 1) the Batanes and Babuyan Islands north of Luzon; 2) the northwest tip of Luzon (Ilocos Norte); 3) the higher interior terrain of Luzon, Mindoro, Samar, Leyte, Panay, Negros, Cebu, Palawan, eastern Mindanao and adjacent islands; 4) well-exposed east-facing coastal locations from northern Luzon southward to Samar; 5) the wind corridors between Luzon and Mindoro (including Lubang Island); and 6) between Mindoro and Panay (including the Semirara Islands and extending to the Cuyo Islands).

The Philippines’ first wind-power facility, which is also Southeast Asia’s first wind farm, is the NorthWind Bangui Bay Project. This project, funded by the Danish International Development Agency (Danida) through a $29.35-million grant, was registered as the country’s first CDM project.

Currently, project capacity is at 24.75 MW with 15 turbines generating 1.65 MW each. Through a financing deal with Danida for an additional $13.1 million, the Bangui Bay project will increase its capacity to 33 MW with the addition of five wind turbines.

The expansion is expected to be completed by August of this year. The project sells the electricity generated exclusively to the Ilocos Norte Electric Cooperative, resulting in cheaper electricity for the residents. At full power, the Bangui Bay Project can provide 40 percent of the electricity requirements of the affected Ilocos area. This project has generated a reduction of 56,788 metric tons of carbon-dioxide equivalents, amounting to the production of the same amount of CERs.

There are other wind-power projects in the country, such as the North Luzon Wind Power Project of the Philippine National Oil Co. in Pagali and Saolit, Ilocos Norte, and the Smith-Bell San Carlos Wind Farm in Negros Occidental. In March 2005, the first Wind Contracting Round was conducted by the government where 16 sites were offered for investments and six precommercial contracts were issued. The government is planning a second wind-contracting round where 19 more sites will be offered for investment.

There are, however, difficulties in wind-power generation. As wind is intermittent, wind strength varies and, as such, the turbines do not produce a constant amount of electricity.

A windmill produces only a small amount of energy compared with conventional fossil-fuel burning plants, thus more windmills are required to produce the energy requirements of an area. This will take up more land, which can be used for other purposes. Also, as most wind-rich sites are located in faraway areas, the cost of generating a large amount of electricity will require a lot of windmills and the creation of new transmission lines that will bring down the cost effectiveness of the project.

Nevertheless, with fast-changing technology and the innovations in wind-power technology, windmills with larger capacities are now being built and tested. Currently, there are offshore windmills that can provide power of up to 5 MW per windmill. Wind- and solar-energy hybrid plants are being developed in order to provide a steady supply of electricity. New technology is also being developed in order to address the energy-storage problem.

In conclusion, the basics for the Philippines to take a major leap toward relying in renewable-energy projects, particularly wind power, are present. The savvy investor will recognize the profit potential for these projects given the marketability of CERs and electricity generation. Moreover, the PR angle for such investments cannot be missed as they are environmentally friendly and should earn Al Gore’s seal of approval for helping save the planet.

****

Mr. Silos is a Partner in the Litigation Department at CVCLAW, Villaraza Cruz Marcelo & Angangco (web site: www.cvclaw.com). His areas of expertise include civil, labor, commercial and criminal litigation, bank fraud, debt restructuring, international trade, as well as arbitration and alternative dispute resolution. He earned his Juris Doctor degree with honors from the Ateneo de Manila University School of Law in 1998. He holds a Master of Laws degree from the Georgetown University Law Center where he was a fellow in the Institute of International Economic Law.

DISCLAIMER:

This article has been prepared for informational purposes only and should not be treated as legal advice.

BECAUSE so much has been written about climate change and the many other things that imperil the planet—not to mention that it’s better to listen to or watch the experts and act accordingly, than do the preaching—this Earth Day editorial will be short but sweet.

In a previous article in this column, lawyer Raoul R. Angangco gave a comprehensive description of the mechanics of the Kyoto Protocol, enumerating the tools found there to achieve its goals.

There is no denying that intellectual property rights (IPR) must be protected against those who violate them, but when the owners of these rights are the ones abusing such rights by pricing their products beyond the reach of the public, such rights must be tempered or, in the words of educator Romulo Neri, such greed must be moderated.

Outside the Box: Intellectual-property rights: Who cares?

Say, a friend of mine, owns a consulting agency and does work for some of the largest corporations. His expertise is providing research and then formulating marketing strategies. Companies enjoy millions of pesos of increased revenues from his effort.

Omerta: The beauty of cross-ownership

In my column, “Something Cooking at the ERC?” last week, I said Meralco had to pay the National Power Corp. (Napocor) some P27 billion in damages for unilaterally revoking a 10-year supply-power contract it had with the latter for the period 1994 to 2004.

Sen. Edgardo J. Angara: The World Bank’s ‘New Deal’

Responding to the global food crisis, World Bank president Robert Zoellick called for a “New Deal” in agriculture and food for developing countries. He harks back to President Franklin Roosevelt’s New Deal Program, whose gargantuan agriculture program helped US farmers during the Great Depression.