LV Thạc sỹ_Bussiness strategy for a new established firm in local clean development mechanism market

ACKNOWLEDGEMENTS ……… Page | ACRONYMS AND ABBREVIATION No Abbreviation Description ADB Asian Development Bank CDM Clean Development Mechanism CER Certified Emission Reduction CO2 Carbon Dioxide DNA Designated National Authority DOE Designated Operational Entity EIA Energy Information Agency ERPA Emission Reduction Purchase Agreement ET Emission Trading 10 GHG Greenhouse gas 11 tCO2 Million tons of Carbon Dioxide 12 tCO2e Million tons of Carbon Dioxide equivalent 13 PDD Project Design Document 14 PIN Project Idea Note 15 UNDP United Nations Development Program 16 UNFCCC United Nations Framework Convention on Climate Change 17 WB World Bank Page | TABLE OF CONTENTS ACKNOWLEDGEMENTS ACRONYMS AND ABBREVIATION TABLE OF CONTENTS .3 CHAPTER 1: INTRODUCTION 10 1.Rationale 10 2.Research Objective 10 3.Thesis Structure 10 4.Scope and limitation of research 11 CHAPTER 2: BACKGROUND 12 1.Michael Porter’s Forces Model 12 2.Niche Market 16 3.Blue Ocean Strategy .16 4.Value Chain Conrol 17 CHAPTER 3: CDM FUNDAMENTALS .19 1.Introduction 19 2.CDM and the Carbon Market 19 3.Kyoto Protocol and the CDM 20 i) Kyoto Protocol 20 ii) Clean Development Mechanism .20 iii) Kyoto Protocol and CDM Issues .21 iv) CDM Project Cycle 22 4.Opportunities and Threats from CDM Activities 25 i) Opportunities from CDM Projects .25 Provide a new revenue stream for emission reduction projects by selling CERs, which can complement the conventional products and improve the financial viability of the projects; 25 Page | Promote the development, transfer and diffusion of environmentally-friendly technologies; 25 Support project-based capacity building activities which can involve diverse stakeholders; 25 Encourage the active participation of public sectors, private sectors and local communities, as well the cooperation with international entities; 25 Gain learning experience and special knowledge through early CDM projects; .25 Help define investment priorities in projects that meet sustainability goals; 26 Contribute to public health and environment improvements 26 Alleviate local poverty through income and employment generation .26 ii) Threats from CDM Projects .26 Rivalry among CER suppliers: .28 Comparison of marginal abatement cost with other developing countries 28 Differentiated energy policy and climate policy 28 Differentiated comprehensive capacity of streamlining CDM projects 28 Differentiated integrated marketing management of CER 28 Threat of CER demand: 28 Performance of domestic emission reduction actions in Annex I countries 28 Voluntary action and participation rate in non-Kyoto compliance market 28 Risk assessment to Vietnam’s CER generation by demanders 28 Credit buyers preference on quality(sustainability) of the CER 28 Bargaining power of buyer’s and buyer’s incentives, etc 28 Threat of other credits 28 EUAs (EU Allowance) from EU-ETS (Emission Trading Scheme) 28 ERUs (Emission Reduction Units) from JI .28 RMUs (Removal Units) from sink project 28 AAUs (Assigned Amount Units) from perspective IET, etc 29 Threat of additionality: 29 Page | CDM activities may induce negative impact on economic development 29 Loose existing national energy policies may induce more credits 29 The ambitions and qualifications of projects developers to produce credits 29 The threat of introducing lower carbon emission technologies, etc 29 Threat of new CDM entrants: 29 Complexity of CDM procedures and rules 29 Successfulness of CDM projects in other developing countries 29 Assistance from host government and international donors .29 Clean energy technologies may generate larger credits .29 Lower abatement cost from other host countries 29 CHAPTER 4: GLOBAL CARBON MARKET 30 1.The Structure of the Carbon Market 30 Allowance market (or cap and trade) system Emission Allowances are created and allocated by regulators under cap and trade regime The system facilitates the compliance with cost- effective way The emission allowance trading can take effects in different forms: global level, regional level, national level or even corporate level The most influential allowance market in the world is the emission trading scheme within EU countries, with EUA as the allowance 30 Project-based (or baseline and credit) system: Project-based system allows for the creation and transaction of emission reductions through a given project or activity CDM and JI are examples of the project-based system where CERs and ERUs are generated respectively to meet obligations In cap and trade regimes, it is allowed for project-based system to create new assets that can be used for compliance purpose, above and beyond the initial supply of allowance For example, ERUs from JI and CERs from CDM can be used to meet obligations in addition to AAUs .30 2.Global Carbon Credits: Demand and Supply 31 3.Global Carbon Credits: Buyer and Seller .34 4.Volume and Pricing in the Carbon Market .36 CHAPTER 5: CDM CAPACITY DEVELOPMENT IN VIETNAM 38 1.Institutional Actors for CDM Activities 39 2.Approval Procedures and Management Rules 39 Page | CHAPTER 6: VIETNAM CARBON MARKET .41 1.Economic Profiles 41 2.4P Market Performance Model .41 i) Price 42 ii) Product 42 iii) Promotion 44 iv) Placement 45 67 hydro-power projects 45 metal gathering projects 45 Under the conditions of the vague sustainability determinants in promoting the CDM projects and limited capacity of Vietnam, CER information, purchasing price and quantity in particular, influenced the Vietnam’s investment interests and project progress 45 Emission Reduction Purchase Agreement has been signed in the dominant majority of the approved projects More foreign investors have shown interests in Vietnamese CDM market 46 The four P set of indicators is closely interconnected and more complete indicator system needs to be established in order to provide policy reference 46 CHAPTER 7: VMPEC’S BUSINESS MODEL, STRATEGY 47 1.Overview 47 Do not provide consultancy service as other local firms 47 Be the connector for local project owners and representative for international organizations .48 Do not the technical works in CDM service, support the oversea partners to this 48 Be the actor to solve the local business issue such as: approach authorities to gather information, to approach project owner, to negotiate the consultant contract, to solve “under the table” problems .48 Focus on hydro-power and wind power projects in Northern 48 2.Services 48 Be representative for international CDM companies in Vietnam Cooperate with them as share revenue cooperation model Support them to make market analysis, approach PO and introduce Page | their service under VMPEC’s service to PO This is win-win model with international CDM companies 49 On behalf PO represent to CDM project: explore and evaluate project, prepare required documents to work with NDA Vietnam, UNFCCC, DOE, EB and CER buyers .49 3.Strategy and Activities 49 With international firms: 49 There are three kinds of international CDM firms First is the state firms own by developed countries government that signed Kyoto Protocol They are seeking CER from all over the world to balance the CO2 their countries produce annually These firms often seeking CER in other countries via their embassies or commercial chamber The second type is private funds that trading on CER as a normal commodity They have smaller capability and business size The third type is the bank and finance institution For clean development project, the investment capital is always higher than normal project in the same industry Beside, in Vietnam, most of them are hydro-power projects which require lots of money to invest into (At average, normally, each 1MW electricity produced by a hydropower project requires ~$1.5-2million) So VMPEC, which are strong at relationships with government, did approach and make close relationship with embassies such as Singapore, Korean, Japan, Denmark, Netherland to cover all the public funds interested in CDM from these countries Besides, we tried to attend international CDM conference, workshop and seminar to recognize international firms that interested in Vietnam CDM market Through these activities, we could enhance and build the relationships with these firms After months, we made partnerships with Asia Carbon came from Singapore, Hanam Carbon came from Holland, Zero Emission from Spain and, BNP bank from France, EDF from France .49 With local firms: 49 CDM and Climate Change are very new definitions in Vietnam and there is few people understand these Due to the limitation of Vietnam Education System, nearly all of the student who learn environment subject in universities cannot speak or write fluently with foreign language, even the common language like English These are the difficulties and obstacles for local firms to work with international actors as UNFCCC, EB, etc And in ordinary way, most of local firm work directly with Project Owner via their private relationship The government management system is not really good so even MOIT, sometime cannot control tightly the current project situation in Vietnam about hydropower and wind-power projects(2 areas that VMPEC focus on) .49 As the analysis above, in Vietnam, most of CDM projects at the moment are hydropower projects, so we try to cover this market segment by investigate carefully the procedure to invest a hydropower project .50 50 Here, we recognize that at the early stage of a hydropower project (FS creation), we can start works with project owner via the consultancy companies Every small hydropower project (