54763 MARCH 2010 ABOUT THE AUTHOR Creating a Market Pull for Cleaner Production JIGAR SHAH is a global product leader for Cleaner Production. His duties Of the many challenges to scaling up the Cleaner Production (CP) related to CP include formulating a global strategy, Advisory Services program, the most difficult one relates to the quality assurance, knowledge management, and regional market: engaging clients and building a robust pipeline of projects. In capacity building. this article, we concentrate mainly on the lessons learned from IFC APPROVING MANAGER regions on approaches to selling CP in a highly replicable manner. Shilpa Patel, head, Climate Change Unit, IFC. Such lessons will greatly help us reduce transaction costs and time for providing CP advisory services. CP is an integrated strategy to maximize clients; and streamline approval and profits by making more efficient use of inputs procurement procedures to reduce the period (such as energy, water, and raw materials), for delivery. The status of the CP programs in a thereby minimizing waste and pollution at the typical advisory product growth cycle may be source. CP is an especially effective measure considered borderline between an "entry" for climate change mitigation. and a product "in development" as indicated in the figure below. However, opportunities to realize cost savings and environmental benefits through CP are frequently not evident to companies in emerging markets. There is a need to provide technical expertise and create incentives for such companies to adopt CP practices. The cornerstone of the CP program is thus an audit or assessment of a client facility to identify opportunities to improve efficiency through low-cost or no-cost measures. Originally based at IFC Headquarters (2007- 2008), the program undertook 21 client facility audits along with an awareness-raising campaign for investment and advisory staff at seven international locations. A key indicator Getting the client to say yes to a CP assessment of CP's acceptance by the investment is not an easy task. CP projects rarely rank as departments was the successful use of a $20 equals with projects to expand production or million pilot investment facility for CP projects capture new markets. Benefits in the form of and IFC's approval of an additional $125 calculated cost-savings streams, as opposed to million facility. Almost all the regions have highly visible new production assets, appear started their own regional CP programs and nebulous and inherently more risky to many. are in various stages of progress on delivery Because project opportunities tend to be capacity. relatively small scale and dispersed, transaction costs can prove daunting unless mechanisms The CP programs need to develop a robust are put in place to take advantage of similarities worldwide pipeline of client assessments that among projects and bundle them. will lead to investments and mitigation of greenhouse gas emissions; hire well-qualified There are four main approaches that the IFC specialists in the region to help execute the regions use to sell CP: program effectively; raise the awareness of investment officers so as to engage more · Replication of technology IFC SMARTLESSONS -- MARCH 2010 1 · Replication across a company with several facilities As another example, IFC's CSA CP team conducted a CP assessment of four resorts of the Universal Group in the · Replication across a sector with benchmarking Maldives. The assessment identified a roughly 15 percent savings in electricity consumption, a 5 percent savings in · Intervention through market players (banks, energy water consumption, and 5,000 tons per year of reductions service companies, vendors) in greenhouse gas emissions. IFC provided a $2.5 million CP loan to the Universal Group to help implement the Lessons Learned recommendations of a CP report. One technology identified in particular as replicable across all the resorts was waste 1) Replication of Technology--Lessons from Latin heat recovery from diesel generator sets. CSA is now America and the Caribbean (CLA) and South Asia (CSA) undertaking an initiative to replicate this heat recovery scheme across the entire resort sector in the Maldives. In the construction materials sector, cement manufacturing is a very important subsector because it is an essential Here are five lessons learned from CLA and CSA: building material for society's infrastructure around the world. Cement production is energy-intensive, accounting · Identify a technology with high impact that can be for about 5 percent of global anthropogenic emissions of deployed across many facilities. A single waste heat carbon dioxide, and it has an impact on a wide range of recovery project in cement to generate power can sustainability issues beyond climate change, including result in 3 to 8 megawatts of electricity. There are 75 emissions to air and water, natural resource depletion, and cement plants in the CLA region; and even if a third of employee health and safety. IFC's CLA CP team has focused them were outfitted with waste heat recovery, net on waste heat recovery from cement plants as one of its key power generation could be 125 megawatts (enough to CP program objectives. power 125,000 US homes), assuming 5 megawatts per plant. From the opportunity identified in the Maldives, The CLA CP team noted that only 40 to 50 percent of CSA has the potential to replicate it across 94 other opportunities identified by general plant-wide audits resorts. proceed to implementation; whereas carefully focused audits on specific technologies have a much higher · Demonstrate two or three early successes. The CLA CP probability of being implemented. Further, an IFC cement team has initiated projects at three cement plants already industry specialist brought significant additionality to the and has identified several more prospects for the client on waste heat recovery projects because of his application of cement plant waste heat recovery systems. knowledge of technology and the highly qualified CSA has already undertaken assessments at five resorts international vendors in this field. and plans to campaign across the entire sector. · Inform other similar plants about the merits. CLA and Cement plant waste heat recovery is increasingly of interest. CSA have plans to disseminate the information about (Courtesy: Transparent Energy Systems) these projects through workshops and conferences as soon as the first wave of projects has been completed and goes into implementation. · Engage local partners to spread the message. CLA will engage the UNIDO/UNEP national CP centers in the region for the workshops and training. CSA plans to work through the local trade organization, Maldives Association of Tourism Industry. · Demonstrate value through credible suppliers and vendors. CLA will introduce Japanese, Chinese, and Indian vendors in waste heat recovery technology to various cement producers in the region. CSA will work with a main engine supplier in the region. Based on IFC's experience, we have identified several technologies that are replicable across multiple manufacturing sites. Here are some examples: · Biogas generation, capture, and power generation from agribusinesses. IFC can help with effective integration of anaerobic digestion technology and combined heat and power systems. · Waste heat recovery projects. These are applicable across the entire spectrum of industries, but the focus 2 IFC SMARTLESSONS -- MARCH 2010 · Conduct a pre-audit to establish an overall energy program and offer a custom solution for each situation. Waste heat recovery from diesel generator sets is widely For the CME client, this was done for nine facilities in applicable. (Courtesy Cummins) Jordan. · Conduct CP assessments where there is a potential for savings. For the CME client, five facilities are targeted for CP assessments. · Qualify eligible projects immediately for investments through the fast-track CP lending facility. · Support the company in developing the capacity and expertise to sustain the energy and water efficiency initiatives on a continuous basis. · Work with the company to develop a long-term energy and water sustainability plan and identify long-term financing needs (mainstream investment). areas for IFC could be strategic applications in the cement, metal, glass, and chemical industries. Cleaner production across a group of companies (Courtesy Selcuk Tanatar, IFC CME) · Green building design and retrofit. Focus areas include commercial buildings, hotels, hospitals, school buildings, retail stores, and supermarkets. · Process integration. These techniques are widely applicable for improving energy and water efficiency across all the process industries, including food processing, chemicals, and refining. · Biomass cogeneration. The emphasis for IFC could be on power generation from waste wood. The heat generated can be effectively used for drying wood. · Energy-efficient data centers. Data centers increasingly consume a substantial portion of electricity. Technology for efficiency improvement would be widely replicable. · Water management emphasizing replicable technologies that involve water recycle, reuse, and savings. There are significant opportunities in agribusiness through processing improvements and better irrigation. Other sectors of particular 3) Replication across a Sector with Benchmarking-- opportunity include forest products (pulp and paper) Lessons from Central and Eastern Europe (CEU) and buildings. The Russian foundry industry, a very energy intensive sector, 2) Replication across a Company with Several Facilities-- comprises more than 1,200 foundries and is a major supplier Lessons from the Middle East and North Africa (CME) to the Russian machine building industry. Starting in the 1990s, the Russian foundry industry has suffered from a IFC's CME CP team has initiated an innovative program with general economic decline, a sharp reduction in demand for a company that has nine facilities in the vicinity of Amman, its product, and no upgrades in technology. Despite this Jordan. The CME program involves a package of advisory situation, it has not been easy for IFC's CEU CP team to services that includes audits at five of the facilities and convince the foundries of the merits of CP and efficiency follow-up assistance on implementation and investments, if improvements. requested by the company. The uniqueness of the CME program is that, rather than approach each facility The CEU CP team came up with an approach that is likely to individually, it is more effective to target a corporation with be very effective. They commissioned a benchmarking study several plants and offer it a total energy management of the Russian foundry industry with the goal of transforming package, as follows: the entire sector. The benchmarks will enable a company to measure the gap in its operating performance compared to IFC SMARTLESSONS -- MARCH 2010 3 best in class. CP assessments and follow-through investments banks and offers them a facility whereby IFC shares part will be offered to companies that are keen to identify and of the loss for all loans within the energy efficiency implement efficiency projects. portfolio. The program also provides advisory services on marketing, engineering, project development, and The CEU CP team benchmarking approach is as follows: equipment financing services to banks, project developers, and suppliers of energy efficiency products and services. · Establish key performance indicators for cleaner production in the sector either through a comprehensive As of June 2009, the program's participating banks consultant survey or through public domain information provided loans totaling 3.5 billion Chinese yuan ($512 if available. In the case of the Russian foundries, the CP million). These loans financed 99 energy efficiency projects team undertook an intensive consultant study. such as heat and gas recovery power generation and the introduction of efficient production systems. The steel, · Conduct workshops for factories on how to use these chemical, and cement industries are the largest key performance indicators, and measure their beneficiaries. Based on engineering calculations, the performance against the best performers in the Independent Evaluation Group estimates that these industry. investments reduced greenhouse gas emissions by 14 million CO2 tons per year, slightly in excess of the target · Demonstrate to poor-performing factories how they can set at the beginning of the program. Compared with close the gap through one or two successful examples of other energy efficiency programs in China and elsewhere, companies that undertook CP assessments and the program stands out for the quick use of its guarantee implemented project recommendations. facility. · Roll out CP assessments and follow through with Here are some key lessons from CHUEE: investments. · Financial intermediaries need to be convinced about the business case for CP (energy efficiency and A foundry in Russia (Courtesy IFC CEU). renewable energy). · Domain knowledge in CP is an effective marketing tool. · Leveraging domain knowledge and technical advisory capabilities is key to realizing projects. · Simplifying/standardizing eligibility criteria provides greater reach and better monitoring. 5) Lessons from the European Bank for Reconstruction and Development (EBRD) and the U.S. Department of Energy (DOE) In 2008, EBRD helped to save more than 8 million tons of carbon dioxide emissions. This equates to the carbon emissions from a 3,000 megawatt gas-fueled power plant supplying the household electricity needs of half of the The IFC CEU team is undertaking a similar project for the population of Ukraine. food processing sector in several subsectors such as, for example, meat processing, bakeries and pasta processing, Here are some lessons from the EBRD experience: drinks and beverages. · Focus on high-impact sectors. EBRD concentrates on 4) Intervention through Market Players (Banks, Energy power and heavy industries. Service Companies, and Vendors)--Lessons from East Asia and Pacific (CEA) · Concentrate on specific technologies. EBRD looks at upgrades or introduction of measurement and control The China Utility-based Energy Efficiency Finance Program systems, waste heat recovery, electrical motors and (CHUEE) is the best example of CP intervention through transformers, space heating and lighting, and combined market players. CHUEE is an energy efficiency financing heat and power generation. program, designed by IFC at the request of China's Ministry of Finance, to stimulate investment in energy · Screen all investment projects. EBRD's energy team efficiency and clean energy projects. The goal is to reduce screens all EBRD investment projects at an early stage emissions of greenhouse gases by creating a sustainable of the project cycle for their energy efficiency potential. financing mechanism for companies to invest in energy If there is potential for improvement, a follow-up efficiency projects. IFC cooperates with Chinese commercial questionnaire and a site visit are scheduled, after 4 IFC SMARTLESSONS -- MARCH 2010 which a detailed assessment is facilitated Conclusion by EBRD. To create a market pull for CP assessments and · Embed the CP technical specialists into the subsequent investments in greenhouse gas investment teams. EBRD's CP advisory emissions reduction projects, it is important to experts and investment officers work closely conceive of a project replication strategy early and are part of one organizational unit. in the program and draw on the lessons learned in the IFC regions. The approach to · Offer assessments free of charge to clients. building a pipeline may be based on replication of technology across the industry, targeting a One of the most successful national programs company with multi-site potential, using for the audits is DOE's Save Energy Now benchmarks across a sector, or using banks and program. Since 2006, more than 2,300 small, other intermediaries for aggregation of medium, and large companies have opportunities. participated in the program, with average potential energy savings of 8 percent of the annual energy cost and potential avoidance of 11.2 million tons of carbon dioxide emissions. Here are some lessons from the Save Energy Now assessments: · Keep the assessments to a week or less. DOE assessments are by necessity very focused. · Include a training element to the assessments. DOE assessments focus on hands-on demonstrations to industrial plant personnel specifically on how to use the DOE software tools. USDOE also conducts extensive countrywide workshops to train and certify consultants. · Use the best and most experienced consultants. The DOE assessments are performed by a specially trained and certified cadre of consultants. · Focus on specific, universally applicable technologies. DOE focuses on steam, process heating, pumps, compressed air, and fans. · Offer assessments free of charge to reduce the transaction costs. DISCLAIMER · Build a pipeline of interested companies IFC SmartLessons is an awards through a quick Web portal sign-up program to share lessons learned in development-oriented advisory process. services and investment operations. The findings, interpretations, and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect the views of IFC or its partner organizations, the Executive Directors of The World Bank or the governments they represent. IFC does not assume any responsibility for the completeness or accuracy of the information contained in this document. Please see the terms and conditions at www.ifc.org/ smartlessons or contact the program at smartlessons@ifc.org. IFC SMARTLESSONS -- MARCH 2010 5