CDM Project Cycle

CDM Project Cycle

Carbon Markets – CDM project development,

8. August 2010

Jørgen Fenhann

2

A set of tools to curb greenhouse gases emissions

Global Warming

The Kyoto Protocol (Signed 1997, Entered into Force 2005)

Developed countriesConstraint on Emissions

Developing countriesNo Constraint

Public policiesIntern. Emission Trading

• Transport• Housing• Biofuels• Projects

European Trading Scheme

Project based

mechanisms

CDMCertified Emission

Reductions (CER)

InitialConcern

Internationalresponse

Countrylevel

Company / IndividualLevel

Different assets

• EU ETS trades EUA – European Union Allowances • CDM (Clean development mechanism) generated CER (Certified Emission Reductions)• IET (International Emission Trading Scheme trades AAU (Assigned Amount Units)

Japanese Voluntary Scheme

3

Emissions Reduction

Host country specific site

Emission predictions

GHG Emissions

Baseline scenario Project Scenario

Host Countries with no GHG emission restrictions

Annex I country or enterprise with emission limits

CER

CERs acquired help the achievement of emission reductions

Host country benefits from investments flow and technology

$$

Source: WB

The two objectives of the CDM: Cost-efficient mitigation of CC while contributing to SD of developing countries

Host country specific site

Project must provide emission reductions “that are additional to any that would occur in the absence of the certified project activity”

4

How is CDM different?

Traditional finance/investment

Carbon finance

Returns/Profit

Carbon credits

Sustainable development benefits

…layered incremental costs and returns

CDMProject

5

Greenhouse Gases under Kyoto Protocol

SIX types of gases with different Global Warming Potential (GWP): Usually expressed in CO2-equivalent:

• Carbon Dioxide, GWP : 1• Methane, GWP : 21• Nitrous Oxide, GWP : 310• Sulphur Hexaflouride, GWP : 23,900• Perflourocarbon, GWP : 9,200• Hydrofluorocarbon, GWP : 11,700

6

International CDM Criteria

• In accordance with the modalities and procedures for a CDM (Annex decision 17/CP.7 – F)− all Parties to the Convention may participate in CDM project activities in a

voluntary basis (paragraph 28) - Kyoto Protocol Ratification− Parties participating in the CDM shall designate a National Authority for the

CDM (Paragraph 29)

• Real, measurable and long-term benefits related to mitigation of climate change

• Reduction in emissions that are additional to any that would occur in the absence of the certified project activity

7

International CDM Criteria

o In accordance with provisions of Annex G - paragraphs 37 (a) and 40 (a) of the CDM M&P, the registration of a proposed CDM project activity can… only take place once approval letters are obtained from Parties to the Convention.

• 40. The DOE shall:−(a) Prior to the submission of the validation report to the EB, have

received from the project participants written approval of voluntary participation from the Designated National Authority of each Party involved, including confirmation by the host Party that the project activity assists it in achieving sustainable development

9

Project Eligibility Criteria

Project Screening & Design

• Assists Parties included in Annex I in achieving emission reduction commitment

• Assists non-Annex I Parties in achieving SD and requires approval from host country

• Project results in reductions of GHG emissions when compared to the baseline (Additional)

• Correctly completed PDD, using the current version and exactly following the guidance

• No Official Development Assistance (ODA) • Accurate and reliable information that can be verified

in an objective manner

National

Approval

Validation &

Registration

Project Implementati

on & Monitoring

Verification

Certification &

Issuance

10

The Baseline AssessmentProject Screening & Design

National

Approval

Validation &

Registration


on & Monitoring

Verification

Certification &

Issuance

11

Crediting Period – Renewable & Fixed


National

Approval

Validation &

Registration


on & Monitoring

Verification

Certification &

Issuance

Operational Lifetime

Renewable: max. 7 years (2 times)One period(Max 7 yrs..)

One period(Max 7 yrs..)

One period(Max 7 yrs..)

Renewal: Baseline

validation by DOE

Renewal: Baseline

validation by DOE

Fixed: max. 10years (once)One period(Max 10 yrs..)

12

Transaction Costs


• Pre-feasibility assessment• PIN & PDD development

• Project scale• Complexity• New methodology development• US$ 6,000 to 25,000

National

Approval

Validation &

Registration


on & Monitoring

Verification

Certification &

Issuance

13

Institutional InvolvementNational Approval

• Institutions Involved• DNA, Public and Private Stakeholders

• Critical Issues• National Sustainable Development Criteria• National Laws

• Related Documents (general)• Project Design Document (PDD)• Letter of Approval (LOA)

• Transaction Costs• Processing fee (if any)

Project Screening &

Design

Validation &

Registration


on & Monitoring

Verification

Certification &

Issuance

Proof of legal capacity Stakeholder

consultation documentation

Sustainable Development Benefits Description (SDBD)

14

Sustainable Development Criteria

National Approval

Project Screening &

Design

Validation & Registration

Project Implementation &

MonitoringVerification

Certification & Issuance

3 Dimensions Economic Environmental Social

15

Activities, Institutions & DocumentationValidation &Registration

• Institutions• Project developer, consultant• Designated Operational Entity (DOE)• ie: DNV, SGS UK, TÜV-SÜD, JCI, etc.• CDM Executive Board

• Documentation• PDD• Validation Report (basis for registration

National

Approval



on & Monitoring

Verification

Certification &

Issuance

Must respond to all issues raised by the DOE

Critical Issues Validity of Baseline

calculation Methodology Assumptions

Additionality/Baseline Monitoring Plan

16

Transaction Costs

Validation &Registration

• Transaction Costs:• Validation costs: • US$ 10,000 – 40,000• Registration costs

National

Approval



on & Monitoring

Verification

Certification &

Issuance

Annual reduction (ton CO2 – eq)

Registration costs ($)

<= 15.000 5.000> 15.000 y <=

50.000 10.000

> 50.000 y <= 100.000 15.000

> 100.000 y <= 200.000 20.000

> 200.000 30.000

No Registration fee for LDC

17

Activities, Institutions & DocumentationProject Implementation & Monitoring

• Institutions• Project developer, consultant

• Documentation• Monitoring Protocol as per PDD• Quality Assurance Protocols• Equipment maintenance• Staff trainings• Emergency procedures etc.• Meter calibrations• Submit records to buyer

• Costs• Dependent on project complexity, monitoring plan

requirement

National Approval


Validation & Registration Verification


Critical Issues Data archiving Observe timelines strictly Adhere to PDD requirements

(monitoring protocol) Deviations as per procedure Basis for third party verification

18

Activities, Institutions & DocumentationVerification

• Institutions Involvement• Project developer, consultant• DOE (must be different, for normal large

Scale CDM projects)

• Related Documentation: • Monitoring Report• Verification Report

• Transaction Costs (verification)• US$ 2,000 – 15,000

National Approval



Project Implementation

& MonitoringCertification &

Issuance

Critical Issues Project must prove to DOE

that data monitored has been done according to the monitoring protocol

Data quality

19

Activities, Institutions & DocumentationCertification & Issuance

• Institutions Involvement• CDM EB through the CDM Registry• Project Participants• Project developer, consultant• DOE

• Related Documentation: • Request for issuance• Certificate of Emissions Reduction• Verification Report

National Approval



Project Implementation

& MonitoringVerification

Critical Issues Who owns the CER? All verification issues

adequately addressed

20

Summary

National Approval


Project Implementation &

Monitoring

Project Screening &

DesignVerification

CDM project cycle follows specific predefined steps involving various documentation and players

Key documentation to provide needed reassurance: Project Design Document, LoA, Validation report and Verification report

The key players are: Project developer, DNA, DOE and CDM Executive Board

The emission calculations are based on the project baseline and in accordance with approved or proposed methodologies

There are transactions costs as associated with the carbon asset development which vary with the type and complexity of the project


21

22

More information:http://uneprisoe.org

http://cd4cdm.orghttp://cdmbazaar.net

http://cdmpipeline.org

Thank you!!