cdm project cycle
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CDM Project Cycle
Carbon Markets – CDM project development,
8. August 2010
Jørgen Fenhann
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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
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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”
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How is CDM different?
Traditional finance/investment
Carbon finance
Returns/Profit
Carbon credits
Sustainable development benefits
…layered incremental costs and returns
CDMProject
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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
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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
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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
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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
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The Baseline AssessmentProject Screening & Design
National
Approval
Validation &
Registration
Project Implementati
on & Monitoring
Verification
Certification &
Issuance
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Crediting Period – Renewable & Fixed
Project Screening & Design
National
Approval
Validation &
Registration
Project Implementati
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..)
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Transaction Costs
Project Screening & Design
• Pre-feasibility assessment• PIN & PDD development
• Project scale• Complexity• New methodology development• US$ 6,000 to 25,000
National
Approval
Validation &
Registration
Project Implementati
on & Monitoring
Verification
Certification &
Issuance
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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
Project Implementati
on & Monitoring
Verification
Certification &
Issuance
Proof of legal capacity Stakeholder
consultation documentation
Sustainable Development Benefits Description (SDBD)
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Sustainable Development Criteria
National Approval
Project Screening &
Design
Validation & Registration
Project Implementation &
MonitoringVerification
Certification & Issuance
3 Dimensions Economic Environmental Social
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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
Project Screening & Design
Project Implementati
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
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Transaction Costs
Validation &Registration
• Transaction Costs:• Validation costs: • US$ 10,000 – 40,000• Registration costs
National
Approval
Project Screening & Design
Project Implementati
on & Monitoring
Verification
Certification &
Issuance
Annual reduction (ton CO2 – eq)
Registration costs ($)
<= 15.000 5.000> 15.000 y <=
50.000 10.000
> 50.000 y <= 100.000 15.000
> 100.000 y <= 200.000 20.000
> 200.000 30.000
No Registration fee for LDC
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Activities, Institutions & DocumentationProject Implementation & Monitoring
• Institutions• Project developer, consultant
• Documentation• Monitoring Protocol as per PDD• Quality Assurance Protocols• Equipment maintenance• Staff trainings• Emergency procedures etc.• Meter calibrations• Submit records to buyer
• Costs• Dependent on project complexity, monitoring plan
requirement
National Approval
Project Screening & Design
Validation & Registration Verification
Certification & Issuance
Critical Issues Data archiving Observe timelines strictly Adhere to PDD requirements
(monitoring protocol) Deviations as per procedure Basis for third party verification
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Activities, Institutions & DocumentationVerification
• Institutions Involvement• Project developer, consultant• DOE (must be different, for normal large
Scale CDM projects)
• Related Documentation: • Monitoring Report• Verification Report
• Transaction Costs (verification)• US$ 2,000 – 15,000
National Approval
Project Screening & Design
Validation & Registration
Project Implementation
& MonitoringCertification &
Issuance
Critical Issues Project must prove to DOE
that data monitored has been done according to the monitoring protocol
Data quality
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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 Screening & Design
Validation & Registration
Project Implementation
& MonitoringVerification
Critical Issues Who owns the CER? All verification issues
adequately addressed
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Summary
National Approval
Validation & Registration
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
Certification & Issuance
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More information:http://uneprisoe.org
http://cd4cdm.orghttp://cdmbazaar.net
http://cdmpipeline.org
Thank you!!
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