clean development mechanism basics

Clean Development

Mechanism Explained

EfficientCarbon

www.efficientcarbon.com

Phone: +91 9000345588

[email protected]

© efficientcarbon, All rights reserved

Carbon Credits

Carbon being traded as a commodity

Voluntary and binding agreements

CER and audited credits

So what really are Carbon Credits and what does Clean

Development Mechanism (CDM) mean?

To understand these, we need to first look at the Kyoto Protocol.

http://www.efficientcarbon.com/

mailto:[email protected]


Phone: +91 9000345588

[email protected]


The Kyoto Protocol • A protocol to the United Nations Framework Convention on Climate

Change (UNFCCC or FCCC), aimed at fighting global warming.

• Sets binding targets for 37 industrialized countries and the European

community to reduce their Greenhouse Gas (GHG) emissions.

• Binding countries to meet their targets primarily through national markets

• Additional means of meeting targets through three market based

mechanisms:

– Emissions trading – known as “the carbon market"

– Joint implementation (JI) and

– Clean development mechanism (CDM)

• First two mechanisms relevant to Annex I / Annex II countries and the third

is relevant to developing countries.




Phone: +91 9000345588

[email protected]


The Kyoto Protocol

• Parties to UNFCCC are classified as:

– Annex I countries - industrialized countries and economies in transition

– Annex II countries - developed countries which pay for costs of developing countries

– Developing countries like India.




Phone: +91 9000345588

[email protected]


That brings us to CDM • In simple terms, CDM is a GHG exchange program

• The theory is that atmosphere is equally polluted by GHG‟s wherever they come from and equally benefits from GHG cuts, wherever they come from.

• So in effect, if a company cannot control its pollution, it can buy some amount of „clean credits‟ from someone who has worked hard to cut down pollution – “Polluter pays”.

• Hence you have companies bound to Kyoto protocol buying carbon credits from organisations which invest in developing clean development mechanism projects




Phone: +91 9000345588

[email protected]


CLEAN DEVELOPMENT

MECHANISM

Companies in

Annex – I

countries

Organisations

developing CDM

projects

Companies pay cash

Organisations give certified carbon credits




Phone: +91 9000345588

[email protected]


Certified Emission Reduction (CER)

• Primary unit of measurement of

the Carbon reduced by the

project

• Given by CDM executive board

• Certification that a project has

managed to reduce 1 tonne of

CO2 eq per year

• Approximate price of a single

CER ranges from $10 - $35

depending on the trading

exchange and market

conditions



Additionality

One of the key factors for approval of a CDM project is

the Additionality constraint.

Kyoto Protocol specifies that emission

reductions are only to be certified under

the Clean Development Mechanism (CDM)

if they are additional to any that would occur in the absence of the certified project activity.


Phone: +91 9000345588

[email protected]


Project started

CER / Carbon

Credits

Time

Emissions

http://www.efficientcarbon.wordpress.com/



Phone: +91 9000345588

[email protected]


Pre-Requisites of a CDM project

• Additionality constraint

• To be „Hosted‟ by a Non Annex-I country (like India) which meets some basic constraints

– Adhere to UNFCCC conventions

– Establish a Designated National Authority

• Co-development by host country and an Annex-I country

• Validation by a Designated Operational Entity (DOE) and meeting the CDM requirements

• Registration with the CDM Executive Board post review to ensure compliance

• Verified and Certified by the DOE as resulting in real, additional, verifiable and measurable emission reductions after commissioning of operations.




Phone: +91 9000345588

[email protected]


A CDM Project can be in many areas

Renewable Energy

Clean Energy Energy Efficiency Construction

Transport Waste

Management Solvent Use

Afforestation & Green Cover

Agriculture HFC/PFC Rest/Others




Phone: +91 9000345588

[email protected]


Before starting a CDM

project, a project baseline

has to be established. This is to establish the amount of

greenhouse gases that would have been

emitted without this CDM project.

Identify Baseline Scenario

Define sources

for estimation

Estimate the

baseline

Evaluate the

estimation

Assess uncertain

-ties

Monitor baseline

Methodol-ogy

Baseline Estimation Process




Phone: +91 9000345588

[email protected]


So to summarise...

Establish Additionality

Establish Baseline

Verify Baseline

Get Approval from CDM Executive Board (EB)

Kick off the CDM project activity




Phone: +91 9000345588

[email protected]


The Actual CDM Activity

1

• Project Design Document (PDD) Preparation

2 • Host Country Approval

3 • Validation by DOEs

4 • Project Registration

5 • Monitoring

6 • Verification and Certification

7 • Issue of CERs

One Time Activity

Project Developers / Consultants

DOE and CDM EB

DOE

CDM EB

Project Developer and DOE

CDM EB

GOE / Ministry of Environment and

Forests

Annual Activity

Expenses

Project Monetised

Project Stage Who does it? Activity Span Time Span

1 month

Up to 2 months

NA(depends on

project)

Up to 6 months

Regular

Up to 1.5 months

6 months

12

to

18

M O N T H S




Phone: +91 9000345588

[email protected]


Costs in CDM Activity

• Project Development and Implementation costs

• Transaction Costs

– Consultant Fees

– Registration with Designated National Authority (DNA)

– Validation and Monitoring fee to Designated Operational

Authority (DOE)

– CER Issuance fee

– Contribution to UNFCCC adaptation fund

• 2% of the CERs will be deducted adaptation fund by CDM Executive Board.




Phone: +91 9000345588

[email protected]


CDM Benefits to Annex-1 countries

• Reduction in overall emission mitigation costs

• Flexibility in meeting emission reduction

commitments

• Investment Opportunities




Phone: +91 9000345588

[email protected]


CDM Benefits to Developing Countries

• Additional financing for sustainable development

projects in the country

• Technology transfer and development

• Mitigates local environment pollution

• Jobs and infrastructure development opportunities




Phone: +91 9000345588

[email protected]


Risks and critiques

• Future beyond 2012 uncertain

• Meagre interest shown by the Govt in developing its

own CDM projects

• Proving additionality difficult in some cases

• Carbon credits being traded as financial instruments give

provision to misuse the intention behind CDM

• “Developed countries being let off by paying money to

clean up their footprint” – Wide opinions




Phone: +91 9000345588

[email protected]


Sources • http://cdm.unfccc.int/Projects/index.html

• http://cdm.unfccc.int/methodologies/PAmethodologies/tools/am-

tool-01-v5.2.pdf

• http://www.cdmcapacity.org

• http://ies.lbl.gov/iespubs/43418.pdf

• http://www.cdmindia.nic.in/

• http://unfccc.int/kyoto_protocol/items/2830.php

• http://www.cdmpakistan.gov.pk

• http://en.wikipedia.org/wiki/Clean_Development_Mechanism

• www.cdmrulebook.com



http://cdm.unfccc.int/Projects/index.html

http://cdm.unfccc.int/methodologies/PAmethodologies/tools/am-tool-01-v5.2.pdf







http://www.cdmcapacity.org/

http://ies.lbl.gov/iespubs/43418.pdf

http://www.cdmindia.nic.in/

http://unfccc.int/kyoto_protocol/items/2830.php

http://unfccc.int/kyoto_protocol/items/2830.php

http://www.cdmpakistan.gov.pk/

http://www.cdmpakistan.gov.pk/

http://en.wikipedia.org/wiki/Clean_Development_Mechanism

http://www.cdmrulebook.com/


Phone: +91 9000345588

[email protected]


CDM Facilitation

Project Initiation CDM Facilitation

• Project Evaluation • Project Comparison • Cost Analysis • Financial Modeling – NPV, IRR • CER Generating Potential Analysis • Project Technology Identification, Analysis and Selection • Supplier Identification • Creation of Full Project Plan

• Baseline Studies • PDD Documentation • Host Country Approval Facilitation • Registration Facilitation • Preparation of Monitoring Report • Project Verification and CER Issuance Facilitation • New Baseline Methodologies Development




Phone: +91 9000345588

[email protected]


Our Services

CARBON MANAGEMENT ADVISORY

SUSTAINABILITY CONSULTING

WATER MANAGEMENT

ENERGY EFFICIENCY

RENEWABLE ENERGY ADVISORY

CDM FACILITATION




Phone: +91 9000345588

[email protected]


Contact us

Harsha: +91 9000345588

Pradeep: +91 9052224701

Office: +91 40 40128206

[email protected]


www.twitter.com/efficientcarbon

www.facebook.com/efficientcarbon






http://www.twitter.com/efficientcarbon

http://www.facebook.com/efficientcarbon


Phone: +91 9000345588

[email protected]


Thank You

"Sustainability is not only absolutely necessary considering the

situation our planet is in, we as companies are also overdue to

take responsibility. We can't wait for governments. Companies

have to lead the way…

- Jochen Zeitz, CEO, Puma Corp.



clean development mechanism basics

Business

cdm project activity

clean credits

binding countries

carbon credits carbon

certified carbon credits

cdm executive board

costs of developing

clean developmentmechanism