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CDM Project Cycle Carbon Markets – CDM project development, 8. August 2010 Jørgen Fenhann.

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Presentation on theme: "CDM Project Cycle Carbon Markets – CDM project development, 8. August 2010 Jørgen Fenhann."— Presentation transcript:

1 CDM Project Cycle Carbon Markets – CDM project development, 8. August 2010 Jørgen Fenhann

2 2 A set of tools to curb greenhouse gases emissions Global Warming The Kyoto Protocol (Signed 1997, Entered into Force 2005) Developed countries Constraint on Emissions Developing countries No Constraint Public policies Intern. Emission Trading Transport Housing Biofuels Projects European Trading Scheme Project based mechanisms CDM Certified Emission Reductions (CER) Initial Concern International response Country level Company / Individual Level 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 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 4 4 How is CDM different? Traditional finance/ investment Carbon finance Returns/Profit Carbon credits Sustainable development benefits …layered incremental costs and returns CDM Project

5 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 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 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

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9 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 Implementation & Monitoring Verification Certification & Issuance

10 10 The Baseline Assessment Project Screening & Design National Approval Validation & Registration Project Implementation & Monitoring Verification Certification & Issuance

11 11 Crediting Period – Renewable & Fixed Project Screening & Design National Approval Validation & Registration Project Implementation & Monitoring Verification Certification & Issuance

12 12 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 Implementation & Monitoring Verification Certification & Issuance

13 13 Institutional Involvement National 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 Implementation & Monitoring Verification Certification & Issuance  Proof of legal capacity  Stakeholder consultation documentation  Sustainable Development Benefits Description (SDBD)

14 14 Sustainable Development Criteria National Approval Project Screening & Design Validation & Registration Project Implementation & Monitoring Verification Certification & Issuance 3 Dimensions  Economic  Environmental  Social

15 15 Activities, Institutions & Documentation Validation &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 Implementation & 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 16 Transaction Costs Validation &Registration Transaction Costs: Validation costs: US$ 10,000 – 40,000 Registration costs National Approval Project Screening & Design Project Implementation & Monitoring Verification Certification & Issuance Annual reduction (ton CO2 – eq) Registration costs ($) <= > y <= > y <= > y <= > No Registration fee for LDC

17 17 Activities, Institutions & Documentation Project 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

18 18 Activities, Institutions & Documentation Verification 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 & Monitoring Certification & Issuance Critical Issues  Project must prove to DOE that data monitored has been done according to the monitoring protocol  Data quality

19 19 Activities, Institutions & Documentation Certification & 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 & Monitoring Verification Critical Issues  Who owns the CER?  All verification issues adequately addressed

20 20 Summary National Approval Validation & Registration Project Implementation & Monitoring Project Screening & Design Verification  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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22 22 More information: Thank you!!


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