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1. What is leakage and a project boundary?
Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases (GHG) which occurs outside the project boundary, and which is measurable and attributable to the CDM project activity.
The project boundary encompasses all anthropogenic emissions by sources of greenhouse gases (GHG) under the control of the project participants that are significant and reasonably attributable to the CDM project activity.
|  | 2. What are Carbon Pools?
Carbon pools are: above-ground biomass, belowground biomass, litter, dead wood and soil organic carbon. Project participants may choose not to account for one or more carbon pools if they provide transparent and verifiable information that indicates that the choice will not increase the expected net anthropogenic GHG removals by sinks.
| | 3. What are the different types of small-scale CDM project activities (SSC)?
There are three types of SSC projects.
Type I: Renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts (or an appropriate equivalent);
Type II: Energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, limited to those with a maximum output of 60 GWh per year (or an appropriate equivalent);
Type III: Other project activities limited to those that result in emission reductions of less than or equal to 60 kt CO2 equivalent annually.
| | 4. Have I missed the UN registration deadline? What is the cut-off start date for a project?
A CDM project activity starting after 1 January 2000 can also be validated and registered after 31 December 2005 as long as the first verification of the project activity occurs after the date of registration of this project activity. Given that the crediting period starts at the same date as the starting date of the project activity, the projects starting 2000 onwards can accrue CERs as of the starting date.
| | 5. What are VERs or Verified emission reductions?
A tradable emission reduction that has not been generated via a formal, regulated system. Such ‘voluntary’ reductions have varying degrees of environmental credibility and legal force, and thus command widely differing prices.
| | 6. Why do greenhouse gas emission reductions have value?
Meeting the Kyoto targets will require public and private investments. Many industrialized governments that have ratified the Protocol have already begun implementing domestic policies and regulations that will require emitters to reduce greenhouse gas emissions, according to the established targets. So far, experience has shown that the cost of reducing one ton of carbon dioxide (a greenhouse gas) can cost from $15 to $100 in industrialized countries.
In contrast, there are many opportunities to reduce greenhouse gases in developing countries at a cost of $1 to $4 per ton of carbon dioxide. Hence, an emission reduction that was achieved at a lower cost has value to a public or private entity in an industrialized country that is required by regulation to reduce its emissions.
| | 7. What types of technologies are commonly applied in JI projects?
Projects under Joint Implementation are often related to energy efficiency improvements and industrial conversion. The emphasis on the rapid expansion of heavy industry throughout the communist era, and the use of inferior building materials as part of this phenomenon, has created the potential to upgrade existing industrial processes, distribution networks, and buildings. Apart from recovering fugitive emissions from the sources listed above, there is considerable potential to improve plant efficiency by reusing waste energy and switching to less carbon intensive fuel inputs. The largest number of JI reduction opportunities relates to the oil and gas and power generation sectors. Specific examples of technologies or emission reduction strategies that are particularly relevant for Eastern Europe include: district heating, capturing fugitive methane emissions from pipelines, and coal bed methane injection. While renewable energy is common for CDM projects, it is less popular in Eastern Europe with the exception of small-scale hydro projects.
| | 8. If changes are made to the PDD after registration, does the project need to be re-validated or re-registered? Similarly, do any changes in the project participants warrant any revisions?
If the changes to the PDD affect the nature of the project, the baseline and/or monitoring methodology, or the estimated emissions reductions/removals, then the project may have to be re-validated and re-registered. Any changes in the project participants must be reported to the Executive Board, but do not constitute a need to re-validate or re-register the project activity.
| | 9. Is there an additional delay associated with approval of a new methodology?
The use of a proposed new baseline or monitoring methodology will result in an additional step in the project cycle since the proposed methodology must be approved by the EB prior to validation of the project. The complete process should take no longer than four months from the submission of the methodology, provided that no major revisions are required. Project developers should initially consult the UNFCCC website to determine if there is an appropriate methodology that can be applied to the project.
| | 10. How can I sufficiently demonstrate that a project activity is additional?
The CDM Executive Board has provided further clarification to assist project developers to demonstrate additionality. This includes:
a) A flow-chart or series of questions that lead to a narrowing of potential baselines options;
b) A qualitative or quantitative assessment of different potential options and an indication of why the non-project option is more likely;
c) A qualitative or quantitative assessment of one or more barriers facing the proposed project activity; and/or
d) An indication that the project type is not common practice in the proposed area of implementation and is not required by a Party's legislation or regulations.
| | 11. All CDM project must meet the condition of “additionality.” What does this mean?
The CDM modalities and procedures state that a “CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity.” Project participants should illustrate, through the use of the baseline methodology, how a project is not part of the baseline scenario. | | 12. What “rights” do project participants have to emission reduction credits?
The UNFCCC process does not prescribe any rights to project participants in terms of ownership of credits resulting from a CDM project. It is the responsibility of project participants to define their own rights and legal obligations to credits, often done through a contractual arrangement.
| | 13. How can the CDM and JI enhance the commercial viability of an emission reduction project? How can they help to improve the internal rate of return of projects that reduce greenhouse gas emissions?
A project that reduces greenhouse gases can generate additional revenue through the sale of carbon credits. These credits may be sold to Annex 1 Parties and/or private entities looking to offset their own GHG emissions. The incremental revenue gained as a result of credit sales will be largely dependent on the price of carbon.
Apart from considering capital, operations and maintenance costs, project developers that are considering incorporating the CDM as part of an emission reduction project should consider the associated transaction costs. In some cases, the transaction costs, which could include the development of the Project Design Document, validation, verification, etc, may make some potential CDM projects less attractive.
| | 14. What is the difference between the CDM and JI?
CDM projects are hosted by developing countries that do not have binding GHG emission reduction targets. They are approved by the Parties involved and go through the CDM Executive Board (EB) project cycle. The EB is an international body established under the Marrakech Accords to supervise the CDM. JI projects are hosted in developed (Annex I) countries that have adopted binding emission reduction targets. They must be approved by both Annex I countries involved, and are subject to their respective JI approval processes.
| | 15. What does “CDM project development” mean? Do I need a project developer? Who can develop a CDM project?
Theoretically everyone can develop a CDM project. If there exists any emission reduction potential or an idea of how to sequester carbon, any company or institution may implement such a project. To get it accredited as a CDM project several requirements must be fulfilled, such as certain documents (PDD, Monitoring plan, ...), a pre-defined project cycle, certain characteristics (additionality criteria in terms of emission reductions, social and economic aspects), certain institutions have to be contacted (host country DNA, buyer country DNA, validator) and contracted (validator). To facilitate the whole process of a CDM project development, it is recommended to contract a consulting company that will help develop all the required documents and will guide you through this time consuming process.
| | 16. If I want to show my interest as an investor or the CDM how should I proceed?
We are not a consulting firm. Ours is a CDM portal. However, you can display your amount of investment, type of project, amount of CERs that you would like to generate by filling out the Investor Interest and Service Request forms (both of which are free). The information will be displayed on our homepage in the Carbon Classifieds section at no cost to you. You should be contacted soon by the many consultants and other project developers. The fees charged by the consulting firms for preparing a project design document (PDD) depend on project size and complexity and the methodology used. In July 2005 on a stand-alone basis, i.e. preparing PDDs without additional services, consultants usually cite charges ranging from US$ 5,000 to US$ 15,000 for less sophisticated, smaller projects and up to US$ 40,000 to US$ 50,000 for large-scale projects requiring the development of new methodologies.
Larger providers in India are assisting a growing number of small and medium-sized CDM projects in direct competition with smaller consultants. Keener competition has also affected fee scales. The larger companies in particular have started to make remuneration directly contingent on success, i.e. on a Host Country Approval or project registration. Consulting firms that lack the same financial resources find this kind of arrangement more difficult.
But you can put up your request on our site and let the best bidder get your project. If additional consulting services are needed (e.g. supplementary assistance in validation and registration or searching for prospective emission certificate buyers), a success fee is usually charged.
| | 17. Who can invest in CDM projects?
Theoretically everyone can invest in CDM projects. Industrialized countries that are defined in the Annex B of the Kyoto Protocol can only use the final CER. Because of the size of projects, especially banks, funds, governments and similar institutions will probably invest in such type of projects.
| | 18. Why is there a pricing issue with CERs?
There is no Indian mechanism for proper CER price discovery. Many of the CERs generated from Indian CDM projects are sold through forward contracts. The actual sale price of CERs is not usually revealed. The CER and EU credits are different. The EU Credits give an automatic right to emit carbon dioxide because they are emissions allowances. CERs are subject to verification by the UNFCCC. Second, there are country risks for operating in developing countries and dealing with small companies.
| | 19. What is the European Emission trading system (EU-ETS)?
In January 2005, several European sectors including energy, metals, minerals and pulp and paper came under EU Emissions trading directive which sets carbon dioxide gas emission limits. If a company emits lower than its allowed limit, it may sell its extra allowance to other companies who are not meeting their targets. The penalty for violation is €40 for every ton of carbon dioxide over the limit, and a requirement to purchase the missing emission allowances. Starting 2008, this will be increased to €100. The law in the future may be extended to include the chemical, aluminium and transport sectors.
In October 2004, the EU adopted a “linking directive” that allows companies to buy CERs from the Kyoto CDM mechanism to meet EU-ETS emission allowances, thus making the European industry take very strong notice of the CDM market. When a European company buys a CER, the company gets an EU emission reductions unit in exchange for surrendering the CER to the country government – which the country will use to offset its Kyoto reduction targets. Studies estimate the demand of CERs from European industry to be 102.20-288.5 million tons of C02 per year in 2010. This demand will vary though, depending on whether the EU imposes limits on the number of CERs industry can buy.
| | 20. What are the Kyoto protocol’s three mechanisms?
The Clean Development Mechanisms is one of three Kyoto protocol flexibility mechanisms. The other two are Joint Implementation and International Emissions Trading. They help Annex I countries meet their emission reduction targets.
Joint Implementation
Joint Implementation is like a CDM but with projects in other Annex I countries instead of developing countries. Eastern European countries in Annex I such as Bulgaria and Romania are likely to benefit from these projects and have already signed MOU's for their projects. These projects are competition for CDM and are expected to give CDM projects in developing countries a serious run for their money beginning 2008.
International Emissions Trading
Each Annex I country has a certain number of emission allowances (amount of carbon dioxide it can emit) in line with its Kyoto reduction targets. If a country’s GHG emissions are below their emission allowances (i.e. meeting Kyoto targets) they can sell these extra allowances to other Annex I countries who are emitting above the allowance (i.e. not meeting their Kyoto targets).
| | 21. What are the sustainable development criteria for CDM projects?
Sustainable development is a legal requirement of a CDM project. “It is the host party’s (e.g. India’s) prerogative to confirm whether a CDM project activity assists it in achieving sustainable development”.
Different countries have different sustainable development criteria. In India, clearance for sustainability is granted by the National CDM Authority (NCDMA) and is spearheaded by the Union ministry of environment and forests (MOEF).
The Indian NCDMA has the following sustainable development criteria:
a) Social well being: The project should lead to alleviation of poverty by generating additional employment, removal of social disparities and leading to improvement in quality of life of people.
b) Economic well being: The project should bring in additional investment consistent with the needs of the people.
c) Environmental well being: This includes a discussion of impact of the project activity on resource sustainability and resource degradation/reduction of levels of pollution.
d) Technological well being: The activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices.
| | 22. What is a Baseline?
If a project gets 20,000 CERs it means that its emissions are 20,000 tons of carbon dioxide less than a reference point called a baseline. A baseline for a CDM project gives the greenhouse gases emissions that would have occurred in the absence of the proposed CDM project activity. There are three approaches to establishing baselines:
a) Existing actual or historical emissions, as applicable.
b) Emission from a technology that represents an economically attractive course of action, taking into account barriers to investment.
c) The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category.
At present, each project puts forward its own baseline, depending on the location of its operation, laws applicable to it and other factors. Projects can, however, borrow methodologies from other projects to develop a baseline.
| | 23. What makes a project eligible for CDM?
A project is eligible for CDM benefits if the project will result in a net decrease in green house gas emissions – this is called additionality.
For example a company can get CERs if it installs a waste heat recovery boiler that saves energy. This is because reduced fuel use reduces the amount of carbon dioxide emitted.
Technically speaking a CDM project is additional if "anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity." However, if the developer has to undertake the project activity because of law, for example if the industry is legally mandated to have a waste-heat recovery boiler, such a project is generally not eligible for CDM benefits. The Kyoto Protocol states that JI and CDM projects will be awarded emission reduction credits provided they achieve reductions that are additional to those that would otherwise occur. Despite years of negotiations and debate, the interpretation of additionality remains controversial and problematic.
In some cases however, if the law is shown to be "systematically not in force" or "non-compliance is widespread" in the country such a project can still be eligible. National and local policies which are not legally binding do not nullify the project. For example a government wind energy promotion policy does not disqualify a wind farm from CDM. If this criteria is fulfilled, then the developer follow two more steps :
(1) Outline the alternatives to the CDM activity
The developer has to first outline what the possible outcomes of the project are if it doesn’t get CDM benefits – so called "baseline" scenarios the associate green house gas emissions. It must then show that with the CDM project, greenhouse gas emissions are reduced. This reduction in emissions over the baseline, is the amount of CERs that the project would generate.
(2) Investment analysis.
Once the possible alternatives are outlined, and the CDM project is shown to have lower greenhouse gas emissions, the developer must show that CDM scenario satisfies is either:
a) Not common practice in the region or sector, b) Is the least financially attractive option available OR c) Faces "barriers" preventing implementation if the project was not registered as a CDM project such as either:
Financial: such as an inability to get bank loans.
Technological: lack of infrastructure for implementation or skills/labour to operate the technology.
“First of its kind”: No project activity of its type is operational in the region or country.
| | 24. How do developing countries benefit from CDM?
The Kyoto Protocol (Article 12) states : “The purpose of the Clean Development Mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments”. The idea was that developed countries get some flexibility in emission reductions in exchange for bringing investment into developing countries for projects and technologies that reduce green house gases.
International Buyers of CDM,
Country governments in Annex I are the ultimate beneficiaries of CERs. However several private players are also involved in CDM, acting as brokers and intermediaries. Private funds that buy and sell CERs are also active.
| | 25. How do Annex I countries benefit from CDM?
All Annex-I countries (Except Belarus and Turkey) have legally binding green house gas emission reduction requirements under the Kyoto Protocol. The Clean Development Mechanism is one of the “flexibility mechanisms” of the Protocol to help these countries meet these targets. Instead of countries reducing the emissions of their own companies, Annex I countries can “buy” emission reductions in non-Annex I countries.
For example, a CDM project such as a company switching fuels from coal to biomass results in a reduction of 100,000 tons of carbon dioxide per year in the atmosphere. If an Annex I country buys these credits, it can count them for its Kyoto reduction targets.
| | 26. What is a CER?
CERs or Certified Emissions Reductions are a “certificate” just like a stock. A CER is given by the CDM Executive Board to projects in developing countries to certify they have reduced green house gas emissions by one ton of carbon dioxide per year.
For example, if a project generates energy using wind power instead of burning coal, it can save 50 tons of carbon dioxide per year. There it can claim 50 CERs (as one CER is equivalent to one ton of carbon dioxide reduced). Developed countries buy CERs from developing countries under the CDM process to help them achieve their Kyoto targets. In India income from CERs are not taxed, as of yet. The Chinese government though has decided to tax the revenue from projects.
| | 27. What is the Clean Development Mechanism (CDM)?
CDM allows Annex I (industrialised) countries to meet their emission reduction targets by paying for green house gas emission reduction in non-Annex I (developing) countries.
Example (Figures are hypothetical):
A company in India (a non Annex I country) switches from coal power to biomass. The CDM board certifies that by doing this the company has reduced carbon dioxide emissions by 5,000 tons per year. It is issued with 5,000 CERs (Certified Emission Reductions). Under the Kyoto Protocol, the United Kingdom (an Annex I country) has to reduce its green house gas emissions by 1 million tons of carbon dioxide each year. If it purchases the 5,000 CERs from the Indian company, this target reduces from 1 million tons/year to 9,95000 tons per year making the goal easier to achieve.
| | 28. What is the Kyoto Protocol?
The Kyoto Protocol is a legally binding agreement that arose out of the UNFCCC to tackle climate change through a reduction of green house gas emissions. Countries (those listed in Annex I) are legally bound to reduce man-made green house gases emissions by approximately 5.2%. Individual countries have their own reduction targets outlined in Annex B of the Kyoto Protocol. The text of the protocol was adopted at the third conference of the parties to the UNFCCC in Kyoto, Japan, on 11 December 1997. However the protocol suffered many years of delay. The United States and Australia two major green house gas emitters did not ratify the treaty. The Protocol entered into force on February 15, 2005 when Russia ratified the treaty.
| | 29. EU ETS: Facts and Figures
On October 25th 2003 the directive (2003/87/EC) establishing an EU-wide greenhouse gas emissions trading scheme entered into force. As of January 1st 2005, companies from sectors covered by the scheme, in all EU and accession countries, must limit their greenhouse gas (GHG) emissions to allocated levels in two periods, from 2005-2007 and 2008-2012. Over 12.000 installations are expected to be covered giving European industry a clear signal that GHG trading is going to be important for their future.
Scheme starts January 1st 2005, 1st phase 2005-2007 and 2nd phase 2008-2012
Only CO2 will be included in the first phase with the potential to expand this to include the other five GHG’s from 2008
Only sectors covered in Annex 1 included for 1st phase. Directive highlights the desire to include chemicals, transport and aluminium sectors from 2008
Each Member State must decide on allocations to installations through the National Allocation Plan (NAP) which must be submitted to the European Commission for approval
Penalties:
€ 40 per ton CO2 shortfall for 1st Phase
€ 100 per ton CO2 shortfall for 2nd Phase
And make up shortfall in subsequent calendar year
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| 1. What is leakage and a project boundary?
Leakage is defined as the net change of anthropogenic emissions by sources of greenhouse gases (GHG) which occurs outside the project boundary, and which is measurable and attributable to the CDM project activity.
The project boundary encompasses all anthropogenic emissions by sources of greenhouse gases (GHG) under the control of the project participants that are significant and reasonably attributable to the CDM project activity.
| | 2. What are Carbon Pools?
Carbon pools are: above-ground biomass, belowground biomass, litter, dead wood and soil organic carbon. Project participants may choose not to account for one or more carbon pools if they provide transparent and verifiable information that indicates that the choice will not increase the expected net anthropogenic GHG removals by sinks.
| | 3. What are the different types of small-scale CDM project activities (SSC)?
There are three types of SSC projects.
Type I: Renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts (or an appropriate equivalent);
Type II: Energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, limited to those with a maximum output of 60 GWh per year (or an appropriate equivalent);
Type III: Other project activities limited to those that result in emission reductions of less than or equal to 60 kt CO2 equivalent annually.
| | 4. Have I missed the UN registration deadline? What is the cut-off start date for a project?
A CDM project activity starting after 1 January 2000 can also be validated and registered after 31 December 2005 as long as the first verification of the project activity occurs after the date of registration of this project activity. Given that the crediting period starts at the same date as the starting date of the project activity, the projects starting 2000 onwards can accrue CERs as of the starting date.
| | 5. What are VERs or Verified emission reductions?
A tradable emission reduction that has not been generated via a formal, regulated system. Such ‘voluntary’ reductions have varying degrees of environmental credibility and legal force, and thus command widely differing prices.
| | 6. Why do greenhouse gas emission reductions have value?
Meeting the Kyoto targets will require public and private investments. Many industrialized governments that have ratified the Protocol have already begun implementing domestic policies and regulations that will require emitters to reduce greenhouse gas emissions, according to the established targets. So far, experience has shown that the cost of reducing one ton of carbon dioxide (a greenhouse gas) can cost from $15 to $100 in industrialized countries.
In contrast, there are many opportunities to reduce greenhouse gases in developing countries at a cost of $1 to $4 per ton of carbon dioxide. Hence, an emission reduction that was achieved at a lower cost has value to a public or private entity in an industrialized country that is required by regulation to reduce its emissions.
| | 7. What types of technologies are commonly applied in JI projects?
Projects under Joint Implementation are often related to energy efficiency improvements and industrial conversion. The emphasis on the rapid expansion of heavy industry throughout the communist era, and the use of inferior building materials as part of this phenomenon, has created the potential to upgrade existing industrial processes, distribution networks, and buildings. Apart from recovering fugitive emissions from the sources listed above, there is considerable potential to improve plant efficiency by reusing waste energy and switching to less carbon intensive fuel inputs. The largest number of JI reduction opportunities relates to the oil and gas and power generation sectors. Specific examples of technologies or emission reduction strategies that are particularly relevant for Eastern Europe include: district heating, capturing fugitive methane emissions from pipelines, and coal bed methane injection. While renewable energy is common for CDM projects, it is less popular in Eastern Europe with the exception of small-scale hydro projects.
| | 8. If changes are made to the PDD after registration, does the project need to be re-validated or re-registered? Similarly, do any changes in the project participants warrant any revisions?
If the changes to the PDD affect the nature of the project, the baseline and/or monitoring methodology, or the estimated emissions reductions/removals, then the project may have to be re-validated and re-registered. Any changes in the project participants must be reported to the Executive Board, but do not constitute a need to re-validate or re-register the project activity.
| | 9. Is there an additional delay associated with approval of a new methodology?
The use of a proposed new baseline or monitoring methodology will result in an additional step in the project cycle since the proposed methodology must be approved by the EB prior to validation of the project. The complete process should take no longer than four months from the submission of the methodology, provided that no major revisions are required. Project developers should initially consult the UNFCCC website to determine if there is an appropriate methodology that can be applied to the project.
| | 10. How can I sufficiently demonstrate that a project activity is additional?
The CDM Executive Board has provided further clarification to assist project developers to demonstrate additionality. This includes:
a) A flow-chart or series of questions that lead to a narrowing of potential baselines options;
b) A qualitative or quantitative assessment of different potential options and an indication of why the non-project option is more likely;
c) A qualitative or quantitative assessment of one or more barriers facing the proposed project activity; and/or
d) An indication that the project type is not common practice in the proposed area of implementation and is not required by a Party's legislation or regulations.
| | 11. All CDM project must meet the condition of “additionality.” What does this mean?
The CDM modalities and procedures state that a “CDM project activity is additional if anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity.” Project participants should illustrate, through the use of the baseline methodology, how a project is not part of the baseline scenario. | | 12. What “rights” do project participants have to emission reduction credits?
The UNFCCC process does not prescribe any rights to project participants in terms of ownership of credits resulting from a CDM project. It is the responsibility of project participants to define their own rights and legal obligations to credits, often done through a contractual arrangement.
| | 13. How can the CDM and JI enhance the commercial viability of an emission reduction project? How can they help to improve the internal rate of return of projects that reduce greenhouse gas emissions?
A project that reduces greenhouse gases can generate additional revenue through the sale of carbon credits. These credits may be sold to Annex 1 Parties and/or private entities looking to offset their own GHG emissions. The incremental revenue gained as a result of credit sales will be largely dependent on the price of carbon.
Apart from considering capital, operations and maintenance costs, project developers that are considering incorporating the CDM as part of an emission reduction project should consider the associated transaction costs. In some cases, the transaction costs, which could include the development of the Project Design Document, validation, verification, etc, may make some potential CDM projects less attractive.
| | 14. What is the difference between the CDM and JI?
CDM projects are hosted by developing countries that do not have binding GHG emission reduction targets. They are approved by the Parties involved and go through the CDM Executive Board (EB) project cycle. The EB is an international body established under the Marrakech Accords to supervise the CDM. JI projects are hosted in developed (Annex I) countries that have adopted binding emission reduction targets. They must be approved by both Annex I countries involved, and are subject to their respective JI approval processes.
| | 15. What does “CDM project development” mean? Do I need a project developer? Who can develop a CDM project?
Theoretically everyone can develop a CDM project. If there exists any emission reduction potential or an idea of how to sequester carbon, any company or institution may implement such a project. To get it accredited as a CDM project several requirements must be fulfilled, such as certain documents (PDD, Monitoring plan, ...), a pre-defined project cycle, certain characteristics (additionality criteria in terms of emission reductions, social and economic aspects), certain institutions have to be contacted (host country DNA, buyer country DNA, validator) and contracted (validator). To facilitate the whole process of a CDM project development, it is recommended to contract a consulting company that will help develop all the required documents and will guide you through this time consuming process.
| | 16. If I want to show my interest as an investor or the CDM how should I proceed?
We are not a consulting firm. Ours is a CDM portal. However, you can display your amount of investment, type of project, amount of CERs that you would like to generate by filling out the Investor Interest and Service Request forms (both of which are free). The information will be displayed on our homepage in the Carbon Classifieds section at no cost to you. You should be contacted soon by the many consultants and other project developers. The fees charged by the consulting firms for preparing a project design document (PDD) depend on project size and complexity and the methodology used. In July 2005 on a stand-alone basis, i.e. preparing PDDs without additional services, consultants usually cite charges ranging from US$ 5,000 to US$ 15,000 for less sophisticated, smaller projects and up to US$ 40,000 to US$ 50,000 for large-scale projects requiring the development of new methodologies.
Larger providers in India are assisting a growing number of small and medium-sized CDM projects in direct competition with smaller consultants. Keener competition has also affected fee scales. The larger companies in particular have started to make remuneration directly contingent on success, i.e. on a Host Country Approval or project registration. Consulting firms that lack the same financial resources find this kind of arrangement more difficult.
But you can put up your request on our site and let the best bidder get your project. If additional consulting services are needed (e.g. supplementary assistance in validation and registration or searching for prospective emission certificate buyers), a success fee is usually charged.
| | 17. Who can invest in CDM projects?
Theoretically everyone can invest in CDM projects. Industrialized countries that are defined in the Annex B of the Kyoto Protocol can only use the final CER. Because of the size of projects, especially banks, funds, governments and similar institutions will probably invest in such type of projects.
| | 18. Why is there a pricing issue with CERs?
There is no Indian mechanism for proper CER price discovery. Many of the CERs generated from Indian CDM projects are sold through forward contracts. The actual sale price of CERs is not usually revealed. The CER and EU credits are different. The EU Credits give an automatic right to emit carbon dioxide because they are emissions allowances. CERs are subject to verification by the UNFCCC. Second, there are country risks for operating in developing countries and dealing with small companies.
| | 19. What is the European Emission trading system (EU-ETS)?
In January 2005, several European sectors including energy, metals, minerals and pulp and paper came under EU Emissions trading directive which sets carbon dioxide gas emission limits. If a company emits lower than its allowed limit, it may sell its extra allowance to other companies who are not meeting their targets. The penalty for violation is €40 for every ton of carbon dioxide over the limit, and a requirement to purchase the missing emission allowances. Starting 2008, this will be increased to €100. The law in the future may be extended to include the chemical, aluminium and transport sectors.
In October 2004, the EU adopted a “linking directive” that allows companies to buy CERs from the Kyoto CDM mechanism to meet EU-ETS emission allowances, thus making the European industry take very strong notice of the CDM market. When a European company buys a CER, the company gets an EU emission reductions unit in exchange for surrendering the CER to the country government – which the country will use to offset its Kyoto reduction targets. Studies estimate the demand of CERs from European industry to be 102.20-288.5 million tons of C02 per year in 2010. This demand will vary though, depending on whether the EU imposes limits on the number of CERs industry can buy.
| | 20. What are the Kyoto protocol’s three mechanisms?
The Clean Development Mechanisms is one of three Kyoto protocol flexibility mechanisms. The other two are Joint Implementation and International Emissions Trading. They help Annex I countries meet their emission reduction targets.
Joint Implementation
Joint Implementation is like a CDM but with projects in other Annex I countries instead of developing countries. Eastern European countries in Annex I such as Bulgaria and Romania are likely to benefit from these projects and have already signed MOU's for their projects. These projects are competition for CDM and are expected to give CDM projects in developing countries a serious run for their money beginning 2008.
International Emissions Trading
Each Annex I country has a certain number of emission allowances (amount of carbon dioxide it can emit) in line with its Kyoto reduction targets. If a country’s GHG emissions are below their emission allowances (i.e. meeting Kyoto targets) they can sell these extra allowances to other Annex I countries who are emitting above the allowance (i.e. not meeting their Kyoto targets).
| | 21. What are the sustainable development criteria for CDM projects?
Sustainable development is a legal requirement of a CDM project. “It is the host party’s (e.g. India’s) prerogative to confirm whether a CDM project activity assists it in achieving sustainable development”.
Different countries have different sustainable development criteria. In India, clearance for sustainability is granted by the National CDM Authority (NCDMA) and is spearheaded by the Union ministry of environment and forests (MOEF).
The Indian NCDMA has the following sustainable development criteria:
a) Social well being: The project should lead to alleviation of poverty by generating additional employment, removal of social disparities and leading to improvement in quality of life of people.
b) Economic well being: The project should bring in additional investment consistent with the needs of the people.
c) Environmental well being: This includes a discussion of impact of the project activity on resource sustainability and resource degradation/reduction of levels of pollution.
d) Technological well being: The activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices.
| | 22. What is a Baseline?
If a project gets 20,000 CERs it means that its emissions are 20,000 tons of carbon dioxide less than a reference point called a baseline. A baseline for a CDM project gives the greenhouse gases emissions that would have occurred in the absence of the proposed CDM project activity. There are three approaches to establishing baselines:
a) Existing actual or historical emissions, as applicable.
b) Emission from a technology that represents an economically attractive course of action, taking into account barriers to investment.
c) The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category.
At present, each project puts forward its own baseline, depending on the location of its operation, laws applicable to it and other factors. Projects can, however, borrow methodologies from other projects to develop a baseline.
| | 23. What makes a project eligible for CDM?
A project is eligible for CDM benefits if the project will result in a net decrease in green house gas emissions – this is called additionality.
For example a company can get CERs if it installs a waste heat recovery boiler that saves energy. This is because reduced fuel use reduces the amount of carbon dioxide emitted.
Technically speaking a CDM project is additional if "anthropogenic emissions of greenhouse gases by sources are reduced below those that would have occurred in the absence of the registered CDM project activity." However, if the developer has to undertake the project activity because of law, for example if the industry is legally mandated to have a waste-heat recovery boiler, such a project is generally not eligible for CDM benefits. The Kyoto Protocol states that JI and CDM projects will be awarded emission reduction credits provided they achieve reductions that are additional to those that would otherwise occur. Despite years of negotiations and debate, the interpretation of additionality remains controversial and problematic.
In some cases however, if the law is shown to be "systematically not in force" or "non-compliance is widespread" in the country such a project can still be eligible. National and local policies which are not legally binding do not nullify the project. For example a government wind energy promotion policy does not disqualify a wind farm from CDM. If this criteria is fulfilled, then the developer follow two more steps :
(1) Outline the alternatives to the CDM activity
The developer has to first outline what the possible outcomes of the project are if it doesn’t get CDM benefits – so called "baseline" scenarios the associate green house gas emissions. It must then show that with the CDM project, greenhouse gas emissions are reduced. This reduction in emissions over the baseline, is the amount of CERs that the project would generate.
(2) Investment analysis.
Once the possible alternatives are outlined, and the CDM project is shown to have lower greenhouse gas emissions, the developer must show that CDM scenario satisfies is either:
a) Not common practice in the region or sector, b) Is the least financially attractive option available OR c) Faces "barriers" preventing implementation if the project was not registered as a CDM project such as either:
Financial: such as an inability to get bank loans.
Technological: lack of infrastructure for implementation or skills/labour to operate the technology.
“First of its kind”: No project activity of its type is operational in the region or country.
| | 24. How do developing countries benefit from CDM?
The Kyoto Protocol (Article 12) states : “The purpose of the Clean Development Mechanism shall be to assist Parties not included in Annex I in achieving sustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I in achieving compliance with their quantified emission limitation and reduction commitments”. The idea was that developed countries get some flexibility in emission reductions in exchange for bringing investment into developing countries for projects and technologies that reduce green house gases.
International Buyers of CDM,
Country governments in Annex I are the ultimate beneficiaries of CERs. However several private players are also involved in CDM, acting as brokers and intermediaries. Private funds that buy and sell CERs are also active.
| | 25. How do Annex I countries benefit from CDM?
All Annex-I countries (Except Belarus and Turkey) have legally binding green house gas emission reduction requirements under the Kyoto Protocol. The Clean Development Mechanism is one of the “flexibility mechanisms” of the Protocol to help these countries meet these targets. Instead of countries reducing the emissions of their own companies, Annex I countries can “buy” emission reductions in non-Annex I countries.
For example, a CDM project such as a company switching fuels from coal to biomass results in a reduction of 100,000 tons of carbon dioxide per year in the atmosphere. If an Annex I country buys these credits, it can count them for its Kyoto reduction targets.
| | 26. What is a CER?
CERs or Certified Emissions Reductions are a “certificate” just like a stock. A CER is given by the CDM Executive Board to projects in developing countries to certify they have reduced green house gas emissions by one ton of carbon dioxide per year.
For example, if a project generates energy using wind power instead of burning coal, it can save 50 tons of carbon dioxide per year. There it can claim 50 CERs (as one CER is equivalent to one ton of carbon dioxide reduced). Developed countries buy CERs from developing countries under the CDM process to help them achieve their Kyoto targets. In India income from CERs are not taxed, as of yet. The Chinese government though has decided to tax the revenue from projects.
| | 27. What is the Clean Development Mechanism (CDM)?
CDM allows Annex I (industrialised) countries to meet their emission reduction targets by paying for green house gas emission reduction in non-Annex I (developing) countries.
Example (Figures are hypothetical):
A company in India (a non Annex I country) switches from coal power to biomass. The CDM board certifies that by doing this the company has reduced carbon dioxide emissions by 5,000 tons per year. It is issued with 5,000 CERs (Certified Emission Reductions). Under the Kyoto Protocol, the United Kingdom (an Annex I country) has to reduce its green house gas emissions by 1 million tons of carbon dioxide each year. If it purchases the 5,000 CERs from the Indian company, this target reduces from 1 million tons/year to 9,95000 tons per year making the goal easier to achieve.
| | 28. What is the Kyoto Protocol?
The Kyoto Protocol is a legally binding agreement that arose out of the UNFCCC to tackle climate change through a reduction of green house gas emissions. Countries (those listed in Annex I) are legally bound to reduce man-made green house gases emissions by approximately 5.2%. Individual countries have their own reduction targets outlined in Annex B of the Kyoto Protocol. The text of the protocol was adopted at the third conference of the parties to the UNFCCC in Kyoto, Japan, on 11 December 1997. However the protocol suffered many years of delay. The United States and Australia two major green house gas emitters did not ratify the treaty. The Protocol entered into force on February 15, 2005 when Russia ratified the treaty.
| | 29. EU ETS: Facts and Figures
On October 25th 2003 the directive (2003/87/EC) establishing an EU-wide greenhouse gas emissions trading scheme entered into force. As of January 1st 2005, companies from sectors covered by the scheme, in all EU and accession countries, must limit their greenhouse gas (GHG) emissions to allocated levels in two periods, from 2005-2007 and 2008-2012. Over 12.000 installations are expected to be covered giving European industry a clear signal that GHG trading is going to be important for their future.
Scheme starts January 1st 2005, 1st phase 2005-2007 and 2nd phase 2008-2012
Only CO2 will be included in the first phase with the potential to expand this to include the other five GHG’s from 2008
Only sectors covered in Annex 1 included for 1st phase. Directive highlights the desire to include chemicals, transport and aluminium sectors from 2008
Each Member State must decide on allocations to installations through the National Allocation Plan (NAP) which must be submitted to the European Commission for approval
Penalties:
€ 40 per ton CO2 shortfall for 1st Phase
€ 100 per ton CO2 shortfall for 2nd Phase
And make up shortfall in subsequent calendar year
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