Download and introduction

Welcome
Introduction to the CDM
• The legal framework of CDM
- UNFCCC, at Rio de Janeiro Earth
Summit, 1992
- Kyoto protocol, 1997
- CDM, Parties and Benefits
• Basic requirements of CDM projects
-To meet Certain measurable environmental
criteria
-To fit in with the host country’s
development priorities.
The GHG and the global worming
• Why worry about climate change
The phenomena, mechanism, causes,
expectations.
• International measures taken
-The IPCC.
-The kinds of Green house Gases and
their share to the phenomena CO2
(72%), Ch4 (20%), N2O (6-7%).
The rationale for carbon trading
• Cost of GHG abatement in ANNEX-I
countries are normal higher than reduction cost
in developing countries
Avoided
cost
‘Surplus’
Host
cost
Marginal cost of reduction in investor and host country
The mechanisms of KP
• The Kyoto protocol mechanism for
international mitigation efforts are:
- CDM between Industrialized and a
developing country.
- Joint implementation between two
industrialized countries.
- Emission Trade
Equity
Investment
Conventional
Project
Financial
returns
Conventional investment project inputs and
outputs
Equity
Investment
Carbon
‘Investment’
Other
development
benefits
CDM
Project
Carbon credits
Financial
returns
CDM project inputs and outputs
Projects that could attract CDM investments
Sector
Project / activity
Energy supply
Gas-fired power generation
Cleaner-coal power generation technology
Hydro-electricity to replace coal-fired power stations
Co-generation (biomass or fossil fuel based)
Renewable electricity (e.g. wind, photovoltaics, biomass)
and other renewable energy (e.g. biogas)
Switch of synthetic fuel feedstock from coal to gas
Use of forest and agricultural wastes to generate
electricity and heat
Manufacturing
Conversion of boilers from coal to gas
Industrial energy efficiency
Structural change to less energy-and emissionsintensive industries
Projects that could attract CDM investments
(Cont.)
Sector
Project / activity
Mining
Reducing methane emissions from coal mines
Control of coal dump fires
Agriculture
and forestry
Afforestation and reforestation (during the first,
2008-2012, commitment period)
Improved management of natural woodlands (not yet
included in the CDM)
Control of fires (not yet included in the CDM)
Projects that could attract CDM investments
Sector
Project / activity
Transport and
communications
Improved public transport
(Cont.)
Improved urban planning and traffic management
Improved vehicle efficiency
Vehicle fuel switching
Switching from road to rail transport
Residential ,
commercial
and
government
buildings
Energy-efficient appliances
Solar water heating
Fuel switching in households and commercial boilers
Energy efficient building design
Energy management
Important Dates
• Kyoto protocol is likely to come
into effect in 2003.
The CDM project cycle
• Eligibility
- Contribution to sustainable
development
• Additionality
-Environmental additionality
-Financial additionality
Table 3.1: Barriers that could be addressed by CDM investment
Potential barriers
Examples
Technological
Risks for provision of the technical service for equipment
Technical risks - technology performance, resource
availability
Technology has never been demonstrated in the host country
Organizational /
legal
Substantial obstacles to receiving direct investment
Financial
Lack of long-term risk capital
Policies the subsidize coal , natural gas, or heat
High cost of capital
Exchange rate risks
High transaction costs and risk of not recovering pre-investment costs
Demonstration of new business model (e.g. energy service company)
Market
Raw material supply risks
Unpredictable price trends
Baselines
Baselines are estimates of what
future emissions would be without
the CDM project intervention.
Each CDM project has to develop
The project owner
• The owner, usually situated in the host
country, may be :
–
–
–
–
–
The host government
A government department
A branch of local government
A private company or NGO
A consortium of owners under the umbrella of a
project developer.
Steps in the CDM project cycle
• Project identification and design: the project
owner identifies an opportunity for a CDM
project and develops a project design document
which includes a baseline estimate and an
analysis of the net carbon emissions reductions.
• Host country approval: International acceptance
of a CDM project first requires approval at the
national level, consistent with country’s
domestic laws and policy priorities.
Steps in the CDM project cycle
• Third party validation of project design and
baseline: To ensure that later verification of
performance will provide certified credits, the
project design document, and especially the
baseline, have to be validated by an
independent third party before implementation.
• Registration: Once a project is validated and
approved by the host country, it is registered by
the CDM Executive Board.
Steps in the CDM project cycle
• Financial structuring:
Finances are then
secured.
The investors provide capital
investment in the form of debt or equity. These
investors may or may not be the carbon buyers
who will pay for certified credits on delivery.
• Implementation and operation: The project is
built, commissioned, and begins operation.
• Monitoring: Project performance, including
baseline conditions, is measured by the project
developer in the commissioning process and
during on-going project operation.
Steps in the CDM project cycle
• Third party verification of project performance:
An independent third party verifies project
performance against the validated design and
baseline, in order to approve certification.
• Certification and issuance: Based on the hostcountry approval, the validated project design
and baseline, and the verified project
performance, CERs are certified and issued by
the CDM Executive Board.
Project design document
Designated national authority
Host country approval
Operational entities
validation
Registration
Financing & implementation
Project owner
Monitoring
Verification & certification
Executive Board
Issue CERs
Interactions involved in a typical CDM project and actors responsible
Comparison of project validation, monitoring , verification and certification
Process
Purpose
Timing
Inputs
Outputs
Validation
Determine if
project as
designed would
produce valid
CERs
After project
development,
before project
implementation
Project design,
base-line study,
monitoring and
validation plan,
host country
review
Validation of
project design
complying with
Kyoto Article 6
Monitoring
Measure project
performance
Periodically
during project
operation
Delta from
ongoing
measurements
Measured
results of
project
performance
Verification
Verify the
amount of
reduction that is
valid and
measured
Periodically
during project
operation
Validation
report, results of
monitoring
Verification of
claimed
emission
reductions
Certification
Final acceptance
of project CERs
After
monitoring and
validation is
complete
Validation and
monitoring and
validation report
Approval of
certified CERs
Project architecture
 Unilateral architecture
 Bilateral architecture
 Multilateral architecture
 Open architecture
Share of Proceeds
• CERs, financial benefits, and other benefits may
be shared on various levels.
• Certain obligatory sharing is required by the
Kyoto Protocol in the form of levies for
administration and levies for the Adaptation Fund
which assists developing countries to adapt to
the adverse effects of climate change.
• The share of proceeds to cover CDM
administration and the Adaptation Fund will be a
fixed percentage (e.g. 2% of CERs for
adaptation).