WelcomeWelcome

•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.

Introduction to the CDMIntroduction to the CDM

•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 GHG and the global wormingThe GHG and the global worming

•Cost of GHG abatement in ANNEX-I countries are normal higher than reduction cost in developing countries

The rationale for carbon tradingThe rationale for carbon trading

Marginal cost of reduction in investor and host countryMarginal cost of reduction in investor and host country

20

40

60

80

100

Investor Host

Co

st

of

Re

du

cti

on

($

/t C

)

Avoided cost

‘Surplus’

Host cost

•The Kyoto protocol mechanism for international mitigation efforts are:

- CDM between Industrialized and a developing country.

- Joint implementation between two industrialized countries.

- Emission Trade

The mechanisms of KPThe mechanisms of KP

ConventionalProject

Equity Investment

Financial returns

Conventional investment project inputs and outputs

Conventional investment project inputs and outputs

CDMProject

Equity Investment

Financial returns

CDM project inputs and outputsCDM project inputs and outputs

Carbon ‘Investment’

Carbon credits

Other development benefits

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 emissions- intensive industries

Projects that could attract CDM investments

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 (Cont.)

Sector Project / activity

Transport and communications

Improved public transport

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

Projects that could attract CDM investments (Cont.)

Important DatesImportant Dates

• Kyoto protocol is likely to come into effect in 2003.

•Eligibility- Contribution to sustainable

development•Additionality

-Environmental additionality-Financial additionality

The CDM project cycleThe CDM project cycle

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

Policies the subsidize coal , natural gas, or heat

Financial Lack of long-term risk capital

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

Table 3.1: Barriers that could be addressed by CDM investment

Baselines are estimates of what future emissions would be without the CDM project intervention.

Each CDM project has to develop

Baselines

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 cycleSteps 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 cycleSteps 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 cycleSteps 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 cycleSteps 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 host-country approval, the validated project design and baseline, and the verified project performance, CERs are certified and issued by the CDM Executive Board.

Project design documentProject design document

Host country approvalHost country approval

validationvalidation

RegistrationRegistration

Financing & implementationFinancing & implementation

MonitoringMonitoring

Verification & certificationVerification & certification

Issue CERsIssue CERs

Designated national authority

Operational entities

Project owner

Executive Board

Interactions involved in a typical CDM project and actors responsible

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

Comparison of project validation, monitoring , verification and certification Comparison of project validation, monitoring , verification and certification

Project architecture

Unilateral architecture Bilateral architectureMultilateral architectureOpen 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).