| |
Clean Development Mechanisms (CDMs)
CDMs are of particular interest to developing countries, as it
provides for investment in projects in developing countries for
their sustainable development, while generating GHG abatements that
may be transferred to the annex 1 countries towards meeting their
targets under Kyoto Protocol. CDMs address, latter of the two
realizations discussed at introduction above, pertaining to
providing alternative technological options and incentives to
developing countries, to pursue their socio-economic goals but with
lesser climate change impacts.
The operational mechanism of CDMs involves an investment by a legal
entity from an Annex 1 country in a project in Non Annex 1 country,
which results in emission reductions. The investment decision would
include an agreement between the two parties and their respective
countries on the dispensation and transfer of the emission
reductions resulting from the project. These emission reductions
have to be certified by an appropriate authority (the CDM Executive
Board, provided for under the protocol) and then these certified
Emission reductions (CERs, commonly known as carbon credits) can be
used to meet Annex 1 commitments under Kyoto Protocol.
A project activity will be eligible for consideration as a CDM
project if it is aligned with the national needs and priorities and
contributes to the sustainable development of the host country.
Further, the projects must fulfill the following criteria.
a) Voluntary participation by each party involved i.e it is not
driven by any regulatory compliance requirement;
b) Real measurable and long-term benefits related to mitigation of
climate change effects.
c) Reduction of emissions that are additional to any that would
occur in the absence of the project activity in question i.e. the
Sponsor would not have undertaken the project in a business as usual
scenario and that in undertaking the project, the sponsor has
overcome barriers that may be related to investment, common
practice/prevalence or technology or other barriers.
d) The activity must ensure access to environmentally sound
technology needed by the developing country.
Broadly, projects that contribute to credible and sustained
reduction in GHG emissions qualify as CDM projects. The following
broad categories of projects have been recognized as CDM projects.
a) Renewable Energy Projects (Solar Power, Wind Power, Biomass based
power,
small hydel etc);
b) Fuel substitution ( e.g. coal to oil to gas to hydrogen in Power
Plants, Manufacturing Process Industries, automobiles etc);
c) Energy Efficiency improvement and waste heat utilization
projects;
d) Other project activities that reduce anthropogenic emissions by
sources;
e) Carbon sequestration projects (Forestry etc.);
f) Management of methane emissions from municipal landfills;
g) Management of methane emissions from agriculture and cattle
manure management; and
h) Fuel shift from liquid fuel to CNG/LPG in the transport sector.
The manner of transfer of CERs will depend on the nature of
agreement between the contracting parties. Some of the preferred
modes adopted in various cases include:
a) Investment by an entity from one of the annex 1 country directly
in a project, in lieu of the CERs that are expected to accrue
therefrom.
b) The entity enters into agreement to purchase CERs from a
developing country entity or access the open market, as and when
they are required to meet certain commitments.
c) Many annex 1 governments are floating tenders for procurement of
CERs
d) There are multilateral institutions like the World Bank and IFC,
who have been engaged by annex 1 country governments and private
sector corporations to purchase carbon credits (CERs) on their
behalf. The World Bank group has nearly US$ 1.06 billion of such
funds for buying CERs. Similarly, there are other funds set up by
EBRD, JBIC and some governments.
e) Some of the MNCs and large corporates are themselves buying
carbon credits.
f) CDM provides for banking of CERs, wherein the emission reductions
prior to 2008 may be banked for use in the commitment period in
2008-12.
Steps in CDM Process
Stage I: Project Design Document (PDD) and Monitoring Plan
preparation
The Project Sponsor shall be required to develop a CDM Project
Design Document (PDD) for the identified opportunities/candidate
projects in the PDD format approved by CDM Executive Board. This
would inter alia, address the requirements of the Kyoto Protocol and
the CDM Executive Boards (CDM-EB) procedures. The main tasks, in
developing a PDD, would involve:
Preparatory work data collection, review of policies;
General description of the project;
Delineation of project boundary and identification of leakages;
Assessment of various baseline methodologies and selection of the
most appropriate one. This would also include a scan of approved
projects or approved methodology to ascertain if there are approved
methodologies which may be directly applied to this project;
Development of a new baseline methodology, in the event none of
the existing approved/proposed baseline methodologies are found
appropriate for the project;
Application of the selected/developed baseline methodology to the
project;
Demonstration of various additionalities for the project;
Estimation of project GHG emissions and
absorption/abatement/avoidance including direct/ indirect onsite/
offsite emissions;
Assessment of various monitoring and verification (M&V)
methodologies and selection of the most appropriate one. This would
also include a scan of approved projects or approved methodologies
to ascertain if there are approved methodologies which may be
applied to this project;
Development of a new M&V methodology, in the event none of the
existing approved/proposed methodologies are found appropriate for
the project.
Estimation of potential streams of CERs.
Environmental Impact Assessment for the project;
Local stakeholder consultation;
Sustainability assessment of the project;
Stage II: Host country approval
Project Sponsor is required to secure a Host Country Approval from
the Designated National Authority (DNA) hosted at Ministry of
Environment and Forests, GoI. This involves completion of a Project
Information Note in the MoEF format and its submission together with
the PDD to MoEF. The Project sponsor would be required to make a
presentation to the DNA on an appointed date.
Stage III: Validation
Validation is the process of independent evaluation of a project
activity by a designated operational entity against the requirements
of the CDM on the basis of the project design document. The Project
sponsor is required to appoint an independent third party for
validation of the project. CDM-EB has approved certain entities e.g.
DNV, TUV, SGS etc. as Designated Operating Entity (DOE) for
undertaking validation. The Validation process also involves a
Public Disclosure of the project for 30 days at the UNFCCC website.
This is also organized by the validator.
Stage IV: Approval of Baseline Methodology by CDM EB/Meth Panel
In the event a new baseline methodology is developed, the same shall
be reviewed by the Methodology Panel of UNFCCC/CDM-EB and on its
recommendation, approved by CDM EB. A new baseline methodology
should be submitted by the designated operational entity to the
Executive Board for review, prior to a validation and submission
for registration of this project activity, with the draft project
design document (CDMPDD), including a description of the project and
identification of the project participants.
Stage V: Project Registration
Registration is the formal acceptance by the Executive Board of a
validated project as a CDM project activity. Registration is the
prerequisite for the verification, certification and issuance of
CERs related to that project activity. A validated project is
required to be
registered with CDM-EB of UNFCCC. This is usually the responsibility
of the Designated Operating Entity. The Project sponsor is required
to pay a registration fee.
Stage VI: Monitoring and verification
Verification is the periodic independent review and ex post
determination by the designated operational entity of the monitored
reductions in anthropogenic emissions by sources of greenhouse gases
that have occurred as a result of a registered CDM project activity
during the verification period. Certification is the written
assurance by the designated operational entity that, during a
specified time period, a project activity achieved the reductions in
anthropogenic emissions by sources of greenhouse gases as verified.
On registration of the project, the Project sponsor is required to
appoint one of the DOEs as a verifier. The verifier conducts an
audit of the project activity after its commissioning
and its becoming operational, as per the approved monitoring and
verification protocol (included in the PDD registered with CDM-EB),
to estimate and certify the actual volume
of ERs generated on account of the project activity. The sponsor may
appropriately select
a verification cycle i.e. Annual, Half Yearly, Quarterly etc.
Stage VII: Issuance of CERs
The certification report, submitted by the DOE to CDM-EB/Registrar,
shall constitute a request for issuance to the Executive Board of
CERs equal to the verified amount of reductions of anthropogenic
emissions by sources of greenhouse gases. The monitoring and
verification entity, after completing the process, submits its
report to CDM EB, which constitutes a request for issuance of
Certified Emission Reduction (CERs). The CERs are issued as per the
allocation plan outlined to the CDM-EB at the time of Project
Registration.
|
