clean development mechanism basics
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Clean Development
Mechanism Explained
EfficientCarbon
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Carbon Credits
Carbon being traded as a commodity
Voluntary and binding agreements
CER and audited credits
So what really are Carbon Credits and what does Clean
Development Mechanism (CDM) mean?
To understand these, we need to first look at the Kyoto Protocol.
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The Kyoto Protocol • A protocol to the United Nations Framework Convention on Climate
Change (UNFCCC or FCCC), aimed at fighting global warming.
• Sets binding targets for 37 industrialized countries and the European
community to reduce their Greenhouse Gas (GHG) emissions.
• Binding countries to meet their targets primarily through national markets
• Additional means of meeting targets through three market based
mechanisms:
– Emissions trading – known as “the carbon market"
– Joint implementation (JI) and
– Clean development mechanism (CDM)
• First two mechanisms relevant to Annex I / Annex II countries and the third
is relevant to developing countries.
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The Kyoto Protocol
• Parties to UNFCCC are classified as:
– Annex I countries - industrialized countries and economies in transition
– Annex II countries - developed countries which pay for costs of developing countries
– Developing countries like India.
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That brings us to CDM • In simple terms, CDM is a GHG exchange program
• The theory is that atmosphere is equally polluted by GHG‟s wherever they come from and equally benefits from GHG cuts, wherever they come from.
• So in effect, if a company cannot control its pollution, it can buy some amount of „clean credits‟ from someone who has worked hard to cut down pollution – “Polluter pays”.
• Hence you have companies bound to Kyoto protocol buying carbon credits from organisations which invest in developing clean development mechanism projects
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CLEAN DEVELOPMENT
MECHANISM
Companies in
Annex – I
countries
Organisations
developing CDM
projects
Companies pay cash
Organisations give certified carbon credits
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Certified Emission Reduction (CER)
• Primary unit of measurement of
the Carbon reduced by the
project
• Given by CDM executive board
• Certification that a project has
managed to reduce 1 tonne of
CO2 eq per year
• Approximate price of a single
CER ranges from $10 - $35
depending on the trading
exchange and market
conditions
Additionality
One of the key factors for approval of a CDM project is
the Additionality constraint.
Kyoto Protocol specifies that emission
reductions are only to be certified under
the Clean Development Mechanism (CDM)
if they are additional to any that would occur in the absence of the certified project activity.
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Project started
CER / Carbon
Credits
Time
Emissions
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Pre-Requisites of a CDM project
• Additionality constraint
• To be „Hosted‟ by a Non Annex-I country (like India) which meets some basic constraints
– Adhere to UNFCCC conventions
– Establish a Designated National Authority
• Co-development by host country and an Annex-I country
• Validation by a Designated Operational Entity (DOE) and meeting the CDM requirements
• Registration with the CDM Executive Board post review to ensure compliance
• Verified and Certified by the DOE as resulting in real, additional, verifiable and measurable emission reductions after commissioning of operations.
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A CDM Project can be in many areas
Renewable Energy
Clean Energy Energy Efficiency Construction
Transport Waste
Management Solvent Use
Afforestation & Green Cover
Agriculture HFC/PFC Rest/Others
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Before starting a CDM
project, a project baseline
has to be established. This is to establish the amount of
greenhouse gases that would have been
emitted without this CDM project.
Identify Baseline Scenario
Define sources
for estimation
Estimate the
baseline
Evaluate the
estimation
Assess uncertain
-ties
Monitor baseline
Methodol-ogy
Baseline Estimation Process
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So to summarise...
Establish Additionality
Establish Baseline
Verify Baseline
Get Approval from CDM Executive Board (EB)
Kick off the CDM project activity
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The Actual CDM Activity
1
• Project Design Document (PDD) Preparation
2 • Host Country Approval
3 • Validation by DOEs
4 • Project Registration
5 • Monitoring
6 • Verification and Certification
7 • Issue of CERs
One Time Activity
Project Developers / Consultants
DOE and CDM EB
DOE
CDM EB
Project Developer and DOE
CDM EB
GOE / Ministry of Environment and
Forests
Annual Activity
Expenses
Project Monetised
Project Stage Who does it? Activity Span Time Span
1 month
Up to 2 months
NA(depends on
project)
Up to 6 months
Regular
Up to 1.5 months
6 months
12
to
18
M O N T H S
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Costs in CDM Activity
• Project Development and Implementation costs
• Transaction Costs
– Consultant Fees
– Registration with Designated National Authority (DNA)
– Validation and Monitoring fee to Designated Operational
Authority (DOE)
– CER Issuance fee
– Contribution to UNFCCC adaptation fund
• 2% of the CERs will be deducted adaptation fund by CDM Executive Board.
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CDM Benefits to Annex-1 countries
• Reduction in overall emission mitigation costs
• Flexibility in meeting emission reduction
commitments
• Investment Opportunities
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CDM Benefits to Developing Countries
• Additional financing for sustainable development
projects in the country
• Technology transfer and development
• Mitigates local environment pollution
• Jobs and infrastructure development opportunities
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Risks and critiques
• Future beyond 2012 uncertain
• Meagre interest shown by the Govt in developing its
own CDM projects
• Proving additionality difficult in some cases
• Carbon credits being traded as financial instruments give
provision to misuse the intention behind CDM
• “Developed countries being let off by paying money to
clean up their footprint” – Wide opinions
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Sources • http://cdm.unfccc.int/Projects/index.html
• http://cdm.unfccc.int/methodologies/PAmethodologies/tools/am-
tool-01-v5.2.pdf
• http://www.cdmcapacity.org
• http://ies.lbl.gov/iespubs/43418.pdf
• http://www.cdmindia.nic.in/
• http://unfccc.int/kyoto_protocol/items/2830.php
• http://www.cdmpakistan.gov.pk
• http://en.wikipedia.org/wiki/Clean_Development_Mechanism
• www.cdmrulebook.com
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CDM Facilitation
Project Initiation CDM Facilitation
• Project Evaluation • Project Comparison • Cost Analysis • Financial Modeling – NPV, IRR • CER Generating Potential Analysis • Project Technology Identification, Analysis and Selection • Supplier Identification • Creation of Full Project Plan
• Baseline Studies • PDD Documentation • Host Country Approval Facilitation • Registration Facilitation • Preparation of Monitoring Report • Project Verification and CER Issuance Facilitation • New Baseline Methodologies Development
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Our Services
CARBON MANAGEMENT ADVISORY
SUSTAINABILITY CONSULTING
WATER MANAGEMENT
ENERGY EFFICIENCY
RENEWABLE ENERGY ADVISORY
CDM FACILITATION
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Contact us
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Thank You
"Sustainability is not only absolutely necessary considering the
situation our planet is in, we as companies are also overdue to
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have to lead the way…
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