PCC FAQ's - Clean Development Mechanism (CDM)
 

Fundamentals of the Clean Development Mechanism (CDM):

  • 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 16 2005 when Russia ratified the treaty.

  • 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 Brazil (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 100,000 tonnes per year. It is issued with 100,000 CER’s (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 tonnes of carbon dioxide each year. If it purchases the 100,000 CER’s from the Brazilian company, this target reduces from 1 million tonnes/year to 900,000 tonnes per year making the goal easier to achieve.

  • What is a CER?

CER's 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 tonne of carbon dioxide per year. For example, if a project generates energy using Wind power instead of burning coal, it can save 50 tonnes of carbon dioxide per year. There it can claim 50 cers (as one cer is equivalent to one tonne of carbon dioxide reduced).

Developed countries buy CER's from developing countries under the cdm process to help them achieve their Kyoto targets.

In India income from CER’s are not taxed. The Chinese government has decided to tax the revenue from projects.

  • What are the six green house gases under the Kyoto Protocol There are many gases that contribute to the green house effect. The Kyoto Protocol deals with six of them. There are six green house gases covered by the Kyoto Protocol.

Gas

Global Warming Potential

Carbon dioxide (CO 2)

1

Methane (CH 4)

21

Nitrous oxide (N 2O)

310

Hydro fluorocarbons (HFCs)

140-11,689

Per fluorocarbons (PFCs)

7,000-9,200

Sulphur hexafluoride (SF 6)

23,900

Source : IPCC Third Assessment Report. 2001 Climate Change : The Scientific Basis. Intergovernmental Panel on Climate Change.  

  • What is Global Warming Potential?

Green house gases affect global warming with varying intensities. This intensity is measured by the "global warming potential" of the gas. The global warming potential (GWP) of HFC-23 for example is 11,689. The GWP of carbon dioxide is one. One tonne of HFC-23 has 11,689 times more the green house effect that Carbon dioxide does. CER’s are awarded based on the global warming potential of the gas.

CER’s awarded = Tonnes of green house gas reduced X Global Warming Potential of the Gas.  

  • What are the Kyoto protocol’s three flexibility 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 CDM but with projects in other Annex I countries instead of developing countries. Eastern European countries in Annex I such 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 allowances to other Annex I countries who are emitting above the allowance(i.e. not meeting their Kyoto targets).  

  • 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 it's allowed limit, it may sell its extra allowance to other companies who are not meeting their targets.

The penalty for violation is 40 Euro for every tonne of Carbon dioxide over the limit, and a requirement to purchase the missing emission allowances. Starting 2008, this will be increased to 100 Euros. 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 CER's from the Kyoto CDM mechanism to meet EU-ETS emission allowances, thus making European industry take very strong notice of the CDM market. When a European company buys a CER, the company gets a 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 CER's from European industry to be 102.20-288.5 million tonnes of C02 per year in 2010. This demand will vary though depending on if the EU imposes limits on the number of CER's industry can buy.

  • Which countries can participate in CDM?

Countries listed in Annex I of the UNFCCC can purchase CDM credits. Non Annex-I countries can host CDM projects.

Annex I

Australia

Liechtenstein

Austria

Lithuania

Belarus

Luxembourg

Belgium

Monaco

Bulgaria

Netherlands

Canada

New Zealand

Croatia

Norway

Czech Republic

Poland

Denmark

Portugal

Estonia

Romania

European Community

Russian Federation

Finland

Slovakia

France

Slovenia

Germany

Spain

Greece

Sweden

Hungary

Switzerland

Iceland

Turkey

Ireland

Ukraine

Italy

United Kingdom of Great Britain and Northern Ireland

Japan

United States of America

Latvia

 

  • 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 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 tonnes 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.

  • 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 bring in investment in 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 CER’s. However several private players are also involved in CDM, acting as brokers and intermediaries. Private funds that buy and sell CER’s are also active. The following table estimates the funds available to purchase carbon credits – which could come from CDM or from JI.

Multilateral Fund

Size funds (millions US$)

World bank funds

408.6

WB Netherlands CDM facility

180

WB - Italian Carbon Fund

80

IFC Netherlands Carbon Facility

52.36

CAF - Netherlands Carbon Facilility

47.6

Government or local institution administered funds

Austrian JI/CDM program

257.04

KFW Carbon Fund

59.5

Swedish energy agency

25.12

Flemish Government JI/ CDM tender

83.3

Belgian JI/CDM tender

11.9

Finnish CDM/JI pilot tender

11.9

Rabobank-Dutch government CDM facility

10 million tonnes C02

Private funds

Japan Carbon Finance Ltd.

141.5

European Carbon Fund

124.95

GG-CAP Greenhouse Gas Credit Aggregation Pool

85.68

ICECAP

40-50

 

  • What makes a project eligible for CDM? What is additionality?

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 CER’s 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.

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 these criteria are fulfilled, then the developer follows 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 CER's 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:

  • Not common practice in the region or sector
  • Is the least financially attractive option available OR
  • Faces "barriers" preventing implementation if the project was not registered as a CDM project such as either:
    • Financial : such an inability to get bank loans
    • Technological : lack of infrastructure for implemention or skills/labour to operate the technology.
    • "First of its kind”: No project activity of it's type is operational in the region or country.
  • What is a Baseline?

If a project gets 20,000 CER’s it means that it’s emissions are 20,000 tonnes 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:

  • Existing actual or historical emissions, as applicable
  • Emission from a technology that represents an economically attractive course of action, taking into account barriers to investment

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 put forwards its own baseline, depending on the location of its operation, laws applicable to it and other factors. Projects, however, can borrow methodologies from other projects to develop a baseline.  

  • 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 mechanism 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:

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.

Economic well being: The project should bring in additional investment consistent with the needs of the people.

Environmental well being: This includes a discussion of impact of the project activity on resource sustainability and resource degradation…reduction of levels of pollution.

Technological well being: The activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices.

Indian National CDM Authority

  • What are the procedures for small scale projects?

The simplified procedures aim to reduce the cost of applying for CDM approval. They apply to the following projects:

  • Renewable energy project activities with a maximum output capacity equivalent of up to 15 megawatts (or an appropriate equivalent)
  • Energy efficiency improvement project activities which reduce energy usage by up to 15 gigawatt hours per year
  • Project activities that both reduce anthropogenic emissions by sources and directly emit less than 15 kilo tonnes of carbon dioxide equivalent annually.

If a proposed small-scale CDM project activity does not fall into any of the above categories, the project participants can request to the CDM Executive Board for approval of a new simplified baseline and/or monitoring plan developed.

The simplified modalities for these projects include:

  • Bundling of project activities during the following stages of project activity: preparing the project design document, validation, registration, monitoring, verification and certification

Simplification of baseline methodologies; for example, fuel switch projects are exempted from accounting for leakages (for instance, greenhouse gases being emitted from other activities of the projects) while formulating their baselines.

  • Simplification of monitoring plans, including simplified monitoring requirements, to reduce monitoring costs
  • Use of the same operational entity for validation, verification and certification.

Despite the CDM executive board propounding simplified modalities and procedures for small-scale clean projects, few exist, especially in India. The simplified modalities, mainly aimed at reducing the transaction cost, apply to the following type of projects: renewable energy project activities with a maximum output capacity equivalent of up to 15 megawatts (or an appropriate equivalent); energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, by up to the equivalent of 15 gigawatthours per year; and other project activities that both reduce anthropogenic emissions by sources and directly emit less than 15 kilotonnes of carbon dioxide equivalent annually.

  • What is the CDM Executive Board?

The Executive Board supervises the operation of CDM. It meets four or five times a year. The Board has final say on whether a project is approved or not and lays out procedures and guidelines for CDM. It is made of 10 members from countries part of the Kyoto protocol. Two from Annex I, Two from non annex I countries, one from small island developing states, and 1 from each of the 5 UN groupings. Director Climate Change Union ministry of environment and forests is currently concurrently a member of the CDM Executive Board.

  • What is a Designated Operational Entity (DOE)? Who are the 5 in India?

A Designated Operational Entity (DOE) is a company accredited by the CDM Executive Boards that checks whether projects are fulfilling CDM criteria. A CDM project must be checked by two processes – Validation and Verification.

Validation is done once before initial project approval. Verification is done periodically after the project has been approved or registered.

A Designated Operational Entity (DOE) is accredited provisionally by the CDM Executive Board, until confirmed by the meeting of the Parties to the Kyoto Protocol. There are currently 11 doe’s globally, and 5 represented in India.  

Validation

Based on the project design document (PDD), the DOE will evaluate and validate the proposed cdm project, confirming:

1 - Voluntary participation of parties

2 - Comments by stakeholders have been invited

3 – Project participants have submitted documentation on environmental impacts to the DOE

4 – The project will result in reduction in greenhouse gas that are additional

5 – A methodology has been adopted in accordance with CDM rules

6 – Provisions for monitoring, verification and reporting are in accordance with CDM rules

7 - The project complies with all other CDM rules

The DOE then issues a validation report, and requests the CDM Executive Board for registration of the project based on this report.

Verification

CDM project are monitored or "verified" after the project has been approved or registered by the CDM Executive Board. After the project has been registered by the Executive Board, the DOE periodically checks (usually once a year) whether emission reductions have actually taken place. It will then request that the EB issue CER’s accordingly, based on this verification report. 

It is only after verification that CER's are actually delivered.  

Designated Operational Entities in India

  • TUV Suddeutschland India
  • Det Norske Veritas
  • SGS United Kingdom Limited
  • tüv Rheinland India
  • BVQI(Bureau Veritas Quality International)

 

  • What is a Designated National Authority (DNA?)

An office, ministry, or other official entity appointed by a Party to the Kyoto Protocol to review and give national approval to projects proposed under the Clean Development Mechanism.

India 's DNA is called the National CDM authority (NCDMA)

Structure of the NCDMA

Chairperson: Secretary (ministry of environment and forests, MOEF)
Member-secretary: Director (climate change), MOEF

Members:

  • Foreign secretary
  • Finance secretary
  • Secretary for industrial policy and promotion
  • Secretary of the Ministry of non-conventional energy sources
  • Secretary of the power ministry
  • Secretary of the Planning Commission
  • Joint secretary (climate change), Ministry of environment and forests (moef).

 

  • How long does the Executive Board take to consider whether to register proposed project activities?

Once the DOE has submitted to the Executive Board a request for registration in the form of a validation report attaching the PDD, the Board initially has eight weeks in which to consider whether the project should be registered. At the conclusion of the eight week period, the registration is deemed final, unless a review is requested in accordance with the rules:

The registration by the Executive Board shall be deemed final eight weeks after the date of receipt by the Executive Board of the request for registration, unless a Party involved in the project activity or at least three members of the Executive Board request a review of the proposed CDM project activity.

  • Can CERs be issued retroactively (that is, for a crediting period commencing prior to project registration)?

Non-forestry projects

For non-forestry projects, the Executive Board will only issue CERs for a crediting period which commences after the date of registration of the relevant CDM project activity:

...certified emission reductions shall only be issued for a crediting period starting after the date of registration of a clean development mechanism project activity (17/CP.7, paragraph 12).

An exception was made, which has now expired, to allow for the 'prompt start' of the CDM and promote market liquidity through the early generation and trading of CERs. Project activities that:

  • commenced before the first registration of a CDM project (which occurred on 18 November 2004), and
  • were submitted for registration before 31 December 2005 (or in certain circumstances, were not submitted for registration by this date but were registered by the Executive Board by 31 December 2006),

Were permitted to use a crediting period starting prior to the date of registration, but this crediting period could not begin earlier than 1 January 2000. This rule was developed in three stages. The Conference of Parties (COP) decided on 10 November 2001 at COP 7 to facilitate the prompt start of the CDM:

The Conference of the Parties, Decides to facilitate a prompt start for a clean development mechanism by adopting the modalities and procedures contained in the annex below (17/CP.7, paragraph 1).

To give effect to this the COP decided, at the same meeting, that:...a project activity starting as of the year 2000, and prior to the adoption of this decision, shall be eligible for validation and registration as a clean development mechanism project activity if submitted for registration before 31 December 2005. If registered, the crediting period for such project activities may start prior to the date of its registration but not earlier than 1 January 2000 (17/CP.7 paragraph 13).

The above decision provides that the crediting period for a CDM project activity may precede the date of registration if the project activity:

  • Commenced on or after 1 January 2000 but prior to 10 November 2001; and
  • Was submitted for registration before 31 December 2005.

Following a recommendation of the Executive Board (EB 12, Annex 3, paragraph 2), the COP later decided that:

...a clean development mechanism project activity starting between the date of adoption of decision 17/CP.7 and the date of the first registration of a clean development mechanism project activity, if submitted for registration before 31 December 2005, may use a crediting period starting prior to the date of its registration (18/CP.9 paragraph 1(c)).

The above decision provides that the crediting period for a CDM project activity may precede the date of registration if the project activity:

  • Commenced on or after 10 November 2001, but before 18 November 2004; and
  • Was submitted for registration before 31 December 2005.

A limited exception was made to the 31 December 2005 deadline for submission of the request for registration:

The Board agreed to the following exceptional provisions with regard to the deadline of 31 December 2005 that project participants may benefit from a crediting period starting prior to the date of registration:

  1. Requests have to be uploaded by DOEs through the UNFCCC CDM web site interface before 31 December 2005 @ GMT 24:00 (the transfer reference for the fee payment is forwarded to DOE/PP after this step is undertaken). The DOE shall indicate if the crediting period is to start prior to the date of registration.
  2. The related proof of payment shall be submitted by the project participants expeditiously through the DOE. A proof of payment shall be uploaded by a DOE on 20 January 2006 at the latest.
  3. The secretariat shall undertake its completeness check as soon as possible after a request has been uploaded by a DOE through the dedicated interface on a first come first serve basis. The check shall ensure that adequate documentation has been submitted (approval letters (authorization) by Parties, correct version numbers of documentation). The Board expects that such checks could be completed by the secretariat before 14 January 2006. The Board notes that the accreditation of DOEs may be questioned if the submission contains clearly inadequate documentation not corresponding to the guidance and guidelines provided by the Board.
  4. If the proof of payment is not received in time and/or the completeness check process is not concluded before 15 February 2006, the activity may only be considered for registration with a crediting period starting after the date of registration (EB 22, paragraph 74).

A third and final exception was made by the Conference of the Parties serving as the meeting of the Parties (COP/MOP) at 7/CMP.1, allowing projects that were not registered by 31 December 2005 but were submitted for validation or had submitted a new methodology to claim retroactive credits, provided they were registered by 31 December 2006:

The Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol , Decides that project activities that started in the period between 1 January 2000 and 18 November 2004 and have not yet requested registration but have either submitted a new methodology or have requested validation by a designated operational entity by 31 December 2005 can request retroactive credits if they are registered by the Executive Board by 31 December 2006 at the latest (7/CMP.1, paragraph 4).

Forestry projects

This rule does not apply to afforestation and reforestation (A/R) projects, which may receive temporary certified emission reductions (tCERs) and long-term certified emission reductions (lCERs) for a crediting period which commences prior to registration:

The Board further clarified that provision of paragraphs 12 and 13 of decision 17/CP.7 do not apply to CDM afforestation and reforestation project activities. A CDM afforestation and reforestation 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 tCERs/lCERs as of the starting date (EB 21, paragraph 64).

Therefore, for A/R projects, the crediting period begins at the starting date of the project - that is, the date when the project becomes operational, regardless of when registration takes place:

The crediting period shall begin at the start of the afforestation or reforestation project activity under the CDM (5/CMP.1, Annex, paragraph 23).

  • What is additionality? (Large Scale)

Additionality is defined in 3/CMP.1, Annex, paragraph 43 as follows:

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 (3/CMP.1, Annex, paragraph 43).

In other words, additionality is the requirement that the greenhouse gas emissions after implementation of a CDM project activity are lower than those that would have occurred in the most plausible alternative scenario to the implementation of the CDM project activity.This alternative scenario may be the business-as-usual case (that is, the continuation of current emission levels in the absence of the CDM project activity), or it may be some other scenario which involves a gradual lowering of emissions intensity.

Additionality is a principal condition for the eligibility of a project under the CDM. The Kyoto Protocol provides that:

Emission reductions resulting from each project activity shall be certified by operational entities to be designated by the Conference of the Parties serving as the meeting of the Parties to this Protocol, on the basis of: ...

  1. Real, measurable and long-term benefits related to the mitigation of climate change; and
  2. Reductions in emissions that are additional to any that would occur in the absence of the certified project activity (Kyoto Protocol, Article 12(5)).

Additionality is a requirement for validation, and will be confirmed by the designated operational entity (DOE) as part of the validation report:

The designated operational entity selected by the project participants to validate a project activity, being under a contractual arrangement with them, shall review the project design document and any supporting documentation to confirm that the following requirements have been met:

  1. The project activity is expected to result in a reduction in anthropogenic emissions by sources of greenhouse gases that are additional to any that would occur in the absence of the proposed project activity, in accordance with paragraphs 43-52 below (3/CMP.1, Annex, paragraph 37(d)).

Paragraphs 43-52 set out the requirements relating to baselines, additionality, crediting periods and leakage.

The Executive Board has made it clear that detailed information on the demonstration of additionality and an assessment of the appropriateness of the method used to demonstrate additionality must be included in the project design document (PDD):

The Board requested DOEs to ensure that detailed information on the demonstration of additionality and the determination of baselines, including related calculations, be either integrated in PDDs or submitted as annexes to PDDs (EB 26, paragraph 90).

With a view to improving the quality of requests for registration of project activities, the Board reiterated that detailed information on the demonstration of additionality has to be either integrated in PDDs or submitted as annexes to PDDs. The Board further instructed the DOEs to ensure that validation reports include an assessment of the appropriateness of the demonstration of additionality, including documentation and other evidence provided by project participants.

The Board also clarified that requests for registration attaching a PDD and validation that report do not contain this information shall be considered incomplete (EB 27, paragraph 50).

  • What is additionality? (SSC)

Additionality is defined in 4/CMP.1, Annex II, paragraph 26 as follows:

A [small-scale] 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 [small-scale] CDM project activity (3/CMP.1, Annex, paragraph 43).

In other words, additionality is the requirement that the greenhouse gas emissions after implementation of a CDM project activity are lower than those that would have occurred in the most plausible alternative scenario to the implementation of the CDM project activity.

This alternative scenario may be the business-as-usual case (that is, the continuation of current emission levels in the absence of the small-scale project activity), or it may be some other scenario which involves a gradual lowering of emissions intensity.Additionality is a principal condition for the eligibility of any project under the CDM. The Kyoto Protocol provides that:

Emission reductions resulting from each project activity shall be certified by operational entities to be designated by the Conference of the Parties serving as the meeting of the Parties to this Protocol, on the basis of: ...

  1. Real, measurable and long-term benefits related to the mitigation of climate change; and
  2. Reductions in emissions that are additional to any that would occur in the absence of the certified project activity (Kyoto Protocol, Article 12(5)).

Additionality is a requirement for validation, and will be confirmed by the designated operational entity (DOE) as part of the validation report:

The designated operational entity selected by the project participants to validate a project activity, being under a contractual arrangement with them, shall review the project design document and any supporting documentation to confirm that the following requirements have been met:

  1. The project activity is expected to result in a reduction in anthropogenic emissions by sources of greenhouse gases that are additional to any that would occur in the absence of the proposed project activity, in accordance with paragraphs 26 to 28 below (4/CMP.1, Annex II, paragraph 22(d)).

Paragraphs 26 to 28 set out the requirements relating to baselines, additionality and small-scale methodologies.

  • What is additionality? (PoA)

In the context of a Programme of Activities (PoA), the requirement of additionality means that both the PoA itself and each CDM Programme Activity (CPA) would not have been implemented, or would not have been implemented to the same extent, without registration under the CDM.

In relation to assessing additionality for the PoA, the coordinating/managing entity must demonstrate:

That in the absence of the CDM (i) the proposed voluntary measure would not be implemented, or (ii) the mandatory policy/regulation would be systematically not enforced and that noncompliance with those requirements is widespread in the country/region, or (iii) that the PoA will lead to a greater level of enforcement of the existing mandatory policy/regulation. This shall constitute the demonstration of additionality of the PoA as a whole (EB 32, Annex 39, paragraph 2(e)).

Therefore, as with other project types, PoAs addressing mandatory laws and policies are permissible provided it can be demonstrated that the law is not widely enforced:

A PoA shall comply with all current guidance by the Board concerning the treatment of local/regional/national policies and regulations. PoAs addressing mandatory local/regional/national policies and regulations are permissible provided it is demonstrated that these policies and regulations are systematically not enforced and that noncompliance with those requirements is widespread in the country/region. If they are enforced, the effect of the PoA is to increase the enforcement beyond the mandatory level required (EB 32, Annex 38, paragraph 3).

Additionality must also be considered at the level of individual CPAs. The criteria for demonstration of additionality for each CPA must be outlined in both the Programme of Activities Design Document (CDM-POA-DD) and the in the CPA Design Document (CDM-CPA-DD). Essentially, this is aimed at ensuring that each CPA will produce credible emission reductions or abatement.

Evidence must be included within the PoA Design Document (CDM-POA-DD) to show that all CPAs will produce net greenhouse gas emissions abatement or sequestration:

The PoA shall demonstrate that net reductions in anthropogenic emissions or net anthropogenic greenhouse gas removals by sinks for each CPA under the PoA are real and measurable, are an accurate reflection of what has occurred within the project boundary, and are uniquely attributable to the PoA. The PoA shall therefore define at registration, the type of information which is to be provided for each CPA to ensure that leakage, additionality, establishment of the baseline, baseline emissions, eligibility and double counting are unambiguously defined for each CPA within the PoA (EB 32, Annex 38, paragraph 8).

For CPAs which are stationary (for example, a small hydropower plant), the guidance suggests "localisation" by providing a geographic reference. In the case of mobile CPAs it is suggested that registration numbers and GPS devices be used to keep track of their location. Tracking the location of the CPA helps to prevent the CPA being registered twice under the CDM process and also allows for monitoring and auditing of the PoA.

  • What is a baseline? (Large Scale)

The baseline (or 'baseline scenario') for a CDM project activity is defined in 3/CMP.1, Annex, paragraph 44 as follows:

The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity (3/CMP.1, Annex, paragraph 44).

In other words, a baseline for a CDM project activity is a hypothetical reference case, representing the volume of greenhouse gases  that would have been emitted if the project were not implemented.  Therefore, the baseline can be used to determine:

  • Whether a CDM project activity is additional; and
  • The volume of additional greenhouse gas emission reductions achieved by a project activity.

Baselines must cover emissions from all gases, sectors and source categories listed in Annex A to the Kyoto Protocol that occur within the project boundary:

A baseline shall cover emissions from all gases, sectors and source categories listed in Annex A within the project boundary (3/CMP.1, Annex, paragraph 44).

The Executive Board has clarified that the baseline definition set out above, and its role in the determination of additionality, have been satisfactorily developed and require no further work (EB 5, Annex 3, paragraph 5).

A baseline is deemed to be accurate if it is derived using a baseline methodology covered by the modalities and procedures. This is set out in 3/CMP.1, Annex, paragraph 44, which states:

A baseline shall be deemed to reasonably represent the anthropogenic emissions by sources that would occur in the absence of the proposed project activity if it is derived using a baseline methodology referred to in paragraphs 37 and 38 above (3/CMP.1, Annex, paragraph 44).

Paragraph 37(e) provides that baseline and monitoring methodologies must comply with the requirements of:

  1. Methodologies previously approved by the Executive Board; or
  2. Modalities and procedures for establishing a new methodology, as set out in paragraph 38 below (3/CMP.1, Annex, paragraph 37(e)).

Paragraph 38 sets out the procedure for creating a new baseline and monitoring methodology.

Therefore, a baseline is deemed to reasonably represent the most likely alternative scenario to project implementation if it is developed using a baseline methodology that is:

  • Already approved by the Executive Board; or
  • Developed in accordance with the rules for developing new methodologies and then approved by the Executive Board.

 

  • What is a baseline? (SSC)

The baseline (or 'baseline scenario') for a small-scale CDM project activity is defined in 4/CMP.1, Annex II, paragraph 27 as follows:

The baseline for a [small-scale] CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases that would occur in the absence of the proposed project activity (4/CMP.1, Annex II, paragraph 27).

In other words, a baseline for a CDM project activity is a hypothetical reference case, representing the volume of greenhouse gases that would have been emitted if the project were not implemented.  Therefore, the baseline can be used to determine:

  • Whether a CDM project activity is additional; and
  • The volume of additional greenhouse gas emission reductions achieved by a project activity.

 

  • What is a baseline? (PoA)

A baseline (or 'baseline scenario') is a hypothetical reference case, representing the volume of greenhouse gases that would have been emitted if a Programme of Activities (PoA) or CDM Programme Activity (CPA) were not implemented.  Therefore, the baseline can be used to determine:

  • Whether a CPA is additional; and
  • The volume of additional greenhouse gas emission reductions achieved by the CPA.

A baseline must be established for the PoA and all CPAs within the PoA.

The Programme of Activities Design Document (CDM-PoA-DD) (and corresponding design documents for other PoA types) must include a justification of the choice of an approved baseline methodology and an application of this methodology to determine the baseline (EB 32, Annex 39, paragraph 2(f)).

The CDM Programme Activity Design Document (CDM-CPA-DD) must also include a calculation of the baseline emissions for the particular CPA within the PoA (EB 32, Annex 39, paragraph 4(d)(iii)).

  • What is bundling?

Bundling is defined in EB 21, Annex 21 as follows:

Bringing together of several small-scale CDM project activities, to form a single CDM project activity or portfolio without the loss of distinctive characteristics of each project activity (EB 21, Annex 21, paragraph 3).

Bundling of small-scale projects is permitted by the modalities and procedures for small-scale projects:

Several small-scale CDM project activities may be bundled for the purpose of validation.  An overall monitoring plan that monitors performance of the constituent project activities on a sample basis may be proposed for bundled project activities.  If bundled project activities are registered with an overall monitoring plan, this monitoring plan shall be implemented and each verification/certification of the emission reductions achieved shall cover all of the bundled project activities (4/CMP.1, Annex II, paragraph 19).

The advantage of bundling is that bundled projects can obtain a single validation report and a single certification report for the entire bundle, which streamlines these processes for project participants.

Project activities in a bundle can be divided into a series of sub-bundles:

Project activities within a bundle can be arranged in one or more sub-bundles, with each project activit[y] retaining it[s] distinctive characteristics. Such characteristics include its: technology/measure; location; application of simplified baseline methodology. Project activities within a sub-bundle belong to the same type. The sum of the output capacity of project activities within a sub-bundle shall not exceed the maximum output capacity limit for its type (EB 21, Annex 21, paragraph 3).

A sub-bundle is defined as:

An aggregation of project activities within a bundle having the characteristics that all project activities within a sub-bundle belongs to the same type (EB 21, Annex 21, paragraph 4).

The principles relating to bundling were incorporated into the simplified project design document for small-scale CDM project activities (CDM SSC-PDD) (EB 21, Annex 21, paragraph 1).

  • What are small-scale projects?

Projects registered as small-scale CDM projects are entitled to use the simplified modalities and procedures for small-scale CDM project activities set out in 4/CMP.1, Annex II.

In order to use these simplified modalities and procedures, a project activity must meet the eligibility requirements:

To use simplified modalities and procedures for small-scale CDM project activities, a proposed project activity shall:

  • Meet the eligibility criteria for small-scale CDM project activities set out in paragraph 6 (c) of decision 17/CP.7;
  • Conform to one of the project categories in appendix B to this annex;
  • Not be a debundled component of a larger project activity, as determined through appendix C to this annex (4/CMP.1, Annex II, paragraph 12).

The eligibility criteria (requirement (a)) and project categories (requirement (b)) are discussed below.

Eligibility criteria in paragraph 6(c)

There are three types of projects referred to in paragraph 6(c) of decision 17/CP.7. These types have since been amended by 1/CMP.2, paragraph 28.  The updated small-scale project types are as follows:

  1. Type (i): renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts (or an appropriate equivalent);
  2. Type (ii): energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, by up to the equivalent of 60 gigawatt hours per year; and
  3. Type (iii): other project activities that both reduce anthropogenic emissions by sources and directly emit less than 60 kilotonnes of carbon dioxide equivalent annually (17/CP.7, paragraph 6(c) as amended by 1/CMP.2, paragraph 28).

Project categories

The following table, showing the 14 project types, is extracted from 4/CMP.1, Annex II, Appendix B:

Project types

Project categories

Type (i): Renewable energy projects

A. Electricity generation by the user/household

B. Mechanical energy for the user/enterprise

C. Thermal energy for the user

D. Electricity generation for a system

Type (ii): Energy efficiency improvement projects

E. Supply-side energy efficiency improvements - transmission and distribution activities

F. Supply-side energy efficiency improvements - generation

G. Demand-side energy efficiency programmes for specific technologies

H. Energy efficiency and fuel switching measures for industrial facilities

I. Energy efficiency and fuel switching measures for buildings

Type (iii): Other project activities

J. Agriculture

K. Switching fossil fuels

L. Emission reductions in the transport sector

M. Methane recovery

 

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