Source : IPCC Third Assessment Report. 2001 Climate
Change : The Scientific Basis. Intergovernmental Panel on Climate Change
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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 11,700. The GWP of carbon dioxide is one. One
tonne of HFC-23 has 11,700 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
More information : http://www.grida.no/climate/ipcc_tar/wg1/247.htm
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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).
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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 it's 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.
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What countries participate in CDM
Countries listed in Annex I of the UNFCCC can purchase CDM credits. Non Annex-I countries
can host CDM projects.
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What makes a project eligible for CDM? What is additionality?
Chart of CDM project approval process
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 this criteria is fulfilled, then the developer follow 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 it's kind" : No project activity of it's type is
operational in the region or country
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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.
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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.
Source : Indian
National CDM Authority
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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
gigawatthours per year
- Project activities that both reduce anthropogenic emissions by sources and directly emit
less than 15 kilotonnes 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.
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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 guidlines 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.
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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. The Project developer pays around 4-5 Lakh Rupees
for this.
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
Exective Board, the DOE periodically checks(usually once a year) whether emission
reduction 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.
Source : UNFCCC Climate
Change glossary
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).
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Why is Carbon dioxide worth 5-10 Euro in India and 20 Euro in
Europe?
Today in the EU, companies buy carbon credits at 22 Euros per tonne of carbon dioxide.
However, CER's arising out of CDM have been sold for a pittance - for only 5-10 Euros. It
isn't clear why this price difference exists. Ishani Chattopadhyay, Director of
Ecosecurities, India, a carbon credit trader that buys CER's from India for sale in Annex
I countries says firstly that CER's and EU credits are different. The EU Credits give an
automatic right to emit carbon dioxide because they are emissions allowances. CER's are
subject to verification by the UNFCCC. Second, there are country risks for operating in
developing countries and dealing with small companies. Third there is no "stock
exchange" for CER's yet, since the first CER's have only just been issued for sale on
October 20 2005. CER's are bought and sold in private deals where prices are not revealed,
so a fair price is difficult to arrive at. Mukul Sanwal of the UNFCCC agrees that greater
transparency would improve the price. He also stresses though that it is a failure of the
market systems in India is also depressing the price. "This is the same old
commodities problem again", says Sanwal referring to the situation where commodities
like coffee are sold at subsistence levels in developing countries, yet earn huge
windfalls for companies in the developed world. Developed countries are extracting the
benefits of CDM.
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