CLIMATE CHANGE & CLEAN DEVELOPMENT MECHANISM

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FREQUENTLY ASKED QUESTIONS

  What is a CDM Project?

  What does "CDM project development" mean? Do I need a project developer? Who can develop a CDM project?

  What is feasibility check?

  What is Project Concept Note (PCN)?

  What is Project Design Document (PDD)?

  What about Designated National Authority (DNA)?

  Eligibility Criteria specified by the CDM Authority in India?

  What about Designated Operational Entity (DOE)?

  CDM Project Cycle?

What is a CDM Project?

Clean Development Mechanism (CDM) is one of the flexible mechanisms following the Kyoto Protocol. Article 12 of this protocol states all the regulating framework of the CDM. The CDM offers industrialized countries the possibility to engage in economically and environmentally competitive emission reduction projects in developing countries. Through the CDM, certified emission reductions (CERs) will be generated. Projects that will be implemented through the CDM have to fulfill additional criteria that will be defined by a national framework of the host countries (developing countries, where the project will be implemented). A CDM project has a pre-defined project-cycle that was defined by the UNFCCC, the official executive institution concerning these questions. 

In the initial phase of discussion on the CDM most observers, even from business expected the Annex I countries to implement domestic policies that would create an incentive for private sector engagement in CDM projects and induce private companies to directly invest bilaterally or multilaterally (via a fund) into CDM projects in order to take full advantage of “cheap” abatement options before the start of the first commitment period from 2008-2012. However, Annex I countries seem to lack enthusiasm for the CDM. No governments have set direct incentives for CDM investment. Both governments and private companies seem not to be willing to invest directly in CDM projects due to high perceived risks. Experience shows that the parties in need for CERs prefer to buy CERs before their issuance via an Emission Reduction Purchase Agreement (ERPA) without taking on any risk in CDM project development. Under this situation financing for CDM projects have to come from within the host countries (unilateral projects) if they want to benefit from the opportunities the CDM offers. India is seen as one of the Non-Annex I countries offering the largest potential for CDM development, besides China and Brazil.

What does "CDM project development" mean? Do I need a project developer? Who can develop a CDM project?

Theoretically everyone can develop a CDM project. If there exists any emission reduction potential or an idea how to sequester carbon, any company or institution may implement such a project. To get it accredited as a CDM project several requirements must be fulfilled, such as following a pre-defined project cycle, preparation of certain documents (PCN, PDD, Monitoring plan etc.), highlighting certain characteristics like additionality criteria in terms of emission reductions, social and economic aspects, approval from certain institutions in the host country (DNA), validation and contacting buyer country DNA. To facilitate the whole process of a CDM project development, it is recommended to contract a consulting company that helps to develop all the required documents and may guide through this time consuming process.

What is feasibility check?

The preliminary assessment aims at giving the project developer an idea, if basic requirements to be a CDM project are fulfilled. This is done in terms of regulative compliance and in an economic feasibility check. The preliminary assessment will not be sufficient to find an investor. At least a Project Concept Note has to be prepared for that. We do the feasibility check free of cost for potential CDM projects. Submit the information about your project for a free of cost feasibility check by clicking here.

What is Project Concept Note (PCN)?

The PCN, that already demonstrates a complete planning of a project in terms of all required CDM criteria, is given to interested parties that may buy/invest in or CERs from the project. In the case, that it seems interesting to them, the buyer/investor will sign a letter of intention to buy all or a certain amount of emission reductions (ER).

What is Project Design Document (PDD)?

This is the principal document used by project participants to get a CDM project approved. Its format is outlined in Appendix B of the Modalities and Procedures of the CDM. Its contents are evolving, and may change over time as the Executive Board (EB) of UNFCCC is continuously working on improving the modalities and procedures of the CDM.

What about Designated National Authority (DNA)?

The Seventh Conference of Parties (COP-7) to the UNFCCC decided that Parties participating in CDM should designate a National Authority for the CDM and as per the CDM project cycle, a project proposal should include written approval of voluntary participation from the Designated National Authority of each country and confirmation that the project activity assists the host country in achieving sustainable development.

Accordingly, the Central Government constituted the National Clean Development Mechanism (CDM) Authority for the purpose of protecting and improving the quality of environment in terms of the Kyoto Protocol.

The National Clean Development Mechanism (CDM) Authority receives projects for evaluation and approval as per the guidelines and general criteria laid down in the relevant rules and modalities pertaining to CDM in addition to the guidelines issued by the Clean Development Mechanism Executive Board and Conference of Parties serving as Meeting of Parties to the United Nations Framework Convention on Climate Change.

The evaluation process of CDM projects includes an assessment of the probability of eventual successful implementation of CDM projects and evaluation of extent to which projects meet the sustainable development objectives, as it would seek to prioritize projects in accordance with national priorities.

The National Clean Development Mechanism (CDM) Authority can recommend certain additional requirements to ensure that the project proposals meet the national sustainable development priorities and comply with the legal framework so as to ensure that the projects are compatible with the local priorities and stakeholders have been duly consulted.

The Authority ensures that in the event of project proposals competing for same source of investment, projects with higher sustainable development benefits and which are likely to succeed are accorded higher priority.

The Authority also carries out the financial review of project proposals to ensure that the project proposals do not involve diversion of official development assistance in accordance with modalities and procedures for Clean Development Mechanism and also ensure that the market environment of the CDM project is not conducive to under-valuation of Certified Emission Reduction (CERs) particularly for externally aided projects.

Eligibility Criteria specified by the CDM Authority in India?

It is discussed below:

Purpose

The purpose of the clean development mechanism (CDM) is defined in Article 12 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The CDM has a two-fold purpose: (a) to assist developing country Parties in achieving sustainable development, thereby contributing to the ultimate objective of the Convention, and (b) to assist developed country Parties in achieving compliance with part of their quantified emission limitation and reduction commitments under Article 3. 

Eligibility

The project proposal should establish the following in order to qualify for consideration as CDM project activity:

Additionalities:

• Emission Additionality: The project should lead to real, measurable and long term GHG mitigation. The additional GHG reductions are to be calculated with reference to a baseline.

• Financial Additionality: The procurement of Certified Emission Reduction (CERs) should not be from Official Development Assistance (ODA)

Sustainable Development Indicators

It is the prerogative of the host Party to confirm whether a clean development mechanism project activity assists it in achieving sustainable development. The CDM projects should also be oriented towards improving the quality of life of the poor from the environmental standpoint.

Following aspects should be considered while designing CDM project activity:

1. Social well being: The CDM project activity should lead to alleviation of poverty by generating additional employment, removal of social disparities and contribution to provision of basic amenities to people leading to improvement in quality of life of people.

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

3. Environmental well being: This should include a discussion of impact of the project activity on resource sustainability and resource degradation, if any, due to proposed activity; bio-diversity friendliness; impact on human health; reduction of levels of pollution in general;

4. Technological well being: The CDM project activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices in order to assist in upgradation of the technological base. The transfer of technology can be within the country as well from other developing countries also.

Baselines

The project proposal must clearly and transparently describe methodology of determination of baseline. It should confirm to following:

• Baselines should be precise, transparent, comparable and workable;

• Should avoid overestimation;

• The methodology for determination of baseline should be homogeneous and reliable;

• Potential errors should be indicated;

• System boundaries of baselines should be established;

• Interval between updates of baselines should be clearly described;

• Role of externalities should be brought out (social, economic and environmental); 

• Should include historic emission data-sets wherever available;

• Lifetime of project cycle should be clearly mentioned;

The project proponent could develop a new methodology for its project activity or could use one of the approved methodologies by the CDM Executive Board. For small scale CDM projects, the simplified procedures can be used by the project proponent. The project proposal should indicate the formulae used for calculating GHG offsets in the project and baseline scenario. Leakage, if any, within or outside the project boundary, should be clearly described. Determination of alternative project, which would have come up in absence of proposed CDM project activity should also be described in the project proposal.

What about Designated Operational Entity (DOE)?

Services of DOE are required in the validation and verification phases. The project cycle requires a validation by a first DOE in the phase before the registration and a verification of a second DOE before the issuance of the CER. For small scale CDM projects simplified guidelines assure that the project development requires one DOE only.

CDM Project Cycle?

During the process of project development various institutions will have to be contacted. In the early phase usually a consulting service will be required, to accomplish with the existing guidelines and to help analyze the financial and economically feasibility. In the phase of pre-registration at the UNFCCC a certifier (Designated Operational Entity - DOE) has to be contracted to assure that the documents to be presented (Project Design Document, Monitoring Plan, and Baseline Study) were correctly prepared. Costs of Validators are defined through the UNFCCC. To get a CDM project accredited by the UNFCCC, the host country and the potential buyer country institutions (designated national authority - DNA) have to be contacted. They have to offer a paper of agreement, confirming that the national guidelines will be fulfilled.