1. Carbon Markets – CDM project development, 8. August 2010 Jørgen Fenhann CDM Project Cycle

2. Global Warming Initial Concern The Kyoto Protocol (Signed 1997, Entered into Force 2005) International response Developed countries Constraint on Emissions Developing countries No Constraint Public policies Intern. Emission Trading Project based mechanisms CDM Certified Emission Reductions (CER) Country level • Transport • Housing • Biofuels • Projects European Trading Scheme Company / Individual Level Japanese Voluntary Scheme • EU ETS trades EUA – European Union Allowances • CDM (Clean development mechanism) generated CER (Certified Emission Reductions) • IET (International Emission Trading Scheme trades AAU (Assigned Amount Units) Different assets

3. The two objectives of the CDM: Cost-efficient mitigation of CC while contributing to SD of developing countries Annex I country or enterprise with emission limits Host Countries with no GHG emission restrictions Host country specific site Host country specific site CERs acquired help the achievement of emission reductions Emissions Reduction CER $ $ Emission predictions Host country benefits from investments flow and technology GHG Emissions Baseline scenario Project Scenario Project must provide emission reductions “that are additional to any that would occur in the absence of the certified project activity” Source: WB

4. CDM Project How is CDM different? Carbon finance Returns/Profit Traditional finance/ investment Carbon credits Sustainable development benefits …layered incremental costs and returns

5. Greenhouse Gases under Kyoto Protocol SIX types of gases with different Global Warming Potential (GWP): Usually expressed in CO2-equivalent: • Carbon Dioxide, GWP : 1 • Methane, GWP : 21 • Nitrous Oxide, GWP : 310 • Sulphur Hexaflouride, GWP : 23,900 • Perflourocarbon, GWP : 9,200 • Hydrofluorocarbon, GWP : 11,700

6. International CDM Criteria • In accordance with the modalities and procedures for a CDM (Annex decision 17/CP.7 – F) • all Parties to the Convention may participate in CDM project activities in a voluntary basis (paragraph 28) - Kyoto Protocol Ratification • Parties participating in the CDM shall designate a National Authority for the CDM (Paragraph 29) • Real, measurable and long-term benefits related to mitigation of climate change • Reduction in emissions that are additional to any that would occur in the absence of the certified project activity

7. International CDM Criteria • In accordance with provisions of Annex G - paragraphs 37 (a) and 40 (a) of the CDM M&P, the registration of a proposed CDM project activity can… only take place once approval letters are obtained from Parties to the Convention. • 40. The DOE shall: • (a) Prior to the submission of the validation report to the EB, have received from the project participants written approval of voluntary participation from the Designated National Authority of each Party involved, including confirmation by the host Party that the project activity assists it in achieving sustainable development

9. Project Eligibility Criteria Certification & Issuance Project Implementation & Monitoring Verification National Approval Validation & Registration

10. The Baseline Assessment Certification & Issuance Verification Project Implementation & Monitoring National Approval Validation & Registration

11. Crediting Period – Renewable & Fixed Certification & Issuance Project Implementation & Monitoring Verification National Approval Validation & Registration

12. Transaction Costs Certification & Issuance Verification Project Implementation & Monitoring National Approval Validation & Registration

13. Institutional Involvement Certification & Issuance Verification Project Implementation & Monitoring Validation & Registration Project Screening & Design • Proof of legal capacity • Stakeholder consultation documentation • Sustainable Development Benefits Description (SDBD)

14. Sustainable Development Criteria Certification & Issuance Verification Project Implementation & Monitoring Validation & Registration Project Screening & Design • 3 Dimensions • Economic • Environmental • Social

15. Activities, Institutions & Documentation Certification & Issuance National Approval Verification Project Implementation & Monitoring • Project Screening & Design • Critical Issues • Validity of Baseline calculation • Methodology • Assumptions • Additionality/Baseline • Monitoring Plan Must respond to all issues raised by the DOE

16. Transaction Costs • Validation &Registration Certification & Issuance National Approval Verification Project Implementation & Monitoring • Project Screening & Design • Transaction Costs: • Validation costs: • US$ 10,000 – 40,000 • Registration costs No Registration fee for LDC

17. Critical Issues • Data archiving • Observe timelines strictly • Adhere to PDD requirements (monitoring protocol) • Deviations as per procedure • Basis for third party verification Activities, Institutions & Documentation • Project Screening & Design National Approval Validation & Registration Certification & Issuance Verification

18. Critical Issues • Project must prove to DOE that data monitored has been done according to the monitoring protocol • Data quality Activities, Institutions & Documentation • Project Screening & Design National Approval Validation & Registration Project Implementation & Monitoring Certification & Issuance

19. Critical Issues • Who owns the CER? • All verification issues adequately addressed Activities, Institutions & Documentation • Project Screening & Design National Approval Validation & Registration Project Implementation & Monitoring Verification

20. Summary Project Screening & Design National Approval Validation & Registration Project Implementation & Monitoring Verification Certification & Issuance • CDM project cycle follows specific predefined steps involving various documentation and players • Key documentation to provide needed reassurance: Project Design Document, LoA, Validation report and Verification report • The key players are: Project developer, DNA, DOE and CDM Executive Board • The emission calculations are based on the project baseline and in accordance with approved or proposed methodologies • There are transactions costs as associated with the carbon asset development which vary with the type and complexity of the project

22. Thankyou!! More information: http://uneprisoe.org http://cd4cdm.org http://cdmbazaar.net http://cdmpipeline.org