Clean development mechanism basics

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A basic presentation for people to understand Clean Development Mechanism (CDM) / Carbon Credits.

Published in: Business, Technology

Clean development mechanism basics

  1. 1. Clean DevelopmentMechanism Explained EfficientCarbon
  2. 2. Carbon Credits Carbon being traded as a commodity Voluntary and binding agreements CER and audited creditsSo 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. www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  3. 3. 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. www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  4. 4. 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. www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  5. 5. 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 www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  6. 6. Companies pay cash CLEAN DEVELOPMENT MECHANISM OrganisationsCompanies in developing CDMAnnex – I projectscountries Organisations give certified carbon credits www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  7. 7. 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 www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  8. 8. One of the key factors for approval of a CDM project is the Additionality constraint. Additionality EmissionsKyoto Protocol specifies that emission CER / Carbonreductions are only to be certified under Creditsthe Clean Development Mechanism (CDM)if they are additional to any that wouldoccur in the absence of the certifiedproject activity. Time Project started www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  9. 9. 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. www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  10. 10. A CDM Project can be in many areasRenewable Clean Energy Energy Efficiency Construction Energy Waste Afforestation &Transport Solvent Use Management Green Cover Agriculture HFC/PFC Rest/Others www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  11. 11. Before starting a CDMproject, a project baselinehas to be established. This is to establish the amount of greenhouse gases that would have been emitted without this CDM project. Baseline Estimation Process Identify Define Estimate Assess Monitor Evaluate sources baseline Baseline for the the uncertain Methodol- Scenario baseline estimation -ties estimation ogy www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  12. 12. So to summarise...Establish Additionality Establish Baseline Verify Baseline Get Approval from CDM Executive Board (EB) Kick off the CDM project activity www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  13. 13. The Actual CDM Activity Project Stage Who does it? Activity Span Time Span • Project Design Document Project Developers / 1 month Expenses1 (PDD) Preparation Consultants GOE / Ministry of • Host Country Approval Environment and 6 months2 Forests One Time 12 Activity NA(depen • Validation by DOEs DOE ds on to3 project) 18 Up to 6 • Project Registration CDM EB months M4 O N Project Developer T • Monitoring Regular5 and DOE H S Annual Up to 2 • Verification and Certification DOE and CDM EB Activity months6 • Issue of CERs Up to 1.5 Project CDM EB months7 Monetised www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  14. 14. 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. www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  15. 15. CDM Benefits to Annex-1 countries• Reduction in overall emission mitigation costs• Flexibility in meeting emission reduction commitments• Investment Opportunities www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  16. 16. 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 www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  17. 17. 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 www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  18. 18. 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 www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  19. 19. CDM Facilitation Project Initiation CDM Facilitation• Project Evaluation • Baseline Studies• Project Comparison • PDD Documentation• Cost Analysis • Host Country Approval Facilitation• Financial Modeling – NPV, IRR • Registration Facilitation• CER Generating PotentialAnalysis • Preparation of Monitoring Report• Project Technology Identification,Analysis and Selection • Project Verification and CER Issuance Facilitation• Supplier Identification • New Baseline Methodologies• Creation of Full Project Plan Development www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  20. 20. Our ServicesCARBON MANAGEMENT ADVISORY SUSTAINABILITY CONSULTING WATER MANAGEMENT ENERGY EFFICIENCY RENEWABLE ENERGY ADVISORY CDM FACILITATION www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  21. 21. Contact usHarsha: +91 9000345588Pradeep: +91 9052224701Office: +91 40 40128206gogreen@efficientcarbon.comwww.efficientcarbon.comwww.twitter.com/efficientcarbonwww.facebook.com/efficientcarbon www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved
  22. 22. "Sustainability is not only absolutely necessary considering thesituation our planet is in, we as companies are also overdue totake responsibility. We cant wait for governments. Companieshave to lead the way… - Jochen Zeitz, CEO, Puma Corp. Thank You www.efficientcarbon.com Phone: +91 9000345588 gogreen@efficientcarbon.com © efficientcarbon, All rights reserved

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