Introduction

Energy is one of the essential needs of the a functioning of the society. The scale of its use is closely associated with its use is closely associated with its capabilities and the quality of life that its member experience. To sustain the development as well as and to move out of poverty some sort of the mechanism is required & that is provided by the energy. Today most of enegy is provided by burning of fossil fuels. Consequences & Effects Of Use Of Fossil Fuels as a Source Energy :Due to the burning of the fossil fuels various pollutants such as CO2, NOx, Sox ,air particles & harmful chemicals are exhausted in the air ,water & land. Global warming & climate changes are being observed. This is causing the another effects such as flood, change in natural cycle, draught etc. Following points can be summarized regarding the climate change. 1) Average global temperatures have been varied by less than one degree since the dawn of the human civilization. 2) The earth is heated up by 0.6 degree C . This is causing overall impact on the environment & climate of the earth .

3) The expected rise in the temperature is between 1.4 to 5.8 degree C by 2100. 4) With the use of fossil fuel the environmental is badly affected. Due to the burning of the fossil fuels various pollutants such as CO2, NOx, Sox ,air particles & harmful chemicals are exhausted in the air ,water & land. Not only the human but also another animals is paying cost of this due to the effects such as flood, draught etc. 5) The sea level is expected to rise between 10-20 cm worldwide during the 20 the century. A further rise of between 9 cm and 88 cm is predicted by 2100. 6) North Pole sea-ice has thinned by 40%in recent decades in summer and autumn. 7) Global snow cover has shrunk by 10%since the 1960s and glaciers have also retreated.

8) Most mainstream scientists believe that increased emissions of greenhouse cases, particularly carbon dioxide, are contributing to the warming of the planet. 9) The following graph shows how CO2 levels have increased as the world has industrialized. GLOBAL CONCENTRATION OF CO2 IN THE ATMOSPHERE (Parts Per Million PPM)

THINNING OF ARTIC SEA

SEA LEVEL CHANGES DURING THE LAST CENTURY

International Agreement On Climate Changes.

International concern over the environmental impacts of the world's uncontrolled use of coal, oil and gas has grown in the second half of the twentieth century. The damage caused to plants, animals and buildings by acid rain and the effects on human health of poor air quality and smog have led to a raft of national, regional and international agreements aimed at controlling these problems by cutting emissions of the gases which cause them. In the mid-1980s, awareness began to increase of yet another problem caused by fossil fuels - climate change, also known as global warming or the green house effect. The warming gases (known as greenhouse gases) given off when fossil fuels are burnt are increasing in the atmosphere, leading to rises in global temperature and sea levels. The most important greenhouse gas is carbon dioxide (CO2). Concentrations of carbon dioxide in the atmosphere today are already 30 per cent higher than the levels which existed before the Industrial Revolution. Growing scientific urgency :The emergence of a scientific consensus on the causes and impacts of climate change has driven the development of policies aimed at tackling the problem both nationally and internationally. In late 1988, two United Nations agencies, the UN Environment Programme and the World Meteorological Organization, set up the Intergovernmental Panel on Climate Change (IPCC). This brought together scientific experts from all over the world to assess the science of climate change, its impacts and the strategies needed to respond to it. The IPCC's first report, known as the First Assessment Report, was agreed in August 1990, despite heavy pressure to block its publication from oil producing countries and industry. Some of its key conclusions are: We are certain emissions resulting from human activities are substantially increasing the atmospheric concentrations of the greenhouse gases. These increases will enhance the greenhouse effect, resulting on average in an additional warming of the Earths surface . In addition, the report found that immediate 60 to 80 per cent cuts in emissions of carbon dioxide would be needed to stabilize carbon dioxide concentrations in the atmosphere at todays levels. An international climate change treaty agreed in record time The strength of the IPCC's findings led to widespread agreement among countries that the only way to deal effectively with the issue of climate change was by means of an international treaty, or convention. In November 1990, the United Nations

General Assembly agreed to establish a process aimed at negotiating and adopting an international climate convention to be ready for countries to sign at the Earth Summit in Rio de Janeiro in June 1992. The negotiating process involved nearly all the world's nations, as well as observers from business and industry and environmental organizations such as Greenpeace. While many countries wished to see legally binding limits on greenhouse gas emissions included in the convention, the USA refused to agree to this, claiming that there were still scientific uncertainties over the need to take action, and citing unacceptable economic consequences of cutting energy consumption. The USA is the world's biggest emitter of greenhouse gases, and it was essential that it signed the convention. The more progressive countries were forced to compromise their positions in order to get the USA on board, and as a result, the final treaty, known as the United Nations Framework Convention on Climate Change (UNFCCC), includes only a legally weak and ambiguously worded 'aim' requiring the industrialised countries (listed in Annex I of the Convention) to return their greenhouse gas emissions to 1990 levels by the year 2000. Lack of action by the industrialised world :The Convention required the first meeting of the Parties to the Convention (the first Conference of the Parties, known as COP1) to review the adequacy of the commitment to return emissions to1990 levels by 2000. In the lead up to COP1 it became clear that few OECD countries (basically the industrialised Western nations) were making sufficient efforts and most were failing to achieve the commitment. Projections of future emissions provided by the industrialised countries in fact showed that carbon dioxide emissions in most of the OECD countries were continuing to rise sharply as a result of increasing fossil fuel use. It also became clear that despite this failure and the growing scientific consensus on the need to make real cuts in emissions, there was little political support among the Annex I countries for legally binding emission reductions to be agreed at COP1. In an attempt to increase the pressure for action, the Alliance of Small Island States (AOSIS), whose members include low lying island nations which are particularly vulnerable to sea level rise, proposed that the Annex I Parties should reduce their carbon dioxide emissions by 20 per cent by the year 2005. This target was supported by Greenpeace and other environmental groups, but was resisted by most of the OECD countries. A new negotiating process set up :In the end, although the Parties at COP1, held in Berlin in March/April 1995, agreed that the Convention's greenhouse gas commitments for the Annex I countries were inadequate, they failed to agree new concrete emission targets. Instead, in a document known as 'the Berlin Mandate', they agreed merely to set up a new negotiating process whose main purpose was to strengthen the commitments by agreeing greenhouse gas limitation and reduction targets to be included in a legal instrument, with the aim of adopting the instrument at the third Conference of the Parties. The Berlin Mandate also stated that the negotiating process would not introduce any new commitments for the developing countries. This was because, as the Berlin Mandate said, it is the developed countries which are responsible for the largest share of historical and current

global emissions and emissions per person are still relatively low in the developing countries. The Mandate also recognized that the share of global emissions from developing countries will need to grow to meet their social and development needs. The negotiations on the Berlin Mandate were carried out by a committee which included most of the world's nations. The process also included hundreds of observers from business and industry and the environmental and development movements. It was this committee which negotiated what became known as the Kyoto Protocol to the UNFCCC. Negotiating the Kyoto Protocol :The strength of the IPCC's findings and the widespread scientific consensus on climate change were major forces during the negotiations which culminated in the Kyoto Protocol. The acceptance of the science by countries meant that there were instead two main issues upon which debate focused during the negotiations. The first was the impacts of action by industrialised countries to reduce their emissions and the second was the issue of developing country action to limit the growth in their emissions. Industrialized country action needed now :The biggest source of emissions in the developed world is the burning of fossil fuels to provide energy for domestic use, transport and industry. Action to cut emissions therefore requires energy to be used more efficiently and a switch to renewable energy systems such as solar and wind. Countries which are highly dependent on fossil fuels and those such as the OPEC countries, which produce fossil fuels, as well as powerful interests from the fossil fuel and industrial sectors, lobbied intensively throughout the negotiations to prevent agreement on emission reductions, stressing the adverse impacts such reductions would have on national economies and global economic growth. However, other countries stressed the need for early action, pointing to the economic costs of delay, as well as the unacceptable consequences of inaction in terms of climate change impacts. Industrialized countries still the major culprits :Although the Berlin Mandate specifically stated that there should be no new commitments for the non-Annex I developing countries, some OECD countries, particularly the USA, as well as the US fossil fuel lobby, argued that action by the developed countries would be overwhelmed by projected increases in emissions in the developing countries, and that the Protocol must therefore introduce, at a minimum, a timeframe for the introduction of emission commitments for developing countries.

Emissions in many large developing countries are undoubtedly growing rapidly, although from very low baselines. However, International Energy Agency figures show that in the 1990s two thirds of global emissions of carbon dioxide came from the developed countries, and project that these countries will still be the source of over half the world's emissions unless they take action to reduce their emissions.

It is the developed countries whose emissions since the Industrial Revolution have caused the climate change problem we are currently facing. It is therefore the responsibility of the developed countries to take action first. Many developing countries are already taking substantial action to reduce their emissions growth, and some have done much more to reduce their emissions than many industrialized nations. Developing countries should not be expected to take on board commitments to limit their emission growth until the industrialised countries have met their responsibilities. The Kyoto Protocol to the Climate Convention :-The new protocol, known officially as the Kyoto Protocol to the UN Framework Convention on Climate Change, was adopted in Kyoto, Japan on 11 December 1997 at the third Conference of the Parties to the UNFCCC. The Kyoto Protocol is significant because it introduces, for the first time, legally binding greenhouse gas emission commitments for the developed countries (this includes most of the developed countries listed in Annex I of the UNFCCC). The commitments agreed to should, according to the Protocol, lead to an overall global reduction of at least five per cent in 1990 levels of greenhouse gases by 2008-2012. However, the Kyoto Protocol is a far from simple document. Not only the commitments themselves but also the mechanisms by which the developed country. Parties may achieve them are extremely complex. Although countries recognize the need to cut global emissions of carbon dioxide and the other greenhouse gases to prevent dangerous global warming, many developed countries, aided by intensive public pressure from the fossil fuel industry, refused during the negotiations to agree to the kinds of cuts in their domestic greenhouse gas emissions which the science demands. The result was commitments in the Protocol which fall far short of what is really needed to protect the earth from major climatic changes. Apart from the inadequate greenhouse gas emissions commitments, the Kyoto Protocol contains a number of provisions whose details were not resolved at the final negotiating session in Kyoto. These include the so-called flexibility mechanisms (emissions trading, joint implementation and the Clean Development Mechanism) and the use of sinks by developed country Parties to achieve their emission commitments. Within these provisions is the potential for a number of sizeable 'loopholes', elements which could sanction emission levels far above what was intended in Kyoto, and which have the potential to undermine and even overwhelm the Protocol's global reduction target of at least five per cent. Parties to the Convention are now entering a new round of negotiations aimed at resolving the outstanding issues in the Kyoto Protocol, and there is a real danger that decisions will be taken which will permanently establish loopholes in the Protocol. These loopholes may be difficult, if not impossible, to close in the future, and could allow developed countries to avoid domestic action to reduce their emissions, and global emissions to increase. The Protocol introduces 3 market mechanisms, namely the Kyoto Mechanisms. Annex I Parties would be able to achieve their emission reduction targets cost-effectively, by using these mechanisms. 1) Joint Implementation (JI) Article 6 of the Protocol :-

1. For the purpose of meeting its commitments under Article 3, any Party included in Annex I may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases in any sector of the economy, provided that (a) Any such project has the approval of the Parties involved; (b) Any such project provides a reduction in emissions by sources, or an enhancement of removals by sinks, that is additional to any that would otherwise occur; (c) It does not acquire any emission reduction units if it is not in compliance with its obligations under Articles 5 and 7; and (d) The acquisition of emission reduction units shall be supplemental to domestic actions for the purposes of meeting commitments under Article 3. 2. The Conference of the Parties serving as the meeting of the Parties to this Protocol may, at its first session or as soon as practicable thereafter, further elaborate guidelines for the implementation of this Article, including for verification and reporting. 3. A Party included in Annex I may authorize legal entities to participate, under its responsibility, in actions leading to the generation, transfer or acquisition under this Article of emission reduction units. 4. If a question of implementation by a Party included in Annex I of the requirements referred to in this Article is identified in accordance with the relevant provisions of Article 8, transfers and acquisitions of emission reduction units may continue to be made after the question has been identified, provided that any such units may not be used by a Party to meet its commitments under Article 3 until any issue of compliance is resolved. 2) Clean Development Mechanism (CDM) Article 12 of the Protocol :1. A clean development mechanism is hereby defined. 2. 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 under Article 3. 3. Under the clean development mechanism: (a) Parties not included in Annex I will benefit from project activities resulting in certified emission reductions; and (b) Parties included in Annex I may use the certified emission reductions accruing from such project activities to contribute to compliance with part of their quantified emission limitation and reduction commitments under Article 3, as determined by the Conference of the Parties serving as the meeting of the Parties to this Protocol. 4. The clean development mechanism shall be subject to the authority and guidance of the Conference of the Parties serving as the meeting of the Parties to this Protocol and be supervised by an executive board of the clean development mechanism.

5. 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: (a) Voluntary participation approved by each Party involved; (b) Real, measurable, and long-term benefits related to the mitigation of climate change; and (c) Reductions in emissions that are additional to any that would occur in the absence of the certified project activity. 6. The clean development mechanism shall assist in arranging funding of certified project activities as necessary. 7. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall, at its first session, elaborate modalities and procedures with the objective of ensuring transparency, efficiency and accountability through independent auditing and verification of project activities. 8. The Conference of the Parties serving as the meeting of the Parties to this Protocol shall ensure that a share of the proceeds from certified project activities is used to cover administrative expenses as well as to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation. 9. Participation under the clean development mechanism, including in activities mentioned in paragraph 3 (a) above and in the acquisition of certified emission reductions, may involve private and/or public entities, and is to be subject to whatever guidance may be provided by the executive board of the clean development mechanism. 10. Certified emission reductions obtained during the period from the year 2000 up to the beginning of the first commitment period can be used to assist in achieving compliance in the first commitment period. 3) International Emissions Trading :Article 17 of the Protocol :The Conference of the Parties shall define the relevant principles, modalities, rules and guidelines, in particular for verification, reporting and accountability for emissions trading. The Parties included in Annex B may participate in emissions trading for the purposes of fulfilling their commitments under Article 3. Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that article. The Kyoto Protocol shall enter into force on the 90th day after the date on which not less than 55 Parties to the UNFCCC, incorporating Annex I Parties which accounted in total for at least 55% of the total CO2emissions for 1990 of the Annex I Parties, have deposited their instruments of ratification, acceptance, approval or accession. As of 12 December2007, 176countries and one regional economic integration organization (the EEC) have deposited instruments of ratifications, accessions, approvals or acceptances. 63.7% of the total CO2emissions for 1990 of the Annex I Parties have ratified the Protocol. The Protocol entered into force on 16 February 2005.

The Kyoto Mechanisms :1) The Clean Development Mechanism (CDM) :-

 Annex I Parties which have ceilings for GHG emissions (emission caps), assist non-Annex I Parties which dont have emission caps, to implement project activities to reduce GHG emissions (or remove by sinks), and credits will be issued based on emission reductions (or removals by sinks) achieved by the project activities. a) A Party where CDM project is implemented, is called a host Party. b)The credit from the CDM is called certified emission reduction (CER). c)Reductions in emissions shall be additional to any that would occur in the absence of the certified project activity. Annex I Parties can use CERs to contribute to compliance of their quantified GHG emissions reduction targets of the Kyoto Protocol As a result, the amount of emission cap of Annex I Parties will increase. The CDM will issue CERs before the 1st commitment period. a) CERs issued based on activities during the period from the year 2000up to 2012 can be used in achieving compliance of Annex I Parties in the 1st commitment period.

2) Joint Implementation ( JI ) :Annex I Parties which have ceilings for GHG emissions (emission caps), assist other Annex I Parties to implement project activities to reduce GHG emissions (or remove by sinks), and credits will be issued based on amount of emission reductions (or removals by sinks) achieved by the project activities. a) A Party where JI project is implemented, is called a host Party. b)The credit from the JI is called emission reduction unit (ERU). c) Any such project shall provide a GHG emission reductions, or removals by sinks, that is additional to any that would otherwise occur. Annex I Parties can use ERUs to contribute to compliance of their quantified GHG emissions reduction targets of the Kyoto Protocol. a)The total amount of emission cap of Annex I Parties will not change, because JI is credits transfer between the Parties both of which have emission caps. ERUs will be issued only after 2008.

3) International Emissions Trading (IET) :International Emissions Trading is to trade Kyoto Protocol units(KP units) including part of assigned amounts, CERs, ERUs and etc, between Annex I Parties. a) The total amount of emission cap of Annex I Parties will not change. b) Only Annex B Parties of the Kyoto Protocol can participate International Emissions Trading. c) Minimum trading unit is 1t-CO2 equivalent.

Annex I Parties can trade following types of Kyoto Protocol units. a) Assigned amount unit (AAU) = Total amount of AAUs of an Annex I Party is calculated from its base year emissions and emission reduction target b) Removal unit (RMU) = Total amount of RMU of an Annex I Party is calculated from net removal of GHGs by a forestation and reforestation (A/R) activities c) Emission reduction unit (ERU)from JI

d) Certified emission reduction (CER)from the CDM e) Temporary CER (tCER)and long-term CER (lCER) = tCER and lCER are issued from a forestation and reforestation (A/R) CDM project activities

If an emission cap of an Annex I Party is more than its GHG emissions during the 1st commitment period, the surplus can be carried over to the subsequent commitment period.

CDM Project Cycle :-

(1) Planning a CDM project activity :CDM project participants (PPs) plan a CDM project activity. There are several conditions in order to be registered as a CDM project activity, and PPs should consider those conditions from a planning stage. 2) Making the project design document ( PDD) :PPs make the project design document (CDM-PDD) for a CDM project activity. The CDM-PDD presents information on the essential technical and organizational aspects of the project activity and is a key input into the validation, registration, and verification of the project. The CDM-PDD contains information on the project activity, the approved baseline methodology applied to the project activity, and the approved monitoring methodology applied to the project. 3) Getting approval from each Party involved :PPs shall get written approvals of voluntary participation from the designated national authority (DNA) of each Party involved, including host Party. A Party involved is a Party that provides a written approval. The registration of a project activity can take place without an Annex I Party being involved at the stage of registration. The details of approval procedure is up to each Party. PPs may get written approvals in step (1), (2) or even (4) But PPs must get written approvals at least from the host Party before a request for registration. 4)Validation :Validation is the process of independent evaluation of a project activity against the requirements of the CDM on the basis of the PDD. Validation is carried out by a designated operational entity (DOE). There is a formal procedure for validation. 5)Registration :Registration is the formal acceptance of a validated project as a CDM project activity. Registration is done by the CDM executive board (EB). There is a formal procedure for request for registration. PPs shall pay registration fee at registration stage. 6)Monitoring a CDM Project activity :PPs collect and archive all relevant data necessary for calculating GHG emission reductions by a CDM project activity, in accordance with the monitoring plan written in the PDD. Monitoring plan can be revised.

7)Verification and certification :Verification is the periodic independent review and ex post determination of the monitored GHG emission reductions. Verification is carried out by a designated operational entity (DOE). There is a formal procedure for verification. Certification is the written assurance by a DOE that a project activity achieved the reductions in GHG emissions as verified. Certification is also done by a DOE. 8) Issuance of CERs :The EB will issue certified emission reductions (CERs) equal to the verified amount of GHG emission reductions. There is a formal procedure for issuance of CERs. The issuance of CERs, in accordance with the distribution agreement, shall be effected only when the share of proceeds to cover administrative expenses (SOP-Admin) of the CDM has been received. Among issued CERs, 2% of those will be deducted for the share of proceeds to assist developing Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation (SOPAdaptation). 9) Distribution of CERs :CERs will be distributed among PPs. The decision on the distribution of CERs from a CDM project activity shall exclusively be taken by PPs. CDM Rules in Detail :This section explains the rules of the CDM in detail. For this purpose it is structured as follows. First, the requirements for countries that want to take part in CDM are presented . Afterwards, the concept of additionally as a major requirement for a projects. eligibility under CDM is outlined. Subsequently, the procedure is described that project developers have to follow in order to generate CERs from their GHG mitigation projects. Finally, the latest developments with regard to the registration of CDM projects are presented 1 Participation Requirements :Participation in CDM is voluntary and countries willing to participate are required to designate a national authority for the CDM Annex, Para 29). Its role is illustrated in section Non-Annex I countries can only participate in CDM if they have ratified the Kyoto Protocol and Annex B countries can only credit CERs if they have ratified the Kyoto Protocol and comply with specific methodological and reporting requirements which are not further considered here /CMP.1 (Article 12), 2 The Baseline Concept and Additionally of CDM Projects :The overarching requirement for GHG mitigation projects to be eligible under the CDM is that the GHG emission reductions for which CERs are generated are .additional.. In the following the concept of additionally is explained. The amount of CERs generated by a CDM project over a given period is calculated by subtracting the actual project emissions during project operation from the so called GHG baseline emissions. A baseline. is a counter factual scenario for the level of emissions without the proposed project . The concept is illustrated in figure shown below.

In general a baseline may be expressed in absolute emission levels or in emission factors (e.g. g CO2/kWh) Project emissions are usually calculated by multiplying the activity level of the project with a corresponding emissions factor Several approaches for baseline determination have been proposed. The CDM rules require that a baseline has to be established on a project specific basis Annex, para 45 (c)). Project specific baselines are usually drawn up by using project specific assumptions, measurements, comparisons, estimates or simulations for all key parameters According to the CDM rules the baseline is expected to take into account national legislation and the economic situation in the sector the project is realized in Annex, para 45 (e)). It is also expected to rest on a comprehensible methodology. Project developers can choose from three approaches for establishing the baseline methodology Annex, para 48. (a) Current or historical emissions. (b) Emissions of an economically attractive investment, taking into account investment barriers. (c) The average emissions of similar project activities undertaken in the previous five years, in similar social, economic, environmental and technical circumstances and whose performance is among the top 20% of their category. The baseline of a project and the additionally. of a potential CDM project are linked. The CDM rules say that a project is expected to result in a reduction of GHG emissions that is additional to any that would occur in the absence of the proposed project activity. in order to be eligible for the CDM (ibid, -/CMP.1 (Article 12), Annex, para 37, (d)) and that a project .is additional if GHG emissions are reduced below those that would have occurred in the absence. of the project (Article 12), Annex, para 43). Hence, it can be concluded that additionally is assessed on the basis of the baseline However, the rules do not give any guidelines on how additionality testing should be integrated in the baseline methodology. It is not within the scope of this study to give a detailed account of the technicalities involved in baseline determination and the debate on the operatinalisation of additionality.
3 The Project Cycle for CDM Projects :-

Before a project can generate CERs a sequence of tasks have to be performed by the project developers, the EB and other CDM

institutions. This sequence of tasks that the projects have to pass in a chronological order is commonly referred to as the CDM project cycle.. It consists of the following stages: Project Design Document (PDD) preparation, host country approval, validation, registration, monitoring, verification and certification and issuance of CERs. The CDM project cycle and involved various factors discussed next. 4 Project Design Document (PDD) Preparation :The Project Design Document (PDD)24 requires the project developer to provide the following information to the independent third party 25 that undertakes validation . 1) Project description including the purpose of the project and a technical description. 2) Description of the methodology used for establishing the baseline. No baseline methodologies have been defined by the EB. A project developer willing to obtain a validation needs to establish a new baseline methodology for each new project category.26 of his project if it is the first of its kind to be validated Annex, para 38. In such cases the new baseline methodology needs to be approved by the EB before the project can be validated27. By applying the approved methodology to the project the project developer can finally project his baseline emissions. Once the EB approves a methodology it is made publicly available and can be used by other project developers for projects in the same category. A baseline is valid for the duration of one .crediting period. 3) Statement which crediting period was selected. The crediting period determines for which period the CDM project will generate CERs when registered. Project developers can either choose a crediting period of ten years with no option of renewal or a crediting period of seven years with two options of renewal as a maximum. At each renewal the baseline needs to be revalidated . 4) Description of the monitoring plan. The project developer needs to give detailed information on how data is collected and archived that is relevant for the calculation of project emissions, emissions outside the project boundary as well as the determination of the baseline. This information needs to be compiled in a monitoring plan. It must also provide for collection and archiving of data relevant for the environmental impact of the project as well as quality assurance and control procedures for the monitoring process. As it is the case with the project baseline, the monitoring plan needs to be derived from a monitoring methodology applied in the context of the project. A new monitoring methodology needs to be approved by the EB. 5) Documentation on the analysis of environmental impacts of the project. The PDD requires either a documentation on the analysis of the environmental impacts of the project and, if those are considered significant by the project developer or the host country, the project developer has to carry out an Environmental Impact Assessment (EIA) according to the procedures of the host country (Article 12), Annex, para 37 (c)). 6) Description how stakeholder comments were sought and how Due account was taken of the comments received (Article 12), Annex, appendix B, para 2 (h)). The term stakeholder. is defined as the public, including individuals, groups or communities affected, or likely to be affected by the proposed CDM project . 7) Description of calculations used to determine the emission reductions 28 achieved

by the CDM project. 5 Host Country Approval :Another prerequisite for validation is that the project developer has received written assurance of the host countries. designated national authority (DNA) that the host country participates voluntarily and that the proposed CDM project will assist the country in achieving sustainable development . 6 Validation :Before the EB registers a CDM project it requires the validator to submit a request for registration in form of a validation report. It states on the basis of the review of the PDD that all requirements for a CDM project as stipulated in the CDM rules are met (e.g. that the project is additional, that the monitoring plan is in accordance with the requirements and that the project developer has received host country approval) 7 Registration :Registration is the official acceptance of the EB of the validated project as a registered CDM project. Registration is the precondition for verification, certification and issuance of the CERs. A project not accepted for registration may be re-submitted after renewed validation Annex, para 42). COP7 decided that the EB should charge a registration fee as long as the COP has not determined a percentage of CERs issued that should remain at the EB to cover its administrative expenses . The rates of the registration fee are displayed in section 4.4.2.4. 8 Monitoring :Upon registration the project developer needs to implement the monitoring plan as outlined in the PDD . Afterwards, the project will be monitored and the resulting CERs calculated. If the project developer wants the CERs to be verified and certified he submits a monitoring report to the OE that he has contracted for verification and certification . 9 Verification and Certification :Verification is the periodic independent review and ex-post determination of the monitored emission reductions, resulting from the CDM project during the verification period29. The OE performing validation is not allowed to be the same OE performing the verification and certification , Annex, para 27. The documentation will be submitted to the EB in form of a verification report Annex, para 62). Certification is the written assurance by the verifier that the CDM project achieved the emission reductions as stated in the verification report . 10 Issuance of CERs :The EB will issue the CERs upon receipt of the certification report. The EB will issue the CERs into the account of the project developer. However, it will deduct and transfer a share of 2% of the CERs in the account of the adaptation funds. The CDM Project Cycle :The following figure shows the CDM Project Cycle.

Latest Developments in the Approval of Methodologies and Registration of CDM Projects :At the 11th EB meeting in October 2003 the EB in total approved the sixth baseline and monitoring methodology from a total of 33 proposed methodologies submitted since its operation. These two projects are in the validation stage and eventually will be registered by the EB. The other 27 methodologies were rejected but may be re-submitted. The most prominent reason for rejection of the baseline methodologies was the lack of proof that the project activity is not the baseline scenario and therefore not additional. Other reasons have been lack of comprehensible data, monitoring techniques and illustration of the methodologies . CDM Related Bodies And Their Duties :- The various bodies associated with the CDM have perform various duties as listed below. 1)COP/MOP :- COP The Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol . It is having following duties. a) Has authority over and provides guidance to the CDM b) Decides on the recommendations made by the EB on its rules of procedure, and in accordance with provisions of decision & the present annex and relevant decisions of the COP/MOP. c) Decides on the designation of operational entities (OEs) accredited by the EB d) Reviews annual reports of the EB. e) Reviews the regional and sub regional distribution of designated operational entities (DOEs) and CDM project activities. F) Assists in arranging funding of CDM project activities, as necessary. 2) Designated National Authority (DNA) :- Parties participating in the CDM shall set up a designated national authority (DNA) for the CDM. CDM project participants (PPs) shall receive written approval of voluntary participation from the DNA of each Party involved.

a) The written approval shall include confirmation by the host Party that the project activity assists it in achieving sustainable development. b) The details of approval procedure is up to each Party. 3) CDM Executive Board (EB) :- The EB comprises 10 members from Parties to the KP. 1 member from each of the 5 UN regional groups, 2 other members from the Annex I Parties, 2 other members from the non-Annex I Parties, and 1 representative of the small island developing States. The 5 regional groups of the UN are Asia, Africa, Latin America, Eastern Europe, and the Western European and Others Group. Members are elected for a period of 2 years and be eligible to serve a maximum of 2 consecutive terms Terms as alternate members do not count. 5 members and 5 alternate members are elected initially for a term of 3 years, The EB elects its own chair and vice-chair, with one being a member from an Annex I Party and the other being from a non-Annex I Party. The EB supervises the CDM, under the authority and guidance of the COP/MOP and do following things. a) Make recommendations to the COP/MOP on further modalities and procedures for the CDM and/or any amendments or additions to rules of procedure for the EB, as appropriate. b) Approve new methodologies related to, inter alias, baselines, monitoring plans and project boundaries . c) Review provisions with regard to simplified modalities, procedures and the definitions of small scale CDM (SSC) project activities, and if necessary, makes appropriate recommendations to the COP/MOP. d) Be responsible for the accreditation of operational entities (OEs), and make recommendations to the COP/MOP for the designation of OEs. e) Make any technical reports to the public and provide a period of at least 8 weeks for public comments on draft methodologies and guidance. f) Develop and maintain the CDM registry. g) Formally accept a validated project as a CDM project activity (registration). h) Instruct to issue CERs for a CDM project activity to the CDM registry administrator. Economic and Institutional Principles of CDM :It is the aim of this section to outline the economic and institutional principles of CDM. These principles lay the foundation for an understanding of the impact of transaction costs on the Kyoto Mechanisms and the definition of transaction costs of CDM projects as used in this study. The section is organized as follows. Section 3.3.1 briefly outlines the economic rationale for the Kyoto Mechanisms. Subsequently, section 3.3.2 introduces potential participants in CDM as well as their options and incentives for and deterrents to participation. 3.3.1 The Economic Rationale for the Kyoto Mechanisms :The Kyoto Mechanisms are based on the theory of tradable emission permits31. The basic rationale for emissions trading is that it allows the realization of an emission reduction target at minimum costs . Two types of emissions trading systems exist. The first one is referred to as a cap-and-trade system .Here at least two emitters exist that are subject to an overall emissions limit. Each emitter will be allocated emission allowances 32 which they are allowed to trade among

each other and whose sum is equivalent to the overall limit. Theory says that the provision for trading of allowances will enable the cost-effective compliance of the emitters with their emissions target by equalizing the marginal abatement costs among them. In this sense IET can be interpreteted as a cap-and-trade GHG emissions trading system among Annex B countries . A second type of emissions trading is the baseline-and-credit system .Here emission credits 33 are provided to emitters that reduce emissions below a pre-defined baseline. Once the emission reduction has been certified these credits can be traded. They can then be bought and used for compliance by emitters which are subject to emission targets in order to allow for compliance at lower cost. In this sense ERUs and CERs from JI and CDM projects respectively can be interpreted as credits stemming from baseline-and-credit systems . Hence, the Kyoto Mechanisms provide for international trading of the GHG emission permits AAUs, ERUs and CERs in order to allow the realization of the internationally agreed GHG reduction target at minimum costs by equalizing the marginal abatement costs worldwide. Potential Participants in CDM Options, Incentives and Deterrents :This section presents the potential participants in CDM and elaborates on their options as well as on their incentives for and deterrents to participation. Potential participants are Annex B countries34, Non-Annex I countries and the private sector. They can choose between various forms of participation. The initial concept of CDM as discussed among climate policy experts foresaw investment from Annex B country governments or private companies in potential CDM projects supplied by the host countries government or private companies in return for CERs . This meant that the host country government or private company would not have invested in the project. Instead it would have solely supplied GHG mitigation projects for investment from an Annex B country participant. Totenberg et al. (1999) highlighted that CDM projects would not necessarily involve investment from abroad but that Non-Annex I country participants could already finance projects on its own and sell credits earned. In this case participation of Annex B countries in CDM would be limited to the purchase of CERs from Non-Annex I participants which have developed and financed the projects on their own. In such a case Annex B country participants could buy CERs from Non-Annex I participants either after the reduction is achieved (Direct Purchase Agreement . DPA) or ahead of their issuance for a pre-agreed price at a certain time in the future (Emission Reduction Purchase Agreement . ERPA). A DPA could be traded in form of a spot, forward or option contract whereas the ERPA would necessarily involve a forward or option contract . Annex B Countries :The primary incentive for Annex B countries to engage in CDM is to allow a cost effective realization of its internationally agreed GHG target. The government can foster private sector engagement in CDM by formulating targets in the context of a national or supra-national GHG emissions trading scheme35 for (groups of) GHG emitters that are allowed to use CERs for compliance. If nevertheless the internationally agreed target is not reached, the country can then, as a .last-minute measure., buy CERs via DPAs.

However, it is also conceivable that Annex B country governments want to engage in CDM via investment, DPAs or ERP. As a longterm strategy for reaching their targets. The usage of CDM shifts the necessary structural change in Annex B countries to future periods . At the same time it represents an opportunity for national industry to export technology and therefore can limit the resistance from national industry to national climate policy . Furthermore, Annex B countries anticipate that CDM projects raise the awareness for climate change issues in Non-Annex I countries and strengthen their willingness to reduce emissions in the future . However, if emission reductions are achieved abroad Annex B countries do not profit from the positive externalities the emission reduction measure might incorporate e.g. reduction of local pollutants. Non-Annex I Countries :A major incentive for Non-Annex I countries to host CDM projects is that foreign investment in CDM projects can result in positive externalities. Generally, the host country will welcome the transfer of capital, technology and know-how from investments in CDM projects as well as additional job creation and a cutback in local pollutants accompanied with it. However, this transfer will not take place if the projects are financed by entities from within Non-Annex I countries. A Non-Annex I country could have an incentive to participate in order to gain a share from the CERs generated by the project and sell them on the market. The form of participation is decisive. Should NonAnnex I countries decide to solely supply potential projects (e.g. from public enterprises) to foreign investors they will usually gain nothing but positive externalities .However, Non-Annex I countries could invest in projects on their own or in a partnership in order to attract investment and/or get a share in CERs. If they choose to do so, they have to weigh the gains from positive externalities respectively the CER value against the (share in) project costs. Some potential host countries have expressed their concern that CDM projects use up .cheap. emission reduction options. They anticipate that once they have committed themselves to an emissions target at a later date that this target can only be achieved at higher costs . This is questionable because reduction options cannot be .stored. over time due to technological progress and changes in economic activity. Private Companies :Via investment in CDM projects or purchase of CERs private companies from Annex B countries can ensure a cost-effective realization of their emission targets37. Private companies in Non-Annex I countries could participate in CDM as follows. They could either supply a CDM project to a potential investor, invest in a project in co-operation with an Annex B country investor or fully finance a project for later CER sales. When solely supplying a project to an investor their incentive is to benefit from positive externalities. If the company decides to invest fully (or partly) in the project it has to weigh the gains from positive externalities and the revenue from the sale of CERs respectively against the (share in) project costs. Besides private companies can engage in CDM as project consultants, DOEs or brokers that match make potential buyers and sellers of CERs . Institutional Design Options for CDM Projects :The way investments are channeled into CDM projects as well as the responsibilities and the extent of involvement of the

participants in CDM depends on the institutional design option chosen for a CDM project. The most common design options discussed are the bilateral, multilateral and unilateral design option . The different options are briefly outlined in the following. 1 Bilateral :In a bilateral project architecture project suppliers and investors negotiate and decide on the project development, project financing and sharing of costs and credits on a project specific basis . Governments or companies from Annex B countries are direct participants in the project and directly invest in the project. 2 Multilateral :In the multilateral project design option single investors do not directly invest in a CDM project by themselves but deposit their money in an independent multilateral fund which instead invests in a portfolio of projects on behalf of the investors .The fund operates as follows. Potential project suppliers design CDM projects and compete for the funds & resources. The depositors receive CERs in proportion to their share in the fund. 3 Unilateral :In case of an unilateral design the project supplier is the project owner who designs, implements and finances the project with his own resources . He takes on all associated risks, including the risk to find a buyer willing to engage in a DPA or ERPA. It is conceivable that potential CDM projects that start off as unilateral projects are later converted into bi- or multilateral projects . After the project has been implemented it cannot be converted into a bi- or multilateral project as a direct investment in the project is not possible anymore. Therefore, if a governernment or private company from an Annex B country or a multilateral fund purchases CERs via an ERPA or DPA the underlying project will still be an unilateral project. The figure next provides an overview of the different institutional project design options the major participants can use for CDM project design. The project PG represents a CDM project supplied by a governmentally owned company in the host country and the project PC represents a CDM project supplied by a private company in the host country. The arrows represent the flow of money from the investing party in exchange for CERs. The project supplier might be interested in finding an Annex B country investor in order to minimize the risk not to find a buyer for the CERs. As long as investments in the unilateral project are still possible the unilateral project developer will be referred to as the .project supplier. Once the project is implemented he will be referred to as the seller of CERs. Please note that this narrows down the definition of seller of CERs. Entities selling CERs that they have acquired by either investing in CDM projects or purchasing them from CER sellers. do not fall within this definition. They are not considered in this study. The exchange of CERs from unilateral projects via ERPA or DPA between the seller and the Annex B country participant is not displayed. Institutional Project Design Options for CDM Projects :-

The CER Market :As described AAUs, ERUs and CERs are the emission permits that can be traded and used for compliance with the internationally agreed GHG targets. Consequently, one can expect a single international permit price to emerge assuming a perfect international GHG market . In this market CERs will directly compete with domestic abatement measures, AAUs and ERUs. Existing estimates on the volume of CERs traded in the international GHG market for 2010 range from 220 - 2,650 Mt CO2 However, a single international GHG market does not yet exist. In the meantime the situation is somewhat different. Currently, the market for emission permits is fragmented and CERs are not eligible in any market. Two developments that are relevant for the CDM can be observed. First, countries or groups of countries have set up or are in the process of setting up national or supra-national emissions trading schemes for selected groups of emitters in which national allowances are traded. In 2008 they can be expected to be linked to the international GHG market under the Kyoto Protocol . Among those that may allow for the use of CERs is the Danish Emissions Trading Scheme and the proposed EU Emissions Trading Scheme (EU-ETS) . Second, national governments as well as private entities have set up or are in the process of setting up institutions that aim to purchase CERs before 2008. This section gives an introduction to the current state of the CER market and an outlook on the development of the CER market until 2008 . Finally, the findings of a recent modeling study on the market for CERs in the first

commitment period assuming a single perfect international GHG market will be presented . The Current Market for CERs and Future Prospects Until & After 2008 :A number of prospective buyers that aim to purchase CERs via ERPAs and already have positioned themselves in the market will be presented subsequently. Available information on the current supply of CERs is given . Finally, the future prospects of the CER market until 2008 are briefly discussed . 1 Current Demand for CERs :The Prototype Carbon Fund (PCF) was set up by the World Bank in 1999. It is a closed-end fund and is scheduled to terminate in 2012. It is a public-private partnership that consists of six governments as well as 17 private co operations The fund has a total budget of 180 million $US of which 105 million $US are designated for the purchase of CERs via ERPAs 42 . The PCF CER target price is 3.15 $US/t CO2e averaged across the portfolio . Considering the total budget this would translate into a maximum of around 33 Mt CO2e to be purchased by the PCF. On behalf of the Government of the Netherlands (GoN) an entity called Senter has set up the Certified Emission Reduction Procurement Tender (CERUPT). It was launched in 2001 in order to buy ERUs and CERs via ERPAs (see Senter 2002). From 80 offers received Senter is about to contract CERs from 18 projects amounting to around 16 Mt CO2e . The prices paid for the CERs range between 3.9 - 6.5 $US/t CO2e43 . The GoN also engaged in a contract with the Netherlands Clean Development Facility (NCDF) for purchasing 32 Mt CO2 . The Government of Finland (GoF) launched the Finnish JI/CDM Pilot Programme in 2003. It aims to purchase CERs from small-scale CDM projects via ERPAs. It intends to initiate preliminary discussions with 7 project developers that have offered CERs in the price range from 2.9 - 3.8 $US/t CO2e . The total amount of CERs that the GoF wants to purchase is not publicly available. The World Bank has recently set up the Community Development Carbon Fund (CDCF) and the Bio Carbon Fund (BCF). The CDCF has a target capitalization of $US 100 million and aims to purchase CERs from small-scale projects with measurable sustainable development benefits. via ERPAs . The fund is prepared to pay 5 - 7 $US/t CO2e. Considering the funds. budget this would translate into around 15 to 20 Mt CO2e. The BCF targets CERs from sink projects and is not yet operational. 2 Current Supply of CDM Projects :Currently, between 600 and 650 CDM project ideas exist worldwide of which around 45 may end up generating CERs . The following two figures have been derived from available information on 28 potential CDM projects for all of which the PDD has been completed. An overview of the project details can be found in appendix I. All projects are unilateral projects. For each project either PCF, Senter or NCDF has the exclusive right to buy the CERs. In total they are expected to lead to an exchange of CERs of around 75 Mt CO2e. Figure 4 shows the distribution of the potential CDM projects by volume of anticipated emission reduction and host country. The number in brackets represents the total number of potential CDM projects in the respective host country.

3 Share in Total Volume of CERs of Selected Potential CDM Projects by Host Country :It can be observed that Brazil, India and Costa Rica have so far received the most attention from project developers. In each country 5 projects are being developed.

However, in appendix I it can be observed that the average size of the projects. emissions reduction vary significantly. Among the three countries projects in Brazil have very high emission reductions compared to projects in India and Costa Rica. The above figure shows the project types by share in total anticipated volume of CERs. The number in brackets represents the total number of projects of the respective type. 4 Share in Total Volume of CERs of Selected Potential CDM Projects by Project Type :-

Among all projects hydro and wind projects followed by landfill methane and biomass projects received the most attention when considering the number of projects carried out. However, in appendix I it is observable that landfill methane projects generally achieved significantly higher emission reductions than renewable energy projects. The highest emission reductions are achieved by the fuel switch projects.

Bearing the small number of projects observed in mind one can cautiously conclude that Brazil, India and Costa Rica have so far been perceived as attractive countries for CDM development. Moreover, renewable energy projects received a lot of attention while fuel switch and landfill methane projects supply large quantities of CERs. Concept of the Baseline and Additionally For CDM :The baseline (scenario and emissions) for a CDM project activity is the scenario that reasonably represents GHG emissions that would occur in the absence of the proposed project activity. Difference between the baseline emissions and GHG emissions after implementing the CDM project activity (project emissions) is emission reductions.

A baseline (scenario and emissions) shall be established. (a)By PPs in accordance with provisions for the use of approved and new methodologies. (b) In a transparent and conservative manner regarding the choice of approaches, assumptions, methodologies, parameters, data sources, key factors and additionally, and taking into account uncertainty. (c) On a project-specific basis. (d) In the case of small-scale CDM project activities, in accordance with simplified procedures developed for such activities. (e)Taking into account relevant national and/or sectoral policies and circumstances, such as sectoral reform initiatives, local fuel availability, power sector expansion plans, and the economic situation in the project sector. Before calculating baseline emissions, it is necessary to identify baseline scenarios. A baseline (emissions) shall cover emissions from all gases, sectors and source categories within the project boundary. A CDM project activity is additional if GHG emissions are reduced below those that would have occurred in the absence of the registered CDM project activity. The DOE shall review the PDD to confirm that the project activity is expected to result in a reduction in GHG emissions that are additional to any that would occur in the absence of the proposed project activity. PP shave to write explanation of how and why this project activity is additional and therefore not the baseline scenario in accordance with the selected baseline methodology. If the starting date of the project activity is before the date of validation, provide evidence that the

incentive from the CDM was seriously considered in the decision to proceed with the project activity. This evidence shall be based on (preferably official, legal and/or other corporate) documentation that was available at, or prior to, the start of the project activity. The tool for the demonstration and assessment of additionality provides a general framework for demonstrating and assessing additionality. PPs may also propose other tools for the demonstration of additionality. Baseline Scenario :The baseline scenario for a CDM project activity is the scenario that reasonably represents GHG emissions that would occur in the absence of the proposed project activity. Different scenarios may be elaborated as potential evolutions of the situation existing before the proposed CDM project activity. The continuation of a current activity could be one of them. Implementing the proposed project activity may be another. And many others could be envisaged. Baseline methodologies shall require a narrative description of all reasonable baseline scenarios. To elaborate the different scenarios, different elements shall be taken into consideration. For instance, the PPs shall take into account national / sectoral policies and circumstances, ongoing technological improvements, investment barriers, etc. The baseline scenario may include a scenario where future GHG emissions are projected to rise above current levels, due to the specific circumstances of the host Party. Clarifications on the treatment of national and/or sectoral policies and regulations in determining a baseline scenario :- The EB agreed to differentiate the following 2 types of national and/or sectoral policies that are to be taken into account when establishing baseline scenarios. Only national and/or sectoral policies or regulations that have been implemented before adoption of the Kyoto Protocol (11 December 1997) shall be taken into account when developing a baseline scenario. If such national and/or sectoral policies were implemented . Baseline Methodology :- Baseline emission under the selected baseline scenarios shall be calculated by PPs in accordance with approved methodologies (AMs)or new methodologies (NMs). No methodology is excluded a priori so that PPs have the opportunity to propose any methodology. A baseline methodology approved by the EB is publicly available along with relevant guidance on the UNFCCC CDM website DOE scan submit queries regarding the applicability of approved methodologies. If a DOE determines that a proposed project activity intends to use a new baseline methodology, it shall, prior to the submission for registration of this project activity, forward the proposed methodology to the EB for review, i.e. consideration and approval, if appropriate. There is Technical Guidelines for the Development of New Baseline and Monitoring Methodologies version . It is needed to ensure consistency between baseline scenario derived by baseline methodology and the procedure and formulae used to calculate baseline emissions. Baseline approach (Para 48 of the CDM M&P) :- A baseline approach is the basis for a baseline methodology. The EB agreed that the 3 approaches be the only ones applicable to CDM project activities. (a) Existing actual or historical emissions, as applicable or (b) Emissions from a technology that represents an economically attractive course of action, taking into account barriers to investment or

(c) The average emissions of similar project activities undertaken in the previous 5 years, in similar social, economic, environmental and technological circumstances, and whose performance is among the top 20 per cent of their category. If a proposed CDM project activity comprises different sub-activities requiring different methodologies, PPs may forward the proposal using one CDM-PDD but shall complete the methodologies sections for each sub-activity. In some cases and for some methodologies, project activities may temporarily result in negative emission reductions in a particular year. Crediting Period Of CDM Project :- The implementation of CDM project will reveals the party to take benefit of the emission credits. CERs shall only be issued for a crediting period starting after the date of registration of a CDM project activity. PPs select a crediting period for a proposed project activity from one of the following alternative approaches .A maximum of 7 years which may be renewed at most 2 times. For each renewal, a DOE determines and informs the EB that the original project baseline is still valid or has been updated taking account of new data where applicable. A maximum of 10 years with no option of renewal. GHG emission reductions since 2000 may be eligible to claim CERs. Regarding the procedures and documentation which need to be used for the renewal of a crediting period, the EB agreed that at the start of the 2nd and 3rd crediting period for a project activity, assessing the continued validity of the baseline and updating the baseline, need to be addressed. Indicating the starting date of the crediting period . A maximum of 10 years with no option of renewal :-

A maximum of 7 years which may be renewed at most 2 times :-

The starting date of a CDM project activity does not need to correspond to the starting date of the crediting period for this project activity. Therefore project activities starting as of 1 January 2000 may be validated and registered as a CDM project activity after 31 December 2005. The starting date of a CDM project activity is the earliest date at which either the implementation or construction or real action of project activity begins. Renewal of Crediting Period:- The renewal of a crediting period of a registered CDM project activity shall only be granted if a DOE determines and informs the EB that the original project baseline is still valid or has been updated taking account of new data where applicable. This is processed in the three stages as below. (1) Preparation of a revised PDD :- PPs shall update those sections of the PDD relating to the baseline, estimated emission reductions and the monitoring plan using an AM as follows, a) The latest AM, applied in the original PDD of the registered CDM project activity, shall be used whenever applicable, b) If a baseline and monitoring methodology, applied in the original PDD, was withdrawn after the registration of the CDM project activity and replaced by a consolidated methodology, the latest approved version of the respective consolidated methodology shall be used, c) If the registered CDM project activity does not meet applicability criteria of the options provided for by a) or b), due to their revision or due to the update of the baseline, the PPs shall either select another applicable AM or request, through the DOE, a deviation from an AM for the purpose of renewal of the crediting period. (2) Application for renewal of a Crediting Period :- PPs shall notify the secretariat of their intention to request a renewal of a crediting period of the registered CDM project activity by submitting an updated PDD and informing of their selection of a DOE, within 9 to 6 months prior to the date of expiration of the current crediting period. For the purpose of renewal of the crediting period it is not necessary to obtain a new letter of approval from Parties involved. No fee is due for the application for the renewal of the crediting period. The DOEs validation opinion shall address the following issues. a) the validity of the original baseline scenario or its update. b) an impact of new relevant national and/or sectoral policies and circumstances on the baseline scenario taking into account relevant EB guidance. And

c) the correctness of the application of an AM for the determination of the continued validity of the baseline or its update, and the estimation of emission reductions for the applicable crediting period. A DOE shall submit a request for renewal of a crediting period of a registered CDM project activity using the form Renewal of the crediting period of a registered CDM project activity(F-CDM-REN) along with the updated PDD and validation report. If the notification of the intention to request a renewal of a crediting period is not received by the secretariat 6 months prior to the date of expiration of the current crediting period, the PP shall not be entitled to the issuance of CERs for the period from the expiration date of the current crediting period until the date on which the crediting period is deemed renewed. (3) Processing of an application :- Upon receipt of a request for renewal of a crediting period of the registered CDM project activity the secretariat will determine whether all information and documentation requested in the F-CDMREN form has been provided by the DOE. Once the secretariat has determined that the request is complete it shall be made publicly available through the UNFCCC CDM web site for a period of 4 weeks. The secretariat shall announce a request for renewal of a crediting period of the registered CDM project activity on the UNFCCC CDM web site and notify the requesting DOE, the PPs and the DNA. Unless there is a request for review within 4 weeks after the publication of the request for renewal, the crediting period of the registered CDM project activity shall be deemed renewed. Validation Of CDM Project :- The process of validation of CDM project is as below.

Validation requirements :- The DOE selected by PPs to validate a project activity, being under a contractual arrangement with them, shall review the PDD and any supporting documentation to confirm that the following requirements have been met. a) The participation requirements, as follows, are satisfied. b) Participation in a CDM project activity is voluntary. Parties participating in the CDM shall designate a national authority (DNA) for the CDM. A non-Annex I Party may participate in a CDM project activity if it is a Party to the Kyoto Protocol. c) Comments by local stakeholders have been invited, a summary of the comments received has been provided, and a report to the DOE on how due account was taken of any comments has been received. d) PPs have submitted to the DOE documentation on the analysis of the environmental impacts of the project activity or an environmental impact assessment in accordance with procedures as required by the host Party. e) The project activity is expected to result in GHG reductions that are additional to any that would occur in the absence of the proposed project activity.

f) The baseline and monitoring methodologies comply with requirements pertaining to methodologies previously approved by the EB, or modalities and procedures for establishing a new methodology g) Provisions for monitoring, verification and reporting are in accordance with the CDM M&P and relevant decisions of the COP/MOP. h) The project activity conforms to all other requirements for CDM project activities in CDM M&P and relevant decisions by the COP/MOP and the EB. Registration Of CDM Project :- The process of registration of CDM project is as below.

Procedures for review of Registration :1) Request for review :By a Party involved in a proposed CDM project activity :- A request for review shall be sent by the relevant DNA to the EB, through the secretariat, using official means of communication (such as recognized official letterhead and signature or an official dedicated e-mail account). (2) Scope and modalities of review :- The EB considers and decides, at its next meeting, either to undertake a review or register as a CDM project activity. If the EB agrees to undertake a review, it decides on the scope of the review and the composition of a review team, at the same meeting. The review team consists of 2 EB members and outside experts, as appropriate. The review team requests further information to the DOE and PPs and analyze information received.

3) Review process :- The decision by the EB on the scope of the review is made publicly available as part of the report of its meeting. A request for further information is sent to the DOE and the PPs. Answers shall be submitted to the review team, through the secretariat, within 5 working days after the receipt of the request for clarification. The 2 EB members prepare the recommendation to be forwarded to the EB via list serve at least 2 weeks before the next EB meeting. 4) Review decision :- The review by the EB shall be finalized no later than at the 2nd meeting following a request for review. The EB decides on whether: to register the proposed project activity: to request the DOE and PPs to make corrections before proceeding with registration; or to reject it. The EB shall communicate the decision to the public. If the review indicates any issues relating to performance of the DOE, the EB considers whether or not to trigger a spot-checking of the DOE. Registration fee :- For getting advantages & benefits CDM projects should be registered to COP or DNA. The following are the fees to be paid by the parties involved in the CDM project. PPs shall pay registration fee at registration stage. The revised registration fee shall be the share of proceeds to cover administrative expenses (SOP-Admin) applied to the expected average annual emission reduction for the project activity over its crediting period. The registration fee shall be deducted from the SOP-Admin. a) SOP-Admin is USD 0.10/CERissued for the first 15,000 t-CO2and USD 0.20/CERissued for any amount in excess of 15,000 t-CO2, for which issuance is requested in a given calendar year. b) The maximum registration fee shall be USD 350,000.No registration fee has to be paid for CDM project activities with expected average annual emission reduction over the crediting period below 15,000 t-CO2. c) No registration fee and share of proceeds at issuance have to be paid for CDM project activities hosted in least developed countries.

The DOE shall include a statement of the likelihood of the project activity to achieve the anticipated emission reductions stated in the PDD. This statement will constitute the basis for the calculation of

the registration fee. If an activity is not registered, any registration fee above USD 30,000 shall be reimbursed. Verification, certification and issuance of CERs :- The procedures for verification, certification and issuance of CERs UNFCCC is shown in the block diagram as below.

Project Design Document (CDM-PDD) :- The Project Design Document is the heart of the CDM activity as it provides the vision of the CDM project. It consists of various attachment with section A to E providing the necessary detailed information about CDM project. 1) Section A :- It consists of General description of project activity . It is shown below.

2) Section B :- It consists of application of a baseline and monitoring methodology of project activity . It is shown below.

2) Section C- E & Annexuture 1 to 4 :- It consists of duration of project activity, its environmental impacts, stakeholders comments & annexure from 1 to 4 of project activity . It is shown below.

Global warming potential (GWP) and carbon emission factor (CEF) :- In the latest development the Global warming potential (GWP) and carbon emission factors are to be attached as a attachment with project design document. Global warming potential (GWP) is a measure of the relative radiative effect of greenhouse gases compared to CO2. GWP used by Parties should be those provided by the IPCC 2nd Assessment Report based on the effects of the GHGs over a 100-year time horizon . The value of GWP is fixed for the 1st commitment period, but it is subject to change for the subsequent commitment periods depending on new scientific findings. Carbon Emission Factor (CEF) is the estimated average carbon (or CO2) emission rate for a given source, relative to units of activity. The EB agreed that the IPCC default values should be used only when country or project specific data are not available or difficult to obtain . The EB further clarified that the 2006 IPCC Guidelines for National Greenhouse Gas Inventories was published on the IPCC website on 24 October 2006 after which this version shall be considered as the latest version. CO2s global warming potential is considered as one. Sulphur hexafluoride ( SF6 ) gas global warming potential is considered as 23,900. Carbon factor for Diesel Oil is 3.186 & is the highest among the all the fossil fuels. CDM Project In India :-

India has significant, cost-effective abatement potential for greenhouse gas (GHG) reduction. As the global market for GHG emissions reduction (ER) credits evolves, it is expected that many of the GHG reduction projects in India would be able to access additional financial resources through its participation in the Clean Development Mechanism (CDM) process during the first commitment period of the Kyoto Protocol of the UN Framework Convention on Climate Change. As the CDM is a complex process with diverse requirements and requires participation of various public and private sector stakeholders, a clear and comprehensive understanding of the advantages, procedures and pitfalls of CDM is required for DMCs, such as India, to effectively play an active role in the global carbon market. Since the establishment of the Indian DNA (Designated National Authority) in 2003, it has approved a significant number of projects. 302 projects have been registered by the CDM executive board and the number of registered projects is the largest (around 1/3) in the world (as of 8 January 2008). In the initial stage of CDM development in India, biomass utilisation projects, methane recovery and utilisation projects, and renewable energy (wind, hydro) projects were mainly being implemented. Other than those projects, India has varieties of registered CDM projects that include energy efficiency projects (cement, steel and etc.), fuel switch projects, HFC reduction projects and N2O reduction projects. CDM promotion cells have been established at a state level. They conduct supportive activities such as information dissemination on CDM and coordination between local and national governments. One of the features of CDM in India is its large share of unilateral CDM projects, CDM project developed by Indian stakeholders without the involvement (finance, technology) of Annex I countries. Indian project developers implement the project by bearing transaction costs of CDM and taking on the risks of the projects. Therefore, the price of credits issued by unilateral CDM projects tends to be higher than bilateral or multilateral CDM projects. All CDM projects must result in a net GHG reduction, as in the case of energy efficiency improvement, renewable energy generation or carbon sequestration through afforestation and reforestation.

CDM Projects In India :- The number of CDM projects registered at the CDM executive board as of 8 January 2008, 302 projects. 1) Type of registered CDM projects in India as of 8 January 2008.

2) State wise of registered CDM projects in India as of 8 January 2008.

3) Sector wise of registered CDM projects in India as of 8 January 2008.

Case Study Of CDM In Wind Mill For Electrical Power Generation :- As a result of the Kyoto Protocol, carbon has become a tradable commodity with an associated value. One ton of CO2(carbon dioxide) reduced through a CDM project, when certified by a designated operational entity is known as CER(certified emission reduction), which can be traded. Revenue from CERs can form part of project's annual cash inflow, equity, or debt.

Example: 100 MW wind energy project: Rs 5 Crores: Investment per MW of Wind Turbine. 2500 -3000 MWh/yr: Electricity output per turbine. 1,750,000: Estimated CERs by 100MW over 7 yrs. Rs 61.7 Crores: Income @ $7.5/CER over 7 yrs.

CDM In Developing Countries : Here CDM projects that are being implemented in the developing countries such as India & China is taken and is described as below. CDM IN INDIA AND CHINA :- India & China are the undisputed leaders of the Clean Development Mechanism (CDM) world market, with India currently ahead on issued Certified Emission Reductions (CERs), but China leading on overall projected CER volumes. Indian and Chinese CDM approval policies and structures of project development differ substantially. While in India unfettered competition characterises CDM project development, in China projects adhere to strict government regulation. But which performs better in terms of additionality the Indian laissez-faire approach or the Chinese topdown model? At first glance, Indias CDM project development is much more chaotic and has seen more spectacular failures than Chinas. More than 50% (11 out of 20 projects) rejected by the CDM Executive Board (EB)1 are from India, none from China. 55 of the 136 projects that have been available for public comment since before the end of 2005, but not yet registered, are from India, with only three from China. These projects are unlikely to be validated. This can be explained by the very competitive and experimentation-prone nature of the Indian CDM market. India was an early starter in CDM development and thus has a large number of CDM consultancies, such as Ernst & Young, PwC, Emergent Ventures and Zenith, competing fiercely for interesting project development assignments. The prevailing strategy of these consultancies is to identify industries with CDM potential, check their planned investments and then offer these companies a purely success-fee-based CDM package which has come down to as low as 1% of CERs, provided that the project reaches an annual CER level of at least 20,000. The consultancies then prepare Project Design Documents (PDDs) in assembly-line fashion. Given the nature of project identification, it is obvious that most of the projects have not been developed as a result of the CDM incentive and thus do not fulfill the additionality criterion. Consultants fears of being exposed for substandard work are high, demonstrated by the practice of Ernst & Young whose name is never listed in the PDDs it has written, instead hiding behind the wording, Company X and associated consultants. The Indian Designated National Authority (DNA) has so far not seen its role to provide a PDD quality check and always supported the principle of unilateral CDM. China was much more cautious about embarking on the CDM than India. The DNA has a list of far-reaching requirements that project developers have to fulfill. For a long period, only bilateral projects which could show that the agreed CER sales price is above a certain level (dubbed price floor by market analysts) were approved. The level of the price floor has never been formally published, but is freely communicated to market participants; currently it stands at 8. Before approval, the Chinese DNA checks PDDs in depth.

Some Indian projects, particularly in renewable energy and waste heat recovery from heavy industry, have stimulated intense debate about their additionality. Investment in wind and biomass power generation is very high & resistance from local peoples are giving troublesome in implementation of the project.