Introduction to CDM

Background: Industrial Revolution started in 1780s in UK and spread to Europe and North America Large scale mechanization in manufacturing, rapid trade expansion via sea and railways Manifold increase in the combustion of fossil fuels Increased emission of gases Industrialization led to burning of ever-greater quantities of coal and oil and cutting of forests

Introduction to CDM (contd.)

Greenhouse Effect (contd.): The greenhouse effect is a naturally occurring process that aids in heating the Earth's surface and atmosphere. It results from the fact that certain atmospheric gases, such as carbon dioxide, water vapor, and methane, are able to change the energy balance of the planet by absorbing longwave radiation emitted from the Earth's surface. Without the greenhouse effect life on this planet would probably not exist as the average temperature of the Earth would be a chilly -18 Celsius, rather than the present 15 Celsius.

Introduction to CDM (contd.)

Greenhouse Effect (contd.): As energy from the Sun passes through the atmosphere a number of things take place. A portion of the energy (26% globally) is reflected or scattered back to space by clouds and other atmospheric particles. About 19% of the energy available is absorbed by clouds, gases (like ozone), and particles in the atmosphere. Of the remaining 55% of the solar energy passing through the Earth's atmosphere, 4% is reflected from the surface back to space. On average, about 51% of the Sun's radiation reaches the surface. This energy is then used in a number of processes, including the heating of the ground surface; the melting of ice and snow and the evaporation of water; and plant photosynthesis. The heating of the ground by sunlight causes the Earth's surface to become a radiator of energy in the longwave band (sometimes called infrared radiation). This emission of energy is generally directed to space . However, only a small portion of this energy actually makes it back to space. The majority of the outgoing infrared radiation is absorbed by the greenhouse gases.

Greenhouse Effect (contd.)

Introduction to CDM (contd.)

Greenhouse Effect: By their percentage contribution to the greenhouse effect on Earth the four major gases are: 1. Water vapor: 3670% 2. Carbon dioxide: 926% 3. Methane: 49% 4. Ozone: 37%

Introduction to CDM (contd.)

Global Warming:
Rise in the levels of greenhouse gases in the environment has led

to Global Warming i.e. increase in the average earths temperature by 0.74C. Different greenhouse gases have different Global-warming potential (GWP). GWP is a relative measure of how much heat a greenhouse gas traps in the atmosphere. It compares the amount of heat trapped by a certain mass of the gas in question to the amount of heat trapped by a similar mass of carbon dioxide. A GWP is calculated over a specific time interval, commonly 20, 100 or 500 years. GWP is expressed as a factor of carbon dioxide (whose GWP is standardized to 1). For example, the 20 year GWP of methane is 56, which means if the same weights of methane and carbon dioxide were introduced into the atmosphere, that methane will trap 56 times more heat than the carbon dioxide over the next 20 years.

Introduction to CDM (contd.)

Global Warming Potential of Greenhouse Gases:
Green-House Gas Lifetime (Years) Global Warming Potential (Time Horizon) 20 Years Carbon-dioxide Methane Nitrous Oxide Variable 123 120 1 56 280 100 Years 1 21 310 500 Years 1 6.5 170

Introduction to CDM (contd.)

Climate Change as a consequence of Global Warming: Extreme and erratic weather conditions Severe storms, floods and droughts Adverse impact on agriculture With melting of polar ice, sea level has been rising and the coastal areas may get submerged (countries like Bangladesh, Maldives, etc) The consequences could vary from disruptive to catastrophic Higher temperatures are expected to expand the range of some dangerous "vector-borne" diseases, such as malaria

International Initiatives to Combat Climate Change

Ways to Fight Climate Change: Efficiency Improvement Fuel Substitution Renewable Energy Technologies Enhance the sink

International Initiatives to Combat Climate Change (contd.)

The Intergovernmental Panel on Climate Change (IPCC): Scientists started realizing the threat posed by global warming and climate change way back in 1960s. In 1988, IPCC was created by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP). IPCC does not conduct its own scientific inquiries, but reviews worldwide research, issues regular assessment reports and compiles special reports and technical papers. IPCC reports are the basis on which decisions are being taken to combat climate change.

International Initiatives to Combat Climate Change (contd.)

United Nations Framework Convention on Climate Change (UNFCCC): IPCCs findings spurred governments to create the United Nations Framework Convention on Climate Change. It was ready for signature at the 1992 United Nations Conference on Environment and Development -- more popularly known as the "Earth Summit" -- in Rio de Janeiro. The Convention sets an ultimate objective of stabilizing greenhouse gas concentrations "at a level that would prevent dangerous anthropogenic (human induced) interference with the climate system. It states that such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened, and to enable economic development to proceed in a sustainable manner."

International Initiatives to Combat Climate Change (contd.)

United Nations Framework Convention on Climate Change (UNFCCC) (contd.): Countries ratifying the treaty -- called "Parties to the Convention" in diplomatic jargon -- agree to take climate change into account in such matters as agriculture, industry, energy, natural resources, and activities involving sea coasts. They agree to develop national programmes to slow climate change. The Convention recognizes that it is a "framework" document -something to be amended or augmented over time so that efforts to deal with global warming and climate change can be focused and made more effective. The first addition to the treaty, the Kyoto Protocol, was adopted in 1997.

International Initiatives to Combat Climate Change (contd.)

Kyoto Protocol: The Kyoto Protocol is an international agreement linked to the United Nations Framework Convention on Climate Change. The Kyoto Protocol was adopted in Kyoto, Japan, on 11 December 1997 and entered into force on 16 February 2005. The major feature of the Kyoto Protocol is that it sets binding targets for industrialized countries (Annex 1 countries) for reducing greenhouse gas (GHG) emissions . As per the protocol, Annex 1 countries would reduce their overall emissions of GHGs by atleast 5% below 1990 levels in the commitment period 2008-12. The major distinction between the Protocol and the Convention is that while the Convention encouraged industrialised countries to stabilize GHG emissions, the Protocol commits them to do so.

International Initiatives to Combat Climate Change (contd.)

Mechanisms Under Kyoto Protocol: Emissions Trading Joint Implementation Clean Development Mechanism

International Initiatives to Combat Climate Change (contd.)

Clean Development Mechanism: The Clean Development Mechanism (CDM), defined in Article 12 of the Protocol, allows a country with an emission-reduction or emissionlimitation commitment under the Kyoto Protocol (Annex B Party) to implement an emission-reduction project in developing countries. Such projects can earn saleable certified emission reduction (CER) credits, each equivalent to one tonne of CO2, which can be counted towards meeting Kyoto targets. The mechanism is seen by many as a trailblazer. It is the first global, environmental investment and credit scheme of its kind, providing a standardized emissions offset instrument, CERs. A CDM project activity might involve, for example, a rural electrification project using solar panels or the installation of more energy-efficient boilers. The mechanism stimulates sustainable development and emission reductions, while giving industrialized countries some flexibility in how they meet their emission reduction or limitation targets.

International Initiatives to Combat Climate Change (contd.)

Between 2001, which was the first year CDM projects could be registered and by 2012, the end of the Kyoto commitment period, the CDM is expected to produce some 1.5 billion tons of carbon dioxide equivalent (CO2e) in emission reductions.

International Initiatives to Combat Climate Change (contd.)

Point of Conflict: Economic Growth vs. Sustainable Development US wants India and China to be given targets
Country or Region China United States European Union India % of global total annual emissions 17 16 11 5 Tonnes of GHG per capita 5.8 24.1 10.6 2.1

CDM Project Requisites

Ratification of Kyoto Protocol by Host Country: Any Non-Annex 1 country is eligible to be a Host Country for any CDM project activity if it has ratified the Kyoto Protocol. India had ratified the protocol in August 2002. The Seventh Conference of Parties (COP-7) to the UNFCCC decided that Parties participating in CDM should designate a National Authority for the CDM and as per the CDM project cycle, a project proposal should include a written approval of voluntary participation from the Designated National Authority of each country and confirmation that the project activity assists the host country in achieving sustainable development. Accordingly the Central Government constituted the National Clean Development Mechanism Authority (NCDMA) for the purpose of protecting and improving the quality of environment in terms of the Kyoto Protocol.

CDM Project Requisites (contd.)

The composition of the "National Clean Development Mechanism (CDM) Authority" is as follows:
1 2 3 4 Secretary (Environment and Forests) Foreign Secretary or his nominee Finance Secretary or his nominee Secretary, Department of Industrial Policy and Promotion or his nominee Chairperson Member Member Member

5
6 7 8 9 10

Secretary, Ministry of New and Renewable Energy or his nominee

Secretary, Ministry of Power or his nominee Secretary, Planning Commission or his nominee Secretary, DST or his nominee Joint Secretary (Climate Change), Ministry of Environment and Forests Director (Climate Change), Ministry of Environment and Forests

Member
Member Member Member Member Member-Secretary

CDM Project Requisites (contd.)

Sustainable Development: A CDM project must help the host country to achieve sustainable development. It is the prerogative of the host party to confirm whether a CDM project activity assists it in achieving the goal of sustainable development. The following are the indicators of sustainable development: Social well being: The CDM project activity should lead to alleviation of poverty by generating additional employment, removal of social disparities and contribution to provision of basic amenities to people leading to improvement in quality of life of people. Economic well being: The CDM project activity should bring in additional investment consistent with the needs of the people. Environmental well being: The CDM activity must lead to reduction in pollution and protection of environment in general. Technological well being: The CDM project activity should lead to transfer of environmentally safe and sound technologies that are comparable to best practices in order to assist in upgradation of the technological base. The transfer of technology can be within the country as well from other developing countries also.

CDM Project Requisites (contd.)

Additionality: A CDM project should establish the following additionalities: 1. Emission Additionality: The project should lead to real, measurable and long term GHG mitigation. The additional GHG reductions are to be calculated with reference to a baseline. 2. Financial Additionality: The proposed CDM project should not be business as usual and commercially viable on its own under the given circumstances. Most importantly, the project activity faces barriers, which in the absence of CDM would be prohibitive.

CDM Project Requisites (contd.)

Voluntary Participation The project activity must be a voluntary action of the project proponent and is not required by law. Infact, the national and state policies in place are not sufficient to make the project commercially viable on its own. The project activity is not usual as the baseline scenario and the emissions reductions would therefore not occur in the absence of the project activity.

Methodology
For each type of project, UNFCCC has proposed a

methodology which has to be adhered to while drafting of PDD and claiming CDM benefits. The methodologies are listed in the official website of UNFCCC. Each methodology prescribes a procedure to establish baseline and establish additionality.

Methodology (contd.)
Establishing Baseline The baseline for a CDM project activity is the scenario that reasonably represents the anthropogenic emissions by sources of greenhouse gases (GHG) that would occur in the absence of the proposed project activity. A baseline shall cover emissions from all gases, sectors and source categories listed in Annex A (of the Kyoto Protocol) within the project boundary. A baseline shall be deemed to reasonably represent the anthropogenic emissions by sources that would occur in the absence of the proposed project activity if it is derived using a baseline methodology referred to in paragraphs 37 and 38 of the CDM modalities and procedures.

Methodology (contd.)
Establishing Additionality utilizing Existing Methodology / New Methodology: For different types of projects, suitable methodologies have been approved and prescribed by the Executive Board of UNFCCC. If the project proponent is undertaking a unique project or it wishes to improve an already existing methodology, it has to submit a new methodology to the Executive Board for approval. The methodologies prescribed by the Executive Board guides the project proponent in: 1. Establishing baseline for the project 2. Estimating emissions reduction 3. Establishing financial and emission additionality

CDM Project Cycle

CDM Project Cycle (contd.)

Project Design: This step involves developing a Project Design Document (PDD), which is a standard format describing how the activity intends to fulfil the prerequisites for registration as a CDM project. The PDD consists of a general description of the project, its proposed baseline methodology, a timeline and crediting period, a monitoring methodology, calculation of GHG emissions by source and stakeholder comments.

CDM Project Cycle (contd.)

National Approval or Host Country Approval: The National CDM Authority examines the documents and if there are any preliminary queries the same are asked from the project proponents. The project proposals are then put up for consideration by the National CDM Authority. The project proponent and his consultants are normally given about 1015 days notice to come to the Authority meeting and give a brief power point presentation regarding their CDM project proposals. Members seek clarifications during the presentation and in case the members feel that some additional clarifications or information is required from the project proponent, the same is informed to the presenter. Once the members of Authority are satisfied, the Host Country Approval (HCA) is issued by the Member-Secretary of the National CDM Authority.

CDM Project Cycle (contd.)

National Approval or Host Country Approval (contd.): The host country Designated National Authority (DNA) must issue statements on the PDD indicating that the government of the host country participates voluntarily in the proposed activity and that the project assists the host country in achieving sustainable development. The National CDM Authority (NCDMA) is a single window clearance for CDM projects in the country. The project proponents are required to apply to the administrator of National CDM Authority through the website by filling the User Registration form.

CDM Project Cycle (contd.)

National Approval or Host Country Approval (contd.): Upon acceptance of the request, the project proponent shall fill in online the Project Concept Note (PCN) and also upload the Project Design Document (PDD). As notified by National CDM Authority, the project proponents shall also submit 15 hard copies of PCN and PDD in proper format to Member Secretary, NCDMA along with soft copies in CDs, though covering letter signed by the project proponent.

CDM Project Cycle (contd.)

Validation: Validation is a process involving an independent evaluation of the project activity by an external auditor known as a Designated Operational Entity (DOE), which is hired by the project participants (a list of DOEs can be downloaded from the UNFCCC website). The DOE reviews the PDD in order to determine whether the project meets CDM requirements.

CDM Project Cycle (contd.)

Registration: Once a project activity has been validated by a DOE, a validation report is forwarded to the Executive Board (EB) for registration as a CDM project. The registration of a project will be final within eight weeks after the date of receipt by the EB unless at least three members of the EB request a review of the project activity.

CDM Project Cycle (contd.)

Monitoring: Once the project is operational the emissions that occur from the activity must be monitored. This is done according to the monitoring plan submitted and approved in the PDD, which indicates the method used for measuring emissions from the project and how data relevant for these calculations will be collected and archived. The information on emission reductions must be included in a monitoring report estimating the amount of CERs generated and submitted to a DOE for verification.

CDM Project Cycle (contd.)

Verification: Verification is the independent review of the monitoring report submitted by the project participants. A DOE different to that involved in the validation process carries out verification. The DOE must ensure that the CERs have been generated according to the guidelines and conditions agreed upon during the validation of the project. A verification report is then produced. The same DOE that verified the project also certifies the CERs generated by the activity.

CDM Project Cycle (contd.)

Certification and Issuance of CERs Certification is the written assurance from the DOE that the project achieved the stated level of emission reductions and that these reductions were real, measurable and additional. The certification report constitutes a request to the EB for issuance of CERs. Unless a project participant or at least three members of the EB request a review within fifteen days the EB will instruct the CDM registry to issue the CERs.

Certified Emissions Reduction

CER:
Certified Emission Reductions (CERs) are a type of emissions unit (or

carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE under the rules of the Kyoto Protocol. A CER is a generic term for any tradable certificate or permit representing the right to emit one tonne of carbon dioxide or the mass of another greenhouse gas with a carbon dioxide equivalent (tCO2e) equivalent to one tonne of carbon dioxide. CERs can be used by Annex 1 countries in order to comply with their emission limitation targets or by operators of installations covered by the European Union Emission Trading Scheme (EU ETS) in order to comply with their obligations to surrender EU Allowances, CERs or Emission Reduction Units (ERUs) for the CO2 emissions of their installations. CERs can be held by governmental and private entities on electronic accounts with the UN.

Certified Emissions Reduction (CER) (contd.)

CER (contd.): CERs can be purchased from the primary market (purchased from original party that makes the reduction) or secondary market (resold from a marketplace). At present, most of the approved CERs are recorded in CDM Registry accounts only. It is only when the CER is actually sitting in an operator's trading account that its value can be monetized through being traded. The UNFCCC's International Transaction Log has already validated and transferred CERs into the accounts of some national climate registries , although European operators are waiting for the European Commission to facilitate the transfer of their units into the registries of their Member States.

Certified Emissions Reduction (CER) (contd.)

Emission Factor: Estimation Data

Certified Emissions Reduction (CER) (contd.)

Emission Factor: Data from Central Electricity Authority (2011)

Crediting Period
The crediting period for a CDM programme activity is

the period for which reductions from the baseline or net anthropogenic GHG removals by sinks are verified and certified by a designated operational entity for the purpose of issuance of certified emission reductions (CERs). A crediting period shall not extend beyond the operational lifetime of the CDM programme activity.

Crediting Period (contd.)

Starting date, type (fixed or renewable) and duration

of the crediting period of the CDM project shall be decided taking into account that the starting date of a crediting period of the project shall be the date of its inclusion in the registered activity or any date thereafter and that the duration of the crediting period shall not exceed the end date of the project. The crediting period of a CPA will be either a maximum of seven years (twenty years for A/R project activities) which may be renewed at most two times or a maximum of ten years (thirty years for A/R project activities) with no option of renewal.

CER Market
Upon issuance of CERs, the CDM registry

administrator shall promptly forward the CERs to the registry accounts of project participants involved, in accordance with their request, having deducted the quantity of CERs corresponding to the share of proceeds to cover administrative expenses for the Executive Board.

CER Market (contd.)

In accordance with Appendix D of the CDM modalities and

procedures, the decision on the distribution of CERs from a CDM project activity shall exclusively be taken by project participants. The CDM market is like any other commodity market. The CDM market is rising sharply and is getting matured with time. Currently, it is the second largest carbon market after the (European Union Emission Allowances (EUA) market. The market is nearly doubling every year. Majority of the trading is done in the Primary market. The secondary market has not yet expanded as much as the primary market mainly because of the high volatility of the carbon prices. The CER market is an evolving market and has not yet become matured enough to be completely independent.

CER Market (contd.)

The Buyers of CERs can be broadly classified into 1. Compliance Buyers (Annex I countries who have got

emission reduction targets under the Kyoto Protocol) 2. Carbon Funds (e.g. Prototype Carbon Fund of World Bank) 3. Traders

European buyers majorly dominate the CER market, with UK leading the way. Japan is the second largest buyer followed by others. With Australia ratifying the Kyoto Protocol, gates have opened up for a giant market that would serve to foster more opportunities for profit in the international carbon trading game.

CER Market (contd.)

It is estimated that a global carbon market worth EUR 240 - 450

billion would be created by 2020. In the wake of the first commitment period, we already see countries like Canada and Japan not able to meet their targets. This only serves as an indicator that as the first commitment period advances, the CER prices will show an upward rise. India is a big market for CDM projects and is the second most attractive destination for CDM project participants. In other words, India has a good climate for investment in CDM projects. In the registered projects category, India has the largest share in the pie-32%. However, In the issued CER category, India ranks second after China. The price of a CER has been hovering around Euro 12.

CER Market (contd.)

India has a huge potential for CDM projects. Anil Ambani group company Reliance Power (RPower) expects to earn

over Rs 2,000 crore for using energy efficient and environment friendly coal technology at its 4,000 Mw power project at Sasan in Madhya Pradesh. Reliance Power's 4,000 MW Sasan Ultra Mega Power Project using super-critical technology (efficient and environment friendly) has been registered with Clean Development Mechanism Executive Board of United Nations Framework Convention on Climate Change (UNFCCC). The registration with CDM-EB allows Sasan Project to earn certified emission reduction (CER) credits, each equivalent to one tonne of CO2. The Project will generate approximately 22.5 million CERs for the initial 10 years of operation with the expected revenue from the sale of CERs of over Rs 2,000 crore. The CERs can be traded and sold, and will result in significant additional revenues for the super-critical Ultra Mega Power Project.

Classification of CDM Projects by Scale (contd.)

1. Small Scale CDM Projects 2. Large Scale CDM Projects In accordance with decision 17/CP.7 (contained in document

FCCC/CP/2001/13/Add.2), paragraph 6 (c), simplified modalities and procedures have been developed for the following types of small-scale CDM project actives: 1. Type I: Renewable energy project activities with a maximum output capacity equivalent to up to 15 megawatts (or an appropriate equivalent); 2. Type II: Energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, limited to those with a maximum savings of 60 GWh per year (or an appropriate equivalent); 3. Type III: Other project activities limited to those that result in emission reductions of less than or equal to 60 kt CO2 equivalent annually;

Classification of CDM Projects by Scale (contd.)

Small-scale CDM project activities shall remain under

the limits for small-scale CDM project activities types, as stipulated in paragraph 28 of decision -/CMP.2, every year during each year of the crediting period. If a project activity goes beyond the limit of its type in any year of the crediting period, the emission reductions that can be claimed by the project during this particular year will be capped at the maximum emission reduction level estimated in the CDM-SSCPDD by the project participants for that year during the crediting period.

Thank You