Critical aspects in PDD: meeting CDM Criterion

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Critical aspects in PDD meeting CDM Criterion

• Sudhir Sharma
• Asian Institute of Technology
• Bangkok, Thailand
• 23rd March 2004

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Presentation Structure

• CDM Project Development Cycle Project Design
  Document (PDD)
• Project Design Document (PDD) and Baseline
  Description
• Preparing Annex 3 New Methodology
• Conclusions

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CDM Project Development Cycle Project Design
Document (PDD)
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CDM Project Development Cycle
Identification and review of the Project
1. Project ideas reviewed by buyer 2. PCN
prepared by project sponsor 3. Host country
endorsement sought
Project completion
Baseline Study and Monitoring Protocol (MP)

• Baseline study Prepared
• MP prepared
• 3. Project Design Documents prepared for
  Validation

Periodic verification certification
Validation process
Negotiation of Project Agreements
Construction and start up
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CDM Project Development Cycle

• PDD is not first step to Validation of a CDM
  project but the last step
• PDD only a reporting format for information
  similar to proposals for project to funding
  agencies in prescribed formats
• Critical features
• Brevity
• Relevant information that the funder needs to
  evaluate your proposal
• It also provides a check whether the analysis
  undertaken by Project proponent for Basline is
  adequate

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Project Design Document (PDD) and Baseline
Description
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Baseline sections in PDD

1. General description of project activity
2. Baseline methodology
3. Duration of the project activity / Crediting
   period
4. Monitoring Methodology
5. Calculations of GHG emissions by sources

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General description of project activity

• A.1 Title of the project activity
• A.2. Description of the project activity
• A.3. Project participants
• A.4. Technical description of the project
  activity
• A.4.1. Location of the project activity
• A.4.2. Category(ies) of project activity
• A.4.3. Technology to be employed by the project
  activity
• A.4.4. Why Additional
• A.4.5. Public funding of the project activity
• General description is like an Executive summary
  or PIN

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The objective of Project description?

• Uniquely identify the project dont want one
  project earning CERs twice over
• SD benefits to meet the CDM objective of SD in
  developing countries
• Check Additionality
• Funding additionality
• Project additionality
• From the Baseline perspective
• Identify the main activity that results in
  reduction of GHG
• Nature of service provided by the project
  activity
• The above two provide the system boundary for
  baseline evaluation and identification of
  baseline options

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General description of project activity

• Uniquely identify the project
• SD benefits to meet the CDM objective of SD in
  developing countries
• Check Additionality
• Funding additionality
• Project additionality
• Identification of Baseline

A.4.1. Location of the project activity
A.3. Project participants
A.2. Description of the project activity
Purpose of project SD contribution of
project
A.4.5. Public funding of the project activity
A.4.4. Why Additional (a) What project activity
results in reduction (b) report emissions
reductions (c) How is it additional to expected
changes in the project sector
A.4.2. Category(ies) of project activity A.4.3.
Technology to be employed by the project
activity Technical description Env Safe Tech
Transfer
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Project Description

• Project purpose
• what is the major need/demand that the project
  will fulfill. E.g, sugar cogeneration project to
  generate production of electricity, using high
  efficiency boiler, for sale to grid. Primary
  purpose of project in most cases not GHG
  reduction
• For retrofit project (brown field projects that
  replace a part or whole of existing plant)
• Is the replacement due to expiry of equipment
  life? E.g, sugar congeneration (SC) project will
  have to replace existing boilers. If the boilers
  are being replaced due to expiry of life, the
  baseline would be the range of boiler options for
  replacement. If the replacement is not due to
  expiry of life than the baseline could be the
  existing boilers
• Is the retrofit to meet some regulatory
  requirements. Example, if in above project the
  regulation require all boilers of 22 ata pressure
  be replaced by atleast 32ata boiler, therefore
  even if the life of existing boilers has not
  expired, the existing boiler cant be the
  baseline option

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Project Description

• Technical description of the project
• Schematic sketch of the complete setup within
  which the project process is situated
• Major project activities to achieve the project
  objectives
• The technical details needed to differentiate the
  project from other possible baseline options.
  Example - SC project the boiler description and
  additional equipment required for high efficiency
  boiler (new turbines) and biomass handling
  components, etc.
• Critical component for operation of project.
  Example, availability of bagasse to operate
  boilers. Will higher bagasse be needed for
  project, if bagasse is not available what will be
  the alternative arrangement.

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Project Description

• Additionality explanation
• The detailed analysis is in Section B. Summary
  presented in Section A
• Activity that reduces GHGs and GHG reductions
  achieved by project. Example SC, use of biomass
  generated in Sugar mill which otherwise was
  inefficiently used to generate power.
• Description of sector to provide a background
  for highlighting the baseline options in context
  of national policies, programes, sectoral
  changes, etc. Example, SC description of power
  sector, in terms of power situation, the various
  options for power generation, policies (fuel,
  environmental, power sector etc) that influence
  the choice of fuel and choice of technology for
  power generation. Brief description of status of
  project option as choice of power generation in
  region/country

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B Baseline methodology

• B.1 Title and reference of the methodology
  applied to the project activity
• If a existing approved methodology (AM) is used,
  complete reference of AM should be provided
• If new methodology (NM) is used reference to
  title of new methodology as attached in Annex 3
• B.2. Justification of the choice of the
  methodology and why it is applicable to the
  project activity
• The conditions under which the chosen methodology
  can be used
• listed for all EB approved methodologies
• For NM identify the general conditions for
  application
• How does the project meet all the conditions for
  using the chosen methodology

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B Baseline methodology Example

• Grid-connected Biomass Power Generation that
  avoids Uncontrolled Burning of Biomass
  Applicability (EB Approved Methodology)
• This methodology is applicable to biomass-fired
  power generation project activities displacing
  grid electricity that
• Use biomass that would otherwise be dumped or
  burned in an uncontrolled manner
• Have access to an abundant supply of biomass that
  is un-utilised and is too dispersed to be used
  for grid electricity generation under business as
  usual (BAU)
• Have a negligible impact on plans for
  construction of new power plants
• Not be connected to a grid with suppressed
  demand
• Have a negligible impact on the average grid
  emissions factor
• Where the grid average carbon emission factor
  (CEF) is lower (and therefore more conservative
  as the baseline) than the CEF of the most likely
  operating margin candidate
• Justification for choosing BM does the
  proposed project meet these conditions

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B Baseline methodology

• B.3. Description of how the methodology is
  applied in the context of the project activity
• Brief explanation of application of steps in BM
  to
• Identify baseline scenario
• Prove additionality
• Estimate baseline emissions
• Address leakage
• If the methodology uses certain parameters, it
  might be advisable to describe the parameter
  value chosen and process
• B.4. explanation of how and why this project is
  additional and therefore not the baseline
  scenario
• This section should present an analysis of
  additionality based on the additionality
  evaluation steps described in BM
• All supportive information such data used in
  analysis, method of analysis (such financial
  analysis, etc. should be provided as
  Attachments).
• All assumption made in applying the additionality
  evaluation steps too should be clearly highlighted

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B Baseline methodology

• B.5. Description of how the definition of the
  project boundary related to the baseline
  methodology is applied to the project activity
• A baseline shall cover emissions from all gases,
  sectors and source categories listed in Annex A
  within the project boundary
• Baseline methodology is process of estimating
  baseline emissions therefore a clear statement of
  the boundary over which the baseline methodology
  estimates the baseline emission is must
• Gases covered
• Physical boundary
• System boundary
• The project boundary .. all anthropogenic
  emissions .. under the control of the project
  participants that are significant and reasonably
  attributable to the CDM project activity
• Example, SC the project influence the emission
  of grid in absence of project the grid will get
  energy from fossil sources the extent of the
  grid boundary that is influenced by project needs
  to defined the system boundary
• Let us say, project requires excess bagasse,
  sourced from sister concern that too should be
  part of boundary for evaluation the project
  boundary

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B Baseline methodology

• B.6. Details of baseline development
• B.6.1 Date of completing the final draft of
  this baseline section (DD/MM/YYYY)
• B.6.2 Name of person/entity determining the
  baseline
• The Baseline Methodology section is more of
  explaining how the BM is used rather the
  describing the BM which is done in Annex 3 if
  it is a NM

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E. Calculation of GHG emissions by sources

• Important aspect the formulae used for estimating
  GHG project, leakage and baseline
• It should not be a general description
• Formulae for each parameter and each variable
  should be provided. e.g, emission coefficient
  estimation formulae
• E.g., SC,
• BL_GHGy EG_CO2y
• EG_CO2y EGy CEFy
• CEFy minm(CEFgrid av, CEFOM)
• CEFgrid av ?Ei/ ?EGi
• CEFOM ?Ei/ (?EGi - ?EG(must run hydro))
• Ei sau used from a study (give full and
  complete reference)

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Preparing Annex 3 New Methodology (NM)
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Annex 3 New Baseline Methodology

• Objective of Annex 3 submissions
• Approval of New Methodology by EB
• To develop a list of standardised methodologies
• Best way of understanding how to prepare A3
  study the Approved Methodologies recommended by
  EB

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Annex 3 New Baseline Methodology

1. Title of the proposed methodology
2. Description of the methodology
3. General approach
4. Identify the approach from three options 48a,b, c
   and justify
5. The approach should be based on the steps to
   estimate the baseline emissions e.g., one could
   use financial analysis as a tool to prove
   additionality but it doesnt imply that approach
   b the most economical option therefore should
   be chosen as baseline emission approach.
6. Example AT Rice Husk Power Thailand (EB Approved)
   uses 48 b approach the project uses average
   grid emission intensity as basis of emission
   reduction. Meth- Panel (MP) recommendation states
   that since planned activity are used for
   estimating the emission factor and as plans are
   based on economically least cost options,
   therefore approach b is approved. The
   additionality in this case was based on barrier
   analysis with no links to economic analysis.

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Annex 3 New Baseline Methodology

• Overall description
• Define the steps for identifying the baseline
  options/ scenarios
• Sugar Cogeneration NM 0035(B) the baseline
  methodology does not provide a clear definition
  on baseline scenario selection, although the
  example draft CDM-PDD presents a series of
  information regarding the issue in the context of
  the specific plants under consideration.
• Define the steps for additionality analysis
• Cogeneration Project NM0030 (B) - The methodology
  repeats the steps prescribed by EB for
  additionality
• MP Comments It is unclear how the barrier and
  alternative options should be evaluated, and what
  the determinative steps are. While the underlying
  intent of the additionality methodology may be
  perfectly reasonable, the presentation is not
• Define steps for estimation of baseline emissions
• Clearly identify the steps in estimating baseline
  emissions from the baseline scenario.
  Justification too should be provided for the
  procedure
• NM0025 Combined margin approach (OM BM
  average) similar to small scale electricity
  methodology but uses projected capacity
  creation to estimate BM. The document further
  modifies the project capacity based on some
  private information.
• MP Comment The rationale for using a modified
  expansion plan is not provided.
• Define steps for assessing leakage (not necessary
  but might be useful)

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Annex 3 New Baseline Methodology

• Key parameters/assumptions (including emission
  factors and activity levels), and data sources
  considered and used
• In additionality procedure and baseline emission
  estimation a number of parameters and data values
  are used
• Clearly state the assumption made
• Example, if financial analysis is used for
  additionality check the values of interest rate
  , debt-equity ratio, OM costs, etc are assumed
  values, especially for baseline options
• Example for using operating margin (OM) must
  run projects are excluded in absence of data
  must run projects are assumed
• MP Comments NM 0030 Most assumptions are fairly
  clear. However, assumptions regarding the
  interpretation of projected capacity additions as
  used to determine the modified CM are not
  transparentIt is important that application of
  expert judgment be explicit and the rationale
  documented
• The central idea is that a third person can
  recreate your thought process for developing
  baseline reading the document
• Similarly all data used should be explicitly
  stated and referenced
• To ascertain the vintage of data used too old
  an information could distort the baseline
• Appropriate geographic scope of data
• To maintain transparency

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Annex 3 New Baseline Methodology

• Definition of the project boundary related to the
  baseline methodology
• Should state key gases to be covered
• MP Comments NM 0025 Methane emissions should be
  included within the boundary since they can be
  significant for some biomass fuels
• Principle of control is appropriately applied
  to identify the sources of alternative baseline
  emissions
• The boundary for evaluation of baseline options
  and baseline emissions normally referred to as
  system boundary also used to identify spatial
  relevance of data used for assessment of
  emissions in baseline
• MP comment NM 0032 (Waste to energy project in
  India where law requires waste to be processed
  for biodegradable before disposal in Land fill
  state-level for the system boundary (previously
  it was national) is closer to the project level
• Assessment of uncertainties
• Two aspects to be covered
• Identify the uncertainties
• how the BM accounts for the uncertainty
• Baseline factors that could change the baseline
  (change in regulations)
• Algorithm the parameters of the baseline
  emission calculations (level of project activity
  could change in future)
• Assumptions key assumptions (the must run
  projects)
• Data uncertainty in the availability of data to
  estimate reductions

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Annex 3 New Baseline Methodology

• Description of how the baseline methodology
  addresses the calculation of baseline emissions
  and the determination of project additionality
• This section should be seen in context of section
  2 overall description of the methodology
• Description of application of additionality steps
  in baseline methodology to the proposed project
• Description of description of application of
  algorithm for estimating baseline emissions
• If the description of formulae for baseline
  emission are covered in section 2, no need to
  present it in this section
• Description should be concise and precise in
  describing the application
• Should describe the various conditions associated
  with using the algorithm and parameter values
  no ambiguity or arbitrariness in the application
• All the description of exact value of parameters,
  data etc. should be covered in the main CDM-PDD,
  not in this section

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Annex 3 New Baseline Methodology

• Description of how the baseline methodology
  addresses any potential leakage of the project
  activity
• Section 2 should cover the leakage aspect this
  section is justification of how the leakage
  assessment is adequate
• Most of PDDs dont provide details of leakage in
  section 2
• Leakage is emission attributable to project
  outside the project boundaries therefore the
  description of project boundary is the basis of
  identifying the possible leakage based on
  interlinkages of project with wider economy
  fuel purchases, supply of output, procurement of
  other inputs, etc.
• NM001 is a good example of how leakage issue
  should be described
• Detailed formulae used for estimating leakage
  should be stated explicitly in Annex 3 rather
  than just using it in the CDM-PDD

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Conclusions

• PDD and Annex 3 are good tools for assessing the
  completeness of baseline study
• CDM-PDD baseline section covers only the
  application of BM and use of actual values of
  data and parameters for estimating emissions
• Annex 3 is description of BM description
  should be from the perspective of a standardized
  methodology that can you be used for other
  projects similar to proposed CDM project with
  which it is submitted

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THANK YOU