INTRODUCTION TO CLEAN DEVELOPMENT MECHANISM CDM

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INTRODUCTION TO CLEAN DEVELOPMENT
MECHANISM(CDM)
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Intergovernmental Panel on Climate Change (IPCC)

• IPCC was established in 1988 by UNEP and WMO to
  provide policy makers, scientific information on
  climate change.
• IPCC Report concluded that Green House Gases
  (GHG) will result in warming of earth by next
  century, unless measures were adopted to limit
  emissions.

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The United Nations Framework Convention on
Climate Change

• On the basis of Report, United Nations Framework
  Convention on Climate Change (UNFCCC) was
  formulated in May 1992 for global climate
  protection.
• India signed UNFCCC on 10th June 1992
• and ratified that in 1993.

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Kyoto Protocol to The UNFCCC

• Kyoto Protocol to the Convention, established the
  Conference of Parties (COP) as its supreme body.
• COP3 held in Kyoto, Japan agreed to legally
  binding set of obligations to reduce their
  emissions of GHG.

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• Commits Industrialised Countries (Annex I
  Parties / Countries) to reduce their Green House
  Gas (GHG) emissions by, on average, 5.2 below
  1990 levels in 2008-12 (Phase I).
• Individual, quantified emission targets for each
  Industrialised Country.

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Green House Gases

• Six Green House Gases covered
• Carbon Dioxide (CO2)
• Methane (CH4)
• Nitrous Oxide (N2O)
• Hydro fluorocarbons (HFC)
• Per fluorocarbons (PFC)
• Sulphur Hexafluoride (SF6)

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Flexible Mechanisms

• Clean Development Mechanism (CDM)
• Joint Implementation (JI)
• Emission Trading (ET)

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Clean Development Mechanism (CDM)

• Clean Development Mechanism was instituted in
  2001 under Kyoto Protocol.
• Came into force on 16th February 2005 after
  Russia and European Community ratified it.
• Major non participants USA and Australia.

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CDM Objectives

• Help Industralised Countries (Annex I Countries)
  meet their GHG emission reduction objectives in a
  cost effective way.
• Contribute to sustainable development of the non
  Annex I Countries.
• Contribute to the ultimate goal of the convention
  i.e., stabilization of GHG concentrations in the
  atmosphere.

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Certified Emission Reduction (CER)

• One ton of CO2 reduced through CDM Project, when
  certified by CDM EB, is known as CER which can be
  traded.

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CDM Rules

• Rules, modalities and procedures of CDM are
  defined in
• Kyoto Protocol (1997)
• Follow up decisions of Conference of the
  Parties (COP), especially Marrakesh Accord
  (2001), and
• Decisions of CDM Executive Board

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Prerequisites for participation as per Marrakesh
Accord (Non Annex I Countries)

• Participation in a CDM project activity is
  voluntary.
• Parties participating in the CDM shall designate
  a National Authority for the CDM.

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Prerequisites for participation as per Marrakesh
Accord (Non Annex I Countries)

• A Party not included in Annex I may participate
  in a CDM project activity if it is a party to the
  Kyoto Protocol.

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Prerequisites for participation as per Marrakesh
Accord (Annex I Countries)

• A Party included in Annex I with a commitment
  inscribed in Annex B is eligible to use CERs,
  issued in accordance with the relevant
  provisions, to contribute to compliance with part
  of its commitment, if it is in compliance with
  the following eligibility requirements.
• a) It is a party to the Kyoto Protocol.

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• b) Its assigned amount pursuant to Article 3,
  Paragraph 7 and 8, has been calculated and
  recorded in accordance with modalities for the
  accounting of assigned amounts.
• c) It submits the supplementary information on
  additions to / subtraction from assigned amount

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• d) It has in place a national system for the
  estimation of anthropogenic emissions by sources
  and anthropogenic removals by sinks of all
  greenhouse gases.
• e) It has in place a national registry in
  accordance with Article 7.

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• f) It has submitted annually the most recent
  required inventory pertaining to emission of
  Green House Gases from sources / sector
  categorized from annex-A to the Kyoto Protocol
  and submission of annual inventory on sinks.

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CDM Organisation Functions

• CDM Executive Board (CDM EB)
• Supervise the CDM projects under the authority
  and guidance of the COP
• Make recommendations on further modalities and
  procedures

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• Approve new methodologies related to, baselines,
  monitoring plans and project boundaries
• Review provisions with regard to simplified
  modalities, procedures and the definitions of
  small scale project activities

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• Responsible for the accreditation of Designated
  Operational Entity (DOE)
• Register the validated projects as CDM project
  activities
• Issue CER according to the emission reduction
  verified by DOE

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• Designated Operational Entity (DOE)
• A body (private or public) accredited by the CDM
  EB to review projects
• Validate proposed CDM project activities

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• Verify and certify reductions in GHG emissions
• Make information obtained from CDM project
  participants publicly available, as required by
  the executive board, obtain stake holder comments
  and get these accounted appropriately

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• Designated National Authority (DNA)
• Parties participating in the CDM shall designate
  DNA
• Interfaces between project owner and the DOE

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• Facilitate information dissemination
• National CDM Authority, MoEF is the DNA for India

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• Composition of the "National Clean Development
  Mechanism (CDM) Authority"
• 1.Secretary (Environment and Forests),
  Chairperson
• 2. Foreign Secretary or his nominee, Member
• 3. Finance Secretary or his nominee, Member

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• 4.Secretary, Industrial Policy and Promotion or
  his nominee, Member
• 5.Secretary, Ministry of Non Conventional Energy
  Sources or his nominee, member
• 6.Secretary, Ministry of Power or his nominee
  Member

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• 7.Secretary, Planning Commission or his nominee
  Member
• 8.Joint Secretary (Climate Change), Ministry of
  Environment and Forests, Member
• 9.Director (Climate Change), Ministry of
  Environment and Forests, Member-Secretary

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Preparation of Project Design Document (PDD)

• Main Document in the CDM project cycle
• Standardised Format
• General Description of project activity
• Base Line Methodology, Additionality, and Project
  boundary

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• Crediting period
• Monitoring methodology and plan
• Estimation of GHG emissions
• Environmental Impacts
• Stakeholders comments

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Key factors in Project Design Document

• Base Line Methodology
• Existing actual or historical emissions data
• Emissions from a technology that represents an
  economically attractive course of action, taking
  into account barriers to investment

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• The average emissions of similar project
  activities undertaken in the previous five years
  in similar circumstances, and whose performances
  is in the top 20 of their category

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• Approval process for New CDM Base Line
  methodologies
• Project proponent , via validator , submit new
  methodology to UNFCCC Secretariat
• CDM Methodologies Panel obtains two independent
  desk reviews
• Methodologies Panel formulates preliminary
  recommendation

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• Project proponent has 10 days to provide feedback
  to preliminary recommendation (improved
  methodology if necessary)
• Methodologies panel formulates final
  recommendation to CDM EB

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• CDM EB rates the methodology based on
  Methodologies panel recommendation
• A Methodology is approved
• B Methodology may be revised and
• re-submitted without new desk reviews
• C Methodology is rejected and must
• go through full cycle if re- submitted

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• Additionality
• A CDM Project activity is additional, if
  anthropogenic emission of GHG by sources are
  reduced below those that would have occurred in
  the absence of the registered CDM Project
  activity, and passes CDM additionality tool
  adopted by CDM EB in Oct. 2004

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• CDM Additionality Tools
• Step 0 Eligibility for early CDM
• Step 1 Identification of lawful project
  alternatives.
• Step 2 Investment analysis, or
• Step 3 Barrier Analysis
• Step 4 Common practice analysis
• Step 5 Impact of CDM Registration

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Baseline and Additionality of CDM Projects
Validation of project design, baseline and
monitoring plan
Emissions baseline
GHG Emissions (t CO 2-eq )
Additional emission reductions
Verification/ certification of emissions
reductions
Emissions baseline
Project implementation
Year
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• Monitoring Plan
• Systematic collection and archiving of data for
  estimating GHG/ Baseline emission
• For measuring Power Generation
• For estimating or measuring anthropogenic
  emissions occurring within the project boundary
  of a CDM project activity

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Host Country Approval

• Formal confirmation by the host country that the
  project meets sustainable development objectives
• National CDM Authority, Ministry of Environment
  and Forest, is appointed as the Designated
  National Authority (DNA) for CDM in India

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• Sustainable development criteria set by the DNA
• Social well being Employment, alleviation of
  poverty
• Economic well being Investment consistent with
  needs of the people

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• Environmental well being Impacts on the local
  and global environment, degradation of resources
  human health, pollution etc
• Technological well being Transfer of
  environment safe and sound technologies

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Validation

• Independent assessment by designated Operational
  Entity (DOE) that project meets criteria of the
  Kyoto Protocol

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Validation

• DOE shall
• Review the PDD and supporting documentation
• Conduct site visits
• Interact with stake holders
• Source other relevant additional information from
  various sources
• Publish the PDD in the web for international
  stake holder comments

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Validation

• A successfully validated project can be submitted
  to CDM EB for registration

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Registration

• Automatic registration of submitted projects
  unless 3 members of the CDM EB or one of the
  parts involved file a request for review within
• 4 weeks for small scale project activities
• 8 weeks for large scale project activities

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Registration Fees

• Registration fees between 5,000 and 30,000 USD
  are payable to the Executive Board by the project
  participants depending on the quantity of
  emission reductions

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Registration Fees
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Crediting Periods Timing

• Carbon Credits ( CERs ) can be generated as from
  now
• Banking by buyer for use towards compliance in
  2008-12
• Banking by project proponent for sale in later
  years

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Crediting Periods Timing

• Start of Crediting period
• Usually the later of
• (i) CDM Registration, and
• (ii) Start of project operation
• Emission reductions achieved since 2000 could be
  credited under certain conditions (
  demonstration of additionality, registration
  before end of 2005)

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Crediting Periods Timing

• Duration of Crediting periods
• Fixed Crediting period of upto 10 years, or
• Renewable crediting periods of upto 7 years (
  maximum 3 X 7 years)

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CDM Project Cycle
Project Participants
Project Design
Designated operational entity
Validation/ registration
Designated national authority of host country
Executive Board
Project participants
Monitoring
Designated operational Entity
Verification/ Certification
Executive Board
Issuance
Certified emissions reductions
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CDM Statistics ( as on 10 Nov. 2005)

• Total projects registered by CDM EB 34
• Registered Projects located In India 8
• Projects under consideration by CDM EB 19

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Registered CDM Projects in India
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(No Transcript)
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Scope for NHPC Projects

• Kambang (2X3 MW) and Sippi (2X2 MW) SHE Projects
• Small Scale Projects / RE Projects
• Projects qualify additionality criteria, being
  replacement of DG power, and reduction in
  emission through transportation of diesel
• Very low IRR

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• Not being perused solely for profit
• Serve social cause
• Approved Baseline Methodology is available AMS-1D
• Consulting Firms have also indicated their
  potential for qualification as CDM Projects

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• Nimoo Bazgo (3X15 MW) and Chutak (4X11 MW)
  Projects too have potential for qualification as
  CDM Projects
• Medium Sized Run-of-River Projects
• Projects qualify additionality criteria, being
  replacement of DG power, and reduction in
  emission through transportation of diesel

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• High cost of Generation
• Very low IRR
• Not being perused solely for profit
• Serve social cause
• Approved Baseline Methodology is available AM0005
  ACM0002

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Approved Methodology ACM0002

• Consolidated baseline methodology
  forgrid-connected electricity generation from
  renewable sources
• Applies to electricity capacity additions from
  Run-of-river hydro power plants hydro power
  projects with existing reservoirs where the
  volume of the reservoir is not increased

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Approved Methodology AM0005

• Baseline methodology for small grid-connected
  zero-emissions renewable electricity generation
• Applies only to small electricity capacity
  additions, i.e. less than or equal to 60 MW and
  using a 5050 default weighting of the build and
  operating margins

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Approved Methodology AMS I.D.

• Grid connected renewable electricity generation.
  (Small Scale CDM Projects)
• Applies to renewable energy generation units,
  such as photovoltaic, hydro, tidal/wave, wind,
  geothermal, and renewable biomass, that supply
  electricity to and/or displace electricity from
  an electricity distribution system that is or
  would have been supplied by at least one fossil
  fuel or non-renewable biomass fired generating
  unit

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Special considerations for Small Scale CDM
Projects

• Recognising the high sustainable development
  impacts of small projects, efforts have been made
  to encourage such projects by reducing the costs
  of going through the CDM project cycle. These
  measures include the following

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• Size Limits for Small Scale CDM Projects
• Electricity generation from renewable sources,
  upto 15 MW
• Energy Efficiency projects saving, upto 15 GWh
  per year
• Projects reducing, and emitting themselves, upto
  15,000 t CO2e annually
• Afforestation and reforestation project
  activities sequestering less than 8000 t CO2e
  annually

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• SSC Projects benefit from simplified rules and
  procedures
• Simplified PDD
• Use of simplified pre-approved baseline
  /monitoring methodologies
• Same DOE can validate and verify the project
• Bundling of similar projects is allowed ( within
  15 MW)

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• Lower registration fee
• CER issued in 4 weeks instead of 8 weeks
• Bundling of similar projects is allowed

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PDD Limitations

• Preparation of PDD including New Baseline
  Methodology ( if needed), Baseline Setting and
  Monitoring Plan requires experience and access to
  vast data needed for assessing the Baseline
  Emission. Service of Consultants will be required
  for this job.

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Lists of Consulting Firms/ Agencies Consulted

• M/S Mantec- Ecosecurities, New Delhi
• M/S Mitcon Consultancy Services, Pune
• M/S Ernst Young, New Delhi
• M/S Mitsui Co Ltd, New Delhi
• M/S CDM India Expert Group
• World Bank Group

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Consultancy Services Charges

• M/S Mantec- Ecosecurities, New Delhi
• The cost of PDD development, design of a new
  methodology (if required), validation,
  registration, and verification as given below are
  for the account of NHPC and will be paid by
  Ecosecurities and deducted from the initial
  payment due to NHPC by CERs

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• PDD Development 50,000 USD
• New Methodology Development (if needed)10,000
  USD
• Validation 30,000 USD
• Registration 5,000 to 30,000 USD
• Verification 5,000 to 10,000 USD per annum

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• Payment Terms
• M/s Ecosecurities will acquire the carbon credits
  at the rate of USD 4.50 per metric ton of CO2
  equivalent
• Payment will be deducted from the initial payment
  due to NHPC.

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• M/S Mitcon Consultancy Services, Pune
• Rs 7.5 lakhs 10 of actual fund received by the
  project promoters for the first year payable
  within seven days on receipt of funds
• Charges are exclusive of all travel, lodging
  boarding, local conveyance, registration fees and
  applicable service tax

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• Payment Terms
• 30 advance with work order
• 30 on submission of PCN or PIN PDD to the
  project promoter.
• 20 on the receipt of National approval /
  endorsement
• 20 on signing of agreement with identified
  buyer.

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• M/S Ernst Young, New Delhi
• Rs 12 Lakhs 10 of carbon revenue for entire
  crediting period, each year, within 15 days from
  receipt
• Service tax will be extra.
• Charges are exclusive of expenses on travel,
  lodging boarding, communication photocopy etc
  will be reimbursed to EY at actuals

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• Payment Terms
• 50 on award of assignment and
• 50 on completion of documentation.

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Other Agencies Consulted

• National CDM Authority, MoEF, too was consulted
  on 9 Nov. 2005
• No specific guidelines available with DNA
• Doubts and clarifications discussed but no
  specific solutions provided

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Uncertainty / Doubts

• Most of the consultants have indicated hesitation
  to take up medium and large size HE Projects,
  with dam height greater than 15 m and large
  reservoir. No specific guidelines however are
  available.
• Only world bank team indicated that no such
  restriction apply for medium and large size HE
  projects if they fall under Run-of-river Scheme.

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• No precedent is available for medium and large
  size HE Projects (Two projects are under
  consideration of CDM EB )
• National CDM Authority has no sufficient
  information on all these issues
• Present regime has been defined as 2008-2012,
  what happens after this is not very clear.
  Validity value of CERs beyond 2012 is uncertain
  

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Essential Requirements

• Implementation of project strictly as planned -
  Failing may invite non deliverance penalty
• PFR / DPR of the project should indicate
  likelihood of availing CDM benefits to make it
  financially more attractive

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• CDM Projects are largely consultant driven
• Engagement of consultant for preparation of PDD
  including New Baseline Methodology ( if needed),
  Baseline Setting and Monitoring Plan and
  facilitation with DNA, DOE and CDM EB for
  validation , verification, registration and issue
  of CERs

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• It is important that a reputed consultant is
  engaged for preparing quality documents,
  presentations, analysing and getting it through
  at all stages, especially each HE Project being
  unique will require appropriate handling.

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Meeting with World Bank Experts

• Sh. A. K. Kutty, JS (Hydro) suggested the World
  Bank team to contact NHPC in respect of Chutak
  Nimoo Bazgo Projects in JK for availing CDM
  Benefits
• Briefly the salient features the project
  details were introduced to the team
• Mr. David sought certain clarifications specially
  in respect of peaking power, winter peaking and
  reservoir storage

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Eligibility of Hydro Projects for CDM Benefits

• Size capacity of the project is immaterial
• It should be ROR scheme

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• The dam height the reservoir area etc. also do
  not matter except that the execution should be of
  good quality and all dam safety aspects aspects
  brought out in PDD are appropriately followed
• The methodology ACM 002 will be used

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Role of World Bank the type of agreement / MOU

• The World Bank objective or goal is to create an
  environment and building the Carbon Finance
  Market
• World Bank enters into a LOI with the project
  developer

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• In accordance with this LOI, World Bank takes up
  full responsibility finances all the fees etc.
  for examining the PIN, Carbon Finance Document
  (CFD)
• Appointment of consultant for preparation of PDD,
  appointment of independent consultant for
  validation of PDD

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• CFD is a more detailed PIN document containing
  financial analysis of the project
• World Bank facilitates appointment of consultant
  in consultation consent with the developer and
  submit the PDD to DNA for approval

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• Negotiation for terms conditions for ERPA
• Third party validation of the project signing
  of ERPA
• Execution phase of the project

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• Commissioning, OM (Maintaining stipulations of
  PDD)
• Verification of emission reduction every year
• World Bank to buy VERs ( Validated Emission
  Reduction)

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• Their agreement will be valid up to 2015 instead
  of 2012.
• World Bank will buy only 80 of the VERs
  generated. Developer is free to trade the balance
  20 VERs or converting them to CERs as per his
  requirement.

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• The likely amount of fees ( max. to be covered by
  them) is up to USD 265000 up to VERs
• The likely expenses to be incurred up to CERs is
  in the order of USD 275000

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• 60 of the total VERs to be bought by them by
  2012 40 after 2012
• There is no penalty clause from them towards
  delay in construction/ commissioning or towards
  non deliverable VERs

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• Developer has no liability for any payment if the
  project is rejected
• World Bank works with the consultant experts to
  oversee and ensure the quality of documents and
  the presentation of documents

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Suggestions

• In the project document like PFR, DPR include the
  possibility of covering Carbon Finance Revenue
  and include its effect in financial analysis and
  how it makes the project more viable feasible

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• presently they would like to work on these two
  medium size projects with clear cut additionally
  by way of Clean Development Hydro Station
  replacing Diesel Power as well as emissions
  created during transportation of Diesel to
  Laddakh

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• Subsequently they will be moving towards newer
  models with medium / large size projects creating
  more effective impact on GHG emission reduction
• Present rate of the VERs CERs as per them is
  USD 5-6 6-7 respectively

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• As World Bank finances the cost including the
  cost of examinations, formulations of documents ,
  transaction cost of consultant, validation cost,
  signing of ERPA getting validated the Emissions
  reduction and recovers the cost in lieu of VERs
  transaction
• World Bank absorbs the cost if the project is not
  approved

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• Thank you for your kind attention !

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Renewable electricity generation for the grid

• Energy baseline
• kWh generated
• Emissions baseline
• 800 2400 g CO2 / kWh for a diesel fired grid
  depending on size and load factor of diesel
  generator (lt 15 kW, 25 PLF2400, gt200kW800)

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• Grid average if linked to a grid involving
  several power plants
• 50 operating margin, 50 build margin
• Monitoring
• Electricity generated

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The margin calculation

• Operating margin Average of all plants excluding
  hydro, geothermal, wind, low-cost biomass,
  nuclear and solar
• Emission factor energy content of fuels used
  (GJ) times carbon emission factor of the fuel (t
  CO2 / GJ) times oxidation factor
• Challenge in India get reliable heat rates for
  all plants

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• Build margin
• Last 20 added or 5 latest additions
• Use the one with higher generation in past year
• Will be prone to sudden changes ( hydro plants
  vs. coal plants)
• CDM projects are not taken into account

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Example

• Operating Margin
• Coal 500 TWh _at_ 1100 g CO2
• Fuel oil 100 TWh _at_ 800 g CO2
• Natural gas 100 TWh _at_ 500 g CO2
• (500.1100100.800100.500) / 700 971 g CO2

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• Build Margin
• Total grid 15 GW
• Last 20 3 GW, generation 200 TWh, 800 g CO2
• Last 5 plants 1 GW, generation 80 TWh, 600 CO2
• 800 g CO2
• Weighted at 50 886 g CO2

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Huge gap between different generating CERs

• CER (Early Stage) 3 - 7 Euro
• Approved Methodology 6 -7 Euro
• Registered Project 15 Euro
• Issued CER 18 Euro
• EU Allowance 18 30 Euro

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Emission Factors
Source World Bank
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Small Scale CDM Projects benefit from simplified
rules and procedures

• Simplified PDD
• Use of simplified pre-approved baseline
  /monitoring methodologies
• Same DOE can validate and verify the project
• Bundling of similar projects is allowed
• ( within 15 MW)

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Small Scale CDM Projects benefit from simplified
rules and procedures

• Lower registration fee
• CER issued in 4 weeks instead of 8 weeks
• Bundling of similar projects is allowed

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Registration Fees
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Threshold CDM Eligibility Criteria

• Hydroelectric plants with power densities
• ( Installed power generation capacity divided by
  the flooded surface area) less than 4 w/m2 cannot
  use current methodology.
• Hydroelectric power plants with power densities
  greater than 4 w/m2 but less than or equal to 10
  w/m2 can use the current approved methodologies,
  with an emission factor of 90 g CO2eq/kWh for
  project reservoir emissions

Contd
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Threshold CDM Eligibility Criteria
Contd.

• Hydroelectric power plants with power densities
  greater than 10 W/m2 can use current approved
  methodologies and the project emissions from the
  reservoir may be neglected.