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1.5 The CDM project cycle
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The CDM project cycle is a series of actions that are needed to establish an activity as a CDM project and get certified emission reduction credits from it in accordance with the international rules.
Once the national preparations (1.3) for carrying out CDM projects are in place, the international rules for participating in the CDM require the CDM project cycle to be followed: project design (1.5.1), validation and registration (1.5.2), monitoring (1.5.3), and independent verification and certification (1.5.4) followed by issuance of credits (1.5.5). There is a simpler process for small scale projects (1.5.6) such as renewable energy and energy efficiency activities. When the credits have been issued, the project proponent will be able to sell them or use them for compliance with climate change obligations in developed countries. Link to further information http://unfccc.int/sessions/workshop/070402/howard.pdf The proposed plans for the project need to be presented in a standard format describing how the project meets the pre-requisites for CDM activities. This document, which is prepared by the project participants, is called the “project design document”. The project design document sets out the terms of operation of the project, its description, its proposed methodology for calculating greenhouse gas emission reductions, an explanation of how greenhouse gas emissions are reduced by the project, information on sources of public funding for the project, and stakeholder comments. Project design documents must be made publicly available by the designated operational entity validating the project. Reference is made to this document throughout the project’s duration to determine if the project is meeting its objectives. This document must be submitted to the CDM Executive Board (1.6) in order for the activity to be registered as a CDM project. A draft format for the project design documents is available from the UNFCCC website. The project design document needs to show that emission reductions will occur as a result of the project. It must include the methodologies used to establish the baseline (1.5.1.1) level of emissions that what would have occurred if the project did not take place, and the methodology for monitoring (1.5.3) ongoing emissions from the project once it is implemented. The ongoing emissions will be compared with the baseline emission levels in order to demonstrate the additionality of the emission reductions from the project and to calculate the certified emission reduction credits. The document also explains crediting period over which the project will generate certified emission reduction credits, the project boundary within which the emission reductions will occur, and certain other elements such as a description of stakeholder comments. Reference is made to the project design document at various points in the project cycle throughout the project’s duration. One of the most important aspects of CDM project design is to establish the baseline from which emission reductions will be measured. A project baseline is an estimate of the emissions that would have occurred without the project. A baseline must include an estimate of what the emissions of all greenhouse gases would have been, if the project had not been implemented, from all of the emission sources within the project boundary. Baselines must be consistent with general rules set out by Parties to the Kyoto Protocol, particularly guidance by the CDM Executive Board (1.6.2). Small projects have simpler baseline requirements (1.5.6.3). Executive Board Guidance on Project Baselines
Within this guidance, project participants are able to select an approach that is the most appropriate for the project activity but they must justify their choice. The choice of the baseline to be used for any one project can be made based on a consideration of existing actual or historical emissions, emissions from a technology that represents an economically attractive course of action, or the average emissions of similar project activities undertaken in the previous five years in similar social, economic, environmental and technological circumstances. If the executive board has approved a project’s baseline methodology, subsequent CDM projects with similar characteristics may use it. If project participants wish to use a new baseline or monitoring methodology, the designated operational entity (1.6.3) that validates (1.5.2) the project must forward the proposed methodology and other relevant materials to the CDM Executive Board for review. If the Executive Board approves the methodology, the designated operational entity may proceed with the validation of the project activity and the Executive Board makes the methodology publicly available through its repository of approved methodologies. After a project is implemented, actual emissions are monitored (1.5.3) and then compared to the baseline to determine the emissions reductions that the project has created. 1.5.2 Step 2. Validation and Registration Validation is independent evaluation of whether a proposed CDM project meets the requirements of the CDM activity by an independent third party auditor who is hired by the project participants. Validators must be designated operational entities (1.6.3) that have been accredited under the authority of the CDM Executive Board (1.6.2). The designated operational entity reviews the project design document (1.5.1) to determine whether a proposed project meets CDM requirements, and prepares a validation report. Among other things, the designated operational entity will confirm that the technology used in the project will provide additional reductions in emissions, and promote sustainable development. The designated operational entity will check the assumptions and calculations upon which the project design document is based to determine if the project proposal is realistic and adequate. Once a project has been validated by a designated operational entity it can be registered with the CDM Executive Board as a CDM project. To register a project, proof of validation by a designated operational entity has to be sent to the CDM executive board in the form of a validation report. The validation report includes the project design document, the written approval of the host party to participate in the project, and an explanation of how the project has taken due account of the public comments received related to it. Registration ensures that the Executive Board has a record of all CDM projects. The information about registered CDM projects is publicly available. The registration of a project will be final 8 weeks after the date of receipt by the Executive Board. However, if a review of the proposed CDM project activity is requested, then registration will be delayed while the Executive Board determines whether the activity meets the requirements of the CDM. Links to further information: http://cdm.unfccc.int/Reference/Forms/Registration
Project participants must monitor the emissions that occur from their CDM project once it has been implemented. A monitoring plan for the project is part of the project design document (1.5.1). When validating (1.5.2) a project, a designated operational entity (1.6.3) must confirm that the project’s planned emission monitoring methodologies comply with CDM rules. The monitoring plan sets out the project’s methods for measuring or estimating emissions from the project and its strategy for the collection and archiving data that are relevant to these calculations. Emissions information from the monitoring is included in a monitoring report must be drafted in accordance with guidelines set out in the project’s monitoring plan in the project’s registered project design document (1.5.1). The monitoring report is verified by a designated operational entity. Proper implementation of the monitoring plan is a condition for verification, certification and the issuance of certified emission reduction credits. During the verification procedure, designated operational entity that verifies and certifies the project must make the project’s monitoring report available to the public. Links to further information: http://cdm.unfccc.int/ 1.5.4 Step 4. Verification and Certification Verification is the independent review of the reductions in emissions that have occurred from a CDM project during a specific period of time. The emissions reductions from a CDM project must be verified by a designated operational entity (1.6.3). The designated operational entity’s findings are compiled in a “verification report” which is submitted to the CDM Executive Board (1.6.2) and made available to the public. Each verification report covers a specific verification period set out by the project participants. The designated operational entity that carries out the verification also certifies the project. Certification is the written assurance by an independent third party that, during a specified time period, the project achieved the stated level of emission reductions. Emission reductions will be certified the designated operational entity considers that each party involved in the project has participated voluntarily, that the project has created real, measurable, and long-term benefits related to the mitigation of climate change, and that the reductions in emissions caused by the project are additional to any that would have occurred in the absence of the certified project activity. The designated operational entity’s certification report is made publicly available. The certification report constitutes a request by the designated operational entity that the executive board issue CDM credits equal to the verified amount of emissions reductions flowing from the certified project activity. Links to further information: http://cdm.unfccc.int/pac/howto/CDMProjectActivity/VerifyCertify 1.5.5 Step 5. Issuance of Credits Once the emissions reductions resulting from the project have been certified (1.5.4) by a designated operational entity (1.6.3), the CDM Executive Board (1.6.2) begins a process to issue credits to the project participants. If there are no requests for review of the certified emission reductions the Executive Board considers the issuance of credits to be final 15 days after its receipt of the certification report (1.5.4) from a designated operational entity (1.6.3). After the 15 days have passed, or the review completed, the Executive Board instructs the CDM registry (1.6.4) administrator to issue the specified quantity of credits for the emission reductions into accounts in the CDM Registry. Before the CDM credits are issued to the project participants, the CDM registry administrator will allocate a share of credits as a levy to cover administrative and adaptation costs. Then the administrator allocates the remaining credits that are called Certified Emission Reductions or CERs to the registry accounts of the project participants. After the credits have been issued, the project participants may use them for meeting Kyoto targets (if they are a developed country entity), or sell them to a developed country government or company, or sell them on the international emission reduction market. Once CDM credits (CERs) have been issued, a decision must be made by the project participants whether to renew the project for another crediting period, divide or sell the project’s assets, or change the characteristics or participants in the project. To facilitate this decision, contractual provisions should have been formulated prior to the commencement of the project cycle outlining the responsibilities and commitments of the parties at this stage. If the participants choose to renew the project, a new round of the project cycle commences with negotiation, government approval and the drafting or revision of a project design document. Link to further information: http://cdm.unfccc.int/pac/howto/CDMProjectActivity/Issuance 1.5.6 Simplified Process for Small Projects In order to reduce the costs of establishing small projects under the CDM rules,
simpler requirements have been developed for the following types of activity:
The simplified requirements for these types of project are: All other CDM requirements also apply to small projects. The CDM Executive Board (1.6.2) may charge lower administration fees for small projects.
Useful links: http://cdm.unfccc.int/pac/howto/SmallScalePA/index.html
Specified small project activities can be grouped together or “bundled” for
preparing the project design document (1.5.1), validation (1.5.2) that the project
meets the CDM rules, registration (1.5.2) with the CDM Executive Board (1.6.2),
monitoring (1.5.3) and verifying (1.5.4) emissions and certification (1.5.4).
This will make it easier and cheaper for meet the CDM requirements compared
to carrying out each requirement for each project individually. A bundle of
projects cannot exceed the power and/or emissions thresholds set for small projects
(1.5.6): Small-scale project activities submitted as a bundle can submit a single project design document provided that information on the Project participants and location of the project activity is submitted for each project and that an overall monitoring plan is provided. The validation process can be carried out for the bundle of activities together. A single overall monitoring plan can be developed for monitoring the performance of the individual project activities in a bundle, or separate monitoring plans can be developed for each activity in the bundle. Verification and certification will then be carried out against the monitoring plan or plans. Decision
17/CP.7 in document FCCC/CP/2001/13/Add.2 1.5.6.2 Simpler requirements for the project design document Small projects have fewer requirements to meet in the project design document.
The simplified project design document for small scale project activities can
be obtained in the following ways: 1.5.6.3 Simpler methodologies for developing a project baseline and monitoring emissions Simpler project baseline (1.5.1.1) and monitoring (1.5.3) requirements are have been developed for fourteen categories of small projects (Annex B “Draft Simplified Modalities and Procedures for Small Scale CDM Project Activities”). The methodologies specify how project boundaries, baselines, and leakage of emissions beyond the project baseline should be established for each category of project. Project participants may propose changes to these methodologies or propose additional project categories for consideration by the CDM Executive Board (1.6.2). Further information: “Indicative simplified baseline and monitoring methodologies for selected small-scale CDM project activity categories” http://cdm.unfccc.int/pac/howto/SmallScalePA/ssclistmeth.pdf 1.5.6.4 Single verifier for validation, and verification and certification The usual requirement for CDM projects is that the independent third party (accredited for this purpose by the CDM Executive Board as a “designated operational entity” (1.6.3)) that validates a project cannot also verify the emissions and certify emission reductions from that project. For small projects and bundled small projects, a single third party verifier may carry out all of these tasks. This is expected to reduce costs as the independent verifier will already be familiar with the project and can build on this knowledge to speed up the verification process. |
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