© 2006 UNDP. All Rights Reserved Worldwide. Proprietary and Confidential. Not For Distribution Without Prior Written Permission. CDM Project Cycle Anna Kaplina RBEC Energy and Environment Practice Meeting Wednesday 27th September, 2006 Bratislava, Slovakia

1 UNDP MDG Carbon Certification Workshop 1 Overview Key actors of CDM project cycle Key steps in CDM project cycle Transaction costs CDM Vs GEF Project Cycle

2 UNDP MDG Carbon Certification Workshop 2 Project developers/operators CDM investors/CER purchasers Host governments and designated national authorities Designated operational entities The CDM Executive Board Other stakeholders CDM participants

3 UNDP MDG Carbon Certification Workshop 3 Key actors of CDM project cycle CDM Project owner (CER seller): - Any legal entity officially registered in host country that can develop and operate CDM projects (business, municipalities, NGOs) - Each host country may establish additional criteria for project owners (e.g. financial sustainability or share of foreign capital) - Others: CDM broker, project financier, technology provider, project operator, etc… Who and How defines CER ownership? CDM Project Investor (CER buyer): - An entity that purchases CERs from a CDM project. The investor is usually from an Annex I country and can be a corporation, a government body or non-governmental organization, or an international carbon fund (e.g. World Bank PCF)  NB: Unilateral CDM – a project which is designed, registered and implemented without a CDM investor up to the issuance of CER

4 UNDP MDG Carbon Certification Workshop 4 Designated National Authority  A legal entity/individual authorized to sign in a Letter of Approval (LoA) (Info in UNFCCC data base  Ministry (Environment, Economy, Energy) or Inter-agency Committee

5 UNDP MDG Carbon Certification Workshop 5 Designated Operational Entity (DOE) DOE is domestic or international legal entities that have been accredited by the CDM Executive Board (Info in UNFCCC data base It has two key functions: 1)To validate and subsequently request registration of a proposed CDM project activity 2)To verify emission reduction of a registered CDM project activity, certify as appropriate and request the CDM Executive Board to issue CERs – verification is done periodically at the request of PPs 12 DOEs officially accredited by CDM EB; only two from non-Annex I Parties (South Korea and South Africa)

6 UNDP MDG Carbon Certification Workshop 6 CDM Executive Board (CDM EB) CDM EB – is an international CDM governing body It consists of 10 members (& 10 alternates): 2- from Annex I, 2 - from non-Annex I, 1 from each UN region, 1 from small island developing states Its key functions: − to register CDM projects and issue CERs − to approve baseline and monitoring methodologies − to accredit DOEs − to any others tasks according to the decision of COP/MOP

7 UNDP MDG Carbon Certification Workshop 7 Project design document Host country approval Designated national authority Operational entities Project owner Executive Board Validation Registration Financing & implementation Monitoring Verification & certification Issue CERs CDM Project Cycle

8 UNDP MDG Carbon Certification Workshop 8 Step 1: Identification of project and preparation of Project Idea Note (PIN) - PPs (project participants)  There are several conditions in order to be registered as a CDM project activity, and PPs should consider those conditions from a planning stage  PIN – av. 5 pages: type and size of the project; its location; amount of GHG reduction; crediting life time; CER price; financial structuring; other socioeconomic/ environmental benefits  Letter of Intent (LoI) between CER owner and investor Step 2: Preparation of PDD - PPs There is the standard format for the PDD on the CDM website of the UNFCCC, and PPs must fill in all the contents as necessary

9 UNDP MDG Carbon Certification Workshop 9 Step 3: Host country approval - DNA Project participants shall get written approvals of CDM project from the DNA of each Party involved PPs may get written approvals in step (1), (2) or even (4), but before a request for registration The written approval from CDM host Party must confirm: - The fact of Kyoto Protocol ratification; - Voluntary participation in CDM project activity; - Contribution to sustainable development of the host Party Additionally, the letter may contain: - Authorization of project participants (official confirmation of CER ownership) - No objection or assistance to current and/or future allocation of CERs (especially important for unilateral CDM)

10 UNDP MDG Carbon Certification Workshop 10 Step 4: Validation - DOE Validation is the process of independent evaluation of a project activity against the requirements of the CDM on the basis of the PDD Validation is carried out by a designated operational entity (DOE) Generally undertaken before project implementation Assess ‘ if the PP does all what is proposed in the Project plan, will it result in the reductions/removals the PP is claiming?’  Emission Reduction Purchase Agreement (ERPA)

11 UNDP MDG Carbon Certification Workshop 11 Step 5: Registration – CDM EB – Registration is the formal acceptance of a validated project as a CDM project activity – There is a formal procedure for request for registration – PPs shall pay registration fee at registration stage

12 UNDP MDG Carbon Certification Workshop 12 Step 6. Financing & implementation - PPs PPs collect and archive all relevant data necessary for calculating GHG emission reductions by a CDM project activity, in accordance with the monitoring plan written in the PDD Step 7. Monitoring - PPs With validation and registration, PPs will take actions to implement the project which will generate an emission reduction credit, as well as other conventional benefits to create income

13 UNDP MDG Carbon Certification Workshop 13 Step 8. Verification and Certification - DOE Verification is the periodic independent review and ex post determination of the monitored GHG emission reductions Verification is carried out by a designated operational entity (DOE) Done after project implementation Certification is the written assurance by a DOE that a project activity achieved the reductions in GHG emissions as verified Certification is also done by a DOE

14 UNDP MDG Carbon Certification Workshop 14 Step 8. Issuance of CERs – CDM EB The EB will issue certified emission reductions (CERs) equal to the verified amount of GHG emission reductions The issuance of CERs, in accordance with the distribution agreement, shall be effected only when the share of proceeds to cover administrative expenses (SOP-Admin) of the CDM has been received Among issued CERs, 2% of those will be deducted for the share of proceeds to assist developing Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation (SOP-Adaptation)

15 UNDP MDG Carbon Certification Workshop 15 Transaction costs Source: EcoSecurities 2003

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21 UNDP MDG Carbon Certification Workshop 21 CDM Vs GEF Project Cycle Both GEF and CDM project aims at GHG emission reduction, but CDM focuses only on activities that lead to real and measurable GHG emission reduction, while GEF has a broader focus (capacity building, institutional development) CDM produces a market commodity, hence calculation and monitoring of GHG emissions is much more stringent Similar development pathway: from project idea (PIN/PID) to implementation and monitoring, BUT: In CDM the existence of robust underlying project is crucial (feasibility study, business plan, investors identified) Different nature of transaction costs

22 UNDP MDG Carbon Certification Workshop 22 THANK YOU FOR YOUR KIND ATTENTION