Clean Development Mechanism (CDM) and Joint Implementation (JI)

Background

The Clean Development Mechanism (CDM) and Joint Implementation (JI) defined in the Kyoto Protocol provides for industrial companies in industrial countries with greenhouse gas (GHG) emission reduction targets to implement project activities that reduce emissions in developing countries, in return for Certified Emission Reductions (CERs) or Emission Reduction Units (ERUs). CDM and JI offers the Investor Party a flexible and cost-efficient means of fulfilling a part of their Kyoto commitments and the host Party benefits from foreign investment and technology transfer. CDM projects shall also contribute to sustainable development in the host country.

What can Vattenfall Power Consultant do?

Vattenfall Power Consultant can assist either a buyer of carbon credits to identify emission reduction projects or a project owner to develop a CDM project, throughout the whole CDM project cycle.

• Screening of projects or company portfolio for greenhouse gas projects
• Definition of Carbon Value (Project Idea Note, PIN)
• Development of Project Design Document (PDD)
• Assistance in the Validation Process
• Assistance in the Registration Process
• Assistance in the Monitoring Process
• Assistance in the Verification Process
• Facilitate purchase of Carbon Credits for Vattenfall Carbon Fund as a compliance buyer
• For selected projects, facilitate the purchase of Carbon Credits for other buyers

How can emission reductions improve project finances?

Investment in more efficient and cleaner technology is often more expensive than simply replacing existing equipment. The concept of trading CERs or ERUs, often called Carbon Finance, can cover costs related to greener energy technology solutions. For example, an investment with renewable energy generation, which can be more expensive than thermal energy generation, can receive higher returns with carbon finance through the sales of emission reductions.

How to determine emission reductions?

The CDM and JI is based on a baseline and crediting model. A baseline is the emissions that would have occurred if the project would not have been implemented, and can be based on business-as-usual or another scenario. If actual emissions are below the baseline, credits are issued for that amount. There are specific methodologies developed on how to determine these credits, which need to be carefully applied in order to register the CDM or JI project.

CDM project development: requirements

The basic requirement is a document called Project Design Document (PDD), which entails a description of the baseline, an estimation of expected emission reductions and a monitoring plan. An accredited third party validates this document. The host country (the Designated National Authority) shall also approve the project and confirm that it contributes to national sustainable development.

The validated PDD and the host country approval are sent to the CDM Executive Board for registration. When the project is registered, and the project is implemented and monitored, verification of the project can take place. This is when CERs are issued. However, typically the CERs have already been bought at early project development stage through a forward purchase contract.