Clean Development Mechanism (CDM)
Background
The Clean Development Mechanism (CDM) defined in the Kyoto Protocol provides for industrialised 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). CDM projects shall also contribute to sustainable evelopment in the host country.
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, often called Carbon Finance, can cover costs related to greener energy technology solutions. For example, the additional cost for renewable energy generation, which can be more expensive than thermal energy, can receive higher returns with carbon finance through the sales of emission reductions.
How to determine emission reductions?
The CDM is based on a baseline and crediting model. A baseline is developed for the project, which can be based on business-as-usual or another scenario, and 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 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. The project owner can sell the CERs at this point. However, typically the CERs have already been bought at early project development stage through a forward purchase contract.
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 company portfolio or region for greenhouse gas projects
- Development of 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
- Brokerage (contracting buyer)
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