India's interim approval criteria for CDM projects

Government of India's interim approval criteria for CDM projects

Purpose
The purpose of the clean development mechanism (CDM) is defined in Article 12 of the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The CDM has a two-fold purpose: (a) to assist developing country Parties in achieving sustainable development, thereby contributing to the ultimate objective of the Convention, and (b) to assist developed country Parties in achieving compliance with part of their quantified emission limitation and reduction commitments under Article 3. Each CDM project activity should meet the above two-fold purpose.

Eligibility

The project proposal should establish the following in order to qualify for consideration as a CDM project activity.

Additionalities
Emission Additionality: The project should lead to real, measurable and long term GHG mitigation. The additional GHG reductions are to be calculated with reference to a baseline.
Financial Additionality: The funding for CDM project activity should not lead to diversion of official development assistance. The project participants may demonstrate how this is being achieved.
Technological Additionality: The CDM project activities should lead to transfer of environmentally safe and sound technologies and know-how.

Sustainable development indicators
It is the prerogative of the host Party to confirm whether a clean development mechanism project activity assists it in achieving sustainable development. The CDM should also be oriented towards improving the quality of life of the very poor from the environmental standpoint.

The following aspects should be considered while designing CDM project activities:

Social well-being: The CDM project activity should lead to alleviation of poverty by generating additional employment, removal of social disparities and contributing to provision of basic amenities to people leading to improvement in their quality of life.

Economic well-being: The CDM project activity should bring in additional investment consistent with the needs of the people.

Environmental well-being: This should include a discussion of the impact of the project activity on resource sustainability and resource degradation, if any, due to the proposed activity; biodiversity-friendliness; impact on human health; reduction of levels of pollution in general;

Technological well-being: The CDM project activity should lead to transfer of environmentally safe and sound technologies with a priority to the renewables sector or energy efficiency projects that are comparable to best practices in order to assist in upgradation of the technological base.

Baselines

The project proposal must clearly and transparently describe the methodology of determination of the baseline. It should conform to following:

Baselines should be precise, transparent, comparable and workable;
Should avoid overestimation;
The methodology for determination of baseline should be homogeneous and reliable;
Potential errors should be indicated;
System boundaries of baselines should be established;
Interval between updates of baselines should be clearly described;
Role of externalities should be brought out (social, economic and environmental);
Should include historic emission data-sets wherever available;
Lifetime of project cycle should be clearly mentioned;

The baseline should be on a project-by-project basis except for those categories that qualify for simplified procedures. The project proposal should indicate the formulae used for calculating GHG offsets in the project and baseline scenario. Leakage, if any, should be described. For the purpose of Project Idea Notes (PIN), default values may be used with justification. Determination of the base project which would have come up in the absence of the proposed project should be clearly described in the project proposal.

Financial indicators
The project participants should bring out the following aspects:
Flow of additional investment
Cost effectiveness of energy saving
Internal Rate of Return (IRR) without accounting for CERs
IRR with CERs
Liquidity, N.P.V., cost/benefit analysis, cash flow etc., establishing that the project has good probability of eventually being implemented
Agreements reached with the stakeholders, if any, including power purchase agreements, Memoranda of Understanding, etc.
Inclusion of indicative costs related to validation, approval, registration, monitoring and verification, certification, share of proceeds
Funding available, financing agency and also description of how financial closure seeks to be achieved

Technological feasibility
The proposal should include following elements:
The proposed technology/process
Product/technology/material supply chain
Technical complexities, if any
Preliminary designs, schematics for all major equipment needed, design requirement, manufacturers name and details, capital cost estimate
Technological reliability
Organizational and management plan for implementation, including timetable, personnel requirements, staff training, project engineering, CPM/PERT chart etc.

Risk analysis
The project proposal should clearly state risks associated with it including apportionment of risks and liabilities; insurance and guarantees, if any.

Credentials
The credentials of the project participants must be clearly described.


For Further References

The Emerging International Greenhouse Gas Market
Pew Center on Global Climate Change
www.pewclimate.org/projects/trading.cfm
Emissions trading has become the 'policy of choice' for addressing climate change, according to this report (March 2002) from the Pew Center on Global Climate Change that documents the emergence of a market for greenhouse gas emissions. While the market remains fragmented, the report concludes that trading activity has increased around the world over the last five years. Among the forces bringing trading to the fore are progress in the international climate talks, new carbon trading systems in Europe, and private sector trading initiatives in the United States and elsewhere.

Emission Baselines: estimating the unknown
IEA
www.iea.org/books/studies/2000/em.base.pdf
This book provides that analysis, examining issues in the development of emission baselines in four key sectors: electricity; cement; energy efficiency; and iron and steel. This book moves the debate from the theoretical to the practical. It provides insights on how to develop credible, workable and transparent baselines from which to quantify the mitigation effects of projects initiated under the 'Kyoto mechanisms'.

International Emission Trading: from concept to reality
IEA
www.iea.org/public/studies/Trading2001sum.pdf (executive summary)
www.iea.org/public/studies/Trading2001toc.pdf (table of contents)
This book offers a comprehensive review of international emission trading, from the 'perfect' system envisaged in economic models to a more realistic view of how trading can actually work. It is based on market experiments and modelling undertaken by the International Energy Agency and other institutions. It takes an in-depth look at implications for the power generation sector, and considers how developing countries could be included in a future trading regime.

Risky Business: Lessons in risk management for an international greenhouse gas emissions market
WRI
www.wri.org/pdf/risky_business.pdf
The report (July 2001) identifies three risk-management principles as particularly pertinent to the emerging greenhouse gas emissions market, and fashions recommendations for each.