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CDM Life Cycle

S. Balasubramoniam & Vidyacharan Astakala

DNV-Climate Change Services,

9 May 2008

Version

Slide 2

13 May 2008

Det Norske Veritas

Det Norske Veritas --DNV

DNV

�Purpose

TO SAFEGUARD LIFE PROPERTY & ENVIRONMENT

�Vision

GLOBAL IMPACT FOR A SAFE AND SUSTAINABLE

FUTURE

Version

Slide 3

13 May 2008

Introduction of Det Norske Veritas

Version

Slide 4

13 May 2008

DNV worldwide

Head Office

Main support and service centres

Local offices

Version

Slide 5

13 May 2008

Key Industry sectors Managing risk

Automotive

General

Maritime

Renewable energy

Food and beverage

Aviation

Oil and gas

Process

Rail

ICT

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Slide 6

13 May 2008

Accreditation scopes

�Sector 01 Energy industries (renewal -/ non-renewable resources)

�Sector 02 Energy distribution

�Sector 03 Energy demand

�Sector 04 Manufacturing industries

�Sector 05 Chemical industries

�Sector 06 Construction

�Sector 07 Transport

�Sector 08 Mining/mineral production

�Sector 09 Metal production

�Sector 10 Fugitive emissions from fuels (solid, oil and gas)

�Sector 11 Fugitive emissions from production and consumption of halocarbons

and sulphur hexafluoride

�Sector 12 Solvent use

�Sector 13 Waste handling and disposal

�Sector 14 Afforestation and Reforestation

�Sector 15 Agriculture

�DNV is accredited to all scopes for both validation and

verification except Sector 14, and handled more than 1300

Hundred projects in above areas world wide.

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13 May 2008

Introduction of Det Norske Veritas

�Global presence (>6000 employees, 300 offices)

��CLASSIFICATION, CERTIFICATION, CONSULTANCY

CLASSIFICATION, CERTIFICATION, CONSULTANCY

��Third Party Services for Greenhouse Gas Emission Reductions, for

Third Party Services for Greenhouse Gas Emission Reductions, formore than 8

more than 8

yrs.

yrs. -

Leadin

g A

ccre

dited D

OE

-Valid

ation o

f C

DM

/JI pro

jects

-C

ertific

ation o

f Em

issio

n R

eductions (C

ER

) genera

ted b

y

CD

M

pro

jects

-Verification o

f Em

issio

n R

eduction U

nits (ER

U) genera

ted b

y J

I pro

jects

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13 May 2008

DNV -Performance

100.0%

318

100.0%

3265

Total

0.0%

0.0%

n.a.

Name not avalibale

0.0%

0.0%

GFA

GFA Consulting Group

0.3%

10.0%

ICONTEC

Colombian Institute for Technical Standards and Certification

0.0%

0.0%

AZSA

AZSA & Co

0.0%

0.0%

1Deloitte-TECO

Deloitte Tohmatsu Evaluation and Certiification Organization

0.0%

0.1%

2BSI

British Standard Institution (BSI)

0.0%

0.1%

2Rina

RINA S.p.A

0.0%

0.1%

3PwC

PricewaterhouseCoopers (PwC)-South Africa

0.6%

20.2%

5JACO

Japan Audit and Certification Organisation for Env. And Quality

0.0%

0.2%

6KPMG

KPMG Certification B.V.

0.0%

0.3%

9KFQ

Korean Foundation for Quality

0.0%

0.6%

18

KEMCO

Korea Energy Management Corporation

0.0%

0.7%

23

LRQA

Lloyd's Register Quality Assurance Ltd.

0.0%

0.9%

30

JQA

Japan Quality Assurance

1.9%

60.9%

30

AENOR

Spanish Association for Standardisation and Certification

0.0%

1.0%

32

JCI

Japan Consulting Institute

0.3%

14.6%

151

TÜV-Rhein

TÜV Industrie Service GmbH -TÜV Rheinland

4.1%

13

5.6%

182

TÜV-Nord

TÜV-Nord Cert GmbH (RWTÜV)

10.1%

32

5.8%

191

BV Cert

Bureau Veritas Certification

32.1%

102

12.7%

414

SGS

SociétéGénérale de Surveillance

14.8%

47

24.7%

808

TÜV-SÜD

TÜV Industrie Service GmbH -TÜV Süd Gruppe

35.8%

114

41.6%

1358

DNV

Det Norske Veritas Certification

%Number

%Number

CDM

CDM

name

Verified projects

Validated projects

Short

Designated Operational Entity (DOE) used

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13 May 2008

CDM ELIGIBILITY

For a project to be considered for CDM, should fulfill following

eligibility criteria:

─The project contributes to the Sustainable Developmentof the

host country

─The project results in real, measurable and long term benefitsin

terms of climate change mitigation,and

─The reductions must be a

dditio

nalto any that would have

occurred without the project

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Slide 10

13 May 2008

Introduction

�Aim: to reduce unexpected delays and costs from the validation of Project

Design Documents (PDDs) for CDM projects.

�Objectives:

-Introduce the CDM PDD Guidebook

-Enable to people to better interact with the Designated Operating Entity

(DOE) through a better understanding of the validation process

-Help to get PDD submissions right first time, through raising awareness of the

major 20 pitfalls in completing PDDs, particularly those pitfalls that cause the

longest delays.

Version

Slide 11

13 May 2008

CDM PPD Guidebook

�The Guidebook was supported by

the CD4CDM (Capacity

Development for CDM) project),

implemented by the UNEP

RISOE Centre

�Information gathered from DNV

practical experience and research

-DNV has validated over half of all

CDM projects coming through to

the validation stage.

-DNV is the one of the leading

Designated Operational Entity

accredited for allmajor energy,

industry and waste sectors under

the CDM

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13 May 2008

Steps of the Validation Process

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Slide 13

13 May 2008

CDM Project Stages and Parties Involved

Des

ign

Reg

istr

ati

on

Imp

lem

enta

tion

Mon

itori

ng &

Rep

ort

ing

Vali

dati

on

Ver

ific

ati

on C

erti

fica

tion

Pro

ject

Part

icip

an

ts

Des

ign

ate

d O

per

ati

on

al

En

tity

(D

OE

)

CD

M E

xec

uti

ve

Board

Sta

keh

old

er

con

sult

ati

on

s

Des

ign

ate

d N

ati

on

al

Au

thori

ty (

DN

A)

of

host

an

d A

nn

ex I

cou

ntr

y

Part

ies,

Sta

keh

old

ers,

Acc

red

ited

NG

OsAp

pro

val

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Slide 14

13 May 2008

Key pitfalls –Frequency more than 20%

•Evidence of EIA and/or

required

construction/operating

permits/approvals not

provided

•Letter of Approval

insufficient or delayed

•Lack of logic and consistency in

PDD

•Deviations from selected

calculation methodology not

justified sufficiently or incorrect

formulas applied

•Compliance with local legal

requirements not covered

sufficiently

•Insufficient information on the

stakeholder consultation process

Delay more than 1 month

Delay more than 1 week

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Slide 15

13 May 2008

Key Pitfalls –Frequency less than 20%

•Small-scale selected for a

large-scale project

•No written confirmation

that funding will not result

in a diversion of official

development assistance

•Non-compliance with the

applicability conditions of

the applied baseline

methodology or

methodology compliance

not explained sufficiently

•Project participants not identified clearly

•Insufficient description of the technology

•Insufficient explanation of baseline scenarios

•Insufficient explanation of project additionality

•Baselineinformation not sufficiently supported by

evidence and/or not referenced sufficiently

•Major risks to the baseline not identified/described

•The project boundaries not defined clearly

•Project and/or crediting start date unclear

•Deviations from monitoring methodology not justified

sufficiently

•Monitoring and project management procedures not

defined

•The modalities of communication with the Executive

Board in terms of CERsissuance and allocation

instructions not stated clearly, or not signed by all project

participants.

Delay more than 1 month

Delay more than 1 week

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13 May 2008

Evidence of EIA and/or required construction/operating

permits/approvals not provided

�Projects are sometimes submitted for validation without evidencethat

they have all the required operating permits/approvals to proceed.

�Approvals, such as Environment Licences, need to be presented if

required by legislation.

�If required, the DOE will ask to see a copy (a scanned, signed document

is sufficient) of a valid construction permit, an operational licence and

sometimes an Environmental Impact Assessment (EIA).

�These documents should not be included in the PDD, as they are often in

local language and can be too comprehensive. Attachments in a

language other than English shall not be included, as the CDM-EB has

defined that the working language for the CDM is English only.

Version

Slide 17

13 May 2008

Letter of approval insufficient or delayed

�Over 80% of all PDDs submitted for validation are not accompanied by a

Letter of Approval (LoA) from all relevant DNAs. The reasons for this are

that:

-the process of receiving a Letter of Approval started too late and/or the DNAs

have not yet established procedures for the approval of CDM projects

-some DNAs want the validation report before they submit the LoA (e.g. Brazil,

Korea, Germany) and/or

-Parties and/or project participants change during the validationprocess

because of changing private investor or operator relations.

�G

ood p

ractice:The process of receiving an LoA should be initiated at an

early stage as this often takes time. Good examples of LoAs canbe

found on the UNFCCC website

(http://cdm.unfccc.int/Projects/registered.html).

Version

Slide 18

13 May 2008

Small-scale selected for a large-scale project

�Information from reliable and

conservative data sources must

be supplied to justify the

submission of a project as small-

scale.

�A full description is required to

show that the project is eligible as

a small-scale project and is below

the relevant small-scale project

threshold.

�For projects that are not yet

implemented, the correct cannot

be completely certain until the

technology is operational.

Operator A

Hydro 2.5 MW

Project starting

date: February

2006

Operator B

Wind22.5 MW

Project starting

date: January

2006

Operator C

Geothermal42 MW

Project starting

date: March2006

To bundle or not to bundle…

that is the question

Version

Slide 19

13 May 2008

Bundling

�In practice, it is not often that full-scale projects try to debundleinto

several small-scale projects, but sometimes project developers have

expressed a wish to bundle several projects into one full scale PDD. The

EB has requested the Small-scale Working Group to come up with more

detailed guidelines for these projects. Four categories of bundling have

been defined and each must be handled differently:

�• Bundling of project activities of the same type, same categoryand

technology/measure

�• Bundling of project activities of the same type, same categoryand

different technologies/measures

�• Bundling of project activities of the same type, different categories and

technologies/measures

�• Bundling of project activities of different types.

Version

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13 May 2008

Bundling

�It is also possible to bundle full-scale projects together. For

example, a project to capture and combust methane from

swine manure treatment was registered for two projects in

Pocillasand La Estrellain Chile.

�For all of the above categories the crediting period should be

the same and the composition of bundles must not change

over time. Practically, the bundling of several projects into

one can be a problem if a delay in one project causes a

delay to the rest of the bundle. For example, any requests for

review that relate to only one part of a bundled project, lack

of operating license in one project part, or the definition of

how credits are distributed within the bundle, may also affect

the other parts of a bundled project.

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13 May 2008

Good practice

�Information from reliable and conservative data sources must be supplied

to justify the submission of a project as small-scale.

�A full description is required to show that the project is eligible as a small-

scale project and is below the relevant small-scale project threshold

although, for projects that are not yet implemented, this cannotbe

completely certain until the technology is operational. However,there

should be a reasonable correlation between the stated project capacity

(e.g. below 15 MW) and data on, for example, forecasted generation

levels, turbine capacity etc.

�Where the justification of the small-scale eligibility is based on

calculations, the input data and the calculations should be transparently

and conservatively described.

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13 May 2008

Good practice

�A related example is the submission of small-scale PDDsfrom an

unbundled full-scale project. If separate projects are presented with the

same project participants, in the same project category and

technology/measure, registered within a two year period, and with a

project boundary within 1 km of the project boundary of the proposed

small-scale activity at the closest point, these will be defined as part of a

debundledfull-scale project. This practice is not allowed under the CDM.

Decis

ion 2

1/

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13 May 2008

Examples of scale mistakes

�The eligibility of a project as a small-scale CDM project may be

questioned

-For example, if the project emits more than 60 ktCO2 in a specific year,

although on average it emits less than 60 ktCO2 per year the eligibility as a

small-scale project will be questioned. If at the renewal of the crediting period,

the project emissions are higher than 60 ktCO2e/ year, the project ceases to

be a small-scale CDM project and must apply a large-scale approved

methodology.

�For several biomass co-generation systems and/or co-fires systems such

as boilers, if the energy output exceeds 180 MWth in total, the project is

not eligible as small-scale project

�Energy efficiency projects that exceed the limit of, for instance, 60 GWh

of energy savings during a year within the crediting period, will only

receive CERs up to the maximum value of 60 GWh.

�Bundle of several small scale projects that in total exceed the eligibility

limits.

Version

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13 May 2008

No written confirmation that funding will not result

in a diversion of official development assistance

�Written confirmation that funding will not result in a diversionof official

development assistance must ideally be obtained from the relevant

Annex I country DNA.

-What this means is that Annex I countries shall not divert official development

assistance funds that previously have been directed to other purposes (e.g.

for school buildings) in the respective host country to the purchase of CERs

from a CDM project. Such evidence should be given by the Annex I country.

-A key word in this context is “diversion”.

�Such a statement is only needed when public funding from an Annex 1

Party is used by the project.

Version

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13 May 2008

Non-compliance with the applicability conditions of the applied

baseline methodology or compliance not explained sufficiently

�Applicability criteria from the methodologies are sometimes not

specifically addressed in the PDD.

�In other cases, the project may be in non-compliance with one or more of

the applicability criteria. Hence, it is important that sufficient information

is provided through descriptions in the PDD in order to enable the

conformity of the project with the applicability criteria to be evaluated.

�Follow the structure and the wording of the methodology and, when

justifying the applicability of the methodology to the specific project,

substantiate this with as much evidence as possible.

�If in doubt on the appropriateness of an existing baseline methodology, it

may be wise to contact the DOE for a discussion

Version

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13 May 2008

Stakeholder Comments -Process

Objective of stakeholder consultations:

�To secure that the view of all parties are considered in the assessment of

a CDM project.

Two tiers of stakeholder consultations are required:

�Local stakeholder comments (MA 37(b))

-Project proponent must invite and summarise local stakeholder comments

and report these to the validator

�Comments from Parties, stakeholders and UNFCCC-accredited NGOs

on the PDD (MA 40 (b)& (c))

-Validator must take into account comments provided and the project

developers response to local stakeholder comments

Also requirements for public disclosure of monitoring and verification

reports, but no option here for comments

Version

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13 May 2008

Verification

�In most instances what is indicated in the registered PDD is ideal and hence not

reflected in practice:

-Adherence to the monitoring plan

-Parameters

-Frequency of measurement

-Value –measured vscalculated/estimated

�Systems not in place

-Calibration

�Vast difference in the estimates of the PDD and actual monitoring plan

�Ex-p

ostmonitoring not evident

�Detailed excel sheet calculations not available

�Current environmental permits and obligations not fulfilled.

Verification is rigorous and all that is stipulated in the methodology and the

registered PDD must be demonstrated –through records, data and evidences

Version

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13 May 2008

DETNORSKEVERITAS...

… for your

emission reductions

www.dnv.com/certification