The Clean Development Mechanism
MDG Carbon’s project-based activities operate within the framework of the CDM and JI, the market-based mechanisms under the Kyoto Protocol that allow developed countries to meet their compliance targets by financing GHG emission reduction projects located in other countries.
The basis for the CDM and JI mechanisms is that GHGs’ impact on global climate change does not depend on their source. Reducing a tonne of carbon dioxide emissions in Africa has the same beneficial impact on the climate as reducing a tonne in Europe. Therefore, CDM offers developing countries the opportunity to use their comparative advantage in emissions reduction: their cost to reduce emissions is generally lower than that of developed countries.
A CDM project reduces or avoids the emission of GHGs in a developing country. Examples of such projects include:
- Renewable energy, such as wind, hydroelectric or solar;
- Biomass residues, such as utilizing bagasse for electricity generation in a sugar factory;
- Energy efficiency measures, such as the introduction of compact fluorescent light bulbs or more efficient cookstoves; and
- Waste management practices, such as capturing methane emissions from wastewater treatment plants.
Project proponents, who may be private-sector companies, public-sector bodies, utilities or non-governmental organizations, can initiate these projects.
For every tonne of GHG reduced by an emission reduction project, it is awarded a carbon credit, or Certified Emission Reduction (CER). CERs can be sold, creating a hard currency revenue stream. The size of this revenue stream varies, but can be anywhere from tens of thousands to tens of millions of US dollars per year.
The CER revenue stream adds to a project’s other revenue streams. For example, electricity sales are the primary revenue stream of a hydro-power project. By adding to these revenue streams, a CDM project enhances the economics of ‘clean’ projects and provides an incentive for similar projects.
The CDM project cycle
The CDM has been designed to incorporate a rigorous project cycle. To develop a CDM project, the following regulatory steps occur in the project cycle:
- Design of the CDM project and preparation of necessary project documentation, including the Project Design Document (PDD);
- Obtain approval from the host country’s Designated National Authority;
- Receive a positive validation opinion by the Designated Operational Entity (DOE) and registration of that project with the CDM Executive Board;
- Establish monitoring of the project’s emission reductions;
- Complete verification and certification of the project’s emission reductions by the DOE;
- Receive CERs by the CDM Executive Board.
CDM PROJECT ACTIVITY CYCLE
|Design||Project Proponent (PP)|
|Validation/registration||Designated Operational Entity (DOE)|
|Executive Board (EB)|
|Monitoring||Project Proponent (PP)|
|Verification/certification||Designated Operational Entity (DOE)|
|Issuance||Executive Board (EB)|
|Certified Emission Reduction (CER)|
The CDM project cycle
United Nations Framework Convention on Climate Change
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