출처: Nadaa Taiyab (2006), Exploring the market for voluntary carbon offsets
※ 발췌 (excerpts):
1. Introduction
The Clean Development Mechanism (CDM), created by the Kyoto Protocol, was envisioned as a mechanism that would link the carbon market and sustainable development objectives in developing countries. Through the CDM, countries with GHG reduction targets under the Kyoto Protocol can generate emissions credits from emissions offset projects in developing countries, provided that those projects also contribute to sustainable development priorities in their host countries. The CDM has come under great criticism for not adequately delivering on these 'sustainable development' benefits. For ex., the market increasingly favours low-cost, high-volume projects, such as HFC (hydro fluorocarbon) destruction or landfill to energy projects, which have few benefits to local livelihoods. Small community-based projects are often not economically viable under the CDM, due to high transaction costs and lengthy bureaucratic procedures. Furthermore, the majority of projects are concentrated in large markets, such as India and Brazil, and have virtually bypassed the least developed countries (LDCs).
Parallel with the CDM market, there has emerged a voluntary market for carbon offsets. The voluntary market consists of companies, governments, organisations, organisers of international events, and individuals, taking responsibility for their carbon emissions by voluntarily purchasing carbon offsets. These voluntary offsets are often bought from retailers or organisations that invest in a portfolio of offset projects and sell slices of the resulting emissions reductions to customers in relatively small quantities. As retailers generally sell to the voluntary market, the projects in which they invest do not necessarily have to follow the CDM process. Free of the stringent guidelines, lengthy paper work, and high transaction costs, project developers have more freedom to invest in small-scale community based projects. To co-benefits of these projects, in terms of, for ex., local economic development or biodiversity, are often a key selling point.
This report explores the potential for financing these small-scale high-benefit projects through the voluntary and retail sector of the carbon market with a view to answering the following questions:
1) How does the voluntary and retail sector fit into the overall carbon market?
2) Who are the main buyers and sellers in the market?
3) What motivates buyers to voluntarily purchase carbon offsets?
4) What are buyers’ main concerns and considerations?
5) How much are buyers willing to pay for offsets and in what quantities?
6) How can the market for voluntary / retail offsets be further developed?
Research consisted of interviewing offset retailers and buyers from the private sector, government, and non-profit sector as well as reviews of existing literature. The organisations interviewed are listed in Annex A. ( ... ... )
2. Overview of the carbon market
The carbon market has developed a jargon of its own, which can be difficult to understand. The following provides some background on how carbon offsets work, how they interact tiwh the larger carbon market, and some of the existing carbon markets.
2.1 What are carbon offsets?
A carbon offset negates or 'neutralises' a ton of CO2e (carbon dioxide equivalent) emitted in one place by avoiding the release of a ton of CO2e elsewhere or absorbing /sequestering a tone of CO2e that would have otherwise remained in the atmosphere. Carbon offsets are created through various types of projects, such as renewable energy, energy efficiency, destruction of various industrial gases, and carbon sequestration underground or in soils and forests. A project does not necessarily have to offset CO2, but can also offset a variety of other GHGs, such as methane and hydrofluorocarbons[n.1] These GHG offset projects in turn generate carbon/GHG credits or emission reductions, which can be purchased by individuals or organisations to neutralise their GHG emissions. ( ... )
Take the following example: if a company emits 20,000 tCO2e per year it could negate its emissions by planting a certain number of trees that would effectively absorb 20,000 tCO2e per year or invest in a wind farm or a project distributing energy efficient stoves to poor communities in developing countries. [n.2] By compensating for its annual carbon emissions through offset projects, the company effectively becomes 'carbon neutral'. Ideally the company would first reduce its overall emissions by lowering energy consumption or using renewable energy and only then purchase carbon credits to offset the emissions that cannot be avoided through other means.
The defining characteristic of carbon offsets is ^additionality^. Additionality means that the emissions reductions must be 'additional' to those that would have otherwise occurred under a ^business-as-usual^ scenario. In other words, if the wind farm would have been built or the trees would have been planted regardless of the sale of the carbon credits, then those projects are not 'additional' and cannot be counted as carbon offsets. Additionality can be demonstrated in various ways, such as showing a project would not be profitable enough or would not be able to obtain sufficient financing without the sale of the carbon credits or that a certain technology would not have otherwise been adopted.[n.3] Additionality is extremely important to the environmental integrity of the mechanism, as loose additionality requirements could result in a host of projects receiving carbon financing without actually reducing GHG emissions into the atmosphere.
In order to measure the additional carbon benefits from a given project, a clear and credible baseline must be calculated. The baseline is the projected GHG emissions that would have occurred in the absence of the projectㅡthe business-as-usual scenario. The difference between the baseline emissions and the carbon emissions with the offset project equal to the volume of carbon credits that can then be sold to buyers.[n.4] For ex., if a wind plants is built to displace electricity used from a coal-fired plant, then the GHG emissions from the quantity of coal that would have been burned in the absence of the wind farm constitutes the baseline emissions scenario.
During and after implementation, the project should undergo a verification process, to prove that the promised emissions reductions have actually been realised. To ensure the highest levels of credibility, project developers can use an accredited independent third party to conduct verification.
Some other issues related to credibility are permanence and leakage. Permanence refers to a project's ability to weather variability and uncertainty in circumstances while continuing to deliver carbon emissions reductions. For ex., the permanence of carbon sequestered through tree planting could be compromised if the trees are burned down in a fire or cut down prematurely. Leakage occurs when events outside the project boundary, but related to the project, reduce the project's carbon benefit. For ex., reforestation in one place could lead to accelerated deforestation in another place. [n.5] Leakage can occur with any type of project.
Emissions reductions / carbon credits can be bought and then retired or sold on to a secondary market. The price of a carbon credit depends on a number of factors, including current market prices, project risk, project quality and associated co-benefits. [n.6]
2.2 How do you trade carbon?
( ... )
Emissions credit can be purchased through ^project-based transactions^, whereby carbon credits are bought from a specific carbon offset project (as described above), or through ^allowance based transaction&. [n.7] Emissions allowances are created and allocated by regulators under a cap-and-trade regime. In a cap-and-trade regime, regulators cap the quantity of CO2e that each participant is permitted to emit and then issue allowance units to the participants, representing their individual caps. Participants are free to buy and sell their allowances such that at the end of the compliance period, each participant holds a quantity of allowances equivalent to their actual emissions. This trading activity creates a 'carbon market.'
2.3 Why trade carbon? ( ... )
2.4 The interaction between project based transactions and allowance based transactions
The inclusion of project-based transactions into the carbon market can further reduce the cost of compliance by generating credits that might be cheaper than allowances or internal reductions. Projects can also lead to other co-benefits, such as the introduction of new technology, skills training, local economic development, biodiversity protection, etc. Generally, carbon credits from offset projects can be purchased from a project developer or broker and held on to or sold on a secondary market to other market participants. Within the Kyoto regime, carbon credits from offset projects and carbon allowances are interchangeable.
2.5 Existing carbon markets
Since the signing of the Kyoto Protocol in 1997, several carbon markets have emerged, both regulatory and voluntary.
Regulatory regimes:
1) Kyoto (2008-12), which include allowance trading and project based transactions through the Clean Development Mechanism (CDM) and Joint Implementation(JI).
2) European Union Emissions Trading Scheme (EU ETS) (2005-8), Eu wide pilot scheme to help EU nations meet Kyoto targets, allows credits from CDM and JI projects to be imported into the market.
3) The New South Wales GHG Abatement scheme (2003-12) in Australia, regulated by the state of New South Wales, creates emissions benchmarks for electricity retailers.
Voluntary regimes:
1) United Kingdom Emissions Trading Scheme (UK ETS), companies can opt into scheme and receive financial incentives.
2) Chicago Climate Exchange, a voluntary trading scheme in the US.
3) Retail Market, which generally consists of small project-based emissions reductions not used for compliance or trading. [n.8]
( ... )
2.6 The Clean Development Mechanism
As discussed earlier, there is great controvery over whether the CDM will deliver on sustainable development benefits. According to one analyst,
These types of project are attractive because they are less capital intensive than, for example, renewable energy projects; they can generate high volumes of credits because the gases they displace have higher global warming potential than CO2; and they are generally ‘quick and common practice additions to existing facilities [brown-fields]’. [n.11] A further problem is that the incredibly low cost of these projects could flood the market and drive down the market prices of CERs, such that other types of project become unviable.[n.12]
( ... )
It is widely understood that small-scale projects are better at delivering ‘development dividends’13 High transaction costs and long bureaucratic procedures mean that small scale projects are often not viable under the CDM process. The CDM Executive Board has adopted special rules to encourage small-scale CDM projects, involving lower registration fees and simplified documentation and auditing procedures, yet the costs still remain quite high.
For an in depth discussion on the CDM and sustainable development please refer to a recent report by the International Institute for Sustainable Development (IISD), entitled Realising the Development Dividend: Making the CDM Work for Developing Countries. Available at http://www.iisd.org/climate/global/dividend.asp.
3. The voluntary and retail markets
3.1 Description
The voluntary markets refers to entities (companies, governments, NGOs, individuals) that purchase carbon credits for purposes other than meeting regulatory targets. The retail market refers to companies and organisations that invest in offset projects and then sell off portions of the emissions reductions in relatively small quantities with a mark-up. Offset projects can be classified into two general categories:
1) CDM / JI : projects that are (or will be) registered with CDM Executive Board and relevant authority for JI projects and will be able to generate CERs and ERUs(Emissions Reduction Units) [n.14]
2) Non CDM / JI : projects that are not seeking CDM / JI registration and therefore will not be able to be used for meeting Kyoto or EU targets. The credits generated by these projects are called VERs(Verified Emissions Reductions)
3.2 Market size
Given the small and fragmented nature of the retail market and the lack of any centralised registratin for non-CDM projects, it is very difficult to estimate the size of the market with much accuracy. Both the World Back and Ecosystem Marketplace maintain databases of non-CDM project transactions, but they are largely imcomplete due the above reasons.
However, a survey of known retail providers has recently been conducted by Sonja Butzengeiger, from the Hamburg Institute, which provides some estimate of the size of the voluntary market. Questionnaires were sent to 31 service providers and 18 responses were received, including two that had discontinued their services. In 2004, the 16 remaining providers offset just over 9 million tCO2e in total.15 Ninety-five per cent of the emission reductions were VERs, with CERs and ERUs comprising just five per cent. However, these figures do not indicate the quantity of offsets that were actually sold and include only 60 per cent of the known providers. The market for voluntary offsets has grown rapidly since 2001 and is expected to continue to expand.16 Prices vary enormously, from US$5 - $35 or more per tCO2e, depending on the quality and location of the project and the mark-up imposed by the provider.
The retail market is currently quite small, but is growing rapidly. Several service providers have reported a doubling of sales each year for the past two years.
3.3 Sustainable development
The retail/voluntary market, which primarily supplies and purchases non CDM credits, has potentially more scope to invest in small-scale projects with high sustainable development benefits as project developers can avoid the bureaucratic procedures and high transaction costs associated with the CDM registration process. However, this flexibility may come at the cost of reduced credibility and inconsistent quality. While some of the existing retail providers adhere to even higher standards of additionality and sustainable development than demanded by the CDM, others employ less rigorous project standards and verification methods. As a result, buyers often find it difficult to decide on a provider.
One provider noted the frequent trade-off between community benefits and robust carbon benefits. Small-scale projects with significant direct benefits to communities, such as agroforestry or energy efficient stoves in rural villages, are also often the riskiest in terms of achieving the projected carbon reductions and the most difficult and expensive to monitor. In contrast, large projects, such as HFC capture and land-fill to energy projects have fewer benefits to local communities, but their carbon benefits are relatively certain and predictable and they are much easier to monitor.[n.17] Some providers use a portfolio approach to mitigate against this risk, by investing in both community-based and large scale projects.
3.4.1 CDM / JI Standards [n.18]
A Designated Operational Entity (DOE), accredited by the CDM Executive Board, validates the Project Design Document (PDD), which includes an additionality analysis, baseline calculations, and a monitoring plan. Validation involves in depth review of the PDD to ensure that it meets existing requirements before submission of the document to the CDM EB. Upon implementation, a different DOE (from the one that conducted the validation) verifies whether the GHG reductions have actually been realised through the project. Verification includes an examination of the project documentation and on-site inspections.
Certification is a written assurance by the DOE that a project activity achieved the verified reductions in GHG emissions. Small-scale projects must still employ the services of a DOE, but are permitted to follow a simplified methodology and are subject to a lower transaction fee. SGS, KPMG, and Japan Consulting Institute are examples of accredited DOEs. Clearly this process is quite lengthy, complex, and costly, in terms of both the registration fees and the DOE’s services.
※ Box 3.2 CDM Project Cycle
1) Preparation of Project Design Document (PDD), includes baseline calculation and monitoring plan. Methodology for baseline and monitoring either based on an existing methodology or a new methodology, submitted to CDM Executive Board (EB) for approval
2) Validation of PDD by DOE (Designated Operational Entity)
3) Registration of project with CDM EB
4) Project implementation and monitoring
5) Verification of emission reductions/avoidance by a different DOE
6) Certification of emission reductions/avoidance by DOE
7) Issuance of Certified Emission Reductions (CERs) by CDM EB
Modified from Sterk & Bunse 2004
3.4.2 Gold Standard [n.19]
The standards set up by the CDM Executive Board address additionality, but do not set any guidelines for sustainable development. According to the Kyoto Protocol, host countries are responsible for developing their own criteria for sustainable development and assessing whether proposed projects meet those criteria. Fearful that this arrangement would lead to an inconsistent standard of quality in terms of sustainable development, as some governments may be less stringent in their criteria, a group of NGOs, led by the World Wildlife Fund (WWF), have created the CDM Gold Standard. In order to meet the Gold Standard, projects must pass through three screens:
1) Project type screen – restricted to renewable energy and end-use energy efficiency projects (solar energy, biomass, wind, geothermal, small hydro, biogas)
2) Additionality and Baseline screen
3) Sustainable Development screen – cost and benefits associated with other environmental, economic, and social impacts; local stakeholder consultation prior to implementation
Official CDM standards alone do not include a sustainable development screen and mandatory consultation with local stakeholders. DOEs conduct Gold Standard certification following the normal CDM process, but using the additional Gold Standard guidelines. Non-CDM/JI projects can also receive Gold Standard certification by following the guidelines and receiving validation from an accredited organisation.
It is argued that Gold Standard certification will assure buyers of the projects’ credibility and its contribution to sustainable development. Quality assurance also reduces reputational risk arising from criticism by NGOs and governmental bodies scrutinising companies claiming emissions credits. These benefits will theoretically translate into a price premium for sellers, as it is expected that buyers will pay more for higher quality credits. Adopting the Gold Standard certainly assures an even higher level of quality, but, of course, is even more expensive than following the normal CDM guidelines and the standards do not cover forestry projects. [n.20]
Take the following example: if a company emits 20,000 tCO2e per year it could negate its emissions by planting a certain number of trees that would effectively absorb 20,000 tCO2e per year or invest in a wind farm or a project distributing energy efficient stoves to poor communities in developing countries. [n.2] By compensating for its annual carbon emissions through offset projects, the company effectively becomes 'carbon neutral'. Ideally the company would first reduce its overall emissions by lowering energy consumption or using renewable energy and only then purchase carbon credits to offset the emissions that cannot be avoided through other means.
The defining characteristic of carbon offsets is ^additionality^. Additionality means that the emissions reductions must be 'additional' to those that would have otherwise occurred under a ^business-as-usual^ scenario. In other words, if the wind farm would have been built or the trees would have been planted regardless of the sale of the carbon credits, then those projects are not 'additional' and cannot be counted as carbon offsets. Additionality can be demonstrated in various ways, such as showing a project would not be profitable enough or would not be able to obtain sufficient financing without the sale of the carbon credits or that a certain technology would not have otherwise been adopted.[n.3] Additionality is extremely important to the environmental integrity of the mechanism, as loose additionality requirements could result in a host of projects receiving carbon financing without actually reducing GHG emissions into the atmosphere.
In order to measure the additional carbon benefits from a given project, a clear and credible baseline must be calculated. The baseline is the projected GHG emissions that would have occurred in the absence of the projectㅡthe business-as-usual scenario. The difference between the baseline emissions and the carbon emissions with the offset project equal to the volume of carbon credits that can then be sold to buyers.[n.4] For ex., if a wind plants is built to displace electricity used from a coal-fired plant, then the GHG emissions from the quantity of coal that would have been burned in the absence of the wind farm constitutes the baseline emissions scenario.
During and after implementation, the project should undergo a verification process, to prove that the promised emissions reductions have actually been realised. To ensure the highest levels of credibility, project developers can use an accredited independent third party to conduct verification.
Some other issues related to credibility are permanence and leakage. Permanence refers to a project's ability to weather variability and uncertainty in circumstances while continuing to deliver carbon emissions reductions. For ex., the permanence of carbon sequestered through tree planting could be compromised if the trees are burned down in a fire or cut down prematurely. Leakage occurs when events outside the project boundary, but related to the project, reduce the project's carbon benefit. For ex., reforestation in one place could lead to accelerated deforestation in another place. [n.5] Leakage can occur with any type of project.
Emissions reductions / carbon credits can be bought and then retired or sold on to a secondary market. The price of a carbon credit depends on a number of factors, including current market prices, project risk, project quality and associated co-benefits. [n.6]
2.2 How do you trade carbon?
( ... )
Emissions credit can be purchased through ^project-based transactions^, whereby carbon credits are bought from a specific carbon offset project (as described above), or through ^allowance based transaction&. [n.7] Emissions allowances are created and allocated by regulators under a cap-and-trade regime. In a cap-and-trade regime, regulators cap the quantity of CO2e that each participant is permitted to emit and then issue allowance units to the participants, representing their individual caps. Participants are free to buy and sell their allowances such that at the end of the compliance period, each participant holds a quantity of allowances equivalent to their actual emissions. This trading activity creates a 'carbon market.'
2.3 Why trade carbon? ( ... )
2.4 The interaction between project based transactions and allowance based transactions
The inclusion of project-based transactions into the carbon market can further reduce the cost of compliance by generating credits that might be cheaper than allowances or internal reductions. Projects can also lead to other co-benefits, such as the introduction of new technology, skills training, local economic development, biodiversity protection, etc. Generally, carbon credits from offset projects can be purchased from a project developer or broker and held on to or sold on a secondary market to other market participants. Within the Kyoto regime, carbon credits from offset projects and carbon allowances are interchangeable.
2.5 Existing carbon markets
Since the signing of the Kyoto Protocol in 1997, several carbon markets have emerged, both regulatory and voluntary.
Regulatory regimes:
1) Kyoto (2008-12), which include allowance trading and project based transactions through the Clean Development Mechanism (CDM) and Joint Implementation(JI).
2) European Union Emissions Trading Scheme (EU ETS) (2005-8), Eu wide pilot scheme to help EU nations meet Kyoto targets, allows credits from CDM and JI projects to be imported into the market.
3) The New South Wales GHG Abatement scheme (2003-12) in Australia, regulated by the state of New South Wales, creates emissions benchmarks for electricity retailers.
Voluntary regimes:
1) United Kingdom Emissions Trading Scheme (UK ETS), companies can opt into scheme and receive financial incentives.
2) Chicago Climate Exchange, a voluntary trading scheme in the US.
3) Retail Market, which generally consists of small project-based emissions reductions not used for compliance or trading. [n.8]
( ... )
2.6 The Clean Development Mechanism
As discussed earlier, there is great controvery over whether the CDM will deliver on sustainable development benefits. According to one analyst,
" Even in the initial stages of CDM project preparation, it is evident that there are trade-offs between profit-maximisation by investors and the sustainable development objectives of the CDM. The latter are most likely to be achieved through projects such as renewable energy schemes and such schemes would also contribute to the financing of necessary energy infrastructure investment in developing countries .... In contrast, large potential generators of CERs, such as fluorinated gases reduction projects, have no broader development impact, but these projects provide the lowest-cost means of generating Kyoto units. " [n.9]Out of the 92 projects in the process of validation or already registered, two HFC23 projects comprise 30 per cent of the expected total Certified Emissions Reductions (CERs). HFC and landfill projects together will supply three quarters of the total quantity of CERs. In terms of project type, the great majority of projects are in hydro power, biomass power, and landfill-to-gas capture. There are only three energy efficiency projects, one energy distribution project, and no solar energy projects.[n.10]
These types of project are attractive because they are less capital intensive than, for example, renewable energy projects; they can generate high volumes of credits because the gases they displace have higher global warming potential than CO2; and they are generally ‘quick and common practice additions to existing facilities [brown-fields]’. [n.11] A further problem is that the incredibly low cost of these projects could flood the market and drive down the market prices of CERs, such that other types of project become unviable.[n.12]
( ... )
It is widely understood that small-scale projects are better at delivering ‘development dividends’13 High transaction costs and long bureaucratic procedures mean that small scale projects are often not viable under the CDM process. The CDM Executive Board has adopted special rules to encourage small-scale CDM projects, involving lower registration fees and simplified documentation and auditing procedures, yet the costs still remain quite high.
For an in depth discussion on the CDM and sustainable development please refer to a recent report by the International Institute for Sustainable Development (IISD), entitled Realising the Development Dividend: Making the CDM Work for Developing Countries. Available at http://www.iisd.org/climate/global/dividend.asp.
3. The voluntary and retail markets
3.1 Description
The voluntary markets refers to entities (companies, governments, NGOs, individuals) that purchase carbon credits for purposes other than meeting regulatory targets. The retail market refers to companies and organisations that invest in offset projects and then sell off portions of the emissions reductions in relatively small quantities with a mark-up. Offset projects can be classified into two general categories:
1) CDM / JI : projects that are (or will be) registered with CDM Executive Board and relevant authority for JI projects and will be able to generate CERs and ERUs(Emissions Reduction Units) [n.14]
2) Non CDM / JI : projects that are not seeking CDM / JI registration and therefore will not be able to be used for meeting Kyoto or EU targets. The credits generated by these projects are called VERs(Verified Emissions Reductions)
[n.14] The tradable units generated from CDM projects are called CERs – Certified Emission Reductions; the tradable units generated from JI projects are called ERUs – Emission Reduction Units
Note that a buyer can voluntarily purchase credits from a CDM or a non-CDM project. The action is defined as voluntary so long as the credits will not be used to meet a regulatory target. Retailers can sell VERs, CERs, or ERUs for voluntary or regulatory purposes. However, the vast majority of retailers sell VERs to the voluntary market.
3.2 Market size
Given the small and fragmented nature of the retail market and the lack of any centralised registratin for non-CDM projects, it is very difficult to estimate the size of the market with much accuracy. Both the World Back and Ecosystem Marketplace maintain databases of non-CDM project transactions, but they are largely imcomplete due the above reasons.
However, a survey of known retail providers has recently been conducted by Sonja Butzengeiger, from the Hamburg Institute, which provides some estimate of the size of the voluntary market. Questionnaires were sent to 31 service providers and 18 responses were received, including two that had discontinued their services. In 2004, the 16 remaining providers offset just over 9 million tCO2e in total.15 Ninety-five per cent of the emission reductions were VERs, with CERs and ERUs comprising just five per cent. However, these figures do not indicate the quantity of offsets that were actually sold and include only 60 per cent of the known providers. The market for voluntary offsets has grown rapidly since 2001 and is expected to continue to expand.16 Prices vary enormously, from US$5 - $35 or more per tCO2e, depending on the quality and location of the project and the mark-up imposed by the provider.
The retail market is currently quite small, but is growing rapidly. Several service providers have reported a doubling of sales each year for the past two years.
3.3 Sustainable development
The retail/voluntary market, which primarily supplies and purchases non CDM credits, has potentially more scope to invest in small-scale projects with high sustainable development benefits as project developers can avoid the bureaucratic procedures and high transaction costs associated with the CDM registration process. However, this flexibility may come at the cost of reduced credibility and inconsistent quality. While some of the existing retail providers adhere to even higher standards of additionality and sustainable development than demanded by the CDM, others employ less rigorous project standards and verification methods. As a result, buyers often find it difficult to decide on a provider.
One provider noted the frequent trade-off between community benefits and robust carbon benefits. Small-scale projects with significant direct benefits to communities, such as agroforestry or energy efficient stoves in rural villages, are also often the riskiest in terms of achieving the projected carbon reductions and the most difficult and expensive to monitor. In contrast, large projects, such as HFC capture and land-fill to energy projects have fewer benefits to local communities, but their carbon benefits are relatively certain and predictable and they are much easier to monitor.[n.17] Some providers use a portfolio approach to mitigate against this risk, by investing in both community-based and large scale projects.
3.4.1 CDM / JI Standards [n.18]
[n.18] UNFCCC website, http://cdm.unfccc.int/Projects/pac/howto/CDMProjectActivity/VerifyCertifyIn order to generate CERs and ERUs, CDM and JI must meet a detailed set of standards. The calculatin of baseline emissions and monitoring plans, are calculated by project methodologies, which are submitted by project developers and subject to approval by the CDM Executive Board (EB) A project developer may either design a project based on an existing methodology or submit a new methodology. The CDM EB has also agreed on a set of tools for determining additionality.
A Designated Operational Entity (DOE), accredited by the CDM Executive Board, validates the Project Design Document (PDD), which includes an additionality analysis, baseline calculations, and a monitoring plan. Validation involves in depth review of the PDD to ensure that it meets existing requirements before submission of the document to the CDM EB. Upon implementation, a different DOE (from the one that conducted the validation) verifies whether the GHG reductions have actually been realised through the project. Verification includes an examination of the project documentation and on-site inspections.
Certification is a written assurance by the DOE that a project activity achieved the verified reductions in GHG emissions. Small-scale projects must still employ the services of a DOE, but are permitted to follow a simplified methodology and are subject to a lower transaction fee. SGS, KPMG, and Japan Consulting Institute are examples of accredited DOEs. Clearly this process is quite lengthy, complex, and costly, in terms of both the registration fees and the DOE’s services.
※ Box 3.2 CDM Project Cycle
1) Preparation of Project Design Document (PDD), includes baseline calculation and monitoring plan. Methodology for baseline and monitoring either based on an existing methodology or a new methodology, submitted to CDM Executive Board (EB) for approval
2) Validation of PDD by DOE (Designated Operational Entity)
3) Registration of project with CDM EB
4) Project implementation and monitoring
5) Verification of emission reductions/avoidance by a different DOE
6) Certification of emission reductions/avoidance by DOE
7) Issuance of Certified Emission Reductions (CERs) by CDM EB
Modified from Sterk & Bunse 2004
3.4.2 Gold Standard [n.19]
The standards set up by the CDM Executive Board address additionality, but do not set any guidelines for sustainable development. According to the Kyoto Protocol, host countries are responsible for developing their own criteria for sustainable development and assessing whether proposed projects meet those criteria. Fearful that this arrangement would lead to an inconsistent standard of quality in terms of sustainable development, as some governments may be less stringent in their criteria, a group of NGOs, led by the World Wildlife Fund (WWF), have created the CDM Gold Standard. In order to meet the Gold Standard, projects must pass through three screens:
1) Project type screen – restricted to renewable energy and end-use energy efficiency projects (solar energy, biomass, wind, geothermal, small hydro, biogas)
2) Additionality and Baseline screen
3) Sustainable Development screen – cost and benefits associated with other environmental, economic, and social impacts; local stakeholder consultation prior to implementation
Official CDM standards alone do not include a sustainable development screen and mandatory consultation with local stakeholders. DOEs conduct Gold Standard certification following the normal CDM process, but using the additional Gold Standard guidelines. Non-CDM/JI projects can also receive Gold Standard certification by following the guidelines and receiving validation from an accredited organisation.
It is argued that Gold Standard certification will assure buyers of the projects’ credibility and its contribution to sustainable development. Quality assurance also reduces reputational risk arising from criticism by NGOs and governmental bodies scrutinising companies claiming emissions credits. These benefits will theoretically translate into a price premium for sellers, as it is expected that buyers will pay more for higher quality credits. Adopting the Gold Standard certainly assures an even higher level of quality, but, of course, is even more expensive than following the normal CDM guidelines and the standards do not cover forestry projects. [n.20]
( ... ... )
4. Buyers and sellers in the retail market
( ... ... )
4. Buyers and sellers in the retail market
( ... ... )
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