CDM: Quick Overview

Matt SpannagleTechnical Manager

Millennium Development Goals Carbon Facility

Bureau for Development PolicyUnited Nations Development Programme

Session 3, Bratislava, October 14th, 2008

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For interest & warm-up:

1m sea level rise and population displaced

http://www.bubbleology.com/seeps/Seep_Blowout.htmlMethane clathrates

Arctic sea ice extent for September 14th

http://www.homerdixon.com/download/arctic_flushing.htmlArctic ice breakup

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Actually, the CDM is ‘climate neutral’

Actual greenhouse gas

emissions

CERs generated by CDM projects

Annex 1 country buys CERs

Acquired CERs are added and

national emissions cap

increases

‘Business as usual’ emissions

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In 3 years, the CDM has sparked a $5 billion/year market

Jan05

Mar05

May05

Jul05

Sep05

Nov05

Jan06

Mar06

May06

Jul06

Sep06

Nov06

Jan07

Mar07

May07

July07

Sep07

Nov07

Jan08

Mar08

67 83 118 171275

440554

647749

883

1,1411,311

1,495

1,7591,885

2,285

2,593

2,8383,035

3,265Number of Projects in the CDM Pipeline,

January 2005 – March 2008

Compound Monthly Growth Rate = 11%

Approximately 3 billion CERs by 2012

Compound Monthly Growth Rate = 11%

Approximately 3 billion CERs by 2012

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Current value size of the international carbon market

CDM:> 1000 projects registeredcumulative > 3(?) bn tonnes CO2e reductions up to 2012(About India & Japan’s inventory for a year – or nearly 10% of global annual

emissions)

2005 ~ $1 billion2006 ~ $5 billion2007 ~ $12 billion 2008 …???

JI 2007 < $1 billionEUETS 2007 > $60 billion (?)

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Seems like CDM is a roaring success…. BUT:

Under Kyoto, CDM purpose is to deliver low cost emission reductions

AND assist developing countries

achieve sustainable development.

Many CERs come from ‘end of pipe’ projects, not really SD

HFC & N2Oreduction

40%

Renewable Energy23%

CH4

reduction16%

Energyefficiency

7%

Cement & Coalmine/bed, 7%

Fuel switch, 7%

Afforestation &Reforestation, 0.2%

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Geographical imbalance in the CDM

Location of CDM Projects

• 4 countries (China, India, Brazil and South Korea) account for 80% of credits through to 2012

• Within these countries, not necessarily impact poorest

• Arab States, Africa, Central Asia underrepresented

•88 non-Annex 1 countries have yet to benefit from any registered CDM project activity

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How a CDM project generates carbon credits

Gre

enh

ou

se g

as e

mis

sio

ns

Historical Trend

Project startProject start

Carbon credits (CERs) represent the difference

between the baseline and actual emissions

Carbon credits (CERs) represent the difference

between the baseline and actual emissions

Time

NOTE: greenhouse gas emissions must also

include project emissions – emissions

occurring within the project boundary:

• e.g. fossil fuel emissions from construction

• e.g. soil disturbance from tree-planting

NOTE: greenhouse gas emissions must also

include project emissions – emissions

occurring within the project boundary:

• e.g. fossil fuel emissions from construction

• e.g. soil disturbance from tree-planting

AND: leakage – emissions occurring outside the project

boundary

AND: leakage – emissions occurring outside the project

boundary

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• Benchmark analysis

– Choose an appropriate financial indicator and compare it with a relevant benchmark value: e.g. required return on capital or internal company benchmark

Project without carbon revenue is profitable –

but not sufficiently profitable

compared with alternatives

Project without carbon revenue is profitable –

but not sufficiently profitable

compared with alternatives

Project without carbon element

Project with carbon element

Carbon revenue makes the

project attractive relative to investment alternatives

Carbon revenue makes the

project attractive relative to investment alternatives

Investmentthreshold

Rev

enu

e /

NP

V /

IR

R

A project can be money-making and qualify as ‘additional’!

A project can be money-making and qualify as ‘additional’!

Financial additionality – benchmark analysis

1010

6 to 12 months 1.5 months Crediting period of the project

Pro

ject

D

evel

op

erD

NA

DO

EC

DM

Exe

cuti

veB

oar

d

Project feasibility

assessment / PIN

Project feasibility

assessment / PIN

CDM project development

/ PDD

CDM project development

/ PDD

Host country approval

Host country approval

Project validation

Project validation

Project registration

Project registration

CER issuance

CER issuance

Project verification

Project verification

The CDM project cycle

1111

PDD

Host country approvalDesignated

national authority

Operational entities

Project owner

Executive Board

Validation

Registration

Financing & implementation

Monitoring

Verification & certification

Issue CERs

Project Idea Note (PIN)

Project idea