The CDM process

The Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol which allows industrialised countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce greenhouse gas emissions in developing countries.

This is a lower cost alternative to undertaking more expensive emission reduction projects in their own countries. It is therefore important that the project undertaken establishes that it would not have occurred without the additional incentive provided by emission reductions credits – otherwise there would be a net increase in global emissions.

Emission reductions achieved with CDM projects are awarded credits called Certified Emission Reductions (CERs). One CER signifies an emission reduction of one tonne of CO2 equivalent. The CDM is supervised by the CDM Executive Board (CDM EB) and is under the guidance of the Conference of the Parties (COP/MOP) of the United Nations Framework Convention on Climate Change (UNFCCC).

The process of getting carbon income from a project through the CDM mechanism is as follows:

  • Submit a PIN to the DNA (project idea)
  • Submit a PDD to the DNA
  • Establish emissions baseline
  • Environmental Impact Assessment (not for small scale CDM)
  • Plan and review
  • Project authorisation by the DNA
  • Project validation (independent evaluation by DOE)
  • Project registration (Formal acceptance by CDM executive board)
  • Emissions monitoring
  • Emissions verification (independent evaluation of emissions by DOE)
  • Emissions certification (written assurance by DOE)
  • CER issuance by the CDM executive board
  • CER trading

The main steps are:

Stage 1: The Project Idea

The idea behind a CDM project is normally recorded in a so-called Project Idea Note (PIN) document. This contains the most important information concerning the project, together with a rough estimate of the possible emission reductions.

Stage 2: The Project Design Document (PDD) and the Consent of the Host Country

The PDD contains all information about the project and stipulates the anticipated volume of emission reductions over a certain time period. The focus point of the PDD is the selection of a suitable methodology to calculate the GHG savings The PDD, and thus the suggested CDM project, must be authorized through the responsible authorities in the developing country (Designated National Authority, DNA). Attention is focused on the contribution of the project to the sustainable development of the country.

Stage 3: Validation

In addition, the PDD must be checked by a United Nations accredited organization (Designated Operational Entity, DOE). The so-called "Validation" process of the project is usually carried out by certification institutions such as SGS, TUV, DNV.

Stage 4: Registration

Once given the green light after validation, the project developer then makes an application to register the intended project with the CDM Executive Board. This Executive Board has the last word, as it the executive organ of the United Nations in all CDM matters. Once the CDM Executive Board agrees, the project is officially registered and CERs can be generated.

Stage 5: Monitoring

It is far from over with the registration of the project under the CDM. After all, the PDD only depicts the intentional performance of a project toward emission reductions over a certain time (credit period). The project developer must prove whether this performance is actually generated over the credit period of the project.

Stage 6: Verification

Despite the monitoring reports, accredited organisations keep a close eye on project developers. This process is called Verification and is normally carried out on a yearly basis. After inspection, the independent Verifier goes on to make a statement concerning the integrity and accuracy of the information provided in the monitoring report.

Stage 7: Issuing of the CERs

Provided that the monitoring reports are approved without objection during the verification, the CDM Executive Board is allowed to issue the generated CERs. A CER is a certificate which is tradable in various emission trading systems, transferred between the accounts of seller and buyer in electronic form.

Source: European Climate Exchange and CAMCO Group