Clean Development Mechanism (CDM

Overview, DNA process and Current Project Activities
Philippine Designated National Authority for CDM

Background (UNFCCC, KP) Clean Development Mechanism (CDM) Conditions for CDM Project Activities Additionality CDM Actors CDM Project Activity Cycle and Timescale Crediting Period Certified Emission Reductions (CERs) Programmatic CDM Carbon Market

Global Temperature:

Philippine Temperature:
26.8 26.6 26.4

C) T e mpe r a t u r e (

26.2 26.0 25.8 25.6 25.4 25.2 25.0 24.8 1900











•1979 – First World Climate Conference •1992 – UNFCCC text adoption and Earth Summit •1995 – Conference of Parties (COP) I •1997 – Kyoto Protocol adoption •2001 – Marrakesh Accords •2005 – Entry into Force (KP)

Greenhouse Gases:
•(CO2) Carbon dioxide •(CH4) Methane •(N20) Nitrous oxide •(PFCs) Perfluorocarbons •(HFCs) Hydrofluorocarbons •(SF6) Sulphur hexafluoride 21 (GWP) 310 6500-9200 140-11700 23900

Noting that: the LARGEST SHARE of historical and current GHG emissions originated in developed countries, the PER CAPITA EMISSIONS in developing countries are still relatively LOW and the share of global GHG emissions from developing countries will GROW to meet their social and development needs, Developed countries: have the obligation to take the lead in combating climate change and the adverse effects thereof & have commitments to provide financial resources, including for the transfer of technology, for developing countries
CSE India presentation

KyotoProtocol: Taking Root
182 Countries & the EEC have ratified (as of 16 October 2008) = 63.7% of total carbon dioxide emissions, 1990 as the base yr Entered into Force on 16 Feb ’05 Developed countries to implement domestic policies and measures to achieve the mandatory targets
A legally binding instrument that strengthens the UNFCCC by committing developed countries which have accepted it to individual, quantified GHG emission and limitation targets (an average total cut in GHG emissions of 5% from 1990 levels for the period 2008-2012)

Three (3) innovative mechanisms supplemental to domestic action: - Joint Implementation - Emission Trading - Clean Development Mechanism or CDM

Clean Development Mechanism
Since the atmosphere is equally damaged by GHG emissions wherever they happen and equally helped by cutbacks in emissions wherever they are made, the CDM, as a market-based flexibility mechanism: reduction units (CERs)” that can be applied to partially CERs meet their GHG reduction commitments under the KP whenever they undertake GHG-reducing projects that contribute to sustainable development in a non-Annex I Party, where land, technology and labor are less costly, & concomitantly result in real, measurable, verifiable and long-term GHG reductions that are additional to any that would otherwise occur
Annex I Countries / Parties: UNFCCC Annex I list developed countries including Economies in Transition NON-Annex I Countries / Parties: developing countries not bound by emission reduction targets allows Annex I countries to earn “certified emission

CDM as a Market-based Mechanism
FOR Annex 1 countries: Enables developed countries to meet their emission reduction commitments in a flexible and costeffective manner As investors, developed countries benefit by obtaining Certified Emission Reduction units (CERs) for KP partial compliance FOR non-Annex 1 countries: Assists developing countries in meeting their sustainable development objectives

As host countries, developing countries benefit in the form of investment, access to cleaner and better technology, and sustainable development

CER: A special product
CER is a form of payment for the Project Proponent not to produce - BUT to reduce GHG emissions Thus, the importance of special requirements Definition of baselines Calculation of net GHG emission reductions Monitoring of GHG emission reductions

Conditions for CDM Projects
Assist Non-Annex I Parties in achieving SD Additional if GHG emissions are reduced below those that would have occurred in the absence of the registered CDM project activity Annex I Parties are to refrain from using CERs generated from nuclear facilities to meet their quantified GHG reduction targets Public funding from Annex I Parties must not result in the diversion of ODA and separate from and not counted towards their financial obligations under the UNFCCC and KP LULUCF project activities presently limited to Afforestation and Reforestation * PDD, Validation Report and Letter of Approval from Host Country are required in order to be registered as a CDM project activity

Official Development Assistance
No Diversion of ODA is allowed Annex I countries shall not divert ODA funds that previously have been directed to other purposes in the respective host country
Not diverted for the purchase of CERs from a CDM project and Public funding is to be separate from and not counted towards the financial obligations of those Parties Such evidence should be given by the Annex I country Must be able to prove that a project requires CDM assistance even with favorable loan conditions CDM Status often helps in financing A GHG-reducing project becomes more attractive to equity and debt investors

Interpretation: The CDM status will be given only to those projects which cannot be implemented without it Those projects which can/will be carried out in the course of regular business (Business-AsUsual or BAU projects) are DISqualified. CERs are an incentive to encourage developers to undertake GHG mitigation projects that do not happen under usual circumstances CERs are NOT offered as a reward for accomplishing GHG mitigation, no matter how much GHG reduction a project achieves

Requirements for participation in the CDM:
Participate voluntarily Establish a National CDM Authority Ratify the Kyoto Protocol

CDM Actors
Project Participants (PP)
Participation in CDM is voluntary PP is a Party involved, &/or a private &/or public entity authorized by a Party involved to participate

Designated National Authority (DNA)
Requirement for country Parties who intend to participate in CDM, for the purpose of authorizing the voluntary participation of each PP. Written approval from host country DNA must also include confirmation by host Party that project assists it in achieving sustainable development: details of approval procedure up to each Party

Facilitators and Advisers
Consultants/professionals who provide technical assistance in developing a project as a CDM project activity Banks or other facilities that help in facilitating the process through investor matching, brokering / selling your project activity’s CERs

CDM Actors
Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol (COP/MOP)
Among other functions, the COP/MOP: Has authority over and provides guidance to the CDM Decides on the designation of operational entities accredited by EB

CDM Executive Board (EB)
Supervises the CDM, under the authority and guidance of the COP/MOP Comprises 10 members from Parties to KP representing 5 UN regional groups for a period of 2 yrs., with alternates for each member, and are nominated by relevant constituencies and elected by the COP/MOP

Designated Operational Entity (DOE)
Either a domestic legal entity or an international organization accredited and designated, on a provisional basis until confirmed by the COP/MOP, by the EB Validates & requests registration of a proposed project Verifies emission reductions of a registered project, certifies and requests EB to issue CERs

CDM Project Activity Cycle
Stakeholder / Public Consultation

Project Implementation

Annex I Party

National Approval

Host Country – Non-Annex I Party, e.g. Philippines

CDM Cycle – Project Development
Project Activity Design
Project Participants check conditions for CDM, conduct stakeholder consultations & determine contribution to sustainable development PDD is the core document
Presents information on essential technical & organizational aspects of the proposed project activity Can be prepared by the Project Owner/Developer but often outsourced to CDM professionals Prepared in accordance with template and using a methodology approved by the CDM Executive Board

Proposal of a New Baseline &/or Monitoring Methodology through a DOE for EB’s review & approval

Independent evaluation of a proposed project activity by a DOE against requirements of CDM, period for soliciting public comments via UNFCCC website

Host Country Approval and Investor Country Confirmation of voluntary participation are required Formal acceptance by the EB of a validated project as a CDM project activity

CDM Cycle – Project Implementation
Conducted by project participants Collection and archiving of all data necessary for calculating GHG emission reductions of project against baseline (expected emission w/out the project) in accordance w/ monitoring plan Provides basis for verification by the DOE

Periodic independent review and ex post determination by the DOE (Different DOE except for small-scale project activities) Determines that the monitored emission reduction has in fact occurred

Written assurance by the DOE, certifying that the project activity achieved the verified amount of reductions during the specified time period

Issuance and Distribution
CERs equal to verified amount of emission reductions are issued by the EB and recorded at the EB Registry CERs will be distributed among Project Participants

CDM Fees
Kinds of Fees
Consulting fee for PDD production Fees to be paid to a Designated National Authority (DNA) Fees to a Designated Operational Entity (Validation, Verification) Fees to be paid to the UNFCCC (Request for registration, Share of Proceeds) Placement / brokering fees for CER sales

Cash outlays for fee payment can be made minimal
Annex I (investor) country subsidy CER Buyer agrees to bear the cost Intermediaries absorb the cost

Project Design Stage
Project Design National Approval

Feasibility assessment Project Design Document (PDD) Regular scale CDM project Small-scale CDM project Involved parties Project developer CDM Consultant Critical Issues Project Description Emissions Reduction Calculation Clear project boundary Crediting Period Sustainable Development

Validation & Registration


Verification & Certification


Host Country Approval Stage
Project Design National Approval

Validation & Registration


Verification & Certification


Institution/s Involved Philippine Designated National Authority for CDM (DENR) Parameters Sustainable Development Criteria and Indicators National Laws Critical Documents PDD Proof of legal capacity Stakeholder consultation documentation Sustainable development benefits description (SDBD) ECCs / CNCs Letter of Approval Host Country DNA (LoA) Transaction Costs: Php 5,600 – 10,600 (processing fee)

Validation & Registration Stage
Project Design National Approval Institutions Accredited Designated Operational Entity e.g.: DNV, TÜV-SÜD, JCI, etc. CDM Executive Board Documentation PDD and Host Country Approval Validation Report (basis for registration) Transaction Costs: Validation costs: ~ US$ 10,000 – 25,000 Registration costs:
Expected ave. annual emission reduction 10,000 t CO2-e US$ 1,500 4,500 18,500 198,500 350,000 350,000

Validation & Registration


Verification & Certification

15,000 30,000 100,000 1,000,000


1,757,500 3,000,000

Monitoring Phase
Project Design National Approval

Validation & Registration


Verification & Certification

PP / CDM Consultant Critical Issues Data archiving Must be done according to the approved monitoring plan Quality Control / Quality Assurance Subject to third party verification Documentation Monitoring Protocols Data files Costs Dependent on project complexity, monitoring plan requirements


Verification & Certification Phase
Project Design National Approval

Validation & Registration


Verification & Certification


Related Documents Monitoring Report Verification Report Actors involved Project proponent Consultant DOE (must be different from the DOE that validated the project for regular scale CDM projects) Critical Issues Project must prove to DOE that data monitored has been done according to the monitoring protocol Data quality Transaction Costs US$ 1,500 – 15,000

CER Issuance
Project Design National Approval

Validation & Registration


Verification & Certification


Related Documents DOE’s request for issuance Certificate of Emissions Reduction ERPAs Institutions Involved CDM EB through the CDM Registry Project Participants Critical Issues Who owns the CER? Transaction costs 2% CERs for adaptation fund US$0.10/CER (1st 15,000 CERs) and US$0.20/CER (amount in excess of) for CDM Secretariat administration costs Other service fees related to CER sales

Time required CDM process For regular project
~ 6 months 1-2 months 20-25 working days 1 month 1 month 8 weeks

For smallscale project
Usually not required 1-2 months 15-20 working days 1 month 1 month 4 weeks

Project Development: New methodology production and approval The PDD productiona The DNA approval (Philippines) Validation UNFCCC public comments Registration

aassuming ALL necessary information is available.

Crediting Period
Two choices 7 years with an option for renewal, at most two times (total of 21 years) Maximum of 10 years with no option for renewal → In case of the former, each renewal must be reviewed by a Designated Operational Entity (DOE) for validity First Commitment Period: 2008-2012

CERs from a CDM Project Activity
Host Party w/ no emission cap Annex I Party will get CERs A total emission cap of an Annex I Party
Acquired CERs are added and emission cap increases

Baseline Scenario

Specific Place in a Host Party

GHG Emissions Projection


Project Scenario

GHG Emissions

Non-Annex I / Host Parties will benefit from project activities resulting in CERs

Sustainable Development

CER = 1 metric ton of CO2-e

CDM in Charts. IGES. July 2007. Photo fr

CDM Programme of Activities
CDM Project activities under a program of activities (CPAs) can be registered as a single CDM project activity provided that approved methodologies are used Program of activities (PoA) Voluntary coordinated action by a private or public entity w/c coordinates and implements any policy/measure or stated goal and w/c leads to GHG emission reductions or increased removal by sinks additionally via a # of CDM program activities PoA addressing mandatory policies and regulations are permissible provided it is demonstrated that these policies and regulations are not enforced as envisaged. If enforced, the effect of PoA is to increase the enforcement beyond the mandatory level required

State and Trends of the Carbon Market

GHG emissions: A new commodity is emerging
Targets are expressed as levels of allowed emissions, or “assigned amounts,” over the 2008-2012 commitment period, divided into “assigned amount units” (AAUs). Annex I countries that have emission units to spare - emissions permitted them but not "used" – are allowed to sell this excess capacity to Annex I countries that are over their targets Other units which may be transferred under the emissions trading scheme, each equal to one tonne of CO2: A removal unit (RMU) on the basis of land use, land-use change and forestry (LULUCF) activities such as reforestation An emission reduction unit (ERU) generated by a joint implementation project A certified emission reduction (CER) generated from a CDM project activity European Union Allowance (EUA) Carbon credits: both an environmental and a financial asset Environmental asset: reducing carbon emissions which cause global warming & climate change Financial asset: being bought and sold in emerging carbon markets

Price and Payment
Price Determined by supply and demand No official prices Most observers agree that issued CERs have a similar value to EU Emissions Trading Scheme Allowances Approx. 20 € in August 2007
Project Report, 30 August 2007)

Based on Price Level for second period EUAs, the level of most predictions for the price to be in average (Pomar/Marmet

Approx. €15.62 for December 2008 delivery
The benchmark CER contract on the secondary market, on the European Climate Exchange as of November 7

Ave. EUA price seen at €29 in 2009-2012 PointCarbon 13 November 2008 analysis

Price and Payment
Contract Types and Pricing
Type Contract CER Delivery Immediate Payment Pricing




No discount




Future (against delivery)

Some discount




Immediate (pre-payment)

Substantial discount

Price and Payment
Payment-against-delivery contracts
Most common arrangement under current practice No principal risk for buyer even in case of non-delivery (cf. pre-payment contracts) However, the buyer sustains reconstitution risk → In case of non-delivery, the buyer will have to procure the contracted amount from other sources to stay in compliance. This could be expensive.

Price and Payment
Buyer Risks for Payment-againstdelivery contracts
Project status CDM qualification risk No Project implementation risk No Discounting Price example

CERs issued


USD 20

Registration completed




USD 10






Strategy for Sellers
Depends on several factors: Up-front cash needs Ability to carry out CDM steps (with or w/o CDM professionals) Future price projection/minimum price expectation →At what level are you willing to lock in the price under a payment-against-delivery contract?

OUTLINE Prerequisites for GoP Participation in CDM Philippine DNA for CDM Basic Policy of the Philippine DNA for CDM National Approval Criteria Sustainable Development Criteria

Prerequisites for CDM participation
Participation in CDM is voluntary A non-Annex I Party may participate in CDM if it is a Party to the Kyoto Protocol Parties participating in the CDM shall set up a designated national authority (DNA) for CDM
Climate Change Convention Date of signature Date of ratification Date of entry into force Kyoto Protocol Date of signature Date of ratification Date of entry into force 12 June 1992 2 August 1994 31 October 1994 15 April 1998 20 November 2003 16 February 2005

Executive Order No. 320, series of 2004 Date of signature and 25 June 2004 effectivity Promulgation of the Rules and Regulations Governing the Implementation of EO No. 320 Date of signature 31 August 2005 Date of effectivity 7 September 2005

Philippine DNA for CDM

Step 1 Project Application

Step 2 Project Evaluation

Step 3 Project Endorsement

Step 4 Project Approval/ Non-Approval

Project Proponent


CDM Steering Committee

DNA Head (Secretary of DENR)

Project Application Monitoring
CDM Secretariat

Basic Policy of the Philippine DNA
Facilitate and promote CDM project activities that: contribute to the UNFCCC objective of stabilization of GHG concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system lead to the transfer of environmentally safe and sound technology and know-how contribute to the conservation of biological diversity and sustainable use of natural resources comply with all other pertinent laws and regulations provide measures to alleviate poverty as part of their contribution to sustainable development

National Approval Criteria
Sustainable development benefits and the legal capacity to participate serve as the bases for evaluating an application SUSTAINABLE DEVELOPMENT IS THE MAIN DRIVER FOR GoP PARTICIPATION IN THE CDM Phil. project proponents possess the legal capacity to participate in the proposed CDM project activity
Authorization is required in order to open accounts in CDM Registry Host Party that authorizes an entity’s participation shall remain responsible for the fulfillment of its obligations and ensure that such participation is consistent with COP/MOP decisions

Sustainable Development Criteria
Sovereign Matter Host Country’s prerogative to confirm whether a project activity assists it in achieving SD Approval Procedure up to Host Party Major Pillars Economic Dimension Environmental Dimension Social Dimension

Economic Dimension
Philippine CDM policy seeks to adhere to the antipoverty goals articulated in the PA21 and MTPDP by upholding project activities that: Provide livelihood and other economic opportunities in the community Provide proper safety nets and compensatory measures for affected stakeholders Promote the use of cleaner, more efficient and environment-friendly technology in the sector Provide new financial resources

Environmental Dimension
Philippine CDM policy recognizes that ecological integrity is a key pillar of Philippine SD by pushing CDM project activities that: Comply with environmental policies and standards Improve local environmental (e.g. air, water, soil) quality Promote sustainable use of natural resources

Social Dimension
Philippine CDM policy works toward instituting social order based on fairness and provision of support systems that look after the welfare of every Filipino by supporting CDM project activities that: Provide education and training which build the capacities of local stakeholders Provide vulnerable groups access to local resources and services Promote local participation in the project activity

SD Impact
Overall sustainable development impact of a proposed project activity must be POSITIVE
Paragraph 9.7 of DAO 2005-17 states: “Project level indicators to be proposed by the project proponent …shall be used to identify the sustainable development impacts of a proposed CDM project activity.” Indicators should be: - meaningful from a project level perspective - measurable or quantifiable

OUTLINE List of Sectoral Scopes Examples of Eligible CDM Project Activities CDM Market Status of CDM Project Activities to be implemented in the Philippines

List of Sectoral Scopes
Energy industries (renewable / Nonrenewable) Energy distribution Energy demand Manufacturing industries Chemical industry Construction Transport Mining/Mineral production Metal production Fugitive emissions from fuels (solid, oil and gas) Fugitive emissions from production & consumption of halocarbons and sulphur hexafluoride Solvents use Waste handling & disposal Afforestation & reforestation Agriculture

Eligible CDM Project Activities
EMISSION REDUCTION PROJECT ACTIVITIES Energy industries - renewable energy: wind/solar/hydro power Energy demand - energy efficiency: high efficiency equipment/lighting Manufacturing - energy efficiency: high-efficiency equipment - fuel switching: from coal to natural gas Transport - fuel substitution: biofuels - energy efficiency: improved vehicle efficiency Mineral production - fuel substitution: coal mine methane recovery Metal production - process change: dry coke quenching Waste handling - fuel substitution: landfill gas recovery, and disposal wastewater treatment SEQUESTRATION PROJECT ACTIVITIES Afforestation and reforestation Agriculture - methane avoidance from biomass decay

Distribution of Registered Projects by Scope

CDM Market
Annual Average CERs CDM project pipeline: > 4200 of which: --- 1051 are registered --- 109 are requesting registration N/A Expected CERs until end of 2012 > 2,900,000,000

230,535,302 > 1,340,000,000

26,267,087 > 100,000,000

Registered CDM Projects by Host Party
1. 2. 3. 4. 5. 6. 7. 361: India 295: China 146: Brazil 107: Mexico 34: Malaysia 26: Chile 20: RP 1.66% of TOTAL: 1,207

Name of CDM Project Activity

Host Party Approval

Registration Date

Annual ERs (tCO2/y)

Project Participants (Authorized by Host Party)

Project Participants (Authorized by other Parties involved)

FIRST FARMERS HOLDING CORPORATION (FFHC) BAGASSE COGENERATION PLANT Makati South Sewage Treatment Plant Upgrade with On-Site Power Hedcor Sibulan 42.5 MW Hydroelectric Power Project Laguna de Bay Community Waste Management Project: Avoidance of methane production from biomass decay through composting -1 Quezon City Controlled Disposal Facility Biogas Emission Reduction Project The Anaerobic Digestion Swine Wastewater Treatment With OnSite Power Bundled Project (ADSW RP1001) Goldi-Lion Agricultural Development Corporation Methane Recovery and Electricity Generation Project

22 Jan 2007

10 Sept 2008


First Farmers Holding Corporation

ENDESA Generacion, S.A.

Registered Philippine CDM Projects




Magallanes Bio-Energy Corporation

Trading Emissions PLC




Hedcor Sibulan, Inc. IBRD as a Trustee of Community Development Carbon Fund (CDCF) Pangea Green Energy S.r.l. Equity + Environment Assets Ireland Limited




Laguna Lake Development Authority




Quezon City Government Opol Chona’s Farm ; Sunjin Genetics Corporation ; Philippine Bio-Sciences Co., Inc. Goldi-Lion Agricultural Development Corporation Philippine BioSciences Co., Inc. (PhilBIO) Superior Hog Farm, Inc. Philippine BioSciences Co., Inc. (PhilBIO) Bondoc Realty Farm Philippine BioSciences Co., Inc. D&C Concepcion Farms, Inc. Philippine BioSciences Co., Inc. (PhilBIO) Philippines Sinter Corporation







Superior Hog Farms Methane Recovery




Bondoc Realty Methane Recovery and Electricity Generation Project D&C Concepcion Farms, Inc. Methane Recovery and Electricity Generation Project Philippine Sinter Corporation Sinter Cooler Waste Heat Recovery Power Generation Project San Carlos Renewable Energy Project










JFE Steel Corporation




San Carlos Bioenergy Inc.

EcoSecurities Group Ltd EcoSecurities Group Plc

EcoSecurities Group Ltd EcoSecurities Group Plc

EcoSecurities Group Ltd EcoSecurities Group Plc

EcoSecurities Group Ltd EcoSecurities Group Plc

Name of CDM Project Activity

Host Party Approval

Registration Date

Annual ERs (tCO2/y)

Project Participants (Authorized by Host Party)

Project Participants (Authorized by other Parties involved)

Paramount Integrated Corporation Methane Recovery and Electricity Generation




Paramount Integrated Corporation; Philippine BioSciences Co., Inc.(PhilBIO)

EcoSecurities Ltd.

Registered Philippine CDM Projects

20 MW Nasulo Geothermal Project





International Bank for Reconstruction and Development as Trustee of the Netherlands Clean Development Mechanism Facility

Gaya Lim Farm Inc. Methane Recovery




Philippine Bio-Sciences Co., Inc. Gaya Lim Farm, Inc. Philippine Bio-Sciences Co., Inc. Uni-Rich Agro-Industrial Corporation

EcoSecurities Ltd.

Uni-Rich Agro-Industrial Corporation Methane Recovery and Electricity Generation




EcoSecurities Ltd.

Joliza Farms Inc. Methane Recovery




Philippine Bio-Sciences Co., Inc.;/Joliza Farms Inc.

EcoSecurities Ltd.

Wastewater treatment using a Thermophilic Anaerobic Digestor at an ethanol plant in the Philippines




Tanduay Distillers, Inc.;/Absolut Chemicals, Inc

NorthWind Bangui Bay Project




North Wind Power Development Corporation

Gold Farm Livestocks Corporation Methane Recovery and Electricity Generation




Philippine Bio-Sciences Co., Inc. /Gold Farm Livestocks Corporation

EcoSecurities Ltd.

Mitsubishi Corporation

The Netherlands Finland

Expected average annual CERs from registered projects by Host Party
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 122 M: China 31 M: India 19.5 M: Brazil 14.6 M: R.Korea 7.6 M: Mexico 4.3 M: Chile 4.1 M: Argentina 2.6 M: Malaysia 2.58 M: Indonesia 2.56 M: So. Africa 2.5 M: Qatar

731,611 : RP 0.32% of TOTAL: 230,535,302

For your questions / queries:
CDM Helpdesk DNA - CDM Secretariat Office
Environmental Management Bureau 2/F, HRDS Building, DENR Compound, Visayas Avenue, Diliman, Quezon City T: (+63-2) 920-2251; F: 928-4674

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