76564 CDM Reform: Improving the efficiency and outreach of the Clean Development Mechanism through standardization Alexandrina Platonova-Oquab, Felicity Spors, Harikumar Gadde, Julie Godin, Klaus Oppermann and Martina Bosi i Contents Acronyms and Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Chapter 1. Overview of the current status of Clean Development Mechanism (CDM) reform . . . . . . . . . . . . . . . 1 1.1 Continuous improvements of the CDM procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1.1 Administrative procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.1.2 Programmes of Activities (PoAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.2 Remaining bottlenecks of the CDM procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.2.1 Insufficient predictability of the CDM process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.2.2 Long time-to-market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.2.3 High upfront transaction cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Chapter 2. Standardized procedures under the Clean Development Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Standardization of baseline setting and additionality demonstration: critical features and potential for streamlined project cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1.1 Approaches to standardization under the CDM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1.2 How standardization potential could be further developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.1.3 Creating new options in the CDM regulatory environment through standardization: opportunities and challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.2 Standardization of registration procedures for projects using standardized sectoral baselines and additionality demonstration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.2.1 Main elements of standardized registration for projects using sector-specific standardized baselines . . . . . 14 2.2.2 Standardized registration template: generic features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2.3 Expected impact of using a standardized registration procedure for projects using a standardized baseline and ways to mitigate potential risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.3 Standardization of procedures for PoAs addressing micro-scale activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.3.1 Key barriers to implementation of PoAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 2.3.2 Simplified procedures for PoAs addressing micro-scale activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.3.3 Expected impact and ways to mitigate potential risk for the standardized procedures for PoAs with underlying micro-scale units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Chapter 3. Can standardization facilitate crediting of mitigation impacts of policy-driven actions under the Clean Development Mechanism? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.1 Crediting the impacts of policy-driven actions: main issues and approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 3.1.1 Policy-driven activities under the current CDM regulatory framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.1.2 Barriers to crediting impacts of policy-driven actions under the existing CDM framework . . . . . . . . . . . . . . . 27 3.2 The potential for crediting the impacts of policy-driven actions in the context of standardized baselines . . . . . . . 29 ii Carbon Finance at the World Bank Concluding remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Annex 1. Options to standardization: examples in renewable energy generation . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Annex 2. Registration template for CDM project using sector-specific standardized baseline: example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Other useful sources of information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Tables Table 1: Standardization tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Table 2: Standardization of the approval and monitoring processes in other offsetting programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Table 3: Potential risks of using a standardized registration procedure for projects using a standardized baseline and ways of mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Table 4: Potential risks of standardized procedures for PoAs addressing micro-scale activities and ways of mitigation . . . . . . . . . . 25 Table 5: Combination of policies and CDM incentives within the PoAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Table 6: Standardized approach for solar home systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Figures Figure 1: What has been achieved so far? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Figure 2: Share of registered and rejected projects from 2005 to 2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3: Number of PoAs compared to normal CDM projects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 4: Project success rates at different stages of the project cycle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 5: Average lead time from the start of global stakeholder consultation to registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 6: Main features of standardized registration for projects using sectoral baselines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 7: Comparative project cycle under the existing and standardized registration procedures for projects using standardized baselines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Figure 8: Standardization of PoA procedures for micro-scale activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 9: Comparative project cycle under existing and standardized procedures for PoAs with micro-scale units. . . . . . . . . . . . . . 24 Figure 10: Possible evolution of approaches under the CDM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 11: Additionality and baseline determination for fuel/technology switch. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Improving efficiency and outreach of the Clean Development Mechanism through standardization iii Acronyms and Abbreviations ACR American Carbon Registry GSC Global Stakeholder Consultation CAR Climate Action Reserve GTZ Deutsche Gesellschaft für Technische Zusammenarbeit CDCF Community Development Carbon Fund IEA International Energy Agency CDM Clean Development Mechanism IETA International Emissions Trading Association CDM EB Clean Development Mechanism Executive Board IGES Institute of Global Environmental Strategies CER Certified Emission Reduction IPCC Intergovernmental Panel on Climate Change CFL Compact fluorescent lamp KP Kyoto Protocol CME Coordinating/managing entity LDC Least Developed Country CMP Conference of the Parties Serving as the Meeting of LoA Letter of Approval the Parties to the Kyoto Protocol MV Monitoring and verification COP Conference of the Parties of the United Nations ODA Official Development Assistance Framework Convention on Climate Change pCDM Programmatic CDM CPA CDM Programme Activity PDD Project Design Document CPA DD CDM Programme Activity Design Document PDF Project Developer Forum DNA Designated National Authority PoA Programme of Activities DOE Designated Operational Entity PoA-DD Programme of Activities Design Document EIA Environment Impact Assessment UNDP United Nations Development Programme EPRI Electric Power Research Institute UNEP United Nations Environment Programme EU ETS European Union Emissions Trading Scheme UNFCCC United Nations Framework Convention on Climate E+/E- policies Policies which give a comparative advantage to more Change (E+) or to less (E-) emissions intensive technologies or fuels VCS Verified Carbon Standard GGAS New South Wales’ Greenhouse Gas Reduction VVS Validation and Verification Standard Scheme WB World Bank GHG Greenhouse Gas iv Carbon Finance at the World Bank Foreword This study is the first outcome of a new work program on and reduce regulatory risks, transaction costs and time regulatory aspects of the Clean Development Mechanism requirements; and (CDM) started by the World Bank in May 2011 at the Carbon Third, standardization facilitates a more programmatic yy Expo in Barcelona. The guiding principle of this work has been and systemic implementation of the CDM in developing to approach the complex and broad topic of CDM regulation countries, which could allow the mechanism to grow in a strictly technical and step-wise manner, based on real beyond its current project-by-project scope. world project experience and a broad consultation with practitioners of the CDM. Against this background, standardization gained momentum in the recent regulatory development of the CDM. At the 6th This document is the first module in a series, focusing on the session of the Conference of the Parties serving as the meet- topic of standardization of project registration and procedures ing of the Parties to the Kyoto Protocol (CMP 6) that took for both stand-alone activities, using standardized baselines, place in 2010, in Cancun, Mexico, major progress was made and Programmes of Activities (PoAs) addressing micro-scale in establishing the concept of standardized baselines. Now it emission reductions. is time to develop the concept further. The standardization of CDM procedures has always been This study outlines various options to extend standardization an element of the evolving CDM regulation. However, the to CDM procedures and the CDM project cycle itself and relevance of standardization has grown beyond incremental assess how this could improve the efficiency of the mecha- improvements of the CDM. It has become one of the nism as well as facilitate more programmatic and systemic core areas in developing the mechanism. The reasons are approaches. threefold: This work benefited from intensive consultations with First, standardization of CDM methodological approaches yy representatives from developing countries’ Designated can contribute to overcoming certain limitations of the National Authorities, representatives from Annex I countries, CDM in terms of regional and sectoral outreach as well practitioners and experts of the CDM during two workshops as objectivity in project assessment and approval; held in 2011. Second, standardization — if extended to CDM proce- yy dures — can improve the efficiency of the mechanism Improving efficiency and outreach of the Clean Development Mechanism through standardization v Acknowledgments This study was prepared by the Carbon Finance Unit of the The financial support provided by the CDCF Technical Environment Department of the World Bank. The team con- Assistance Trust Fund is gratefully acknowledged. The CDCF sisted of Alexandrina Platonova-Oquab (lead author), Felicity Technical Assistance Trust Fund is the technical assistance Spors, Harikumar Gadde, Julie Godin, Klaus Oppermann and fund associated with the Community Development Carbon Martina Bosi. The study was prepared with support from exter- Fund of the World Bank. The contributors to the CDCF nal consultants, Mischa Classen and Tuomas Rautanen (First Technical Assistance Trust Fund are the governments of Climate), Christoph Sutter and Sophie Tison (South Pole). Canada, Italy, Spain, and of Walloon Region of Belgium, as well as the United Nations Environment Programme (UNEP). This study also benefited from advice, suggestions and corrections of peer reviewers with significant experience The full version of this report can be found on the website of and expertise in the CDM: Christophe de Gouvello (WB), the World Bank’s Carbon Finance Unit under Publications and Johannes Heister (WB), Charles di Leva (WB), Chebet Maikut Reports: www.carbonfinance.org (Designated National Authority of Uganda), Ulrika Raab Washington, D.C., May 2012 (Swedish Energy Agency), Kai-Uwe Schmidt (World Bank Institute) and Charlotte Streck (Climate Focus). The authors also express gratitude to all those who partici- pated in the two consultation workshops held in June 1-3, 2011, at the Carbon Expo, Barcelona and in October 11-12, 2011, in Paris. vi Carbon Finance at the World Bank Executive summary The CDM has proven to be a successful mechanism with Potential contributions of standardization to the achievements above initial expectations in terms of the efficiency and outreach of the CDM number and diversity of mitigation projects it has stimu- Standardization could contribute to increasing the efficiency lated while supporting sustainable development priorities of the CDM in terms of limiting transaction costs, time of host countries and its contribution to helping meet requirements, and enhancing transparency, consistency and greenhouse gas (GHG) emissions targets cost-effectively. predictability, while also improving access to the CDM by un- Developed through a bottom-up approach, it is still a work derrepresented regions and sectors. However, standardization in progress in the process of the continuous evolution of alone cannot resolve all the regulatory and governance issues regulations. Over time, many improvements to CDM regula- of the CDM in achieving the above-mentioned objectives. The tion have been achieved. Some were particularly important, limitations of standardization relate essentially to the required such as the decision to introduce programmatic carbon regulatory effort to establish standardized baselines and crediting into the CDM at the 1st session of the Conference procedures in practice. of the Parties serving as the meeting of the Parties to the Kyoto Protocol (CMP 1) that took place in 2005, in Besides a suggested extension of the scope of standardiza- Montreal, Canada. This had a fundamental impact on how tion to include monitoring and verification (MV), this study the mechanism evolved. suggests two main areas for extending the concept of standardization within the CDM: This study argues that the 2010 CMP 6 decision to introduce (1) Standardization of a project registration procedure that the concept of standardized sectoral baselines into the CDM, is open to project activities using standardized sector- and extended at CMP 7 in 2011 (Durban, South Africa), specific baselines (as an optional standardized track, could also have a substantial impact on the further evolution “fast-track�). of the CDM and its regulation. It is argued that this impact could be even more meaningful if the standardization could (2) Standardization of the procedures for Programmes of be broadened beyond the setting of baselines and applied Activities (PoAs) addressing micro-scale activities. to the requirements of CDM procedures and project cycle. The study suggests that the current body of procedures Standardization of the registration procedure for and the project cycle of the CDM still contain some serious project activities using sector-specific standardized bottlenecks that prevent the efficient and robust assessment baselines (as an optional procedure) of the projects applying for carbon crediting. Tackling these Under the standardized project registration proposed in bottlenecks through the use of standardized assessments, this study, the project cycle would start with the completion avoiding double-checks, and increasing the predictability of of a registration template by the project entity based on a the process, can have an important positive impact on the standardized – yet comprehensive – checklist, eliminating efficiency of the CDM. the need for a project design document (PDD). The completed template would then be automatically registered (without validation) by the CDM Executive Board. After project implementation, the confirmation of the project’s compliance with the registration template, along with the verification of achieved emission reductions by a Designated Improving efficiency and outreach of the Clean Development Mechanism through standardization vii Operational Entity (DOE), would take place at the same time Coordinating Managing Entity (CME) to include underlying in one single step. units in the POA without validation by a DOE, in accordance with the eligibility criteria and the additionality requirements The proposed standardized registration approach would rely for micro-scale CDM projects. on improved consistency and objectivity of the regulatory project assessment, and would reduce the length and the Furthermore, the standardized procedures for PoAs would transaction costs associated with the CDM project cycle (e.g., allow the use of streamlined yet robust monitoring ap- avoiding duplication of checks currently undertaken at valida- proaches. Such approaches would cover the total stock of tion and verification stages). underlying units (e.g., based on sampling or changes in market penetration rates) and allow for statistically optimal The proposed standardized project registration is applicable sampling procedures. primarily for projects that are similar, replicable, and of small and medium size (e.g., renewable energy, certain energy ef- The suggested standardized procedures would represent a ficiency initiatives). It could also apply to micro-scale activities procedural option available for all the PoAs addressing micro- that may not be part of a PoA. The proposed approach could scale activities, independent of the availability of standardized benefit at least one-third of the current projects in the pipeline baselines. It is estimated that standardized PoA regulation for and could be extended to two-thirds of CDM projects for micro-scale activities could be applicable to at least half of which standardized baselines (and their embedded additional- the PoAs currently in the validation pipeline and facilitate the ity assessment) could be developed in principle. development of PoAs in Least Developed Countries (LDCs) in projects such as cooking stoves, solar home systems, and Conservative baselines and additionality thresholds at the efficient lighting. sectoral level, combined with clear eligibility requirements integrated into the proposed registration template, could help The applicability of the suggested standardized procedures ensure environmental integrity of the standardized project could also be extended for the PoAs addressing small-scale registration. Possible approaches are also suggested in this underlying units in case those PoAs are using standardized study to ensure that the relevant national and international sectoral baselines (and its embedded additionality).1 In this good practices (in terms of sustainable development and context, the inclusion of the small-scale underlying units in the environmental standards) are followed by the projects (e.g., PoA would be very similar to the automatic registration based through clear allocation of responsibilities). However, these on the use of the registration template such as suggested aspects of standardized project registration would benefit from above for CDM projects using sector-specific baselines. further dedicated analysis. To ensure environmental integrity of the standardized PoA procedures for micro-scale activities, the baseline and Standardization of procedures for PoAs addressing micro-scale activities additionality would be validated at the level of the PoA by a DOE prior to PoA registration (similarly to the current PoA Standardization of the PoA procedures for micro-scale activities rules). The CME’s management capacity, including its capac- would, firstly, consist in the removal of the CDM Programme ity to check the eligibility of units to be included under the Activity (CPA) concept. Secondly, it would consist of the POA, would be assessed by a DOE at the stage of validation application of micro-scale thresholds at the level of each unit. This would improve the attractiveness of the PoA concept for micro-scale activities where the distinction between an 1 The notion of an embedded additionality is not an official UNFCCC term. individual activity (e.g., the installation of a cooking stove) and It is used in the report with reference to the standardized sector-specific baseline framework which defines in one step a benchmark both for a CPA become artificial and impractical. This would allow the additionality and for a baseline scenario of a CDM project. Annex 1 explains this concept further. viii Carbon Finance at the World Bank of the PoA design document (PoA-DD). The completeness policy-driven actions to generate carbon credits: (i) more and objectivity of eligibility criteria for inclusion of individual aggregate decision making (e.g., sectoral level of baseline and underlying units will be ensured through the validation of additionality setting); (ii) introduction of a sectoral perspective the inclusion list. The removal of the CPA level in micro- as compared to the project-by-project focus in the current scale PoAs allows for optimized management and reporting CDM; (iii) establishing creditable thresholds with more requirements for PoAs. It also simplifies the requirements explicitly embodied partial crediting (i.e., crediting off less than for verification and the implementation efforts for CMEs the actually achieved emission reductions). These approaches through, for example, the sampling based on total stock of could be refined to address some of the issues which underlying units. currently limit the crediting of policy-driven actions under the CDM, discussed in this study. The use of standardized Potential contributions of standardization to baseline setting and its embedded additionality demonstration outreach of the CDM is also creating the regulatory environment where creditable The CDM is currently hindered by significant uncertainty actions shall contribute to reach the pre-defined performance around the future scope and attractiveness of the mechanism. or emission levels for a sector or technology in a country. This study suggests that the standardization could, in the The experience that would be gained through the develop- longer run, broaden the scope of the CDM towards more ment of the standardized baselines within the existing CDM programmatic and systemic approaches, particularly in the framework, together with the potential expansion of the CDM area of policy-driven mitigation actions. reform to the ways of crediting policy-driven GHG mitigation Several design features of the standardized approaches could actions, could inform the development of new carbon market be examined as a starting point for exploring options to allow mechanisms. Improving efficiency and outreach of the Clean Development Mechanism through standardization ix Introduction Over the past 10 years, the CDM has proven to be a suc- from a broad range of different technologies in almost all cessful mechanism in stimulating greenhouse gas (GHG) sectors of the economy.3 Figure 1 illustrates these and other mitigation activities in developing countries. It is expected important achievements of the CDM, such as leveraging over to reduce about 1.2 billion tonnes of CO2e by the end of $100 billion in underlying investments through an aggregate 2012 which represent about 40% of the original Kyoto gap.2 CDM revenue volume of $27 billion. The actual emission reductions volumes exceed the early Despite these achievements the CDM is far from being a expectations by far. perfect mechanism. Since its inception the international The CDM also put a price on carbon in countries where climate policy community has struggled to define, regulate, greenhouse gas emissions have not yet been regulated. It also and improve the mechanism in almost all aspects: scope produced significant side-benefits ranging from technology and eligibility of project types and carbon crediting schemes, transfer and sustainable development gains, to raising awareness balanced access to the CDM for different groups of countries and building capacity and knowledge on greenhouse gas emis- and sectors of their economies, methodologies to assess the sion mitigation among administrations and the private sector in emission reductions achieved by CDM projects, and criteria developing countries (UNFCCC, 2010a; UNFCCC, 2011b). Most importantly, the CDM has introduced FIGURE 1: WHAT HAS BEEN ACHIEVED SO FAR? the idea of market- based mitigation $27 billion in CDM transactions: Over 4,000 projects registered in more than 70 countries: on a global scale • Leveraging over $100 billion in • Significant “learning-by-doing� underlying investments* • Integration of carbon constraint in investment and stimulated the decisions discovery of cost- • Important sustainable development benefits CDM efficient mitigation options. It has also Setting up substantial regulatory capacity: contributed to the • 215 internationally approved methodologies development of and tools for baseline setting and monitoring • Governance structure at UNFCCC level More than 900 million CERs issued: more than 200 inter- • 160 Designated National Authorities in • Approx. 1.2 billion tCO2e to be delivered by nationally accepted developed and developing countries the end of 2012 • 41 Designated Operational Entities accredited • Equivalent to 40% of the original Kyoto gap methodologies and tools to assess emission reductions * Source: World Bank, 2011. 2 This represents the targets that have been agreed by the Parties that have 3 A number of existing methodologies are still rarely or never used, largely ratified the KP (i.e., excluding the U.S.), amounting to an overall reduction reflecting the limitations of the bottom-up approach. While providing of about 4% below 1990 levels, representing an approximate reduction flexibility and opportunities for methodologies of all types of projects to be of 2.6 billion tons of CO2e over the 5-year commitment period, assuming considered, this approach results in fewer general and broadly applicable emissions stay stable over that period. This is a simplified assumption, methodologies (World Bank, 2010a). since in many countries emissions have increased, thus also increasing the volume of emission reductions needed to meet their obligation (World Bank, 2010a). x Carbon Finance at the World Bank for baseline setting and additionality, project cycle procedures, fact, this study systematically links both of these decisions governance, and roles of different stakeholders in the CDM. on CDM regulation and shows potential synergies. With the launch of the high-level policy dialogue on the CDM The goal of the present study is to discuss what the options going back to a decision by the 63rd meeting of the CDM are for driving the idea of standardization further. The working Executive Board, this report intends to be a comprehensive hypothesis is that baseline standardization alone may not be review of the experience with the CDM and a contribution to sufficient in that regard but can be seen as a starting point for the discussion on how to position the CDM post-2012. It can improving the CDM through the enhanced use of standardiza- be expected that the policy dialogue will provide a full review tion at other levels of CDM procedures. Starting here, the of the CDM and a comprehensive overview of the recom- study examines how standardization could be used to simplify mendations on how to develop the mechanism further. CDM procedures throughout the project cycle and to extend the scope of the CDM in a way that improves access of The scope of the present study more specifically focuses on underrepresented sectors and regions. It goes without saying the assessment of opportunities to improve the effectiveness that the achievement of the quoted targets depends on much of the CDM through the enhanced use of standardization. more than standardization under the CDM, but the suggestion The study argues that the introduction of the concept of is that standardization can contribute substantially and is standardized baselines to the CDM could substantially therefore worth developing further. change the way the CDM develops. The impact of such a decision could be comparable to and even more substantial The first chapter sets the scene by analyzing in detail proce- than the establishment of the programmatic carbon crediting dural imperfections of the CDM that could be addressed – at option in 2005. least in part – through extending standardization to project cycle procedures. The recent decision on standardized baselines was taken in order to facilitate the scaling up of the CDM, to improve The second chapter discusses new opportunities that its outreach to low-income countries and underrepresented standardization could provide to the CDM reform. It identifies sectors, and to improve its efficiency. The Decision 3/CMP6 how sector-specific standardized baselines and the embed- on the CDM says: ded additionality demonstration could create a foundation for more transformational procedural reforms while still “The use of standardized baselines could reduce maintaining the environmental integrity of the mechanism. transaction costs, enhance transparency, objectivity and The scope of the current standardization under the CDM is predictability, facilitate access to the CDM, particularly assessed in a critical manner and recommendations for en- with regard to underrepresented project types and hanced use of standardized approaches are provided in view regions, and scale up the abatement of greenhouse of creating new options in the CDM regulatory environment. gas emissions, while ensuring environmental integrity.� (UNFCCC, 2010c). Furthermore, two paths of CDM procedural improvement are proposed in the study: (i) an optional (i.e., voluntary) stan- It is clear that the driving reasons and objectives for the dardized registration procedure for project activities using enhanced use of standardized baselines have striking sector-specific standardized baselines, and (ii) a standard- similarities to the rationale of the earlier PoA decision. In ized procedure for PoAs addressing micro-scale activities by overcoming the CPA concept, i.e., eliminating it from Improving efficiency and outreach of the Clean Development Mechanism through standardization xi PoA regulation, and simplifying monitoring and verification The third chapter of the study analyzes if and how standard- approaches. For both options, a more efficient project cycle ization could enable policy-driven actions to generate carbon is described, followed by an analysis of the modifications credits under the CDM. Under current CDM regulation, the to the current CDM regulation that would be required. policy support can already be combined with CDM incentives, The potential impact of the proposed improvements to in particular in the case of PoAs. The chapter also assesses procedures is assessed (based on expert judgement), and the ways standardization could help overcome the remaining suitable ways of mitigating possible risks associated with barriers to better incorporate the CDM in host countries’ low these changes are proposed. carbon development policies, and to inform the development of new market mechanisms. xii Carbon Finance at the World Bank This page intentionally left blank. Improving efficiency and outreach of the Clean Development Mechanism through standardization 1 chapter 1 Overview of the current status of Clean Development Mechanism (CDM) reform Since the CDM procedures were defined in the Marrakech to be addressed from a common perspective and take Accords in 2001, the mechanism has been constantly evolv- into account the ultimate objective of the reform of the ing. To help ensure the environmental integrity and efficiency mechanism. During the last decade, several important new of the mechanism, the initial principles underlying the CDM concepts and approaches were introduced into the CDM procedures are now complemented by a complex set of rules in an effort to improve its effectiveness without changing and regulations. the overall paradigm of the mechanism. Among the most important are: the introduction of the PoA concept and regu- The regulations, procedures, and governance of the CDM lation, the use of default factors, and the use of simplified have come under increasing criticism. An extensive body of procedures for small-scale project activities. The increasing academic and analytical literature assesses the shortcomings considerations of standardized approaches as an alternative of the CDM and suggests a broad set of improvements and way to account for emission reductions and for establishing reforms for both the supply and demand of emission reduc- sectoral baselines and its embedded additionality could tions. The main issues raised by stakeholders, parties, and potentially address one of the most contested issues of the observers focus on: CDM, i.e., additionality demonstration and baseline setting. The level of environmental integrity of the CDM and yy Further streamlining the CDM procedures, reducing transac- relevant issues of baseline setting and additionality (Haya, tion costs and uncertainties for project developers could also 2007; Michaelowa and Purohit, 2007; Schneider, 2007; better facilitate the implementation of the CDM. Haya, 2009; UNFCCC, 2011g; AEA, 2011; SEI, 2011); This chapter focuses specifically on the benefits of an The governance structure of the CDM with its inherent yy enhanced use of standardization, particularly in the case of problems such as conflicts of interest, lack of transpar- administrative procedures, stand-alone activities and PoAs. ency, mistrust among actors, lack of knowledge and First, the key outcomes of the CDM reforms in these areas capacity, absence of administrative law protecting the are assessed. Second, persistent bottlenecks in the CDM actors and of an appeal mechanism (Streck and Lin, procedures, which continue to hamper its efficiency and 2008; Figueres & Streck, 2009; Von Unger and Streck, create considerable risks along the project cycle, are identi- 2009; EPRI, 2011b); fied and discussed. The level of clarity and predictability of the regulations and yy processes (AEA, 2011; Gillenwater and Seres, 2011; PD- Forum, 2011b; EPRI, 2011b; IETA, 2010; CIRED, 2011); 1.1 Continuous improvements of The recognition of local stakeholders’ views (Boyd et al., yy the CDM procedures 2009; Haya, 2007; Schneider, 2007; Alexeew, 2010; During the past decade, CDM procedures have been the AEA, 2011; UNFCCC, 2011g); and subject of constant improvements, reflecting an increased The enforcement of environmental and sustainability stan- yy level of maturity, efficiency and clarity of regulation. The CDM dards by CDM projects (Schneider, 2007; Haya, 2009). Executive Board (CDM EB) has progressively improved its interaction and work with stakeholders such as policy makers, Most of the shortcomings of the CDM are closely interlinked project participants, DOEs, and the parties to the UNFCCC to through established procedures and governance. They need address a number of identified shortfalls. 2 Carbon Finance at the World Bank � Rejected/Withdrawn � RF Analyzed Project Type Figure 2 shows the number and share � Registered � RF All Pipeline  HARE OF REGISTERED AND REJECTED PROJECTS FIGURE 2: S of registered and rejected CDM projects FROM 2005 TO 2011 according to registration or rejection date. This data can be used as an 18% 700 17.0% indicative barometer of the regulatory clarity. The yellow and red areas indicate 16% 600 respectively the number of registered 14% and rejected projects. The bars indicate 12.7% Registration Failure Number of Projects 500 registration failure in the respective 12% 10.7% semester. For example, in the first 10.4% 10% 400 semester of 2006, all 150 projects con- sidered by the CDM EB were registered 8% 7.8% 6.8% 300 with no rejections. During the second 6% 5.8% half of 2006, more than 250 projects 4.6% 200 were registered and 4% of considered 3.8% 4.0% 4% 3.2% 3.0% projects were rejected. 100 2% From 2005 to 2007, in the early stage 0.0% 0.0% of CDM development, the focus was on 0% 0 JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC kick-starting the mechanism, and the CDM EB’s administrative structure was 2005 2006 2007 2008 2009 2010 2011 understaffed and suffering from budget shortages (GTZ, 2006; IGES, 2006). � Registered projects � Percent of rejected projects This is reflected in a low rejection rate � Rejected projects during this time. Source: First Climate, based on UNEP Risoe CDM Pipeline as of April 2012. From 2007 to 2009, regulation was characterized by a high degree of scrutiny and ad-hoc regulatory intervention, leading created to address all possible projects, and assuming a much to a peak in rejection rates (Figure 2; UNFCCC, 2008). The more proactive role in improving access to the CDM for under- corrective actions were mainly applied in case-by-case decisions represented sectors and countries. In particular, the following leading to consecutive revisions and the creation of more specific objectives and main actions of the CDM reform were defined: rules. This can also partially be viewed as a reaction to concerns improved efficiency in the operation of the CDM; improved regarding the integrity of the mechanism expressed by some regional and sub-regional distribution and capacity-building; market observers (Michaelowa & Purohit, 2007; Schneider, improved objectivity, clarity and integrity in the operation of 2007). In early 2007, a Registration and Issuance Team (RIT) was the CDM; enhanced transparency of the CDM and more direct established in the UNFCCC Secretariat to enhance the level of communication; and enhanced promotion of the mechanism. scrutiny (UNFCCC, 2008; GTZ, 2006). The efforts to increase the efficiency of the CDM led to stream- In 2010, the UNFCCC initiated a series of significant reforms lined regulatory procedures to better match the ever increasing towards a more streamlined CDM. These reforms focus on a number of submissions starting in 2010. According to IGEC more systematic and holistic revision of the performance of the (2011), 2011 saw a significant decrease in registration failures, mechanism, streamlining complex procedures that had been which can be viewed as a reflection of the increased quality Improving efficiency and outreach of the Clean Development Mechanism through standardization 3 of the submissions at the point of registration.4 In particular, in to generate a common understanding of guidelines 2011, only 50% of registrations triggered a review process by (PDF, 2011a; UNFCCC, 2011b). the CDM EB, compared with 90% in 2009; also, the case-by- Example: The development of the CDM Project case interventions triggered by the CDM EB were reduced to Standard (UNFCCC, 2011j) bundles applicable regula- 20% in 2011, compared with 50% in 2009. tory documents into one central document to increase clarity and remove inconsistencies. Below, the main improvements achieved so far are considered in the area of administrative procedures and the project cycle for Introducing risk-based approaches to quality control yy both stand-alone activities and Programmes of Activities (PoAs). for example using a spot-check approach. Risk-based con- The use of standardized approaches is discussed in Chapter 2. trol systems move away from assessing 100% of cases with a 100% assessment scope in each case. Instead, 1.1.1 ADMINISTRATIVE PROCEDURES such systems focus quality control on cases or areas of The key objective of procedural improvements in the CDM assessment scope where non-compliance is most likely is to increase efficiency by streamlining administrative to occur. Risk-based approaches are frequently applied procedures and saving time and transaction costs. Procedural within the context of other assessment frameworks improvements are also instrumental in increasing the outside the CDM, such as financial due diligence. predictability and transparency of the project cycle. Several Example: In the context of the new post-registration improvements have been introduced so far: procedures, the CDM EB will introduce a risk-based approach that aims at reducing the workload by relieving Eliminating the duplication of work steps. Multiple yy staff from dealing with “straightforward� cases of issu- stand-alone improvements were implemented by the ance (UNFCCC, 2011k). CDM EB and the Secretariat in this area. Example: The merger of two procedures to handle Introducing the concept of materiality in view of in- yy post-registration changes (deviations from the monitor- creasing efficiency of quality control at the DOE and CDM ing plan and project design changes) became fully EB level and reducing transaction costs. The principle of effective upon the adoption of the new project cycle materiality allows the acceptance of minor mistakes as procedure (UNFCCC, 2011i). long as the scale of related damage is insignificant. It is a principle that is used by other standards outside the Streamlining of regulatory documents and require- yy CDM, such as the ISO 14064/65 or the EU ETS (EA, ments with the aim to improve clarity for users, 2010). The CDM EB shall implement the concept within eliminate inconsistencies, and reduce subjectivity the CDM rules as per the CMP.7 decision. (inconsistency) in implementing CDM rules. According to the Project Developer Forum, the predictability could 1.1.2 PROGRAMMES OF ACTIVITIES (PoAs) be further improved through better communication, The introduction of the concept of a PoA and related rules digitization of Project Design Documents (PDDs), au- in 2007 targeted the need to increase efficiency and enable tomation of workflow, and training schemes accredited the top-down development of GHG emission reductions by the CDM and available to the DOEs, RIT/UNFCCC programs to address, in particular, the needs of small and Secretariat assessment team members and practitioners micro-scale activities. Since its introduction, the accomplishment of PoAs varied in 4 Since summer 2009, the completeness check procedure is returning incomplete submissions, however at the cost of a prolonged validation terms of supporting project types and host country locations cycle. 4 Carbon Finance at the World Bank that had been less successful under the CDM (Figure 3). BOX 1: STREAMLINING IN OTHER OFFSETTING SCHEMES Notably PoAs have been able to foster project activities such Streamlining is currently implemented by the two major voluntary car- as the introduction of energy-efficient appliances or small- bon standards: the Verified Carbon Standard and the Gold Standard. scale renewable energy measures such as solar water heaters or domestic biogas. Nevertheless, PoAs are still facing a num- Verified Carbon Standard (VCS). The VCS regulator is currently final- ber of barriers and obstacles, such as the inherent complexity izing the “Standardized Methods Initiative,� involving an extended of programme management, high transaction costs, the lack peer review process. The focus of the standardization initiative is on of seed financing, and fine-tuning of regulations. identifying performance benchmarks and performance method re- quirements, as well as defining principles of standardized approaches Key regulatory improvements that were achieved to increase and positive lists to pre-determine additionality for projects with no the practicability of PoAs are: revenue streams other than carbon finance, with low rates of adop- tion, etc. Combination of multiple methodologies under a yy PoA. Approved by CMP 6 in Cancun, this decision is as Gold Standard. The second version of the Gold Standard includes the an important step towards improving the applicability of initiative of top-down development of streamlining (e.g., a simplified track programmatic CDM. for micro-scale projects, top-down development of methodologies, and dispatching regional Gold Standard experts to several African countries). Example: It allows a combination of multi-type activities in municipal/city context. It also applies to multiple � Rejected/Withdrawn � RF Analyzed Project Type � Rejected/Withdrawn � RF Analyzed Project Type � Registered � RF All Pipeline � Registered � RF All Pipeline FIGURE 3: NUMBER OF PoAs COMPARED TO NORMAL CDM PROJECTS (A) COMPARISON OF REGIONAL DISTRIBUTION (B) PoA DISTRIBUTION OF PROGRAMMATIC (pCDM) AND NORMAL CDM BY TYPE OF ACTIVITIES 90 Coal mine methane 81.0% Fossil fuel switch 1.6% 80 1.2% Transport Forestry & agriculture 0.4% 70 0.8% 81.0% Geothermal 60 Wind 0.4% 52.0% 3.7% Percent 50 Energy efficiency Energy efficiency supply side demand side 40 2.4% 31.7% 30 28.0% Biomass energy 20 18.0% 3.3% 14.0% 10 Hydro 2.8% 2.0% 2.1% 12.6% 0.0% 1.1% 0 Latin Asia & Europe & Africa Middle Solar Waste America Pacific Central Asia East 15.9% 26.0% � pCDM � CDM Source: UNEP Risoe CDM/JI Pipeline Analysis and Database, March 1, 2012. Improving efficiency and outreach of the Clean Development Mechanism through standardization 5 energy efficiency interventions in buildings that are tar- cross-effects, while for other combinations the coordi- geted by the same incentive schemes but are covered nating entity needs to prove to the UNFCCC Secretariat by different CDM methodologies. that there are no cross-effects. Where cross-effects occur, project participants shall submit a request for Specific sampling guidelines. The sampling approach yy deviation or clarification. Combinations of methodolo- enables both reporting and verification to reach econo- gies for large projects need specific CDM EB approval. mies of scale and reduce transaction costs since DOEs do not need to verify every CPA. Example: In cases where sampling across CPAs is se- 1.2 Remaining bottlenecks of the lected, the final number of emission reductions that are CDM procedures verified and issued can be capped after accounting for a Despite significant progress, some barriers remain. While certain percentage of error envisaged in the sampling. important improvements have been achieved to the CDM PoA standard for the demonstration of additionality, yy procedures and project cycle efficiency, all stages of the the development of eligibility criteria, and the project cycle are currently associated with considerable risks. application of multiple methodologies. The standard These include insufficient predictability, a lengthy process, and combines three elements: the demonstration of high transaction costs. additionality of a PoA; the definition of eligibility criteria; and procedures for applying multiple methodologies INSUFFICIENT PREDICTABILITY OF 1.2.1  in a PoA. Additionality must be proven by justifying, THE CDM PROCESS in accordance with respective guidelines, that no CPA The insufficient predictability of the CDM process is closely would occur without CER revenues. linked with the consistency and certainty of CDM EB (and A critical element of the PoA standard in addressing DOE) decisions, rules, and guidelines. The administrative DOEs’ concerns about liability was shifting responsibility process can be deferred at any stage of the project cycle by for eligibility to CMEs. Under the standard, CMEs now unexpected interpretations or modifications of the rules by have to demonstrate that each CPA is eligible to be in- the regulator. This could ultimately result in a negative impact cluded. DOEs are therefore responsible for ensuring that such as registration or issuance failure for reasons that could CMEs have adequate management procedures in place not have been anticipated at the time of project development to undertake this demonstration task and that the eligibil- (IETA, 2010; World Bank, 2010). ity criteria are appropriate to determine additionality of each CPA at the inclusion stage. The eligibility criteria The low predictability is possibly reflected in the rate of failure provide clearer guidance on what may be included for during the project cycle, which may, to a certain extent, CPAs under a PoA. It should be noted, however, that the reflect the non-realized expectations of project developers to EB retains the right to revise the eligibility criteria of a obtain CDM registration. While it is recognized that non-CDM registered PoA at any time if there are concerns regard- related factors also affect such project failures, it is assumed ing the environmental integrity of the PoA. that operational and other project-related risks would remain comparable within and outside the CDM project cycle. Thus, The standard allows all methodology combinations for the rate of project failure would partly reflect the number of small-scale projects as long as they do not have cross- projects that were brought by mistake into the CDM process effects. Combinations of methodologies contained in due to lack of predictability and certainty. the “General Guidelines to Small-Scale Methodologies� can be applied without further assessment for 6 Carbon Finance at the World Bank The rate of failure is however not directly observable from inactive and 351 (23%) are still under validation, and may or available project statistics given that the share of projects that may not be registered in future. At the same time only 127 finally receive CERs may be determined only ex post. For (16%) of the 773 registered projects have had issuances to many projects listed in the CDM database, it is not known date. The rate of successful implementation and issuance for whether the validation or the monitoring is still ongoing or if the remainder is unclear. the projects have in fact been cancelled. Lack of consistency and certainty Based on statistical data, it can be demonstrated that a con- One of the main reasons for an inefficient, insufficiently siderable share of projects drop out at validation but also after predictable project cycle is the lack of consistency and certainty registration. In Figure 4, the project success rate is indicated by in interpreting and applying regulations and procedures on their state in the cycle, grouped according to the starting time a case-by-case basis, i.e. subjectivity. It slows down the work of validation. For example of the 1,548 projects that started of the DOEs, in particular for issues or cases that are not validation in 2008 only 773 (50%) have been registered, 52 straightforward (e.g., through clarification requests sent to the (3%)� have so far been rejected Rejected/Withdrawn �while 351 (23%) RF Analyzed are reported Project Type UNFCCC Secretariat and the CDM EB). This is � Registered � RF All Pipeline particularly the case given that the DOEs, in their FIGURE 4: PROJECT SUCCESS RATES AT DIFFERENT STAGES OF THE turn, are scrutinised for full compliance with such PROJECT CYCLE regulations and procedures. 1600 1600 Specifically, the guidance with respect to the determination of additionality still does not provide 1400 1400 objectivity, and its application is often sufficient inconsistent.5 The improvements and clarifications 1200 1200 Number of projects in terms of the additionality demonstration reflect 1000 the constant effort to increase the environmental 1000 integrity of CDM projects and to eliminate projects 800 would have been implemented anyway. For that800 instance, different approaches to demonstrate 600 600 additionality for micro-scale and small-scale projects were introduced. Some suggestions are now under 400 400 discussion to address the peculiarities of large invest- ments (De Jong, 2011). Another important issue 200 200 relates to the additionality of activities benefiting 0 from national support schemes (e.g., such as the 2003 2004 2005 2006 2007 2008 2009 2010 2011 controversy around the additionality of Chinese Year of entrance into the project cycle* wind CDM projects (He and Morse, 2010)). Possible reforms to overcome these issues were � CER issued � Rejected suggested in the debate (Castro et al., 2011) on � Registered without issuance � Under validation � Requesting registration � Failed (inactive) the standardization of baselines and the clarification * The year of entrance into the project cycle indicates the year when the proposed CDM 5 Inappropriate additionality argumentation is reported to project was published for the Global Stakeholder Consultation. be the main cause for incompleteness messages (IGES, Source: First Climate, based on UNEP Risoe CDM Pipeline as of October 2011. 2011). Improving efficiency and outreach of the Clean Development Mechanism through standardization 7 � Rejected/Withdrawn � RF Analyzed Project Type � Registered � RF All Pipeline of the additionality of projects in relation to the FIGURE 5: AVERAGE LEAD TIME FROM THE START OF GLOBAL presence of domestic support policies. However, TIME AVERAGE LEAD TO STAKEHOLDER CONSULTATION FROM THE START OF GLOBAL REGISTRATION the CDM EB decided in 2010 to discontinue STAKEHOLDER CONSULTATION TO REGISTRATION the consideration of this matter due to its high 800 political sensitivity (UNFCCC, 2010e). 700 1.2.2 LONG TIME-TO-MARKET Days in the project cycle 600 The time-to-market is the time span from the decision to develop a project under the CDM 500 to a subsequent issuance of CERs. A traditional project implementation cycle often moves much 400 faster than the CDM project cycle. The timeframe 300 for financial closure is much tighter than the almost two-year period that is required on aver- 200 age to get a CDM project registered. Ultimately, this discrepancy may act as a deterrent and 100 result in preventing the successful development of an eligible project at an early stage. The long 0 JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC JAN-JUN JUL-DEC time-to-market also prevents some project owners from considering the CDM as a potential financial incentive for their projects or causes 2005 2006 2007 2008 2009 2010 2011 projects to interrupt their operation due to the � Duration of validation phase delayed inflow of carbon revenue. In spite of past � Duration of registration phase procedural improvements, the time required for Source: First Climate, based on UNEP Risoe CDM Pipeline as of April 2012. registration (from the starting date of the global stakeholder consultation) remains considerable Overall, the total time to-market of a CDM project, on average, at over 500 days (Figure 5). adds up to over 1,300 days.6 This does not account for the several months needed for preparation of the PDD for stand- In 2011, this trend was reversed due to the introduction of the alone projects or PoA-DD together with CPA-DD for PoAs. This retroactive registration date (i.e., date of the submission of the means that at least four years may be required to get the first registered version of the PDD). However, it is likely that the CERs issued. overall time for registration will remain well above one year. The availability of resources from DOEs and the UNFCCC Secretariat Duplication of checks will play an important role in ensuring a timely processing of projects. Originally, the scrutiny of the individual projects at validation and verification stages would largely rely on independent, Furthermore, the time required for the first issuance is consid- accredited DOEs. However, to avoid crediting non-eligible erable and adds to the total time-to-market. According to IGES (2011), the average number of days from registration to first issuance is currently over 800. These delays are mainly due to 6 The average is clearly hiding the difference between some plain vanilla projects that are relatively simple, highly replicable and well-known by the changes in the project design and the monitoring setup. regulator and the more challenging activities that may, for instance, require revisions or applying new complex methodologies for the first time. 8 Carbon Finance at the World Bank projects, a review process was introduced in the Marrakech The cost of validation and verification constitutes “money at Accord’s CDM modalities and procedures.7 A completeness risk� in a sense that it needs to be invested prior to project ap- check by the UNFCCC Secretariat (at the point of submission proval and the generation of carbon revenues. Recurring costs of a positive validation/verification by the DOE to the CDM of monitoring and verification have a further deterring effect. EB) was also introduced. The initial intention was to focus on The risk of upfront transaction costs is especially acute for the completeness of the documentation, but in practice, it was small-scale projects. The cost of validation alone can be a used as an additional quality control of the technical content substantial barrier to commencing an activity under the CDM. of the project submission (on top of the successful validation/ Furthermore, the monitoring requirements for small-scale verification). Thus, in the current CDM procedures, the quality projects (as well as PoAs) may lead to a higher level of checks implemented by DOEs (at validation and verification) transaction costs (Müller et al., 2011). and the CDM EB (at registration and issuance) are similar in scope. The project eligibility and compliance with applied methodology and tools are assessed before the project starts Excessive data requirements or at least at an early stage of project construction, and then High upfront transaction costs are also caused by data require- again after the implementation of the project. Similar checks are ments at validation and verification. The current CDM procedures done at verification. While the checks are essential, doing them often require significant data collection on a project-by-project repeatedly at different stages of the project may not specifically basis to establish the baseline, demonstrate additionality, calcu- ensure the increased environmental integrity of the mechanism. late the grid emission factor, etc. This puts a significant burden on individual project developers, especially where such data is The current set-up results in processing delays and unnecessary not readily available and accessible (e.g., in LDCs). additional costs for validation and verification). One of the major causes for delay at the issuance phase is the fact that For projects or PoAs with numerous, dispersed project units, projects rarely are implemented exactly the way they were the stringency of MV requirements under the current CDM planned. Deviations from the PDD are typically the rule, not the can mean a considerable effort to gather data. In terms of exception. With an increasing number of projects at first issu- technical resources and manpower, it may lead to a level ance, the number of notified changes and the required checks of transaction costs comparable to the expected carbon may significantly delay the issuance of CERs and thereby the revenues. Stringency of such requirements can deter some generation of carbon revenue for the project (IGES, 2011). projects and entire sectors, such as transportation and agricul- ture, from entering the CDM process in the first place. 1.2.3 HIGH UPFRONT TRANSACTION COST Also, high regulatory uncertainty and long lead times makes Validation constitutes the largest cost element for third CDM revenues unbankable in most cases, and it is challenging parties in developing a CDM project. Fees for validation and for investors to include them at the moment of their invest- verification have been increasing continuously (World Bank, ment decision. This penalizes those projects that are highly 2010a), arguably as a reaction to the training needed to adapt dependent on such CDM revenues and may lead additional to regulatory changes.8 projects not to be implemented under the CDM. Conversely, an ever-increasing regulatory effort would be required to prevent non-additional projects to enter the CDM. In this context, standardization and increasing regulatory certainty through the 7 The review process of the registration of a project activity can be imple- use of standardized approaches such as those suggested in mented if warranted by either (i) a party involved in the project activity, or this study could have a positive impact on the environmental (ii) at least 3 members of the EB. 8 A prominent example was the introduction of the Validation and Verification integrity of the mechanism. Manual (Carbon Finance, 2009). Improving efficiency and outreach of the Clean Development Mechanism through standardization 9 chapter 2 Standardized procedures under the Clean Development Mechanism Standardization is not new to the CDM, but over the past few addressing micro-scale activities and simplifying the monitor- years it has come into focus. This trend started in Copenhagen ing and verification approaches. For both cases, an improved in 2009 (Decision 2/CMP.5), when the Subsidiary Body for project cycle is described below, followed by an analysis of Scientific and Technological Advice (SBSTA) was requested to the required modifications of the current CDM regulation. The recommend modalities and procedures for the development potential impact of the proposed improvements to procedure of standardized baselines. A year later in Cancun, the parties is assessed along with the ways of mitigating possible risks of elected to implement standardized baselines (Decision 3/ the proposed changes. CMP.6), covering baseline setting and additionality demonstra- tion. A few months later, the CDM EB approved guidelines for the establishment of sector-specific standardized baselines. In 2.1 Standardization of baseline Durban in 2011, the parties called for further actions on stan- dardization, requesting additional work by the CDM EB, includ- setting and additionality ing the development of top-down standardized baselines and demonstration: critical expansion of the scope covered by the approved guidelines features and potential for on standardized baselines (Draft decision 8/CMP.7). streamlined project cycle It is hoped that standardization can contribute to increasing the efficiency of the CDM in terms of transaction costs, time 2.1.1 APPROACHES TO STANDARDIZATION requirements, transparency, consistency and predictability. UNDER THE CDM It could also improve access by underrepresented regions Standardization of project-based mechanisms, including the and sectors to the CDM. It is clear that standardization alone CDM, has been extensively discussed (Lazarus et al., 2000; cannot resolve all the regulatory and governance imperfec- Probase, 2002; World Bank, 2010b). Table 1 summarizes tions of the CDM, or achieve all of the mentioned objectives. some elements of standardization tools found in the literature This chapter proposes, however, that in reviewing different and that are to some degree already available under the CDM. approaches for standardization under the CDM, an extension The move toward greater standardization under the CDM of the scope of standardization to monitoring and verification was initiated in Copenhagen in 2009 (Decision 2/CMP.5). In could strengthen the positive impact of standardization toward Cancun, the CMP requested the CDM EB to develop standard- the identified objectives. ized baselines (Decision 3/CMP.6). In the context of this CMP Two paths of CDM procedural improvement are proposed: decision, a standardized baseline is defined as “a baseline (i) an optional (i.e., voluntary) standardized registration established for a party or a group of parties to facilitate the procedure for projects using sector-specific standardized calculation of emission reductions and removals and/or the baselines, and (ii) an optional (i.e., voluntary) standardized determination of additionality for [CDM] project activities, procedure for PoAs addressing micro-scale activities. This while providing assistance for assuring environmental means removing the CPA concept from PoA procedures integrity.“ 9 9 Decision 3/CMP.6 (V. Standardised Baselines), Paragraphs 44-52. 10 Carbon Finance at the World Bank TABLE 1: STANDARDIZATION TOOLS Standardization tool Definition Examples of project activities Common estimation Tools and guidelines that are used across methodologies. Historically, this Tool to calculate the emission factor for an methods is the most commonly used form of standardization under the CDM. electricity system used by multiple CDM methodologies Positive lists List of specified types of projects (or PoAs) that are considered eligible (or (i) Landfill gas and anaerobic digestion of additional, if applicable) de facto without further justification in a given agricultural wastewater context of application. (ii & iii) Efficient lighting, charcoal production, Some examples of positives lists: (i) projects (PoA activities) that do small hydro, solar, wind not generate any revenues other than CERs revenues, (ii) projects (PoA activities) that are not common practice; or (iii) projects that face high investment barriers. This standardization tool can also be used for definition of “demand-side� measures or technologies ensuring certain quality/quantity parameters of energy supply. Default or deemed values Indicators that can be used for calculation of baseline, project emissions Small and distributed energy generation using and leakage based on values that are made available ex ante. These appliances indicators can be developed for known technologies with similar perfor- mance characteristics and the potential to measure performance easily. The defaults and deemed values may include: fuel emission factors, electricity grid emission factors, lifetime of equipment, and emission reductions per unit of installed equipment. The values may be derived from the recognized statistical and reference sources (e.g. IPCC, IEA, etc.) or politically agreed. Market (activity) Tool used to identify the “spread� of specific project activities/technolo- (i) Energy-efficient technologies penetration level gies based on market share of current product/service or cumulative (ii) Small-scale renewable power generation market penetration rates. (iii) Blended cement, natural gas cogen- This tool may be particularly suitable for (i) projects generating homog- eration, landfill gas combustion, biogas, enous output or services, (ii) projects using emerging technologies and composting (iii) projects operating in markets with high availability of data. Emissions performance Emission performance standards are emission rates per unit of service Industrial production of energy- intensive standards (or benchmarks) or output that are based on the current and/or future performance of a products or products with process emissions peer group of similar plants or installations. Performance standards can (aluminium, cement), boilers, engines be used to evaluate and compare performance, in particular for projects that generate homogenous products or services and for which data avail- ability is high. These benchmarks could be determined by internationally selected experts and institutes. Source: Adapted from AEA (2011). Improving efficiency and outreach of the Clean Development Mechanism through standardization 11 In response to Decision 3/CMP.6, the CDM EB established a technology options and the respective emission factors Sector Specific Standardized Baselines framework that refers (examples described in Table 1). to the standardization of baseline emissions and its embed- A distinction can be made between standardization ap- ded additionality demonstration since, in effect, the process of proaches referring to (i) methodological improvements establishing the baseline also determines additionality, much using, for example, default factors or benchmarks, and (ii) in the same way as the combined additionality and baseline efforts to move away from a project-by-project approach to tool used to do. a higher level of aggregation, i.e., using the Sector Specific This framework currently covers a select range of technolo- Standardized Baselines framework to identify technology gies: (i) fuel and feedstock switch; (ii) switch of technology defaults or sector defaults. Examples that illustrate both ap- with or without change of energy source (including energy proaches can be found in Annex 1. efficiency improvement); (iii) methane destruction, and (iv) methane formation avoidance (UNFCCC, 2011l). Under the The main achievements of standardization aimed at moving corresponding guidelines and procedures recently approved beyond a project-by-project analysis (apart from the sector- by the CDM EB, DNAs can propose a sector-specific list of specific standardized baseline) currently include: technologies with positive additionality and a baseline technol- A positive list for small-scale renewable electricity yy ogy with the corresponding emission factor (UNFCCC, 2011l). generation technologies implemented within the small-scale CDM activities such as grid connected The establishment of the Sector Specific Standardized photovoltaic, solar thermal, offshore wind and marine Baselines framework can be considered one of the main energy (UNFCCC, 2011e). The current positive list is regulatory achievements. Using this framework has a expected to be expanded by the CDM EB in the future. significant potential to increase the objectivity of assessments without compromising the environmental integrity of the Guidelines for automatic additionality for micro- yy mechanism. scale projects in Least Developed Countries (LDCs) and Small Island Developing States (SIDS).10 Other At the time of preparing this study, three main documents criteria are also defining the eligibility of projects for were approved by the CDM EB defining the modalities and micro-scale additionality, including: the size of installa- procedures for the implementation of standardized baselines tion, type of installation, type of end-users of service, under the CDM: project type, and the penetration rate of technology in the host country. Guidelines for the establishment of sector-specific yy standardized baselines (version 2 approved at EB 65, In the context of methodological improvements, the UNFCCC Annex 23). Secretariat is currently conducting an assessment as to what elements could be standardized and simplified in existing Procedure for submission and consideration of yy methodologies (UNFCCC, 2011a). The Management Action standardized baselines (EB 63, Annex 28). Plans (MAP) of the Small-Scale Working Group and the CDM Guidelines for quality assurance and quality control of yy Methodology Panel presented at the 66th EB meeting and data used in the establishment of standardized baselines published on the 2nd March 2012 identify the top down meth- (EB65, Annex 49). odologies and proposed revisions to increase standardisation in existing methodologies in 2012 (UNFCCC, 2012). The umbrella definition of standardized baselines provided in Decision 3/CMP.6 leaves open the means of standardization, thus encompassing all possible approaches to standardization, 10 Defined in the Guidelines for demonstrating additionality of micro-scale such as default factors, benchmarks, positive lists or baseline project activities. 12 Carbon Finance at the World Bank HOW STANDARDIZATION POTENTIAL 2.1.2  circumstances into account more effectively in terms of data COULD BE FURTHER DEVELOPED availability and established practices. In Durban in 2011, the Parties called for continuous actions The verification approach may also be further standardized on standardization, requesting the CDM EB to carry out further and streamlined. Risk-based approaches to verification (e.g., work, including the development of top-down standardized spot-check approach focusing verification efforts on a sample baselines and expansion of the scope covered by the ap- of implemented activities) could also further reduce the work- proved guidelines on standardized baselines (Draft decision load during verification. 8/CMP.7). For instance, the framework shall now be extended to all sectors, including forestry and transport. CREATING NEW OPTIONS IN THE 2.1.3  Another important way to broaden the standardization CDM REGULATORY ENVIRONMENT mandate could be to address monitoring and verification THROUGH STANDARDIZATION: (MV) procedures to help shift away from a project-by-project OPPORTUNITIES AND CHALLENGES approach to a more aggregated level of GHG mitigation. Standardization through sector-specific baseline setting and Standardized approaches to MV could contribute to unlocking additionality demonstration represents a substantial departure sectors underrepresented in the CDM as well as creating from a common case-by-case approach and could lay the streamlined MV approaches. foundation for more transformational procedural reforms without compromising the environmental integrity of the New aggregated, standardized monitoring approaches would mechanism. be particularly relevant for sectors with diffused emission sources such as transport, agriculture11 or some types of First, the baseline setting and additionality demonstration for energy efficiency measures. Innovative standardized ap- entire sectors in countries or even regions can be submitted proaches for monitoring will need to be established since it by a DNA and approved by the CDM EB. The sectors to be is not always possible to measure the contribution of each covered by the sector-specific baseline could be strategically direct emission source to GHG emission reductions. Relevant selected in a manner that complements the host country’s (aggregate) monitoring indicators could be proposed that can priorities. This aggregated approach enables DNAs to better be converted to GHG emissions using standardized algorithms integrate national and sectoral perspectives and potentially and/or default factors. For instance, conservative estimates allows for a more strategic use of the CDM to contribute using information on changes in market penetration rates to low carbon development in the host country. While the for specific technologies in the transport or agriculture sector standardization approach is not mandatory, it could provide could be used. a simplified, more certain and predictable framework for potential investors. To increase the flexibility and practicability of sector-specific standardized baselines, the DNAs would benefit from an Second, the transparent and conservative baseline setting option to suggest specific MV procedures consistent with and additionality determination approach provides the basis their standardized baseline framework. This may take national for environmental integrity of the crediting. The political consensus required to define the level of conservativeness of sector-specific baselines would need to be reached by 11 For agriculture and land management projects (not yet eligible under the high- level decision makers ensuring the political credibility of CDM), standardized MV approach has been recently approved by Voluntary Carbon Standard based on a methodology developed by Bio Carbon Fund. the approach. This approach could significantly reduce regula- Under this methodology, the monitoring is focusing of activities rather tory risk for covered mitigation activities through enhanced than of direct emission reductions measurement (methodology VM0017 “Sustainable agricultural land management�). Improving efficiency and outreach of the Clean Development Mechanism through standardization 13 certainty and objectivity, and contribute to addressing funding - and might be a barrier to the development procedural bottlenecks. of standardized baselines, in particular in the context of LDCs. This can also reduce the expectation for standard- Third, the enhanced use of standardization could become a vi- ized baselines to improve certainty and predictability of able starting point for the standardization of CDM procedures, expected carbon revenues for projects. both for stand-alone projects using the sectoral baseline and The risk of creating further delays and political interfer- yy its embedded additionality, as well as for PoAs addressing ence by engaging in a highly political process required to micro-scale activities that benefit from simplified additionality reach agreement on the proposed sectoral baselines, as demonstration requirements. This could contribute to creating well as the potential implications of selecting and prioritiz- more predictable, shorter, and less cost-intensive processes ing activities throughout the sector and their implications for investors and ultimately make the CDM a more attractive for environmental integrity at the national and sectoral mechanism in poorer countries and regions where projects level. are more often affected by the current bottlenecks of the CDM regulatory processes. The reduced incentive for the private sector to opt for a yy sector-specific standardized baseline in case it leads to Finally, standardization helps build the foundation for moving significant under-crediting as compared to the normal beyond a project-by-project approach. This shift can potentially CDM approach. contribute to extending the CDM to policy-driven activities that Other limitations relate to the current regulatory and reach underrepresented sectors such as transport and energy procedural gaps that exist for projects that are eligible for the efficiency. The possibilities of such an extension of the CDM use of sector-specific standardized baselines. Through the would however depend on whether the mechanism will be enhanced use of standardization, these problems could be considered by the international climate community as a suit- addressed by creating more certain and predictable project able vehicle for such approaches as compared to instruments cycle and regulatory procedures. This could help create a — such as nationally appropriate mitigation actions (NAMAs), more attractive regulatory environment that would incentivize a new market mechanism — that are currently under develop- ment (Chapter 3). project proponents. Challenges and limitations In practice, the success of standardization, in particular the 2.2 Standardization of registration establishment of sector-specific baselines, could be limited by procedures for projects a number of factors such as: using standardized sectoral The efforts, costs, and limited capacity of some DNAs yy baselines and additionality (in particular in LDCs) required to establish standardized demonstration baselines and procedures at the moment, are unclear, but are likely to be significant given the need to collect The setting of sector-specific baselines and additionality at data (often of limited availability) that are representative the aggregate level means that these elements are no longer of a sector as a whole. established on a case-by-case basis at a project level. As a result, the scope of assessments and quality control that has The three-year update frequency currently required in yy to be implemented for each individual activity is reduced these guidelines can be considered too short compared significantly. This approach should have a positive impact on to the effort needed to establish the standardized the predictability (objectivity) of assessments, reduce the baselines - which is a data-intensive process that requires level of transaction costs, and, in effect, help address many of 14 Carbon Finance at the World Bank the bottlenecks of the CDM procedures. The use of sectoral yy Confirmation of compliance with stakeholder thresholds and other standardization tools shall be implement- consultation process and of completion of the ed only in maintaining conservative approach. Thus, to ensure environmental impact assessment in accordance environmental integrity, it can be expected in some cases with national requirements, existing CDM rules, and that this approach may result in a more conservative estimate international good practices (as applicable). of GHG emission reductions compared to the outcome of a Automatic registration (Step C, Figure 7) is triggered yy more complex and subjective case-by-case approach. by the submission of a completed registration template. The current procedures for setting the sector-specific standard- The templates are designed so that a non-eligible ized baselines have generally outlined what is expected of project could not complete the template (see example DNAs. However, it does not define any specific procedures for in Annex 2). No validation is undertaken on site prior to assessment of projects that are eligible to use standardized the automatic registration. baselines. Verification of eligibility and of actual emission yy reductions after project implementation (Step E, To address this procedural gap, an optional standardized reg- Figure 7). Verification requires the DOE to confirm istration procedure for projects using a standardized baseline compliance of a GHG mitigation activity with the is recommended in order to (i) ensure better consistency of requirements defined in the registration template procedural requirements in the context of standardized regula- (i.e., validation is replaced by ex post verification) and tions, and (ii) to provide an incentive to project developers verification of the actual emission reductions generated to use sector-specific standardized baselines as compared to by the project (i.e., credits are only issued for real GHG the normal CDM approach. The details of such a standardized emission reductions, not for estimates ex ante). approach are discussed next. Figure 7 below illustrates the difference between the existing 2.2.1  MAIN ELEMENTS OF STANDARDIZED and proposed standardized project cycles. REGISTRATION FOR PROJECTS USING The proposed standardized project cycle shares some SECTOR-SPECIFIC STANDARDIZED common features with other available offsetting schemes BASELINES (such as the American Carbon Registry, the Verified Carbon The standardized registration of projects that uses sector- Standard (VCS), the New South Wales’ Greenhouse Gas specific baselines and additionality demonstration has several Reduction Scheme (GGAS)). It may be interesting to consider main elements (Figure 6): the administrative and environmental performance of these The registration template developed for a sector or for yy schemes while making this approach operational under the a specific technology fulfills the function of a traditional CDM (Table 2). project design document. The eligibility template is a simplified PDD structured as a checklist (discussed in Required modifications to current CDM procedures more detail in Section 2.2.2, page 17). The aim of the The establishment of an optional standardized project registra- template is to collect key information regarding: tion procedure would require at least several modifications to yy Applied technologies and methodologies. current CDM procedures, as discussed below. yy Compliance with the applicability conditions set for First, prior to the project preparation stage, modalities and the use of the standardized baseline. procedures would need to be developed for: Improving efficiency and outreach of the Clean Development Mechanism through standardization 15 The submission by the DNA of a generic yy FIGURE 6: MAIN FEATURES OF STANDARDIZED REGISTRATION FOR registration template that would be made PROJECTS USING SECTORAL BASELINES available for proposed projects that use the standardized sectoral baseline. The submission MAIN STEPS OF MAIN REQUIREMENTS STANDARDIZED PROCEDURES AND RESPONSIBILITIES of generic templates could, for example, be an integral part of the proposal for a standardized Registration template • Elaboration of a standard for the development of baseline by a DNA, or the templates could be for project activities registration templates introduced progressively. that use a • Submission of sector/ technology-specific standardized baseline registration templates by DNAs for EB approval The approval/rejection of the proposed yy generic templates by the CDM EB. The proce- dures may or may not require a qualified DOE Standardized • Completion of a template by the project proponent to assess if a generic template is “complete�. registration of project to demonstrate project eligibility activities that use a • Registration of eligible projects without individual standardized baseline validation by DOE • Confirmation of a project activity's ex-post compliance with the registration template by Verification and a DOE at the verification stage issuance • Submission of a request for issuance upon verification by DOE FIGURE 7: COMPARATIVE PROJECT CYCLE UNDER THE EXISTING AND STANDARDIZED REGISTRATION PROCEDURES FOR PROJECTS USING STANDARDIZED BASELINES EXISTING REGISTRATION STANDARDIZED REGISTRATION PROCEDURE PROCEDURE FOR PROJECTS USING STANDARDIZED BASELINES A A’ Project preparation by PE Project preparation by PE  PDD  Registration template F B F’ Issuance of CERs by EB Validation of PDD by DOE Issuance of CERs by EB Verification by DOE Registration by EB: Verification by DOE Registration by EB:  Monitoring report  Registered PDD  Compliance with template  Registered template  Monitoring report E C E’ C’ Monitoring by PE Monitoring by PE  Monitoring report  Monitoring report D D’ 16 Carbon Finance at the World Bank TABLE 2: STANDARDIZATION OF THE APPROVAL AND MONITORING PROCESSES IN OTHER OFFSETTING PROGRAMS Offsetting program Registration / Approval Performance monitoring Climate Action Project eligibility requirements and exclusion criteria are listed. yy Annual verification site visits include the assessment Reserve (CAR) Application form with attachments is submitted. yy of material misstatements, a review of management systems, and the verification of emission reduction Administrator pre-screens projects for eligibility. yy calculations. All eligible projects can begin activities. yy Registration of project occurs only upon first verification. yy American Carbon A project plan needs to be submitted, including description of yy To get credits issued, a verification statement from an Registry (ACR) activity, baseline scenarios, methodology, and monitoring plan. approved verifier based on a desk audit needs to be Detailed eligibility screening of project against ACR standards yy submitted. Monitoring occurs annually, or more or less done by ACR. frequently, at project proponent’s discretion. The first and every fifth verification require a site-visit. No validation is required. If deemed eligible, the project is yy “Certified.� Verified Carbon Project needs to be validated after which the VCS administrator yy GHG reductions or removals need to be verified before Standard (VCS) reviews all documents before registration. applying for issuance. Project needs to be submitted using a template with questions to yy be answered. New South Wales’ Abatement certificate providers must be accredited with the yy Ongoing audit requirement (verification) uses a risk Greenhouse Gas scheme administrator. based approach. Audit requirements may change over Reductions Scheme Project must be submitted with application form that is assessed time to reflect changes in the risk profile of a project. yy (GGAS) by scheme administrator. Elements affecting risk include complexity of the activity and number of certificates created. Spot audits are also Audit of project proposal is required only if requested by scheme yy used. All abatement certificates must be registered within administrator. six months after the calendar year in which they were generated. Second, a review process may be needed to assess the development of standardized approaches could be envisaged, robustness and environmental integrity of new standardized as far as simplifications of existing methodologies are needed. tools and elements at the level of methodologies and/or MV This would reduce the concerns of non-acceptance as the approaches that may be used in the generic templates (e.g., CDM EB or the UNFCCC Secretariat will lead the development. use of conservative default values or a “deemed saving� ap- Third, at the stage of project preparation (Step A, Figure 7), the proach instead of measurement). This review process may be registration template must be available for use and approved established as part of the procedure for submission and con- by the CDM EB. Preferably, the registration template would be sideration of standardized baselines, or independently, through based on the broader standardization approach, at the level of the modification of the existing procedures for submission of both baseline methodology and MV. CDM methodology revisions (bottom-up approach). The global stakeholder consultation (GSC) is an important Once approved, the proposed standardized methodology transparency and credibility tool of project assessment under would be a common good, available to all. In defining an ap- the CDM which allows the international community as well proval process, care must be taken to ensure that it is efficient as local stakeholders to provide comments on the proposed and does not become a bottleneck. Alternatively, the top-down Improving efficiency and outreach of the Clean Development Mechanism through standardization 17 project activity. A possible modality of global stakeholder 2.2.2 STANDARDIZED REGISTRATION consultation under the standardized project registration TEMPLATE: GENERIC FEATURES procedures may consist of conducting a GSC for the overall proposal of the standardized baseline at the moment of its Content of the standardized registration template submission for consideration by the CDM EB. Similar to the The registration template developed for a sector or for a current procedures for GSC for PoAs, the individual project specific technology is a simplified project design document activities that will be eligible to use the standardized baseline structured as a check list. The template contains key informa- would not be subject to individual GSC. However, other solu- tion regarding the project: tions could be provided to this issue under the standardized The simplified description of the applied technologies yy baseline procedures as appropriate, and more analysis should and methodologies; be conducted in this regard. The confirmation of compliance with the applicability yy At the level of local stakeholder consultation and the envi- conditions set for the use of the standardized baseline; ronmental impact assessment (EIA), the standardized project and registration procedures could adopt an approach similar to The confirmation of compliance with the local stake- yy what is currently used by the PoA regulation, namely the holder consultation process and of the completion of the individual activities would need to confirm their compliance environmental impact assessment. with the requirements of relevant national laws and regulation that shall be duly incorporated into the registration template. The template would include at least the following sections: This approach would ensure that the requirements of the I. General project information; national systems are fully reflected and that project compli- ance could be verified by the DOE. However, the inclusion of II. Applicability conditions; such requirements in the standardized registration templates III. Technical parameters of project activity; may not be straightforward and may require further in-depth IV. Method used to calculate emissions; assessment at the level of specific technologies and types of activities in different countries. This may also include the V. Monitoring; assessment of the potential for standardization of stakeholder VI. Local stakeholder consultation; consultation requirements based on the key principles of VII. Environmental impact assessment (EIA); the international good practices for environmental and social safeguard policies. VIII. Information regarding public funding; IX. Information on project participants. Finally, the optional standardized registration procedures for projects using standardized baselines would need to be duly Alternatively, the template can contain calculation formulas, reflected in the Validation and Verification Standard (e.g., references to default factors and, when feasible, the means replacement of validation (Stage B, Figure 7) by ex post of verification that shall be provided at the verification stage verification (Stage C, Figure 7); use of an adapted auditing to increase predictability and clarity (e.g., commonly used approach, different from the normal CDM. types of documentation such as invoices, nameplates, design documents, etc.). Despite the specificity of templates for each selected sector or technology, it is suggested that the guiding principle for the development of these templates should be to follow a 18 Carbon Finance at the World Bank check list format. To demonstrate the use of this principle in according to available thresholds (micro-scale, small-scale practice, this section contains an example of a generic eligibil- or the threshold established by the selected standardized ity template for new grid-connected, run-of-river, hydropower baselines). The remaining items require the collection of other generation (Annex 2). It is clear however that the content, relevant technical information on the project. structure, level of standardization and the capacity to translate Section IV describes the method used to calculate emissions the elements of projects into check list parameters will for baseline, project, leakage and emission reductions. In depend on the technology. this specific case, only baseline emissions would need to be All the elements of the template are derived from applicable calculated using the formulas referring to in the AMS.I.D. CDM rules and are interpreted for the selected application. Section V defines all of the required information related to The user will be required to provide concise pre-defined infor- the monitoring methodology and is arranged in two sections: mation as well as a confirmation of the provided conditions and criteria. The description below refers to the sections of the A. Parameters to be monitored. example of a generic template provided in Annex 2. In the case of hydro power generation, only two options In section I, the general project information is collected, in- for monitoring are available: through bi-directional cluding the information about the project implementation date meters or through unidirectional meters (#17). In both (#4) and project commissioning date (#5). In order to ensure cases, the template indicates the required algorithm for compliance with rules on prior consideration of the CDM,12 calculation (with or without consideration of the electric- the current Prior Consideration of the CDM Form (F-CDM-PC) ity supplied from the grid, #17-#19). should be sent to the DNA and the UNFCCC Secretariat within B. Metering equipment. 6 months of the project start date (UNFCCC, 2010c). The information provided on the metering equipment is In section II, the eligibility of the project to use the template is pre-defined, taking into account the metering arrange- verified by means of a confirmation of the main characteristics ment (e.g., the ownership of meters). The information of the hydro power plant (#8 & #9), as well as its compliance of quality assurance and quality control is standardized with national laws and regulations (#10). Alternatively, if the as much as possible in a format that requires confirma- template would have to be structured in a more compre- tion (e.g. #28 & #29). At the same time, the template hensive way (e.g., include hydro power plants with water also provides a possibility to indicate any specific meter- reservoirs that are eligible under AMS-I.D. as well), a different ing arrangements that may not reflect the common set of options would be included in this section. practice for such projects and thus may not be provided as default options in the template. Section III provides data of installed generation capacity and Section VI contains information about the local stakeholder verifies eligibility of the project activity to use the standardized consultation. First, the developer shall confirm whether such baseline and its embedded additionality demonstration under consultation is required for this type of project (scale/location/ which the generic template is developed. To do so, item #11 technology) to fulfil the eligibility requirements for the use requires confirmation of the scale of total installed capacity of the appropriate sectoral standardized baseline; or justify why such consultation is not required. In case a stakeholder 12 If a project has already started before a PDD has been published for public consultation is required at the level of each individual activ- comments or a new methodology or revision of a methodology related to the project has been proposed, notification of CDM prior consideration ity, several approaches could be selected to ensure that is required to demonstrate that the benefits of the CDM were a decisive factor for taking up the project. This notification should comply with the the consultation has been conducted and the comments “Guidelines on the demonstration and assessment of prior consideration of have been addressed in compliance with the national the CDM�, and in accordance with the Project Cycle Procedure. Improving efficiency and outreach of the Clean Development Mechanism through standardization 19 requirements and based on international good practices (as For instance, currently in the UNEP Risoe pipeline there applicable). In the illustrative example provided in Annex 2, are more than 6,700 renewable energy projects,13 which the developer is required to confirm the compliance with the represents above 70% of the total number of projects (includ- above requirements, as well as confirm that the DNA has ing rejected and withdrawn projects).14 Of these renewable been fully informed about the modalities and outcome of the projects, almost 50% are small-scale. For these projects, a stakeholder consultation. The DNA could, for example, include higher level of representativeness and completeness of the an explicit indication of this in the Letter of Approval (LoA). In template could be achieved, given the vast experience and this approach, the responsibility for due consideration of the knowledge accumulated by normal CDM projects. stakeholder’s interests is placed predominantly on the project Streamlining and simplification through standardized registra- developer. Other approaches are possible, such as the “host tion procedures could also benefit demand-side energy country system approach� and/or the “liability approach� efficiency projects. These projects currently represent only discussed in Section 2.3.3, page 24. 1% of the total CDM pipeline (excluding PoAs) despite their Section VII covers the issue of environmental impact assess- significant GHG mitigation potential. ment using an approach similar to one discussed above for local stakeholder consultations. The main limitations of the use of the standardized registration procedure for projects would relate to the following factors: Section VIII includes the information regarding public funding. The sectoral coverage of standardized baselines; yy The requirement to use specific additionality demonstra- yy EXPECTED IMPACT OF USING A 2.2.3  tion which is not covered by the demonstration embed- STANDARDIZED REGISTRATION ded in the standardized baseline (e.g., for large-scale PROCEDURE FOR PROJECTS USING A projects); and STANDARDIZED BASELINE AND WAYS TO MITIGATE POTENTIAL RISKS The uniqueness and/or complexity of technical solutions yy in some projects (e.g., cogeneration, associated gas flar- Targeted population of activities ing reduction, industry rehabilitation projects, and energy In principle, any project that uses a sector-specific standard- efficiency in complex sectors such as the steel industry). ized baseline established at the national level (and its In these cases, the use of a standardized registration template, embedded additionality demonstration) could opt to use a (see Section 2.2.2, page 17) may not be feasible or appropri- standardized registration procedure if a generic template is ate since many elements would be project-specific. available for that type of activity. Further analytical effort would also be required to assess As a starting point, registration templates could be developed the potential of standardized registration for sectors with for projects that are homogenous and replicable of a small or diffused emission sources such as transport and agriculture. A medium size (e.g., renewable energy, certain energy efficiency substantial effort in terms of further defining standardization measures) as well as for micro-scale activities that may not be of methodological and MV approaches is still required before part of a PoA. This means that already at the start, the targeted population of the standardized registration procedure is quite large, around one third of the historic CDM pipeline. 13 The renewable energy projects include project activities in different cat- egories such as biomass, energy efficiency households and zero-emission renewable heat and power generation. 14 Based on the data from UNEP Risoe CDM/JI Pipeline Analysis and Database, March 1, 2012. 20 Carbon Finance at the World Bank substantial GHG mitigation can be achieved in these sectors and programs. If each unit within the CPA is within the under the CDM. category of small-scale or micro-scale thresholds (e.g., a compact fluorescent lamp (CFL), a cooking stove, Acceptability for stakeholders a renewable energy installation such as solar home The acceptability of and stakeholders’ position vis-a-vis a water heater or an energy efficient appliance), then the standardized track for project registration will largely depend thresholds should not restrict the size of the overall CPA. on the level of potential risks. The main risks and possible Under the current rules, project developers that want ways to address them are listed in Table 3. to apply the micro-scale additionality guidance have to cluster household/small-medium enterprise/community level activities into CPAs that are below the micro-scale limits. While keeping the combined mitigation effort in 2.3 Standardization of procedures a CPA below the micro-scale limits, the mere possibility for PoAs addressing micro- of having numerous CPAs in a PoA makes the CPA scale activities stratification artificial. In the meantime, it increases the administrative burden related to handling an inflated This section considers the opportunities for further streamlining number of CPAs. the regulation of PoAs, in particular with a focus on PoA proce- dures addressing underlying micro-scale activities. First, some Starting date of a CPA. According to current rules, a yy key barriers specific to PoA implementation are described CPA cannot start prior to the PoA validation date, i.e. the which has a dampening effect on private sector participation date of the publication of the PoA on the UNFCCC web- in PoAs. Second, standardized PoA procedures are proposed site. However, rules also require the first specific CPA to to address several of these barriers specifically related to PoA be submitted along with the PoA for publication. The procedures and project cycle of micro-scale PoAs. Finally, the nature of PoAs is such that the institutional structure of expected impact of proposed standardization on the PoA PoAs can require more time than is needed to prepare pipeline is described and the ways of addressing potential risks the first CPA. Structuring a PoA thus substantially delays associated with these modifications are discussed. CPA implementation. Many of the PoAs have a difficult time financing incremental costs for implementation. The standardized procedures would represent a procedural This causes them to wait for PoA publication on the option available to all PoAs addressing micro-scale activities, website before they start generating emission reduc- independent of the availability of standardized baselines. tions, which has a negative impact on private sector interest in these projects. KEY BARRIERS TO IMPLEMENTATION 2.3.1  Approval process for PoAs. The current CDM approval yy OF PoAs process for PoAs involves PoA validation, CPA scrutiny Despite significant and important improvements in the during inclusion, and the verification of CPAs. This applicability of PoA regulation (see Section 1.2.1 on page 5), approach for CPA inclusion into a PoA is currently under- several key barriers still limit its full potential: stood by DOEs as requiring an additionality assessment Threshold limits to a CDM Programme Activity (CPA). yy or check of CPA additionality against the eligibility criteria The threshold limits (such as small-scale and micro- at the CPA level and monitoring of each CPA. Whilst this scale thresholds) are currently defined at the CPA level is often appropriate for single unit type CPAs (e.g., a rather than at the level of the underlining units, reflecting small hydro power plant or a composting unit), it is not a lack of recognition of the differences between projects appropriate for dispersed small/micro-scale CPAs (e.g., cooking stoves, or CFLs). Improving efficiency and outreach of the Clean Development Mechanism through standardization 21 TABLE 3: POTENTIAL RISKS OF USING A STANDARDIZED REGISTRATION PROCEDURE FOR PROJECTS USING A STANDARDIZED BASELINE AND MITIGATION OPTIONS Potential risk Mitigation options Risk of potential negative impact on Conservativeness and stringency of baseline and additionality of eligible activities are ensured yy environmental integrity of the mechanism through the approved sector-specific baseline and its pre-defined additionality/thresholds Ensure that any other elements of standardization used in the template are robust and conservative yy (level: low) The increased transparency and predictability of the standardized registration procedure would yy reduce the risk of additional projects not being implemented. These are projects that are highly dependent on the CDM revenue stream and are currently the most vulnerable to the high upfront transaction costs and regulatory risks. In this context, standardized procedures could have a positive impact on the overall environmental integrity of the mechanism. Late identification of non-eligible projects Ensure completeness of the generic eligibility template yy Make project proponent clearly responsible for misstatements. Given that the crediting is made only yy (level: low-medium) upon verification of emission reductions, the risks are not more than currently under traditional CDM. Increased risk of damaging impact on local One or both of the following: communities and the environment of the “Host country system approach�: Request a formal approval by the DNA that (i) the stakeholder yy registered projects: consultation/EIA are not required for the project activity (e.g., due to proven benign nature of the activity); or (ii) if applicable, that appropriate measures have been taken to address any issues (level: low-medium) raised and an appropriate environmental management plan is prepared. “Liability approach�: Establish a liability for any damage to local communities or the environment yy by (i) revoking project registration; or (ii) suspending project registration status until the identified damage is remedied by the project participants. This approach would provide direct financial incentive to the project developer to ensure good sustainable development standards (e.g., through the use of different potential instruments such as escrow accounts, insurance, bonds). Low uptake as compared with traditional Further streamline CDM procedures, in particular for MV, to cover large spectrum of sectors, includ- yy CDM due to novelty of approach and lack of ing those with untapped potential (transport, agriculture) capacity to implement it, in particular by the Ensure that the newly established processes (e.g., approved standardized values used in the tem- yy private investors plate) are efficient and not create new bottlenecks in the procedures (level: medium) Support the development of piloting activities that would demonstrate practicability of the fast-track yy procedures. Increased risk of exposure for project Ensure completeness and clarity of the generic registration template to reduce the possibilities of yy participants misinterpretation Preserve the optional (voluntary) nature of the standardized procedure while keeping a normal yy (level: low) registration procedure available for project proponents Support capacity building for DNAs and project participants, in particular in LDCs yy Counterparty risk in PoAs. Since investors can only yy (e.g., number of lights to be installed) within the provide financing to a bounded project, investments framework of a single PoA. Yet, investments in CPAs in PoAs typically take place at the level of individual are complicated by some rules and procedures that CPAs. For instance, several separate investors may apply to the PoA as a whole. As a result many PoAs provide financing and operate distinct sets of activities are struggling to structure carbon finance solutions for 22 Carbon Finance at the World Bank CPAs and to allocate risk (e.g., given that performance Recognition of streamlined and robust monitoring yy of CPAs controlled by fellow investors may have direct approaches. impact on the probability of issuance for the entire set The suggested standardized PoA procedures for micro-scale of CPAs under a PoA). It is important that the issue of activities would have the following main features (Figure 8): counterparty’ risk in PoAs be recognized and treated differently compared to traditional CDM projects. Standardized inclusion of underlying units by CME. yy The standardized procedures would feature the inclu- The next section identifies and discusses proposals to address sion of underlying micro-scale units directly by the CME several of these barriers in the framework of micro-scale PoAs in accordance with the eligibility criteria to be defined by redefining the CPA concept and simplifying the monitoring in the registered PoA-DD and in compliance with the and verification approaches. additionality requirements for micro-scale CDM projects. The validation of such inclusion by the DOE would no SIMPLIFIED PROCEDURES FOR 2.3.2  longer be required given that both the capacity of the PoA ADDRESSING MICRO-SCALE CME to manage the PoA and the eligibility criteria for ACTIVITIES inclusion are covered by the current scope of validation. The objective of the proposed modifications in PoA proce- yy Simplified monitoring approach that would be based dures for micro-scale activities is to enhance CDM reach to on (i) sampling of the total stock of underlying units micro-scale activities, which account for most of the PoAs at the time of the monitoring and verification, or (ii) in the existing pipeline and have a substantial potential for changes in market penetration rates. implementation in LDCs (e.g., cooking stoves, solar home systems, and efficient FIGURE 8: STANDARDIZATION OF PoA PROCEDURES FOR MICRO-SCALE lighting). ACTIVITIES The modifications mainly consist of: MAIN STEPS OF MAIN REQUIREMENTS Removal of the CPA level from the yy STANDARDIZED PROCEDURES AND RESPONSIBILITIES regulatory structure of PoAs with underlying micro-scale units to make • Direct inclusion (by CME) of underlying micro-scale the PoA concept more compatible with Standardized inclusion activities into the PoA based on eligibility criteria of underlying units by (without DOE validation) the reality of micro-scale activities. It the CME • Applicability of micro-scale threshold at the level of is hard to apply the CPA concept in individual underlying unit (and not at the CPA level) the context of a very large number of micro-technologies, e.g., cooking stoves or CFLs, incentivized over time through • Monitoring based on sampling of the total stock a program. As discussed above, in this of underlying units; or Monitoring context a CPA distinction may become • Monitoring based on changes in relevant market artificial and lead to an inflated number penetration rates of CPAs to be managed by the CME. This modification could also enable fast-track inclusion of underlying units • Review of inclusion of individual underlying units Verification and by the CME. issuance in PoA by DOE only at the verification stage Improving efficiency and outreach of the Clean Development Mechanism through standardization 23 FIGURE 9: COMPARATIVE PROJECT CYCLE UNDER EXISTING AND STANDARDIZED PROCEDURES FOR PoAs WITH MICRO- SCALE UNITS EXISTING PoA PROCEDURE STANDARDIZED PoA PROCEDURES FOR MICRO-SCALE ACTIVITIES A A’ PoA preparation by CME: PoA preparation by CME:  PoA-DD  PoA-DD  CPA-DD F B F’ Validation by DOE: Issuance of CERs by EB Issuance of CERs by EB Validation by DOE:  PoA-DD  PoA-DD  CPA-DD Registration by EB: Verification by DOE Registration by EB: Verification by DOE  Registered PoA-DD  Eligibility of units  Registered PoA-DD  Monitoring report  Registered CPA-DD  Monitoring report E C E’ C’ Inclusion of CPAs by Inclusion of units by CME CME with DOE validation Monitoring of sample Monitoring of each CPA of units D D’ Verification would encompass a review of inclusion of yy First, the standardized registration procedures for PoAs with individual underlying units in the PoA by a DOE and the underlying micro-scale activities should be implemented on verification of emission reductions. the basis of PoA-DDs exclusively. It would require neither separate CPA-DDs (Stages B & C, Figure 9) nor the inclusion Furthermore, the elements of the simplified registration tem- of CPAs over time as a procedural step prior to verification. The plates suggested above (see Section 2.2.2, page 17) could PoA-DD would define the eligible types of activities under the also be used to simplify the forms used to check the eligibility PoA that can be added directly by the CME. In addition, the of inclusion of underlying micro-scale units. micro-scale additionality guideline would have to include the Figure 9 illustrates the difference between the existing and reference to underlying units and not to CPAs, and the activity- standardized procedures for PoA with underlying micro- specific thresholds would have to be revised accordingly. scale units. Second, the PoA standard15 would need to be revised to allow for a transfer of authority and liability to the CME for the direct Required modifications to current procedures for inclusion of underlying units (Stage D, Figure 9),. The CME PoAs The suggested standardization would require the following modification in the current PoA procedures: 15 “Standard for demonstration of additionality, development of eligibility criteria and application of multiple methodologies for PoAs (version 01.0)� as approved at EB65 in December 2011. 24 Carbon Finance at the World Bank would have the authority to include underlying units into the 2.3.3 EXPECTED IMPACT AND WAYS TO program and the responsibility to ensure the quality of the MITIGATE POTENTIAL RISK FOR THE monitoring. The CME would take a greater share of liability STANDARDIZED PROCEDURES FOR for misstatements and erroneous inclusion. At the same time, POAS WITH UNDERLYING MICRO- the fast-track inclusion would make the inclusion substantially SCALE UNITS faster and reduce transaction costs for the CME. Finally, to Targeted population of activities ensure the integrity of the process, the DOE would verify the eligibility of inclusion during the verification stage (Stage E). The proposed reform is focusing on PoAs with underlying Only the emission reductions from the eligible underlying micro-scale units (e.g., GHG mitigation at the level of units would be verified. households), recognizing the specific management and operational needs of such PoAs. The use of standardized Third, the PoA standard would need to allow for flexibility in procedures would complement the standardized approach terms of including underlying units. This should better account to the additionality definition that is already available and for the operational needs of CMEs in addressing micro-scale has been implemented for micro-scale activities. Further, activities. To keep transparent and verifiable records/reporting the process for inclusion of individual micro-scale units may of inclusion (e.g., a registry), the CME would have to indicate become more rigorous and reduce the impact of erroneous the expected periodicity of reporting in the PoA-DD and in the inclusions on the environmental integrity of the PoA as eligibility requirements (if applicable). compared to the current inclusion practices at a more aggregate CPA level. Fourth, the shift of the eligibility check for included units (Stage B to Stage E, Figure 9) would require relevant Based on an analysis of the PoAs in the CDM pipeline that modifications of the VVS that would recognize the different are currently under validation, it can be estimated that at distribution of responsibilities for inclusion in the context of least half of these PoAs could qualify as PoAs with underly- PoAs with underlying micro-scale units. Upon verification ing micro-scale units (efficient lighting, cook stoves, solar (Stage E, Figure 9), the DOEs would verify that the data home systems, other micro-scale technologies for energy management and quality assurance processes of the CME generation by user). are working properly. Further, the DOE would check the eligi- bility of included units as contained in the monitoring report. With the use of standardized sector-specific baselines (and its In the context of micro-scale activities, risk-based approaches embedded additionality) in the context of PoAs, the applicabil- for verification could be used (e.g., spot-checks of sample ity of standardized PoA regulation could later on be extended units among all activities). Therefore, a key difference from to PoAs addressing small-scale underlying units. In this context, current practice is that eligibility is not verified for each single some elements of the standardized project registration for CPA (Stages D & E, Figure 9), but could be assessed on a CDM projects using standardized baselines could also be sample basis among all activities. applied (see Section 2.2, page 13). However, further analysis would be needed to check whether these modifications would Finally, the sampling guidelines for PoAs would need to be meet the practical needs of PoA developers and investors, revised to explicitly allow sampling to be based on the totality or whether other avenues of CDM reform should also be of the stock of included units (e.g., to ensure accuracy of the explored such as testing innovative approaches that would approach, test samples could be made of the included units). credit the impacts of policy-driven actions under the CDM. Improving efficiency and outreach of the Clean Development Mechanism through standardization 25 Acceptability to stakeholders units is related to the potential risks regarding the environ- The acceptability to stakeholders and regulators of the mental integrity of the proposed modifications. The main standardized registration of PoA with underlying micro-scale risks and possible ways to address them are described in Table 4 below. TABLE 4: POTENTIAL RISKS OF STANDARDIZED PROCEDURES FOR PoAs ADDRESSING MICRO-SCALE ACTIVITIES AND MITIGATION OPTIONS Potential risk Mitigation options Risk of potential negative The suggested modifications have no impact on conservativeness and stringency of baseline and additionality for yy impact on environmental eligible activities. Similar to the current PoA rules, both baseline and additionality would be validated at the level of integrity of the mechanism the PoAs by a DOE prior to PoA registration. The CME managing capacity, including the capacity to check eligibility of inclusion, is validated by a DOE at the stage of PoA-DD validation. (level: low) Ensure that eligibility criteria for inclusion of individual underlying units are complete and straightforward. yy The use of a checklist approach to the extent possible would limit the possibility of misstatements or errone- ous inclusions. Late identification of non- In principle, the process for inclusion of individual units may become more rigorous and reduce the impact of yy eligible units erroneous inclusions on the integrity of the PoA as compared to the current inclusion practices at a more aggregate CPA level. (level: low-medium) Ensure completeness of the eligibility criteria for inclusion. yy Shift greater responsibility for misstatements to the CME. Given that the crediting is made only upon verification of yy emission reductions generated by eligible units, the regulator takes no risk for that it would be any different from an existing PoA. Low uptake as compared Support the sharing of lessons learned from best CME management practices for micro-scale activities. yy with traditional CDM PoA Support the development of complete and objective eligibility criteria in the priority sectors based on the check list yy approach as applicable. (level: low-medium) Support the development of PoA pilots using a streamlined registration approach that would demonstrate practicability yy of the fast-track procedures. Increased risk of exposure Ensure completeness and clarity of the eligibility criteria template to reduce the possibilities of misinterpretation. yy for project participants Support capacity building for CMEs, in particular in LDCs. yy (level: low) 26 Carbon Finance at the World Bank chapter 3 Can standardization facilitate crediting of mitigation impacts of policy-driven actions under the CDM? The features embedded within a standardized baseline ap- there are several key differences compared with CDM project proach could potentially enable the shift toward the crediting activities: of policy-driven actions under the CDM. This would mean that There is no direct allocation of carbon revenues to yy the CDM reform process could continue to move away from individual measures; the carbon revenues are given to crediting projects and specific measures, and instead allow the government that implements the policy. the mitigation impacts of policy-driven actions to be credited. However, currently the CDM does not allow policies to be The activities target a more aggregated “unit� or yy Setting up substantial regulatory capacity: credited, but only the measures or activities implemented population under a policy than would be affected by an • 215 internationally approved methodologies and tools for baseline setting and monitoring • Governance structure at UNFCCC level under a policy within the PoA framework • 160 Designated National Authorities in developed and developing countries FIGURE 10: POSSIBLE • 41 Designated EVOLUTION Operational Entities accredited OF APPROACHES UNDER As discussed in Chapter 2, the standardized baseline moves THE CDM away from a project-by-project approach and towards sector or aggregate approaches where baseline and additionality thresholds are pre-defined and agreed as part of a political process. This, as well as the inclusion of MV under a standard- ized approach, are features that would be necessary to facilitate the crediting of policy-driven mitigation impacts. It appears plausible that further reforms to expand and apply standardized NAMAs New approaches could support such a trend (Figure 10). mechanisms Crediting of GHG In the previous chapter, the possibilities that standardization mitigation from policy-driven actions offers for streamlining the CDM procedures were reviewed. under the CDM Chapter 3 considers to what extent these standardized ap- Enhanced use of proaches under the CDM could be extended to provide a valid standardized approaches under the CDM testing ground for new carbon market mechanisms currently Project-by-project being discussed. CDM 3.1 Crediting the impacts of policy-driven actions: main individual project, i.e., they address all renewable energy providers. issues and approaches The data requirements and methodological approaches yy The crediting of policy-driven actions that result in GHG for providing evidence that the policy is contributing to mitigation is different from the crediting of project-based CDM the environmental integrity of the CDM are different. activities. One example of a policy-driven activity would be a government implementing a feed-in tariff that is financed with From a GHG mitigation perspective, the institutional, yy legal, and political environment is critical to the success of the support of carbon finance, to incentivize renewable energy the policy. sources. In considering this example, it becomes clear that Improving efficiency and outreach of the Clean Development Mechanism through standardization 27 3.1.1 POLICY-DRIVEN ACTIVITIES UNDER the 13 registered PoAs, the CME is a state-owned entity which THE CURRENT CDM REGULATORY indicates that the state has an interest in ensuring that the PoA FRAMEWORK takes place. In the case of the Egypt Vehicle Scrapping and The possibility of crediting policies or standards under the Recycling Program, the CDM explicitly supports the enforce- CDM has always been controversial as a result of the differ- ment of an existing mandatory policy. ences between policy-driven and individual project crediting. The examples of how the CDM is being combined with However, this was still under consideration up until CMP.1 in other incentives are numerous, and such combinations are a Montreal in 2005 where it was decided that: general rule for PoAs. Some examples from the current PoA “A local/regional/national policy or standard cannot be pipeline are provided in Table 5. considered as a CDM project activity, but that project activities under a PoA can be registered as a single BARRIERS TO CREDITING IMPACTS 3.1.2  CDM project activity provided that approved baseline OF POLICY-DRIVEN ACTIONS UNDER and monitoring methodologies are used that, inter alia, THE EXISTING CDM FRAMEWORK define the appropriate boundary, avoid double count- Despite examples where individual measures contributing to ing and account for leakage, ensuring that the emission the implementation of a policy can be credited under the CDM, reductions are real, measurable and verifiable, and or where a non-enforced policy can be structured into a CDM additional to any that would occur in the absence of project or program, the guiding principle remains that policies the project activity� (UNFCCC, 2005). as such are not creditable under the CDM. This means that the activities under policy-driven measures in PoAs are credited but There are however, two exceptions to the strict treatment of not the policy itself, and a clear link between the revenues from policies and additionality. First, the “non-enforcement� rule carbon credits and the actual measures have to be established. of the additionality tool allows the CDM to help enforce a This creates difficulties for a broad range of policies, instru- pre-existing mandatory policy or law, if it can be shown that ments, and incentive structures to be credited under the CDM “applicable legal or regulatory requirements are systematically despite their contribution to GHG mitigation. not enforced and that non-compliance with those require- ments is widespread in the country.� For example, the transport sector could greatly benefit from the crediting of policy-driven actions, since its individual Second, the E- policy rules state that the impact of a policy emission sources are small and dispersed. As a result, cur- which gives comparative advantage to less emissions intensive rent requirements to identify emissions for each individual technologies or fuels and that has been enacted since the measure and to monitor all emissions at the unit level adoption of the Marrakech Accord in 2001 can be disregarded requires overwhelming efforts. Allocating CERs to individuals in the baseline scenario (UNFCCC, 2005). Thus, the current implementing the activities as well as monitoring at the level CDM rules allow, under certain conditions, the generation of each activity may not be viable or would lead to very high of CERs from activities that support the achievement of the administrative costs. This applies, in particular, to demand-side policy goal. Yet, especially in the case of the E- policy, the energy efficiency measures, where a large variety of different application of these rules by the CDM EB has not been measures or improved practices (such as hot-water consump- consistent (Castro et al., 2011) but rather case-specific, thus tion, solar water heating, average room temperature, isolation, causing uncertainty when developing projects. fuel-switch) can be encouraged by a policy. In both cases, A number of registered PoAs illustrate how policies and the crediting the impacts of the policies quantified at the aggre- CDM incentives have been combined. For example, in five of gate level could become a practical, cost-effective solution. 28 Carbon Finance at the World Bank TABLE 5 : COMBINATION OF POLICIES AND CDM INCENTIVES WITHIN However, key barriers preventing the crediting of THE PoAs policy-driven actions are primarily the result of a PoA example PoA targeted policy/goal lack of consensus in defining politically acceptable Egypt Vehicle Scrapping The goal: Remove old vehicles from the streets of Egypt approaches to address the following issues: and Recycling Program by providing advance payments and subsidies to car Attribution of mitigation impact to policy- yy owners who bring their vehicles to recycling and scrap- driven actions. How can emission reductions ping centers, supported by a mandatory law. be directly attributable to policy-driven actions? Policy: Approving a greater implementation of the For example, soft measures/enabling environ- Vehicle Scrapping and Recycling Program. The law was ments are unlikely to be considered part of designed to accelerate the rate of fleet replacement, im- the contribution to achieving GHG emission prove air quality, and reduce traffic accidents. However, reductions; however the costs of creating such the law is not enforced and support from carbon finance is expected to increase the enforcement rate of the law. infrastructure can be significant.16 Smart Use of Energy, The goal: To transform the energy efficiency of Mexico’s Additionality demonstration for policy- yy Mexico residential lighting stock by distributing up to 30 million driven actions. The additionality tool and CFLs to households. A significant public education concepts has been developed to assess component promoting the importance of energy ef- microeconomic/individual decision-making ficiency is included. processes. It favors the use of investment The policy: This PoA is developed under the national analysis, which is unlikely to be applicable climate strategy. Demand-side energy efficiency has in the context of policy-making or policy been identified by the Mexican government as one of implementation since the economic rationale the key areas to address in order to reduce GHG emis- is far from being the only one that drives sions and energy consumption (National Energy Savings policies or incentivizes the targeted mitigation Commission). activities. The IPCC approach that was included Energy-efficient The goal: This Demand-side Energy Efficiency Measures in a draft version of the PoA standard recently lighting using Compact PoA is based on the installation of CFLs to promote considered by the CDM EB describes how Fluorescent Light Bulbs energy-efficient lighting in newly electrified households additionality could be demonstrated for a in rural areas, Senegal in rural areas of Senegal. . PoA, which has the aim of implementing a The policy: This CDM PoA will be undertaken in new policy, enforcing an existing policy, or connection with a nationwide rural electrification plan enhancing the implementation of an existing implemented under the supervision of the Senegalese policy.17 However, the approach would Rural Electrification Agency. The objective of the plan is to increase electricity access in rural areas from 16% to 50% by 2012. 16 For instance, one may think about a network of inspection Methane capture and The goal: To use methane from lagoons. points for the vehicles to enable and enforce the implementa- combustion from Animal tion of low emission vehicle standards or, in some other cases, The policy: National, state or municipal legislation in the maintenance of metering equipment/labs. Waste Management 17 A proposal for a policy PoA was circulated as an annex to the Brazil regarding AWMS requires water treatment by System (AWMS) of the proposed agenda ahead of the EB 63 meeting in 2011. This open-air in non-permeable lagoons. The project goes annex included a proposed standard to the requirements on 3S program farms of the additionality demonstration for a PoA. The so-called “category 2 beyond these legal provisions to collect methane, i.e. Sadia Institute, Brazil approach� to additionality demonstration describes how ad- the baseline scenario corresponds to current legal ditionality could be demonstrated for a PoA which has the aim provisions. of implementing a new policy, enforcing an existing policy, or enhancing the implementation of an existing policy. The parts related to the policy PoA were not included in the standard finally adopted by the EB. Improving efficiency and outreach of the Clean Development Mechanism through standardization 29 require extensive data collection to justify the implemen- 3.2 The potential for crediting tation of a policy, which seems impractical. Furthermore, the E+/E- rule is mainly limited to the demonstration of the impacts of policy-driven the baseline and can’t be explicitly used for demonstra- actions in the context of tion of additionality. At the same time, under the standardized baselines new sector-specific standardized baseline setting and Within the evolving standardized baseline approaches there additionality demonstration framework, it might well be are many design elements that enable a closer linking of CDM that these issues are no longer relevant. to national policy implementation in host countries. These Acceptability of blended financial sources. Under the yy approaches could be refined to address some of the barriers current CDM rules, there is a requirement that excludes limiting the crediting of policy-driven actions. The design the diversion of the official development assistance features of the standardized baseline approach that could be (ODA) for GHG mitigation activities. Therefore, if the examined as a starting point for exploring options for crediting policy supported by carbon finance under the CDM policy-driven actions are: receives support from another source of financing, More aggregate decision-making. The standardized yy blending these two sources is possible only to the approach moves many aspects of decision-making con- extent that ODA is not diverted (to avoid the situation cerning the additionality and the baseline for emission where the ODA would be used to support developed reduction calculation to a higher aggregate. In standard- countries in achieving their emission reduction targets). ized approaches, a similar baseline is set for a larger In some cases, a conservative interpretation of this group of similar measures within a certain geographical requirement has resulted in the understanding that if or system boundary. Shifting the decision-making to any ODA is used in conjunction with carbon finance, a more aggregate level might offer a practical tool for the emission reductions triggered by the ODA must be a policy-maker wishing to use CDM to support policy identified. This is of course often not possible.18 There implementation in that sector. The same governmental could be other approaches for addressing the issue of body that has proposed the policy can also propose a blending, such as only crediting a pre-defined share of standardized baseline in line with the policy aims. emission reductions or allowing only a pre-defined list of technologies to benefit from blending. However, the Introduction of a sectoral perspective. The standard- yy use of public funding to support financing of creditable ized baseline approach may cover a whole sector of a projects would also benefit from a conceptually different country for which the baseline will be defined. Given treatment that would need to better recognize the dedi- that the standardized baseline would be developed cated nature of these funds that are often earmarked for and/or approved by the host country authorities, CDM the generation of GHG emission reductions. decision-making would be more closely linked to the level of decision-making regarding sectoral policies (e.g., energy policy, transportation policy, energy efficiency policy) and could become closely linked with the development of low carbon emission strategies and the climate policy of the country. 18 For example, Germany allows JI projects on its territory. However, if the project benefits from other sources of public support, the share of emission reductions corresponding to the other sources of public support need to Establishing creditable thresholds for the activities yy be subtracted from the JI project baseline (Bundesministerium for Justiz, driven by policies. The setting of the baseline level and 1997). As the determination of the share attributed to the other sources of finance is very difficult, this rule has resulted in a situation where no JI of the additionality threshold eligible for crediting is a projects are developed in Germany if the project gets support from any key element in both the standardized baseline approach other public source. 30 Carbon Finance at the World Bank as well as crediting of policy-driven measures. This is First, additional conceptual and analytical work would be required the area where there are probably the most synergies to explore and identify approaches for expanding the standard- between the concepts. While setting the baseline level ized methods for MV as suggested in Section 2.1.2, page 12, but is ultimately a politically negotiated decision, a baseline also taking into account policy-specific issues. Developing a more that would be acceptable to all stakeholders has to aggregated approach to MV would not need to start from scratch. embed some level of under-crediting or partial crediting There is a long history of GHG and energy policy and programme compared to actual emission reductions achieved. evaluation where MV is done at an aggregate policy or program level using sampling and other statistical methods (e.g., the U.S. yy Such an approach has been used, for example, in 2007 National Action Plan for Energy Efficiency (Schiller, 2007)). the Egyptian car scrapping PoA where CDM funding There are past lessons learned, existing solutions, and practicable is allowed only until a certain level of policy imple- ways to address many of the concerns related to boundary mentation rate is achieved, after which the program definitions, uncertainties related to sampling, or methods of needs to continue on its own. turning gross savings into net savings. yy Another example is the implementation of renew- able energy generation targets that are included in Second, the analytical effort would need to facilitate the the positive list. The partial crediting envisaged under identification of different approaches to crediting thresholds to the standardized baseline framework could in part define additionality as currently applied under the standardized address concerns regarding blending. baseline framework. Currently the threshold is established using a politically negotiated cut-off threshold for additionality. The standardized baseline approaches could also be more All measures beyond this cut-off are eligible for crediting under suited to facilitate the CDM support to technology develop- the CDM, i.e., are automatically additional. This approach is ment policies (e.g., energy efficiency improvement measures valid if incremental emission reductions will come at higher in cooling systems). Careful analysis would need to be under- incremental costs (i.e., there is a relationship between cost and taken of how and at what level of aggregation an appropriate performance that can be identified). However the approach standardized baseline should be set to capture a variety of is limited in its application in the case of energy efficiency very different measures contributing to energy savings. measures that could have a “high positive economic return.� While the current standardized baseline framework allows Third, alternative approaches to determining additionality some opportunities to explore options for crediting policy- could be explored. For example, the implications of the use driven activities, without explicit political support from the of a conventional formula that avoids the political negotiation CMP it will be difficult to develop activities that will provide to establish additionality as required under the standardized robust responses to the issues currently acting as a barrier. baseline framework should be assessed. For instance, in the This is because it is not possible to address the issues for case of a mandatory policy, it could be possible to credit only policies in the same way as for projects. Providing solutions to the equivalent of the costs required to implement the policy the barriers identified above would require enhanced use of (standardized costs for testing labs, labeling, ongoing enforce- standardization, as well as different approaches for determin- ment, etc.) or to close the funding gap in a public incentive ing additionality. With political support to establish pilots in a scheme implemented under the standardize baseline start-up phase, meaningful responses to the current concerns approach with pre-set thresholds (e.g., up to 20% funding gap about crediting of policies could be provided. financing out of the CDM allowed). Improving efficiency and outreach of the Clean Development Mechanism through standardization 31 Concluding remarks This study argues that using standardized assessments of In case of sectoral baselines, similar, replicable renewable yy projects as well as defining baselines and additionality at the energy projects of small and medium size seem to be sectoral level can have an important positive impact on the ef- the best starting point. Some types of energy efficiency ficiency of the CDM process. This would contribute to limiting measures, also of small and medium size, would be an transaction costs and time requirements, as well as enhancing attractive testing ground for expanding the scope of the transparency, consistency and predictability of the CDM approach. process, while also improving access to the CDM by underrep- In case of standardized PoA procedures, PoAs addressing yy resented regions and sectors. The impact of standardization underlying micro-scale activities appear to be the most could be even more meaningful if the standardization could relevant and practical application. be broadened beyond the setting of baselines and applied The study also recommends preserving a non-mandatory to the requirements of the CDM procedures and the project nature of the proposed standardized procedures in view of cycle. Establishing a robust, clear and practical framework for creating a flexible regulatory environment and addressing the the development and use of standardization tools — including needs of project and program developers with different levels sector-specific standardized baselines — is key to ensuring of CDM knowledge and experience. its attractiveness to decision makers at the national and international levels, as well as to project developers. Among and beyond the issues that are tackled in this study, there are aspects and elements to the suggested standardiza- To complement and enlarge the current scope of standardiza- tion of procedures that would require additional analytical tion efforts undertaken by the CDM EB, the study suggested efforts. Furthermore, to get broader political support and ac- two parallel, yet consistent, routes for standardization of the ceptance of the suggested modifications, active and consistent project registration procedures using standardized sectoral stakeholder consultations should continue. This sustained baselines and for PoAs addressing micro-scale activities. dialogue would also help to effectively address the needs of Standardized procedures can be introduced in phases. This CDM participants, while ensuring that useful elements of the approach would help to gain quickly the relevant experience standardization gained through the CDM experience will ef- through the application of new procedures to the most fectively inform the development of new market mechanisms. straightforward, well-known GHG mitigation activities: 32 Carbon Finance at the World Bank Improving efficiency and outreach of the Clean Development Mechanism through standardization 33 annex 1 Options to standardization: examples in renewable energy generation � Rejected/Withdrawn � RF Analyzed Project Type � Registered � RF All Pipeline This annex describes the application of options to standardiza- FIGURE 11: ADDITIONALITY AND BASELINE DETERMINATION FOR FUEL/TECHNOLOGY SWITCH tion using concrete examples. The first example covers the standardization through sector-specific baseline setting and additionality demonstration for the renewable energy sector as per the Guidelines for the establishment of sector-specific 100 Wind: 9 ct/kWh standardized baselines (UNFCCC, 2011i). The second Share in electricity generation 80 example illustrates the potential for standardization using a Hydro: 2 ct/kWh CDM methodology and the case of solar home systems. Xa 60 Biomass: 8 ct/kWh Natural gas: 6 ct/kWh Xb Standardization through sector-specific baseline 40 setting and additionality demonstration: example of Supercritical coal: 4 ct/kWh the renewable energy sector 20 Figure 11 illustrates the application of the Guidelines to defin- Subcritical coal: 3 ct/kWh ing a standardized baseline for the power sector. 0 Carbon intensity First, the figure shows the different fuels used for electricity generation through the national grid in a generic case. The fuels are classified by their share of electricity generation and Source: Figure provided by South Pole, 2012 their carbon intensities, respectively (i.e., subcritical coal being the most intensive, hydro and wind being less). The baseline emission factor is determined by the threshold Xb, which corresponds to natural gas in this generic example. Second, thresholds are used to define the additionality The costs of hydro and wind power generation technologies and baseline. The UNFCCC Secretariat, in consultation with are situated above the defined threshold for additionality, Xa. relevant panels and working groups, will develop criteria for the definition of suitable thresholds that are sector specific. Third, according to the Guidelines these technologies will be In order to kick-start the implementation of standardized considered additional only if they are facing barriers or are less baselines, the UNFCCC has established default values for commercially attractive than all fuel/feedstock or technolo- thresholds. For priority sectors (i.e., energy households and gies used to produce the aggregate results. In this generic energy generation in isolated systems), the default values example, the levelized electricity generation costs for hydro have been set at 80% for both additionality and baseline are lower than for any technology below the threshold Xa and identification. For the remaining sectors, the thresholds are it is therefore not additional. However, wind power meets the established at 90%. criteria and thus is deemed additional. 34 Carbon Finance at the World Bank Potential for standardization using a CDM AMS I.L: Electrification of rural communities using renewable methodology: example of renewable electricity energy (EB65, Annex 53). This methodology is also taking generation by the user (solar home systems) suppressed demand into consideration. The potential for standardization based on methodological improvements can be illustrated on the basis of a new meth- Table 6 below illustrates suggestions for further standardiza- odology for rural electrification submitted by the World Bank tion of an approved methodology AMS I.A: Electricity to the UNFCCC Small-scale working group. This proposal was generation by the user, as reflected in the recently approved approved by the CDM EB in March 2012 as the methodology methodology AMSI.L (in the case of solar home systems). TABLE 6: STANDARDIZED APPROACH FOR SOLAR HOME SYSTEMS Parameter Approach used in the methodology AMS I.A Further standardization reflected in the recently approved methodology AMSI.L Baseline scenario Fuel consumption of the technology in use or that would have The standardization approach for baseline is based on the use been used in the absence of the project activity to generate the of global default values for each type of electricity usage (ac- equivalent quantity of energy using any of the following three counting for suppressed demand): options based on results of direct metering or on a comparative Households lighting: Kerosene pressure lamps that are yy performance of the peer-group: displaced by the project activity; Direct metering (Option #1): Based on the estimated or yy Household appliances: Car battery charging from diesel yy metered average annual individual energy consumption generators that are displaced by the project activity. observed in similar systems; Comparison of performance with a peer-group (Option #2): yy Based on the estimated annual output of the group of renew- able energy technologies installed; Historical level (Option #3): Based on trend-adjusted projec- yy tion of historic fuel consumption. Baseline emission For Option #1 and Option #2, a default value of 0.8 kgCO2e/ On a global level, the baseline emission factor is based on factor kWh, may be used based on a diesel generation unit’s emission the fuel type identified in the baseline scenario, that would be factor. used to satisfy the minimum service levels and for each type of electricity usage. In the case of Option #3, the baseline emission factor is identi- fied based on the historic fuel type identified in the baseline scenario. Monitoring Two options can be used: Provided that the standardized baseline and emission factor illustrated above are available, the monitoring does not require An annual check of all systems, or a sample thereof, to ensure yy direct metering and can be based on a sampling of units to that they are still operating; check the number of units in operation – either annual or Direct metering of generated electricity. yy bi-annual. The use of sampling is justified given that the default factors are provided for all types of baseline technologies. Improving efficiency and outreach of the Clean Development Mechanism through standardization 35 annex 2 Registration template for CDM project using sector-specific standardized baseline: example Registration template for CDM project using sector-specific standardized baseline Project type: Run-of-river new grid-connected hydro power generation Template approval date: [XX/XX/20XX] I. GENERAL PROJECT INFORMATION 1. Project title: [Insert title] 2. Project entity: [Insert name] For all project participants fill Annex I. 3. Project location: [Insert coordinates] 4. Date of start of project implementation: [Insert date] 5. Project commissioning date: [Insert date] Please confirm the commission date is: …… Expected ……Actual 6. Crediting period: ……Fixed (10 years) ……Renewable (7 years x 3) 7. Lifetime of the project: [Insert value, years] II. APPLICABILITY CONDITIONS 8. The hydro power plant is run-of-river: ……Yes 9. The project is connected to the grid: ……Yes 10. The project is complying with national laws and regulation: ……Yes 36 Carbon Finance at the World Bank III. INSTALLED GENERATION CAPACITY 11. Confirm the scale of total installed generation capacity [Threshold as per standardized baseline]: ……Micro-scale: <5MW ……Small-scale: 5MW to 15MW 12. Detailed information on installed capacity: ……Provided in Table A. 13. Changes as compared with the design approved for ……Yes (please indicate) _______________________ implementation by the relevant national authority: ……No Table A. Detailed information on installed capacity Unit No. Nameplate capacity (MW) Generation potential (MWh) Operation start date Type of technology 1 xx xx xx xx xx xx xx xx xx xx Total xx xx - - 1) The type of technology shall be indicated if so required by the eligibility criteria of the standardized baseline. IV. METHOD USED TO CALCULATE EMISSIONS 14. Baseline grid emission factor: [as established by standardized baseline] 15. Baseline emissions: Use formula (1) from AMS.I.D. 16. Estimated emission reductions: Use formula (10) from AMS.I.D. 16a. Annual amount: [Insert amount, tCO2e] 16b. Total amount: [Insert amount, tCO2e] V. MONITORING A. Parameters to be monitored 17. Electricity supplied to the grid: Bi-directional meter data: ……Yes (use in [15] above for calculation) ……No (continue to [18]; use [19] for calculation) 18. Electricity imported from the grid: ……[(MWh)] 19. Net electricity supplied to the grid: Calculate as [17]-[18] Improving efficiency and outreach of the Clean Development Mechanism through standardization 37 B. Metering equipment 20. Metering arrangement: ……Project-owned [continue to 21] ……Utility-owned [continue to 25] 21. Type of the main meter: ……Analogue ……Digital ……Bi-directional 22. Accuracy class: ……0.2S ……0.5S ……Other [insert value] 23. Calibration frequency: ……Half-yearly ……Yearly ……Other [insert value] 24. Calibration arrangements: ……Internal ……Third-party 25. Cross-checking procedures: ……Invoices ……Back-up meter ……Plant operational data (e.g., capacity, hours) 26. Recording frequency: ……Daily ……Monthly ……Other [insert value] 27. Record keeping: ……Electronic ……Paper 28. Confirm allocation of responsibility for monitoring: ……Yes 29. Confirm establishment of internal quality assurance procedures: ……Yes VI. STAKEHOLDER CONSULTATION 19 30. Confirm that stakeholder consultation is required by the standardized baseline: ……Yes [continue to 31] ……No [continue to 34] Please justify why the stakeholder consultation is not required: _________________________ 31. Confirm that stakeholder consultation was conducted in compliance with the national requirements and based on ……Yes [insert date] international good practice as applicable, before project implementation date: 32. Confirm that comments provided by local stakeholders are taken into account in compliance with the national ……Yes [continue to 33] requirements and based on international good practice as applicable: ……No 33. Confirm that DNA has been fully informed about the outcome of the stakeholder consultation: ……Acknowledge in the LoA ……Other 19 As discussed in Section 2.2.2 on page 17, this section of the registration template has to be further elaborated. 38 Carbon Finance at the World Bank VII. ENVIRONMENTAL IMPACT ASSESSMENT (EIA) 20 34. Confirm that EIA is required by the standardized baseline: ……Yes [continue to 35] ……No [continue to 38] 35. Confirm that EIA and required procedures were properly conducted before project implementation date: ……Yes [insert date] 36. Confirm that EIA contains approved environment management plan as relevant and this plan is being ……Yes properly implemented: ……No [not required] 37. Confirm that EIA was approved by the relevant national authority (including appropriate environment ……Yes management plan if applicable): VIII. INFORMATION REGARDING PUBLIC FUNDING 38. Confirm the use of public funding: ……Yes (continue to 39) ……No 39. Confirm that there is no ODA diversion: ……Yes IX. INFORMATION ON PROJECT PARTICIPANTS Date of submission: [Insert] Authorized representative of project entity: [Signature] 20 As discussed in Section 2.2.2 on page 17, this section of the registration template has to be further elaborated. Improving efficiency and outreach of the Clean Development Mechanism through standardization 39 Bibliography AEA (2011). Study on the Integrity of the Clean Development Mechanism. of Verifiers under the EU ETS Directive�. 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