MARKET MECHANISMS UNDER THE

UNFCCC – CDM & JI

Perumal Arumugam Pillai
Team Lead, Programme officer,
RDU unit of SDM, UNFCCC

07 FEB 2018 , MONTREAL

Part 1
How are the emissions units generated by
your programme, mechanism or project?
 Carbon Markets for which emission reduction units are generated.

• Under the Kyoto Protocol, the CDM was designed to meet a dual
objective:
a) help developed countries meet their emission reduction
targets, and
b) assist developing countries in achieving sustainable
development.
• NOW IT IS ALSO USED FOR NON-COMPLIANCE PURPOSES

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 CDM PROJECT CYCLE – Process of Implementation to Issuance

CER Issuance Investment Intention of

UNFCCC (EB) decision CDM
Verification & Certification
(DOE)
PDD Development
(Project Participant)
CDM
PROJECT
Monitoring LOCAL AND
CYCLE
(Project Participant) Approval GLOBAL SHC
(DNA)

Registration
(EB) Validation
(DOE)
UNFCCC

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 TYPES OF PROJECTS AND PROGRAMMES
• Individual installations – stand alone projects or bundled.
• Sectoral applications - Use of standardized baselines
• Programme of activities
• Scale-up the CDM
 No specified size limits PoA registered at the start with one CPA and grows
$$$
 Can be geographic (e.g. a certain city/province)
 CPA can be time bound (e.g. activities commencing in a certain year) CER
Buyer
• Reduce transaction costs
 Individual project developers not directly engaged in the CDM process
 Monitoring and verification possible for a number of CPAs CME – coordinating or managing entity
CPA – CDM programme activity
 Reduces regulatory risks and uncertainties
 CPA inclusion could be done by the DOE without Board.
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 PROJECT TYPES COVERED AND REGIONS COVERED BY THE MECHANISM
Sectoral Scopes Sectoral Scopes
SS 01 Energy industries (renewable - / non-renewable sources) SS10. Fugitive emissions from fuels (solid, oil and gas)
Thermal energy generation, renewables.
SS 02 & 03 Energy distribution and Demand SS 11. Fugitive emissions from production and consumption of
halocarbons and SF6 – Emission of fluorinated gas and Refrigerant
SS 04 Manufacturing industries – cement and lime production. gas production.

SS 05 Chemical industry – caprolactum, adipic, nitric chemical SS 12. Solvents use

industry.
SS 13. Waste handling and disposal – solid waste and waste water ,
SS 06 and 07 Construction and Transport (Two aviation manure
methodology included).
SS 8 Mining/Mineral production SS14. Afforestation and reforestation

SS 09 Metal production – Aluminum and magnesium production; SS 15 . Agriculture

Iron, steel and Ferro-alloy production
SS 16 CCS of CO2 in geological formations
ALL EXCEPT NUCLEAR AND BUNKER FUELS (INTERNATIONAL)
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POTENTIAL SUPPLY FROM CDM – Volumes of Emission reduction units generated

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 TYPES OF PROJECTS AND PROGRAMMES
• Number of programmes/Project • Investment in SD projects – 300 billion
registered – 8000 ++ US$
• Number of developing countries • Renewable electricity supplied –
participating – 111 + 100,000 Gwh /Yr.
• Social development projects – 40%
• Issued CER – 1.87 billion
• Resource efficiency projects – 25%
• Number of baseline and monitoring
• Clean drinking water – 840,000
methods – 215+
• Regional economy – 27%
• Accredited agencies – 32 +
• Efficient cook stoves – 1 Million
• Standardized baselines – 25+ • Trees planted – 152 Million

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 Joint Implementation (JI)
Key concepts of Joint Implementation:
> Climate change mitigation projects implemented between two Annex B countries.

> Creation, acquisition and transfer of Emission Reduction Units (ERU).

> JI projects eligible from year 2000, but ERU can only be issued for a crediting period starting
after 2008.

> ERU bankable to a max of 2.5% of Assigned Amount (AAU).

 Eligibility requirements
a. Party to the Kyoto Protocol. a. Party to the Kyoto Protocol.
b. Assigned amount calculated. b. Assigned amount calculated.
c. National system in place for
estimating emissions/removals.
d. National registry in place for d. National registry in place for
tracking assigned amount. tracking assigned amount.
e. Submission of most recent required
emissions inventory.
f. Accurate accounting of assigned
amount and submission of information.

Track 1 (full eligibility) Track 2 (partial eligibility)

Part 2
What are the features and
benefits of the emissions units
generated by your programme,
mechanism or project, including
the means to ensure their quality?
 Trusted international oversight under UNFCCC
➢ Environmental integrity based on:
o Additionality
o Multilayered and stringent MRV
• Pre-approved methodologies and standardized baselines
• Detailed monitoring requirements
• Public reporting
• Verification by accredited auditors
• Executive Board scrutiny
o Stringent accreditation of verifiers
o CERs tracking in the Kyoto registry system
➢ Host-country confirmation of support to sustainability (DNAs)
THREE ELEMENTS OF ENSURING QUALITY / EI Methodology process:
providing tools to develop
7. CER Issuance Registration & Issuance projects
(EB) process:
Allowing projects and CERs
Accreditation process:
6. Verification & Enabling DOEs
Certification
(DOE) 1. PDD Development
(Project Participant)
CDM
PROJECT
5. Monitoring CYCLE
(Project Participant) 2. Approval
(DNA)

4. Registration
(EB) 3. Validation
(DOE)

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 Overview of Registration/issuance & review procedure
Registered project
/Issued CERs

Request for
To register/ Summary Registration/
Decision
issue note Issuance
EB Secretariat DOE
Recommendation:
- AR/AI; or
- RFR
To request for
review
AR: Automatic Registration
AI: Automatic Issuance Registered project
RFR: Request for Review /Issued CERs

- Questions to
DOE
Secretariat’s Review Note

Review
response Recommendation:
Review - Register/Issue; or
EB Rejection
DOE Secretariat - Rejection
process

- Commence review Objection by EB members if any

- Assign RIT (Registration concern for the cases with
agreement between secretariat
Agenda item 2.2. and Issuance Team) RIT’s Review Note and RIT.
Paragraph 5 of the annotated agenda
 FEATURES AND CO-BENEFITS BEYOND EI
• The SD tool provides a structured, consistent, comparable and robust manner of highlighting the
sustainable development co-benefits of CDM project activities and PoAs.

• Comprises a check list of predefined criteria and indicators (from over 5000 projects) that help
describe the impact of project activities and PoAs on the environment, society and economy of
the host country.

• Enabling PPs and CMEs to elaborate on the SDC of their projects in a consistent way, enhance
transparency and credibility of the CDM as whole, while maintaining host countries’ prerogative
to define their criteria for sustainable development.

• Seeks a balance between standardization and flexibility in the taxonomy

• Incorporated inputs from stakeholders on drafts of the tool during various periods.
 FEATURES AND CO-BENEFITS BEYOND EI
• Delivery of sustainable development
• Stimulation of the local economy
• Employment creation
• Poverty alleviation
• Reduction of pollution
• Promotion of renewable energy
• Energy access
• Mobilize private capital and investments
• Establish a universal currency

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Part 3
Where can potential buyers purchase the emissions
units generated by your programme, mechanism or
project?

Part 4
How does your programme, mechanism or project
track the use of emissions units?
 CDM life cycle and CER issuance cycle
CDM cycle: 7 to 21 years for regular projects

Validation Registration Issuance 1 Issuance N

Renewal of
crediting
period

Request for
Monitoring Verification
issuance

Issuance cycle: 6 months to 1 year

 Kyoto registry system

National
Registry

STL CDM
(CITL) Registry

ITL
National
Info sys
Registry
National
Registry
• NR and CDMR are transaction registries
• TLs control transactions through automated checks
• CERs are tracked within the Kyoto registry system
 CDM Registry transaction flow
CDM registry AIP registries
EB Instructs CDM
Registry Administrator to 2% SOP
issue CERs Adaptation SOP AF
account

Upon
instruction
of the CDM Holding account
Pending Account Registry National registry X
Administra (Annex I)
tor

Holding account
Upon National registry Y
instruction ITL (Annex I)
from the Permanent
nominated holding accounts
Focal Point Upon acc. Holding account
(Non Annex I) National registry Z
(FP) in holder’s
accordance instruction (Annex I)
Cancellation
with MoC accounts
 Can CERs be easily tracked
- Originating project, Methodology : Directly from project id
- Start date (= CDM commission date): Through project id and first issuance
- Period of ER: In CDM period of ER is not annual and is tracked indirectly through serial range!
Uniform blocks of CERs are issued for monitoring periods (not years!)
- Entities cannot see serial range number in the national KP registries and EU ETS registry.
Administrators can.
- Straddling of calendar years, depending on the requirements, the PP can created monitoring
periods.
Country Range

CN – 5 – 62973014 – 1 – 1 – 0 – 1234

Unit type Project ID

 Creation of units on the basis of CERs

Model 1 RE-ISSUANCE of cancelled CERs as KOC for the Korean ETS

• No hierarchy of compliance targets
• Non-integrated systems
• Reissuance process through cancellation

• CDM project Korean ETS

• MRV authority
• CDM board approval • Issuance
instruction Secure
Issuance instruction
confirmation

CDM registry
Entity
Korean ETS
Pending/ Cancellation registry
Holding CERs account Entity
account KOCs

CERs serial numbers for eligibility

check included 
 Creation of units on the basis of CERs
Model 2 EXCHANGE of CERs for EAUs in EU ETS
• Hierarchy of compliance targets (national/international)
• Integrated registry infrastructure for tracking CERs and EAUs
• Exchange process without cancellation (destruction):

CDM
registry
EU
common
KP registry
registry
ITL CERs
transferred
EU ETS Exchange
takes place
CERs registry CEREAU
CITL transferred

Resulting EAUs used in EU ETS; CERs used by MS for Kyoto compliance

 Benefits of the UNFCCC mechanism
Up and running: No lead time /upfront cost to establish new programmes
Existing infrastructure, projects and units, ready to supply

Twelve years of experience (project, regulatory framework, etc.)

No need to reinvent the wheel: Any scheme for mitigation action will face similar
challenges (assessment; quantification; consistency; transparency; comparability etc.)

Strong Fungibility – used by parties, MDB, Sub-national, business, individuals etc..

(comparability, scale, access)

Largest pipeline of projects and programmes at different stages (registered and/or

implemented or not )

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 Benefits of the UNFCCC mechanism

Scalable: Demonstrated ability to register 3,300 projects per year (worth

3.6 Gt in emission cuts over 10 years).

Buyers/Users free to set own criteria: (quantitative /qualitative criteria)

Existing pool of expertise built over the years – and which can be
easily scaled-up again

Accessible to all:
The voluntary cancellation procedure allows all types of stakeholders to
use the CDM:
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 Benefits of the UNFCCC mechanism
International oversight under UNFCCC which can be trusted by third parties and
which can be used and further developed multilaterally
(avoids bias of standards set by funder or seller)
• Strong international recognition
• Best positioned to tackle double counting under UNFCCC
• Nationally authorized - Approved both nationally and internationally.
• Independent third party assessment.
• Highest geographical coverage by any scheme
• The mechanism has the supply, the technical systems, offers unrestricted access and
flexibility to users
• The mechanism can be used for both compliance and non-compliance purposes (NDC, MRV
of climate finance, green bonds etc.
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