The Project Cycle

Under the Kyoto Protocol, a climate change project comprises many components of which the project activity is the most important. The project activity constitutes the actual investment in a more climate-compatible way of doing business. All other components of a climate change project involve accounting, documenting, reporting, and monitoring carbon balance. Project activities to reduce greenhouse gas emissions take in the construction of wind farms, more energy-efficient district heating networks and the installation of biomass-fuelled power stations. Examples of ‘sink’ project activities, meaning those that result in greater carbon capture per area unit, include afforestation and reforestation.

Specific requirements must be adhered to when attempting to implement a climate change project. The chart depicts the project cycle, which can be roughly separated into six working phases. The terms used and the working phases are described in simplified form below. Specifics of the CDM and JI mechanisms are explained here.

The Project Idea

One of the first things to consider is the project idea. This involves giving thought to potential project activities and project partners.

Project Design Document (PDD)

The PDD has both a prescribed format and mandatory content and provides the basis on which project approval decisions are made.

Its main component, apart from a detailed description of the project activity, is an outline of a reference scenario. The scenario has two parts:

It describes the investment that would be made and/or the business approach that would be taken in the absence of the project. This is often termed as the reference scenario. When identifying the reference scenario, available technologies, state incentive programmes and statutory requirements must be taken into account.

The emissions are estimated that would result if the reference scenario occurred. The estimate is known as the baseline. The baseline is then compared with a forecast of the emissions that would occur if the project activity were implemented. This allows calculation of the emission reductions expected from the project.

A key prerequisite in the approval of a climate change project is the criterion of additionality. This requires that climate change projects only be approved if they would not have come to fruition without the incentives provided by the CDM and JI mechanisms.

Other important terms used include project boundary and leakage. The project boundary is determined by the project developer. It must be stated in the PDD and take in all emissions from sources which are controlled by the project participants, are significant and result directly from the project activity. Leakage describes the increase in greenhouse gas emissions outside the project boundary that can be attributed to the project activity. For example, afforestation projects on former agricultural land could force farmers to use other areas of land and clear existing forest or woodlands. This leakage must be included when calculating the emission reductions achieved or the amount of carbon captured and stored.

A further element of the PDD is the development of a suitable monitoring plan. Monitoring constitutes seamless, verifiable documentation of how the project activity is implemented and of the associated GHG emissions. The data forms the basis for subsequent verification of the emission reductions achieved.

Assessment/Approval of Climate Change Projects

The PDD is assessed by either a Designated Operational Entity (CDM) or an Accredited Independent Entity (JI) (see Project Cycle). Where objections and deficiencies occur, improvements must be made or a new PDD produced. In some cases, project descriptions must be made available to the general public in order to allow people, especially those affected by the project activity, the opportunity to comment on the contents of the PDD. Also, the project must be approved by both the host country and the participating investor countries. National approval is usually based on the assessment by the respective  DOE/AIE. If the assessment is successful and no objections are raised, the project is officially accredited as a CDM/JI project.

Project Implementation and Monitoring

Project implementation must be documented according to the monitoring plan set out in the PDD. Seamless reporting, particularly of the associated emissions, provides the basis for subsequent verification of the emission reductions achieved and for the issuance of CDM/JI-generated CERs and ERUs.

Verification of the Achieved Emission Reductions / Issuance of Emission Reduction Certificates

The emission reductions achieved with the project are verified by the DOE/AIE, who compares them with the baseline contained in the PDD. Depending on the mechanism involved, the assessment is subject to different rules and regulations (see the CDM and JI Project Cycle).

More Information

CDM/JI and Emissions Trading